By Sinéad Carew and Noel Randewich
NEW YORK/SAN FRANCISCO (Reuters) – Even after Nvidia Corp’s meteoric rally in recent days, the chip developer’s valuation has actually fallen, at least by one measure widely used by analysts and investors.
The chip developer is up more than 31% over the past three sessions, including a 3% gain on Tuesday to $401.11. At one point during the session, its market cap exceeded $1 trillion.
Nvidia is now trading at around 45 times Wall Street’s average earnings estimate for the next 12 months – a popular measure known as the forward price-to-earnings (P/E) ratio. But it had traded at a multiple of 62 on May 18, about a week before Nvidia’s quarterly update sent the market into a frenzy, according to data from Refinitiv.
As investors rushed to buy Nvidia’s shares in recent sessions, its P/E multiple fell simply because Wall Street’s earnings forecast for the company rose even faster than its share price. .
Wall Street’s consensus expectation for Nvidia’s second-quarter earnings per share rose to $2.05, with analysts raising their targets by 95% on average while raising their full-year EPS estimates by 71% at $7.75.
It came after Nvidia last Wednesday forecast current-quarter revenue more than 50% above Wall Street estimates, with CEO Jensen Huang saying the company is “significantly increasing our supply to meet growing demand” for chips. for data centers.
Analysts raised their price targets to a median of $450 from $300 at the end of last month, according to data collected by Refinitiv. But they still debated whether the company would be able to live up to the hype.
“Investors are waiting to see if this year’s current strength signals a new trajectory,” said Bernstein analyst Stacy Rasgon.
The high valuation ahead of the quarterly report reflects bets that estimates were too low, he said, adding that “we’ll see if that happens again.”
As investors are excited about Nvidia’s sudden revenue surge, they will need to watch for issues such as supply chain pressure, said Susannah Streeter, head of money and markets at Hargreaves Lansdown, who sees the potential for such increases leading to price volatility.
“Nvidia has a front seat on the AI juggernaut and the dramatic shift in growth is unlikely to be short-lived, but hyper-growth of this magnitude will also bring challenges,” Streeter said.
During Tuesday’s session, Nvidia became the first chipmaker to boast a $1 trillion valuation. It ended the session with a market cap of around $991 billion, and Nvidia remains more valuable than rivals, including Advanced Micro Devices, which has a forward P/E of around 38.
It’s also the biggest percentage gain year-to-date in the S&P 500, up nearly 175% so far in 2023 from the S&P 500’s nearly 10% gain and a nearly 119% gain for Meta Platforms, the benchmark’s second-biggest gainer.
Artificial intelligence has been a dominant theme for companies reporting quarterly results in recent weeks, with the term mentioned nearly 900 times during investor conference calls hosted by S&P 500 companies, according to analysis by Reuters. AI was mentioned 86 times on Nvidia’s conference call, beating out 52 mentions on Alphabet’s call and 35 mentions on Microsoft’s call.
(Reporting by Sinéad Carew, Noel Randewich and Markets Team reporters; Editing by David Gregorio)