Investor Tom Lee says the market may be misjudging one of the biggest names in artificial intelligence (AI), pointing to a valuation gap that he argues doesn’t make sense.
Speaking after Oracle’s results, Lee says strong IT spending is reinforcing the case for companies tied to the AI boom.
“Oracle… reported after the close today, the stock is up strongly, up 27%. And in our view, it’s really affirming that IT spending and the visibility for AI spending remains strong.”
Turning to Nvidia (NVDA), Lee points out that the stock trades at a lower multiple than well-known retailers like Costco and Walmart. He asks why the “scarcest company in AI” carries a discount to consumer staples.
“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?”
Lee’s valuation analysis comes as NVDA bounces back from a correction triggered by a sell-the-news event last month following the release of the tech giant’s quarterly earnings report. NVDA dropped to a September low of $164 and is now trading at $177, closing in on its all-time high of $184.
Last month, Ben Reitzes, head of technology research at Melius, said Nvidia’s long-term growth potential remains unmatched despite near-term volatility. Reitzes said the firm was ready to buy dips as Melius predicted a new record high for NVDA.
“Price target $240, and we’d be buyers on weakness and think they’re on track. The sequential growth shows that there’s probably not much to worry about here.”
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.