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NVIDIA Corporation (Nasdaq: NVDA) is a chipmaker that pioneered graphics processing units (GPUs) which act as accelerators for central processing units (CPUs) made by other companies (i.e. fabless) and is the leader in artificial intelligence (AI) chips, but competition is rising.This article analyzes NVIDIA’s strategic positioning within the AI sector and its financial health, as reflected by key indicators. We will examine:
- Forward Price-to-Sales Ratio (PSR),
- Forward Price-to-Earnings (PE) Ratio,
- Forward Price-to-Earnings Growth (PEG) Ratio and
- Enterprise Value-to-Earnings Before Interest Taxes, Depreciation and Amortization (EV/EBITDA) Source.
Please note that the metrics change daily as stock prices change. Stock price and valuation metrics are based on NVDA’s stock price as of the close of business on Monday, November 6, 2023.
NVIDIA: Up 213% YTD
Can NVIDIA Sustain its Growth?
So far in 2023, NVIDIA has experienced a phenomenal surge in both sales and stock market performance, attributing its success to its pivotal role in the ever-expanding AI sector BUT, according to the results of research conducted by Research Affiliates, the investment firm headed by Robert Arnott, it is rare for the largest companies to still be among the largest in a decade’s time.He and fellow researchers focused on the 10 largest-cap companies at the beginning of each decade since 1980 and found that, on average, 8 of those 10 were gone from the top-10 list by the end of that decade. Furthermore, the average 10-year performance of all 10 was significantly below that of the overall U.S. market. (Source)There are several contributing factors accounting for this result, namely:
The bottom line is that, regardless of how NVIDIA has performed YTD its long-term prospects are mediocre at best. (Source)Luke Lango points out that, while NVDA stock was the No. 1 AI stock to buy in 2023, he thinks it could turn into the No. 1 AI stock to sell going forward. He reasons that because NVIDIA has benefitted from a huge demand surge in 2023, primarily because Big Tech firms were looking to build new AI models with its GPUs, that surge will prove temporary because those same Big Tech firms that have been fueling the surge are now moving away from NVIDIA to develop their own chips. Source
According to an October 31 report by the Wall Street Journal, NVDA will likely have $5 billion in orders for its advanced chips to the Chinese market canceled due to newly implemented U.S. regulations that are part of the broader Biden administration’s strategy to limit China’s access to advanced technology, which it believes could enhance China’s military and cyberwarfare capabilities. To offset the impact of the new export controls, NVIDIA has been actively engaged in efforts to distribute its advanced AI computing systems, which utilize graphics chips impacted by the regulations, to customers within the United States and other regions. (Source)According to CNBC’s Jim Cramer, however, the latest U.S. restrictions on AI chip sales in China won’t dethrone NVIDIA as the world’s most valuable semiconductor company but, rather spells trouble for rivals Advanced Micro Devices (AMD) and Intel (INTL) as it will heat up competition in the U.S. market further. (Source)
Financials for FQ2/2024 ended July 30, 2023
(The AI chip leader plans to report its Q3 earnings on Nov. 21, 2023.)
Up 25.3 pts
Outlook for FQ3/2024
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