NVDA, Our companies, and Randy's Q

Randy’s (CMF_BigECat) question about whether the macro business environment has fundamentally changed interests me. The thread got long and ended, even though the essence of his question wasn’t really addressed. Thinking about it tied into a post I had wanted to make about Nvidia (NVDA) and our companies, so I’m going to try to tie a lot of threads together.

Business Macro
While companies of all kinds have long had branches and connections of various kinds in other countries, the degree to which the business environment is now global is many orders of magnitude greater than it was 20 years ago. The “World Wide Web” used to mean the internet. It can now safely be used to refer to business. Even just a small business out of someone’s home in one location can sell globally, or wreak havoc globally, without ever leaving the house.

The speed at which this has happened was ramped up by our companies, as software pushed compute beyond the server in your closet and into the cloud. And that rolling snowball (made of Snowflakes?) was given a huge push by a global pandemic–a blizzard of fresh powder through which it could run (indeed must run) unimpeded as we locked down in our cities and homes.

To understand the impact, I want to use an example from Nvidia.

The Nvidia Canary in our Coal Mine

As I posted awhile back, I got into NVDA. I think it’s an amazing company destined for great things. Right after I posted “The Case for Nvidia,” their pre-earnings warning announcement came out. Ugh. It was clear from that announcement and from the call that the issues with supply were not going to be resolved until early 2023. But I was in at a pretty good price and so I held.

On the earnings call, one line in particular caught my ear, especially since some had smugly posted about how vastly superior were the companies that didn’t rely on hardware. Here is the line. They were talking about their data center revenue expectations:

“Demand for GPU rentals far exceeds current supply.” They talked at length about how much hardware it takes to set up data centers and how even when they had provided the coveted GPUs, companies also looked to them to supply kits with cables, switches, and other hardware to connect it all. And they were having trouble getting those additional things.

Gee, do any of our companies rely on data centers? Maybe all of them? How is their growth impacted if they are backlogged waiting on the hardware to expand those data centers or create new ones for their shiny new outreach in a new region of the world?

Before we crow about how our companies are all software and don’t need physical inventory, we might want to pay attention to the warnings from the company whose hardware runs so many of them. It’s not just the chip shortages.

But, like I said, I held through all that.

And THEN, this last week, out came another announcement that the US government was now requiring specific licenses for NVDA and AMD to sell certain technology to China out of fear that it could be put to military use. Shares plummeted and I got out. Considering another ship had just gotten stuck in the Suez canal, it began to look like the wait time for Nvidia to get back on track might be longer than they indicated on the call.

But beyond the impact on the share price, in the space of about a week there were three announcements of macro concerns outside the company’s control that would not only affect Nvidia, but could potentially ripple out to all of tech.

Want another one? Those of you on Twitter may have noticed Cloudflare (NET–I’m long) as a trending topic this past week. They had been in the crosshairs early in the year because they remained in Russia after they invaded Ukraine. That settled down when the US government confirmed that they supported NET being there, so that opposition sites could remain online.

But this past week wasn’t about that. It was about this: https://www.nbcnews.com/tech/internet/cloudflare-kiwi-farms-…. Whether they should continue to platform a notorious hate group or not is not my point. It’s not even the obvious branding problem for the people whose vision is to create a better internet to facilitate a site that uses the internet to encourage people to commit suicide. My point is that tech companies today are facing issues that did not exist even 20 years ago, and the ability for those issues to scale globally and instantly is unprecedented.

My Takeaway

The volatility is not just in the stock market and our hypergrowth companies. The volatility is in the world. Some of that is the generational shift in how we communicate and conduct business; a paradigm shift in global culture that I believe is a greater disruptor than the industrial revolution of the 20th century.

But that kind of has a trajectory. There is much we can’t see, but we’re far enough in that we can begin to spot trends and make at least semi-educated guesses about what comes next. That’s the value of this board when it comes to spotting companies that are on the cutting edge and starting to make their mark.

There are other things, however, that are much more opaque. Given the past couple of years, talking about “a black-swan event” seems quaint. We are witnessing a bevy of black swans, mating and breeding to make more; and then a wedge of black swans flying off to every part of the globe.

Covid, with more variants to come. “Where are all the workers?” Well, there are over a million dead Americans for one. Climate disasters of all kinds in every part of the world.

Both of those things are severely affecting China. The worst heat wave on record lasted over 70 days and forced large swaths of the country to close factories to preserve power just to keep people alive. Hydropower doesn’t work without the hydro part. Chengdu just locked down 21 million people for Covid. Apart from the horrific toll on all living things in the region, is that going to get the data centers for MDB, DDOG, SNOW, NET or anyone else their cables and switches more quickly? Good thing data centers like the heat. Oh, wait…

And did I mention war? And shelling at a nuclear site that could send a cloud across Europe? And disinformation about what is happening and how to appropriately address any of it? Good thing the political scene is stable. Oh, wait…

There’s a lot more than the Fed that can roil the markets. Randy asked if we might be asking a bit much of our companies in this environment. I tend to think we are.

So what do we do?

How do we proceed in such times? We each have to find the thing that helps us sleep at night. For some that means keeping a large cash position. For some it means watching the numbers with eagle eyes and jumping in and out when a key metric begins to wobble. For me it has meant concentrating into companies that are stable growers, whether or not they are hypergrowth at the moment. (Although my bet with Nvidia didn’t turn out so well.) I’m long CRWD, DDOG, NET, and TTD for that reason. CRWD is my largest position (at current value) by a good bit.

I also have positions in companies that I believe are key to helping some of the most dire threats we face and that I think have great potential, whether that is evident on their current balance sheet or not. I am still in UPST for that reason. The bias in the FICO score system that limits access to credit for those who are actually credit worthy is, I believe, at the root of more social ills than I can count. And I can count a lot. My thesis for them would be another whole post, and I don’t think this board has the stomach for that at the moment. But, for those who write me about it off-board, yes. I haven’t sold any shares since the end of last year, when I sold my highest-cost shares for tax loss harvesting. (My losses for this year will last me until I die.)

Another company that I have bought recently in the “solving big world problems” category is outside the scope of this board in just about every way. PureCycle Technologies (PCT) is a newly public plastics recycling company, spun off from the R&D department at Proctor and Gamble. Although they’re listed on the NASDAQ as “Clean Tech,” I see them more as a Materials company. But I wanted at least one company that goes up when all my others go down. It has served that function so far and allows me to support an issue I care very much about. Their first plant in Ironton, OH is on track to open at the end of this year.

Rounding out my portfolio is a mid-size position in Global-e (GLBE). I was in it last year, got out when SNAP crashed mid-2021, and got back in after a great earnings report for Q2. As an Israeli company there is less visibility into management than I would like, but they sure have been executing. And the share price is back close to their IPO. I wanted some exposure to e-commerce without committing to a single geography, so the company that enables cross-border commerce seemed like the way to go.

That combination is what helps me sleep in extremely troubled times: Throw down some anchors, support some good in the world, and take a chance here and there. You will need to find your own way; but I’m grateful to Saul for providing a place for us to learn from each other as we do so.



Both of those things are severely affecting China… Apart from the horrific toll on all living things in the region, is that going to get the data centers for MDB, DDOG, SNOW, NET or anyone else their cables and switches more quickly?

Hi JabbokRiver,

Just to clarify. the main chip manufacturers in the world are not in China but in Taiwan, which is why the US is so fervently defending Taiwan’s independence and why China is so desperate to annex it. The largest and best chip manufacturer in the world is Taiwan Semiconductor, which trades on the NYSE, has a market cap of over $400 Billion (with a “B”), trailing revenue of between $65 and $70 Billion, 65,000 employees, etc. It’s big.

Floods and lockdowns in China won’t affect our companies getting chips, neither will the Fed Govt restricting Nvidia’s sales to China. It’s Taiwan where everything important is made. China is just trying to catch up at present.



And this is OT so if anyone wants to comment to me, please do it as an off-board email.


I know it’s not the chips, but the call was talking about other components needed by data centers…cables, switches, etc. My understanding is that those additional things are made in China and are caught up in the supply chain issues.



Sorry for the clutter, but one addendum since my first post.

Cloudlflare (NET) has now blocked Kiwifarms. Their blogpost about the decision is here: https://blog.cloudflare.com/kiwifarms-blocked/.



How do we proceed in such times? We each have to find the thing that helps us sleep at night. For some that means keeping a large cash position. For some it means watching the numbers with eagle eyes and jumping in and out when a key metric begins to wobble. For me it has meant concentrating into companies that are stable growers, whether or not they are hypergrowth at the moment. (Although my bet with Nvidia didn’t turn out so well.) I’m long CRWD, DDOG, NET, and TTD for that reason. CRWD is my largest position (at current value) by a good bit.

Ok without wanting to extend the off topic discussion on semiconductor chip and parts industry further I would say that: 1) I do not see Nvidia as a canary in the coal mine moment for our SaaS investments. This is not Cisco coming out in 2000 and saying the internet is now built and ending the TMT/dotcom bubble. Data centers will still get built and our SaaS companies will be doing fine and Nvidia is partly suffering as a hostage to fortune of the collapse in their crypto mining business and the relentless growth of AMD 2) If you did want a chip investment then I would have gone for AMD which is still in hypergrowth not Nvidia or Micron if you were a value investor & wanted to play the value trade in the memory chip cycle.

Now that is out of the way, then dealing with your point around mixing Saul method hyper growth stock selections with strong and yes I’m long Crowdstrike, Cloudflare, Datadog as well and returning to Randy’s question of what are the next wave of hyper growth early S curve stage companies to invest and is this drying up within our SaaS universe? I don’t think so. New companies are always being born. Will they always be SaaS - maybe but not necessarily. Might they be subscription or consumption based - possibly. In any case we just need to keep looking and bring them to the board when we find them and folks are doing that.

On your last point of mixing up Saul method selections with consistently fast growing strong operating companies with emerging domination in highly attractive mega markets then whilst Saul does not advocate this and doesn’t do this himself and sticks to just the best of the best of top growth opportunities, a number of us might make that choice - and yes I do with The Trade Desk which has the potential to become a cloud titan/big tech scale business in the future and think that would be the number 1 candidate to consider. But it is risky as they can fall of the curve and if that happens it can become a long way back. I felt the same way about Shopify as the safest and closest bet to a LTBH and look what happened there. Bear has mused on this before and gone with TTD - I am actually comfortable with a very large position in TTD but in the same vein of fast growing emerging great companies also have Pure Storage which just announced an excellent set of results (which had lower top line revenue but accelerating ARR revenues) and just keeps winning market share in what it now targets of a $60bn storage market that it is now pursuing on entirely subscription and software based approach.

If anyone was interested in checking out Pure Storage’s latest results as I know there was interest from last quarter when it returned to hypergrowth levels then the details are here:


and the presentation here:

Essentially Pure Storage beat and raised across the board and whilst revenue growth dropped back from 50%+ to 30% which was inevitable as last quarter had some pull forwards in some revenue renewals from this latest quarter - so across the 2 quarters they might have averaged a more consistent ~40% growth had the revenue recognition timings been normalised. In any case their subscription revenue growth was maintained at a consistent 35% and the ARR accelerated to 31% and has an ARR business alone of $1bn.

Apart from that though…
Cash Flow went up 3x
Op Inc went up 10x
Op Inc margin went up 5x
It became GAAP profitable which is almost unheard of amongst our companies

Within a day of release 4 analysts raised their targets as a result to between $35-$42.

This company is brilliantly managed, has incredible cash flow, has highly geared leverage and excellent margins.

Pure Storage is possibly my best performing stock in my portfolio this year given where our hyper growth stocks are at!