Nvidia Valuation Drops Sharply As Q4 Earnings Report Nears — But Retail Traders Stay On Sidelines For Now

• Nvidia will report Q4 earnings after the markets close on Wednesday.
• The report would have a greater bearing on the market, coming amidst a broad-based selloff in tech stocks.
• NVDA stock is down about 9% from its Nov. 3 peak.

A key gauge for Nvidia Corp. stock has fallen sharply over recent months, making shares more attractive on paper ahead of the AI chipmaker's fourth-quarter report. Still, retail investors remain on the sidelines, according to Stocktwits data.

The forward 12-month price-to-earnings (P/E) ratio, a key valuation and growth metric, was 26.9 as of Monday. That’s lower than the recent peak of 27.4 on Jan. 29 and sharply lower than 36.1 on Oct. 29.

For comparison, the P/E ratio was 91.3 for Intel, 32.2 for Broadcom, and 30.2 for Advanced Micro Devices. 

Nvidia Results To Set The Tone

Investors will be closely watching Nvidia’s quarterly report, due after the markets close on Wednesday. As seen in past quarters, earnings from the most valuable U.S. public company can single-handedly dictate the market's course and investors’ expectations for artificial intelligence (AI) and related businesses.

Nvidia’s results assume greater significance this time, coming amid a broad-based selloff in technology shares. Investor trades underscore their fresh concerns over AI disruption, particularly negative for software companies. They also appear to be growing uncomfortable about the eye-popping capital expenditure plans.

Hyperscaler Forecast Record Capex - A Positive For Nvidia

Amazon is planning to spend $200 billion this year, while Alphabet is set to nearly double last year’s outlay to about $185 billion — largely on AI development and data centers. 

While that surge in capex is a clear tailwind for Nvidia, which supplies the high-end chips powering these facilities, investors have consistently set an exceptionally high bar for the chipmaker, and simply beating Wall Street estimates has not been enough to lift the shares.

Strong results from Nvidia’s largest manufacturing vendor, Taiwan Semiconductor Manufacturing, in January, were another positive signal. 

However, Nvidia stock has traded in a narrow range over the past two months, suggesting a lack of consensus among investors on its future course. Nvidia shares closed 1% higher on Friday, taking their year-to-date gains to 1.8%. That’s still higher than the 0.9% gains in the benchmark S&P 500 index.

Stock Move, Retail View

On Stocktwits, retail sentiment for NVDA has dropped over the last two weeks and was ‘bearish’ in the latest reading. Message volume for the ticker is 85% lower over the last 30 days than during the month-long period before that.

“$NVDA earnings will be the state to break the camel's back. Wait do the generals (semis) $SMH to fall. When (the) market crashes nothing will be safe, other than may be $GLD. Get ready to brace $QQQ $SPY,” said a user, painting a gloomy but likely scenario for if Nvidia’s results turn out to be underwhelming.

Some users advised sticking to their positions; given the recent flattish move, the stock would bounce strongly if the earnings are good. “My humble opinion says if there was ever a bad time to short Nvidia it’s this ER as we are set up for a big rally after 6 months of flat consolidation,” said a user.

Analysts are still optimistic. Fifty-seven of 61 recommend ‘Buy’ and three recommend ‘Hold’ for NVDA, with an average price target of $259.88, implying an upside of 34%.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

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