Nvidia’s profits rise amid record-breaking rally and artificial intelligence mania. international business news
NVIDIA corp shock Income The report lifted stocks and reassured the market that artificial intelligence The frenzy is still going strong. can also make store Look cheap.
All eyes were on the chipmaker’s guidance for signs of the strength of the AI market, and Nvidia did not disappoint. Now armed with the numbers, bulls are increasingly calculating the stock’s new price-to-earnings ratio, or how much investors are paying for future growth.
“Some investors are afraid to buy because they think the stock is too expensive, but that’s a big mistake,” said James Demmert, chief investment officer at Main Street Research. “Every time this report comes out, the P/E shrinks because the E becomes much stronger than people expected.”
In other words, Nvidia’s earnings are growing faster than the stock.
Nvidia has seen its valuation decline through mid-2023, even amid the stock’s record-breaking rally, thanks to its massive earnings growth. In the fiscal fourth quarter, the chip maker reported a massive 486% year-over-year increase in earnings per share excluding certain items, with the figure of $5.16 handily beating analyst estimates of $4.60. Its forecast for first-quarter revenue of about $24 billion was also a big blow.
The data means Wall Street estimates are set to be revised higher, which is likely to drive valuations down once again if share price gains don’t continue. The stock jumped as much as 14% at market open and hit a record intraday high.
While some investors are concerned about a potential bubble forming around AI-related stocks, others said Nvidia is still less expensive than peers. The stock trades at about 32 times forward earnings, while rival Advanced Micro Devices Inc. trades at 45 times. Shares are also cheap compared to Amazon.com Inc and Microsoft Corp, while the Nasdaq 100 index trades at a multiple of 25 times.
“Despite a year-to-date rally, Nvidia remains one of the cheapest AI-oriented stocks,” said David Wagner, portfolio manager at Aptus Capital Advisors LLC.
Positive comments from Nvidia Chief Executive Officer Jensen Huang are also likely to boost sentiment regarding long-term valuations. He said AI has “reached a tipping point” with demand increasing in industries around the world.
“The longer the growth cycle, the more attractive valuations will be for growth investors,” said Hendi Susanto, portfolio manager at Gabelli Funds. “We want to see if Nvidia can continue this kind of strong growth beyond 2024, into 2025 and even 2026.”
To be sure, Nvidia’s valuation should be based on the idea that the current exponential growth may not last forever, according to Alec Young, chief investment strategist at MapSignals.
“The modest valuation reflects the fact that the market doesn’t think this kind of growth is sustainable,” he said. “Once you get that big, the market doesn’t expect you to keep growing and doubling your business every year.”
But that doesn’t mean there’s any lack of excitement about the stock and its growth path for the next few years, according to Young, especially given its place in the broader market.
“AI is a huge opportunity globally and Nvidia is the weapons trader,” he said.
All eyes were on the chipmaker’s guidance for signs of the strength of the AI market, and Nvidia did not disappoint. Now armed with the numbers, bulls are increasingly calculating the stock’s new price-to-earnings ratio, or how much investors are paying for future growth.
“Some investors are afraid to buy because they think the stock is too expensive, but that’s a big mistake,” said James Demmert, chief investment officer at Main Street Research. “Every time this report comes out, the P/E shrinks because the E becomes much stronger than people expected.”
In other words, Nvidia’s earnings are growing faster than the stock.
Nvidia has seen its valuation decline through mid-2023, even amid the stock’s record-breaking rally, thanks to its massive earnings growth. In the fiscal fourth quarter, the chip maker reported a massive 486% year-over-year increase in earnings per share excluding certain items, with the figure of $5.16 handily beating analyst estimates of $4.60. Its forecast for first-quarter revenue of about $24 billion was also a big blow.
The data means Wall Street estimates are set to be revised higher, which is likely to drive valuations down once again if share price gains don’t continue. The stock jumped as much as 14% at market open and hit a record intraday high.
While some investors are concerned about a potential bubble forming around AI-related stocks, others said Nvidia is still less expensive than peers. The stock trades at about 32 times forward earnings, while rival Advanced Micro Devices Inc. trades at 45 times. Shares are also cheap compared to Amazon.com Inc and Microsoft Corp, while the Nasdaq 100 index trades at a multiple of 25 times.
“Despite a year-to-date rally, Nvidia remains one of the cheapest AI-oriented stocks,” said David Wagner, portfolio manager at Aptus Capital Advisors LLC.
Positive comments from Nvidia Chief Executive Officer Jensen Huang are also likely to boost sentiment regarding long-term valuations. He said AI has “reached a tipping point” with demand increasing in industries around the world.
“The longer the growth cycle, the more attractive valuations will be for growth investors,” said Hendi Susanto, portfolio manager at Gabelli Funds. “We want to see if Nvidia can continue this kind of strong growth beyond 2024, into 2025 and even 2026.”
To be sure, Nvidia’s valuation should be based on the idea that the current exponential growth may not last forever, according to Alec Young, chief investment strategist at MapSignals.
“The modest valuation reflects the fact that the market doesn’t think this kind of growth is sustainable,” he said. “Once you get that big, the market doesn’t expect you to keep growing and doubling your business every year.”
But that doesn’t mean there’s any lack of excitement about the stock and its growth path for the next few years, according to Young, especially given its place in the broader market.
“AI is a huge opportunity globally and Nvidia is the weapons trader,” he said.
