The performance of Nvidia's stock has caught the attention of global investors. Since 2024, Nvidia's stock price has risen by over 87%, while in 2023 it has more than doubled.
After the company's stock price repeatedly hit new highs and its market value gradually approached Apple, Nvidia's stock price has begun to decline in recent days. Last Friday, it even fell by 5.5%, marking the largest decline since May 31, 2023. The daily market value has shrunk by about $130 billion, making it one of the largest single day market value evaporation records in US stock history. On March 11th, before the US stock market opened, Nvidia seemed to continue its decline, with a drop of over 2%.
Although the volatility of Nvidia's stock in recent days may be temporary, observant people have noticed another detail: the higher Nvidia's stock rises, the cheaper it becomes - its price to earnings ratio has been declining.
Unlike Nvidia, which sounds very scary with a market value of over $2 trillion, according to calculations, Nvidia's rolling price to earnings ratio (TTM, rolling price to earnings ratio=current total market value ÷ total net profit of the previous four quarters) is only about 72%. It should be noted that after the release of ChatGPT, Nvidia's TTM was once as high as 244%.
In addition, Nvidia's valuation is still lower than its peers, with a dynamic P/E ratio based on earnings per share (PE, P/E ratio=current total market value ÷ estimated total net profit for the year) of about 32 times, which is about 9% lower than the average level of the past three years. Its competitor AMD is 45 times, Amazon and Microsoft are both valued higher than Nvidia, and the Nasdaq 100 index has a P/E ratio of 25 times. Even considering the significant surge since the beginning of the year, Nvidia remains one of the lowest valued AI stocks. Before the emergence of ChatGPT,
"Every time Nvidia releases its results, the P/E ratio decreases because the denominator is much larger than people expected," analysts point out.
However, analysis suggests that from a valuation perspective, Nvidia's stock price is likely to have not peaked. According to the previous report of Morgan Stanley, Cisco, a representative company during the Internet foam in 2000, its revenue growth rate at that time reached 59%, while its prospective P/E ratio was as high as 138 times. In contrast, Nvidia's current P/E ratio is only 32 times, but its revenue growth rate has reached 90%. Moreover, Nvidia's free cash flow is also growing exponentially. Therefore, the analysis suggests that it is reasonable to continue anticipating Nvidia's sustainable growth.
The optimistic mood mainly comes from Nvidia's significant technological advantages. This broad "moat" can be attributed to its intangible assets surrounding GPUs and the construction of proprietary software, such as the Cuda platform for AI tools.
Of course, concerns also coexist. The most controversial issue among them is whether Nvidia's high demand can continue as always. At present, Nvidia's purchasing base is concentrated in large technology companies. As competitors such as AMD and Intel intensify their pursuit, when Microsoft shifts its spending to other chip manufacturers or focuses on manufacturing its own AI chips, it no longer needs Nvidia.
It is not yet known whether Yingwei can once again perform the "self rescue drama" when he reaches it.
Article | Reporter Leng Shuang