After a tough six weeks, Nvidia Corp. is showing signs of a strong comeback. The company recently faced a significant drop in market value, but for now the situation appears to have stabilized, with the company's stock up 28% since the internal bottom.* Moreover, this recovery has boosted Nvidia's market capitalization by nearly $424 billion, making it the third most valuable company in the U.S. stock market.*
The rise in share price has not only supported the company itself, but has had a significant impact on the broader market as well. The gains contributed to an approximate 6% increase in the S&P 500 index over the same period. This encouraged investors as the index itself posted its worst one-day decline in nearly two years on 5 August.*
Renewed focus on fundamentals
According to Ivana Delevska, Founder and Chief Investment Officer at Spear Invest, the recent run-up in Nvidia's share price can be attributed to a return to the company's fundamental strengths after previous technical issues were resolved.* "While there has been positive news this earnings season, the extent of carry trade pressures has overshadowed these fundamentals. Now that there has been a softening, attention has returned to the firm's solid fundamentals, which have been a key driver of the recent upside," commented Delevska.
Despite the upbeat recovery, some investors remain cautious, especially given the broader economic uncertainty in the US and tech giants' heavy investment in artificial intelligence. Although these investments are promising, they have not yet yielded significant gains. [1]
Attractive valuations
The recent sell-off in Nvidia shares did not just represent something negative. In fact, it provided investors with an opportunity to re-enter at more attractive valuation levels. The stock is now trading at about 36 times forward earnings. In June, it was 44 times. Overall, current valuations are still attractive compared to recent highs. By comparison, the Nasdaq 100 index is trading at approximately 25 times future earnings .*
Delevska further emphasized that even in the face of strong competition, Nvidia's valuation metrics remain compelling. The value of equity relative to earnings is approaching a seven-year low, making it an attractive proposition for investors with a long-term view of upside potential. [2]
The broader semiconductor sector
Nvidia's recovery has sparked interest in other semiconductor players as well. For example, shares of Broadcom Inc. rose 5.1% on Tuesday , contributing significantly to the daily gains of the Nasdaq 100 technology index.* However, it's important to note that despite its recent gains, Nvidia is still trading down 14% from its record high on June 18, when the company briefly overtook Microsoft to become the world's most valuable company.* This presents a lucrative opportunity for investors who haven't yet bought in. [3]
Expectations ahead of earnings
As Nvidia prepares to release its next quarterly earnings report at the end of the month, investor expectations are high. The company's major clients, including tech giants such as Microsoft Corp, Amazon Inc, Alphabet Inc and Meta Platforms Inc, have indicated that they plan to continue investing heavily in AI infrastructure. This would undoubtedly have a positive impact on Nvidia. [4]
* Past performance is no guarantee of future results
[1], [2], [3], [4] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.
Nvidia's stock performance over the past five years: https://tradingeconomics.com/nvda:us
Price performance of the S&P 5OO Index over the past five years: https://tradingeconomics.com/spx:ind
Price performance of the Nasdaq 100 Index over the past five years: https://tradingeconomics.com/us100:ind
Broadcom's stock performance over the past five years: https://tradingeconomics.com/avgo:us
