|
Proprietary Data Insights Financial Pros’ Top Semiconductor Stock Searches in the Last Month
|
||||||||||||||||||||||||||||
Big Money Name Their Top 5 Semiconductor Stocks for 2024 |
Financial pros are all about two letters… A… I… No company stands to benefit from the seismic shift more than Nvidia (NVDA), the top semiconductor search by financial pros. It saw almost 3x the search volume as Advanced Micro Devices (AMD). Once a graphics card afterthought, Nvidia dominates the GPU market that powers AI’s large-language models. Year-to-date, the stock is already up 61%. Over the past year, it’s up more than 240%. Over five years, it’s up more than 1,900%. Over ten years, it’s up more than 17,000%. While shares might look pricey at all-time highs, they might be cheaper than you think. Nvidia’s Business Graphics cards, Nvidia’s main product, are key to AI models. Their unique structure allows them to run multiple processes at once, making them ideal for the trial-and-error brute force of machine learning. They’re also a staple for gamers as well. The company breaks down its business into two segments: Graphics (22% of total revenue) and Compute and Networking (78% of total revenue). However, it’s better to view the company by its end markets:
Source: Nvidia Q4 2023 Investor Relations Data centers make up a huge part of the company’s business. Yet, you have to see the revenue growth to really get a sense of the scale.
Source: Nvidia Q4 2023 Investor Relations Quite simply, Nvidia is now a global AI enabler with products that accelerate data center computing. Financials
Source: Stock Analysis Given Nvidia’s YoY revenue growth, it’s no surprise the stock has skyrocketed. This depends on spending by companies like Meta, Microsoft, etc. This may be an initial stocking of chips that then requires some lower level of maintenance purchases afterward. Yet, the speed at which the chips are developing makes that unlikely. Plus, Nvidia has virtually no debt and plenty of cash to spend where it needs. The company spent about half its cash from operations on share buybacks last year. However, that yields about 0.5% annually. Valuation
Source: Seeking Alpha Nvidia isn’t “cheap” necessarily. It trades at 66x trailing earnings and 69x trailing cash generated from operations. However, it trades at just 35x forward earnings and cash generation. That’s better than high-growth AMD. Sure, it’s not as cheap as Intel (INTC) or Taiwan Semiconductor (TSM). But neither of those put up the growth Nvidia does. Growth
Source: Seeking Alpha Speaking of growth…there are some interesting tidbits in this matrix. First, we want to note Nvidia’s growth isn’t just in revenues. The company’s EBIT and free-cash-flow expanded at ridiculously high levels over the last few years. However, AMD wasn’t that far behind in average free-cash-flow growth. But across the board, no other semiconductor company holds a candle to what Nvidia is doing. Profitability
Source: Seeking Alpha What’s really got financial pros excited is the margins. Nvidia isn’t just growing. It’s doing it profitably. It delivers the best margins in the industry in nearly every category save EBITDA, where Taiwan Semiconductor has the edge. But overall, it generates more cash and profits from its operations for every dollar of revenue. Our Opinion 10/10 Why would we give Nvidia a 10/10 after such an incredible run? First, this comes with a caveat that we expect a pullback in the near future. That said, consider the following. If Nvidia doubles its sales in 2024 and again by 2025 or 2026, it will be trading at 15x earnings and cash, which is dirt cheap. Will they double sales every year? Probably not. Do we think they can still double sales overall this year and then again within 2-3 years after? Absolutely. This is a volatile stock. But the reward is still out there. |
|
News & Insights |
Just Spilled |
|
Want to get content like this directly to your inbox? Then we urge you to sign up for our newsletter here |