Tesla, Apple Flunk Peter Lynch's PEG Test - Nvidia Still Tops The Class
In a year where hype has driven many tech valuations sky-high, Peter Lynch's old-school PEG (Price/Earnings-to-Growth ratio) test still cuts through the noise. Nvidia Corp (NASDAQ:NVDA), with a reasonable price tag relative to its explosive earnings growth, has crushed its Mag 7 peers with a 60% rally in 2025.
Track NVDA’s stock rally here.
Meanwhile, Apple Inc (NASDAQ:AAPL) and Tesla Inc (NASDAQ:TSLA) are flunking the PEG exam—and investors are starting to notice.
Read Also: Nvidia’s A Startup With Apple’s Margins – AMD’s Just Priced Like One
The PEG Test: Why It Still Matters
The PEG ratio—popularized by investing legend Peter Lynch—measures a stock's P/E ratio relative to its earnings growth. A PEG below 1 typically signals a bargain: the stock is growing earnings faster than its valuation implies. That's precisely the setup Nvidia offered at the start of 2025, as highlighted in ‘From Growth To Value.’
As of the second quarter, Nvidia's PEG stood near 1.1, backed by forward earnings growth estimates of over 50%. Despite being one of the hottest AI stocks, it was still priced reasonably compared to its growth potential.
The result? A blistering 60% gain year-to-date, easily outpacing peers like Microsoft Corp (NASDAQ:MSFT) (+18%) and Amazon.com Inc (NASDAQ:AMZN) (+22%).
Apple And Tesla: PEG Red Flags
In contrast, Apple and Tesla look pricey relative to their growth. Apple's PEG ratio has crept above 3, as earnings growth slows while the stock trades near record highs. Tesla tells a similar story, with growth expectations slashed and a PEG above 2.5, offering little justification for its premium valuation.
Investors chasing growth are finding that stretched valuations come with risk. This is where metrics like the PEG ratio are helping separate hype from substance.
In a Mag 7 world dominated by mega-cap headlines, it turns out that Peter Lynch's humble PEG formula may be the smartest way to pick a winner. Just ask Nvidia shareholders.
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