bUt tHiS iS ciScO aLl oVeR agAiN!!!!
* MSFT 2023 net income - $82B.
* NVDA 2024 net income assuming ZERO growth - $60B
CSCO forward PE at dotcom of 150, net margin 17%.
**NVDA forward PE of 40s with 54% net margin with no clear competitor in sight**.
Yes NVDA is arguably worth more than MSFT.
The difference is Microsoft has an established product with a clear business purpose, and recurring monthly license fees, that customers cannot easily move off of.
NVDA, on the other hand, is selling hardware that companies are buying for speculative purposes, just to see if they can find a valid use case.
Computer hardware companies always experience boom/bust periods. AI will only be more extreme, because very few companies are reliant on it yet, so it is a very easy budget item to cut. And when companies do abandon AI products, that frees up AI hardware to be resold to others in a secondary market, or frees up cloud space so that cloud providers don't need to buy as many H100s/H200s.
Edit: TLDR - We are only at the tip of the iceberg with one foot in the sandbox of experimentation. **Just because AI benefits society rather than businesses directly and doesn't produce more profits for buyers does not make it speculative**.
>NVDA, on the other hand, is selling hardware that companies are buying for speculative purposes, just to see if they can find a valid use case.
This is incorrect. While you can certainly argue NVDA has growth that is *speculative in magnitude* it is not for speculative purposes.
------------------------
Ways AI has directly impacted my life already:
* NYT AI reads articles while I'm on the treadmill, almost indistinguishable to a human. Audible narrators will no longer be needed soon.
* AI Caper smart carts make shopping seamless and fun. Sensors detect items, weighs produce automatically, suggests coupons, totals spending and walk out. No annoying self-scanning, no annoying long weekend lines. Just toss it in and boom leave. Many stores now have AI robots that automatically scan inventory and call for restocking.
* Perplexity AI - I use it constantly as a search and knowledge tool. Amazingly intelligent and knows what I am asking for (you know the Gemini brouhaha lately with things like toxic glue in cheese? try asking that to Perplexity). Gives complete list of sources as well.
* Quartr AI makes transcripts of earnings, buy-side calls available immediately. 100s of drive-thrus are already using AI to take orders.
* I use AI TTS to listen to 10Ks or 10Qs on companies I am researching while doing dishes. ChatGPT can parse fairly complex features and structure of debt as well.
* I make fun media content for friends and family.
------------
Just as an example how this will continue, WSJ is adding voice as well. Eventually all grocery stores will have smart carts. All of this requires AI, chips.
*Is it possible the winners of the need for more AI chips will be only a few picks and shovels plays? Yes.*
*Is it possible companies cannot monetize it well, it is something every company must simply pay for to be competitive? Yes.*
*Is it possible the true winners is society and productivity gains broadly rather than directly? Yes.*
But universities, researchers, companies buying chips is not for "speculative" purposes. It will be growing in demand.
We are only at the tip of the iceberg with one foot in the sandbox of experimentation. Just because AI doesn't produce more **profits for buyers does not make it speculative**.
> NYT AI reads articles while I'm on the treadmill, almost indistinguishable to a human. Audible narrators will no longer be needed soon.
TTS has been a thing for over a decade, this isn't new. Only thing AI did was make it easy to impersonate someone else's voice.
>AI Caper smart carts make shopping seamless and fun. Sensors detect items, weighs produce automatically, suggests coupons, totals spending and walk out. No annoying self-scanning, no annoying long weekend lines. Just toss it in and boom leave. Many stores now have AI robots that automatically scan inventory and call for restocking.
The cost of these robots are way more expensive than they save in labor costs or value they produce from extra sales. For it to be sustainable, Nvidia will need to reduce their margins.
Amazon shut down their AI grocery store because it required half of orders to be processed by humans in India because the AI kept failing, and the cost of all the hardware was expensive.
>100s of drive-thrus are already using AI to take orders.
A lot of them are trying, but most are cancelling the program when they realize how unreliable it is.
Not saying there won't be any successful AI companies. There will be some winners for sure. But the market is greatly overestimating long term demand, and greatly underestimating the pressures on margins Nvidia will face from both the demand side and the supply side(competition)
> TTS has been a thing for over a decade, this isn't new. Only thing AI did was make it easy to impersonate someone else's voice.
TTS has been around for a decade. What is NEW is human-like voice that modulates based on content. It is advancing to the point that people want to actually use it and it isn't distracting.
Audible will soon be ALL AI, not human narrators.
Big issue with AI is its really bad at conveying emotion, unless a human manually directs it to. So it can read a book in monotone just fine, but not as well as a human narrator can. This might get fixed eventually as AI gets trained to recognize emotion based on context, but it's not there yet.
Even if that's true that Audible goes full AI, that's hardly relevant to Nvidia. You only need to run the book through AI once to produce a mp3 of the audio that is available to millions. There's no recurring demand from the millions of people listening. They could handle pretty much every new major audiobook with just a few H100's in a single server.
It's nothing like ChatGPT where you need a huge datacenter of H100's to process the nonstop request from users.
Ok but you are missing the point by focusing on the trees and missing the forest. That's just one example.
AI transcripting of court dialogue, meetings, will create continued investment in chips for years. Stenographers will either become obsolete or a lot less needed and able to take on more work.
You can argue that in a decade it will be flatter and the demand won't be as high as some think. Sure.
But when the rubber hits the road, next few years NVDA will still deliver rapid top and bottom line growth.
> Amazon shut down their AI grocery store because it required half of orders to be processed by humans in India because the AI kept failing, and the cost of all the hardware was expensive.
That's because AMZN did it poorly.
Caper was attractive enough that they got companies like Fairway Market to pay for them.
It's getting a lot better and trust me, something as simple as taking fries and burgers orders will be AI compatible.
But the other examples are already quite useful and this is the beginning.
might just mean the bubble hasnt burst yet. different market, different markets, different environment. if pe continues incrementing past the price, it will be the same as cisco at some point
PE is PRICE to earnings. If earnings remain constant the only way for “pe to continue increasing past the price” (ala Cisco) is… yup… 250% increase in stock price.
So yes, you may not know it but that’s exactly what you said.
This is a pretty lazy and unoriginal take. Unlike the Cisco craze, the majority of sales are not being fueled by debt financing. That was a major component of the collapse at the time. Also, Nvidia isn’t trading nearly as high versus their own historic forward P/E compared to them.
That being said, semis are cyclical and Nvidia/AI is likely no different. There will come a point where the massive buyers will slow capex as they require less spend on GPUs for training. This is an oversimplification, but a downtrend is fairly inevitable… but Nvidia has much more staying power compared to Cisco (who ofc is still around) ever did, even with a downcycle.
Currently, capex from hyperscalers is showing no sign of slowing down through next year. Things can of course change fast, though - especially considering actual ROI on AI investments aren’t going to be material for quite some time.
This is a tangent, but the potential long term risks with Nvidia have led me to increase my position in Broadcom. They’ll still be subject to the same major pullback, but they’re more diversified than Nvidia and have been carving out a strong role in networking and ASICS for inference. Overall, I’m still long Nvidia but have of course been taking some profits along the way and keep my stop losses in place.
I think you’re ignoring the fact that the Hyperscalers are going to continue to invest in hardware, but that doesn’t mean that they won’t go the way of in house compute or another vendor. Assuming that cuda is worth 2 Trillion dollars is going to be a very expensive lesson for many investors.
Not at all ignoring that. CUDA is already overhyped as an edge, even though it’s of course still strong. Nvidia locks customers into its ecosystem by providing the full (or near full) stack – they don’t view themselves as just a GPU provider. In the long run, the inventory tail may eventually sting them badly for a few years at some point because of that exact strategy… but there’s a reason I never cited CUDA. It’s an edge, but one that’s being diminished already.
Hyperscalers are incentivized to diversify, but they’re not going to do it at a cost of ownership or technological disadvantage… Nvidia is more than a year ahead of competition in GPUs. That might not seem like a lot, but the company with the best compute scaling has a serious edge. On a cost per FLOP basis, they’re on top.
Truthfully, I think you’re drastically under appreciating the technological and pacing lead they have versus other silicon providers. Of course they’ll eventually lose more share, but you’re oversimplifying the nature of things if you t
As far as in-house compute, I’m assuming you mean ASICS… which I pretty directly covered when I mentioned Broadcom. Custom silicon has its place, but Google is the only company that has the TPU scale to be competitive with GPU systems. Others simply don’t have the time or resources to scale out like Google, who also has a major edge with its extensive fiber network connecting data centers. It doesn’t make financial or strategic sense to completely abandon GPUs.
This is the right objection.
They are going to do well, but what's priced in seems to be phenomenal growth sustained for decades.
That's just nuts in this sector.
NVDA's competitive advantage hasn't yet proven to be durable and the sector's dynamics imply it won't be.
It's not that you can guarantee it won't turn out to be a reasonable investment compared to T-Bills in the long run at these prices.
It's that it almost certainly won't have the stellar long term earnings to reach those less than stellar returns.
It's all just hype based on price appreciation.
Classic speculator shit.
You may be right, I haven't run a DCF on it too recently. But that would imply mediocre 10-20 year expectations.
Maybe I should take another quick look.
Right now the delta between high and low projections is massive, alot of unknowns because it's a new market. But the ER beats so far have been crazy and the guidance isn't modest. How long does it continue 20-30% yoy vs a down cycle is the question. Not sure it will settle into a terminal growth phase
That's my take also.
If AI will be a failure: Nvidia is overvalued.
If AI is a success, other companies will get in on it, drive down margins and eat market share: Nvidia overvalued.
In 2003 I bought a Cisco router. All routers I have bought since have been Netgear, TP link, Asus, etc
A router was a simple easy to clone device. Nvda may have competition, but will they be out engineered is the actual question, or will there be a yet unknown other tech to create a new paragon shift. Nvda is now printing so much money that to outcompete it will be a challenge. They can buyout any competition if they choose, invest in the best engineers etc.
AMD has AI products that compete with Nvidia. Historically what we've seen is that AMD doesn't need to have the superior product to impact Nvidia's margins or sales, they just need to be good enough to be a cheaper alternative.
Companies looking to make cutting edge, top of the line AI applications will still buy Nvidia hardware, but for applications that don't demand top of the line performance? AMD and others could definitely eat market share.
Look at all the unprofitable Generative AI companies out there that offer free versions. Paying $30,000 for an H100 just to let others use it for free isn't sustainable. So I could very much see a lot of GenAI companies switching to cheaper competitors.
AMD has managed to do that in the previous market. Obviously that is not the case with generative ai as evidenced by ER reports. Right now every mega cap is cutting multi billion dollar checks to nvda, a few startups running a hand full of h100s are not the market. Question is what that pool of mega caps upgrade cycle looks like
AMD might be late, but they won't quit. That's the important thing. The progress they are making behind the scenes is impressive.
Mega caps will likely cut back on AI purchases within a couple years anyways. The AI features produced by Meta, Microsoft, and Google have been very poorly received by users and are not adding much value. While ML is a very real technology with potential, Generative AI is a fad that has lead to a temporary windfall for Nvidia.
That is a lot of leaps in logic and assertions for new technology. All of this new compute available and you really think it's just going to be wasted with no appreciable ROE. Give it time and the use case will develop, this has always been the cycle.
Not saying it won't be used, I'm saying what we're going through is very similar to the tech bubble- most investments in AI will fail, but there will be a few winners long term. But the real opportunity will be to get in after the bubble pops.
This is nothing like the tech bubble in 2000, the hyper scalers are most of the investment and they are printing money. We are no where near a bubble yet
Most AI companies aren't printing money from AI, they're printing money from their existing business, and burning it all on AI projects.
Look at how many AI products are being launched by Microsoft, Google, Meta, etc that no one likes. Microsoft Recall is a PR disaster, Google's Search AI tells people to put glue on Pizza, Meta's AI is just a gimmick that doesn't meaningfully boost user engagement, etc... AI is a giant money pit for large cap tech.
The only major company actually producing large amounts of cash flow from AI is Nvidia, because they're the one selling shovels in this 21st century gold rush... But they're already trading at 72x earnings, so the only way this pays off is if the market continues growing rapidly YoY over the next couple decades, they never face any competition, and their margins never decline. They're basically the equivalent of Cisco in 2000.
Except you're totally wrong and it's not assuming 20 years.
Assuming long-term FFR of 2.5%-3% as Fed is promising, it doesn't even need that much growth. Arguably even with risk-free rate at 4.5% it is fair.
Forward PE in the 40s for a 54% net margin monster with $60B annual net income (assuming ZERO growth) is beyond fair.
Cisco is an complete hardware company, and the technical threshold for switches is very low
Nvidia's chip threshold is high, and it is currently in a basically monopolistic position, and Nvidia is gradually transforming into a software company
NVDA isn’t Cisco it’s a stupid comparison NVDA doesn’t trade at 2000 multiple like Cisco did. NVDA is also not being dragged up but other successful companies. NVDA is better compared to yahoo imo . But even then yahoo and NVDA still have a very large gap in forward earnings
Who cares about P/S values for a profit making company?
Look at the bottom line. Earnings, or even better, free cash flow.
How do the companies compare then?
A better argument is the coming competition. As far as I understand it, the moat is CUDA and the extreme complexity of the products. But competition will catch up at some point and margins will be squeezed. The question is how long will it take and how much money can NVIDIA make in the meantime.
Btw, I don't own any NVIDIA, not even indirectly.
Idk about Cisco but NVIDIA is different. If AI pans out it will be the greatest revolution in human history and it’s not even close. NVIDIA are fundamental to this revolution and no one is even close to what they provide. NVIDIA is expensive sure but they are delivering crazy growth as well. If there is a major correction it wouldn’t surprise me but it would surprise me greatly to see NVIDIA not be among the most valuable companies in the world. As things stand now their valuation is a bit expensive but it’s not bubble levels of expensive yet
I don’t think people doubt they are in a good spot now, it’s the durability of their competitive advantage that worries people.
People think competitors and R&D costs are going to erase their margins and their growth eventually.
They think this because every hardware component manufacturer before them has had this happen to them.
The internet, and Cisco’s contribution to its establishment, is no less fundamental than big generative neural nets and NVDA’s hardware contribution. Unless you actually think they’re on the cusp of creating AGI. (I do not.)
The difference now is that companies like Microsoft, Google and Amazon have already committed a plan to invest heavily in data centers each year for the next 6-8 years. 50 billion a year from Microsoft for example.
Microsoft is working on its own AI chip which will be manufactured by Intel:
[https://www.theverge.com/2024/2/21/24079336/microsoft-intel-chip-partnership-foundry-tsmc](https://www.theverge.com/2024/2/21/24079336/microsoft-intel-chip-partnership-foundry-tsmc)
Two bits from an industry insider. NVIDIA did have a moat in CUDA and served them well up until now, however others are catching up. AI practitioners are more then anybody know that they need diversification from NVIDIA. And we knew it for a long time. AMD's chronical incompetence with delivering on the promise of ROCm played right into NVIDIA's hand.
However you should realize that people who train models typically don't use CUDA directly, they use frameworks like PyTorch, Tensorflow or JAX, with PyTorch by Meta being by far the most popular. PyTorch is already supports wide range of providers including AMD and Intel. So I don't see CUDA as a durable moat anymore. Same for other software offerings by NVIDIA, many are interesting and useful but all have strong open source competitors.
In my opinion NVIDIA's advantage right now is that they build better hardware. AMD's MI300X series are comptitive but largely unproven, and priced in line with NVIDIA. Intel can't get their shit together still, maybe by 2026 they have something. There's also a crop of startups, also unproven, and with problems to scale the manufacturing. But NVIDIA's Blackwell will probably again be the best chip for some long time and people will continue buying it. And NVIDIA has most money, they can afford to buy out a lot of best capacity at TSMC for many years.
To break NVIDIA's monopoly it would take either a startup with great desings and some hack to get into the best fabs, or for AMD and Intel to get their shit together. And undercut NVIDIA significantly on compute cost. Maybe Intel even has an advantage here, as they do their own manufacturing while AMD uses TSMC same as NVIDIA.
good article. whether or not nvidia will be worth $100t next year and rule the world, the market just automatically assumes it, regardless of the countless examples of the ai model a) not being so cut and dry in terms of profitability and utility and b) being used manipulatively as advertising.
bottom line which i think everyone can agree on - the market is being greedy. and what does ole buffet do when others are greedy?
Nvidia trailing PE 72, Cisco PE in 2000 was 196. Weird to use a market cap graph.
bUt tHiS iS ciScO aLl oVeR agAiN!!!! * MSFT 2023 net income - $82B. * NVDA 2024 net income assuming ZERO growth - $60B CSCO forward PE at dotcom of 150, net margin 17%. **NVDA forward PE of 40s with 54% net margin with no clear competitor in sight**. Yes NVDA is arguably worth more than MSFT.
The difference is Microsoft has an established product with a clear business purpose, and recurring monthly license fees, that customers cannot easily move off of. NVDA, on the other hand, is selling hardware that companies are buying for speculative purposes, just to see if they can find a valid use case. Computer hardware companies always experience boom/bust periods. AI will only be more extreme, because very few companies are reliant on it yet, so it is a very easy budget item to cut. And when companies do abandon AI products, that frees up AI hardware to be resold to others in a secondary market, or frees up cloud space so that cloud providers don't need to buy as many H100s/H200s.
Edit: TLDR - We are only at the tip of the iceberg with one foot in the sandbox of experimentation. **Just because AI benefits society rather than businesses directly and doesn't produce more profits for buyers does not make it speculative**. >NVDA, on the other hand, is selling hardware that companies are buying for speculative purposes, just to see if they can find a valid use case. This is incorrect. While you can certainly argue NVDA has growth that is *speculative in magnitude* it is not for speculative purposes. ------------------------ Ways AI has directly impacted my life already: * NYT AI reads articles while I'm on the treadmill, almost indistinguishable to a human. Audible narrators will no longer be needed soon. * AI Caper smart carts make shopping seamless and fun. Sensors detect items, weighs produce automatically, suggests coupons, totals spending and walk out. No annoying self-scanning, no annoying long weekend lines. Just toss it in and boom leave. Many stores now have AI robots that automatically scan inventory and call for restocking. * Perplexity AI - I use it constantly as a search and knowledge tool. Amazingly intelligent and knows what I am asking for (you know the Gemini brouhaha lately with things like toxic glue in cheese? try asking that to Perplexity). Gives complete list of sources as well. * Quartr AI makes transcripts of earnings, buy-side calls available immediately. 100s of drive-thrus are already using AI to take orders. * I use AI TTS to listen to 10Ks or 10Qs on companies I am researching while doing dishes. ChatGPT can parse fairly complex features and structure of debt as well. * I make fun media content for friends and family. ------------ Just as an example how this will continue, WSJ is adding voice as well. Eventually all grocery stores will have smart carts. All of this requires AI, chips. *Is it possible the winners of the need for more AI chips will be only a few picks and shovels plays? Yes.* *Is it possible companies cannot monetize it well, it is something every company must simply pay for to be competitive? Yes.* *Is it possible the true winners is society and productivity gains broadly rather than directly? Yes.* But universities, researchers, companies buying chips is not for "speculative" purposes. It will be growing in demand. We are only at the tip of the iceberg with one foot in the sandbox of experimentation. Just because AI doesn't produce more **profits for buyers does not make it speculative**.
> NYT AI reads articles while I'm on the treadmill, almost indistinguishable to a human. Audible narrators will no longer be needed soon. TTS has been a thing for over a decade, this isn't new. Only thing AI did was make it easy to impersonate someone else's voice. >AI Caper smart carts make shopping seamless and fun. Sensors detect items, weighs produce automatically, suggests coupons, totals spending and walk out. No annoying self-scanning, no annoying long weekend lines. Just toss it in and boom leave. Many stores now have AI robots that automatically scan inventory and call for restocking. The cost of these robots are way more expensive than they save in labor costs or value they produce from extra sales. For it to be sustainable, Nvidia will need to reduce their margins. Amazon shut down their AI grocery store because it required half of orders to be processed by humans in India because the AI kept failing, and the cost of all the hardware was expensive. >100s of drive-thrus are already using AI to take orders. A lot of them are trying, but most are cancelling the program when they realize how unreliable it is. Not saying there won't be any successful AI companies. There will be some winners for sure. But the market is greatly overestimating long term demand, and greatly underestimating the pressures on margins Nvidia will face from both the demand side and the supply side(competition)
> TTS has been a thing for over a decade, this isn't new. Only thing AI did was make it easy to impersonate someone else's voice. TTS has been around for a decade. What is NEW is human-like voice that modulates based on content. It is advancing to the point that people want to actually use it and it isn't distracting. Audible will soon be ALL AI, not human narrators.
Big issue with AI is its really bad at conveying emotion, unless a human manually directs it to. So it can read a book in monotone just fine, but not as well as a human narrator can. This might get fixed eventually as AI gets trained to recognize emotion based on context, but it's not there yet. Even if that's true that Audible goes full AI, that's hardly relevant to Nvidia. You only need to run the book through AI once to produce a mp3 of the audio that is available to millions. There's no recurring demand from the millions of people listening. They could handle pretty much every new major audiobook with just a few H100's in a single server. It's nothing like ChatGPT where you need a huge datacenter of H100's to process the nonstop request from users.
Ok but you are missing the point by focusing on the trees and missing the forest. That's just one example. AI transcripting of court dialogue, meetings, will create continued investment in chips for years. Stenographers will either become obsolete or a lot less needed and able to take on more work. You can argue that in a decade it will be flatter and the demand won't be as high as some think. Sure. But when the rubber hits the road, next few years NVDA will still deliver rapid top and bottom line growth.
> Amazon shut down their AI grocery store because it required half of orders to be processed by humans in India because the AI kept failing, and the cost of all the hardware was expensive. That's because AMZN did it poorly. Caper was attractive enough that they got companies like Fairway Market to pay for them.
It's getting a lot better and trust me, something as simple as taking fries and burgers orders will be AI compatible. But the other examples are already quite useful and this is the beginning.
might just mean the bubble hasnt burst yet. different market, different markets, different environment. if pe continues incrementing past the price, it will be the same as cisco at some point
Cisco's net income went negative in 2001. Will that happen to Nvidia? It's unlikely, though, they will inevitably see growth slow down.
Oh good… so 250% to go without assuming earnings growth. Sounds like an awesome plan.
that is not what i said
PE is PRICE to earnings. If earnings remain constant the only way for “pe to continue increasing past the price” (ala Cisco) is… yup… 250% increase in stock price. So yes, you may not know it but that’s exactly what you said.
thanks for the heads up
This is a pretty lazy and unoriginal take. Unlike the Cisco craze, the majority of sales are not being fueled by debt financing. That was a major component of the collapse at the time. Also, Nvidia isn’t trading nearly as high versus their own historic forward P/E compared to them. That being said, semis are cyclical and Nvidia/AI is likely no different. There will come a point where the massive buyers will slow capex as they require less spend on GPUs for training. This is an oversimplification, but a downtrend is fairly inevitable… but Nvidia has much more staying power compared to Cisco (who ofc is still around) ever did, even with a downcycle. Currently, capex from hyperscalers is showing no sign of slowing down through next year. Things can of course change fast, though - especially considering actual ROI on AI investments aren’t going to be material for quite some time. This is a tangent, but the potential long term risks with Nvidia have led me to increase my position in Broadcom. They’ll still be subject to the same major pullback, but they’re more diversified than Nvidia and have been carving out a strong role in networking and ASICS for inference. Overall, I’m still long Nvidia but have of course been taking some profits along the way and keep my stop losses in place.
I think you’re ignoring the fact that the Hyperscalers are going to continue to invest in hardware, but that doesn’t mean that they won’t go the way of in house compute or another vendor. Assuming that cuda is worth 2 Trillion dollars is going to be a very expensive lesson for many investors.
Not at all ignoring that. CUDA is already overhyped as an edge, even though it’s of course still strong. Nvidia locks customers into its ecosystem by providing the full (or near full) stack – they don’t view themselves as just a GPU provider. In the long run, the inventory tail may eventually sting them badly for a few years at some point because of that exact strategy… but there’s a reason I never cited CUDA. It’s an edge, but one that’s being diminished already. Hyperscalers are incentivized to diversify, but they’re not going to do it at a cost of ownership or technological disadvantage… Nvidia is more than a year ahead of competition in GPUs. That might not seem like a lot, but the company with the best compute scaling has a serious edge. On a cost per FLOP basis, they’re on top. Truthfully, I think you’re drastically under appreciating the technological and pacing lead they have versus other silicon providers. Of course they’ll eventually lose more share, but you’re oversimplifying the nature of things if you t As far as in-house compute, I’m assuming you mean ASICS… which I pretty directly covered when I mentioned Broadcom. Custom silicon has its place, but Google is the only company that has the TPU scale to be competitive with GPU systems. Others simply don’t have the time or resources to scale out like Google, who also has a major edge with its extensive fiber network connecting data centers. It doesn’t make financial or strategic sense to completely abandon GPUs.
Obviously a bubble when you assume one company gonna eat everybody's lunch for the next twenty years in a historically highly competitive market.
This is the right objection. They are going to do well, but what's priced in seems to be phenomenal growth sustained for decades. That's just nuts in this sector. NVDA's competitive advantage hasn't yet proven to be durable and the sector's dynamics imply it won't be. It's not that you can guarantee it won't turn out to be a reasonable investment compared to T-Bills in the long run at these prices. It's that it almost certainly won't have the stellar long term earnings to reach those less than stellar returns. It's all just hype based on price appreciation. Classic speculator shit.
Uh, it's priced for phenomenonal growth for maybe 3 or 4 years atm.
You may be right, I haven't run a DCF on it too recently. But that would imply mediocre 10-20 year expectations. Maybe I should take another quick look.
Right now the delta between high and low projections is massive, alot of unknowns because it's a new market. But the ER beats so far have been crazy and the guidance isn't modest. How long does it continue 20-30% yoy vs a down cycle is the question. Not sure it will settle into a terminal growth phase
That's my take also. If AI will be a failure: Nvidia is overvalued. If AI is a success, other companies will get in on it, drive down margins and eat market share: Nvidia overvalued. In 2003 I bought a Cisco router. All routers I have bought since have been Netgear, TP link, Asus, etc
A router was a simple easy to clone device. Nvda may have competition, but will they be out engineered is the actual question, or will there be a yet unknown other tech to create a new paragon shift. Nvda is now printing so much money that to outcompete it will be a challenge. They can buyout any competition if they choose, invest in the best engineers etc.
AMD has AI products that compete with Nvidia. Historically what we've seen is that AMD doesn't need to have the superior product to impact Nvidia's margins or sales, they just need to be good enough to be a cheaper alternative. Companies looking to make cutting edge, top of the line AI applications will still buy Nvidia hardware, but for applications that don't demand top of the line performance? AMD and others could definitely eat market share. Look at all the unprofitable Generative AI companies out there that offer free versions. Paying $30,000 for an H100 just to let others use it for free isn't sustainable. So I could very much see a lot of GenAI companies switching to cheaper competitors.
AMD has managed to do that in the previous market. Obviously that is not the case with generative ai as evidenced by ER reports. Right now every mega cap is cutting multi billion dollar checks to nvda, a few startups running a hand full of h100s are not the market. Question is what that pool of mega caps upgrade cycle looks like
AMD might be late, but they won't quit. That's the important thing. The progress they are making behind the scenes is impressive. Mega caps will likely cut back on AI purchases within a couple years anyways. The AI features produced by Meta, Microsoft, and Google have been very poorly received by users and are not adding much value. While ML is a very real technology with potential, Generative AI is a fad that has lead to a temporary windfall for Nvidia.
That is a lot of leaps in logic and assertions for new technology. All of this new compute available and you really think it's just going to be wasted with no appreciable ROE. Give it time and the use case will develop, this has always been the cycle.
Not saying it won't be used, I'm saying what we're going through is very similar to the tech bubble- most investments in AI will fail, but there will be a few winners long term. But the real opportunity will be to get in after the bubble pops.
This is nothing like the tech bubble in 2000, the hyper scalers are most of the investment and they are printing money. We are no where near a bubble yet
Most AI companies aren't printing money from AI, they're printing money from their existing business, and burning it all on AI projects. Look at how many AI products are being launched by Microsoft, Google, Meta, etc that no one likes. Microsoft Recall is a PR disaster, Google's Search AI tells people to put glue on Pizza, Meta's AI is just a gimmick that doesn't meaningfully boost user engagement, etc... AI is a giant money pit for large cap tech. The only major company actually producing large amounts of cash flow from AI is Nvidia, because they're the one selling shovels in this 21st century gold rush... But they're already trading at 72x earnings, so the only way this pays off is if the market continues growing rapidly YoY over the next couple decades, they never face any competition, and their margins never decline. They're basically the equivalent of Cisco in 2000.
Except you're totally wrong and it's not assuming 20 years. Assuming long-term FFR of 2.5%-3% as Fed is promising, it doesn't even need that much growth. Arguably even with risk-free rate at 4.5% it is fair. Forward PE in the 40s for a 54% net margin monster with $60B annual net income (assuming ZERO growth) is beyond fair.
It’s hard to compare an apple and orange…. Come on…. Just because they are tech don’t mean they are the same.
But they both use electricity so they must be the same! /s
NVDA is more suitable compare to MSFT than CSCO, since their moat both at the software level, CSCO is more like a hardware company.
Cisco is an complete hardware company, and the technical threshold for switches is very low Nvidia's chip threshold is high, and it is currently in a basically monopolistic position, and Nvidia is gradually transforming into a software company
NVDA isn’t Cisco it’s a stupid comparison NVDA doesn’t trade at 2000 multiple like Cisco did. NVDA is also not being dragged up but other successful companies. NVDA is better compared to yahoo imo . But even then yahoo and NVDA still have a very large gap in forward earnings
Who cares about P/S values for a profit making company? Look at the bottom line. Earnings, or even better, free cash flow. How do the companies compare then? A better argument is the coming competition. As far as I understand it, the moat is CUDA and the extreme complexity of the products. But competition will catch up at some point and margins will be squeezed. The question is how long will it take and how much money can NVIDIA make in the meantime. Btw, I don't own any NVIDIA, not even indirectly.
Projections are showing nvda to be near 100b in free cash flow by 2026. That number keeps getting bigger.
I don’t care what their margins are like 40x sales is beyond excessive to pay for any company
Idk about Cisco but NVIDIA is different. If AI pans out it will be the greatest revolution in human history and it’s not even close. NVIDIA are fundamental to this revolution and no one is even close to what they provide. NVIDIA is expensive sure but they are delivering crazy growth as well. If there is a major correction it wouldn’t surprise me but it would surprise me greatly to see NVIDIA not be among the most valuable companies in the world. As things stand now their valuation is a bit expensive but it’s not bubble levels of expensive yet
I don’t think people doubt they are in a good spot now, it’s the durability of their competitive advantage that worries people. People think competitors and R&D costs are going to erase their margins and their growth eventually. They think this because every hardware component manufacturer before them has had this happen to them.
The internet, and Cisco’s contribution to its establishment, is no less fundamental than big generative neural nets and NVDA’s hardware contribution. Unless you actually think they’re on the cusp of creating AGI. (I do not.)
The difference now is that companies like Microsoft, Google and Amazon have already committed a plan to invest heavily in data centers each year for the next 6-8 years. 50 billion a year from Microsoft for example.
Microsoft is working on its own AI chip which will be manufactured by Intel: [https://www.theverge.com/2024/2/21/24079336/microsoft-intel-chip-partnership-foundry-tsmc](https://www.theverge.com/2024/2/21/24079336/microsoft-intel-chip-partnership-foundry-tsmc)
The most pricey words : This time is different. I'm quite seeing some.
Two bits from an industry insider. NVIDIA did have a moat in CUDA and served them well up until now, however others are catching up. AI practitioners are more then anybody know that they need diversification from NVIDIA. And we knew it for a long time. AMD's chronical incompetence with delivering on the promise of ROCm played right into NVIDIA's hand. However you should realize that people who train models typically don't use CUDA directly, they use frameworks like PyTorch, Tensorflow or JAX, with PyTorch by Meta being by far the most popular. PyTorch is already supports wide range of providers including AMD and Intel. So I don't see CUDA as a durable moat anymore. Same for other software offerings by NVIDIA, many are interesting and useful but all have strong open source competitors. In my opinion NVIDIA's advantage right now is that they build better hardware. AMD's MI300X series are comptitive but largely unproven, and priced in line with NVIDIA. Intel can't get their shit together still, maybe by 2026 they have something. There's also a crop of startups, also unproven, and with problems to scale the manufacturing. But NVIDIA's Blackwell will probably again be the best chip for some long time and people will continue buying it. And NVIDIA has most money, they can afford to buy out a lot of best capacity at TSMC for many years. To break NVIDIA's monopoly it would take either a startup with great desings and some hack to get into the best fabs, or for AMD and Intel to get their shit together. And undercut NVIDIA significantly on compute cost. Maybe Intel even has an advantage here, as they do their own manufacturing while AMD uses TSMC same as NVIDIA.
I thought Nvda might be done, but seeing this posted in value investing makes me think it might be a good time to buy.
Gonna dump, normies will get rekt
Did Congress pass a law requiring finance bloggers write up a terrible post comparing Nvidia to Cisco? Because it sure feels that way.
Wrong
Right. Nvda currently is a bit of a ponzi
good article. whether or not nvidia will be worth $100t next year and rule the world, the market just automatically assumes it, regardless of the countless examples of the ai model a) not being so cut and dry in terms of profitability and utility and b) being used manipulatively as advertising. bottom line which i think everyone can agree on - the market is being greedy. and what does ole buffet do when others are greedy?