MW Is Nvidia's stock actually cheap? One analyst makes the case.
By Emily Bary
Nvidia shares aren't as expensive as some other Big Tech names, Melius Research argues, and estimates could be conservative
Headed into Nvidia Corp.'s earnings report, Melius Research analyst Ben Reitzes often heard that shares of the chip giant were "far too expensive."
But after Nvidia reported last week, he sees a case to be made that the stock could be "cheap," at least on a relative basis.
Nvidia shares $(NVDA)$, which closed Tuesday at a record high, trade at 28 times consensus expectations for calendar 2024 earnings per share, Reitzes said, compared with an average of 23 times for the basket of AI-related stocks that he covers, excluding Snowflake Inc.'s (SNOW).
But that price-to-earnings multiple is below those for shares of Amazon.com Inc. $(AMZN)$, Adobe Inc. $(ADBE)$ and Microsoft Corp. $(MSFT)$, he noted in a late Tuesday report, "even though Nvidia estimates may be among the most conservative."
Read:Can Nvidia keep growing this quickly? Here's what Wall Street thinks
Reitzes added that on a growth-adjusted basis, Nvidia's stock is cheaper than that of Alphabet Inc. $(GOOGL)$(GOOGL), Microsoft and Apple Inc. $(AAPL)$ when looking at multiples like enterprise value to earnings before interest, taxes, depreciation and amortization and enterprise value to sales.
"We would also point out that Nvidia is laying the groundwork with attributes that could warrant a high-20s multiple long-term, much like Apple did after its rapid growth phase to be considered much more than a hardware company," Reitzes wrote.
While he isn't necessarily surprised that Nvidia's stock hasn't run up much in the wake of earnings, given its massive 200%-plus rally so far this year, Reitzes said the stock "could resume some momentum [into the end of the calendar year] as 'digestion' occurs," while "even valuation could provide some support."
Read: Why Nvidia's AI bonanza may have only just begun
He remains upbeat about Nvidia's stock, which he rates a buy with a $730 target price, citing the potential for gross-margin upside and commentary surrounding the company's L40S graphics processing unit.
"This product should appeal to AI server makers and their customers who are driving next generation applications," he wrote. "We anticipate brisk sales of this product."
Don't miss: Nvidia to $1,100? This analyst thinks the stock can more than double
-Emily Bary
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August 30, 2023 09:41 ET (13:41 GMT)
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