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The AI trade has cooled off in recent weeks, with many of the notable companies involved in the trade, including Nvidia (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) , facing adverse price action.
Below is a chart illustrating the performance of each over the last month.
Image Source: Zacks Investment Research
The recent pressure raises a valid question: Is the selling overdone? Let’s take a closer look at each.
Nvidia Maintains Bright Outlook
Nvidia is the last of the beloved Mag 7 group to report Q2 results, which are expected to hit the tape in late August. Recent quarterly results have been overwhelmingly positive, with earnings and sales continuing to melt higher amid unrelenting demand.
Nonetheless, the outlook for its current fiscal year hasn’t changed at all, with the $2.69 Zacks Consensus EPS estimate up 73% over the last year and suggesting 105% Y/Y growth. Revenue revisions also remain highly favorable.
Image Source: Zacks Investment Research
Earnings and sales revisions for the upcoming release have also remained highly positive, with the company again expected to post immense growth. Concerning Data Center expectations, the Zacks Consensus estimate presently sits at $24.6 billion, surpassing last year’s mark of $10.3 billion.
As shown below, Data Center results have regularly blown away our consensus estimates, with the most recent beat totaling a sizable $1.8 billion.
Image Source: Zacks Investment Research
While the stock has faced pressure, it certainly does not reflect the robust fundamentals beneath the hood. The stock remains at the heart of the AI trade, undoubtedly a prime selection for anybody seeking exposure.
In addition, breakneck growth has kept valuation multiples at historically sound levels, with the current 32.9X forward 12-month earnings multiple below the 50.7X five-year median and five-year highs of 106.3X.
Keep in mind that shares traded well above current valuation levels in 2020 and 2021, a time when the AI theme had yet to emerge fully. Further, the current PEG ratio works out to a historically low 0.9X, reflecting that investors aren’t overpaying for the forecasted growth.
Image Source: Zacks Investment Research
AMD Reports Record Data Center Results
Advanced Micro Devices recently released its latest quarterly results, exceeding both Zacks Consensus EPS and sales expectations.
Most importantly, the company’s AI outlook remains notably bright. CEO Lisa Su stated, ‘Our AI business continued accelerating and we are well positioned to deliver strong revenue growth in the second half of the year led by demand for Instinct, EPYC and Ryzen processors. The rapid advances in generative AI are driving demand for more compute in every market, creating significant growth opportunities as we deliver leadership AI solutions across our business.’
AMD’s Data Center sales of $2.8 billion reflected a quarterly record, climbing an astonishing 115% from the same period last year. As shown below, the company has chained together back-to-back beats on the metric, snapping a streak of negativity.
Image Source: Zacks Investment Research
Still, it’s critical to note that AMD saw negative revisions for its current fiscal year hit the tape following the release, with the now $3.35 Zacks Consensus EPS estimate suggesting 26% year-over-year growth. Expectations have been trending lower overall over the last year.
Image Source: Zacks Investment Research
Like NVDA, valuation multiples aren’t stretched, with the current 1.1X PEG ratio also reflecting a fair price for the forecasted growth.
Image Source: Zacks Investment Research
Bottom Line
While both Nvidia (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) have faced pressure over the near term, their quarterly results and demand being experienced paint a highly positive picture for long-term gains.
As shown above, these stocks' respective PEG ratios reflect a fair price, shifting the valuation question out of the picture. Simply put, the recent selling has certainly been spooky, but it does not change their current stories.
Both remain prime buys for those seeking AI exposure, but Nvidia’s more positive earnings outlook does put it above Advanced Micro Devices from a near-term perspective.
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Are AI Stocks Still a Buy? NVDA, AMD
The AI trade has cooled off in recent weeks, with many of the notable companies involved in the trade, including Nvidia (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) , facing adverse price action.
Below is a chart illustrating the performance of each over the last month.
Image Source: Zacks Investment Research
The recent pressure raises a valid question: Is the selling overdone? Let’s take a closer look at each.
Nvidia Maintains Bright Outlook
Nvidia is the last of the beloved Mag 7 group to report Q2 results, which are expected to hit the tape in late August. Recent quarterly results have been overwhelmingly positive, with earnings and sales continuing to melt higher amid unrelenting demand.
Nonetheless, the outlook for its current fiscal year hasn’t changed at all, with the $2.69 Zacks Consensus EPS estimate up 73% over the last year and suggesting 105% Y/Y growth. Revenue revisions also remain highly favorable.
Image Source: Zacks Investment Research
Earnings and sales revisions for the upcoming release have also remained highly positive, with the company again expected to post immense growth. Concerning Data Center expectations, the Zacks Consensus estimate presently sits at $24.6 billion, surpassing last year’s mark of $10.3 billion.
As shown below, Data Center results have regularly blown away our consensus estimates, with the most recent beat totaling a sizable $1.8 billion.
Image Source: Zacks Investment Research
While the stock has faced pressure, it certainly does not reflect the robust fundamentals beneath the hood. The stock remains at the heart of the AI trade, undoubtedly a prime selection for anybody seeking exposure.
In addition, breakneck growth has kept valuation multiples at historically sound levels, with the current 32.9X forward 12-month earnings multiple below the 50.7X five-year median and five-year highs of 106.3X.
Keep in mind that shares traded well above current valuation levels in 2020 and 2021, a time when the AI theme had yet to emerge fully. Further, the current PEG ratio works out to a historically low 0.9X, reflecting that investors aren’t overpaying for the forecasted growth.
Image Source: Zacks Investment Research
AMD Reports Record Data Center Results
Advanced Micro Devices recently released its latest quarterly results, exceeding both Zacks Consensus EPS and sales expectations.
Most importantly, the company’s AI outlook remains notably bright. CEO Lisa Su stated, ‘Our AI business continued accelerating and we are well positioned to deliver strong revenue growth in the second half of the year led by demand for Instinct, EPYC and Ryzen processors. The rapid advances in generative AI are driving demand for more compute in every market, creating significant growth opportunities as we deliver leadership AI solutions across our business.’
AMD’s Data Center sales of $2.8 billion reflected a quarterly record, climbing an astonishing 115% from the same period last year. As shown below, the company has chained together back-to-back beats on the metric, snapping a streak of negativity.
Image Source: Zacks Investment Research
Still, it’s critical to note that AMD saw negative revisions for its current fiscal year hit the tape following the release, with the now $3.35 Zacks Consensus EPS estimate suggesting 26% year-over-year growth. Expectations have been trending lower overall over the last year.
Image Source: Zacks Investment Research
Like NVDA, valuation multiples aren’t stretched, with the current 1.1X PEG ratio also reflecting a fair price for the forecasted growth.
Image Source: Zacks Investment Research
Bottom Line
While both Nvidia (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) have faced pressure over the near term, their quarterly results and demand being experienced paint a highly positive picture for long-term gains.
As shown above, these stocks' respective PEG ratios reflect a fair price, shifting the valuation question out of the picture. Simply put, the recent selling has certainly been spooky, but it does not change their current stories.
Both remain prime buys for those seeking AI exposure, but Nvidia’s more positive earnings outlook does put it above Advanced Micro Devices from a near-term perspective.