I don’t agree with your conclusions regarding the relative business models and one having more risk than the other.
First, as to the recurring business model (and I wrote about this on New Paradigm board) the PC market and server market and cell phone market proves that computers (unlike fiber optics - such as JDSU, where you just build out one big network and that is that, all that is left is maintenance) is a recurring business model.
Every year more computers of all sorts that produced and sold. Either it grows, or the number of computers sold falls, depending on the state of the economy, and what cycle we are in on the technology adoption cycle. Even though PC sales are in their waning end, sales are still only falling 5% or so a year, from growing every year, but whatever the case, even this worst case is “recurring” revenue.
In fact, there is presently a serious shortage of graphics cards for PCs (probably due to bitcoin type mining) so that the computer store I was in yesterday had posted a dozen or more signs, where no one could miss them, “Due to shortages, each customer is limited to 2 GPUs”.
These are referencing consumer GPUs for PCs. Only two companies really make them, Nvidia and AMD. So even in this slowing market, GPUs are hot and growing.
But point being, the computer business (unlike the fiber optic business) is a recurring business model by any practical definition.
Sure, SHOP has “recurring” revenue. But what happens in a recession? Those recurring revenues are not guaranteed AT ALL! In a recession, lesser businesses go out of business hard and fast. Most of Shop’s subscribers are lesser businesses. Sure, those who stay in business will continue to subscribe, but their merchant revenues will decline (n general) with the declining economy, and the overall growth rate of SHOP will crash to levels that will cause the share price to crash.
Don’t get me wrong, my only two holdings for the past 6 months (other than VEEV that I sold buy more NVDA) are SHOP and NVDA. So obviously I like both (I reserve the right to without notice sell or do whatever I want of course with any stock) but I have no illusions that SHOP’s “recurring” business model is a cushion or any more lock than is NVDA’s.
Neither company fits into the pattern of fiber and optical companies like INFN, where there is limited build out work, and thus “recurring” revenue is very small. Rather, both companies have, in real practice, “recurring” business models, as much as Intel and Microsoft did on the PC.
As for which is more speculative or risky, NVDA has been around for decades, NVDA has no real competition in GPUs. NVDA’s competition and risk are yet to be developed or marketed alternative technologies and methodologies, and nascent disruptive markets that may not pan out such as autonomous driving, AI, VR, AR, and continuing desire to play video games with better and better graphics cards. None of these are likely to dissipate and not come to fruition, but all will be subject to economic downturn, and NVDA has margins in the 25% range and ROIC that is near the top of any industry.
SHOP has not been around for decades, has multiple competitors that can pretty much do what SHOP does, and its valuation, based upon large growth rate, but entirely dependent upon a good retail market. SHOP is more vulnerable to an economic slow down than almost any high growth disruptive company that I follow.
Taken in a comparison, I know NVDA is going to be here 5 years from now, still competing at the top of the industry in multiple markets.
SHOP, I don’t know this. What I do know, is that SHOP has much more relative growth and upward surprise opportunity to adjust for its great risk to economic downturns.