D.A. Davidson has turned bullish on Nvidia, lifting its rating to buy and calling the chipmaker the cheapest way to play artificial intelligence despite a year-long surge in the stock.
In a new CNBC Power Lunch interview, D.A. Davidson managing director Gil Luria says the AI trade has broadened to include companies with far weaker growth prospects, leaving Nvidia discounted by comparison.
He also says that investors appear to have taken their eyes off NVDA, despite its strong earnings growth and AI leadership.
“But what’s happened at the same time is people have tried to expand the AI trade away from NVIDIA and Microsoft, to a point where now Nvidia is the least expensive in the AI trade. They’re only trading at 28 times next year’s earnings.
Oracle’s trading at 50 times, five zero, on a much more questionable story. And yet Nvidia is now trading at 28 times, Apple is trading at 28 times.
Nvidia is going to grow earnings 30 -40%, Apple is going to grow earnings 10%. So between our optimism for AI, and the fact that the AI trade has rotated away from NVIDIA, we think this is the time to focus back on NVIDIA.”
D.A. Davidson is an employee-owned financial services firm founded in 1935, which oversees roughly $80 billion in client assets.
The firm’s outlook echoes Tom Lee’s assessment of the tech giant. In a recent update, the Fundstrat executive called Nvidia the “scarcest company in AI,” noting that NVDA is trading at a much lower valuation than retail giants.
“And that gets us to valuation. I think the company to look at in terms of AI and the uniqueness of it is NVIDIA, which currently trades at 26.6x forward earnings.
I don’t think that’s particularly expensive, considering that Costco and Walmart actually trade at much higher multiples, 48.5x and 39x. And so to me, the question remains that if Nvidia is the scarcest company in AI, why is its multiple so low relative to Staples?”
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