Ride Nvidia’s Momentum Higher and Avoid Valuation Concerns

There’s a lot of current news to digest related to Nvidia (NASDAQ:NVDA) stock. Among the news, Nvidia will release Q3 earnings on Nov. 17. That will interest investors looking to time a purchase around that release, spiking their curiosity.

A racecar featuring Drive PX 2 technology from Nvidia (NVDA) parked.
Source: Steve Lagreca / Shutterstock.com

Further, Nvidia had a very strong October and its market capitalization has risen steadily. In fact, it recently eclipsed Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) to become the seventh-largest publicly traded company. 

Let’s begin by looking at where estimates put Nvidia’s earnings numbers in the coming weeks. 

Q3 Expectations

Based on anticipated revenue figures for Nvidia over the next few quarters I assume many investors will be attempting to find an ideal time to establish a position in NVDA stock. Based on revenue expectations listed on Yahoo! Finance, Nvidia will continue to grow between Q3 and Q4, even though it may appear otherwise. 

The company is anticipated to report $6.82 billion in revenues on Nov. 17. That’s a strong figure on a year-over-year basis: Nvidia reported $4.726 billion in Q3 a year prior. 

But the same set of prognostications suggest that the company will record approximately $6.81 billion in revenues in Q4. 

In other words, Nvidia is set to report Q3 revenue growth of 44.31% on Nov. 17. That is very impressive indeed. However, Nvidia is also predicted to report $6.81 billion in revenue in Q4. If that materializes it will represent a 0.15% contraction sequentially. 

That might sound like trouble, but it really isn’t. It actually represents year-over-year growth of 36% in Q4. 

So, investors know that Nvidia is growing and they’re interested in capitalizing on that growth. But at the same time, NVDA stock is reaching historical highs.

Strong Semiconductor Competitor

It is well-known that Nvidia is among the strongest semiconductor stocks in the world. But it should also be noted that Nvidia’s market cap gains exceed those of many peers in the sector.

According to MarketWatch, the company has gained $530 billion in market cap since the pandemic crash in March of 2020.

Interestingly, its gains outpaced many other chip makers, including Intel (NASDAQ:INTC) and Broadcom (NASDAQ:AVGO), Marketwatch reported.

Basically, Nvidia is growing by just about any measure. I think most investors now want to know if NVDA stock can continue to grow even though they remain overpriced.

IS NVDA Stock Overpriced?

At this writing, Nvidia stock trades at $306. That’s higher than average target stock price Wall Street assigned it at $236, but lower than the high of $328. 

But concerns that NVDA stock is overpriced continue to plague it. Nvidia carries a price-sales ratio above 30. That’s among the lowest 5% of peers in the semiconductor industry. And it raises concerns that the market is overheated and NVDA share prices should fall. 

I wouldn’t bet on it. Yes, valuations are getting more stretched. But Nvidia simply continues to grow and grow its revenue base. Estimates are that the firm will record $25.77 billion in revenue this year. That figure could hit as high as $32 billion next year, but average indications are in the ballpark of $29 billion. Either way, Nvidia isn’t slowing. 

In a world where meme stocks rise in price despite a lack of fundamental improvement, Nvidia is a bastion of sanity. It produces arguably the most vital components to economies and continues to grow.

I don’t see it faltering any time soon or getting punished for its high prices. It has been “overpriced” for a long time, but the truth is it probably deserves every penny of shareholder capital it receives. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2021/11/nvda-stock-ride-momentum-avoid-valuation-concerns/.

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