On a generally down day, the three major American indices down 1% or more, Nvidia is up a bit, +$1.20 (+0.63% ) at $191.02.
Two from Yahoo Finance. First up, January 20:
The semiconductor sector is bracing for a game of musical chairs, and the best seat might be the most obvious, says Bank of America's Vivek Arya.
"Our preferred compute names NVDA, AVGO, AMD and CRDO are projected to grow sales on average at a 42%," Arya wrote in a recent note to clients.
Despite their massive reach, Arya argues that these cloud chip giants are trading at a "notably compelling valuation backdrop" of just 0.5x their price-to-earnings growth (PEG) ratio. For an industry often accused of being in a valuation bubble, the math suggests that the biggest names in the AI revolution are actually trading at a steep discount relative to their growth.
The call comes as the semiconductor industry enters a critical earnings week, with heavyweights like ASML (ASML), Lam Research (LRCX), and Texas Instruments (TXN) set to report. All the while, investors are keeping a close eye on the macro environment as a Federal Reserve rate decision looms.
While the Philadelphia Semiconductor Index (SOX) is already up roughly 11% year to date — handily beating the S&P 500 (^GSPC) — BofA warns that the easy money in equipment makers may have been made. The bank is now signaling a "reshuffling" away from expensive tool-makers and back into compute engines such as Nvidia (NVDA).
Arya's skepticism toward the current market leaders lies in the math. For many semicap stocks — the companies that make the machines that manufacture the chips — to justify their current price tags, they need to see massive earnings upgrades. Without a significant re-rating of consensus earnings growth into the 20% range, these stocks may have peaked for the cycle.
Currently, majors like Applied Materials (AMAT) and Lam Research are trading at more than 2.1x their PEG ratio. Under BofA's valuation metrics, that "makes them vulnerable to near-term profit-taking." Within that specific group, only KLA Corp (KLAC) stands out as a reasonable bet at 1.8x PEG.
The real opportunity, according to the bank, has shifted to the "dependable customers" of these tools: the AI chip designers. Nvidia and its peers are currently trading below their historical multiples despite a projected 49% earnings growth rate through 2027. This divergence creates a rare scenario where the chip designers are essentially a better value play than the companies that build their infrastructure.
At the same time, investors looking to bottom-fish in the analog chip space should proceed with caution. While Texas Instruments is expected to put up solid numbers this week, Arya cautions investors not to "confuse seasonality for a new upcycle."
With industrial activity still in contraction and auto production muted, the bank suggests the analog recovery is more of a mirage than a move. Instead, the focus should remain on the "mission-critical" spending of big tech hyperscalers....
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And today, February 23:
When you see the stock of the company at the epicenter of the AI boom trading at super-low valuations, it's cause to sit up in your seat.
That's where I am on Nvidia (NVDA) ahead of its much-anticipated earnings report on Wednesday. Call it a state of pre-earnings shock.
At less than 24 times estimated forward earnings, Nvidia is trading not far from its lowest price-to-earnings (P/E) multiple in five years. It's also well below its five-year average of roughly 38 times.
And as they say in showbiz: But wait, there's more (see charts below).
Nvidia's P/E ratio remains near the low end of its peers in Big Tech:
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Here's the last year of price action via FinViz:
In November 2015 we were touting it as:
"NVIDIA: “Expensive and Worth It,” Says MKM Partners" (NVDA)
The reason we put prices in our posts, it makes it easier to follow up:
...Nvidia’s share price soared $3.91, or 14.16% to $31.63 in late morning market action.
Divide by 40 for the 40:1 stock splits and you get 79 cents to $191, a good run.
Or conversely, that $31.63 is $7640.00 and now it's a relative value play.
