Mark Hibben article on NVDA

I have read Mark’s articles on NVDA and AAPL on Seeking Alpha since at least sometime in 2016. He has been long both names that full time and does a good job explaining both companies. I’d say he’s one of the better Seeking Alpha contributors (along with Bert). He rates NVDA as an exceptional buy at the end of this article.

I haven’t read the full thing yet, but the main gist seems to be the NVDA’s moat/CAP (competitive advantage period), which remain intact as evidenced by the release of the new Turing architecture.

https://seekingalpha.com/article/4201679-nvidias-impregnable…

-volfan84
long NVDA; long AAPL

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I still hold a lot of NVDA, but Saul has a strong point. Te idea of buying a stock is to make money on it and NVDA has not done that lately. Whereas PSTG, TTD, and TWLO are all up over 5% each today alone.

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I still hold a lot of NVDA, but Saul has a strong point. Te idea of buying a stock is to make money on it and NVDA has not done that lately. Whereas PSTG, TTD, and TWLO are all up over 5% each today alone.

There is a danger in too much short term thinking. NVDA is doing superbly. It’s up almost 40% this year, 62.4% over 1 year, 1,086% over 3 years and 1,704% over 5 years. It continues to execute well and continues to have great growth opportunities. It’s reasonably valued at less than 40 times forward earnings.

I don’t know how it will do over the next year but I am pretty confident in its superior longer term prospects compared to other stocks and the overall market. Personally, I don’t sell unless this changes.

Many here are more active traders but it is difficult to match their trading skills or acumen.

dave

24 Likes

There is a danger in too much short term thinking. NVDA is doing superbly. It’s up almost 40% this year, 62.4% over 1 year, 1,086% over 3 years and 1,704% over 5 years. It continues to execute well and continues to have great growth opportunities. It’s reasonably valued at less than 40 times forward earnings.

Dave, I hope you’ll forgive me if this sounds harsh, but I think it’s important.

There’s never ANY danger in short term thinking that leads to selling a stock. Only in buying or holding. This is a huge part of Saul’s success, in my opinion. He not only finds a bunch of good companies, but he is ruthless in cutting any among them in which he loses confidence. In my post on selling I said this:

If you aren’t confident that a company’s growth is sustainable, it’s probably best to sell, because there are likely some companies you can be confident in.
http://discussion.fool.com/selling-33091255.aspx

That’s something I’m still learning from Saul, and you can take it to the bank. But perhaps even more salient than that: Remember that it doesn’t hurt Saul one bit if NVDA doubles. In fact, he’s probably hoping it does, for the sake of those here who own it. All that matters to anyone who sold NVDA is how their current holdings perform.

Lastly, I’m kind of talking to myself here, too.

Bear

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Dave, I hope you’ll forgive me if this sounds harsh, but I think it’s important.

There’s never ANY danger in short term thinking that leads to selling a stock. Only in buying or holding. This is a huge part of Saul’s success, in my opinion. He not only finds a bunch of good companies, but he is ruthless in cutting any among them in which he loses confidence. In my post on selling I said this:

If you aren’t confident that a company’s growth is sustainable, it’s probably best to sell, because there are likely some companies you can be confident in.
http://discussion.fool.com/selling-33091255.aspx

That’s something I’m still learning from Saul, and you can take it to the bank. But perhaps even more salient than that: Remember that it doesn’t hurt Saul one bit if NVDA doubles. In fact, he’s probably hoping it does, for the sake of those here who own it. All that matters to anyone who sold NVDA is how their current holdings perform.

Lastly, I’m kind of talking to myself here, too.

Bear

Yes, there are two sides to a coin. And it’s a balance. So I don’t completely agree in this regard. Selling can be a bigger mistake than buying and holding - just ask anybody who sold AMZN, NFLX, etc. many years ago and missed out on massive gains. Frequent trading can lead to increased trading costs including huge tax expenses. There are some extremely experienced and skilled investors here (Saul, yourself, etc.) who can successfully manage to trade in and out of stocks often but this probably won’t work well for the majority.

In the case of NVDA, it’s ultra short term thinking to suggest that a stock up 40% this year and 62% in the past year isn’t performing well. There may be good reasons to sell NVDA but recent performance is definitely not one of those reasons.

But I greatly appreciate your perspective. Everybody’s investing style is a little different and each person has to find what works best for them. I’m not comfortable with trading often for the above reasons (in my case, I trade mainly in a taxable account and in a higher tax bracket so my short term gains are taxed at a massive 35% rate). On the other hand, I’ve learned from you and others here to be vigilant about my investments and to not be afraid to sell if the investment thesis is weakened or breaking down.

And I’m always learning.

Cheers,

dave

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Selling can be a bigger mistake than buying and holding - just ask anybody who sold AMZN, NFLX, etc. many years ago and missed out on massive gains

Hi Dave, In support of Bear here are a few paraphrases from the Knowledgebase.

You don’t have to be right about the stocks you sell, just the ones you hold in your portfolio. It simply doesn’t matter what happens to a stock after you sell it. The only thing that matters is what happens to the stocks that you are holding. Think about that! If you sell various stocks over time because you have legitimate questions about them, and you were “wrong” about some of them (they eventually do all right and move up), so what? As long as you put the money in stocks that you are happy with, that’s what counts! I’m not saying my replacement stocks always do better than the stocks that I’ve sold. What I’m saying is that I do my best and use my judgment, and over time I expect that companies I choose will, on average, do better than companies I decide against. That’s how I think about it anyway.

We all often worry when stocks we have sold go up. I try to ignore them and I believe that once they are sold they don’t matter any more. Here’s a great quote from Huddaman: “I don’t really need to be right for the stocks I sell, I just need to right about the stocks I own.” Boy! Doesn’t that really say it all! It simply doesn’t matter what happens to a stock after you sell it.

I can’t hold all the stocks in the market. Some stocks I don’t hold are going to go up a lot! In fact some stocks I don’t hold are going to go up more than the stocks I hold. So what!!! The only thing that matters is what the stocks I am holding are doing!

In response to your comments about selling Amazon, I did sell my position last summer, and your comment inspired me to look back at where I sold it, and to my surprise it’s up 92% from where it was back then. But then I looked back at how my portfolio has done since then, at it’s up 128% since then, up 32% more than Amazon, and that’s for the whole portfolio not just one stock. So, ironically, Amazon would have held back my results if I had kept it.

Just a different way of looking at things,

Best,

Saul

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In the case of NVDA, it’s ultra short term thinking to suggest that a stock up 40% this year and 62% in the past year isn’t performing well. There may be good reasons to sell NVDA but recent performance is definitely not one of those reasons.

Disagree.
The point of investing is to make money and I made a lot more money in other stocks during the last 6 months than I did in Nvidia.

That is not to say NVDA is a bad investment, I still own some, most purchased a year or so ago ago , Just that the others I bought were better investments.

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I think this conversation is at risk of going around in circles, with the two camps disagreeing but essentially agreeing with each other.

Camp 1: not in NVDA because they believe there are other better performing stocks out there. This has been proven this year with such stocks such as AYX and MDB skyrocketing. They don’t care how NVDA does (apart from wanting their brothers and sisters on this board to do well of course), as long as their stocks do well.

Camp 2: believe NVDA is a fantastic large cap growth stock, generating great returns and provides a solid portion of their portfolio. I’m in this camp. I’m sure most in this camp will agree that the potential returns of NVDA is less than some other hyper growth stocks (proven so far this year by stocks on this board). The trick is being right. To me, NVDA is a no brainer stock that will generate market beating returns.

Bonus camp 3: NVDA is an overvalued chip stock that is going to crash and burn and laugh at that no brainer comment I just said above.

NVIDIA is dominant in it’s field. A seemingly unassailable moat and lead over competitors (arguably a widening lead), with clear and obvious tailwinds behind it, that had a great quarter despite being at the end of its chip cycle. It’s creating markets with its visuals. EPS growth of 92%! And now we’ve got a new chip cycle for it’s largest revenue segment, gaming, selling at elevated prices to previous launches (similar to the crazy iPhone X price) that has now sold out. You can’t preorder the 2080 anymore .

I’m going to make money with NVDA and sleep well doing it. Fully aware that others here will make significantly larger % gains than me and I’m okay with that. We all have independent strategies right? Well, a lot here have similar but variations of investing in hyper growth stocks.

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The point of investing is to make money and I made a lot more money in other stocks during the last 6 months than I did in Nvidia. That is not to say NVDA is a bad investment… Just that the others I bought were better investments.

Mauser, I couldn’t have said it better! I think NVDA is a good investment, a very good investment. I was just that I liked others better.

Camp 1: not in NVDA because they believe there are other better performing stocks out there. This has been proven this year with such stocks such as AYX and MDB skyrocketing. They don’t care how NVDA does (apart from wanting their brothers and sisters on this board to do well of course), as long as their own stocks do well.

Camp 2: believe NVDA is a fantastic large cap growth stock, generating great returns… I’m sure most in this camp will agree that the potential returns of NVDA is less than some other hyper growth stocks (proven so far this year by stocks on this board)… To me, NVDA is a no brainer stock that will generate market beating returns.

Ben Dubya, I’m in both camps. I agree with Camp 1 and I agree with Camp 2. I’ve been constantly tempted to get back into a position in NVDA because it obviously has its market all sewed up. I just can’t see it growing the way the others are growing because of
A. its size,
B. the price of chips constantly come down,
C. being hardware, the only way it can grow revenue 60% is to sell next year all it sold this year and 60% more. To do that for the next 3 years it would have to quadruple its chip sales. To do it for 4 years would require well more than a sextuple (655% actually). I think that is simply unlikely, while for one of our little SaaS companies it is much less unlikely, because last year’s sales stick there and don’t have to be redone. In fact they grow almost on their own. And, as far as multiplying stock price by six, it’s a lot easier for a company with a market cap of $5 million than for one with a market cap of $165 million; a LOT easier!:grinning:

I may at some point buy a new position anyway.

Best,

Saul

11 Likes

I think this conversation is at risk of going around in circles, with the two camps disagreeing but essentially agreeing with each other.

Camp 1: not in NVDA because they believe there are other better performing stocks out there. This has been proven this year with such stocks such as AYX and MDB skyrocketing. They don’t care how NVDA does (apart from wanting their brothers and sisters on this board to do well of course), as long as their stocks do well.

Camp 2: believe NVDA is a fantastic large cap growth stock, generating great returns and provides a solid portion of their portfolio. I’m in this camp. I’m sure most in this camp will agree that the potential returns of NVDA is less than some other hyper growth stocks (proven so far this year by stocks on this board). The trick is being right. To me, NVDA is a no brainer stock that will generate market beating returns.

Bonus camp 3: NVDA is an overvalued chip stock that is going to crash and burn and laugh at that no brainer comment I just said above.

NVIDIA is dominant in it’s field. A seemingly unassailable moat and lead over competitors (arguably a widening lead), with clear and obvious tailwinds behind it, that had a great quarter despite being at the end of its chip cycle. It’s creating markets with its visuals. EPS growth of 92%! And now we’ve got a new chip cycle for it’s largest revenue segment, gaming, selling at elevated prices to previous launches (similar to the crazy iPhone X price) that has now sold out. You can’t preorder the 2080 anymore .

I’m going to make money with NVDA and sleep well doing it. Fully aware that others here will make significantly larger % gains than me and I’m okay with that. We all have independent strategies right? Well, a lot here have similar but variations of investing in hyper growth stocks.

Nice summary of both perspectives. I just think everybody has a different investing style that is most appropriate for their risk tolerance and approach to investing. Each approach has its pluses and minuses. Some people are more hands on and some are not. Some people have to consider taxes more than others. Some people don’t mind volatility while others won’t be able to sleep at night with high volatility. Some prefer greater diversification for this reason while others prefer less diversification.

While I greatly admire Saul,Bear and others here, I might have difficulty if I tried to mimic their approach. I don’t have their investing/trading acumen or skill.

Regardless of the approach though, I think we all agree that careful thought should be given to any decision to buy, sell or hold. Don’t be afraid to sell and don’t blindly fall in love with a stock and hold onto it, especially if you see a clearly better opportunity elsewhere. That’s the crux of the issue.

I also try to always keep learning - from my mistakes or losses as well as from the great investors here!

dave

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But I greatly appreciate your perspective. Everybody’s investing style is a little different and each person has to find what works best for them.

Thanks, Dave. Different strokes for different strokes for sure. I appreciated BenDubya saying the same. But let me make 2 new points and then probably leave it there.

In the case of NVDA, it’s ultra short term thinking to suggest that a stock up 40% this year and 62% in the past year isn’t performing well. There may be good reasons to sell NVDA but recent performance is definitely not one of those reasons.

I don’t look at the stock results to see what companies are “performing well.” I look at the company results. For instance, Shopify is only up 40% or so YTD, but that’s hardly why Saul sold! Nutanix was only up around 40% YTD a couple weeks ago. The stock will move around. We only care about the past stock performance if we believe it is predictive of the future stock performance. And the only way to know that is not to look at the stock at all, but the company.

I have no opinion on Nvidia the company and never owned shares in NVDA the stock, but I’m having to wrestle with company results for Shopify right now. Their growth is slowing, and management seemed utterly sanguine about it. But more than that, it’s slowing and all the while they show no signs of significant scaling (profitability). Perhaps they will in the next couple quarters, and that’s what I’ll be watching carefully. Although I fear I’m simply being less nimble than Saul and others.

Then again, mediocre growth without real profitability improvement seems to be working fine for Splunk! (sorry it’s just a throwaway line, but that’s how I see things with Splunk)

Thanks again. These are good things for us to discuss.

Bear

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Mauser, I couldn’t have said it better! I think NVDA is a good investment, a very good investment. I was just that I liked others better.

Ben Dubya, I’m in both camps. I agree with Camp 1 and I agree with Camp 2. I’ve been constantly tempted to get back into a position in NVDA because it obviously has its market all sewed up. I just can’t see it growing the way the others are growing because of
A. its size,
B. the price of chips constantly come down,
C. being hardware, the only way it can grow revenue 60% is to sell next year all it sold this year and 60% more. To do that for the next 3 years it would have to quadruple its chip sales. To do it for 4 years would require well more than a sextuple (655% actually). I think that is simply unlikely, while for one of our little SaaS companies it is much less unlikely, because last year’s sales stick there and don’t have to be redone. In fact they grow almost on their own. And, as far as multiplying stock price by six, it’s a lot easier for a company with a market cap of $5 million than for one with a market cap of $165 million; a LOT easier!:grinning:

I may at some point buy a new position anyway.

Best,

Saul

Thanks for your insights on NVDA and your earlier comments. And all your investing insights!

I actually agree with you and Bear even if it didn’t seem that way.

dave

1 Like

I’ve been constantly tempted to get back into a position in NVDA because it obviously has its market all sewed up. I just can’t see it growing the way the others are growing because of
A. its size,
B. the price of chips constantly come down,
C. being hardware, the only way it can grow revenue 60% is to sell next year all it sold this year and 60% more. To do that for the next 3 years it would have to quadruple its chip sales. To do it for 4 years would require well more than a sextuple (655% actually). I think that is simply unlikely, while for one of our little SaaS companies it is much less unlikely, because last year’s sales stick there and don’t have to be redone. In fact they grow almost on their own. And, as far as multiplying stock price by six, it’s a lot easier for a company with a market cap of $5 million than for one with a market cap of $165 million; a LOT easier!

Saul, you have such an incredible way of seeing the most basic and salient stuff that I consistently miss. I’m still long NVDA and have wondered why you sold other than they make and sell stuff. My thoughts were, yeah, they make chips and sell them, but nobody can touch them, they own the market and it’s a big and growing market. But, when you do the math on what it means to sell things and how many more things must be sold to continue to grow at fast clip it soon becomes obvious it’s an impossible task. The sales curve has to flatten, it won’t be smooth, they’ll have bursts of growth (probably with the new Turing chips) but it won’t take long for that to taper.

Thanks for all your insights. I continue to learn new things from you. I’m always just amazed at how obvious a lot of your observations are after you state them. Others (i.e., the hidden growth with TWLO) are more obscure.

6 Likes

Saul, you have such an incredible way of seeing the most basic and salient stuff that I consistently miss. I’m still long NVDA and have wondered why you sold other than they make and sell stuff. My thoughts were, yeah, they make chips and sell them, but nobody can touch them, they own the market and it’s a big and growing market. But, when you do the math on what it means to sell things and how many more things must be sold to continue to grow at fast clip it soon becomes obvious it’s an impossible task. The sales curve has to flatten, it won’t be smooth, they’ll have bursts of growth (probably with the new Turing chips) but it won’t take long for that to taper. Thanks for all your insights. I continue to learn new things from you. I’m always just amazed at how obvious a lot of your observations are after you state them.

Thanks Brittlerock, It’s nice to know that someone was listening when I wrote that. And thanks also for reminding me what I had written. I’m making a copy of it to re-read if I ever get the urge to go back into Nvidia.
Best,
Saul

PS - For those of you who haven’t read what I wrote that he is referring to, I’ll save you the trouble of linking back and finding it. Here it is again:

I’ve been constantly tempted to get back into a position in NVDA because it obviously has its market all sewed up. I just can’t see it growing the way the others are growing because of
A. its size,
B. the price of chips constantly come down,
C. being hardware, the only way it can grow revenue 60% is to sell next year all it sold this year and 60% more. To do that for the next 3 years it would have to quadruple its chip sales. To do it for 4 years would require well more than a sextuple (655% actually). I think that is simply unlikely, while for one of our little SaaS companies it is much less unlikely, because last year’s sales stick there and don’t have to be redone. In fact they grow almost on their own. And, as far as multiplying stock price by six, it’s a lot easier for a company with a market cap of $5 million than for one with a market cap of $165 million; a LOT easier!

16 Likes

I’ve been constantly tempted to get back into a position in NVDA because it obviously has its market all sewed up. I just can’t see it growing the way the others are growing because of
A. its size,
B. the price of chips constantly come down,
C. being hardware, the only way it can grow revenue 60% is to sell next year all it sold this year and 60% more. To do that for the next 3 years it would have to quadruple its chip sales. To do it for 4 years would require well more than a sextuple (655% actually). I think that is simply unlikely, while for one of our little SaaS companies it is much less unlikely, because last year’s sales stick there and don’t have to be redone. In fact they grow almost on their own. And, as far as multiplying stock price by six, it’s a lot easier for a company with a market cap of $5 million than for one with a market cap of $165 million; a LOT easier!

Hi Saul,

For many companies the above would apply. NVDA is a bit different. How is it different?

Size: By size, I think you are referring to NVDA’s market cap of $165B. The law of large numbers. But size is really relative. We must ask how large are NVDA’s markets, its opportunity in those markets, and what percentage of those markets has it captured. NVDA plays in some enormous markets. Take the automotive transportation market for example. There are something like 280 companies partnering with NVDA in its autonomous business, but today NVDA has hardly any business in that segment relative to the segment’s size. In 2018, global car sales are projected to be 80 million units. Jenson said that he would expect to sell the “brain” for an autonomous car for about $2000. That would be a market of $160B in one year! I am not saying that all cars will get a brain and that NVDA will have 100% market share. NVDA’s TTM revenue for ALL of its segments was only $11.9B and less than $600M in automotive. Brains autonomous things is by no means limited to passenger cars; there are hundreds of use cases for putting a brain into a device that needs to control its movements, perceive its surroundings, and make decisions on its own in real-time. And autonomous for passenger cars has a market size greater than 10 times NVDA’s current annual revenue, it is only one of NVDA’s many markets. Therefore, NVDA has only scratched the surface. Compare that to Apple’s iPhone and you see a different picture Apple, which has a market cap 8x more than NVDA, is going to need to find some other enormous markets to sustain its growth rate.

Price constantly coming down: This is not always true. Just look at the recent price of NVDA’s new gaming GPU compared to the previous price. Look at what NVDA said about how much they can fetch for the passenger car brain (Xavier) that’s coming; he said $2000 ($1000 is more than $1000 for the high end gaming chip). That’s more that they are getting. Look at the price of some of NVDA’s data center products. Some cost in the tens of thousands of dollars. Yes the price of computing power has been dropping for decades and it will continue to do so. But the COGS drop and the volume of units sold explode. I think this will continue. We need to watch NVDA’s gross margins to see that they are maintaining their pricing power. So far they have been.

They are just selling hardware: They are selling hardware, but I think you may be implying that they are selling a commodity (i.e. undifferentiated meaning low margin) that can be sold by other companies. Clearly, NVDA is selling a highly differentiated product. They are not selling “hardware”. They are selling machine training, inferencing, brains that include hardware, software, connections to storage (e.g. storage offered by PSTG), connections to data transmitters (e.g. ANET switches and routers). The are selling all these things and the way they collect/realize the revenue is through an object that you can technically call “hardware” but it is much more than a commodity. If you could sell a human brain that can enable all sorts of things that customers want, would you call it a piece of flesh comprised of protein and fat? The second point that you made, which is that NVDA’s revenue is not recurring, is very valid. It is better to not have to sell the same amount as last year and then more the next year. It does get increasingly difficult.

However, I still see a very long runway of growth for NVDA. Just in its current markets of gaming and data center, which are already large, there is a lot of growth ahead. In the emerging opportunity of automotive there is a massive wave of revenue that will come in a couple of years. In the profession visualization industry, NVDA is about to reignite some serious growth. And we haven’t even talked about new areas (like NVDA’s CLARA for healthcare) that have virtually zero revenue today.

After earnings, when the shares were are $250, I decided to add a nice chunk of NVDA to my portfolio. I could see that the shares could easily (and IMO would probably) hit $300 by February. That would be a 20% increase in 6 months or 44% annualized. We are currently more than halfway there already after 2 weeks. I still think that NVDA shares will reach or exceed $300 by February. Sure, the whole market is going up, but NVDA is increasing faster than the market. I do agree that NVDA is probably not going to be my fastest grower and I have allocated accordingly, but I do think that NVDA has a good place in my portfolio. Of course, I realize that I may be wrong…but I place my bets on my opinions.

Chris

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I’ve been constantly tempted to get back into a position in NVDA because it obviously has its market all sewed up. I just can’t see it growing the way the others are growing because of…

Your extrapolation is making you miss a great stock. Let me explain. Growth in nature is best described by the “S” curve: https://www.google.com/search?client=safari&rls=en&q… Technology adoption follows the “S” curve with the bottom curve at around 15% of market penetration and the top curve at around 85% market penetration. The time to be in a stock is between these two curves, that’s when fast growth happens.

As you say, some day NVDA will slow, but when? It has a number of markets, gaming, AI, AV, supercomputers, etc., some just starting up. The paradigm shift to GPUs is just getting started.

Denny Schlesinger

NVDA is one of the sfastest growing stocks these past five years


**Ticker  5 year CAGR**
PVTL        836.40%
MDB         162.10%
TTD          99.00% 
**NVDA         94.80%** 
IRTC         89.70%
TREE         73.00%
TLND         62.40%
FIZZ         55.80%
NFLX         46.80%
ALGN         45.10%
BEAT         45.10%
ANET         44.70%
MKTX         40.10%
PYPL         39.90%

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With respect, I think some of you are missing the point. Saul knows that Nvda is a great company, never said it wasn’t but when you see his monthly figures, I believe his allocation of cash needed at the time to add to his other Companies will show figures to prove his point. This is one lesson I learnt from him and in my opinion, the most important one and its called timeing. One can always jump back in but if you think that a Sq or Mongo, or AYX is possibly undervalued and going to get you a better and faster return as opposed to tying up shares in a Nvidia for example, its a decision that one has to make and watching him very closely now for a few years, he is the master of this.

Disclosure. I still have a 2% allocation of Nvda, but sold 8% along with Shop to distribute elsewhere.

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Others were listening as well thankfully Saul :slight_smile:

1 Like