Nvidia Corp. NVDA shares showed muted reaction to its outstanding second-quarter results as investors chose to take the cautious route ahead of Federal Reserve Chair Jerome Powell's Jackson Hole speech scheduled for Friday.
Nvidia ended the session up merely 0.10% at $471.63, according to Benzinga Pro data. The stock was up by as much as 6.5% intraday before giving back most of the gains.
What Happened: Nvidia issued an upbeat guidance for the third quarter guidance, which was above the most optimistic Wall Street forecast. Consequently, analysts have all re-rated, upwardly revising their fiscal year 2024 estimates for Nvidia.
The current consensus earnings per share estimate for the year is $16.68, up from the 11.50 estimated ahead of the second-quarter print, according to data compiled by FactSet, Barron's reported.
Based on the updated estimates, the stock is price/earnings, or P/E. multiple is at 28.28, which looks dirt cheap when compared to large-cap peer Tesla, Inc. TSLA.
Tesla currently trades at a forward P/E multiple of 48.13 (based on the fiscal year 2023 consensus earnings per share estimate of $4.78, according to FactSet).
The heady valuation is despite Tesla pulling back from 21% from its pre-earnings price of $291.26.
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Why It's Important: Nvidia could be a bargain buy and no longer an overvalued stock, going by comments from sell-side analysts. They suggest that we are only in the early innings of the AI revolution.
“Very simply Nvidia’s guidance and commentary was at “drop the mic” level as investors now recognize crystal clear this AI demand story is as REAL as any tech trend we have seen in the last 30 years only comparable to the Internet in 1995 and Apple’s iPhone launch in 2007," said Wedbush analyst Daniel Ives in a note.
Despite Nvidia's more than 222% gain this year, the AI potential suggests the stock has more room to run.
On the other hand, Tesla is at a crossroads. From being a company that was dominating the electric vehicle arena, it now has had to contend with up-and-coming startups and legacy automakers looking to branch out into EVs.
To make matters worse the economy is stuck in a rut and the higher-interest rate environment has applied brakes on EV adoption.
Tesla bulls, however, would like to point out that the upcoming launch of the Cybertruck and potentially a new budget EV model, along with the full self-driving software coming to fruition as factors that can drive earnings estimates higher. This in turn could render the excessive valuation more attractive and sustainable.
Cathie Wood's Ark Invest has a $2,000 price target for Tesla by 2027, with much of the optimism premised on the yet-to-be-launched Robotaxi service.
Read Next: Cathie Wood Has New Price Target For Tesla Stock As Ark Models Nearly 1,230% Upside Over 4 Years
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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