Nvidia looks cheap to some as it stops rising 220%

Nvidia bulls have begun tossing out a rarely used adjective for a stock that has more than tripled 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 the $100 range since the summer, zig-zagging after rising to nearly $500 in August. But with earnings estimates continuing to rise, Nvidia’s price relative to expected earnings fell to the lowest level since mid-2022.

“The stock is actually very cheap,” Young said, adding that the price-to-earnings ratio is lower than the company’s estimated growth rate, which is uncommon.

Michael Sansottera, chief investment officer at Silvant Capital Management, also places Nvidia’s valuation in the cheap group.

“It’s growing faster than the vast majority of other companies,” he said. “It’s relatively inexpensive.”

Of course, Nvidia’s valuation depends on profits yet to be realized in an industry that even the bulls acknowledge is highly cyclical. On a trailing basis, Nvidia is priced at about 35 times sales, making it the most expensive S&P 500 stock ever. Cadence Design comes in second at half the cost, and the standard average is 2.4 times.

That’s too expensive in the eyes of many investors including Cathie Wood of Ark Investment Management, who said in September that Nvidia is an expensive and obvious way to play an AI trade. ETFs managed by Wood have sold Nvidia shares in recent months. Robert Arnott, founder of Research Affiliates LLC, sees Nvidia as a potential bubble that is “priced beyond perfection.”

The story continues

Nvidia reports earnings in November The announcement is scheduled for November 21, and investors will pay close attention to what the company has to say about China, as the United States has tightened restrictions on sales of advanced semiconductors. Nvidia shares rose on Thursday after a report from a Chinese state media outlet 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 outlook appears to remain strong. But he said any signs of a slowdown would cause problems for the stock.

“This is really rapid growth going forward, and this is where you need to maintain what looks like a bargain valuation,” Klink said.

Technical chart for today

The earnings outlook of big tech companies is another reason they outperform smaller companies. The group, along with consumer estimates, are among the biggest winners so far this earnings season, according to data compiled by Bloomberg. Analysts’ estimates of the tech-heavy Nasdaq 100’s 12-month earnings compared to the small-cap Russell 2000 hit a record high.

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• The Walt Disney Co. has overhauled its movie release schedule for the second time in two weeks, announcing delays to several pictures after settling an industry-wide contract dispute with striking actors.

• Taiwan Semiconductor Manufacturing Co. Samsung reported its first monthly increase in sales since February, confirming expectations that the global chip market is on the verge of a gradual recovery from its Covid-era lows.

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Earnings on Friday

– With assistance from Subrat Patnaik and Sagarika Jaisinghani.

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