Is It Too Late to Invest in NVIDIA (NVDA)?

NVIDIA (NVDA) has been one of the top-performing stocks in the semiconductor industry, with its stock value nearly tripling over the past year. Investors who bought NVDA shares early on have undoubtedly reaped substantial rewards. However, the question remains: is it too late to invest in NVIDIA, or is there still potential for future growth?

The TL;DR (Too Long; Didn’t Read)

• NVIDIA’s forward P/E ratio of 49.03 is much higher than the industry average of 29.10, suggesting that the stock may be overvalued.
• AMD’s forward P/E ratio of 151.73 is extremely high compared to the industry average, indicating that the market may have unrealistic expectations for the company’s future growth.
• Taiwan Semiconductor Manufacturing Company (TSM) stands out as a strong performer with valuation ratios closer to the industry average, suggesting a more fairly priced stock.

but first we’ll take a look at semiconductor Mega-Cap.

I would like to apologize in advance to readers on smaller screens. The upcoming table may not be as responsive as I would have liked it to be. This is because the pro package for the tables on this blog platform costs around $79 per year and I use the free version. Since this blog is currently a hobby for me and I don’t generate any income from it, I have chosen not to invest in the pro package at this time. However, if this project performs well and gains traction, I do plan to upgrade to the pro package to provide a better user experience for all readers.

Before we start we need to go into the blog’s point system and understand what it means, so you can later check the table and understand the table’s content and what it means.

In short the table represents a quantitative analysis over the semiconductor industry board where we relate data to each other and compare. Financial metrics which are used to evaluate a company’s performance, divided into five main categories: profitability, liquidity, growth, valuation, and financial health.without further adieu let’s review the giants of semiconductor industry.

Strong Performers: NVIDIA Corporation (NVDA) and Taiwan Semiconductor Manufacturing Company Limited (TSM) stand out with excellent ratings in most profitability and liquidity metrics. However, it is important to note that NVDA’s valuation ratios are significantly higher than the industry average, which may indicate that the stock is overvalued. TSM, on the other hand, has valuation ratios closer to the industry average, suggesting a more fairly priced stock.

Broadcom Inc. (AVGO) and QUALCOMM Incorporated (QCOM) also perform well, with excellent profitability and liquidity. Despite their mixed growth ratings, both companies have debt-to-equity ratios that are better than the industry average. However, their PE and EV/EBITDA ratios are higher than the industry average, indicating potential overvaluation.

Potential Risks: Advanced Micro Devices, Inc. (AMD) raises concerns with its poor profitability and mixed liquidity ratings. Although AMD has excellent EPS growth, its other growth metrics are poor. Moreover, AMD’s extremely high PE and EV/EBITDA ratios compared to the industry average suggest that the company may be significantly overvalued, making it a potentially risky investment.

Blogs commentary on Nvidia

lets review Nvidia future growth.

Calculating Current EPS: To calculate NVIDIA’s current EPS, we divide the net income by the weighted average shares outstanding. Based on the provided data, NVIDIA’s net income is $42,597,000,000, and the shares outstanding is 2,459,830,000.

Current EPS = Net Income / Weighted Average Shares Outstanding Current EPS = $42,597,000,000 / 2,459,830,000 Current EPS = $17.32

Estimating EPS for the Next Year: According to the data, NVIDIA’s forecasted EPS growth for the next year is 29.11307%. We can use this infoBlogrmation to estimate the EPS for the next year.

EPS Next Year = Current EPS × (1 + Forecasted EPS Growth for the Next Year) EPS Next Year = $17.32 × (1 + 0.2911307) EPS Next Year = $22.36

Calculating Forward P/E Ratio: Using NVIDIA’s last price of $1096.33 and the estimated EPS for the next year, we can calculate the forward P/E ratio.

Forward P/E = Last Price / Estimated EPS for the Next Year Forward P/E = $1096.33 / $22.36 Forward P/E = 49.03

remeber this calculations is based upon broad assumptions that the price remains the same or roughly at the same level as of today when this was written.

Nvidia’s financial performance has been impressive, with a strong current EPS and analysts predicting continued growth, hats off, wow. However, a key challenge emerges: sustaining their exceptional profit margins.Maintaining such high margins requires strategic maneuvers. Optimizing production processes and negotiating favorable supplier contracts can squeeze more profit from each sale.
The high forward P/E ratio suggests Nvidia’s stock price might already reflect a lot of its future growth potential. This creates a risk of overvaluation. If future earnings growth falls short of expectations, the stock price could plummet.

What about AMD then?

Having analyzed Nvidia’s future prospects, let’s now turn our attention to its main competitor, Advanced Micro Devices (AMD)

Calculating Current EPS: To calculate AMD’s current EPS, we divide the net income by the weighted average shares outstanding. Based on the provided data, AMD’s net income is $1,116,000,000, and the shares outstanding is 1,616,310,000.

Current EPS = Net Income / Weighted Average Shares Outstanding Current EPS = $1,116,000,000 / 1,616,310,000 Current EPS = $0.69

Estimating EPS for the Next Year: According to the data, AMD’s forecasted EPS growth for the next year is 59.80134%. We can use this information to estimate the EPS for the next year.

EPS Next Year = Current EPS × (1 + Forecasted EPS Growth for the Next Year) EPS Next Year = $0.69 × (1 + 0.5980134) EPS Next Year = $1.10

Calculating Forward P/E Ratio: Using AMD’s last price of $166.90 and the estimated EPS for the next year, we can calculate the forward P/E ratio.

Forward P/E = Last Price / Estimated EPS for the Next Year Forward P/E = $166.90 / $1.10 Forward P/E = 151.73

Overvaluation Concerns: AMD’s forward P/E ratio of 151.73 is significantly higher than the industry average of 29.10 for the semiconductor sector. This suggests that the company’s stock may be heavily overvalued, even when considering its expected earnings growth for the next year.

one should bear in mind this is also based upon broad assumption that industry p/e remains within the same value as of today.

Move forward with caution!

If Nvidia or AMD fail to meet or exceed these growth projections, there is a real risk of a significant correction or pullback in their share prices. After all, if the actual earnings growth falls short of what the market has already priced in, the stock prices may need to adjust downward to reflect the reality of the situation.
So how would the blog handle this?

Avoid AMD like the plague at current value.

And as per usual this is the blogs own subjective analysis upon the presented data.

Readers should keep in mind that this analysis is based on historical financial data and should not be considered as investment advice. It is essential for readers to conduct their own thorough research and consult with financial professionals before making any investment decisions. The information provided in this article is for educational and informational purposes only and should not be relied upon as a sole basis for investment choices.

What do you think about the Semiconductors industry giants? Do you still see them as fair value? Share your insights, experiences, and strategies in the comments below.