Image source: Getty Images
Nvidia (NASDAQ:NVDA) stock has become the poster child of the artificial intelligence (AI) revolution. The company’s chipsets power everything from data centres to self-driving cars. But after a meteoric run — including a lot of volatility — it’s time to ask if the stock is still good value compared to its chip-making peers?
The answer depends on which metrics investors focus on. My favourite is the all-important PEG ratio.
Nvidia’s edge
Nvidia currently trades on a forward price-to-earnings (P/E) ratio of 30.8 times. That’s about 39% higher than the sector median of 22.1. It’s a premium, but it’s a far cry from the triple-digit multiples seen during the height of the AI boom. Looking ahead, Nvidia’s P/E is forecast to fall to 23.9 by 2027, reflecting strong expected earnings growth throughout the medium term.
However, the price-to-earnings-to-growth (PEG) ratio tells a more intriguing story. Nvidia’s forward PEG is just 0.88, almost half the sector average of 1.73. This suggests that, relative to its growth prospects, Nvidia is actually trading at a huge discount to peers. For context, a PEG below one is often seen as a sign of undervaluation.
What about Nvidia’s peers?
So how does Nvidia compare with three major, albeit much smaller rivals: AMD, Intel, and Broadcom?
AMD or Advanced Micro Devices is Nvidia’s closest competitor in AI and data centre chips. AMD trades at a forward P/E of 28.8, slightly lower than Nvidia, and its PEG is 1.11. That’s higher than Nvidia’s, but still below the sector average. Importantly, AMD has a small net cash position. However, its earnings growth is expected to be less explosive than Nvidia’s.
In some respects, Intel is the old guard of the chip world. However, the next few years could be transformational. Its forward P/E is a lofty 70.8 times for 2025, but this drops sharply to 15.2 times by 2027 as earnings are forecast to rebound. Intel’s price-to-book and price-to-sales ratios are well below sector averages, signalling possible value. The catch? Intel carries significant net debt of over $30bn, and its near-term growth is much less certain.
Broadcom is a giant in networking and custom chips, including those for AI. It trades at a forward P/E of 35.1 and a PEG of 1.68. That’s higher than Nvidia’s, and much closer to the sector norm. Broadcom’s net debt is substantial at $57bn, and its valuation multiples (price-to-sales, price-to-book) are among the highest in the group.
Hard to beat
Nvidia’s net cash position stands at $33bn. That’s significantly better than its peers. This gives it significant financial flexibility, especially compared to debt-laden peers like Intel and Broadcom.
Of course, one concern is the relative appeal of its hardware and software. If market momentum were to change and, say AMD, achieved a technological leap, Nvidia’s market share could fall from its current dominant position. This concern is exacerbated by the high near-term forward multiples.
However, on a net-cash/debt-adjusted P/E, I’d suggest Nvidia would rank even more favourably. Coupled with a strong PEG ratio, I still believe it’s the sector winner. I’ve recently added to my position.
