Seaport Chief Equity Strategist Jonathan Golub signaled that software shares may be set for a recovery, and he singled out Nvidia, Broadcom and AMD as equities with upside potential.
In a recent note, Golub pointed to a greater-than-30% decline in price-to-earnings multiples for both the software and semiconductor sectors since July. Over the same interval, he noted that software equities experienced a roughly 25% drop in price, while semiconductor stocks gained about 15%.
Valuation versus growth: a contrast
Golub drew attention to what he described as a mismatch between growth expectations and current valuations among the largest chip companies. He laid out the relative metrics for the three names he highlighted:
- Nvidia trading at 21 times earnings with a 12-month forward growth rate he cited at 66%.
- Broadcom trading at 23 times earnings with a 12-month forward growth rate he cited at 60%.
- AMD trading at 25 times earnings with a 12-month forward growth rate he cited at 62%.
For context, Golub contrasted those figures with the S&P 500, which he reported at about 20 times earnings for 15.5% forward growth.
"Investors widely assume that valuations have collapsed in software, but have been spared in semis," Golub wrote. "This is hardly the case."
Golub's note underscores a notable divergence: while price-to-earnings multiples have compressed for both groups, equity price performance since July has been quite different for software and semiconductors.
What this means for markets
The strategist's observations place pressure on investors to reassess assumptions about where valuations have moved and which sectors may offer more attractive risk-reward profiles given recent multiple compression and the specific valuation-growth relationships in large-cap chip names.