Nvidia shares are up 4%. Why does Bernstein think they are still attractive?

Nvidia shares jumped 4% in trading on December 19 thanks to two positive news. The U.S. authorities approved the company's investment in U.S. processor maker Intel in the amount of $5 billion. In addition, the White House began considering documents that will allow Nvidia to resume supplying China with its AI chips, Reuters has learned. Nvidia's securities remain attractive to investors because they are relatively cheap, Bernstein said.

The US Federal Trade Commission (FTC) on December 18 approved a deal on Nvidia's investment in Intel, according to a notice on the regulator's website. The document does not disclose details of the agreement, but in September Nvidia said it would invest $5 billion in the struggling U.S. chipmaker and become one of its largest shareholders. The agreement could pose risks for the companies' rivals - Taiwan's TSMC and U.S. AMD, Reuters noted.

Nvidia will acquire Intel's common stock at $23.28 apiece and gain a stake of about 4% or more. The manufacturers have also agreed to jointly develop chips for PCs and data centers: Intel will use Nvidia's graphics technology in future PC processors and supply its data center processors based on Nvidia's hardware.

Also on Friday, Reuters sources said that US President Donald Trump's administration has begun the process of reviewing approvals to ship Nvidia's second most powerful AI chips, the H200 model, to China. This followed Trump's promise to allow exports of the chips on the condition that the U.S. government receives 25 percent of the deal's value, the agency noted.

According to Reuters' sources, the U.S. Commerce Department has sent export license applications to the State Department, as well as the Energy and Defense Departments. They will have to review the documents within 30 days. A presidential administration source said the review will be "thorough, not a formal check mark in a report." However, under export laws, the final decision rests with President Trump, Reuters emphasizes.

Trump has said opening up exports would allow U.S. companies to get ahead of Chinese competitors by reducing demand for their chips. However, the plan drew sharp criticism from hard-line politicians on China over concerns that supplying such chips would strengthen Beijing's military capabilities and weaken U.S. leadership in artificial intelligence.

Nvidia shares now look particularly attractive compared with the Philadelphia Stock Exchange Semiconductor Index (SOX), and that valuation offers good return prospects, Bernstein analyst Stacey Rasgon wrote on Friday, he was quoted by Bloomberg as saying. Relative to the chipmaker index, Nvidia is trading at a discount of about 13%, one of the lowest levels in a decade, Rasgon noted.

"There have only been 13 days in the past 10 years when Nvidia stock was cheaper relative to SOX than it is now," wrote analyst Bernstein (quoted by Bloomberg).

Currently, shares of the company at the center of the AI boom are worth about 25 times projected earnings (P/E ratio), Bloomberg noted. For Nvidia, a 25x multiple means the stock is fairly cheap relative to historical valuations: only 11% of the time the multiple was lower, 89% of the time it was higher, Rasgon added.

"Investors who have bought Nvidia stock at multiples below 25x over the past 10 years have realized one-year returns averaging above 150% - and there has not been a single instance of a loss by holding the securities for a year," the analyst said.

Analysts are almost unanimously recommending buying Nvidia shares: they have 55 Buy ratings and nine Overweight ratings versus only five Hold and one Sell, MarketWatch shows. The average target price of $259.76 implies the stock is up about 50% from its last close.

This article was AI-translated and verified by a human editor