Nvidia (NVDA) is a great company. It’s a dominant player in computer chips, especially for graphics processing – as well as for the now-white-hot artificial intelligence applications.
And Nvidia’s stock has been on fire. It’s the current king (and No. 1 performer) on both the S&P 500 and Nasdaq Composite. And it’s doubled shareholders’ money just since the beginning of the year.
But… I wouldn’t buy Nvidia’s shares at this moment.
There’s a better option right now.
Let me show you exactly what I mean…
NVDA’s Quant Analysis
This year has been a spectacular one for Nvidia shareholders – capping off quite the wild ride for investors.
The stock surged 450% from the 2020 to late 2021, peaking up around $345.
Then came the Great Tech Wipeout.
NVDA plunged 65% over the next 11 months to bottom last October down around $120.
It hasn’t clawed back to its 2021 high, yet. But Nvidia shares have skyrocketed 150% to the $300 level these last seven months.
If you look at that chart, you’re probably thinking… what concerns could you possibly have?
To be clear, I’m not predicting a crash … or big losses … or anything of the sort. I’m also not saying I would sell.
But I am saying there are yellow lights flashing in the near-term … and that there’s a green-light option that’s better.
As longtime Power Trends readers know, my proprietary Quantum Edge system ranks and scores 6,000 stockseach and every morning. It tells me which ones are making the strongest moves… which ones the “Big Money” Wall Street players are buying… and which ones are the strongest financially.
It distills all that data down into one number … the Quantum Score… which helps tell me if a stock is a buy-it-now profit play, a go-along-for-the-ride hold, or a run-for-your-life avoid.
That ranking is the product of decades of Wall Street wisdom (collected by me), massive data collection, supercomputer number crunching, and artificial-intelligence algorithms built around the most-reliable predictive metrics.
Before we dive into the details on NVDA – and the better option – let me be clear: This system was specifically designed to find the best stocks over time. And it does that for various timeframes too. It can indeed ID winners over the very long term (as in several years out). But in the current environment, we use the system in Quantum Edge Trader to make money in the nearer term, take profits when it makes sense, and grow wealth by repeatedly stacking wins.
This approach has outperformed the market 7-to-1 over the last 32 years, according to an extensive analysis and an audit by Tradesmith, thanks to the system’s exceptional win rate of around 70%. That adds up to a lot of gains.
So, let’s see how NVDA looks in the system. We’ll start with the big picture.
Its overall Quantum Score is excellent at 77.6 (out of 100).
To arrive at that score, my system also analyzes a stock’s fundamentals (the company’s underlying financials) and its technicals (price action).
Nvidia’s Technical Score is a super-strong 88.2 – no surprise given the stock’s monster rally since October.
But some context is needed here. There are stocks, and there are overheated stocks. And a near-perfect Technical Score up in the 90s can hint that that a pullback is in the offing.
Then there’s Nvidia’s Fundamental Score, where there’s a bit of a drop-off. Here the company rates a 62.5, which certainly isn’t bad.
And to be clear: I’m not bashing the stock – not at all. But the fundamentals are visibly weaker than the technicals.
Let me give you a peek into my system. With a look at some of the chipmaker’s underlying financials …
Overall, it’s a solid picture – but with a couple areas of potential concern (in the red).
One area of worry: debt, which at 54.4% of equity is on the high side. If you have a $100,000 business, that means you’re borrowing $54,400 to keep it operating. Through my analysis of that 32 years’ worth of data, I found that high debt loads can be a drag on stock prices. More importantly when interest rates are elevated, higher debt levels mean potentially refinancing at higher rates – a possible headwind for a business.
That’s in part why I prefer to see debt levels under 50% of equity. So Nvidia isn’t outrageously high. But debt becomes more of an issue in conjunction with the next metric …
Which is valuation.
NVDA’s forward P/E ratio (based on estimated earnings) has ballooned to 63.7. That means the stock is trading at 64 times its expected earnings per share. That high multiple isn’t surprising – given the stock’s huge move. I love price momentum as much as anybody, but NVDA is now getting pretty rich. And at nearly 64, Nvidia ‘s P/E is more than 3.5 times the 18.2 of the S&P 500.
You can also see in the screenshot that two other valuation metrics I’ve found to be predictive – price/book value and price/tangible book value – are also “rich” right now.
Add it all up and you have a great company with a tangible history of supercharging shareholder portfolios. But you also have a stock that may be offering more limited return potential – at least in the near term.
This Semiconductor Stock Scores Higher
Tradeoffs are a big part of any investment decision. When you put money into one stock, that means you’re not putting that money into another stock.
That’s the dynamic at work here.
There’s another semiconductor stock that on paper is a stronger play right now.
It has outperformed Nvidia over the last month, has a higher Quantum Score, an identical (and excellent) Technical Score, and a much higher Fundamental Score.
I’m talking about Advanced Micro Devices (AMD).
AMD’s Quantum Score is outstanding at 86.2. That’s the product of a Technical Score of 88.2, and a close-by Fundamental Score of 83.4.
That technical score is really high. And if you recall what we said earlier, getting up near 90 sometimes indicates a pullback is coming. Here, though, I’d view AMD as a buying opportunity – because of the stock’s across –the-board strength.
AMD’s exceptional Fundamental Score is much better than Nvidia’s, which contributes to the higher Quantum Score and increases the odds of near-term profits. Adding to that is AMD’s significantly lower debt (just 5.2% of equity), and a much-lower forward P/E ratio of 35.6.
AMD has gained more than 10% since we added it in Quantum Edge Trader less than two months ago. It’s now trading above the “buy” point I shared with my subscribers – so you might want to avoid chasing it right now.
But a pullback would present an attractive entry point.
Nvidia is a terrific company. I’m not selling my shares. And I’m confident it will rate as a “strong buy” again in the future. But if you have cash to invest right now, other stocks have higher odds of making you money in the next few weeks and months.
Those are the high Quantum Score stocks with strong fundamentals, technicals, and Big Money inflows.
Editor, Jason Bodner’s Power Trends