The P/S ratio determines whether a firm is cheap or overpriced in comparison to its peers and, while the ideal ratio depends on the company and industry, the P/S ratio is typically good when the value falls between 1 and 2, and a price-to-sales ratio with a value less than one is even better. According to Eqvista (see here), the average P/S ratio for the semiconductor sector is 9.75 and, according to FullRatio (see here), the average P/S ratio for information technology services is 2.18. A price-to-sales ratio with a value less than one is better.

When a company has a low ratio, it may show that the market undervalues its stock. In contrast, if the ratio is above average it might show that investors expect high growth in the company causing them to bid up its stock price resulting in overvaluation and high a P/S ratio then it might mean the financial market is overvaluing its stock. That seems to be the situation today with the vast majority of AI and related - AI&R - bubble stocks having P/S ratio well in excess of the norm.

In articles posted last week (see here, here and here) I identified a total of 55 AI&R stocks that are in bubble mode, which is defined as having appreciated in value by more than 10% that of the Nasdaq as of the end of August.

Of those 55 stocks, however, only 12 companies had P/S ratios of 2.9 or less and, as such, are not overvalued in spite of their inflated prices. Those companies are:

1. Dell Technologies (DELL): P/S ratio of 0.6
2. Synopsys Inc. (SNPS): P/S ratio of 0.7
3. Oracle Corporation (ORCL):  P/s ratio of 0.9
4. Super Micro Computer (SMCI): P/S ratio of 1.4
5. Applied Optoelectronics (AAOI):  P/S ratio of 1.4
6. BigBear.ai (BBAI): P/S ratio of 1.4
7. Applied Digital (APLD): P/S ratio of 1.5
8. Alibaba (BABA): P/S ratio of 1.8
9. IBM (IBM): P/S ratio 2.2
10. Amazon.com (AMZN): P/S ratio of 2.3
11. Uber Technologies (UBER):  P/S ratio of 2.3
12. Baidu (BIDU): P/S ratio of 2.6

15 companies had P/S ratio between 3.0 and 5.9, as follows:

1. Intel (INTC): P/S ratio of 3.0
2. Hubbell Incorporated (HUBB): P/S ratio of 3.0 
3. Informatica Inc. (INFA): P/S ratio of 3.7
4. Upstart Holdings (UPST): P/S ratio of 3.9
5. Innodata Inc. (INOD): P/S ratio of 4.1
6. Entegris Inc. (ENTG): P/S ratio of 4.1
7. Rekor Systems (REKR): P/S ratio of 4.6
8. Applied Materials (AMAT): P/S ratio of 4.9
9. Presto Automation (PRST): P/S ratio of 4.9
10. Splunk Inc. (SPLK): P/S ratio of 5.1
11. VMWare Inc. (VMW): P/S ratio of 5.1
12. ON Semiconductor (ON): P/S ratio of 5.1
13. Meta Platforms (META): P/S ratio of 5.2
14. Alphabet Inc. (GOOGL): P/S ratio of 5.6
15. Netflix Inc. (NFLX): P/S ratio of 5.9

16 companies had P/S ratios between 6.0 and 11.9, namely:

1. Lam Research (LRCX): P/S ratio of 6.2
2. Tesla Inc. (TSLA): P/S ratio of 7.0
3. Advantest Corporation (ATEYY): P/S ratio of 7.0
4. Advanced Micro Devices (AMD): P/S ratio of 7.7
5. Marvell Technology (MRVL):P/S ratio of 8.4
6. Workday Inc. (WDAY): (/S ratio of 8.5
7. CyberArk Software (CYBR): P/S ratio of 8.6
8. SoundHound AI (SOUN):  P/S ratio of 9.1
9. Palo Alto Networks (PANW): P/s ratio of 9.3
10. Broadcom Inc. (AVGO): P/S ratio of 9.6
11. Intuit Inc. (INTU): P/S ratio of 9.6
12. Arista Networks (ANET): P/S ratio of 10.0
13. Freshworks Inc. (FRSH): P/S ratio of 10.3
14. Procure Technologies (PCOR): P/S ratio of 10.4
15. Microsoft (MSFT): P/S ratio of 10.5
16. C3.ai (AI): P/S ratio of 10.6

8 companies had P/S ratio between 10.0 and 14.9, namely:

1. Adobe Inc. (ADBE): P/S ratio of 12.2
2. Zscaler Inc. (ZS): P/S ratio of 12.6
3. Atlassias Corporation (TEAM): P/S ratio of 12.6
4. Palantir Technologies (PLTR): P/S ratio of 13.1
5. CrowdStrike Inc. (CRWD): P/S ratio of 13.1
6. Datadog Inc. (DDOG): P/S ratio of 13.5
7. ServiceNow (NOW): P/S ratio of 13.7
8. Symbotic Inc. (SYM): P/S ratio of 14.4

4 stocks had ratios higher than 14.9 as follows:

1. IonQ Inc. (IONQ): P/S ratio of 171.9
2. Nvidia (NVDA): P/S of 34.5
3. The Trade Desk (TTD): P/S ratio of 21.0
4. Rigetti Computing (RGTI): P/S ratio of 17.0

In doing your due diligence as to which AI&R to buy, if any, use the above P/S ratio numbers to compare the current value(s) of those of interest with their peers.

Because of how the P/S ratio is calculated it changes as the market price of a stock changes so follow-up articles will provide revised P/S ratios going forward Stay tuned!

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