A few weeks ago, I received a last-minute invitation to attend a livestream panel discussing Nvidia. At the time, there was a wild frenzy on Twitter about the company’s results. This panel was obviously going to explore that in depth, and if nothing else, I was curious about who was behind the wild rumors and how they profited from them.
Guest author Jonathan Goldberg is the founder of D2D Advisory, a cross-functional consulting firm. Jonathan has developed growth strategies and alliances for companies in the mobile, networking, gaming and software industries.
So I attended the panel, listened (often shocked by what I heard) and pushed back as much as I could. The whole experience was a bit unnerving, staring into the mouth of an internet rumor machine that doesn’t trust humanity.
We will not explore that doctrine, nor will we associate with any part of it. For the most part, those rumors have died down and we don’t want to add any oxygen to the attention machine. Still, I wanted to share my opinion on Nvidia to set the record straight on how I view the company and its current outlook.
As everyone knows, Nvidia’s stock is currently up 200+% this year alone, solidifying its position as perhaps the best performing semiconductor stock of all time. The stock has been driven by two consecutive earnings reports that delivered blow-out numbers.
For a company of Nvidia’s size, growing revenue this much in such a short amount of time is something most of us will only see once in our careers. Really strong numbers. This series of sudden surprises has probably fueled the rumor mill, with the company so focused on taking the opposite position that it’s going to build an online audience.
… To be clear, Nvidia’s results are based on actual demand.
However, to be clear, Nvidia’s results are driven by real demand. The software world is scrambling to tackle the potential offered by Transformer-based AI models. The landscape is undergoing huge changes and no one wants to be left behind. As I’ve mentioned in the past, Nvidia currently has a lock on the market for AI training semis, a position that isn’t likely to change anytime soon. So all interest in AI translates into big business for the company.
Additionally, the company has spent the past few years building its offerings for the cloud. I wrote about this about 18 months ago, when their analyst day presentation made it clear that Nvidia was claiming dominance in the data center. That means they’re selling more than just GPUs for the cloud — they also have CPUs, networking chips, and systems that tie everything together. They have also deployed some incredibly robust software offerings, challenging all of their seminal peers.
All this means that they are in a very good position right now, riding the wave of AI, gaining share and making huge profits.
Will it last? Here I need to break the question into two time frames.
Over the next year, it’s all wind in the company’s sails, but it won’t last forever. Currently the company is struggling to keep up with demand, but supply is likely to pick up sometime next year. No company can keep up with Nvidia’s momentum, and semis are cyclical, so their earnings will inevitably stagnate. Couple that with the fact that Nvidia has never been good at forecasting quarterly demand, nor has it cared to get better, and yes, the stock will eventually take a hit.
Given the super-premium multiple at which the company is currently trading, any miss would put the stock in the trash. Over the past ten years, Nvidia’s stock has fallen more than 5% in a single day 53 times. The 30 year view of their stock is up and to the right, zoom in on any two to three year period on that chart and it looks like a giant zig zag.
All of this makes it a terrific stock for retail investors. Professional investors are currently devoting enormous resources to keeping their finger on the pulse of Nvidia’s progress, giving them a huge advantage over retail investors who are curious about what they’ll see or hear on Twitter – tread carefully – And to be clear, I don’t own any Nvidia shares, and jokes aside, I won’t be buying any.
In the long run, there’s still a lot to like about Nvidia. Yes, interest in AI has gotten out of hand. And yes, there is a lot of hyperbole going on in the segment. Accurately predicting demand for AI semis is very challenging – many moving parts – consumer adoption, software models, killer apps (or lack thereof), etc.
Still, the advances in computation that Transformers, LLM, and other AI models offer are now evident, and these capabilities will be woven into the fabric of our digital lives, no matter what. There is nothing on the horizon that will challenge Nvidia’s position anytime soon. They may not be able to continue an endless series of monstrous earnings surprises, but they will participate in a big way.
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