Among my companies (AYX, TWLO, NKTR, NVDA) that report next week we have NVDA. The stock price responses have been interesting this quarter. Many companies are reporting excellent results but perhaps the “market” is expecting a lot more.
Who knows how the stock will react to NVDA. Here are some recent stats.
Gaming is the main driver because is it almost 3x as large as the next largest segment (data center).
Data center revenue growth has been slowing but it’s still very high. Someone on the board reported that the cloud titans have increased their CapEx spending by a lot in Q1 2018 over last year. Next week we will see how much more data center GPUs they bought…
Professional visualization may get reignited with the announcement of the real-time rendering technology that NVDA unveiled in January. We will see if this translates into faster sales growth for that segment.
Auto probably won’t really kick in for another 2 years.
On 4/25/18 AMD reported a really solid quarter with revenue up 40% y/y and up 23% sequentially. NVDA’s y/y revenue growth had slowed to 32% and 34% the past few quarters. If we see NVDA match AMD then that will be an improvement.
At GTC in January, NVDA announced A LOT of new products. Let’s see if this translates into a reaccelerating of revenue growth…
I would be interested in your thinking between stock purchases vs options and specifically what your thinking is between ITM, Deep ITM and OTM options specifically as it pertains to Saul type stocks. I too have a mix but have a hard time deciding on which vehicle I find most appealing.
Is there any way of finding out how crypto demand has impacted pricing?
I know that they claim that the OEMs are capturing the premium from inflated graphic card prices, but Nvidia’s wholesale prices are surely benefiting from that as well.
This is a critical factor in finding out the source of Nvidia’s profit growth.
Is there any way of finding out how crypto demand has impacted pricing?
They consider their valued longterm customers to be the gaming customers, not the crypto customers, and they try to get their chips to the gaming customers, rather than to the cryptos. I can’t imagine that they would anger their gaming customers by raising wholesale prices because of the extra crypto demand, but that’s just the way I see it.
Saul
I can’t imagine that they would anger their gaming customers by raising wholesale prices because of the extra crypto demand, but that’s just the way I see it.
In a situation, where Nvidia is unable to provide sufficient chipsets to satisfy demand at a given price point (e.g. at a retail price of USD 450), Nvidia’s wholesale pricing has no impact retail pricing.
If in such a situation consumers are willing to pay 800 dollars for an ASUS GTX 1070, then that’s going to be the price regardless of whether Nvidia charges ASUS 100, 200 or 300 dollars for the GTX 1070 chipset.
The only difference the wholesale pricing makes in this case is who along the supply chain gets to capture how much of that additional profit - Nvidia, ASUS, or the retailers.
Demand for NVIDA GPUs is down from a peak in January but for example the GTX 1060 is still selling
10% above retail and the GTX 1070 is selling for 30% above retail with most vendors including NVIDA
direct out of stock. https://camelcamelcamel.com/MSI-GTX-1070-GAMING-8G/product/B…
I bought one for a deep learning project recently and NVIDA was out of stock but put
me on a wait list, found a vendor with a promised delivery date, took my payment and then tried to
canceled my order when the going price went up.
It appears that NVIDA’s sales and profit at this point will only be limited to their production capabilities.
I believe the general consensus is that NVDA is not the one making additional profit. NVDA is not increasing their wholesale price. The resellers are the ones cashing in on the supply shortage.
Saul pointed out it would be a slap in the face to their core gamers. Increasing prices based on a short term demand spike caused by a much smaller sector than gamers would not seem like a good business decision to me. Gamers aren’t going anywhere. Crypto miners using GPUs may very well fade away due to volatility of crypto-currencies or ASICs becoming a more cost effective option.
A capitalists first reaction to a demand spike would be to increase pricing, but that may not be playing the long game very well. I tend to agree with what NVDA is doing.
Saul, are you willing to comment re: the P/S of NVDA, and if it had an impact on your decision to reduce your position size last month?
Interesting perspective from this Seeking Alpha writer, although his SA bio describes him as specializing in deep value investing, here’s his perspective re: NVDA P/S.
“…the above table tells the whole story. No matter how bullish investors are of its long-term prospects, Nvidia’s Price/Sales ratio is 3 times more expensive than its 5-year average. As the company becomes bigger, Nvidia’s opportunity for outsized growth becomes smaller - because size, ultimately, is the enemy of growth. However, ironically, investors are actually willing to pay more for its stock as it grows and is more widely known by all.”
Considering FLARAM’s previous comment “Demand for NVIDA GPUs is down from a peak in January” and Saul’s reduction from an approx. 7.4% NVDA position last month to 4.4% as of a week or so ago in order to add to TWLO and others, is the current P/S a valid concern or reddish to others on the board?
5 years ago NVDA was a slow growth gaming card company. This author understands nothing about Nvidia if he is using 5hear old figures. Today Nvidia is the most dominant chip and software company in the world in the largest and fastest growing and most important future markets in the world.
I make no claim on Nvidia value, but comparing it to 4or 5 years ago is idiotic. Like comparing Tom Brady as a rookie 7th round pick to what he would become.
A capitalists first reaction to a demand spike would be to increase pricing, but that may not be playing the long game very well. I tend to agree with what NVDA is doing.
Given the fixed supply (in the short term), the only thing NVDA would be doing by keeping wholesale prices low would be gifting money to the OEMs and retailers; it would do NOTHING to lower retail prices paid by consumers.
Why would NVDA forego profits for no reason?
Why? Because Word would leak out, accurate or not, that Nvidia was jamming prices up and that retailers had no choice but to sell at inflated prices until Nvidia knocked down the whole sale price again.
As for the AMD computer I had, it was an off the shelf Best Buy desktop. I don’t recall the specific software I was trying to run. One was internet game w stuffed animals from Ganz I think where my daughter got a pink toy poodle, was able to dress it up, create its bedroom and interact w her brother downstairs with his pug.
I ended up,tossing it out. Could be it had bad driver software outside of the control of AMD. This is probably one reason Nvidia started that program they just terminated. To make sure any use of their cards was packaged w all the proper driver software.
Nvidia is wise to let this play out and maintain the love of its customers. AMD, because they are also fans in GPUs are actively marketing to miners. They need the extra dough even if it costs them some bad PR (which it does not seem to be doing).
Because Word would leak out, accurate or not, that Nvidia was jamming prices up and that retailers had no choice but to sell at inflated prices until Nvidia knocked down the whole sale price again.
The way I imagine it going is like this (numbers are hypothetical):
It is January 2018. The GTX 1070 graphics card is selling for USD 800. Normally, at this point in the cycle, it would be selling for USD 400.
Behind the scenes, Nvidia is selling its 1070 chipsets to OEMs for USD 250. Normally, at this point in the cycle, it would be selling them for USD 180.
This moderately higher wholesale price would make a LARGE difference for Nvidia’s GPU profits but would have no impact whatsoever on retail prices. Frankly, if Nvidia wasn’t doing this, the company would be failing in its fiduciary duties to its shareholders.
Note that the MSRP for the next generation GTX 1180 is rumored to be USD 699, a hundred bucks more than for its predecessors. That would indicate that Nvidia DOES seek to take advantage of the demand overhang, which is as it should be.
Ahh yes there is a difference.
NVIDIA has a massive loyal gamer fanbase. If they raise their prices to take advantage of the shortage, this would leave a bitter taste in the mouth. It doesn’t matter that a slight raise in the wholesale rate wouldn’t affect the retail rate. The customers will know and think NVIDIA is taking advantage of them.
So the solution? Release the next generation GPU for gamers, market it as so much better and hence deserving the 100 dollar increased price tag.
Much like apple and the iPhone X. What you don’t do is increase the price of an already released product.
You make a new,better, improved product that everyone wants and sell it for more. Nvidia may be taking advantage in this way. Perhaps if it weren’t for the crypto demands, the next gen GPU would sell for the same amount. Maybe, speculation.
NVIDIA has a massive loyal gamer fanbase. If they raise their prices to take advantage of the shortage, this would leave a bitter taste in the mouth.
But my point is that Nvidia was able to profit hugely from the shortage of the last 12 months or so WITHOUT doing anything that would have (additionally) increased retail prices.
I’m convinced that Nvidia’s wholesale prices must have been substantially higher than had there been no shortage, and this price increase would have had no impact on retail prices (which were much higher than MSRP anyway).
Demand for NVIDA GPUs is down from a peak in January even if correct it does not matter as long as demand exceeds supply.
New gaming GPU are coming by this summer, and gaming is the core of Nvidia. I expect many will do what I am going to do, wait for the new chips. So like iPhones a sag followed by a boom. Since the design cycle is 2 years in the case of Nvidia , I expect significant improvement.A dedicated gamer buying now will have obsolescent equipment in 2 or 3 months.
Buy or sell? I am too overweight and in this market climate a good ER usually means a stock price decline so I will cut way back on my NVDA before earnings. Because it might take a huge beat to move the stock up short term