Note: Data services often don’t report ratios that are too high or too low, since they’re deemed to be meaningless in terms of actionable insight. Days of unreported ratios are represented by a blank here.
While the stock’s Price to Book Values cannot be commented on due to its absence in most periods, the Price to Sales (PS) ratio indicate a fair bit of relative stability (albeit, a little more so in NVIDIA’s case than AMD) while the Price to Earnings (PE) ratios shows a decline by nearly 58% in the past week.
Lets consider what the PE Ratio effectively means: lets say that the PE Ratio of a stock is 50 today. This means that investors are paying $50 for $1 in earnings attributable to them over the course of every future year. Now, this is extremely common in the case of new companies with interesting product propositions. The expectation is that the company’s proposition will find substantial traction among buyers at the cost of older „legacy“ propositions. This capture in market share in subsequent years should theoretically lead to higher attributable earnings (assuming no substantial increase in cost of sales and other expenses), thus justifying the high entry point today. In subsequent years, however, as the company’s market share rationalizes, so does the PE Ratio.
In practice, this has not happened: AMD is a stable company with a largely-solid market share that has seen some variation but not by a massive margin. On the other hand, NVIDIA arguably had a little bit of wriggle room since it touts transformative data center and AI applications promised in future products.
Be that is it may, in either stock’s case, there is always the argument if the PE Ratios should have been so high in the first place. Most Fortune 500 CFOs and top fund managers, including Berkshire Hathaway’s Charlie Munger, had been voiced their concern that the U.S. equity market in particularly overvalued in numerous surveys over the past 4 years and „tech“ accounted for a substantial chunk of this.
In NVIDIA’s case, whether the aforementioned transformative applications would find substantial adoption in the wake of an anticipated spending crunch due to rising costs is question that asks the question as whether a higher valuation of the stock (in PE terms) is justified. On the other hand, it could also be argued in real-world terms that a CPU purchase is relatively more „essential“ than a GPU purchase, thus prospectively tilting the scale ever-so-slightly more tilted in favour of AMD. This tilt would be manifested if AMD’s ratios were considered „rational“ enough by market participant consensus, which doesn’t seem to be the case right now.
Lets consider traded volumes now relative to the market. As mentioned in the NVIDIA article, over the year till date (YTD), monthly average volumes have generally been trending down across the board after the customary „January bump“. When comparing traded volumes in the stock versus the „tech-heavy“ Nasdaq-100 (here represented by the ETF QQQ) normalized relative to volumes seen on the 3rd of January, we encounter the third point of similarity:
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