Nvidia's growth rate easily justifies its high multiple, says Alec Young

So I’m looking at NVIDIA trading about 37 times forward earnings. The S&P just for context, trading at about 20 times forward earnings. Is it too highly valued? Hi, Frank, great to be with. Well, just to correct your math a little bit because the details kind of matter to answer your question, NVIDIA is in its fiscal 25 year now and the streets looking for about $26 in earnings next year, calendar year 25 is their fiscal 26 and the streets at about 31 * 31 dollars. So the PE on 2025, the forward number is actually 31, not 37. And we think given the growth that they’ve been putting up, you know they’ve been growing about 80% a year. Obviously for a $2 trillion company, 80% growth is hard to keep up year after year. So that’s expected to slow to 20% and then the high teens after. But that type of growth easily justifies A30 type multiple for a blue chip stock. Microsoft for example has that sort of mid teens growth and trades at 30 times and people don’t seem to be as worried about valuation. So I I think the the valuation it’s not cheap but it’s certainly not in Nosebleed territory and the markets anticipating that while NVIDIA is going to remain a very dominant company, their growth rate is going to slow just from the rule of large numbers over time. OK, Alec, by the way corrections not punishment, we appreciate the insight, they are data teams hitting the calculator right now, but our system does show it at 37 times forward earnings, but we have always appreciate some more insight. So I want to play the other side of this is it possibly undervalue. We just saw the reports from some of those MAG seven companies. We look at a Microsoft the way it’s increased its CapEx and guiding for even more CapEx spending also a meta and an Amazon. We don’t even know where this CapEx spending could possibly hit a ceiling. Is it possibly undervalued with the kind of money that so many of these companies are willing to spend to upgrade and get AI capabilities? It’s so easy to say that it’s not undervalued. But then every time NVIDIA reports earnings, it turns out to be hugely undervalued and the stock surges, because they’ve been making so much more money than Wall Street expected. We think they’re probably running out of room in terms of crushing the numbers to the extent that they have over the last few quarters. So I wouldn’t call it, you know, wildly undervalued. I think it’s undervalued. If you’re a patient investor, you’re looking at a year, 2 years, I think you could make a very healthy returns, you can beat the S&P. So from that perspective, it’s undervalued. But relative to the explosive move that we’ve seen in the last year or two where the stock is up like four or five times, I don’t think people should expect that kind of upside, you know, over the next couple of years. OK. Talk to me about where Nvidia’s position, I mean, I think every company including the hyperscales themselves, they want to make the chips that go into these data centers to power AI. How big is Nvidia’s mode right now? How much longer do you see it lasting? Are there any rising competitors? For example, is an AMD, is it a rising competitor? Sure. Well, I think what they with NVIDIA, certainly the mode is still pretty wide. That’s what’s been so amazing. With this huge opportunity growing so quickly, they’re still garnering, you know over 80% of these data center GPU chip sales. The biggest challenge they have is that everyone wants the latest and greatest NVIDIA chip. So the N 100, it’s not going to be coming out until next year. They’ve talked about Blackwell. So it’s really about them being able to make the chips as fast as people want them in terms of innovating quickly enough and then supply chain issues. So it’s really the demand is extremely strong for NVIDIA, all the issues around how much they can monetize that and how much revenue they can squeeze out of that or around how quickly they can meet that demand, especially around potential supply chain snags. In terms of competitors, I mean we just got guidance on data center from AMD when they reported earnings about a week ago. They’re guiding to like something like four or five billion dollars for next year. To put that in perspective, you know, NVIDIA is doing, you know, 80 billion. So AMD is a great company. They play in a lot of other places besides the data center like the PCs for example, where you don’t see NVIDIA having nearly as big of a a footprint. So it’s a broader based company, but in the data center GPU market, there’s still a very distant competitor to NVIDIA.