Can Nvidia Corporation’s “hammered” stock make a significant recovery?
Nvidia shares—and Broadcom Inc.’s as well—”appear appealing for investors with patience,” according to an analysis from Bernstein’s Stacy Rasgon shared late Monday. The report highlighted a discrepancy between investors’ concerns about expenditures related to artificial intelligence and the statements made by significant cloud service providers.
Although investors are showing concern, “the businesses engaging in such expenditure do not seem to be troubled,” according to Rasgon. He pointed out that Nvidia’s stock trades at what he considers a reasonable price-to-earnings ratio of 20 based on projected earnings per share over the coming year. In his opinion, this represents “valuation lows even as demand conditions persistently improve.”
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In the meantime, Broadcom seems ready to increase production of its application-specific integrated circuits in the latter part of this year, with the company’s software division also starting to contribute more significantly.
So far this year, Nvidia and Broadcom stocks have dropped approximately 20% each going into the trading day; however, they both showed gains during Tuesday’s session, with Nvidia rising around 3% and Broadcom climbing roughly 5%.
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Regarding chip stocks that aren’t usually grouped with AI leaders, Rasgon suggested considering Qualcomm Inc., which could see advantages from AI as various apps shift towards being device-centric. Despite recording only a slight increase this year, partly due to Apple Inc.—a key modem buyer—entering the modem market, Rasgon believes this indicates that the potential threat posed by Apple is largely recognized and likely factored into Qualcomm’s current valuation. As noted by Rasgon, “This suggests that the risks associated with Apple are well understood and presumably reflected in Qualcomm’s share price.”
Although investors have started showing more interest in analog stocks following several challenging years for these companies, Rasgon stated that he isn’t prepared to declare the downturn over in this sector. He expressed concern regarding the impact on the industrial market should a U.S. recession occur, adding that the automotive industry seems to be weakening, despite persistently elevated valuation levels.
Moreover, Rasgon stated that he is not ready to strongly advocate for buying shares of Advanced Micro Devices Inc. or Intel Corp., as both have received market-perform ratings from him. He does not believe there is an adequate rationale for holding AMD’s stock due to its minimal involvement in artificial intelligence. Although Intel’s share price has seen activity recently because of potential acquisition speculation, Rasgon mentioned that neither he nor his team sees sufficient cause to trade Intel based on transactional or strategic grounds.
