[휴스턴=뉴스핌] Correspondent Go In-won = On the 22nd (local time), Nvidia’s stock price is rallying again to hit an all-time high during the New York Stock Exchange, but an analysis suggests that the current stock price is not in a bubble due to the increased net profit.
Bloomberg and Reuters reported that NVIDIA’s price-to-earnings ratio (PER) is falling despite the stock price rising as analysts’ performance estimates have surged due to the previous day’s strong quarterly performance and guidance announcement, increasing the attractiveness of valuation.
◆ NVIDIA’s leading PER is 33 times, which is ‘low’ compared to AMD, MS, etc… Because of the steep increase in net profit
“Some investors hesitated to buy NVIDIA’s stock because they thought it was too expensive, but that was a big mistake,” said James Demmer, founder and CIO of asset management firm Main Street Research, in an interview with Bloomberg. “This decline is because earnings are much stronger than expected,” he explained.
PER is the stock price divided by net profit. It shows how many times the stock price is the net profit. The smaller the PER, the more undervalued the stock is.
Among these, the forward PER is a PER calculated based on the estimated performance of the next four quarters. If future performance is expected to improve, the forward PER decreases as the future net profit corresponding to the denominator increases.
However, although NVIDIA’s stock price is showing a tremendous rally, rising 237% last year and more than 40% this year alone, the company’s net profit is increasing at a faster rate and its valuation is actually falling. NVIDIA’s earnings per share (EPS), excluding certain items, in the fourth quarter of last year increased by a whopping 486% compared to the same period last year. This first quarter sales forecast ($24 billion) also exceeded Wall Street expectations by about 8%.
Simply looking at EPS in the fourth quarter of last year, this can be seen as a situation in which the denominator has grown more than four times, and therefore the stock price (corresponding to the numerator) must also rise correspondingly to maintain the existing PER.
Although some are concerned about the possibility of a bubble forming in AI-related stocks, some experts believe that Nvidia’s stock price based on PER is still cheap compared to its competitors.
According to Yahoo Finance, Nvidia’s forward PER as of the closing price on the 21st is around 33 times, which is lower than its competitors Advanced Micro Devices (AMD, 49 times), Microsoft (34.6 times), and Amazon (40.98 times). A year ago, Nvidia’s forward PER was about 45 times. Despite the explosive rise in stock price over the past year, the company’s PER has actually decreased. This is because performance growth is so rapid.
David Wagner, portfolio manager at Aptus Capital Advisors, argued, “Nvidia is still one of the cheapest AI stocks (based on forward P/E ratio) despite this year’s massive stock price rise.”
CEO Jensen Huang’s optimistic remarks also raised investors’ expectations regarding long-term valuation. In an earnings announcement the previous day, he said, “Accelerated computing and generative AI have reached a ‘tipping point,’” and “Demand is rapidly increasing across companies, industries, and countries around the world.”
A tipping point refers to a time when a specific phenomenon begins to occur explosively, and was interpreted as an expression of confidence that NVIDIA’s high growth rate will continue for a considerable period of time.
“The longer the growth cycle, the more attractive (Nvidia’s) valuation will look to growth investors,” said Hendy Susanto, portfolio manager of the Gabelli Fund. “I want to see whether we can continue our strong growth,” he said.
◆ Wall Street’s highest 12-month target stock price is $1,200… Current stock price expected to rise by another 60%
Of course, there are arguments that NVIDIA’s value should be reevaluated because the current explosive growth cannot continue forever.
“Normal valuations reflect the idea that this kind of growth is not sustainable,” said Alec Young, chief investment strategist at MapSignal. “At this scale, the market doesn’t expect companies to double every year.”
However, he added that considering growth expectations for the next few years and its position in the AI-related market, market expectations for NVIDIA are likely to continue for the time being.
After stronger-than-expected fourth quarter performance and first quarter guidance announcement, Wall Street analysts are also raising Nvidia’s target stock price.
The most optimistic forecast was by Rosenblatt Securities, which predicted that Nvidia’s market capitalization would reach $3 trillion over the next 12 months and set a target stock price of $1,200.
On this day, Nvidia’s stock price on the New York Stock Exchange is trading at $774.30, up about 15% from the previous day.
koinwon@newspim.com
Breaking news through Block Media Telegram (click)
Good article to read together
[뉴욕 코인시황/마감] After consolidating, it rises in the second half of the session… World Coin and other AI tokens rally, Ethereum recovers $3K
