Kicking myself for missing NVDA

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Hi folks,

I’m kicking myself. Close to 10 years ago, TMF/SA recommended NVDA. I’ve known about NVDA for much longer than that. I remember visiting their booth at the SIGGRAPH conferences back in 2000 and 2001 and being blown away by not only their technology almost 20 years ago, but their engineering practices, which were rock solid back then, and I’m sure have only gotten better since!

ATVI came out as a rec roughly at the same time, and NVDA stayed on my watchlist. I bought ATVI, just a little to watch it, but never did pick up any NVDA. Both of them were pretty stagnant for years. ATVI finally busted out once they catapulted Blizzard and could take control of their own destiny. But because I had ATVI I watched it and noticed it’s sudden increase. Because I didn’t own NVDA, I failed to notice it take off. And looking at a graph of the two now, I’m kicking myself for not having at least bought a little bit of NVDA and just holding it like I did ATVI.

My reasoning back then was simple. Hardware is a tough business, and the changes happen too fast to be really profitable. There’s a tremendous amount of overhead and capital investment in hardware. But software, especially gaming, is much more flexible. And a licensing a great revenue model. Compared to hardware, people will continue to pay for a subscription to play a game. But how often do people want to shell out several hundred dollars for a new piece of hardware? And, PCs were supposed to be dying, right?

Based on this, I followed the old adage of “buy the things that benefit from technology advances, not the tech itself”. Boy was I mistaken! Both ATVI and NVDA had an inflection point at roughly the same time, Feb 8, 2016. Since that time, ATVI is up 85% or so, while NVDA is up almost 626%!

So, now my question is, is it too late? Can NVDA continue on that trajectory, or have I missed the boat?

The things I see driving NVDA’s growth that maybe I should have known about, but didn’t seem to be:

  • Blockchain and cryptocurrency mining require serious horsepower that GPUs are a natural fit for.
  • Sudden increase AI and data-mining in data centers where people are adding GPUs to 1000s of “headless” servers which didn’t used to need video at all.
  • Increase in gaming competitions.

Cryptocurrencies seem to have had their bubble burst somewhat, but CC is only one application of the underlying blockchain technology. I believe we will start to see blockchain spread much like the internet itself did. This is a much better example of the “buy what benefits from the tech rather than the tech itself” than how I employed it. 20 years ago you couldn’t “buy the internet”, but you could buy things like AMZN, GOOG, and NFLX. And boy how they’ve benefitted from the spread of the internet! I think of blockchain as the same thing, with BTC being more like Pets.com. While BTC may not have the same dismal fate, I think it will eventually even out, whereas I think we’ll see blockchain find it’s way into everything we do over the next 20-30 years.

AI and data mining aren’t going to disappear any time soon either. In fact, they are merely going to continue to grow and, like blockchain, become pervasive ways of doing business. At some point I expect the software from the likes of AYX, TLND, etc., to also become pervasive, but will depend upon large data centers filled with GPUs somewhere to do all the heavy work before presenting the findings to the end-user, who may in fact being sifting through data on their phone or tablet.

Gaming competitions seem to be growing exponentially as well. ATVI in fact seems to be a leader in this area. And the more gaming, the more GPUs will be required. People will want to have systems at home that keep up with those used in competition. But I see gaming as the least attractive reason to invest in NVDA, mostly because it’s dependent on individuals to spend a lot of hard-earned money on one very expensive piece of hardware. And my gut says people just don’t buy enough of those often enough to move the needle significantly. Maybe I’m wrong.

But, the short of it is, I think there is enough room for NVDA to grow over at least the next 5 years to warrant a small position in it even at today’s prices.

I would love your thoughts and feedback on my reasoning, especially if you can point out where my thinking has flaws or where I may have missed something.

Thanks.

Paul

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Why not take your own advice? Buy a little. It’s probably the best investing advice out there. Over the long term, you’ll gain more than you lose buying a little of everything that peaks your interest.

Peace,
Dana

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So, now my question is, is it too late? Can NVDA continue on that trajectory, or have I missed the boat? – Paul

Paul, I’d look at it a little differently:

  1. NVDA appears to have a strong lead with their products. But in most businesses it’s hard to maintain a meaningful lead. Personally, based on reading both glowing and cautious commentary, I’m inclined to think the party will continue for at least a couple years… which is generally as much as I ask.

  2. It is often hard for investors to buy companies that have risen a lot. IMO, that past should not govern your future decisions. You have to consider whether: 1) The party will keep going and 2) The current price has/has not already factored in the future adequately. With #2, I mean that even a great company has an upper limit as to whether it’s worth investing in. Would I buy NVDA with it’s current performance and prospects for $250? Absolutely. Would I be willing to pay $2500 today if that was what the market was asking? No… because one always has to consider alternative investments. You aren’t buying the Fountain of Youth or Immortality where arguably any price is a good price. You’re buying the present and the future… and sometimes too much is too much.

  3. So…is NVDA your BEST choice out there? If so, buy. Not sure? Maybe take a nibble and buy whatever other company you also think is dynamite. Do you see a 5-bagger from NVDA? Go for it! Personally, I think a 5-fold increase in NVDA share price is possible, but it’s hard to argue it is at all likely in a short time frame. I’ve seen plenty of posts on this board where a good case has been made for a 5-fold return with other companies. Would those not be better alternatives?

  4. I’m always weighing the pros and cons of each investment. Standing alone and compared to my alternatives. And, contrary to opinions expressed in a recent board thread, a large percentage of my portfolio is in call options. Therefore, individual stock movements are exaggerated both up and down. With that thought in mind, my current NVDA allocation is about 12% (hard to say since option valuations are not updated automatically on my spreadsheet). ALL of that value is in call options that expire in January 2020. So, it’s reasonable to conclude that I expect further growth from NVDA, both in terms of company performance as well as share price. And, as Tinker has often said, I believe the analyst projections are too conservative and this is likely to lead to outsize earnings surprises.

Bottom line:

I believe NVDA offers an excellent risk/reward situation, but it’s not necessarily your best bet out there. Alternatives? I’d say to review highly rec’d posts on this board.

I seldom contribute to this board. Mostly because the research shared on this board is such that I feel I have nothing to add. :slight_smile:

Here is one suggestion that folks can consider: What if you find a very strong company with a terrific moat, you think the valuation is a bit low… but growth doesn’t meet the hyper-standards of this board? Well, in my case, I bought some calls to leverage that growth within that “modest” valuation. It’s been doing silly well. Bought January 2020 $1030 and $1080 calls on GOOG. Something to think about… you don’t necessarily need to buy little unproven companies to experience outsize returns.

Second suggestion: This is a favorite of a lot of people…keep a sharp eye out for stocks of excellent companies that have been unreasonably beaten down. My current poster child for that is COHR, a laser company. Doing well but the market is concerned about the future to an extent I disagree with. Price is about 10x 2019 earnings. Much too cheap, IMO. I acquired most of my shares through being “put to” on some put options and now I find it hard to turn away from the low price. Acquired those shares for a bit below the current price and could sell calls for more profit but I’m attracted to the likely future share price and long calls are not available. Plus, from a portfolio standpoint, the “value proposition” here helps balance some of my more aggressive investments (aka call options).

Rob
Rule Breaker / Market Pass Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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Rob,

Thanks for the reply! When I said, So, now my question is, is it too late? Can NVDA continue on that trajectory, or have I missed the boat? it was meant mostly as a rhetorical question which I was then trying to answer in the following paragraphs.

I largely agree with you, I think NVDA has a long way to grow from here. Is it necessarily the best option, I’m not sure. I think it’s certainly a very good option, and one I wouldn’t mind having a little of in my portfolio.

I have certainly read a fair bit about a number of great companies on this board, ANET and AYX being two of my favorites, and of which I already hold positions in.

Thanks.

Paul

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NVDA at new high today Which is bullish because any stock going up for long periods makes a bunch of new highs on the way.

what you did or did not do with Nvidia in the past is not relevant . Neither are past prices. That was then, this is now, and you are buying for the future.

IOW evaluate NVDA based on your estimates of the future not your knowledge of the immutable past.

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The best time to plant a tree is 20 years ago.
The second best time is now.
Chinese proverb

Fool ommm , kevin c

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