I’m currently knee deep in a long NVDA investment and I’m beginning to get the feeling that one day soon the price is going to suddenly tank leaving me facing a massive loss. Anyone and everyone’s thoughts are more than welcome please.
I can’t advise you about NVDA. My position is small and I’ve only had it since April. (Up 64%!)
Being 15 X overvalued…
What I can tell you is that this can be a good place to discuss this sort of thing, but statement like that needs to backed up. Where did that number come from?
The 15 x claim was reported on the CNBC website in an article written by a guy called Brian Evans. Personally I hope it’s more of a scare story than an actual fact researched through reliable sources.
What I would say Jamieson is that NVDA pretty much has captured the GPU market and everyone is buying their chips. But that will abate sometime in the future just like it did when they were buying them to mine Crypto. So what I would do is watch SMCI, AMD, and NVDA and listen to their Conference calls to see when this cycle will end. You will probably want to sell some of your shares when you see it starting to decline. Personally, just my opinion, that time is not today but it will happen.
Thank you for your sincere and helpful advice Andy, it’s much appreciated to learn other investors points of view.
When a company is growing rapidly, it’s difficult to determine when “soon” is. Usually it happens when the growth slows, but the price is still priced for higher growth. Right now the AI story is still going strong, especially the “nuts & bolts” part of the AI story. Sometimes the price growth slows first and then the sales/earnings growth slows afterward, that usually leads to less of a decline.
As far as “loss” goes, it all depends on your entry point. If you entered a year ago below 150, then losses may not happen for a long time if ever. But if you entered a month ago above 450, then losses could could happen earlier.
Nvidia is an industry leader in a high growth market segment. They are far ahead of the competition. Yahoo Finance shows their PE ratio at 111, very high. But projected earnings for the quarter are $3.35/sh vs $0.11 a year ago. A 30.5x growth rate.
If you take last quarter’s earnings, $2.70, that implies $10.80/yr or a forward PE of 42.6. If you add 30% growth rate (15% average) forward estimate is $12.42/sh giving forward PE of 37.
I think the PE is reasonable for a high growth company.
Everyone wants to know how long that growth can go on. Will competitors gain much market share? Are customers buying their chips to install AI capability? Will they continue to buy or is it a one time installation?
On the plus side you can note that Nvidia chips are made by Taiwan Semiconducter. They can sell all they can make. How soon will more capacity come on line? Until then sales are limited to price increases. Will prices continue to be high and increase? Or will buying slow down.
Meanwhile Nvidia management has been clever about anticipating new uses for its products. First video games, then auto driving vehicles, block chain mining, etc. It makes you think customers with good ideas of future needs brings them to Nvidia and ask for better chips for their latest application. They seem to be good at responding and leading the market.
There are risks out there, but I’d give them the benefit of the doubt. It is a well managed company that so far has made good choices.
Thank you for you for your in depth, informative and helpful analysis Paul, it’s definitely increased my confidence and understanding in Nvidia.
“I made my money by selling too soon.” ― Bernard Baruch
Whenever you have a significant profit in a position and start to feel worried, remember Bernard Baruch. If you can sell part of a position, and take out your initial investment plus some profit, I don’t know any reason not to do so. (Well sometimes quirks of the tax laws will require you to stand on your head, for example buying puts instead.) The most important result will be that you will sleep better.
You can’t argue with advice like that I suppose. It’s a win win situation when you find yourself in that position.