While we all love, or at least come away impressed with semiconductor juggernaut Nvidia (NASDAQ:NVDA), it’s difficult not to notice the obvious: Nvidia stock is overvalued. Usually, anything involving the capital market subjects itself to debate. However, it would take significant verbal gymnastics to claim NVDA is anything close to a bargain.
We just need to look at some facts. Currently, Nvidia stock trades at nearly 118x trailing earnings and over 25x forward earnings. Its price/earnings-to-growth (PEG) ratio clocks in at 5.38x, well above the sector median 1.37x. NVDA also trades at 37.16x trailing-year sales and almost 44x book value. Practically every common valuation metric pings overvalued relative to the underlying industry’s average stat.
About the only way you can claim NVDA is a bargain is by assuming projections for artificial intelligence and machine learning are either understated or that Nvidia can grab more market share than anticipated. Maybe it’s a bit of both. Nevertheless, the heat tied to NVDA also opens doors for alternative stocks to buy.
Granted, nothing can truly compare to Nvidia stock at the moment. But if you’re worried about holding the bag, these stocks to buy may offer much better value.
Dell Technologies (DELL)
Among the alternatives to Nvidia stock, Dell Technologies (NYSE:DELL) carries a distinct risk. On Thursday, the consumer electronics and data server specialist is scheduled to release its earnings report for the third quarter. Back in Q2, the company crushed expectations, delivering earnings per share of $1.74 on revenue of $22.9 billion. In contrast, estimates called for EPS of $1.14 and $20.9 billion, respectively.
Of course, market observers will be hoping for a repeat performance. And the stakes couldn’t be higher. Since the start of the year, DELL gained 82% of equity value. It’s not an Nvidia stock, to be sure. However, DELL makes for a solid alternative for stocks to buy in the technology space. Still, a lot could be riding on the Q3 results so keep that in mind.
And even if DELL disappoints, it might be worth picking up the discount. Dell is aggressively moving into practical applications of generative AI. At that point, you might counter that Dell isn’t doing anything that’s remarkably different from the competition. Maybe not. But it does trade at an attractive forward price-earnings (PE) ratio of 10.82x. That’s hard to overlook.
IBM (IBM)
I’m fully aware that IBM (NYSE:IBM) doesn’t get much coverage compared to Nvidia stock and that’s for good reason. For the longest time across various initiatives and reorganizations, IBM has frustrated and disappointed stakeholders. For example, it gained about 31% of equity value – over the past five years. For context, the Dow Jones moved up roughly 39% during the same period.
So, in many ways, IBM is the antithesis of Nvidia stock. Nevertheless, investors are finally waking up to this opportunity. In the trailing month, IBM returned 8%. Against the trailing half-year period, it jumped over 20%. As I argued months before, IBM is attractive because it’s one of the top pioneers of AI and machine learning. Such acumen doesn’t just disappear.
Also, I did Big Blue as one of the alternative stocks to buy relative to NVDA because of its value proposition. Currently, IBM trades at 20.6x trailing-year earnings and 15.55x forward earnings. These stats sit below the sector median values of 26.39x and 21.66x, respectively. Also, Big Blue offers a big dividend of 4.28%. Does Nvidia stock do that? No.
Intel (INTC)
Over the past five years, Intel (NASDAQ:INTC) shares lost 11% of equity value. So, while you might think IBM is boring, at least it provided a positive return for its stakeholders. For the ultimate in frustration – at least as far as this list of alternative stocks to buy is concerned – INTC takes top dubious honors. However, Intel might pull a Sandra Bullock.
Bullock of course famously won both a Razzie and an Oscar. It’s possible that Intel could be moving out of its Razzie phase and breaking into the main spotlight. Since the start of the year, INTC swung up over 64%. Even better, the underlying business enjoys fundamental justification for the rally. For instance, its Q3 earnings beat estimates because of gains in its foundry business and surging interest in AI.
Naturally, some have questioned the sustainability of the rally, leading to institutional trades selling call options. In my opinion, this dynamic looks like a gamma squeeze, a feedback loop that forces traders holding a bearish position to maintain their hedge.
More recently, traders appear to be buying large volume of calls (instead of selling them), which could lead to higher open-market prices for INTC.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
