Nvidia’s stock sees one advantage that only two other chip makers share
You are probably aware that Nvidia Corp. shares have soared over the past year. But you might not know that as this has happened, the stock has become much more attractive by the most commonly used price-valuation metric.
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Shares of Nvidia NVDA closed at $788.17 on Friday, up 233% from a year earlier. The shares traded for 31.3 times the consensus earnings-per-share estimate of $25.20 among analysts polled by FactSet.
Nvidia’s forward price-to-earnings ratio is high when compared with that of the S&P 500 SPX, which has risen to a weighted 20.6 from 17.7 a year ago, as the U.S. benchmark index has risen 28%. (All price changes in this article exclude dividends.)
But Nvidia’s forward P/E has declined from 52.6 a year ago, even as its share price has risen 233%. That shows how dramatic the company’s profit improvement has been — and how quickly its rolling 12-month EPS estimates have increased.
Some investors would never consider buying a stock that trades at a much higher P/E valuation than the index does. But they might be missing out.
After Nvidia reported its latest set of quarterly numbers that blew past analysts’ expectations , Wedbush analyst Dan Ives wrote in a note to clients last week that some investors had “dogmatically stuck with the forward P/E valuation approach,” causing them to miss out on “the biggest transformational tech stocks [of] the last decade including Amazon, Netflix, Meta, Apple [and] Alphabet among many others.”
The dramatic decline in Nvidia’s forward P/E not only supports Ives’s case, it makes the stock appear to be a better value than it was a year ago.
And Nvidia’s P/E movement raises two questions that can be answered with stock screens:
Screening semiconductor companies
For two stock screens, we began with the 30 companies in the PHLX Semiconductor Index SOX, which is tracked by the iShares Semiconductor exchange-traded fund SOXX. Then we added 30 more companies in the S&P Composite 1500 Index XX:SP1500 that are in the semiconductor industry, as determined by FactSet, or in the Semiconductors and Semiconductor Equipment group of the Global Industry Classification Standard. The S&P Composite 1500 is made up of the S&P 500, the S&P MidCap 400 MID and the S&P Small Cap 600 SML.
First screen: Soaring prices and declining P/E ratios
If we look at the 20 best performers in the group of 60 over the past year, only three stocks show declining (or “improved”) forward P/E ratios. Those rows of the table are bolded:
Company | Ticker | Forward P/E | Forward P/E one year ago | One-year price change |
Nvidia Corp. | NVDA | 31.3 | 52.6 | 233% |
Onto Innovation Inc. | ONTO | 36.7 | 20.9 | 123% |
Broadcom Inc. | AVGO | 26.1 | 14.1 | 122% |
Advanced Micro Devices Inc. | AMD | 44.8 | 24.1 | 121% |
Lam Research Corp. | LRCX | 27.7 | 16.6 | 91% |
Applied Materials Inc. | AMAT | 22.7 | 16.1 | 75% |
KLA Corp. | KLAC | 25.5 | 18.9 | 72% |
Intel Corp. | INTC | 28.6 | 37.2 | 68% |
Veeco Instruments Inc. | VECO | 19.2 | 17.0 | 66% |
Fabrinet | FN | 22.1 | 15.0 | 62% |
Photronics Inc. | PLAB | 12.6 | 9.5 | 58% |
Entegris Inc. | ENTG | 37.5 | 30.9 | 54% |
Marvell Technology Inc. | MRVL | 32.9 | 21.7 | 49% |
Micron Technology Inc. | MU | 29.9 | N/A | 46% |
ASML Holding NV ADR | ASML | 42.3 | 30.6 | 46% |
Monolithic Power Systems Inc. | MPWR | 53.7 | 36.6 | 46% |
Taiwan Semiconductor Manufacturing Co. ADR | TSM | 20.5 | 15.6 | 44% |
Ultra Clean Holdings Inc. | UCTT | 25.8 | 20.4 | 39% |
ASE Technology Holding Co. ADR | ASX | 15.3 | 10.1 | 36% |
FormFactor Inc. | FORM | 36.0 | 35.0 | 35% |
Source: FactSet | ||||
These are impressive one-year gains, showing how the entire stock market rebounded during 2023 from its 2022 decline — a pattern that was magnified for technology stocks.
Intel Corp.’s INTC P/E declined to 28.6 from 37.2 as its stock rose 68% year over year through Friday.
Shares of Micron Technology Inc. MU rose 46% year over year through Friday. Its forward P/E is now 29.9 — it was “N/A” a year ago because at that time, the consensus 12-month EPS estimate was negative. Micron was working through excess inventory as sales declined in 2022 and 2023 following a pandemic-period spike in 2021.
So Nvidia, Intel and Micron stand out among the crowd of 20 best-performing semiconductor companies over the past year.
Second screen: Expected EPS growth through 2025
The following screen is based on FactSet’s adjusted consensus estimates for calendar years, because some companies’ fiscal years don’t match the calendar. For example, last week Nvidia reported the fourth quarter of its fiscal 2024, which ended Jan. 28.
Going back to our full group of 60 semiconductor companies, these 20 are expected to show the highest compound annual growth rates for earnings per share from calendar 2023 through calendar 2025. Nvidia, Intel and Micron all made the list:
Company | Ticker | Two-year est. EPS CAGR | Est. 2023 EPS | Est. 2024 EPS | Est. 2025 EPS | Forward P/E | Forward P/E one year ago | One-year price change |
Micron Technology Inc. | MU | N/A | -$3.17 | $1.78 | $6.77 | 29.9 | N/A | 46% |
SiTime Corp. | SITM | 206.5% | $0.18 | $0.58 | $1.73 | 127.3 | 76.4 | -17% |
Ultra Clean Holdings Inc. | UCTT | 136.0% | $0.56 | $1.42 | $3.12 | 25.8 | 20.4 | 39% |
Ichor Holdings Ltd. | ICHR | 129.7% | $0.42 | $0.67 | $2.22 | 47.5 | 20.9 | 31% |
Ceva Inc. | CEVA | 107.7% | $0.11 | $0.31 | $0.49 | 66.0 | 47.6 | -31% |
Semtech Corp. | SMTC | 105.5% | $0.34 | $0.63 | $1.43 | 27.6 | 13.6 | -35% |
First Solar Inc. | FSLR | 64.5% | $7.65 | $13.26 | $20.70 | 9.9 | 27.6 | -14% |
Nvidia Corp. | NVDA | 54.6% | $12.14 | $23.87 | $29.02 | 31.3 | 52.6 | 233% |
Silicon Laboratories Inc. | SLAB | 51.5% | $1.63 | -$0.42 | $3.75 | 577.7 | 36.6 | -25% |
FormFactor Inc. | FORM | 49.0% | $0.73 | $1.06 | $1.61 | 36.0 | 35.0 | 35% |
Intel Corp. | INTC | 46.2% | $1.05 | $1.37 | $2.23 | 28.6 | 37.2 | 68% |
Advanced Micro Devices Inc. | AMD | 43.5% | $2.65 | $3.66 | $5.46 | 44.8 | 24.1 | 121% |
ASE Technology Holding Co. ADR | ASX | 33.0% | $0.47 | $0.61 | $0.82 | 15.3 | 10.1 | 36% |
Marvell Technology Inc. | MRVL | 32.2% | $1.56 | $1.96 | $2.73 | 32.9 | 21.7 | 49% |
Entegris Inc. | ENTG | 30.9% | $2.66 | $3.35 | $4.56 | 37.5 | 30.9 | 54% |
Amkor Technology Inc. | AMKR | 27.0% | $1.46 | $1.63 | $2.35 | 17.6 | 12.1 | 20% |
Power Integrations Inc. | POWI | 26.7% | $1.29 | $1.20 | $2.07 | 52.8 | 38.0 | -15% |
Teradyne Inc. | TER | 26.2% | $2.93 | $2.90 | $4.66 | 31.5 | 30.6 | -3% |
Onto Innovation Inc. | ONTO | 25.9% | $3.73 | $4.67 | $5.92 | 36.7 | 20.9 | 123% |
MKS Instruments Inc. | MKSI | 25.1% | $4.43 | $4.35 | $6.92 | 25.3 | 18.4 | 29% |
Source: FactSet | ||||||||
Micron Technology tops the list because it lost money during 2023. This serves as a reminder that a high expected EPS CAGR may reflect previous difficulty during the early period. The movement of a company’s P/E can shed more light on this.
Before buying any individual security, you should do your own research to form your own opinion about a company’s ability to be competitive. One way to begin that process is by clicking on the tickers for more information about each company, including ratings and price targets.
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