NVIDIA’s and AMD’s stock price movement
At the start of the series, we saw that the stocks of NVIDIA (NVDA) and Advanced Micro Devices (AMD) have been trending upwards in the first nine months of 2019 on the back of strong GPU (graphics processing unit) demand from gamers and crypto miners. The two stocks performed well even when the crypto bubble burst in July 2018. However, they were not able to handle a slowdown in Chinese demand in addition to the crypto bubble burst, resulting in a sell-off in the last three months of 2018. NVIDIA’s stock fell 54%, and AMD’s stock fell 41% in the fourth quarter of 2018.
AMD showed signs of recovery in 2018. The stock rose 22.6% year-to-date as its 7-nm (nanometer) product announcements and data center growth revived investor optimism. On the other hand, NVIDIA remains in bear territory as its new Turing GPU was hit by slow adoption.
A moving average takes the average of a stock’s prices over a certain period to understand in which direction its movement is skewed. AMD is currently trading above its 200-day MA, indicating that it has fully recovered from the fourth-quarter 2018 sell-off and is now in the uptrend. On the other hand, NVIDIA is trading below its 50-day and 100-day MA, indicating that it is still in a downtrend.
Despite steep declines, NVIDIA’s stock is still more expensive than its peers, with a PS (price-to-sales) ratio of 6.9x, which is higher than AMD’s and Intel’s (INTC) PS ratios of 3.84x and 3.15x. The PS (price-to-sales) ratio tells us the amount investors are willing to pay per dollar of a company’s sales. NVIDIA has a high PS ratio because of its double-digit revenue growth.
The recent headwinds slowed its revenue growth, the very reason driving its PS ratio. NVIDIA’s stock is unlikely to grow until the company’s revenue picks up. From a long-term perspective, NVIDIA is an attractive stock, but it is likely to see more declines in the short term. The stock may grow in the coming few months but its pace of growth could be slower than the 2017 level when it spiked 225%.
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