Is Nvidia Stock A Bargain Buy? FundStrat’s Tom Lee Compares Valuation With Walmart, Costco And Cisco’s Dotcom Peak
The strategist noted that Nvidia, while accounting for 8% of the S&P 500’s market capitalization weighting, contributes 7% of the S&P 500’s earnings.
Nvidia stock snapped a two-session decline on Thursday, defying the weakness seen in the broader market and the tech sector. The stock has risen by over 32% so far this year.
A strategist said late Thursday that he thinks Nvidia stock is still a bargain, as the stock traded at a price-earnings (P/E) multiple of 26 times forward earnings. In an interview with CNBC, FundStrat’s Head of Research, Tom Lee, drew parallels with 1998, which was the liftoff point for the tech bubble before the final 18-month surge.
Cisco stock, which went parabolic during the dot-com bubble, traded at 60 times the P/E multiple at that time, the strategist said, adding that its forward P/E peaked at 210 times. He also underscored the fact that Nvidia, a high-growth stock, trades at a lower valuation than some high-profile defensive consumer staples stocks, such as Walmart (WMT) and Costco (COST).
Source: Koyfin
Lee said he viewed the current stock valuations as “pretty reasonable.” The strategist noted that Nvidia, while accounting for 8% of the S&P 500’s market capitalization weighting, contributes 7% of the S&P 500’s earnings. Therefore, Nvidia is not necessarily distorting equity valuations, he said.
Lee said, “If companies are saying that AI is something where they’re actually allocating capital and many are, of course, seeing productive gains, I think it’s justified that that would be what you’d expect to be the first wave of investment in spending.”
Over time, the FundStrat Managing Partner expects these spending to deliver productivity gains and other benefits. “I’m comfortable with the idea [that] it’s a supercycle,” he said, adding that there is likely to be a broadening of the benefits and the broadening of opportunities over time.
Nvidia’s stock was down moderately in the overnight session leading up to Friday.
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