Nvidia’s (NVDA) stock rally on Thursday was incredible: Not only was it one of the biggest market value gains ever, but after rising 25%, the chipmaker’s stock was actually lower. expensive than the day before. Consider: On Wednesday, Club holding Nvidia’s P/E ratio was 66.1 based on 2024 estimates and 49.1 based on 2025 projections. On Friday, the forward P/E for this year was 52.9 and only 39.4 for next year. Sounds a little? Here’s how it goes. As you can see in the chart below, the metrics on which Nvidia is valued – in this case, forward earnings estimates – have been revised in percentage by a magnitude significantly greater than the percentage gain in the price of the company. ‘stock. As a result, the valuation, which is simply the price divided by the forward estimates, has dropped significantly. When we say Nvidia has historically proven to be cheaper than it looks, that’s what we mean: analysts consistently underestimate the company’s true earnings potential and then catch up to their estimates. (Note: this only occurs on forward P/Es, as actual past results are obviously not revised on new indications.) To better understand the importance of considering a stock movement versus price revisions estimate, let’s compare Nvidia’s move this week. to that of the former club holding Marvell Technology (MRVL), a major company that we returned to our bullpen shortly after exiting it in 2022. Marvell shares soared 28% on Friday after the semi -drivers announced a beaten earnings Thursday after the bell. Management has also raised its forward guidance. However, this significant gain exceeds the magnitude of analysts’ earnings revisions. For this reason, the valuation of MRVL shares is actually higher on Friday than it was on Thursday, indicating a less favorable risk-reward ratio. Neither example is intended as a recommendation to buy or sell stocks; we currently maintain a 2 rating on NVDA shares, meaning we would wait for a pullback to buy more. This is just to illustrate the importance of considering valuation when making investment decisions. As the Oracle of Omaha Warren Buffett once said, “Price is what you pay, value is what you get.” We might hit analysts for being overly conservative, which is why we’ve long held Nvidia despite what sometimes seem like exorbitant valuations. But the update we received from Nvidia management this week shows that Nvidia is actually better value on Friday than it was a week ago. You could say it was even better value at $300 since the estimates were off, but that’s hindsight bias because you had no way of knowing Nvidia was going to lead as strongly as it did. Analysts are paid dearly to come up with these estimates and aren’t always correct, but the strength of demand for Nvidia’s AI products has caught even top Wall Street analysts off guard. As Wedbush Securities analyst Matt Bryson said in a note to clients this week: “At first glance, I don’t recall a semiconductor/hardware company as large as NVDA (multi-billion dollar sales ) has ever surprised with such a large guide. Higher than expected in my 20 years of tech stock coverage,” adding that “the scale of the pace on the guide almost renders what would have been an otherwise impressive pace. on the pedestrian quarter: “We agree. (Jim Cramer’s Charitable Trust is long NVDA. See here for a full list of stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you will receive a trade alert before Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY DUTY EXISTS, OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Jen-Hsun Huang, CEO of Nvidia, at the Consumer Electronics Show (CES) in Las Vegas, the United States on Jan. 04, 2017. Huang announced that his company would collaborate with German automaker Audi in the future.
Andrej Sokolov | Image Alliance | Getty Images
The rise in Nvidia (NVDA) Thursday was incredible: Not only was it one of the biggest market value gains ever, but after rising 25%, the chipmaker’s stock was actually cheaper than the day before.
Consider: On Wednesday, Club holding Nvidia’s P/E ratio was 66.1 based on 2024 estimates and 49.1 based on 2025 projections. On Friday, the forward P/E for this year was 52.9 and only 39.4 for next year.