Analysts have been busy updating their discounted cash flow models and price targets for Nvidia (NVDA) after the most important AI company in the world failed to give the sort of blow-out revenue guidance Wall Street has come to expect.
Indeed, shares in NVDA, the world's second most valuable publicly traded company with a market cap in excess of $3 trillion, actually stumbled after posting Q3 results.
But then these sorts of things can happen when a stock is said to be priced for perfection.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Either way, it seemed like a good time to take a look at a few of the ways in which analysts' expectations have changed for NVDA stock in light of the company's latest guidance.
First, let's have a look at NVDA's price target. Although these targets are of limited utility, they do form the basis for declaring whether a stock is a Buy, Hold or Sell.
As of now, NVDA's average price target stands at about $170, up roughly 6% from the pre-earnings release target of about $160, according to data from S&P Global Market Intelligence.
NVDA's new average price target gives shares implied upside of about 20% over the next 12 months. The old price target – based off NVDA's previous level – gave the stock implied upside of about 13%.
It's hard to believe Nvidia has become a $3 trillion company because of its potential for 13% or 20% price upside over the next year or so. Heck, the stock nearly tripled over the past 52 weeks.
Price targets. Go figure.
Perhaps relative valuation can be more helpful.
Nvidia is cheap, relatively speaking
First, a caveat about valuation. While absolutely critical, valuation tends to play out on its own time frame. This time frame can be much longer than investors expect. Keep this in mind when looking at Nvidia, as the stock usually looks expensive and yet it keeps going up.
That said, NVDA's relative valuation does look increasingly compelling by some measures these days.
For one thing, while it's true that Nvidia changes hands at nearly 35 times analysts' average next-12-months earnings per share (EPS) estimate, this multiple represents a 20% discount to its own five-year average, according to data from LSEG Stock Reports Plus.
Perhaps more importantly, after updating their models, analysts' average long-term growth forecast now stands at more than 62%, per LSEG.
These revisions make NVDA look attractively priced once you consider how fast the stock is rising relative to its growth prospects. Indeed, by at least one metric – the price/earnings-to-growth (PEG) ratio – Nvidia stock looks very cheap on a relative valuation basis.
Here's why: since NVDA stock is trading at 35 times expected earnings and has a LTG forecast of more than 62, its forward PEG is 0.6. To put that in perspective, the S&P 500 trades at a PEG of 2.1.
By this measure, NVDA trades at a 70% discount to the broader market. That's not bad, but then Nvidia and the broader market are sort of apples and oranges.
That's why we want to look at Nvidia's PEG relative to its peers and itself. This gives us an idea of what sort of premium the market has been willing to pay for Nvidia's growth prospects in the past.
And what do we find? Bulls will be happy to know that with a PEG ratio of 0.6, Nvidia stock trades at a 70% discount to the semiconductor industry average.
Even more intriguing, however, is that NVDA stock also trades at a steep discount to its own five-year average. Indeed, per LSEG Stock Reports Plus, if Nvidia's PEG "returned to historical form," the stock would trade at $349.04.
That's not a price target, mind you, it's just some modeling. But it does give NVDA stock implied price upside of about 150% from current levels.
As for Wall Street's collective wisdom on this top-rated Dow Jones stock, of the 63 analysts issuing opinions on NVDA surveyed by S&P Global Market Intelligence, 47 call it a Strong Buy, 12 have it a Buy and four say it's a Hold.
That works out to a consensus recommendation of Strong Buy, making Nvidia one of the Street's top S&P 500 stocks to buy too.
Related Content
- If You'd Put $1,000 Into Nvidia Stock 20 Years Ago, Here's What You'd Have Today
- Nvidia Stock Is Joining the Dow. Is It Time to Buy?
- Best Blue Chip Stocks: 21 Hedge Fund Top Picks
-
A Lesson From the School of Rock About the MarketsIt's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I retired at 65 with $7.8 million and feel like I over-saved. My 40-something son is on the same path. Should I tell him to reconsider?We ask financial experts for advice.
-
A Lesson From the School of Rock (and a Financial Adviser) as the Markets Go Around and Around
It's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
To Reap the Full Benefits of Tax-Loss Harvesting, Consider This Investment Strategist's StepsTax-loss harvesting can offer more advantages for investors than tax relief. Over the long term, it can potentially help you maintain a robust portfolio and build wealth.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
Dow Adds 472 Points After September CPI: Stock Market TodayIBM and Advanced Micro Devices created tailwinds for the main indexes after scoring a major quantum-computing win.
-
October Fed Meeting: Live Updates and CommentaryThe October Fed meeting is a key economic event, with Wall Street waiting to see what Fed Chair Powell & Co. will do about interest rates.
-
The Delayed September CPI Report is Out. Here's What it Signals for the Fed.The September CPI report showed that inflation remains tame – and all but confirms another rate cut from the Fed.
