Technology investors are living in a paradox. The paradox is that tech stocks — especially semiconductors — were not overpriced before the Trump Slump and are likely to prove exceptionally resilient. I like Nvidia Corp. (NVDA) and Taiwan Semiconductor Manufacturing Co. (TSM), writes George Gilder, chief analyst at Gilder’s Technology Report.
Tech is traditionally one of the sectors most vulnerable to market turbulence because tech stocks tend to be at least fully priced, and commonly overpriced. And they certainly have been battered over the past three months. That at least is consistent with expectations.
Over at the Gilder's Technology Report, long before the slump, we had been taking the temperature of high-fliers such as NVDA regularly. With a price-to-sales ratio in the 40s at one point, why wouldn’t we be keeping close track? Even back then, using conservative valuation methods, the stock, if not cheap, never looked much overpriced.
NVDA, TSM (YTD % Change)
Data by YCharts
Today at more than 25% off its 52-week high, NVDA is somewhere between 25% and 50% underpriced. Discount that a bit for the medium-term risk of disruption for any company with a 90% market share and a 60% operating margin and NVDA looks more than ever like a stock we want to own.
TSM is the manufacturer to nearly all leading design firms (including NVDA). Even at its January 2025 all-time high around $225, it was underpriced considering its three-year earnings compound annual growth rate (CAGR) of 25% and operating margins in the low 40% range.
Burned in the memory of technology investors of a certain age is the great Tech Wreck of 2000-2002. This is not like that...at all. Though many of the companies ravaged in those days went on to make magnificent contributions to the global economy, few had yet justified their lofty prices by impressive earnings growth, or even revenue growth. This time around, despite nervousness about trade wars, we still mostly have them.
The case for tech resilience, though, goes beyond current earnings. Semiconductors are transforming the world economy…again, and this time more powerfully than ever. The productivity improvements delivered by the first 50 years of the silicon era pale in comparison with what AI is already doing to the world economy, and what it has already done is not a fraction of what is to come.
A decade from now, so awash will the world be in wealth, that it will be hard even to remember the grim, defeatist slogans of today. We face a future of staggering beauty so long as we keep the faith in freedom.
