Will Nvidia rise again?
By Paul Reid
29 August 2023
In this article, we will cover Exness opinions alongside reporting from Barron’s, a commercial partner of Exness.
This year became Nvidia’s breakout period, rising 274% from $137 (USD) to an all-time high of $512. But the recent dip to the $450-$460 range has prompted the question: are we seeing a retrace or a reversal?
Traders who missed the rally might be tempted to go long on NVDA, but that still means buying high with the hopes of selling higher. A risky approach that might not yield worthy results — at least not in the short term.
Nvidia CEO Jensen Huang says "a new computing era has begun", and Nvidia is certainly at the forefront of computing technology, at the heart of electric vehicle production and AI development, making demand projections optimistic in the long term.
Moreover, Nvidia's $25 billion stock buy-back caused ripples in the market and could suggest the company is really bullish on its future stock prices.
While media and earnings reports both support the narrative of a rise, it’s important to know that fast-rising stocks can have sudden, brief, and unexplainable reversals. Consider waiting for a stable range to form before trading NVDA. As for the anticipated rise, here’s what Barron’s had to say.
Nvidia Stock Hasn’t Been This Cheap Since January, Before It Rallied 250%
BY JACK DENTON | UPDATED AUG 28, 2023 01:00 AM EDT
If you liked the stock then, you should still like it now.
Shares in Nvidia (ticker: NVDA) have surged this year, buoying the entire stock market and lifting the S&P 500 and Nasdaq indexes as the chip maker became a key way to play the frenzy over artificial intelligence. Despite the gains, the latest earnings for the company mean that its valuation based on a critical metric has actually become more reasonable.
The forward price/earnings ratio, which measures a stock’s current price relative to earnings in the future, often in the next year, is a widely used way of tracking what a company may be worth and what people will pay for its stock. It shows Nvidia shares are now cheaper than they have been since Jan. 5, though the stock is up 250% since then.
This is the math. Nvidia’s latest results, and particularly its outlook, were so good that analysts have significantly ramped up their forecasts for the company’s future earnings, which makes its forward P/E suddenly look much more attractive. As of July 31, the consensus call among analysts surveyed by FactSet was for earnings of $7.95 a share in fiscal 2024 and $11.53 in fiscal 2025.
By Friday morning, those EPS estimates had risen to $10.60 and $16.51 for 2024 and 2025, respectively. In turn, Nvidia’s forward P/E—the price relative to earnings expected over the next 12 months—has moved lower because the denominator in that ratio is much higher.
As a result, the stock looks cheaper. Much cheaper. Nvidia was trading at a forward P/E of 33.8 on Friday, down from above 43 before its earnings and at the lowest level since Jan. 5.
Similar conclusions can be drawn from Nvidia’s trailing P/E ratio—the price relative to earnings for the past 12 months. That is a metric that bearish traders may take more seriously because it doesn’t consider what could be hyped-up consensus estimates of future earnings.
Nvidia was trading at a trailing P/E of 113.8 on Friday, down from almost 245 on Wednesday, before the earnings. It was the lowest level since March 28, when the stock closed at $269.84. The shares opened above $502 on Thursday after its earnings, representing a rally of 86%.
Valuation tools like forward or trailing P/E ratios aren’t the be-all and end-all of what stocks are worth, but they are a good starting point. And for investors trying to cut through the fog of post-earnings analysis, they offer a reminder that those who thought the stock was valued fairly in January may think the same thing now.
Trade stocks with confidence thanks to our Exness Stop Out Protection feature, which reduces the risk of stop outs caused by extreme volatility.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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