Already a subscriber?Every now and then, a company comes along that is so dominant and is growing so quickly that it feels like the only stock anyone cares about. I’m referring, of course, to Nvidia, the chip giant powering artificial intelligence., making it one of the three most valuable businesses in the world alongside heavyweights Microsoft and Apple.
At that rate, Nvidia’s operating earnings per share should climb to $US80 in four years from $US19 today, resulting in a long-term price/earnings ratio, let’s call it, of 18. Sorting S&P 500 companies from high to low on that measure, Nvidia’s long-term P/E ratio ranks 116 and is nearly identical to that of Microsoft and Apple. In other words, after accounting for Nvidia’s higher expected growth, it’s no more expensive than the other tech titans.
It turns out that the variability of Nvidia’s long-term growth estimates is three times that of Microsoft and four times that of Apple. So, while all three have similar long-term P/E ratios, those of Microsoft and Apple are underpinned by more modest but also more stable forecasts, whereas Nvidia’s is based on rosier projections that are harder to pin down., particularly when the outlook is hazy, as it appears to be with Nvidia.
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Source: FinancialReview - 🏆 2. / 90 Read more »