Oil and Gas Stocks Are Surging, but Nvidia Is Still Worth Double the S&P 500 Energy Sector. Are Energy Stocks Undervalued?

Core Viewpoint - The energy sector has seen a significant year-to-date increase of 24.2%, driven by rising oil prices and geopolitical tensions, while the S&P 500 has only increased by 0.5% [1] Group 1: Energy Sector Performance - Energy stocks represent only 3.5% of the S&P 500, while Nvidia alone accounts for 6.9%, indicating Nvidia's market value surpasses that of major energy companies like ExxonMobil and Chevron combined [2] - Despite the energy sector's underperformance in 2025, it remains relatively cheap compared to Nvidia, which has a price-to-earnings (P/E) ratio of 36.1 versus 22.3 for the State Street Energy Select Sector SPDR ETF [5] - Energy stocks are considered undervalued as they entered the year at lower valuations, while Nvidia's stock price has stagnated despite surging earnings [12] Group 2: Nvidia's Financial Performance - Nvidia reported a trailing-12-month profit of $120 billion, making it the second-most profitable company globally, with earnings nearly three times that of ExxonMobil and Chevron combined [6] - Nvidia's revenue has increased by 65% over the past year, and its forward P/E ratio is lower than that of ExxonMobil, Chevron, and the S&P 500, suggesting it may be a better value than leading oil majors if it meets earnings expectations [9] - Nvidia has a gross margin of 71.07%, significantly higher than that of leading oil and gas companies, indicating superior profitability [14] Group 3: Investment Strategy - Investors are advised to focus on energy companies with strong balance sheets and diversified, cost-efficient assets, such as ExxonMobil and Chevron, which can sustain operations and dividends even at lower oil prices [16] - Both ExxonMobil and Chevron have a strong history of increasing dividends, with ExxonMobil raising its payout for 43 consecutive years and Chevron for 39 years, yielding 2.7% and 3.8% respectively [17] - Energy stocks are viewed as a compelling value for passive-income investors who anticipate sustained demand for oil and gas, despite the rise of cleaner alternatives [18]