A slew of analyst upgrades following Nvidia's (NVDA) strong second-quarter financial results have left the microchip maker trading at its lowest forward earnings multiple in eight months.
Santa Clara, California-based Nvidia issued Q2 results that far exceeded Wall Street expectations as demand for its microchips and semiconductors used to power artificial intelligence (A.I.) applications skyrockets.
Nvidia also raised its forward guidance, saying it expects revenues to rise 170% from a year earlier in the current third quarter, again driven by demand for it’s A.I. chips.
As a result, most analysts who cover the company have raised their estimates for Nvidia’s future earnings, leading to a drop in the price-earnings (PE) multiple at which Nvidia’s stock is trading.
Nvidia’s stock is now trading at the equivalent of around 33 times expected earnings over the next 12 months, according to Refinitiv data.
The latest forward PE compares to 46 just one week ago and is at its lowest level since December 2022.
Analysts on average now expect Nvidia's revenue for the fiscal year ending in January 2024 to reach $53 billion U.S., nearly double the previous year, according to Refinitiv data.
The company's net income, or profit, is expected to quintuple to more than $22 billion U.S. in the current fiscal year before reaching $35 billion U.S. during the following fiscal year.
Nvidia's stock has more than tripled this year amid rising demand for its processors that are used to power A.I. technologies and chatbots that can read and write, mimicking humans.
Price-earnings ratios help investors determine the value of publicly traded companies.
The average publicly traded company listed on the benchmark S&P 500 index in the U.S. trades at about 15 times forward earnings.
Fast growing technology companies tend to trade at an average of 25 times future earnings estimates.
In its Q2 earnings report, Nvidia also said it would buy back $25 billion U.S. of its own shares, suggesting that the company views them as undervalued even after gaining 220% this year.
