Nvidia continues to puzzle me.

Investment Analysis Clubs Saul’s Investing Discussions
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Every time I think NVDA’s run is done, something like this pops up.

Nvidia continues to puzzle me. This year we’ve had a series of quarters with great earnings, huge announcements, conferences with new world-shaking products announced every day, really cool exciting products. So what the heck is going on? This isn’t a tiny little company that no one has heard about yet. Every analyst is the country (figuratively) is following it. Every investor knows about it.

But in the seven and a half months since the end of January, the price has risen 12%. All of 12%… for a company that looks like it is going to take over the world. My portfolio, of stocks that you are very familiar with, is up 72% in exactly the same time. Now 72% to 12% is a heck of a difference. What are we missing in this picture? What do other people know, or worry about, that we don’t?

As I said, I’m puzzled.

Saul

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But in the seven and a half months since the end of January, the price has risen 12%. All of 12%… for a company that looks like it is going to take over the world. My portfolio, of stocks that you are very familiar with, is up 72% in exactly the same time. Now 72% to 12% is a heck of a difference. What are we missing in this picture? What do other people know, or worry about, that we don’t?

I tend to think the stock price is pausing simply because of the huge run up it had. The business has not paused. The innovation has not paused. Maybe autonomous driving has paused to a degree, yet they keep adding new partners from a developmental perspective. I tend to think it is farther out than most. However, I don’t think auto driving will affect their results much as it has been miniscule to date.

Maybe the little crypto-blip is another reason for the recent stall. I feel like Nvidia is a coiled spring, I guess.

A.J.

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Saul,

I think part of what you are observing is just the time frame selected. I bought a position in Dec 2017 and that is up 45%. Not bad, especially for a 150B market cap company.

Regards,
Tim

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Understand you Saul…sold out as mentioned of PVTL the other day and added to TWLO which is up nearly $3.00 in two days…

Want results from conviction stocks and want them fast…doesn’t always work out that way but this year it has, so going for what works best for me now and not what I think could work out in the future.

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I think part of what you are observing is just the time frame selected. I bought a position in Dec 2017 and that is up 45%. Not bad, especially for a 150B market cap company.

I understand Tim that they were up well in January, but from the end of Dec I’m up 92.4% to that 45%. I’m trying to address a different issue: I’m sitting here reading glowing reports, it seems like every week, of incredible future-dominating products. Not just one a week but several it seems. And their quarterly reports have had huge EPS, as far as I remember reading now that they are mostly off my radar screen. I’m honestly asking “How can this well-known company, making such technological advances, such wonder-products, and totally dominating its fields, be up only 12% in seven and a half months, in a rising market???” It can’t just be market cap because Amazon is up 42% in the same seven and a half months. It doesn’t make sense. I just don’t get it.

Saul

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Now 72% to 12% is a heck of a difference. What are we missing in this picture? What do other people know, or worry about, that we don’t?

Now, I have to agree with what A.J. wrote. We had investors, maybe speculators, who invested in NVDA based on crypto. In the last quarter earnings call they said that they don’t expect any revenue from crypto. Personally, I think the stock should be higher because the business has been delivering results. The earnings growth is pretty incredible. Stock price being undervalued happened with TWLO and NTNX too: the stock price didn’t always reflect what value some of us believe it to be worth.

The cadence of new product introductions has been spectacular. The focus on important markets has been well planned and executed. The combining of many components to deliver targeted products to very large markets has been exciting to watch. IMO, NVDA has positioned itself very well in some very large target markets. Remember: the more you buy, the more you save! It’s really true. Who else can say that?

The stock performance has been just fine. I bought 13-16 months ago and am up over 100% on the oldest share purchases and up 65% on those from last August. I added some this week so those aren’t up as much. So to say that the stock hasn’t performed is not quite right. Yes, the stock has paused this year, but I do expect to continue its rise between now and February. We don’t sell because the stock didn’t go up…we sell because we think another company will grow faster from now on.

Chris

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It can’t just be market cap because Amazon is up 42% in the same seven and a half months. It doesn’t make sense. I just don’t get it.

I think it’s probably still crypto. Crypto pricing have been dropping. Down a huge amount (lost 2/3rds of its value) since the peak last Nov/Dec.

Or maybe AMD’s success has investors scared of NVDA. While AMD may be eating Intel’s lunch, I don’t think it’s eating NVDA’s. Perhaps some people assume because AMD is doing well that it must be taking business from NVDA too.

Time will tell, but I am optimistic that NVDA will do just fine, the company and the stock.

Chris

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I think one part of it is fact that NVDA is considered to be part of the semiconductor sector, and that index (https://www.marketwatch.com/investing/index/sox) has been a total seesaw in this time period. Not least because of the China trade war fears, which have the potential to quite seriously affect any company that manufactures in Asia, and NVDA has a major exposure there, although in my opinion it is far more than just a semiconductor company. But it does tend to move with that index.

And then the trends surrounding NVDA products specifically have also been rather volatile. First there was the autonomous driving excitement, but then Tesla backed out of using NVDA chips, and people realized that true autonomous driving is kind of in its infancy anyway. Then there was the scare that Google is going to move in on NVDA’s turf with its TPUs. Then there was the crypto hype, until crypto crashed and it turned out that this too, is negligible as far NVDA’s bottom line. And then of course there is the perennial oneupmanship with AMD which has been there pretty much nonstop ever since AMD acquired ATI back in the day.

All of that makes NVDA a far more volatile stock than it really should be. Personally I still think its a fantastic company with best in class engineers, and, most importantly, a real understanding of how to effectively engage and support the development community, not just put out fast hardware. I think many people really underappreciate this aspect. I am still very much long NVDA, you just have to keep a slightly longer term perspective with this one, that’s all.

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“How can this well-known company, making such technological advances, such wonder-products, and totally dominating its fields, be up only 12% in seven and a half months, in a rising market???”

I think NVDA stock rise was seeded a few years back (maybe before this board started talking about it) when they found new markets for their GPUs i.e. datacenters, crypto…That’s the taking over the world part…The stocks rose from 2016 and that has played out. Note that crypto did not live up to the initial hype. Now the stock may be pausing and may rise more dramatically based upon some other market successes, and upon future expectations. ‘Taking over the world’ reflects those even if the valuation has not yet risen as much as you would like. So we wait.

Another thing is that whatever they are making and/or whatever innovations they are working on will not be reflected in the numbers immediately. Things go fast but not that fast. We hope that they are on track and preparing to get the results you so impatiently want to read from the number reports.

The 72% are from a selection of small, high-growth stocks in a sector that has and still is expanding. But sooner or later the growth will play out and slow, and the stock gains will also slow and in some cases may reverse. The large rise in these stocks prices come from the elevated expectations. These are not completely irrational. They have after all been working on and developing their products and services, and markets for a while now and expectations are placed in them.
I don’t know if anyone can really divine what the market will do but we can only see what we can see and imagine how the business could grow.

tj

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As I said, I’m puzzled.

The answer is simple, investing is not an escalator to Financial Heaven but more of a roller coaster.

Why only 12% “in the seven and a half months since the end of January?” Because of the huge runup in 2016 and 17. Look at a ten year semilog chart:

http://softwaretimes.com/pics/nvda-09-14-2018.gif

I started buying in March 2018 and I have managed to squeeze out an IRR of 43.62% partly because I added at the low in April 2018.

NVDA continues to be my highest conviction high tech stock.

Denny Schlesinger

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I am long Nividia. To use the old coiled spring analogy I think the Nividia spring is getting more and more compressed, one day it’s gonna pop.

Kindest Regards,
Steve

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Saul, are you anchoring in past performance? To be sure, your performance in the selected interval … which does carefully omit January … is very impressive, but I would have thought that part of the strategy was to identify companies whose business was growing rapidly, but which may not be fully appreciated in recent times by the market, so that future growth in the stock price is likely to be dramatic. If one waits for the market to respond fully to all this good NVDA news, then one is likely to lose out on the dramatic growth of the market recognizing that growth. To be sure, if one can consistently pick a portfolio that is growing at 70% a year, then one may not need to bother with this approach, but it seems like a reasonable strategy.

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We hope that they are on track and preparing to get the results you so impatiently want to read from the number reports.

Hi tj, I’m not impatient. I don’t even have a position in the stock. I’m just puzzled because even I, from a distance and listening to all of you, feel that this is a great company and putting out world-shaking products. It’s hard to ignore that fact. So why have investors been semi-ignoring it. I think some of the explanations given here make sense, like the collapse of expectations for bitcoin, and for self-driving cars being just around the corner. But it’s just interesting. It would be like if Apple came out with a sequence of amazing new products each week, that everyone thought were outstanding, and the stock didn’t move for seven months. I just don’t think I’ve ever seen anything exactly like this before.

Saul

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I think several things come into play here. Crypto is one of them, and honestly I’m glad crypto is out of the picture. China trade fears is a BIG one holding it down. AMD is another, though people who think AMD is a threat to NVDA are just wrong. To Intel, yes. But not AMD, who is nowhere close to the SW support required for what NVDA excels at. And I think the self-driving car thing is farther out than some think, even though I know a senior engineer there who tells me this stuff is advancing faster than anyone realizes. Still, I think self-driving trucks (especially platooning) and self-driving factory and industrial type vehicles will come first.

The stock is taking a breather. But I also think the spring is coiling tight. I’m getting closer to adding to my 8% allocation in them. I’ve had them for 2 years now. Sometimes trimming, sometimes adding. I should have never trimmed, just added, all this time.

Bill Jurasz

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Nvidia continues to puzzle me…the price has risen 12%…What are we missing in this picture? What do other people know, or worry about, that we don’t?

Just my opinion, but I don’t think NVDA longs are missing anything, to the contrary, they’re building a strong position, in a very strong company, that will again provide outstanding returns over the next 2, 3, 5+ years! You can call it what you want, but stocks take a breather at times, consolidate, coiled spring, it’s completely normal to do so. We’ve seen it on many stocks here. I got into LGIH initially around $30/share and then it dropped to the low $20s, and for a while, but the numbers continued to be great, I continued to buy (many times because of analysis from Saul or Chris), and then the market finally woke up to them and they shot up to $80! It ended up being a perfectly timed purchase and sale for me, although it didn’t seem like it when the stock had dropped to $20, only in hindsight.

I think it was Chris that brought up Buffett’s quote, that in the short term the market is a voting machine, but in the long term, it’s a a weighing machine. NVDA has been voted off the island for the past few months but it will be weighed again in the future and holders at that time will be rewarded…we just can’t TIME WHEN that will be. If you’re nimble enough to sell out of it, and move proceeds to something else that is powering higher now, and will maybe get back into NVDA before it’s next big leg up, that’s great…but I know I’m not, so I continue to hold, and add, to a great company doing great things, that will be rewarded in time.

The waiting does cause returns to be lower than Saul and many others here have been able to get, but my confidence in the NVDA shares I have over the medium to long term, is very high. My first purchase was in the $30 range. Unfortunately, I wasn’t adding to winners at that time of my investing career. I didn’t start adding again until around $150, but have been adding steadily since and really have no doubt that I’ll be rewarded handsomely in the future.

I don’t worry about my NVDA shares…I can’t say that about some of the cloud/SaaS companies I own (PVTL, anyone?).

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Actually, I think the same did happen to AAPL for a long time. At one point, it seemed like everyday someone on CNBC was trying to figure out how AAPL could only be trading at 12 or 13x earnings while growing at 25-30% and w services growing. I think this went on for a year at least. Now, 20x earnings.

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I’m puzzled by your puzzlement!

BigCharts NVDA SP performance cf ADBE, MSFT, CRM over 3 years, 2 years, 1 year, YTD (+ a small yield) does not look to me too shabby. Especially as elsewhere, rumors that the cyclical nature of chips was an old-fashioned view has recently gained renewed suspicion - with dire results for many companies.

I share the view that semis are a dicey investment but NVDA’s future potential in its chosen fields to me makes it a worthwhile, if risky, investment. (I have a holding in NVDA.)

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And here’s this: a glance at the fundamentals - oh what bliss, oh what rapture etc. etc - makes you smile fondly at the investment, unlike um…

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Doesn’t seem unusual to me. The folks who have compared NVDA’s stock performance to a coiled spring are correct.

Everybody here is familiar with the adage “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” Directly related to that is that share price performance does not necessarily track company performance. Everybody here “knows” that…but it appears that not everybody believes it.

I saw this coiled spring thing happen with Intuitive Surgical (ISRG) years ago. Super company performance…relatively stagnant stock performance. Finally (like a coiled spring) the stock price shot up over the course of a few quarters. Many of you on this board recently experienced a similar phenomenon with ATVI. It’s just the way the market works…it isn’t all rockets flying up and up and up without respite.

As some on this board have said (like tj), this just requires patience. A good character quality. :slight_smile:

This board started out as one focused on stuff like EPS and “growth at a reasonable price”. Now it’s mostly “land and expand”. That’s fine…but it’s worthwhile to remember that both philosophies have their place and it isn’t all about constant upward portfolio values. Let me be crazy and talk about that EPS and “reasonable price” for a moment. :wink:

In 2017, EPS was a bit below $5. It’s estimated by analysts to hit the low $7s this year. That’s about a 50% growth. 2019 is forecasted to be $8 or $9+, not nearly as much growth…about 25%-30%. Not long ago, I expected NVDA to hit $10 a share in 2018 and now I’m thinking I was off base. The most recent quarterly earnings were actually LOWER than the preceding quarter. Let me repeat that: LOWER EPS. In light of that, is it surprising that the stock price has taken a breather? Not in my view!

Let’s just see what the Company brings us in coming quarters with respect to actual performance. If analyst predictions are correct (50% EPS growth in 2018 and 25%-30% in 2019), then the current forward PE of 38 or so is not unreasonable. If 2018 EPS beats expectations by a good amount, we should see another share price surge… in time. Might be in 2018. Might be in 2019. Patience. (There’s that word again!).

IMO, this is a great company with smart management. As “owners” (with little say in things), we need to just let management do their job and not breathlessly dissect every little bit of news and speculate when certain things may come to pass. Just take that deep breath and see what the actual results are quarter by quarter. If, as expected, the company does well…shareholders will do well. In time. You can’t expect to see strong weekly or monthly share price gains. That’s ABNORMAL, not normal.

Lest you think I’m a bear on NVDA, let me just say that it is barely my #2 holding (just behind TTD) and that my entire position is in January 2020 call options. That isn’t a bear, it’s a fairly reckless bull position. And lest you think I just haven’t invested long enough to understand how it all works, I’ve been doing this for 53 years. And went from near bankruptcy (failed business) to early retirement in 19 years. This isn’t my first rodeo…

So, I’d just repeat…take that deep breath, recognize there is no mystery here and enjoy life. I plan to go to the gym, then come home to read today while we get pelted with rain and wind here in Charlotte. And I’ll keep following my Fool boards (plus deal with some Fool assignments). And when 3Q numbers come out, re-assess my companies…again. Daily hand wringing over investments really isn’t the meaning to life folks.

Well, that’s enough. I tend to make my point without writing a book.

Rob
Rule Breaker / Market Pass Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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IMO, this is a great company with smart management. As “owners” (with little say in things), we need to just let management do their job and not breathlessly dissect every little bit of news and speculate when certain things may come to pass.

Years ago I called my portfolio “My Mini Conglomerate.” I said that I let my CEOs do their job, that’s what I pay them to do. If they don’t, since I can’t fire them, I fire the whole company. :wink:

Denny Schlesinger

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