NVDA reported Q3 2018 results on November 9th. We got a quantitative update on the financials and a qualitative during the conference call. I found the call very informative and extremely interesting. I must say that I am very pleased with the results, but I am even more optimistic about the growth that’s coming for NVDA in the next few years. NVDA is participating in some of the world’s fast growth markets and it has a huge headstart in addressing those markets. If I could summarize why NVDA is so special, it’s because the company has developed a brain to solve problem that human brains cannot solve. Some of these problems are problems that were previously thought to be unsolvable. The company increases the power of these brains that it provides to the world with every new product introduction. The processors get more powerful and the software (CUDA) that sits on top of the processors get more powerful. This is the double exponential that CEO Huang talks about. The company has a 5 year product roadmap and it has thousands of engineers working on the next generation products; they are working on more than one (Huang said several which could mean 2 or 3) and if it’s a 5 year roadmap then that means that we can expect a new product every 1-2 years. On top of that NVDA has 5000 software engineers working on improving CUDA. Holy moly!!! Think about that for a minute. NVDA already has a 7 year head start on the competition for machine learning and inferencing. How in the world could another company ever catch them??? Seems like a snowball’s chance in hell. Even if some start-up company could come up with a superior chip architecture then they would still need the software to run it, the manufacturing to build it, the channels to get it to market, a legion of developers to build on top of it. Any one of these would take years and is not simple and all of them together make it virtually impossible for a competitor to catch them. We would see a new competitor coming from a mile away before it would affect NVDA’s business. And meanwhile, NVDA will keep advancing its products and its technology and its software….while growing its footprint in the fast growing markets and building its war chest of financial resources. NVDA could also just buy such a company while it is still small; the cash outlay of such an acquisition would not even dent NVDA’s balance sheet. So that leaves the existing competitors: AMD and Intel. NVDA has a 7 year head start. AI and autonomous driving and robots are markets that will be taken between now and the next 7 years. A 7 year head start means that the game is already won. This is why I have a large allocation in NVDA. It is why despite the rise in share price, I have not sold any shares and I don’t intend to sell any shares. NVDA is at the center of the AI revolution that is probably the single largest impact event/technology in the history of humanity. NVDA is a $130B company now and I usually only invest in smaller companies because I want to be in companies that have a chance to grow in value by 10x. So NVDA is an exception. APPL is still the largest company in the world at over $900B. Can NVDA grow 10x from here? I really don’t know but I think it is possible. NVDA is currently distributing the brains that it makes into datacenters and into servers. It has now fully established the distribution to capitalize on this very fast growing market. The datacenter business now has a $2B run rate, and it got there at a faster rate than any of its previous products. Now that the Volta is launched and that its distribution channels are fully in place (cloud and servers to seed the market with AI computing power), I believe that this business may even re-accelerate from here. Huang on the conference call said “We have primed the pump.” Pump is now primed in ALL the major the datacenter cloud providers and ALL the major OEM server providers. We will see how they do, and I think its going to be really, really, good.
So now we have NVDA’s brain products growing rapidly in the centralized form (datacenters and OEMs). The AI enabling chips are in the data centers and the servers. This is centralized. The next big opportunity will be to use all the machine learning that’s being done in the centralized way (in servers and in the cloud) and distribute it to individual devices for the inferencing. It will be like putting brains into devices (decentralized). Every camera and every device that moves and every device that needs to make a fast decision can get an NVDA brain. It my take a few years for this steamroller to get going but once it does it’s going to be A LOT bigger market opportunity than the brains that are currently going into the centralized cloud and servers. Every vehicle will get a brain. Every camera that’s monitoring to keep the world safe will get a brain. Every drone. And who knows what other sensors will get them.
In summary, there’s never been a computer brain more powerful than the human brain. NVDA is making it possible and not just possible. It is happening right now. There’s nothing else like NVDA.
15.6% allocation plus 0.29 shares controlled through in –the-money call options for every share that I own, making my position with options more like 20.1%. But since the call options were paid for with short puts that have since expired worthless, my downside risk is less than actually holding a 20.1% position