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Should Value Investors Care About Nvidia (NVDA)?

Shares of Nvidia NVDA moved higher in early morning trading Monday as tech investors look to rebound from the sector’s tough stretch of trading last week. Despite recent volatility, Nvidia is up about 21% over the past three months, underscoring the company’s position as a tech bellwether and proving that Wall Street is still infatuated with this red-hot growth stock.

Nvidia’s momentum comes on the back of its advancements in autonomous driving, machine learning, and artificial intelligence. But the company is still a powerhouse in its core gaming market, meaning that NVDA investors are getting unique exposure to both an industry leader and a budding growth play.

The strength of Nvidia’s core business and new revenue streams has paid off in the form of rapid earnings and revenue improvement, with the graphics-chip maker notching adjusted EPS expansion of 61% and sales growth of 41% in its most recent fiscal year.

But this surge has, at times, allowed Nvidia’s valuation to skyrocket into speculative territory, leading some value investors to declare it a bubble that is doomed to burst at the first sign of trouble.

With that said, value investors should not ignore NVDA. In fact, a closer look at its valuation trend over the past year reveals a few interesting trends that might make the stock more attractive right now. Here’s how Nvidia’s Forward P/E looks compared to its peer group:

 

Our system places seven other companies into Nvidia’s peer group: Texas Instruments TXN, STMicroelectronics STM, Intel INTC, THK Co. THKLY, Sumco SUOPY, Xcerra XCRA, and Amtech Systems ASYS.

This is obviously a diverse group of stocks, with some serving as direct competitors to Nvidia in certain key businesses—and others focusing on different markets entirely. This group is not perfect for direct comparisons, but it does help show how investors value other companies in the evolving semiconductor industry.

Nvidia is clearly trading at a premium to its peer group, but that makes sense considering what the company brings to the table. The Santa Clara, California-based firm is on the cutting edge of the AI industry, and its products are also the go-to hardware for smart vehicle manufacturers.

Meanwhile, Nvidia GPUs are the top choice among serious PC gamers, which continues to be a great core business for the company. In other words, investors should expect to pay a premium for a high-tech company with a solid foundation and mountains of potential.

What’s more, Nvidia is actually trading at the lowest earnings multiple it has seen in nearly a year. Those concerned about the company’s valuation might have already written the stock off, but NVDA is really the cheapest it has been in some time.

Nvidia has also been identified as a strong option by our proven Zacks Rank system. Our model places an emphasis on earnings estimates and positive estimate revisions, and ever-improving analyst sentiment surrounding NVDA helps the stock earn our top mark.

Over the past 60 days, the Zacks Consensus Estimate for Nvidia’s full-year earnings has gained a staggering $1.55, indicating that analysts are struggling to keep up with the company’s lightning-fast growth. Thanks to this revision activity, NVDA is sporting a Zacks Rank #1 (Strong Buy).

Nvidia is certainly a pricey stock, but investors simply have to pay a premium for a company of this quality right now. NVDA is poised to outperform the market over the next one to three months, and it is on track to be a dominant tech powerhouse for years to come.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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Amtech Systems, Inc. (ASYS): Free Stock Analysis Report
 
STMicroelectronics N.V. (STM): Free Stock Analysis Report
 
Intel Corporation (INTC): Free Stock Analysis Report
 
Texas Instruments Incorporated (TXN): Free Stock Analysis Report
 
NVIDIA Corporation (NVDA): Free Stock Analysis Report
 
Xcerra Corporation (XCRA): Free Stock Analysis Report
 
SUMCO CORP ADR (SUOPY): Free Stock Analysis Report
 
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