If you liked the chip maker in January, you should like it now. The stock hasn't had such a low forward price/earnings ratio since the price was a lot lower.
Shares in Nvidia 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.
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.
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.
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