In 2023, many stocks are beginning to get expensive. Following the launch of ChatGPT, which broke records for user growth, investors began piling money into any tech stock that seemed like it had an AI angle to it. Chip stocks. Internet stocks. Enterprise software companies. If these companies’ managements mentioned AI repeatedly on earnings calls, investors shovelled money into them – without much regard for whether the AI investments would ever pay off.
As a result of this situation, many tech stocks are now trading at true “nosebleed” valuations. The big U.S. tech stocks are trading above 30 times earnings – in fact, the entire NASDAQ-100 Index is at 32 times earnings. It’s an expensive market – and Canadian stocks are no exception to the rule.
NVIDIA
NVIDIA (NASDAQ:NVDA) is a U.S. chip stock. It makes the A100 and H100 – chipsets that are basically required to run modern AI applications. A few other companies make ships that do the same or similar things, but NVDA chips beat them all in performance benchmark tests. You can check out MLCommons if you want to see how different AI chips are doing – all of the top performing applications are running on NVIDIA chips.
NVIDIA is expected to deliver extremely strong results in its next earnings release. For the second quarter, the company expects to do $11 billion in revenue, which will be up 64% from the prior year quarter if it is achieved. This is all very interesting; the problem is that a lot of it is already priced in. At today’s prices, NVDA trades at:
- 132 times adjusted earnings.
- 213 times GAAP earnings.
- 39 times sales.
- 41 times book value.
It’s an expensive stock, and only getting more expensive. Personally, I’m not investing at today’s prices.
Shopify
Shopify Inc (TSX:SHOP) is a Canadian tech stock that has delivered some impressive growth over the years. In its most recent quarter, its sales grew at 25%, and its free cash flow swung from a loss to a positive sum. Both were positive developments, and were ahead of what analysts expected the company to deliver.
The problem is that all of this good news has made SHOP stock very expensive. At today’s prices, it trades at:
- 100 times the best estimate of next year’s earnings.
- 11.2 times sales.
- 9.5 times book value.
- 390 times operating cash flow.
Lightspeed
Lightspeed POS Inc (TSX:LSPD) is another Canadian tech company that trades at a pretty steep valuation. This one is cheaper than Shopify, trading at 3 times sales and 0.99 times book value. However, its “forward” earnings multiple is comparably high: 139. Lightspeed doesn’t have the brand power that Shopify has. Its growth has been good, but it’s much further from achieving profitability than Shopify is. This company has attracted scrutiny from short sellers, who accused it of playing accounting games to make its results look better than they actually were. On the whole, it’s a stock that one should approach cautiously if at all.
