Even with its 220% rally so far this year, Nvidia Corp.’s stock is now the top large-capitalization pick for Piper Sandler analyst Harsh Kumar, who covers various chip and hardware stocks.
have supplanted shares of Advanced Micro Devices Inc.
as Kumar’s favorite play in the industry, which he owes in part to Nvidia’s “substantially more compelling” valuation. Nvidia shares trade at under 25 times estimated earnings for the next 12 months, while AMD shares trade at almost 33 times.
Shares of Nvidia also trade at a discount to their five-year average price-to-earnings multiple for the next 12 months, he noted.
Kumar also likes the company’s positioning in the industry. “The tight integration of hardware, networking, infrastructure software and AI foundries allows for strong efficiencies and significant competitive advantages,” he wrote in a note to clients Monday. “Given the dominance of NVDA in its core hardware competencies there is no better company to manage the infrastructure software layer.”
He’s upbeat about Nvidia’s ability to turn software licenses into a nice chunk of total revenue, increasing the company’s total addressable market in the process.
“Given the speed at which [generative artificial intelligence] is being adopted – no other company has the software stack to compete here at this juncture,” Kumar added.
He remains upbeat about trends heading into fiscal 2025, which begins early next calendar year.
“While we feel that [fiscal 2025] is not fully booked, we believe NVDA has good visibility into [fiscal 2025] through strong backlog coupled with demand tailwinds,” Kumar wrote. He added that “any China revenues” during the beginning part of fiscal 2025 will be incremental to the company.
Kumar rates Nvidia’s stock at overweight with a $620 target price. But despite his vote of confidence, Nvidia shares were off about 1% in premarket trading Monday.