Nvidia continues to puzzle me.

[foodles]

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?).

[Treepak]

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.

[strelna]

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.)

[strelna]

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…

[XMFRob]

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.

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.

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.

[captainccs]

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.

Denny Schlesinger

[bulwnkl]

Rob,
These are excellent points and an EXCELLENT start to an article. Those of us who have been at this a while, have seen the coiled spring. It won’t be hard to pull up historical data, and this get’s after Warren Buffett’s #1 investing attribute: investor’s disposition. We have to see reality, good or bad, and the stock price will, eventually, take care of itself.

Amen Rob. Nice post. Now maybe you can build on this and earn few bucks for your effort.

Best,

bulwnkl

[captainccs]

I posted at the NPI about an important paradign shift from serial von Neumann architecture CPUs to massively parallel architectures based on GPU processing and SSD storage. The two go together hand in glove. Nvidia for sure, and Pure Storage which does have competition. TMF’s crappy search feature won’t let me find it. But there is this

Paradigm Shift Confirmed!

http://discussion.fool.com/paradigm-shift-confirmed-33997413.asp…

Denny Schlesinger

[XMFRob]

Amen Rob. Nice post. Now maybe you can build on this and earn few bucks for your effort. – bulwnkl

Thanks! But its a lot easier to just invest than to write for money.

I post a lot less than I used to. Partly because folks on the boards have things handled well. I just offered my perspective here because I wasn’t sure the “coiled spring” view was getting enough visibility.

Like seemingly everyone here, I love this board. I think it… and NPI… are probably the two best boards in Fooldom…and they’re free!

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.

[SaulR80683]

I wrote the post in part to clarify my own thought process…

I liked this quote. I note that several people have become mildly annoyed with me for being puzzled about Nvidia (their favorite stock), but I really was (and still am, to some extent) puzzled, and I was using the posts to clarify my thought process, as well as to get ideas from others. I got enough good explanations that I’m considering nibbling at a little position in Nvidia again, but will be trying to keep reasonable expectations. Thanks to you all,
Saul

[Darthtaco]

The short term price performance will come down to Q4 guidance. Q3 will be less than what we’re used to in terms of growth. Their whole lineup is getting a Turing refresh (except the flagship V100 Volta) and with the exception of the RTX 2080 and 2080ti is launching entirely in Q4.

They will have a really good idea of the traction of this new lineup by the time Q3 earnings rolls around.

My guess is for mid 20’s total revenue growth in Q3 with a forecast for 50% +/- 10% in Q4. If the forecast for Q4 is much less than 40% the stock languishes until Q4 actual results. 50% or greater guidance and it’s off like a rocket.

Darth

Not basing this opinion on any scientific smarty stuff

[az5speedy]

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.

Bran, I think this is spot on. I feel the same way.

[PaulWBryant]

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 always, maybe I’m being too simplistic, but for a $170 billion company that doesn’t have recurring revenue, perhaps growing 20% - 25% YoY is taking over the world. On the other hand, a little $4 billion company like Alteryx isn’t taking over the world, but if they can take over their niche and grow at 50% through a SAAS model and from a much smaller base, they’ll become a larger company fast.

Maybe it’s not that simple, but that’s how it looks to me. As you’ve said many times, Saul, for NVDA to sell 20% or 25% more than last year, they have to first sell as much as they sold last year and then sell more. SAAS companies have a much easier path to growth.

Put another way, to achieve 50% growth YoY, here’s how much of last year’s revenue each company’s sales team must sell in the current year:

NVDA: 150%
AYX: 50%

Bear

[rhpolk]

Hi,

I hesitate to ask what may be an inane question… but here goes.

We all (mostly) know better than to attempt to time the market. But does one attempt to “time the spring”? It seems more feasible than, but perhaps may not be any more successful, then market timing.

Thinking about it thought, isn’t that kind of what we’re doing here? Timing the (hyper)growth period of a company?

Sorry if this might come off as a 101 level query or questioning/stating the obvious.

Thanks for your consideration… Bob

[GauchoRico]

We all (mostly) know better than to attempt to time the market. But does one attempt to “time the spring”? It seems more feasible than, but perhaps may not be any more successful, then market timing.

Thinking about it thought, isn’t that kind of what we’re doing here? Timing the (hyper)growth period of a company?

Yes. I can say that I actively try to time stock price moves in my companies. I have been using options to do this for about 18 months. TWLO is one example. I wrote about TWLO after the Uber loss announcement and I predicted that the stock would go back up after everyone realized the hidden growth in all of the non-user business. Unfortunately, I didn’t act on my own analysis soon enough. Saul did at the right time. I was a little late so I didn’t make as much as I could have but I have made plenty.

I think that NTNX is in a similar situation. Unrecognized growth is there. The timing piece comes in when you can predict when the market will realize the hidden growth and when the stock will react as a result.

I think that NVDA’s growth initiatives are also being undervalued. I think the stock could increase a lot in the next 5 months. I could be wrong of course but I’ve added based on that and then also on the longer term prospects.

Then there’s a market level prediction. I still think that companies will take advantage of 100% expensing of CapEx in 2018 spending before then end of the year. If true then we should expect the Q4 2018 earnings results which get reported in Jan-Feb 2019 to be beating by larger amounts than people expect. I suppose that this is a form of timing if you choose to act on it. This is a bit more difficult, though, because there can be so many other factors, including geopolitical, that can move the markets.

I look at these timing bets as a way to increase upside with more limited downside. Bets can be rolled forward if they don’t work out on the timing, initially. The reason that I view this as an asymmetrically favorable bet is because the companies that I am betting on (timing-wise) are growing at 40-60% so the even if I am wrong on the timing I can extend the time for my bet for minimal cost or even for some additional income. I know that options are off-topic on this board, but this is really the crux of the options approach that has juiced my returns over the past 18 months.

Chris

[brittlerock]

As you’ve said many times, Saul, for NVDA to sell 20% or 25% more than last year, they have to first sell as much as they sold last year and then sell more.

That’s not quite accurate. They can sell exactly the same number of units at a higher price and produce greater revenue. But, in fact NVDA does both, they sell more units at a higher price, and additionally they continue to open new markets while expanding existing ones.

A lot of folks have chimes in, I too like the coiled spring analogy, but to be totally honest I don’t think there is a very good explanation for why the stock price has languished for the last several many months. It just has. I find it frustrating, but I’ve not sold my position (as I quickly did with PVTL after the ER with a significantly diminished profit).

There’s nothing to not like about NVDA in my opinion. Incredible products, incredible product support, both h/w and s/w, inspired and brilliant management, expanding markets (crypto is shrinking, so what, ray tracing will revolutionize all forms of digital visual arts), etc., etc.

We love the recurring revenue of the subscription model, why don’t we love the recurring revenue of gamers always wanting the fastest and best h/w in order to get the full experience of latest games customized in order to exploit the latest NVDA h/w? Oh, they’re just games . . . now the largest entertainment market in the world. Why don’t we love the recurring revenue of being in first place in nascent markets? Why don’t we like the recurring revenue of being years ahead of the closests competitor?

Maybe I don’t have to say so, but I’m long NVDA. I can’t think of any good reason to sell other than if I jumped in and out maybe I would have jumped in the right direction and had greater gains. But to me, that sounds a lot like market timing.

[mschmit]

As you’ve said many times, Saul, for NVDA to sell 20% or 25% more than last year, they have to first sell as much as they sold last year and then sell more. SAAS companies have a much easier path to growth.

If there is no NVDA (and/or Intel, AMD, etc.) selling more and more hardware all the SAAS companies are selling into a shrinking market. In that environment there aren’t good prospects for SAAS growth.
Now maybe the SAAS companies are driving the growth or maybe the hardware growths brings the SAAS companies with them.

Mike

[XMFBreakerTinker]

Intel and Microsoft and ARMHY and QCOM, as a few examples, all had the same issue, they were not selling recurring products. Over time MSFT moved onto other products, and QCOM had its licensing revenues, but for the most part they had the same model that Nutanix had for so long, they get paid once for the life of the machine their product goes into.

And yet year after year they grew and grew and grew and grew until their markets became not only mature but disrupted.

NVDA is not only just growing into new markets, it is disrupting and displacing CPUs as well. CPUs cannot keep up either on price, speed, or power, and more and more of the utterly enormous and still growing market is going to GPUs. Kind of like ANET, who also does not have the recurring revenue thing, the market is so big that just taking a few percentage points a year is big business.

Darth I think expressed it, AI could not break out with CPUs. Then Pascal came along, and suddenly AI could breather and practically function after decades of frustration. And as it did so, it also created more and more complex inference requirements as well. And as things become more complex and demanding the CPU and the FPGA lose more and more ground to the GPU. Thus Nvidia not only is growing new markets, but also displacing in old markets such as in the data center, and the data centers are growing year over year like made.

And the business model for NVidia is every 2 years or so it brings out a product improvement that sells at a premium, while dropping what was the premium to the middle of the road pricing, so that it maintains pricing power (unlike fiber optic companies who could never manage this, but Intel certainly did with Moores Law and a near monopoly) and so goes Nvidia’s monopoly.

Nvidia is large, like Amazon and Microsoft are large. Thus doubles and triples take a bit more time than it did before. But no one is complaining. Well, except us who in this market find that we may be able to even do better.

This said, risk/reward, it is hard to find a better risk reward company in the market today.

Tinker

[strelna]

Strange this, people saying they can’t understand/there is no explanation for NVDA’s SP ‘languishing’ (it has gone up!) over the last 6 months.

Chart 1 year daily cf SMH AMAT LRCX INTC etc. etc. Observe recent scepticism about chips ‘n bits and their traditional cycle; boom and bust, feast or famine; it’s like pig farming. That’s what changed; that’s the reason. AMAT was an astonishing performer for me last year. And anyone remember good ol’ Skyworks? That too.

Unsurprisingly, (quality fundamentals) NVDA has done rather well. I doubt if there is any coiled spring though, just fair value owing to the above factor and the massive opportunities for self-harm inherent in techy bits and pieces. Maybe Saul’s right; it’s a personal judgement about risk.

[5761796E65]

Saul: Or adding to Zscaler, or Nutanix, or Twilio.

In the last six months, NTNX is flat: $53.00 → $52.50. What’s the difference between NTNX and NVDA? Why sell NVDA because it has been flat, yet add to NTNX? IMO, this is more about HW vs SW than a price history analysis.