Nvidia bulls are starting to throw around an adjective rarely used for a stock that has more than tripled in value in less than a year: cheap.
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That’s the view of investors like Alec Young, chief investment strategist at Mapsignals, who have watched Nvidia shares trade in a $100 range since the summer after rising to nearly $500 in August . However, as earnings estimates continue to rise, Nvidia’s price relative to expected earnings has fallen to its lowest level since mid-2022.
“The stock is actually very cheap,” Young said, adding that its price-to-earnings ratio is below the company’s estimated growth rate, which is unusual.
Michael Sansoterra, Chief Investment Officer at Silvant Capital Management, also puts Nvidia’s valuation in the favorable group.
“It’s growing significantly faster than the vast majority of other companies,” he said. “It’s relatively cheap.”
Of course, Nvidia’s valuation is based on profits that have yet to materialize in an industry that even bulls acknowledge is highly cyclical. On a trailing basis, Nvidia is valued at about 35 times sales, making it by far the most expensive stock in the S&P 500. The second-place Cadence Design is half as expensive and the benchmark average is 2.4x.
That’s too costly in the eyes of many investors, including Ark Investment Management’s Cathie Wood, who said in September that Nvidia was an expensive and obvious way to power artificial intelligence trading. Exchange-traded funds managed by Wood’s firm have sold Nvidia shares in recent months. Robert Arnott, founder of Research Affiliates LLC, sees Nvidia as a potential bubble with prices “beyond perfect.”
The story goes on
Nvidia reports earnings on November 21 and investors will be paying close attention to what the company has to say about China, where the US has tightened restrictions on the sale of advanced semiconductors. Nvidia shares rose slightly on Thursday after a report from a state-affiliated news agency in China said the chipmaker plans to launch three new artificial intelligence chips in the country.
For David Klink, senior equity analyst at Huntington Private Bank, Nvidia’s growth prospects continue to appear robust. However, any signs of a slowdown in the stock would pose problems, he said.
“With this really rapid growth going forward, you have to maintain what appears to be a cheap valuation,” Klink said.
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– With support from Subrat Patnaik and Sagarika Jaisinghani.
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Originally posted 2023-11-10 13:06:39.