Nvidia Stock Is Getting Cheaper. Tesla Just Keeps Growing More Expensive.

Nvidia stock rose 2.8%, while the
S&P 500
and
Nasdaq Composite
fell 0.6% and 1%, respectively.
Tesla
stock fell 1.8%.

Shares of AI darling Nvidia probably haven’t risen more because the stock had soared more than 220% this year coming into Thursday’s session.

One consequence of the giant quarterly beat and small stock move is that Nvidia shares are far cheaper Thursday than they were Wednesday. Nvidia stock now trades for roughly 30 times estimated calendar year 2024 earnings. On Wednesday, the stock was trading for closer to 40 times earnings. Earnings per share estimates are now at about $16.68, according to FactSet, up from about $11.50 before the second-quarter report.

Tesla stock, on the other hand, is trading for about 50 times 2024 earnings per share estimates of $4.78. Tesla earnings estimates are the same Thursday as they were Wednesday. Without anything happening to Tesla, the stock now looks much more expensive.

“Pricing is relative. Investing is not,” says New York University professor Aswath Damodaran. “In pricing, which is at the heart of trading, you buy things that are cheap, relative to how other things just like it are priced. In investing, you value things based upon their capacity to generate cash flows, and you buy if the price is less than that value, but what others are paying does not enter into the equation.”

Traders and investors have to coexist in stock markets. Traders tend to have a shorter-term time horizon than investors. Both impact stock prices every day with buy and sell orders.

They coexist, but not always happily. “The problem [today] is the same degenerate gamblers who day-trade Tesla options have recently discovered Nvidia,” said
Future Fund Active ETF
(FFND) cofounder Gary Black. More trading introduces volatility and makes predicting stock reactions even harder.

Black is a growth investor and uses some relative valuation metrics to help understand the intersection of price and value. A price-to-earnings-to-growth, or PEG, ratio divides a PE ratio by an earnings growth rate. The PEG ratio for the S&P 500 is about 2. The market trades for about 18 times earnings and earnings are expected to grow at roughly 9%.

Nvidia’s PEG ratio is roughly 1.2 times and Tesla is at 1.3 times, said Black. “Too cheap,” he added, pointing out that
Apple
(AAPL) trades for about 3 times and
Microsoft
(MSFT) trades for a PEG of about 2 times.

He might be right, but for now, Nvidia’s falling valuation is weighing on the rest of the big tech stocks.
Apple
(AAPL) shares were off 1.6%.
Microsoft
(MSFT) fell 1.4%.

This is only one day of trading. “We believe this is a new age for tech stocks and disruptive tech with Nvidia and
Microsoft
leading the way,” said Wedbush analyst Dan Ives. He sees “a valuation upward movement to the broader tech sector [in] 2024.”

Ives and the Wedbush tech team rate
Apple,
Microsoft, Tesla, and Nvidia shares Buy. They see price as less than value in those four names.

Write to Al Root at [email protected]