Written by Noel Randwich
(Reuters) – Rising analyst estimates since Nvidia Corp.’s strong quarterly report last week left the world’s most valuable chipmaker trading at its lowest forward multiple in eight months.
Nvidia stock added nearly 2% to $468 on Monday, putting it down about 1% since last Wednesday, when the Santa Clara, California company far beat expectations with its quarterly revenue projections as the artificial intelligence boom fueled demand for its chips.
At this price, Nvidia shares are trading at about 33 times expected earnings over the next 12 months, according to Refinitiv data. The forward P/E is compared to more than 46 a week ago, and is now at its lowest level since December 2022.
Nvidia shares have more than tripled this year amid growing demand for its best processors used to power generative AI technologies that can read and write in human-like ways.
Price/earnings ratios help investors gauge the value of companies, but relying on analysts’ estimates of future earnings creates uncertainty.
“Anytime you use something forward-looking that involves discretion in a very new market and a very uncertain economic environment, I think you have to at least treat it with a lot of skepticism,” warned Ross Mayfield, an investor. Strategic Analyst at Baird.
Benchmark Research analyst Cody Acree has a “buy” rating on Nvidia but points to the company’s reliance on Taiwanese chip foundry TSMC, which also serves Apple and other large customers, as a factor that could prevent Nvidia from selling as many of its high-end products as possible. chips as you wish.
“It’s not just about the demand, it’s about what they can actually achieve,” Acre said.
In its report last week, Nvidia, which has a market value of $1.14 trillion in shares, said it would buy back $25 billion of its shares, suggesting that CEO Jensen Huang considers them undervalued, even after its 220% gain since the start of the year. Until now.
Following its report, analysts on average expect Nvidia’s revenue for the fiscal year ending January 2024 to be $53 billion, nearly double the previous year, according to Refinitiv data. The company’s net income is expected to increase fivefold to more than $22 billion in the same fiscal year, before reaching $35 billion the following year.
(Reporting by Noel Randwich; Editing by Diane Kraft)