NVDA: AI in Oil & Gas

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https://blogs.nvidia.com/blog/2018/01/29/baker-hughes-ge-nvi…

AI will be used in every industry.

NVIDIA and Baker Hughes, a GE company (BHGE), are partnering to use AI and GPU-accelerated computing to help the oil and gas industry distill this data in real time — and dramatically reduce the cost of finding, extracting, processing and delivering oil…

…As the adjacent infographic shows, NVIDIA and BHGE’s collaboration spans the operations of oil companies. And it does so using the full breadth of our AI solutions. This includes NVIDIA DGX-1 AI supercomputers in data centers for model training; NVIDIA DGX Stations for supercomputing at the deskside — or even on remote offshore platforms where bandwidth is limited; and NVIDIA Jetson AI supercomputers-on-a-module for real-time, continuous deep learning and inferencing at the edge…

NVDA has a solution to put intelligence into the edge.

With GPU-accelerated analytics, well operators can visualize and analyze massive volumes of production and sensor data such as pump pressures, flow rates and temperatures. This can give them better insight into costly issues, such as predicting which equipment might fail and how these failures could affect wider systems…

…Using deep learning and machine learning algorithms, oil and gas companies can determine the best way to optimize their operations as conditions change. For example, they can turn large volumes of seismic data images into 3D maps to improve the accuracy of reservoir predictions. More generally, they can use deep learning to train models to predict and improve the efficiency, reliability and safety of expensive drilling and production operations.

AI getting infused everywhere:

NVIDIA’s work with BHGE is part of a broader strategy to work with leading companies to bring AI into every industry. Among these efforts are collaborations with GE Healthcare and Nuance in the area of healthcare; with Audi, Bosch, Mercedes-Benz, Uber and Volkswagen in automotive; FANUC in robotics; and Komatsu in construction and mining.

More information is coming on January 29-30 in Italy:

BHGE and NVIDIA will showcase AI-infused oil and gas demos in the solutions fair at the BHGE Annual Meeting this week in Florence, Italy.

Chris

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Yes, but will they be using Pure storage? The vital question.

I dunno.

Tinker

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Yes, but will they be using Pure storage? The vital question.

I dunno.

I think the answer (as of now) is increasingly, yes.

https://www.purestorage.com/content/dam/pure/pdf/whitepaper/…

“If you want to improve, be content to be thought foolish and stupid.” ? Epictetus

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That’s about as solid a validation of Pure’s competence as you can get

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Didn’t see a date for when the white paper linked was produced…but I did find a few more .pdf’s associated with combining offerings of Pure and NVidia.

https://www.purestorage.com/content/dam/purestorage/pdf/whit…

https://www.purestorage.com/content/dam/purestorage/pdf/data…

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If we agree that Nvidia and Pure Storage are both ways to play these trends, I must point out:

2017 expected revenue
NVDA: 152.6 billion
PSTG: 4.3 billion

Current Market Cap
NVDA: 9.47 billion
PSTG: 1.02 billion

Price vs Revenue (PS ratio)
NVDA: 16.1
PSTG: 4.2

In other words, Nvidia is 35 times as expensive, but only has 9.3 times the revenue.

So Pure is 4x less expensive relative to sales, and it also has to grow off a much smaller base.

My conclusion: PSTG is undervalued.

Bear

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Obviously I got revenue and market cap backwards, sorry. Should be:

Current Market Cap
NVDA: 152.6 billion
PSTG: 4.3 billion

2017 expected revenue
NVDA: 9.47 billion
PSTG: 1.02 billion

The rest of the original post is correct.

Bear

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Great numbers comparison Bear!

How many people know PSTG exists compared to NVDA?

Me thinks market sentiment justifies the NVDA share price. Maybe the next big trends will start looking for actual companies contributing to the ‘promise’ and ‘hope’ in those trends. This board points out AI and ML as compelling reasons for PSTG. Maybe sentiment comparisons are best in judging NVDA before crypto became regularly discussed and the needed for GPU’s in various new trends routinely discussed in 2017.

Therefore, I concur with your conclusion. Let us see if the PSTG trends portend a similar market sentiment.

~Scott

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I disagree that PSTG is undervalued comparing to NVDA. NVDA has a much bigger moat and CAP than PSTG. It deserve a much bigger multiple.

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I disagree that PSTG is undervalued comparing to NVDA. NVDA has a much bigger moat and CAP than PSTG. It deserve a much bigger multiple.

4x bigger?

Bear

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Maybe 2.5x to 3x bigger.

NVDA has a track record of profitability, pays a bit of a dividend, had been buying back shares a year or so ago (may have slowed that down some as the price has gone up and up and up), and has shown similar revenue growth rates but off a higher base if I’m not mistaken (40-50-ish percent is my recollection from recent quarters, but not going to look it up at the moment).

On a similar topic, I was thinking yesterday about adding some refinement to the “marginal thinking”/PE30 concept that you had posted about, Bear. To keep those thoughts simple and short, the PE30 could be combined with two additional weighting factors to even out differences associated with companies being at different phases of development and with different business models, etc.

One factor would be a forward-looking projection of revenue growth (which could account for growth rates from the recent past and whatever qualitative or quantitative factors one desires)

The other factor would be forward-looking projection of the probability of the company achieving/approaching a 30% margin. Any companies already in excess of 30% would get a bonus boost here if that margin was deemed to be sustainable or expandable.

Factoring in these 2 items could even out the PE30/marginal thinking valuation concept…and obviously the subjectivity of these 2 factors provides much of the fluctuations of prices of stocks within the public markets.

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So Pure is 4x less expensive relative to sales, and it also has to grow off a much smaller base.

Ah, but how likely is Pure Storage to become commoditized compared to NVDA. Sure, NVDA “just” does chips, but they are way ahead of others and innovating to stay ahead. As David Gardner says, NVDA has multiple possible futures. AI/Deeplearnings, Autonomous vehicles, graphics, data centers, etc. This is worth something.

FYI, NVDA and PSTG are still holding strong in this recent sell-off, a sign that big institutions are not wanting to part with those share. Compare that to OLED…
http://stockcharts.com/freecharts/candleglance.html?NVDA,PST…

So, keep holding both.

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I agree with Kevin. It depends on how large the CAP is for NVDA vs. the CAP for PSTG.

NVDA has a practical monopoly, worldwide, with a huge amount of investment, that has taken years and years to put together, with more partnerships than anyone in the industry.

PSTG does not have a monopoly. Every single sale they make is up against competition from larger competitors, EMC, NTAP, HP, and some smaller competitors (one purchased by HP).

NVDA sells its product because there is no equivalent product in the entire world.

Arista sells its product because there is no equivalent product in the entire world.

PSTG, we really do not know that yet. As such, it deserves a much smaller multiple.

What PSTG has, is unlike NVDA, its multiple may still grow if its CAP truly is larger than the multiple indicates.

As such, it creates potential for outsize appreciation, assuming its CAP does grow, which will be found in stealing, systematically, marketshare from EMC and NTAP.

I read the last conference call transcript. The company is guiding for 30% growth from hereonin except for the coming quarter where 45% growth is projected.

30% growth, does not involve the sort of things that NVDA or ANET have done in regard to stealing marketshare, and indicates both a more competitive market, and a slower growing market that required marketshare to be more quickly taken.

The upside is if management is being conservative, and like with ANET (NVDA is hardly conservative) that PSTG exceeds expectations and thereby not only gets the higher revenues and earnings than anticipated but demonstrates a higher CAP.

If so, its sure price will clearly be something desirable to witness if you hold the shares.

But taking from your own post Bear, valuation does not necessarily matter, I put forward the concept that CAP is the single most important element of valuation multiple, but CAP means nothing without also a long runway of SAM.

Clearly PSTG brings things to market that its competitors do not. The question is whether NTAP or EMC can touch that? EMC is of course larger, but reviewing some personal reviews comparing the products, it seems that NTAP is also capable of product with very low latency, that may be equivalent to PSTG. No though, I have no information if NTAP has the Evergreen sort of option.

Obviously I will continue to work on this issue.

To date, since PSTG fell to a small valuation, it has doubled. And regardless of whether or not its multiple should equal NVDA’s multiple due to a much lower CAP, at 4x sales, given the value PSTG brings to the market, and the growth potential ahead, it does still seem to be a low risk, high reward stock.

Those are the best of course! If one can hold long enough to realize it as we cannot control market sentiment that can move multiples one way or another, but history seems to indicate that at some point the proper multiple that reflects CAP and SAM will be realized in the stock.

Tinker

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history seems to indicate that at some point the proper multiple that reflects CAP and SAM will be realized in the stock.

Who plans to be around then? :slight_smile:

Dan