A startling set of data has emerged from the financial data platform Koyfin: based on the price-to-earnings ratio, the last time Amazon's stock was as undervalued as it is now was during the 2008 financial crisis. In fact, Amazon's valuation has fallen to a level historically lower than that of Walmart for the first time.
Considering Amazon's annual revenue growth is approximately 12% or higher, while Walmart's growth is only near 5%, the valuation gap between the two companies appears entirely illogical. Similarly unreasonable is the fact that the current forward P/E ratio for AI chip leader NVIDIA has dropped to its lowest point in seven years. Meanwhile, the valuations of Microsoft and Oracle are converging for the first time in a decade. Could this be a case of "selective AI caution syndrome"? (If so, what implications does this hold for the IPO prospects of companies like OpenAI and Anthropic?)
Admittedly, the broader market has experienced a sell-off over the past month, influenced by the conflict involving Iran. However, this does not fully explain the extent of the undervaluation seen in these specific stocks. NVIDIA closed at $165.17 on Monday, corresponding to a forward P/E ratio of just 19.9. In comparison, Apple's forward P/E ratio stands at 28.7.
When considering their respective growth rates, does this disparity seem justified? Data from S&P Global Market Intelligence indicates that NVIDIA's revenue is projected to grow by 71% through next January. In contrast, Apple's revenue is expected to increase by only 12% through September of this year. Even under the assumption that NVIDIA's growth rate will slow significantly in the coming years, its performance is still anticipated to outpace that of Apple.
It is arguable that NVIDIA has been, by far, the biggest beneficiary of the AI boom to date. Apple, conversely, has seen almost no direct benefit from this trend. Yet, investors do not appear to be factoring this distinction into their valuations.
What about other tech giants like Microsoft? After a year-to-date stock price decline of approximately 26%, the software behemoth's forward P/E ratio is 20.4. Its smaller cloud and software competitor, Oracle, has a forward P/E of 18.5. Koyfin data shows that two years ago, Microsoft's forward P/E was 34, while Oracle's was 20.
One reason for Microsoft's stock decline, according to S&P data, might be that analysts project its annual revenue growth will plateau around 16% for the next several years, similar to its recent performance. In comparison, Oracle's revenue growth is forecast to surge to 46.5% by fiscal year 2028, up from just 8.4% in the fiscal year ending May 2025.
However, Oracle's overall scale is significantly smaller than Microsoft's, which skews the growth rate comparison. Furthermore, Oracle is aggressively taking on debt to finance its expansion, representing a much higher risk profile than Microsoft. This dynamic may well be a defining characteristic of the current AI opportunity landscape.
**Other Developments**
Apple's crackdown on certain types of generative AI applications is escalating. It was reported that the iPhone maker removed the application 'Anything' from the App Store last Thursday. This action reinforces the perception that Apple is suppressing applications it views as potential threats to its core business.
In reality, Apple's precise motivations are difficult to ascertain. As reported, the company might be concerned about an influx of low-quality applications into its store. The App Store currently hosts many new AI applications of varying quality. Regardless of the reason, Apple is undoubtedly aware that regulators and politicians are watching its actions closely.
**Other Key News**
The Nasdaq exchange will modify the rules for its flagship stock index to allow newly public companies to be included more rapidly. This change is expected to benefit firms like SpaceX, which are anticipated to have massive IPOs this year.
Microsoft announced new features for its 365 Copilot software on Monday. This software integrates AI technology from OpenAI and Anthropic to automate tasks within Office and Teams products.
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