Jim Cramer Breaks Down P/E Multiples Explaining Why NVIDIA (NVDA) Looks Cheaper Than ServiceNow

During an episode of Mad Money, Jim Cramer broke down valuation metrics to explain why NVIDIA (NVDA) is fundamentally cheaper than ServiceNow (NOW), despite having a higher nominal share price. Cramer highlighted that while NVIDIA traded at $224 and ServiceNow at $136, NVIDIA's price-to-earnings (P/E) multiple stood at 24 times current-year earnings estimates of $9.26 per share, compared to ServiceNow's richer valuation of 33.6 times on $4.07 per share in estimated earnings. Looking ahead to next year's projections, Cramer noted the valuation gap widens significantly. With NVIDIA estimated to earn more than $15 per share, its forward P/E compresses to roughly 14 times, compared to ServiceNow's 27 times forward earnings multiple. Cramer dismissed bearish arguments surrounding circular financing or peaking AI infrastructure demand, asserting that the chipmaker's low multiple presents an attractive opportunity. Institutional positioning further supports NVIDIA's strong market standing. According to Q2 hedge fund data, 285 funds held positions in NVIDIA with short interest at just 1.23% of float, whereas ServiceNow had 115 hedge fund holders and a short interest of 2.83%.