Despite Nvidia’s (NASDAQ:NVDA) remarkable triple-digit surge in less than a year, some investors are now using the term “cheap” to describe the stock. Nvidia’s shares, which peaked near $500 in August, have been trading in a $100 range since the summer, prompting investors like Alec Young, chief investment strategist at Mapsignals, to view the stock as undervalued. The price-to-earnings ratio relative to the company’s estimated growth rate has fallen to its lowest point since mid-2022, making it an uncommon and attractive proposition.
Young remarked, “The stock is actually very cheap,” highlighting that the price-to-earnings ratio is less than the company’s estimated growth rate. Michael Sansoterra, chief investment officer at Silvant Capital Management, also considers Nvidia’s valuation to be inexpensive, emphasizing its faster-than-average growth compared to other companies.
Despite these positive assessments, Nvidia’s valuation is based on anticipated profits in an industry recognized for its cyclical nature. On a trailing basis, Nvidia is priced around 35 times sales, making it the most expensive stock in the S&P 500, with concerns raised by investors like Cathie Wood of Ark Investment Management, who views Nvidia as an expensive play in the artificial intelligence trade.
While critics, including Wood and Robert Arnott, founder of Research Affiliates LLC, express reservations about Nvidia potentially being overpriced or in a bubble, the stock continues to perform well. Nvidia shares were up as much as 2.1% on Friday, poised for a second consecutive weekly gain.
Investors eagerly await Nvidia’s earnings report on November 21, with particular attention on the company’s stance on the challenging Chinese market, where the U.S. has imposed restrictions on advanced semiconductor sales. Despite varying opinions on Nvidia’s valuation, its growth outlook remains a crucial factor, and any signs of a slowdown could impact the stock’s favorable position.
Tech Chart of the Day underscores the tech sector’s robust profit outlook, contributing to its outperformance relative to small caps. The tech-heavy Nasdaq 100’s 12-month profit estimates relative to the small-cap Russell 2000 are at a record high, reinforcing the sector’s strength during this earnings season.
In other tech news, Microsoft announced the restoration of access to OpenAI’s ChatGPT chatbot after a temporary disruption. Trade Desk Inc. faced a significant drop in extended trading due to a weak revenue forecast, and Walt Disney Co. adjusted its film release schedule. Additionally, Taiwan Semiconductor Manufacturing Co. reported its first monthly sales gain since February, signaling a potential recovery in the global chip market. However, Semiconductor Manufacturing International Corp. cautioned about a delayed smartphone market recovery and geopolitical tensions causing a glut in global chipmaking capacity.
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