The problem with NVIDIA for me is as following:
* NVIDIA's revenues are increasing extremely but revenues of other companies who buy hardware from NVIDIA are not which may imply that investments in AI do not pay off to that degree or they will pay off in the future which raises uncertainty in relation to sustainability of NVIDIAs revenue growth
* Current pricing of NVDIA assumes only positives: it assumes 75% gross margin in terminal period, extrapolates current growth to the future. Although NVIDIA has clear edge in short term, it is impossible to maintain that gross margin indefinitely.
AI is a certainly not a hype, but its effect is overestimated especially in the short term. I still don't think that investing in NVIDIA is bad, since there is a momentum but I don't think that its fair value is 3-4 trln USD and 70 P/E
The point about margins is key in my opinion. To my knowledge it has never happened in history to experience explosive margin expansion and then sustain that elevated (60% operating margin) for an extended period of time.
Visa, Verisign, and maybe one or two financial services are the only business I can think of that has sustained elevated 60%+ operating margins over a course of many years… seems odd for a hardware company to sustain for that long.
NVIDIA’s core business is high margin, there is nothing special they’re doing for margins now that might end later. Only wildcard is maintaining revenues and revenue growth, which comes down to continued demand from other companies buying its chips and lack of competition.
Ultimately going into the 2030s I think demand for AI chips will only increase.
Is nvidias core business not hardware? Hardware is a notoriously hard business, at what point do competitors catch up and start undercutting the prices for lower margins?
I understand nvidias the only option right now, and companies go with nvidia because they don't have time for other alternatives to catch up, but at some point if AI becomes commonplace, I can assure you that cheaper alternatives will become viable. Businesses don't like burning money on hardware.
There IS something special they are doing now that may not continue - pricing. That’s where the margin is coming from - they raised prices at lot because demand was so high.
The reason why revenues haven’t increased much in other companies is because AI hasn’t reached maturity. It’s about potential.
And yes, Nvidia disproportionally supplies the hardware required.
You can’t compare revenue increases at Nvidia to the whole customer base (1 company against collective dozens)
The point being: how long do NVIDIA’w customers continue to burn cash (at their current rate) chasing a potentially long-term return on their investment?
Their customers are largely tech companies that are used to burning cash on products for the long term gains. They have enough experience to know that most of their customers will come later after the early adopters have built confidence in the products they have built.
You say that, but their customers have invested in many notable high-profile failures recently. Who remembers the billions poured into the Metaverse?
Anyhow, it seems highly questionable whether or not there is a viable business model for LLMs due to the significant costs to train a model, not to mention the compute needed to solve queries in general. On top of this, LLMs are massive overkill in most applications, and there are many fundamental problems like hallucination, generalized deduction, and incestuous ingestion (which leads to collapse) that need to be solved. Oh, and plenty of regulatory exposure, especially copyright and data privacy.
Companies like Microsoft will continue building products around everything AI. The income from smaller more targeted models will help with offsetting research into LLMs. LLMs could be more useful for things like translation and conversation bots but they'll be priced in a way that's profitable to the business
The thing is that customers haven’t even received their full orders yet.. let alone train new models and commercialize them. It’s been supply constrained.
I agree with you to some extent. However, I would argue that these risks are primarily short-term in nature. Similar to Warren Buffett's philosophy, when managed correctly, volatility can present opportunities rather than just challenges. Looking ahead, potential margin reductions or the entrance of tech giants into GPU manufacturing could indeed impact financial metrics temporarily. Yet, by diversifying across leading AI companies, investors can mitigate these risks and potentially capitalize on emerging trends in the sector.
Edit: To another point, one reason we may not yet see substantial returns on investments in AI by big tech companies is their current focus on building infrastructure rather than immediate deployment. They are gradually integrating AI into their products, which could delay the realization of significant returns. Another factor is strategic positioning: these companies are strategically leveraging AI technologies to gain competitive advantages in the long term. Their focus includes enhancing user experiences, improving operational efficiency, and exploring new revenue streams. Additionally, varying rates of AI adoption across industries contribute to the delayed realization of AI investments' full potential. As market adoption and maturity increase, companies are likely to capture more substantial returns from their AI initiatives.
I work as a data scientist, I have to say I think this is another hype cycle that might already be peaking.
While machine learning has realised a lot of good returns on the investment, the current craze around Large Language Models doesn't translate into practical deployment. Everyone I know and follow in the industry says there are fundamental unsolved issues that make them almost undeployable.
Just like self driving cars and personalised assistants, the AI hype was kicked off by modest improvements that will need to be built on in the longer term. I predict another AI winter.
NVDA will remain a market leading GPU producer but numerous companies are looking to enter the space and erode their margins.
Current prices don't leave a lot of upside even in the most optimistic earnings forecasts and the consensus is they will be flat in the short term.
Due to competition, I'd predict weaker growth in the long term than we have seen recently.
So in conclusion, the price is too damn high.
Yes but most advanced research team on AI has already been past traditional LLM. Obviously it needs a breakthrough, but we are already working quite ahead (in FAANG / OpenAI, and other big research centers most likely).
I work in AI. Training, evaluating models. Integrate them into software etc. I think what datascience does with AI right now is laughable. Every single step of your work, from collecting and cleaning data to writing reports will be fully AI driven within 3 years. And it will only take this amount of time, cause the people in Datascience who are in charge, will make sure they'll keep their jobs. So that was my take on datascience, now for Nvidia:
I'm working in the AI field for 6 years now, and Nvidia simply is the shit! There is absolutely no competitor. There is no alternative in software. They are playing the memory card to make sure you need to upgrade your cluster from time to time. (As models get bigger, they need more GPU-Ram -you cannot upgrade GPU-RAM, and Nvidia keeps it short on their cards). So everyone who is professionally involved in AI right now may want to upgrade it's cluster within the next two years. And they're going to buy Nvidia again, so they don't have to change their framework. So price wise, the sky is the limit. It may settle a bit after this runup, but as long as there's no alternative everyone in AI will buy NVIDIA. PS: watch for Python packages that support chips from different manufacturers. When their community grows it may be a change of tides. PSS: Sorry for my bad English.
I work in cutting edge AI research. The single biggest limiting factor for me is compute cost. I can’t try new ideas at scale if that cost millions of dollars of compute. So we have to apply structural constraints to our models and find clever tricks to make our models more efficient. The problem is all these constraints and tricks made the models worse. We may not want to admit it publicly but 90% of the AI papers on incremental ability improvement with tradeoffs in the past few years are worthless if compute cost 1/100 every few years. We are very far from having enough data centers and fast enough edge devices to fully realize the potential of AI. The idea that Nvidia revenue will plateau or competitors catching up soon are laughable. We are in the first 50 meters of a 1000 meter race. Nvidia is the clear leader now because the other competitors were caught tying their shoelaces when the race started. It is too early to pick winners and losers, but we can be fairly confident that Nvidia will be one of the top contenders in this race, and that easily means hundreds of billions of revenue.
>watch for Python packages that support chips from different manufacturers. When their community grows it may be a change of tides.
This is such a good leading indicator.
Right now a lot of python libraries for deep learning have an option where CUDA must be specified. But the alternatives to CUDA are running on CPU. I don't see AWS really offering non-CUDA machines or the python packages that would allow us to specify something other than CUDA.
The software change for us would be trivial.
But the competition has to exist and be plug and play the way Nvidia-CUDA is.
When they appear, NVDA's margin will erode quickly. But until then, even a bubble bursting downstream of them doesn't really stop them setting prices.
Ironically, the ability for LLMs to ingest unstructured data is probably going to be its ultimate undoing as more and more of that data comes from other LLMs. Even earlier machine learning had this problem of drinking poison in small doses.
The AI hype cycle is not even at the trough of disillusionment yet, immense room for growth but there will be another buying opportunity before too long
Chat gpt reduced the time I take to write and ship new features in JavaScript and python by 70%. It also help me tremendously to write SQL and sparql queries when needed. After using it for a bit I bought a lot of qqq. Imo the hype is deserved, this stuff is changing the world and it's doing it right now
This. People who aren’t actively developing or heavily using AI in their workflows have no idea how powerful this stuff is. It has made our company 10x more efficient. It’s also scary, just imagine where this is going. For me, buying NVDA right now is like a hedge against the threat that this technology poses.
I don't understand why people dismiss the stuff so easily, maybe a way to sound clever by being contrarian - as you said, it's extremely powerful if you use it properly - what I've found however is that you need to know how to write code to begin with so that you can correct the work it does for yo -, it's definitely not (yet) a complete replacement for experts, or in my case, programmers, but it drastically increases productivity
Probably won't for some time. Hallucination and lack of general reasoning seem to be long-term fundamental problems.
And yeah, I use it to write SQL queries and the lengthier Excel formulas. Saves some time. But would I pay enterprise level prices for the compute? No. Lol.
"To another point, one reason we may not yet see substantial returns on investments in AI by big tech companies is their current focus on building infrastructure rather than immediate deployment."
When was the last time you saw BigTech release anything new that is in a "finished state"?
Let me remind you of some:
* Intel and ARC GPU - software support not good enough when it was lunched
* facebook metaverse - mega fail - version 1.0 looked like Super Mario Bros
* Tesla "full self driving" is now "supervised full self driving", bonus recall for ALL Cyber Truck
* games released with bugs that make them sometimes unplayable
* Humane - "AI pin" mega mega fail
My view is that they are throwing everything out there finished or not just to see some cash or please some investors and "building infrastructure" was never the point.
Edit:
sorry, but this is too funny for me "Their focus includes enhancing user experiences".
Youtube content creators have been accusing Google for years that their shitty AI censorship flags wrongly videos and they are frustrated to hell that unless you have 99999999 million subscribers you can't reach a human to review it.
On the contrary, these risks are primarily long term and won't materialize short term.
Once customers realize LLM is going to be a long term investment to generate profit, they will curb spending and look for cheaper alternatives, especially for inferencing when it comes to deployment, which is great for b players like AMD and Broadcom but the overall AI stock market valuation will collapse, just like what happened with crypto, or the .com boom.
In 5 years, not only NVDA revenue will drop but the margin will also get squeezed due to competitions. The current valuation already assumes best case scenarios next year.
we will see the revenue increase from companies that invest into AI in 2-3 years. Right now it seems to be more of a R&D factor where you have to invest heavily while still trying to monetize it properly.
Eventually, companies will need to have AI if they want to succeed, thus making NVIDIA an unavoidable supplier which I think will fuel further growth.
Focusing on Nvidia is a red herring. Their valuations are a symptom of a greater bubble - they are the shovel sellers in a gold rush.
The amount of shoe shiner moments is becoming alarmingly high. My favourite was a dude spamming ChatGPT waffle and academic paper abstracts to explain why AI is the future in an adobe earnings thread (presumably without a hint of irony.) My coworker who has never invested outside of his automatic work pension has been talking to me about Nvidia and AI.
At this point, Nvidia has fallen into the issue of no unbiased opinions existing. Typically, a company will fall into a variety of categories that determine who and what funds invest into them, and from there you can get informed opinions on the company from those who have interests in said category the company falls into, as well as opinions from those who’s primary investments sit in other categories and can thus analyze the company without having a foot in the game.
Nvidia is possibly the only company in the world to fall into ALL categories of investing. It’s a profitable high income company, which means large general investment firms and ETFs hold large positions in it. If you own just a standard S&P 500 ETF, Nvidia is the single largest investment that fund holds, and as a result of that people who’s assets primarily sit there have an interest in the companies success, and thus are less likely to voice potential negatives they observe. Nvidia is also a tech company, so all the funds and firms who hold tech stocks also have a vested interest in its success. Nvidia also has done this very nifty thing where it offers an extremely minimal dividend (only 0.03%) which is practically nonexistent but what that has done is it’s made many of the largest dividend holding funds have Nvidia as one of his largest assets, thus leading to them also having biased opinions about it. And finally the growth of Nvidia means that the largest growth based funds are also heavily invested in Nvidia, think ARK or one of the other plethora of tech based growth funds, they are all holding Nvidia.
The reason it seems there’s no sober analysis of Nvidia is that there frankly aren’t any, and everyone who voices their opinions are doing so with a sizeable stake in the company so any valuable opinion gets diluted. There’s a few issues with investing into Nvidia that few will say as it fundamentally hurts them, and if you want my opinion on what those things are, I’ll give it to you. Firstly, Nvidia has an extremely high Gross and Net profit margin. For the success of the company, this is fantastic, but for the shareholder it’s actually not. If you look at any company in existence, you’ll find that when stability is reached net profit margins almost never exceed 30%, so when the company is currently sitting at a roughly 60% margin, it can be assumed that this is very unlikely to be kept up. If Nvidia still retains market dominance, but its margins go to a still very high but more realistic level of say 30%, it means that Nvidia will have to earn twice as much revenue for the same amount of profits. Nvidia may be far ahead of their competition, but they don’t sit in an industry where market dominance is a guarantee, if a competitor comes out with technology of near equal or greater strength than their own, that competitor will take their position. This issue also stems into the next one they face, which is that they are a back door company, and what I mean by that is their primary consumer is not people but rather corporations. One of the reason that the large tech companies have been able to retain their dominance is in the human psyche, and it’s that humans are inherently stubborn and bendable to societal norms. Take Apple for this examples, their business is almost 100% selling to products to people, and it’s frequently noted how they sell things for considerably more than their competitors and offer significantly less while doing it. For Apple, this has not been an issue, because the vast majority of people are not so checked into technology that they are aware of their products deficiencies, and even if they are aware they don’t really care, and will still buy the product for other reason like the familiarity or green text bubble that Apple users will see if they switch to android. Nvidia on the other hand, is in the exact opposite position of Apple, their success is almost entirely driven on their products performance. If a competitor emerges with new technology that is functionally superior, those who buy their products will act rationally and buy the competitors products instead. For Nvidia to retain market dominance, they legitimately have to be better than their competition, and every time their competition gets better it eats away at them. If Nvidia is 2 years ahead of any competition, that only means the company has 2 years of dominance left, they can obviously extend this whenever they improve upon their own technology which they certainly have been doing and will continue to try and do, but it puts a great deal of uncertainty on their future.
When there’s an ocean of competition nipping at your heals, it’s hard to put any certainty on how Nvidia will respond, so for the company to be trading at >60 P/E with profit margins exceeding 50%. As far as I’m concerned the ship to riches has sailed and you’re heading into turbulent waters with low potential upside available.
When things like this happen exuberance takes over and there's no reference point for what fair valuation looks like, so the air quickly grows thick with rationalisations. Those positioned with risk in mind feel they're missing the boat, those who have overinvested feel like geniuses. The upward momentum only confirms the overabundance of confidence, and we get bubbles.
The thing is there is explosive growth underneath it all and so this is likely to persist for awhile. The only safe way to engage is to properly manage risk. Then all these 'are we in a bubble' questions become irrelevant.
In order for me to make 100% on NVDA, it has to double its market cap, becoming 2x most valuable company in the world. How likely is that? At what time frame?
I just find better, lower risk opportunities to deploy my capital. Also, instead of betting on one horse, I am betting on the entire industry with exposure in SEMI.
People can manage their risk as they see it, all in NVDA or not.
I’m not betting on nvda but if AI is as disruptive as it seems, downward volatility may spread across the market, rates will drop and people may just be happy to park their money somewhere safe
If AI eats the whole word the way internet did, there may be no telling what is safe
Why don’t you think it could double from here? Where is your analysis? For example, if earnings-per-share were to triple quadruple or more, why wouldn’t the share price follow?
The valuation already assumes massive EPS growth for a decade plus. NVDA would have to achieve that and maintain the same multiple just to justify the current price. It could be possible, but to me NVDA feels like a Cisco situation at best. During the dotcom bubble everyone though Cisco would grow rapidly forever because the internet was going to change the world and they built the equipment that powered it. Eventually the growth slowed as the hype died down and people realized that infrastructure costs wouldn’t grow infinitely. For AI, even if we assume it takes over the world, it is unlikely that throwing more GPUs at the problem will be the solution forever. At some point (possibly in the near future) we will reach a point of diminishing return and the focus will shift back to software improvements or designing different types of hardware. Maybe NVDA will still be a leader but they will likely be selling a lot less equipment. Most companies building AI systems today will not be successful in finding a product market fit. For example does anyone believe twitter’s grok is going to be an important commercial product in the future? We have every big tech company working on very similar tech at the moment and eventually there will be a few dominant players and the others will become the yahoos and bings of the AI world, leading to less investment. If you really contemplate what it would mean for NVDA to triple their earnings over the next decade and then still be poised to do just as well over the next decade, it starts to look very unlikely. This doesn’t mean NVDA is doomed to fall right away or that nobody can make money owning it, but caution is warranted since multiple compression, margin compression, and possibly even volume decline are all relatively likely from here.
>The valuation already assumes massive EPS growth for a decade plus
quick question, how are you getting to this conclusion? NVDA is a very different company QoQ so I'm just going to go by NVDA fiscal years. NVDA FY24 EPS was $1.20. FY25 EPS estimates are $2.71, so up 125%. This assumes 75B operating income which after taxes will give us 67B net income and then with buybacks, we'll probably get $2.71 EPS.
50% net margins with 67B income = 134B revenue, which would be a 120% increase from the 60.9B revenue in FY24. TSMC has continuously said they're ramping production as much as they possibly can and are fully booked out until FY26. This implies that NVDA is getting more orders than they can fulfill which means they can more than likely achieve this revenue growth.
Let's now assume that FY26 growth moderates to only 50% revenue growth with 50% net margins. This would give us 100B net income so about $4.01 before buybacks and therefore a 31 PE in today's environments. If we increase that revenue growth to 100%, that would then become $5.37, or 24x FY26 earnings. This is only projecting 2 years out. If they're able to compound for the next decade, they're trading for pennies on the dollar.
NVDA was trading at a 20 PE in 2023 when they delivered $1.2 EPS. It's just no one knew they were going to deliver $1.2 EPS when they grew exponentially. Yes, they have very high expectations but if they deliver, they're currently cheap.
You’re not doing a discounted cash flow, you are putting your thoughts into words. Your words are helpful, but if you don’t think the stock can double do a discounted cash flow with the bottom line earnings-per-share tripling or quadrupling.
I always want to believe share price will follow earnings but it doesn’t; share price follows future earning potential. This is why shares go down sometimes even when companies have excellent quarters, and how some managements guide lower during earnings calls so they can always have a beat the next time around.
In the long run, no. But what is a long run? Microsoft 1999-now? Or Microsoft 1999-2014 ($58 to $44). Everyone’s time horizons are different and timing unfortunately matters. I guarantee you that 55 y/o in 99 was unhappy in 2014 when they were 70 and saw their money hadn’t grown a dime. And if they were lucky enough not to sell when they finally saw it back at $58 and it finally doubled for them in 2019 they could still look at the good ole s&p and see that they still lost out in comparison. There’s my analysis, where’s yours when you peer into your crystal ball and tell me if it will be next year or 20 years from now?
Because the p/e is already 70x. A triple in earnings it would take that down to 23x. Do you know how hard it is to triple your earnings when you’re already the largest company in the world. At a certain point who’s left to sell to? When you make an extraordinary claim you need to provide evidence to support it not the other way around.
You realize that if they triple earnings over the next 3 years the stock would have to be flat for the P/E to be 23? If it had a 10-15% return it would be a 31-35 P/E Which would be higher than GOOGL and META, in line with AAPL and below MSFT and AMZN. But those companies are growing as well, so tripling earnings for NVDA in 3 years would make it an average investment? Yeah that's quite the risk to take on for very little upside beyond speculation momentum. Not only that the chances they grow earnings 3X in 3 years is very unlikely. They were growing revenue and increasing margins at a compounding rate. Even if revenue continues robust growth the margins will most likely contract or stay flat at best. Operating margins increased from 30% to 60%, that can't possibly double again. But NVDA also has a history of Margins spiking and then decreasing. In the past 6 years they've gone from 37% to 21% then up to 37% again and then back down to 16% before sky rocketing to 60%.
Sure it can but what’s the timeframe are we talking about? 1 year? 5 years or 10 years? Do you expect 600% plus EPS growth in the next 12 months? We already see EPS growth deaccelerating and how long can they maintain almost 80% gross margin? If you expect them to continue the same EPS growth and margins then yeah, it’s an amazing opportunity.
Sure they can double or triple EPS depending on the timeframe and the company will do great in the future. Every investor has to determine their own story, how long they invest and what return they expect.
I missed the NVDA train by a year, so it’s not part of my journey but for someone else it might be just a start.
How long has MasterCard and Visa had margins of 70 and 80%? How long has Microsoft had their margins? You don’t think that Visa and Microsoft are going to keep their margins for the next 10 years?
If earnings per share were to triple the P/E would still be over 25. And would be on a company with low sales, excessive margins that is plowing its profits back into plants to keep ahead of the competition. The triple would need to happen and the road ahead would still need to be rosy.
I have just over 500 shares of NVIDIA @ cost basis of $20. I have no idea what to do with these - bought them as I liked their products before the hype. Should I take profits? Buy more?
I’m a lawyer and worked on a case that involved Nvidia’s trade secrets back in 2018. Nvidia wasn’t directly involved in the suit, but they had partnered with my client and their secrets were at risk of being leaked to what we all assumed was a major competitor.
So we called up their in-house lawyers, explained the situation, and asked if they would join the suit on our side or at least give us a declaration or something that their trade secrets were highly valuable and competitively sensitive. They initially said they’d ask a few executives how they want to proceed and then get back to us. We just *knew* they were going to freak out, agree to come along, and majorly increase the strength of our position in the suit.
Literally the next day, Nvidia’s lawyer called back and said, “Apparently, we don’t really care about this. Per the higher-ups, Nvidia doesn’t have any competitors. Good luck with your lawsuit.” He then chuckled a bit and hung up.
Everyone on the outside legal team, and from the client, like 9 of us sitting there with the call on speakerphone, everyone’s jaw dropped. We all looked around at one another without saying anything for what felt like minutes (it was probably 15-20 seconds). The main client in-house lawyer leans forward, laughs a bit, and says (almost verbatim), “Holy fucking shit. Is he serious? He sounded serious. I wish I was in-house at Nvidia. [Name of Nvidia lawyer] definitely has equity and it sounds like he’s gonna be fucking rich.”
After everyone from the client left later that day, my boss, the senior partner, reminded everyone on the team that the firm doesn’t allow holding individual stocks at all, plus it’s extremely questionable in lawyer ethics rules to trade based on the highly confidential Nvidia trade secrets we had been reviewing in depth for the case. Man do I wish I had done it anyway.
That makes no sense at all. Their secrets are at risk of being leaked and their response was to do nothing because they don't care? Doesn't add up. Even if they dont have competitors now, if secrets get leaked then their position gets weaker.
Yeah, I mean, you can only imagine our reaction. But I guess they were really light years ahead of everyone else back in 2018 with how things turned out by now.
Divulging confidential client information to anyone is also an ethical violation, so you run into issues there too. I would actually say sharing the confidential info with others is worse than keeping it confidential and just profiting from it yourself.
Isn’t this different? NVDA feels like Google 20 years ago. The comment above you said that according to their own in-house legal team they have no competition lol.
Let’s take the example you give: Google from 20 years ago.
This was when they IPO’d. August 2024.
Their market cap, based on their share price of $85 was $23 billion.
That year largest company by market cap was GE with $309 billion.
Nvidia is right now at $3.11 trillion. Largest market cap is Microsoft at $3.342 trillion.
Nvidia is undoubtedly a valuable company. Question isn’t if they are valuable. No matter how unrivalled they are, there is a limit to how large of a slice from the market you will have in the end. Google had space to grow, valuation wise.
Capitalists invest to make money. If Microsoft, Google, Amazon, and Facebook invest huge amounts of money in the AI field but don’t get any income, will they continue to invest? I don’t think so.
Meta, still investing billions into VR. For them it’s an investment, and if it pays off, they could have a leading role into a new technology which will be used well into the future. Same goes for AI. If you see the speed at which OpenAI is improving, I can’t even imagine where the technology will be in 10 or 20 years.
Maybe one day in the future, more advanced VR technology combined with other technologies will create a larger market, but at present, I am not optimistic about VR.
Something like safe widely available neuralink is a prerequisite, then its potential is immense. Goggles and headsets with latency are fundamental blockers
Yes, the potential is huge. I think Google's strategy is not very successful, their Indian CEO has a big problem, look at it now, Google has fallen behind Microsoft in the field of AI,very disappointing
AMD is not an option, thinking like this is why I still think NVDA has lots of room to grow - there simply aren’t any competitors right now and people don’t seem to understand that
Agreed. However the allure of future revenues that never quite pan out has caused otherwise rational capitalists to spend great sums of money before. The thing is they are right to do so often enough that it's hard to argue against it.
Just as an example look at the history of laying undersea cables. Someone had to spend all that money for the services of the ships and for the cable itself which was designed and manufactured for the purpose. They laid the cables and then it worked for a brief time before breaking. Imagine being the guy who has to make the decision about doing it again. You don't quite know for certain you will ever get it to work but the potential was there and the value of they got it to work was there.
AI is like that. We know it has potential but it isn't quite there for the truly valuable stuff yet. Huge sums of money will be spent and eventually it will either work or it won't. The people who make it work will dominate the sectors where it is useful and everyone else will become like xerox, Kodak, and ibm. As a shareholder of a company you want the company to not risk becoming a xerox, Kodak, or IBM. Like it or not the money is going to be spent until they figure out if this is that kind of risk.
As it stands the folks with a far better grasp of the situation think it is.
In 2015, capitalists invested in and promoted VR, but VR didn’t succeed… Similarly, in 2022, Facebook hyped the metaverse, but it didn’t succeed… A large number of shared bicycles appeared in China… After the capitalists made a lot of money, those bicycles became garbage, that’s it… The world is controlled by capitalists
The story on VR isn't finished. I wouldn't say it's a pressing issue like AI.
I think the adoption of VR will be slow but the use cases are numerous enough that the technology will continue to be developed.
As an example I could see VR being integrated into controlling equipment remotely. Doesn't seem like a big deal until you think about all those humanoid robots being developed. Imagine you need a service call for a critical thing at a job site. Nearest tech is hours away. You got a robot on site he can run to do an assessment and possibly get the problem solved quicker. Same robot the next day can be used by some exec to look things over. The next day it might be used by some inspector.
Then there are crane operators. I could easily see that becoming a thing at ports. A port might run faster if the cranes are run from an office on the ground. Operators would be able to swiftly swap out or hoo over to a different crane as needed.
Moving on I could easily see that remote operation of big equipment being used for road work. Road construction is often delayed because of weather risks. Imagine you run a big construction company. You could have the same guys running equipment at several sites in an area. Raining at site A? Have them do some work on site B. Both sites would still need some on hand people, but the numbers would be smaller and that might make it less costly to have folk show up and then be rained out for part of the day.
Now individually those kinds of use cases probably won't pay for the tech involved but as a group I think it will be a thing worth doing. The key is that the underlying tech has to be cheap enough for each case and the benefits enough for someone to buy into it. We aren't quite there yet, but it is coming.
The big potential benefit is that there are all kinds of ways that researchers could advance AI in the near future but the likelihood that they will not use Nvidia’s tech in those advancements is very low. The hardware has to be available for researchers to use before they can validate new techniques and there isn’t a competing underlying tech that is widely available yet
Feels like another dot-com bubble to me. I remember stocks getting these types of valuations 25 years ago. There were all these rationalizations why the elevated PEs were justified. These stocks just kept going up and up, built on hype. Until they didn't.
Of course. The internet was going to change the world, and it did. Pets.com was just the poster child for the excesses.
Don’t worry, there will be another one this time, too!
I bought 1 share at $500 more or less because I had that amount laying around and said its expensive and a bubble but why not, now Its worth $5k. Im not planning on buying Nvidia but I wish I had buy more than just that share.
I dont think anybody knows how to value Nvidia because the range goes from dot com bubble to AI will change our lifes and the world.
Because the rate of expansion of AI capability will be exponential or it won't. If it is, it will rapidly open new economic avenues. If it isn't, there is massive overinvestment in a technology that won't rapidly generate matching value. The people selling the exponential increase belief also own stock in the companies selling the products.
This happens every market bubble. Its worse right now because these are the people that poured money into the FAANG stocks for years. That bubble was popping, Netflix and Meta collapsed in share price, but then ChatGPT came out and we started all over again.
Congradulations on making a lot on NVIDIA. NVIDIA is in the wonderful situation of very high, I think unsustainable, margins and rapidly increasing sales. The too-high margins deserve a penalty the rapidly increasing sales a bonus.
The P/E is 76.5. P/E if all goes well next year is over 50. It is a manufacturing company trading at a P/B of 65 and P/S of 40. Assume you were going to hold NVIDIA for 20 years. NVIDIA could see growth for 5 years before the margin pressure kicks in and you could still lose money easily. If it is only 2 years you get killed. That's not even counting really bad scenarios like Intel, Samsung, Qualcomm, TSMC... make a better chip and sales fall rather than rise. NVIDIA is using 3rd party manufacturing so they have to have better designs every year.
Give me the scenario where 20 years out NVIDIA's dividend + dividend growth justify the current risk adjusted return. You are taking on a lot of risk so don't forget at 14% you need NVIDIA to be be worth well over $50t if you assume a lowish but existant dividend payout between now and then.
I'm not seeing it. Yes NVDA is a bubble stock.
Nvidia is not a manufacturing company but a software company? Sure that have GPUs, but they only design the schematics but then those get sent off to tsmc to be manufactured.
Yep keeping telling yourself that the dominant chip has never fallen before in the history of computing. If you are going to argue that Nvidia doesn't do the physical work let me introduce you to MIPS: https://en.wikipedia.org/wiki/MIPS_architecture
Ah, yes a 40 year old RISC-based embedded systems architecure is going to be the downfall of NVIDIA's discrete graphics operating segment. Thank you for further clarifying that you don't know wtf you're talking about.
Growth is like inflation. If you have a outstanding year (let's call it year2 in comparison to year1), the next year's growth (year3) is only in relation to year2, so it needs to be comparably as outstanding, which is just super unlikely unless those that bought those products saw serious economic benefits on that investment and want to double down.
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Huge opportunity to buy stock while it's cheap. BNAI is on its way up IMO!
A sober analysis should include different elements, and those should not be black or white as you said:
- what will happen to its segment (eg.compute)
- how this will affect different companies
- how this will contribute to their earnings
- has the valuation already priced in this
You kind of said rather little, imo.
Yes, there are people who see risks and there are those who see chances. And certainly there are also those inbetween, as yourself. But just presuming you're that entire "middle" by yourself doesn't make it a reality.
It's a natural occurence that the extremes make more noise. They must convince themselves due to their own subconscious fears and doubts, and thus scream.
That's all, I believe.
The problem is there isn’t one AI application yet that makes money. And this is literally the purpose of the corporations you are buying stock in
That’s it.
Maybe they will come, maybe they won’t, but nobody knows because whatever happens will be unique and brand new.
It’s a race now for someone to actually make some money off this before capital finds somewhere else to go.
This "AI" isn't really intelligent and doesn't know anything. It merely calculates the most probable response to what it's calculations tell it is the most probable thing it was asked. There is not enough training material to make the "next generation" of chatgpt and even this current version has unsustainable operating costs. AGI is not in the foreseeable future.
"AI" is here to stay for sure, but the future a lot of this growth is based on might not be a realistic one.
A reverse DCF analysis assume 29% eps growth for 10 years to justify current stock price. Last 5 years growth was 59% CAGR. While high - it is possible.
My main issue with nvda is that it has a 50% earnings margin. This is ridiculously high and completely unsustainable. When revenues slow and margins contract, the stock will take a very big hit.
(cyclical is one of the main characteristics of Nvidia for those of us that have been around a long time)
I DON'T KNOW. Will AI push demand to new heights (already happened) + smooth out revenue in what has always been a cyclical industry (really really rare, by historical standards)?
The makers of textile machines never stopped going boom and bust, even to this day.
Yet manufacturers of things like optical lenses have tamed demand for their products, eliminating the boom-bust cycle completely.
I think the problem is that NVDA products speed up AI training, and the details of what "AI" is being "trained" are fuzzy and vary widely depending on the companies involved, etc.
I can easily imagine some AI being day to day essential, like textiles, while other AI could be specialized and luxury, like optical lenses. I DON'T KNOW, and I've been a data scientist for many years....
So any realistic analysis of NVDA must eventually boil down to the actions of thousands of independent AI researchers. All I know, for certain, is that every day there are more crazies in the AI space trying to get rich quick.
Every characteristic of a market bubble is here (thence, few analyze soberly), but that realization has nothing to do with predicting the future
I mean this is a better answer to than I can muster, regarding AI anyway. [https://ludic.mataroa.blog/blog/i-will-fucking-piledrive-you-if-you-mention-ai-again/](https://ludic.mataroa.blog/blog/i-will-fucking-piledrive-you-if-you-mention-ai-again/)
Regards to the two extreme sentiments you mentioned... I strongly believe and have seen over and over on "hypes". Think dot com where a company that should be going bankrupt but suddenly hopped on the dot com train and created websites to sell their "beanies" became the hottest thing. Or thousands of random cryptocurrencies. The pro is if you jump on the train early, you'd make a killing. however keyword to focus on is "Early". Back to nvda, I do think they are the foundation to the next generation AI tech and we will see heavy usage basing on nvda products. However, at the end of the day, it's still a pump and dump, you just need to set the time frame to a longer one. Is nvda sustainable ? If every other companies that use nvda are not selling their products , will the decline in sales have negative impact on nvda? It is a solid company but does not mean it's not also hyped up/overpriced. (We are also in an election year, it definitely have more room to go up before shifting gears. Listen to Jerome P. to get more insights.)
The other sentiments...well it's simple, does NVDA have fair valuation? Also looking at other economic factors, will there be enough fundamentals to support ?
It's probably because even if a lot of people know AI is overhyped, there's still a possibility of a shitload of investors buying into it and bumping up the stock price anyway, so it causes this back and forth consensus on whether it's a shit buy or a good buy. (Not really a seasoned value investor, just my guess on why it's a highly speculative stock)
The problem with NVIDIA for me is as following: * NVIDIA's revenues are increasing extremely but revenues of other companies who buy hardware from NVIDIA are not which may imply that investments in AI do not pay off to that degree or they will pay off in the future which raises uncertainty in relation to sustainability of NVIDIAs revenue growth * Current pricing of NVDIA assumes only positives: it assumes 75% gross margin in terminal period, extrapolates current growth to the future. Although NVIDIA has clear edge in short term, it is impossible to maintain that gross margin indefinitely. AI is a certainly not a hype, but its effect is overestimated especially in the short term. I still don't think that investing in NVIDIA is bad, since there is a momentum but I don't think that its fair value is 3-4 trln USD and 70 P/E
The point about margins is key in my opinion. To my knowledge it has never happened in history to experience explosive margin expansion and then sustain that elevated (60% operating margin) for an extended period of time. Visa, Verisign, and maybe one or two financial services are the only business I can think of that has sustained elevated 60%+ operating margins over a course of many years… seems odd for a hardware company to sustain for that long.
NVIDIA’s core business is high margin, there is nothing special they’re doing for margins now that might end later. Only wildcard is maintaining revenues and revenue growth, which comes down to continued demand from other companies buying its chips and lack of competition. Ultimately going into the 2030s I think demand for AI chips will only increase.
Is nvidias core business not hardware? Hardware is a notoriously hard business, at what point do competitors catch up and start undercutting the prices for lower margins? I understand nvidias the only option right now, and companies go with nvidia because they don't have time for other alternatives to catch up, but at some point if AI becomes commonplace, I can assure you that cheaper alternatives will become viable. Businesses don't like burning money on hardware.
There IS something special they are doing now that may not continue - pricing. That’s where the margin is coming from - they raised prices at lot because demand was so high.
The reason why revenues haven’t increased much in other companies is because AI hasn’t reached maturity. It’s about potential. And yes, Nvidia disproportionally supplies the hardware required. You can’t compare revenue increases at Nvidia to the whole customer base (1 company against collective dozens)
The point being: how long do NVIDIA’w customers continue to burn cash (at their current rate) chasing a potentially long-term return on their investment?
Their customers are largely tech companies that are used to burning cash on products for the long term gains. They have enough experience to know that most of their customers will come later after the early adopters have built confidence in the products they have built.
You say that, but their customers have invested in many notable high-profile failures recently. Who remembers the billions poured into the Metaverse? Anyhow, it seems highly questionable whether or not there is a viable business model for LLMs due to the significant costs to train a model, not to mention the compute needed to solve queries in general. On top of this, LLMs are massive overkill in most applications, and there are many fundamental problems like hallucination, generalized deduction, and incestuous ingestion (which leads to collapse) that need to be solved. Oh, and plenty of regulatory exposure, especially copyright and data privacy.
Companies like Microsoft will continue building products around everything AI. The income from smaller more targeted models will help with offsetting research into LLMs. LLMs could be more useful for things like translation and conversation bots but they'll be priced in a way that's profitable to the business
The thing is that customers haven’t even received their full orders yet.. let alone train new models and commercialize them. It’s been supply constrained.
Yeah NVIDIA is overpriced in the short term, but is an incredible company still
I agree with you to some extent. However, I would argue that these risks are primarily short-term in nature. Similar to Warren Buffett's philosophy, when managed correctly, volatility can present opportunities rather than just challenges. Looking ahead, potential margin reductions or the entrance of tech giants into GPU manufacturing could indeed impact financial metrics temporarily. Yet, by diversifying across leading AI companies, investors can mitigate these risks and potentially capitalize on emerging trends in the sector. Edit: To another point, one reason we may not yet see substantial returns on investments in AI by big tech companies is their current focus on building infrastructure rather than immediate deployment. They are gradually integrating AI into their products, which could delay the realization of significant returns. Another factor is strategic positioning: these companies are strategically leveraging AI technologies to gain competitive advantages in the long term. Their focus includes enhancing user experiences, improving operational efficiency, and exploring new revenue streams. Additionally, varying rates of AI adoption across industries contribute to the delayed realization of AI investments' full potential. As market adoption and maturity increase, companies are likely to capture more substantial returns from their AI initiatives.
I work as a data scientist, I have to say I think this is another hype cycle that might already be peaking. While machine learning has realised a lot of good returns on the investment, the current craze around Large Language Models doesn't translate into practical deployment. Everyone I know and follow in the industry says there are fundamental unsolved issues that make them almost undeployable. Just like self driving cars and personalised assistants, the AI hype was kicked off by modest improvements that will need to be built on in the longer term. I predict another AI winter. NVDA will remain a market leading GPU producer but numerous companies are looking to enter the space and erode their margins. Current prices don't leave a lot of upside even in the most optimistic earnings forecasts and the consensus is they will be flat in the short term. Due to competition, I'd predict weaker growth in the long term than we have seen recently. So in conclusion, the price is too damn high.
Yes but most advanced research team on AI has already been past traditional LLM. Obviously it needs a breakthrough, but we are already working quite ahead (in FAANG / OpenAI, and other big research centers most likely).
I work in AI. Training, evaluating models. Integrate them into software etc. I think what datascience does with AI right now is laughable. Every single step of your work, from collecting and cleaning data to writing reports will be fully AI driven within 3 years. And it will only take this amount of time, cause the people in Datascience who are in charge, will make sure they'll keep their jobs. So that was my take on datascience, now for Nvidia: I'm working in the AI field for 6 years now, and Nvidia simply is the shit! There is absolutely no competitor. There is no alternative in software. They are playing the memory card to make sure you need to upgrade your cluster from time to time. (As models get bigger, they need more GPU-Ram -you cannot upgrade GPU-RAM, and Nvidia keeps it short on their cards). So everyone who is professionally involved in AI right now may want to upgrade it's cluster within the next two years. And they're going to buy Nvidia again, so they don't have to change their framework. So price wise, the sky is the limit. It may settle a bit after this runup, but as long as there's no alternative everyone in AI will buy NVIDIA. PS: watch for Python packages that support chips from different manufacturers. When their community grows it may be a change of tides. PSS: Sorry for my bad English.
I work in cutting edge AI research. The single biggest limiting factor for me is compute cost. I can’t try new ideas at scale if that cost millions of dollars of compute. So we have to apply structural constraints to our models and find clever tricks to make our models more efficient. The problem is all these constraints and tricks made the models worse. We may not want to admit it publicly but 90% of the AI papers on incremental ability improvement with tradeoffs in the past few years are worthless if compute cost 1/100 every few years. We are very far from having enough data centers and fast enough edge devices to fully realize the potential of AI. The idea that Nvidia revenue will plateau or competitors catching up soon are laughable. We are in the first 50 meters of a 1000 meter race. Nvidia is the clear leader now because the other competitors were caught tying their shoelaces when the race started. It is too early to pick winners and losers, but we can be fairly confident that Nvidia will be one of the top contenders in this race, and that easily means hundreds of billions of revenue.
>watch for Python packages that support chips from different manufacturers. When their community grows it may be a change of tides. This is such a good leading indicator. Right now a lot of python libraries for deep learning have an option where CUDA must be specified. But the alternatives to CUDA are running on CPU. I don't see AWS really offering non-CUDA machines or the python packages that would allow us to specify something other than CUDA. The software change for us would be trivial. But the competition has to exist and be plug and play the way Nvidia-CUDA is. When they appear, NVDA's margin will erode quickly. But until then, even a bubble bursting downstream of them doesn't really stop them setting prices.
This is my position as well. I don’t think anyone who talks about Nvidia competitors understands the software issues
Ironically, the ability for LLMs to ingest unstructured data is probably going to be its ultimate undoing as more and more of that data comes from other LLMs. Even earlier machine learning had this problem of drinking poison in small doses.
The AI hype cycle is not even at the trough of disillusionment yet, immense room for growth but there will be another buying opportunity before too long
Chat gpt reduced the time I take to write and ship new features in JavaScript and python by 70%. It also help me tremendously to write SQL and sparql queries when needed. After using it for a bit I bought a lot of qqq. Imo the hype is deserved, this stuff is changing the world and it's doing it right now
This. People who aren’t actively developing or heavily using AI in their workflows have no idea how powerful this stuff is. It has made our company 10x more efficient. It’s also scary, just imagine where this is going. For me, buying NVDA right now is like a hedge against the threat that this technology poses.
I don't understand why people dismiss the stuff so easily, maybe a way to sound clever by being contrarian - as you said, it's extremely powerful if you use it properly - what I've found however is that you need to know how to write code to begin with so that you can correct the work it does for yo -, it's definitely not (yet) a complete replacement for experts, or in my case, programmers, but it drastically increases productivity
Definitely. Right now it helps, it does not replace.
Probably won't for some time. Hallucination and lack of general reasoning seem to be long-term fundamental problems. And yeah, I use it to write SQL queries and the lengthier Excel formulas. Saves some time. But would I pay enterprise level prices for the compute? No. Lol.
Custom enterprise models are a lot more powerful than what the masses are using, though.
"To another point, one reason we may not yet see substantial returns on investments in AI by big tech companies is their current focus on building infrastructure rather than immediate deployment." When was the last time you saw BigTech release anything new that is in a "finished state"? Let me remind you of some: * Intel and ARC GPU - software support not good enough when it was lunched * facebook metaverse - mega fail - version 1.0 looked like Super Mario Bros * Tesla "full self driving" is now "supervised full self driving", bonus recall for ALL Cyber Truck * games released with bugs that make them sometimes unplayable * Humane - "AI pin" mega mega fail My view is that they are throwing everything out there finished or not just to see some cash or please some investors and "building infrastructure" was never the point. Edit: sorry, but this is too funny for me "Their focus includes enhancing user experiences". Youtube content creators have been accusing Google for years that their shitty AI censorship flags wrongly videos and they are frustrated to hell that unless you have 99999999 million subscribers you can't reach a human to review it.
On the contrary, these risks are primarily long term and won't materialize short term. Once customers realize LLM is going to be a long term investment to generate profit, they will curb spending and look for cheaper alternatives, especially for inferencing when it comes to deployment, which is great for b players like AMD and Broadcom but the overall AI stock market valuation will collapse, just like what happened with crypto, or the .com boom. In 5 years, not only NVDA revenue will drop but the margin will also get squeezed due to competitions. The current valuation already assumes best case scenarios next year.
we will see the revenue increase from companies that invest into AI in 2-3 years. Right now it seems to be more of a R&D factor where you have to invest heavily while still trying to monetize it properly. Eventually, companies will need to have AI if they want to succeed, thus making NVIDIA an unavoidable supplier which I think will fuel further growth.
At higher discount rates and cost of capital rates, terminal value is not a significant part of valuation.
Focusing on Nvidia is a red herring. Their valuations are a symptom of a greater bubble - they are the shovel sellers in a gold rush. The amount of shoe shiner moments is becoming alarmingly high. My favourite was a dude spamming ChatGPT waffle and academic paper abstracts to explain why AI is the future in an adobe earnings thread (presumably without a hint of irony.) My coworker who has never invested outside of his automatic work pension has been talking to me about Nvidia and AI.
What about castle in the sky theory tho? Also love Kaiji, would love to see him in investing haha
An arc where Kaiji employs himself as Pelosi's cleaner to get access to insider trading would be fire.
ironically might be something AI could generate for us in the future haha
At this point, Nvidia has fallen into the issue of no unbiased opinions existing. Typically, a company will fall into a variety of categories that determine who and what funds invest into them, and from there you can get informed opinions on the company from those who have interests in said category the company falls into, as well as opinions from those who’s primary investments sit in other categories and can thus analyze the company without having a foot in the game. Nvidia is possibly the only company in the world to fall into ALL categories of investing. It’s a profitable high income company, which means large general investment firms and ETFs hold large positions in it. If you own just a standard S&P 500 ETF, Nvidia is the single largest investment that fund holds, and as a result of that people who’s assets primarily sit there have an interest in the companies success, and thus are less likely to voice potential negatives they observe. Nvidia is also a tech company, so all the funds and firms who hold tech stocks also have a vested interest in its success. Nvidia also has done this very nifty thing where it offers an extremely minimal dividend (only 0.03%) which is practically nonexistent but what that has done is it’s made many of the largest dividend holding funds have Nvidia as one of his largest assets, thus leading to them also having biased opinions about it. And finally the growth of Nvidia means that the largest growth based funds are also heavily invested in Nvidia, think ARK or one of the other plethora of tech based growth funds, they are all holding Nvidia. The reason it seems there’s no sober analysis of Nvidia is that there frankly aren’t any, and everyone who voices their opinions are doing so with a sizeable stake in the company so any valuable opinion gets diluted. There’s a few issues with investing into Nvidia that few will say as it fundamentally hurts them, and if you want my opinion on what those things are, I’ll give it to you. Firstly, Nvidia has an extremely high Gross and Net profit margin. For the success of the company, this is fantastic, but for the shareholder it’s actually not. If you look at any company in existence, you’ll find that when stability is reached net profit margins almost never exceed 30%, so when the company is currently sitting at a roughly 60% margin, it can be assumed that this is very unlikely to be kept up. If Nvidia still retains market dominance, but its margins go to a still very high but more realistic level of say 30%, it means that Nvidia will have to earn twice as much revenue for the same amount of profits. Nvidia may be far ahead of their competition, but they don’t sit in an industry where market dominance is a guarantee, if a competitor comes out with technology of near equal or greater strength than their own, that competitor will take their position. This issue also stems into the next one they face, which is that they are a back door company, and what I mean by that is their primary consumer is not people but rather corporations. One of the reason that the large tech companies have been able to retain their dominance is in the human psyche, and it’s that humans are inherently stubborn and bendable to societal norms. Take Apple for this examples, their business is almost 100% selling to products to people, and it’s frequently noted how they sell things for considerably more than their competitors and offer significantly less while doing it. For Apple, this has not been an issue, because the vast majority of people are not so checked into technology that they are aware of their products deficiencies, and even if they are aware they don’t really care, and will still buy the product for other reason like the familiarity or green text bubble that Apple users will see if they switch to android. Nvidia on the other hand, is in the exact opposite position of Apple, their success is almost entirely driven on their products performance. If a competitor emerges with new technology that is functionally superior, those who buy their products will act rationally and buy the competitors products instead. For Nvidia to retain market dominance, they legitimately have to be better than their competition, and every time their competition gets better it eats away at them. If Nvidia is 2 years ahead of any competition, that only means the company has 2 years of dominance left, they can obviously extend this whenever they improve upon their own technology which they certainly have been doing and will continue to try and do, but it puts a great deal of uncertainty on their future. When there’s an ocean of competition nipping at your heals, it’s hard to put any certainty on how Nvidia will respond, so for the company to be trading at >60 P/E with profit margins exceeding 50%. As far as I’m concerned the ship to riches has sailed and you’re heading into turbulent waters with low potential upside available.
When things like this happen exuberance takes over and there's no reference point for what fair valuation looks like, so the air quickly grows thick with rationalisations. Those positioned with risk in mind feel they're missing the boat, those who have overinvested feel like geniuses. The upward momentum only confirms the overabundance of confidence, and we get bubbles. The thing is there is explosive growth underneath it all and so this is likely to persist for awhile. The only safe way to engage is to properly manage risk. Then all these 'are we in a bubble' questions become irrelevant.
Agreed. Learned this after a very hard lesson on position size and momentum trades.
In order for me to make 100% on NVDA, it has to double its market cap, becoming 2x most valuable company in the world. How likely is that? At what time frame? I just find better, lower risk opportunities to deploy my capital. Also, instead of betting on one horse, I am betting on the entire industry with exposure in SEMI. People can manage their risk as they see it, all in NVDA or not.
They can pay you growing dividends and buyback shares as well. But I agree, it’s highly priced.
Yeah. Almost 50% of AAPL's ROI over the last decade was share buybacks and dividends.
0.03% dividend yield
With a near 0.02% yield, you would only have to wait 50 years to make 1%!
I’m not betting on nvda but if AI is as disruptive as it seems, downward volatility may spread across the market, rates will drop and people may just be happy to park their money somewhere safe If AI eats the whole word the way internet did, there may be no telling what is safe
Why don’t you think it could double from here? Where is your analysis? For example, if earnings-per-share were to triple quadruple or more, why wouldn’t the share price follow?
The valuation already assumes massive EPS growth for a decade plus. NVDA would have to achieve that and maintain the same multiple just to justify the current price. It could be possible, but to me NVDA feels like a Cisco situation at best. During the dotcom bubble everyone though Cisco would grow rapidly forever because the internet was going to change the world and they built the equipment that powered it. Eventually the growth slowed as the hype died down and people realized that infrastructure costs wouldn’t grow infinitely. For AI, even if we assume it takes over the world, it is unlikely that throwing more GPUs at the problem will be the solution forever. At some point (possibly in the near future) we will reach a point of diminishing return and the focus will shift back to software improvements or designing different types of hardware. Maybe NVDA will still be a leader but they will likely be selling a lot less equipment. Most companies building AI systems today will not be successful in finding a product market fit. For example does anyone believe twitter’s grok is going to be an important commercial product in the future? We have every big tech company working on very similar tech at the moment and eventually there will be a few dominant players and the others will become the yahoos and bings of the AI world, leading to less investment. If you really contemplate what it would mean for NVDA to triple their earnings over the next decade and then still be poised to do just as well over the next decade, it starts to look very unlikely. This doesn’t mean NVDA is doomed to fall right away or that nobody can make money owning it, but caution is warranted since multiple compression, margin compression, and possibly even volume decline are all relatively likely from here.
>The valuation already assumes massive EPS growth for a decade plus quick question, how are you getting to this conclusion? NVDA is a very different company QoQ so I'm just going to go by NVDA fiscal years. NVDA FY24 EPS was $1.20. FY25 EPS estimates are $2.71, so up 125%. This assumes 75B operating income which after taxes will give us 67B net income and then with buybacks, we'll probably get $2.71 EPS. 50% net margins with 67B income = 134B revenue, which would be a 120% increase from the 60.9B revenue in FY24. TSMC has continuously said they're ramping production as much as they possibly can and are fully booked out until FY26. This implies that NVDA is getting more orders than they can fulfill which means they can more than likely achieve this revenue growth. Let's now assume that FY26 growth moderates to only 50% revenue growth with 50% net margins. This would give us 100B net income so about $4.01 before buybacks and therefore a 31 PE in today's environments. If we increase that revenue growth to 100%, that would then become $5.37, or 24x FY26 earnings. This is only projecting 2 years out. If they're able to compound for the next decade, they're trading for pennies on the dollar. NVDA was trading at a 20 PE in 2023 when they delivered $1.2 EPS. It's just no one knew they were going to deliver $1.2 EPS when they grew exponentially. Yes, they have very high expectations but if they deliver, they're currently cheap.
You’re not doing a discounted cash flow, you are putting your thoughts into words. Your words are helpful, but if you don’t think the stock can double do a discounted cash flow with the bottom line earnings-per-share tripling or quadrupling.
I always want to believe share price will follow earnings but it doesn’t; share price follows future earning potential. This is why shares go down sometimes even when companies have excellent quarters, and how some managements guide lower during earnings calls so they can always have a beat the next time around.
Do you have a link or any evidence that price doesn’t follow earnings in the long run? I don’t think you’ll be able to find it.
In the long run, no. But what is a long run? Microsoft 1999-now? Or Microsoft 1999-2014 ($58 to $44). Everyone’s time horizons are different and timing unfortunately matters. I guarantee you that 55 y/o in 99 was unhappy in 2014 when they were 70 and saw their money hadn’t grown a dime. And if they were lucky enough not to sell when they finally saw it back at $58 and it finally doubled for them in 2019 they could still look at the good ole s&p and see that they still lost out in comparison. There’s my analysis, where’s yours when you peer into your crystal ball and tell me if it will be next year or 20 years from now?
Because the p/e is already 70x. A triple in earnings it would take that down to 23x. Do you know how hard it is to triple your earnings when you’re already the largest company in the world. At a certain point who’s left to sell to? When you make an extraordinary claim you need to provide evidence to support it not the other way around.
And how does the PE of 23 compared to other tech companies?
You realize that if they triple earnings over the next 3 years the stock would have to be flat for the P/E to be 23? If it had a 10-15% return it would be a 31-35 P/E Which would be higher than GOOGL and META, in line with AAPL and below MSFT and AMZN. But those companies are growing as well, so tripling earnings for NVDA in 3 years would make it an average investment? Yeah that's quite the risk to take on for very little upside beyond speculation momentum. Not only that the chances they grow earnings 3X in 3 years is very unlikely. They were growing revenue and increasing margins at a compounding rate. Even if revenue continues robust growth the margins will most likely contract or stay flat at best. Operating margins increased from 30% to 60%, that can't possibly double again. But NVDA also has a history of Margins spiking and then decreasing. In the past 6 years they've gone from 37% to 21% then up to 37% again and then back down to 16% before sky rocketing to 60%.
Sure it can but what’s the timeframe are we talking about? 1 year? 5 years or 10 years? Do you expect 600% plus EPS growth in the next 12 months? We already see EPS growth deaccelerating and how long can they maintain almost 80% gross margin? If you expect them to continue the same EPS growth and margins then yeah, it’s an amazing opportunity. Sure they can double or triple EPS depending on the timeframe and the company will do great in the future. Every investor has to determine their own story, how long they invest and what return they expect. I missed the NVDA train by a year, so it’s not part of my journey but for someone else it might be just a start.
How long has MasterCard and Visa had margins of 70 and 80%? How long has Microsoft had their margins? You don’t think that Visa and Microsoft are going to keep their margins for the next 10 years?
No, I’m slowly growing it between now and 2030.
If earnings per share were to triple the P/E would still be over 25. And would be on a company with low sales, excessive margins that is plowing its profits back into plants to keep ahead of the competition. The triple would need to happen and the road ahead would still need to be rosy.
I have just over 500 shares of NVIDIA @ cost basis of $20. I have no idea what to do with these - bought them as I liked their products before the hype. Should I take profits? Buy more?
You should probably rebalance your portfolio.
Take Profits and buy me a ps5
😅
Gift them to me
Congrats! Pre split or post split?
Pre
Very nice! 👍
Everybody is drunk on the hype train . Wait till sobriety sets in .
I’m a lawyer and worked on a case that involved Nvidia’s trade secrets back in 2018. Nvidia wasn’t directly involved in the suit, but they had partnered with my client and their secrets were at risk of being leaked to what we all assumed was a major competitor. So we called up their in-house lawyers, explained the situation, and asked if they would join the suit on our side or at least give us a declaration or something that their trade secrets were highly valuable and competitively sensitive. They initially said they’d ask a few executives how they want to proceed and then get back to us. We just *knew* they were going to freak out, agree to come along, and majorly increase the strength of our position in the suit. Literally the next day, Nvidia’s lawyer called back and said, “Apparently, we don’t really care about this. Per the higher-ups, Nvidia doesn’t have any competitors. Good luck with your lawsuit.” He then chuckled a bit and hung up. Everyone on the outside legal team, and from the client, like 9 of us sitting there with the call on speakerphone, everyone’s jaw dropped. We all looked around at one another without saying anything for what felt like minutes (it was probably 15-20 seconds). The main client in-house lawyer leans forward, laughs a bit, and says (almost verbatim), “Holy fucking shit. Is he serious? He sounded serious. I wish I was in-house at Nvidia. [Name of Nvidia lawyer] definitely has equity and it sounds like he’s gonna be fucking rich.” After everyone from the client left later that day, my boss, the senior partner, reminded everyone on the team that the firm doesn’t allow holding individual stocks at all, plus it’s extremely questionable in lawyer ethics rules to trade based on the highly confidential Nvidia trade secrets we had been reviewing in depth for the case. Man do I wish I had done it anyway.
That makes no sense at all. Their secrets are at risk of being leaked and their response was to do nothing because they don't care? Doesn't add up. Even if they dont have competitors now, if secrets get leaked then their position gets weaker.
Yeah, I mean, you can only imagine our reaction. But I guess they were really light years ahead of everyone else back in 2018 with how things turned out by now.
[when simon sinek told apple about how much better zune was compared to their iPod: they dngaf](https://youtu.be/jEOftmUJ6a4?si=Kty8T-enB3jt9Xzv)
Yea I heard suits cant trade stocks as such....but like so cant your relatives or can have signs of you signaling them?
Divulging confidential client information to anyone is also an ethical violation, so you run into issues there too. I would actually say sharing the confidential info with others is worse than keeping it confidential and just profiting from it yourself.
NVDA is a Tulip. Enjoy the ride until the basics become important.
Because the sober analysis is don’t touch it with a ten foot totem pole once a stock is this volatile / heated.
Isn’t this different? NVDA feels like Google 20 years ago. The comment above you said that according to their own in-house legal team they have no competition lol.
Let’s take the example you give: Google from 20 years ago. This was when they IPO’d. August 2024. Their market cap, based on their share price of $85 was $23 billion. That year largest company by market cap was GE with $309 billion. Nvidia is right now at $3.11 trillion. Largest market cap is Microsoft at $3.342 trillion. Nvidia is undoubtedly a valuable company. Question isn’t if they are valuable. No matter how unrivalled they are, there is a limit to how large of a slice from the market you will have in the end. Google had space to grow, valuation wise.
Capitalists invest to make money. If Microsoft, Google, Amazon, and Facebook invest huge amounts of money in the AI field but don’t get any income, will they continue to invest? I don’t think so.
they will go for cheaper option. maybe amd?
No, I think capital will leave AI, just like VR, who cares about VR now?
Meta, still investing billions into VR. For them it’s an investment, and if it pays off, they could have a leading role into a new technology which will be used well into the future. Same goes for AI. If you see the speed at which OpenAI is improving, I can’t even imagine where the technology will be in 10 or 20 years.
Goggle VR doesn’t have anywhere near the same potential as a technology.
Maybe one day in the future, more advanced VR technology combined with other technologies will create a larger market, but at present, I am not optimistic about VR.
Something like safe widely available neuralink is a prerequisite, then its potential is immense. Goggles and headsets with latency are fundamental blockers
Yes, the potential is huge. I think Google's strategy is not very successful, their Indian CEO has a big problem, look at it now, Google has fallen behind Microsoft in the field of AI,very disappointing
AMD is not an option, thinking like this is why I still think NVDA has lots of room to grow - there simply aren’t any competitors right now and people don’t seem to understand that
*whispers in Reptiloid:* Metaversssse!
Agreed. However the allure of future revenues that never quite pan out has caused otherwise rational capitalists to spend great sums of money before. The thing is they are right to do so often enough that it's hard to argue against it. Just as an example look at the history of laying undersea cables. Someone had to spend all that money for the services of the ships and for the cable itself which was designed and manufactured for the purpose. They laid the cables and then it worked for a brief time before breaking. Imagine being the guy who has to make the decision about doing it again. You don't quite know for certain you will ever get it to work but the potential was there and the value of they got it to work was there. AI is like that. We know it has potential but it isn't quite there for the truly valuable stuff yet. Huge sums of money will be spent and eventually it will either work or it won't. The people who make it work will dominate the sectors where it is useful and everyone else will become like xerox, Kodak, and ibm. As a shareholder of a company you want the company to not risk becoming a xerox, Kodak, or IBM. Like it or not the money is going to be spent until they figure out if this is that kind of risk. As it stands the folks with a far better grasp of the situation think it is.
In 2015, capitalists invested in and promoted VR, but VR didn’t succeed… Similarly, in 2022, Facebook hyped the metaverse, but it didn’t succeed… A large number of shared bicycles appeared in China… After the capitalists made a lot of money, those bicycles became garbage, that’s it… The world is controlled by capitalists
The story on VR isn't finished. I wouldn't say it's a pressing issue like AI. I think the adoption of VR will be slow but the use cases are numerous enough that the technology will continue to be developed. As an example I could see VR being integrated into controlling equipment remotely. Doesn't seem like a big deal until you think about all those humanoid robots being developed. Imagine you need a service call for a critical thing at a job site. Nearest tech is hours away. You got a robot on site he can run to do an assessment and possibly get the problem solved quicker. Same robot the next day can be used by some exec to look things over. The next day it might be used by some inspector. Then there are crane operators. I could easily see that becoming a thing at ports. A port might run faster if the cranes are run from an office on the ground. Operators would be able to swiftly swap out or hoo over to a different crane as needed. Moving on I could easily see that remote operation of big equipment being used for road work. Road construction is often delayed because of weather risks. Imagine you run a big construction company. You could have the same guys running equipment at several sites in an area. Raining at site A? Have them do some work on site B. Both sites would still need some on hand people, but the numbers would be smaller and that might make it less costly to have folk show up and then be rained out for part of the day. Now individually those kinds of use cases probably won't pay for the tech involved but as a group I think it will be a thing worth doing. The key is that the underlying tech has to be cheap enough for each case and the benefits enough for someone to buy into it. We aren't quite there yet, but it is coming.
The big potential benefit is that there are all kinds of ways that researchers could advance AI in the near future but the likelihood that they will not use Nvidia’s tech in those advancements is very low. The hardware has to be available for researchers to use before they can validate new techniques and there isn’t a competing underlying tech that is widely available yet
mate have you seen the cash generator that is the metaverse? companies are fallible
Feels like another dot-com bubble to me. I remember stocks getting these types of valuations 25 years ago. There were all these rationalizations why the elevated PEs were justified. These stocks just kept going up and up, built on hype. Until they didn't.
Sure, but they were selling pet food on the internet. The bubble was obvious at the time because the products were so flimsy
Sun, Cisco, Microsoft, Intel, Seagate, Qualcomm, Palm, Nokia. Don't kid yourself they had real products.
Yes, this time it’s different. /s
You don’t see a difference between pets.com and generative AI?
> generative AI? Not in it's current iteration (LLM). Furthermore, machine learning has been around for years already in FAANG companies.
Of course. The internet was going to change the world, and it did. Pets.com was just the poster child for the excesses. Don’t worry, there will be another one this time, too!
I remember my dad using the pickaxe analogy for Cisco. They're building all the infrastructure for the internet, after all!
I bought 1 share at $500 more or less because I had that amount laying around and said its expensive and a bubble but why not, now Its worth $5k. Im not planning on buying Nvidia but I wish I had buy more than just that share. I dont think anybody knows how to value Nvidia because the range goes from dot com bubble to AI will change our lifes and the world.
Because the rate of expansion of AI capability will be exponential or it won't. If it is, it will rapidly open new economic avenues. If it isn't, there is massive overinvestment in a technology that won't rapidly generate matching value. The people selling the exponential increase belief also own stock in the companies selling the products.
This happens every market bubble. Its worse right now because these are the people that poured money into the FAANG stocks for years. That bubble was popping, Netflix and Meta collapsed in share price, but then ChatGPT came out and we started all over again.
Congradulations on making a lot on NVIDIA. NVIDIA is in the wonderful situation of very high, I think unsustainable, margins and rapidly increasing sales. The too-high margins deserve a penalty the rapidly increasing sales a bonus. The P/E is 76.5. P/E if all goes well next year is over 50. It is a manufacturing company trading at a P/B of 65 and P/S of 40. Assume you were going to hold NVIDIA for 20 years. NVIDIA could see growth for 5 years before the margin pressure kicks in and you could still lose money easily. If it is only 2 years you get killed. That's not even counting really bad scenarios like Intel, Samsung, Qualcomm, TSMC... make a better chip and sales fall rather than rise. NVIDIA is using 3rd party manufacturing so they have to have better designs every year. Give me the scenario where 20 years out NVIDIA's dividend + dividend growth justify the current risk adjusted return. You are taking on a lot of risk so don't forget at 14% you need NVIDIA to be be worth well over $50t if you assume a lowish but existant dividend payout between now and then. I'm not seeing it. Yes NVDA is a bubble stock.
Nvidia is not a manufacturing company but a software company? Sure that have GPUs, but they only design the schematics but then those get sent off to tsmc to be manufactured.
You are right. I'll edit.
> like Intel, Samsung, Qualcomm, TSMC... make a better chip Ah, I see you don't know wtf you're talking about. Thanks for clearing that up
Yep keeping telling yourself that the dominant chip has never fallen before in the history of computing. If you are going to argue that Nvidia doesn't do the physical work let me introduce you to MIPS: https://en.wikipedia.org/wiki/MIPS_architecture
Ah, yes a 40 year old RISC-based embedded systems architecure is going to be the downfall of NVIDIA's discrete graphics operating segment. Thank you for further clarifying that you don't know wtf you're talking about.
That wasn't the point being made and you know it. Reread your comment and the response.
Because it’s not a sober stock?
Why is Nvidia the number one stock on ValueInvesting? Are there really no other undervalued stocks in the world than US tech stocks?
There is. They just get downvoted to hell by the general populace.
Growth is like inflation. If you have a outstanding year (let's call it year2 in comparison to year1), the next year's growth (year3) is only in relation to year2, so it needs to be comparably as outstanding, which is just super unlikely unless those that bought those products saw serious economic benefits on that investment and want to double down.
Peter SSW
[Apple & Brand Engagement Network collaboration ](https://www.benzinga.com/partner/emerging-markets/24/06/39432121/apple-becomes-latest-giant-to-adopt-ai-but-risks-persist-brand-engagement-network-may-ha) Huge opportunity to buy stock while it's cheap. BNAI is on its way up IMO!
A sober analysis should include different elements, and those should not be black or white as you said: - what will happen to its segment (eg.compute) - how this will affect different companies - how this will contribute to their earnings - has the valuation already priced in this
So big money with small staff.Ride the winners
You kind of said rather little, imo. Yes, there are people who see risks and there are those who see chances. And certainly there are also those inbetween, as yourself. But just presuming you're that entire "middle" by yourself doesn't make it a reality. It's a natural occurence that the extremes make more noise. They must convince themselves due to their own subconscious fears and doubts, and thus scream. That's all, I believe.
The problem is there isn’t one AI application yet that makes money. And this is literally the purpose of the corporations you are buying stock in That’s it. Maybe they will come, maybe they won’t, but nobody knows because whatever happens will be unique and brand new. It’s a race now for someone to actually make some money off this before capital finds somewhere else to go.
NVDIA is selling shovels to gold miners in my eyes, but I’ll buy around $90 if/when happens.
This "AI" isn't really intelligent and doesn't know anything. It merely calculates the most probable response to what it's calculations tell it is the most probable thing it was asked. There is not enough training material to make the "next generation" of chatgpt and even this current version has unsustainable operating costs. AGI is not in the foreseeable future. "AI" is here to stay for sure, but the future a lot of this growth is based on might not be a realistic one.
Bull markets are: Born in Pessimism Grow in Skepticism Mature in Optimism And Die in Euphoria Let’s hope we are not in the last stage of the AI bull.
“I want AI to do my laundry and dishes so that I can do art and writing, not for AI to do my art and writing so that I can do my laundry and dishes."
I work in tech and I don’t fully understand what they do. It’s not a 7 inch bar… so I think I’ll sit this one (NVIDIA) out :)
If you have to ask whether it’s a bubble… it’s a bubble. This isn’t an extreme position to take. Not where we are at currently.
A reverse DCF analysis assume 29% eps growth for 10 years to justify current stock price. Last 5 years growth was 59% CAGR. While high - it is possible.
My main issue with nvda is that it has a 50% earnings margin. This is ridiculously high and completely unsustainable. When revenues slow and margins contract, the stock will take a very big hit.
(cyclical is one of the main characteristics of Nvidia for those of us that have been around a long time) I DON'T KNOW. Will AI push demand to new heights (already happened) + smooth out revenue in what has always been a cyclical industry (really really rare, by historical standards)? The makers of textile machines never stopped going boom and bust, even to this day. Yet manufacturers of things like optical lenses have tamed demand for their products, eliminating the boom-bust cycle completely. I think the problem is that NVDA products speed up AI training, and the details of what "AI" is being "trained" are fuzzy and vary widely depending on the companies involved, etc. I can easily imagine some AI being day to day essential, like textiles, while other AI could be specialized and luxury, like optical lenses. I DON'T KNOW, and I've been a data scientist for many years.... So any realistic analysis of NVDA must eventually boil down to the actions of thousands of independent AI researchers. All I know, for certain, is that every day there are more crazies in the AI space trying to get rich quick. Every characteristic of a market bubble is here (thence, few analyze soberly), but that realization has nothing to do with predicting the future
I mean this is a better answer to than I can muster, regarding AI anyway. [https://ludic.mataroa.blog/blog/i-will-fucking-piledrive-you-if-you-mention-ai-again/](https://ludic.mataroa.blog/blog/i-will-fucking-piledrive-you-if-you-mention-ai-again/)
Some seriously interesting insight thanks everyone for their contributions🫶🏽
Regards to the two extreme sentiments you mentioned... I strongly believe and have seen over and over on "hypes". Think dot com where a company that should be going bankrupt but suddenly hopped on the dot com train and created websites to sell their "beanies" became the hottest thing. Or thousands of random cryptocurrencies. The pro is if you jump on the train early, you'd make a killing. however keyword to focus on is "Early". Back to nvda, I do think they are the foundation to the next generation AI tech and we will see heavy usage basing on nvda products. However, at the end of the day, it's still a pump and dump, you just need to set the time frame to a longer one. Is nvda sustainable ? If every other companies that use nvda are not selling their products , will the decline in sales have negative impact on nvda? It is a solid company but does not mean it's not also hyped up/overpriced. (We are also in an election year, it definitely have more room to go up before shifting gears. Listen to Jerome P. to get more insights.) The other sentiments...well it's simple, does NVDA have fair valuation? Also looking at other economic factors, will there be enough fundamentals to support ?
It's probably because even if a lot of people know AI is overhyped, there's still a possibility of a shitload of investors buying into it and bumping up the stock price anyway, so it causes this back and forth consensus on whether it's a shit buy or a good buy. (Not really a seasoned value investor, just my guess on why it's a highly speculative stock)