Why Is Nvidia Stock So Cheap?
Summary
Parkev Tatevosian, CFA provides a financial analysis of why Nvidia's stock remains relatively cheap despite the massive AI boom. Parkev Tatevosian, CFA highlights that Nvidia's forward P/E of 17.6 is less than half of Costco’s (42) and lower than Walmart’s (35), even though those companies have much lower growth rates. Using a discounted cash flow (DCF) model, Parkev Tatevosian, CFA calculates a fair value for Nvidia at $375 per share, compared to its current market price of $225.
Parkev Tatevosian, CFA explains that the market's hesitation stems from the belief that current earnings are a "short-term boom" that will crash once major hyperscalers like Microsoft, Amazon, Alphabet, and Meta finish building their initial data centers. However, Parkev Tatevosian, CFA counters this by arguing that hardware in these centers will require regular replacement and upgrades to maintain efficiency. Furthermore, Parkev Tatevosian, CFA identifies future growth catalysts beyond large language models, including autonomous driving, robotics, and AI-driven pharmaceutical research.
Mentioned Stocks
Reasoning: Parkev Tatevosian, CFA views Nvidia as the best stock to buy due to its low forward P/E of 17.6 and a calculated fair value of $375 per share, which is well above the current market price of $225. Parkev Tatevosian, CFA believes that demand for Nvidia's chips is structurally higher than pre-2022 levels due to replacement cycles and new AI applications in automotive and healthcare sectors. Parkev Tatevosian, CFA also notes it is the top holding in their portfolio.