Nvidia stock is inexpensive among Magnificent Seven
Many investors consider Nvidia $NVIDIA Corp(NVDA)$ expensive based on its PE ratio of 67x, which is the second highest among the Magnificent Seven.
They may prefer other Magnificent Seven stocks that have relatively lower PE ratios, such as Apple $Apple(AAPL)$ at 30x, Amazon $Amazon.com(AMZN)$ at 48x, Alphabet $Alphabet(GOOG)$ at 26x, Meta Platforms $Meta Platforms, Inc.(META)$ at 25x, and Microsoft at 36x.
However, Nvidia’s premium valuation is justified because it is providing high revenue and earnings growth that is unmatched by other Magnificent Seven stocks.
Nvidia has consistently shown triple-digit revenue year-over-year growth over the last four quarters, with an average operating income YoY growth of 1,142%. Additionally, its operating profit margin is the highest among the Magnificent Seven stocks at 64.92%, whereas the remaining stocks average a 27% operating profit margin.
For example, even though Apple's PE ratio is relatively cheap at 30x compared to Nvidia’s 67x, Nvidia provides much better growth. This is evident with its 262% YoY revenue growth, 690% operating income YoY growth, and 65% operating profit margin. In comparison, Apple has -4% YoY revenue growth, -1% operating income YoY growth, and a 31% operating profit margin.
In conclusion, Nvidia investors are willing to pay a premium valuation for its growth potential.
Modify on 2024-06-05 14:47
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- ChloeKeynes·06-05Justified growth indeedLikeReport
- EricVaughan·06-05Makes senseLikeReport