Evaluating Stock Valuation Models: Insights from U.S. Semiconductor Industry

Lintong Li ()
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Lintong Li: Lancaster University

A chapter in Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025), 2025, pp 218-230 from Springer

Abstract: Abstract This study evaluates the application and validity of three stock valuation models, price multiples, capital asset pricing model (CAPM), and dividend discount model (DDM), in the U.S. semiconductor industry. By analyzing three leading semiconductor companies, the study examines how these models reflect the intrinsic value of a stock and evaluates the accuracy of model predictions. The P/E model shows that QCOM is undervalued, NVDA is overvalued, and AVGO is valued at the same general valuation for the industry. Although this model is convenient for calculating and comparing valuations in the same industry, it is not suitable for semiconductor industry due to its high earnings potential and significant price volatility. In the CAPM model, the expected returns of all three companies are higher than their actual returns, indicating that all three stocks are overvalued. Even so, the CAPM model takes more account of the exposure to market risk; for the semiconductor industry, the volatility caused by the market is significant to the company, so the CAPM is more suitable for this industry. The DDM model is a valuation model based on the dividend and the company’s growth rate. It is suitable for value stocks with stable dividends. It does not apply to growth stocks such as semiconductors and industries investing heavily in research and development. Moreover, the effectiveness of each model depends on the company’s market conditions and internal decision-making developments. The study emphasizes that more accurate values can be obtained by combining more valuation models to analyze the company.

Keywords: Valuation Model; Price Multiples; CAPM; DDM; Semiconductor Industry (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-748-9_26

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