Nvidia discount to chip index at historic levels, Bernstein says

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Nvidia Corp.’s valuation relative to the Philadelphia Stock Exchange Semiconductor Index has rarely been so attractive, and the multiple overall augurs well for future returns, according to Bernstein.

Relative to the chip index, Nvidia “currently trades at a ~13% discount, in the first percentile,” wrote analyst Stacy Rasgon. “Indeed, over the last 10 years there have only been thirteen days where NVDA’s stock traded cheaper relative to the SOX than it is trading now.”

The chipmaker at the heart of the AI trade has recently been valued around 25 times estimated earnings, and “for this company, 25x forward EPS would suggest the shares are trading in the 11th percentile of valuation over the last 10 years.”

Not only is this level “pretty cheap on an absolute basis,” Rasgon wrote, but “investors buying Nvidia’s shares below 25x over the last 10 years have been well rewarded, with average 1-year returns of over 150% with zero instances of a negative drawdown when held over that period.” Bernstein has an outperform rating and $275 price target on Nvidia.

Nvidia rose 3% on Friday. Over the past six months, Nvidia’s gain of about 25% trails the 35% advance in the chip index.

Bernstein’s comments come amid growing questions about the state of the AI trade, including concerns over the sustainability of heavy spending on AI computing and whether the returns will justify the investments.