Why Peter Lynch's Metric Loves Nvidia Over Microsoft
Peter Lynch's preferred metric, the PEG ratio, favors Nvidia Corp (NVDA) over Microsoft Corp (MSFT). Nvidia's PEG of 1.713 is lower than Microsoft's 2.276, indicating that Wall Street may undervalue Nvidia's growth potential. Despite its high valuation, Nvidia's earnings growth justifies its price, making it a more attractive investment compared to Microsoft and other major tech stocks. Lynch's analysis suggests that Nvidia is a compelling choice for investors looking for growth at a reasonable price, especially in the context of the AI revolution.
In the stock market's popularity contest, Nvidia Corp NVDA might just be the teacher's pet—and Peter Lynch would approve.
The Fidelity fund manager often touted the PEG ratio (price-to-earnings growth) as a quick and dirty way to spot growth at a reasonable price. By that yardstick, Nvidia stands out among the so-called magnificent seven stocks: despite its trillion-dollar valuation and meteoric rise, its PEG ratio of 1.713 (per Benzinga Pro data) is lower than Microsoft Corp's MSFT 2.276 and Meta Platforms Inc's META 2.376. This signals that Wall Street may still be undervaluing its growth story.
- Track NVDA stock here.
In other words, Nvidia is pulling off the rare feat of being both expensive and cheap at the same time.
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PEG Ratios Tell A Different Story
Investors often obsess over P/E (price-to-earnings) ratios. Lynch, however, argues that the PEG ratio is the more effective metric—it accounts for how rapidly earnings are growing. The math here tilts in Nvidia's favor. Look at four other “Mag 7” tickers:
- Alphabet Inc GOOGL GOOG has a PEG of 1.532
- Apple Inc AAPL sits at 2.056
- Amazon.com Inc AMZN at 2.659.
- Tesla Inc TSLA, whose status as a Mag 7 stock is in question, has a sky-high PEG of 6.409.
Tesla looks wildly overpriced by this measure, underscoring how much faith investors are placing in Elon Musk's future promises.
Microsoft, despite being a cornerstone of enterprise software and AI infrastructure, doesn't look quite as efficient as Nvidia when growth is factored in. For investors following Lynch's playbook, that makes Nvidia the more compelling bet.
Nvidia's Growth Premium Looks Reasonable
What makes Nvidia's PEG of 1.713 so striking is that it comes after a year of staggering stock gains. Microsoft and Meta both trade at higher PEGs despite slower growth trajectories, suggesting their current valuations are less forgiving. Apple and Amazon, too, look pricier relative to their growth.
Nvidia's unique position as the backbone of the AI revolution helps explain the math: its earnings are projected to grow so fast that even at lofty share prices, the stock screens as "reasonable" on Lynch's metric. That's not to say Nvidia is cheap—it's just less expensive than the growth juggernaut narrative suggests.
For investors measuring Big Tech through Lynch's lens, the verdict is clear: Nvidia, with CEO Jensen Huang at the helm, may have the hotter stock chart. Still, Microsoft has the higher PEG baggage.
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