Up-again, down-again semiconductor stock Nvidia (NASDAQ:NVDA) is…up again as of 10:45 a.m. ET this morning — up 2.4%, to be precise. And while there are a couple-few reasons Nvidia stock might be rising today, here’s my take on today’s price move:
It won’t last.
Why not? Simply put, because I don’t think the news surrounding Nvidia today is of the caliber needed to fuel a 2%-plus rise in stock price (which may not even sound like much, but remember — a 2% gain in a $700 billion stock works out to a $14 billion change in valuation. That’s more than the entire market capitalization of 90% of the stocks in our world).
Basically, there are three news items moving Nvidia’s stock price today:
Item No. 1: According to news site GurusFocus.com, two separate money managers, Lynch & Associates and Alan N. Hoffman Investment Management, added Nvidia shares to their portfolios in the quarter ending Dec. 31, 2021.
Have you ever heard of either of those? No? So let’s move on.
Item No. 2: In Glassdoor’s 13th annual Employees’ Choice Awards, Nvidia took the top spot as the company that employees most want to work for.
That’s nice. But is it worth $14 billion in market cap? I don’t think so.
Item No. 3 and final: As PC News just reported, Nvidia has introduced a 12GB GeForce 3800 graphics chip that has more memory than the 10GB chip it replaces. PC News notes that the 10GB chip “felt somewhat lacking” in heft to support the memory requirements of modern computer games “like Doom.” The magazine adds that the new version of GeForce 3800 is also “just a wee bit faster than the original.”
But again, I simply don’t think this is a $14 billion needle mover.
Now granted, even if individually these three announcements don’t equate to Nvidia stock being worth $14 billion more today than it was worth yesterday, I suppose an argument can be made that in combination, the three news items add up to $14 billion in extra market cap. Whether you agree with that argument is for you to decide.
As for my perspective, however, when I look at Nvidia stock today I see a stock valued at $700 billion, with $8.2 billion in trailing earnings but only $7.2 billion in trailing free cash flow and a predicted profits growth rate of 25% annually over the next five years (according to data from S&P Global Market Intelligence).
Even viewed in the most favorable light — valuing the stock on its GAAP earnings rather than its actual cash profits — this works out to a stock trading for a P/E ratio of 85 and a PEG ratio of 3.4. That’s expensive and, in my opinion, too expensive to make Nvidia stock a buy right now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.