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
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
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.
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
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
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.
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
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
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
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.
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
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
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.
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.
It’s just not a stock that you can expect to triple in a year like Square or have the same rapid growth as the smaller stocks.
But for me it is also about risk. My concern about NVDA pulling a PVTL or CLDR are very low. I know it is run by someone smart, has multiple avenues for growth, and has shown a willingness to pivot to greener pastures. So for me it has a good floor.
I am not as confident in my picks as Saul or perhaps many others. I do worry that some of my picks will drop 25% overnight because I misread management’s competence or a huge customer leaves or it gets disrupted by some company I never heard of. I like a few stocks that I know can still grow (I do think NVDA could grow 10x in 10 years). I do use it almost as a place to park cash and sell some when needed for a new opportunity.
I’m not too concerned about the recurring revenue issue. Plenty of companies over the years have done fine without recurring revenue in the sense we use it now. It simply has a more traditional business model. I kind of like that I don’t have to learn new metrics or worry about some number hidden on the balance sheet is going to crash the stock on the next earnings report.
I wouldn’t pick it for a 1 year stock picking contest and completely understand that some investors want to push aggressively for the highest returns possible with other smaller companies.
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.
How much of this might be because the large funds and ETFs are already “full up” on the position? With the multi-year run-up combined with whatever position adding they may have been doing, I imagine the size of NVDA within any given portfolio is likely to be managed relative to other positions. So when it does really well, they may “have” to trim.
Retail investors like us probably follow similar self-made “rules,” but maybe with a little less stringency. I’m fine to let my long (since mid-2014) NVDA position grow well outside the, say, 5% mark, but a fund manager may not. Or they may sell some at a gain to get it on the books for that year for the fund, while an individual investor may be OK holding and/or adding for years before taking any gains off the table.
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
Because 35x next year’s earnings for a semiconductor company near the top of the cycle is a very risky play [to almost all investors] that almost never works out.
The story may be great but the valuation is not.
For instance, Intel earns 4.5x the profits NVDA does, but is only 33% more valuable. 13.8x sales vs 3.1x sales.
Nvidia is certainly growing much faster but that’s a massive difference there. If it were to drop to say, 25x I’d be much more interested. JMHO.
No position in either,
Naj