I agree that recurring revenue – especially as defined in the software space – is an admirable attribute. However, it is not the be-all and end-all, or the only business model that can succeed. For example, neither (most) drug companies nor (most) food companies have recurring revenues in the sense that you use the term, but they have very stable revenues because the underlying demand for their product is relatively stable.
Currently, NVIDIA has a technological edge over its primary competitor, Advanced Micro Devices. That may not last forever, but NVDA has had an edge most of the time over the past fifteen years or so (no references - this is my opinion, but I think it is a widely-held one). I suspect that NVDA could crush AMD, but has not done so for fear of anti-trust enforcement. For example, look how quickly NVDA responded to Google’s tensor-based processor threat. Intel has massive resources, but they’ve not really had success breaking into the GPU market.
NVDA’s main market is enabling/enhancing the presentation of video games. I’m told that gaming is undergoing a resurgence with younger generations (I’m a cusp geezer, depending on your definition) due to the popularity of e-gaming. So its core market has a bit of a tailwind. I’m told that it is difficult to find GPUs in online stores at present due to gaming’s popularity. The new Nintendo device, which contains NVDA chips, is popular. So, despite the lack of officially recurring revenues, I’m not very worried about NVDA’s ability to convert inventory to cash.
Selling into the AI market is “gravy” at this point, but could become the “meat” down the road. I like the company’s future prospects.
I am not going to argue that NVDA – the stock – represents good value at this point. I really haven’t analyzed it with that in mind, and it is difficult to accurately model the growth rates of nascent markets. The current valuation – even after Friday’s decline – looks stretched to me, but there’s an element of price-anchoring at play there, I think.
Anyway, one thing I keep asking myself about chip companies is: Five or ten years from now, are there going to be more chips in the world, or fewer. I always answer, “More. A whole lot more.” The real question is, whose chips? I like NVDA’s chances of being among the winners.
Thanks and best wishes,
TMFDatabaseBob (long: GOOG/L, INTC, NVDA; NVDA is my largest individual stock position, but that is through long-term growth rather than through multiple purchases – I’ve held since early 2004)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth