Nvidia produced incredible quarterly numbers. Ironically, that is probably responsible for the drop in the Nasdaq Composite on Thursday.
Tesla stock was down in midday trading Thursday. The biggest factor likely was blowout quarterly results from Nvidia . Understanding how one impacts the other tells investors something about both value and price.
Shares of AI darling Nvidia probably haven’t risen more because the stock had soared more than 220% this year coming into Thursday’s session. “Pricing is relative. Investing is not,” says New York University professor Aswath Damodaran. “In pricing, which is at the heart of trading, you buy things that are cheap, relative to how other things just like it are priced. In investing, you value things based upon their capacity to generate cash flows, and you buy if the price is less than that value, but what others are paying does not enter into the equation.
Black is a growth investor and uses some relative valuation metrics to help understand the intersection of price and value. A price-to-earnings-to-growth, or PEG, ratio divides a PE ratio by an earnings growth rate. The PEG ratio for the S&P 500 is about 2. The market trades for about 18 times earnings and earnings are expected to grow at roughly 9%.
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