Nvidia (NASDAQ: NVDA) stock has risen by over 90% year-to-date, trading at about $278 per share. Now the company’s Q4 FY’23 results were mixed, with revenue declining by about 21% year-over-year to $6.05 billion. Adjusted earnings also fell by about 33% year-over-year to $0.88 per share. While the company’s gaming business saw revenues decline by about 46% year-over-year to $1.83 billion as the big surge in demand seen through Covid-19 waned, this was partly offset by higher revenue from the data center business. However, investors have been doubling down on Nvidia stock this year for a couple of reasons. Firstly, technology stocks in general have fared well, with inflation easing and the Federal Reserve moderating the pace of its interest rate hikes. The Nasdaq-100 is up by roughly 21% year-to-date. Moreover, following the success of OpenAI’s generative AI tool ChatGPT, major tech players appear to be doubling down on the artificial intelligence space. Now AI workloads are computationally very heavy and this could drive demand for areas such as accelerated computing, and this has turned investor attention back to chip stocks. Investors expect this to be a major tailwind for Nvidia, given that its chips are generally perceived to be more advanced and capable versus rivals when it comes to AI-related workloads.
So with the stock rising by close to 2x this year, is it still good value at levels of about $278 per share? We don’t think so. Nvidia currently trades at about 62x forward earnings and about 24x sales, which we believe is a relatively rich valuation. While AI related demand could grow considerably in the coming years, traditional rivals such as Intel
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