BY MARK SEBASTIAN
November 9, 2023
NVDA is worth 1.14 trillion dollars, which is good for a PE of 111.01.
Much to my surprise, that’s actually on the low end.
INTC, MU, and MRVL all lose money right now
AMD … how about a PE of 894?
The only chip maker with a reasonable PE that I found was actually AAPL with a PE of 29.66, the stock if it was a pure Chip maker would be cheap (it’s not).
Of the pure chip makers, when looking at Price to Earnings ratio the cheapest out there might actually be Qualcomm Inc (Ticker: QCOM).
So let’s break it down.
The Good
Qualcomm has a PE of 18.5. This is because most believe that the earnings are coming from a mature business – phones.
But you might notice QCOM had a huge pop on its earnings last week:
It also had some follow through and is now sitting near a 3 month high. However, on a longer term chart, the stock has been nearly 200 dollars a share
The high price was due to growth in phones and cutting a deal with AAPL.
Since then, the stock has done nothing but mostly drop, especially after earnings … except this cycle, when it bounced about 9%.
This was due to some really aggressive guidance. And that guidance is centered around one thing – a new chip.
QCOM is in the process of pushing out a new chip that’s as fast or faster than anything AAPL, AMD, or INTC produce. It’s designed for laptops in and to interact with AI at an incredibly efficient rate.
If QCOM can elbow its way into the space, the stock is WAY too cheap.
Here’s the problem … getting into the space is hard.
AAPL makes their own computers and represents only 10% of the space. INTC and AMD basically own the processor space … for now.
NVDA is also in QCOM’s targets. Their chips are supposed to be the best in the industry for AI use; QCOM alleges they can challenge that.
If they’re right, this 134 billion dollar company will be worth a minimum 4x the current value.
The Bad
They have to break in AMD, INTC, NVDA … all big winners in the CHIPS Act and all investing in the AI space.
I’m going to bring this back to something I know well – video games.
Atari OWNED the video game console space for years. Then came Nintendo.
Nintendo essentially put Atari out of business. Despite the fact that the Jaguar (Atari’s last system) was WAY better than Super Nintendo, NO ONE bought the Jaguar.
The same could happen with QCOM.
They also did not benefit from the CHIPS Act. There were winners in that bill, something our guy Frank Gregory has walked through a few times. The winners in that bill might also be great long term buys. If you aren’t reading his Power Moves newsletter, you should be. He breaks down how Washington picks winners and losers and how to profit. Click here to sign up here.
The Verdict
The fundamentals are sound here – lots of cash, lots of income, low PE.
I think it’s worth a long term long, and I have ideas on how I want to do it.
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Mark Sebastian
Mark Sebastian
Founder & CEO, Option Pit
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