I’ve been constantly tempted to get back into a position in NVDA because it obviously has its market all sewed up. I just can’t see it growing the way the others are growing because of
A. its size,
B. the price of chips constantly come down,
C. being hardware, the only way it can grow revenue 60% is to sell next year all it sold this year and 60% more. To do that for the next 3 years it would have to quadruple its chip sales. To do it for 4 years would require well more than a sextuple (655% actually). I think that is simply unlikely, while for one of our little SaaS companies it is much less unlikely, because last year’s sales stick there and don’t have to be redone. In fact they grow almost on their own. And, as far as multiplying stock price by six, it’s a lot easier for a company with a market cap of $5 million than for one with a market cap of $165 million; a LOT easier!
For many companies the above would apply. NVDA is a bit different. How is it different?
Size: By size, I think you are referring to NVDA’s market cap of $165B. The law of large numbers. But size is really relative. We must ask how large are NVDA’s markets, its opportunity in those markets, and what percentage of those markets has it captured. NVDA plays in some enormous markets. Take the automotive transportation market for example. There are something like 280 companies partnering with NVDA in its autonomous business, but today NVDA has hardly any business in that segment relative to the segment’s size. I post a while ago that
Another way that I think about NVDA is to ask the question:
What is the universe is worth more than intelligence?
I would challenge anyone to come up with an answer as I would argue that intelligence is the most value thing that exists.
I would define intelligence as the ability to reason, analyze, learn, and make decisions based on incoming information. This ability can be utilized to ask questions and design experiments to gather more information which can then analyzed using reason leading to more learning and information. This can be consider an ongoing feedback loop.
NVDA enables non-human intelligence. It enables it through its hardware, software, neural networks. Now ask yourself how humans have changed the world and how humans have used intelligence to create value. If you look back in history, in a brief 200 years humans have advanced technology faster and faster each year. I don’t think individual humans have become smarter but collectively we have. Smart machine are emerging. NVDA is ground zero for creating non-human intelligence. NVDA itself is using non-human intelligence in its own company to more quickly advance that capabilities and functions of its products which you can define as an intelligence enabler. The hardware manifestation of this intelligence enabler is being rapidly monetized, it is growing rapidly, it is advancing quickly, and it is very highly profit. I do not think we can imagine all of the uses but NVDA is finding them and monetizing them quickly. What is the upper limit for NVDA’s potential? I am not sure it can be known and maybe it can’t even be imagined.
But Chris, what about IBM’s Watson? just kidding
Your mention of the past 200 years triggered me recalling the book that I recently started (and have yet to progress through very much) titled “The Birth of Plenty: How the Prosperity of the Modern World was Created”.
From the beginning, I anticipate it being an interesting book, somewhat off-topic for this discussion; but in the beginning of the book, 1820 is mentioned as basically the year at which economic growth and prosperity really started to sky-rocket. With us sitting here in 2018, that just barely under 200 years ago.
To bring it back to being more on-topic, NVDA’s chips may very well further accelerate technological and prosperity advances in many ways…although it will also power many deflationary impacts that come about with further technology. Having made this post, I will likely now try to keep thinking about how NVDA as a company fits in with some of the themes of the book.
long NVDA…and hoping to find more time for book reading, helped in part by having my portfolio fairly nicely streamlined and focused
I keep coming back to this whenever I marvel at just how fast things are changing, and could continue to change.