Key insights
- Seaport's strategist suggests software stocks are poised for a rebound due to valuation compression, while highlighting upside potential in Nvidia, Broadcom, and AMD. Despite the perception that semiconductor valuations are immune, the analysis indicates growth valuations for these chip stocks are misaligned with their projected growth rates relative to the S&P 500, implying potential outperformance.
Investing.com -- Software stocks are positioned for a rebound while Nvidia (NASDAQ:NVDA), Broadcom (NASDAQ:AVGO) and AMD (NASDAQ:AMD) present upside opportunities, Seaport Chief Equity Strategist Jonathan Golub said.
Price-to-earnings multiples have dropped more than 30% for both software and semiconductor groups since July, Golub wrote in a note. During this period, software stock prices fell 25% while chip stocks gained 15%.
"Investors widely assume that valuations have collapsed in software, but have been spared in semis," Golub wrote. "This is hardly the case."
Growth valuations for the three largest chip stocks are misaligned with their projected growth rates, Golub said. Nvidia trades at 21 times earnings for 66% 12-month forward growth, Broadcom at 23 times for 60% growth, and AMD at 25 times for 62% growth. The S&P 500 trades at 20 times for 15.5% growth.
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