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Zacks Investment Ideas feature highlights: Nvidia, Semiconductor ETF and Super Micro Computer

For Immediate Release

Chicago, IL – November 27, 2023 – Today, Zacks Investment Ideas feature highlights Nvidia NVDA, Semiconductor ETF SMH and Super Micro Computer SMCI.

NVIDIA Earnings Beat: If the Music Is Playing, You'd Better Dance

Nvidia reported earnings Tuesday after the market closed, and once again it has beat analysts’ estimates on both the top and bottom line.

Although it seems many traders believe Nvidia’s valuation has reached bubble-like territory, a closer look at the data should reveal that it is still very much based in reality. The company has more than tripled its sales in the last year and still has a major edge in the AI infrastructure space, which is likely to remain in hyper growth.

However, if the recent NVDA earnings aren’t enough to convince you to buy the stock, I will also share a relatively cheap semiconductor stock, that is also likely to benefit over the coming months and years.

Earnings

Sales of $18.12 billion in the quarter came in 12.5% above analysts' expectations and showed a 34% QoQ increase and a 206% YoY increase. Data center revenue was the major contributor at $14.5 billion and grew a whopping 279% YoY.

EPS of $4.02 per share were 18.7% above estimates and were up nearly 6x from a year ago and up 49% from the previous quarter.

The AI revolution continues, and CEO Jensen Huang noted that “Our strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative AI… NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off.”

Nvidia enjoys a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions.

Valuation

Today, Nvidia is trading at a one year forward earnings multiple of 50x, which is above the industry average of 46.7x, and below its five-year median of 55.6x. Also worth noting is that FY24 ends in February 2024, meaning FY25, or the forward multiple will shift in just a few months.

So, if we were to use FY25 earnings estimates of $16.60 per share, NVDA is actually trading at just 30x forward earnings!

Hedge Funds Still Long

Another interesting piece of information is that two of the most respectable traders on Wall Street continue to hold Nvidia stock as a major holding in their portfolios. According to the most recent 13f documents, Stanley Druckenmiller still holds NVDA as the largest equity holding in his portfolio at 13.65% of the total.

Additionally, David Tepper has Nvidia stock as the fourth largest holding at 8.8% of the total portfolio.

Semiconductor Industry

But let’s say you just can’t see yourself buying Nvidia stock, I understand. It has every eyeball in the market on it, so you think all the good news is priced in.

The good news is that the broader semiconductor industry still looks extremely compelling. The Semiconductor ETF just printed all-time highs this week, demonstrating broad strength across the sector.

One semiconductor stock that jumps out to me is Super Micro Computer, which has a Zacks Rank #3 (Hold) rating but has indeed experienced some strong earnings revisions in the last month. Current quarter earnings estimates have increased 21% over the last month and FY24 by 8.6%.

Super Micro Computer is also projecting huge sales and earnings growth in the coming year, with current quarter sales and earnings expected to climb 55% and 40% YoY respectively and FY24 sales and earnings to grow 47% and 43% YoY.

Furthermore, the company is trading at a forward earnings multiple of just 17x and has been building out a convincing technical chart pattern over the last six months. If SMCI price can breakout from the bull flag, it very likely begins another major move higher.

Final Thoughts

As I noted, many traders feel that Nvidia stock has gotten too far ahead of its skis and is untouchable, and although that is debatable, the stock and industry continue to trudge higher.

The economy is strong, interest rates are likely to fall over the next year, and semiconductors are only becoming a more critical piece of infrastructure in the modern world.

There is often a long list of reasons why investors should be cautious about the future, but markets almost always climb that wall of worry, leaving the bears behind.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Super Micro Computer, Inc. (SMCI) : Free Stock Analysis Report

VanEck Semiconductor ETF (SMH): ETF Research Reports

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