Investors buying Nvidia stock at these levels have historically done well: analyst

Investing.com -- Nvidia shares may look expensive at first glance, but Bernstein argues the stock is trading at historically attractive levels after a prolonged period of multiple compression.

In a note led by analyst Stacy Rasgon, Bernstein noted that Nvidia’s recent performance has lagged despite continued upward earnings revisions. 

The stock is up about 30% year to date but has “substantially underperformed the SOX index this year,” even as estimates “have continued to march ever higher,” according to Bernstein.

As a result, valuation has fallen sharply. Bernstein said Nvidia’s forward price-to-earnings multiple “has fallen by 27% through the year, currently sitting just a hair under 25x.” 

While that may not appear cheap in absolute terms, Bernstein stressed context matters. 

“For this company, 25x forward EPS would suggest the shares are trading in the 11th percentile of valuation over the last 10 years,” Rasgon said.

Relative valuation appears even more compelling, according to the analyst. 

Bernstein noted that Nvidia trades at a roughly 13% discount to the SOX index, placing it in “the first percentile,” adding that over the past decade, there have been “only thirteen days where NVDA’s stock traded cheaper relative to the SOX than it is trading now.”

Bernstein highlighted strong historical returns at similar valuation levels. “Investors buying Nvidia’s stock at current levels have historically done very well,” the firm said, adding that purchases below 25x forward earnings over the past 10 years delivered “average 1-year returns of over 150% with zero instances of a negative drawdown.”

While acknowledging recent concerns around AI capex and GPU competition, Bernstein stated that “capex intentions look fine at this point” and argued the overall setup remains attractive, reiterating an Outperform rating and a $275 price target.