Nvidia Has Dropped 5% Since Its Peak. These 2 Chip Stocks Have Done Worse.

In the same period, memory-chip maker

Micron Technology

has fallen 11% and mobile-processor specialist

Qualcomm

has dropped 10%. 

The common theme among the three is that they have benefited from expectations around the AI boom. Micron’s memory chips have become an increasingly important component of AI accelerators—in particular high-bandwidth memory, which is a necessary component of the latest processors from the likes of Nvidia.

Meanwhile, Qualcomm has a leading role in powering AI-enabled smartphones and is taking on incumbents Intel and Advanced Micro Devices with new AI-capable processors for PCs.

Micron’s own earnings report last week looks to have been a factor in puncturing some of the enthusiasm around AI chip stocks, as guidance for the current quarter that only matched expectations wasn’t enough to excite the market. That has investors evaluating whether valuations are getting stretched.

Nvidia trades at a forward price-to-earnings ratio of around 42 times according to FactSet. That compares with around 17 times for Micron and 19 times for Qualcomm. 

That makes Nvidia look significantly more expensive than its fellow chip stocks. However, when looking at a similar metric taking into account expected growth—the PEG ratio—there’s a more mixed story. The PEG ratio is simply the price-to-earnings ratio divided by the earnings growth rate. Nvidia’s forward PEG ratio is 0.9 times compared with 0.5 times for Micron and 1.6 times for Qualcomm. 

Nvidia shares have risen 159% so far this year through Wednesday’s close. That compares with a 16% rise in the

S&P 500

index and a 21% rise in the

Nasdaq Composite Index

over the same period. 

Micron shares are up 60% this year so far and Qualcomm shares are up 41%.

Write to Adam Clark at adam.clark@barrons.com