Nvidia - results due soon, I think it's overpriced

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Nvidia’s price to sales ratio is 28x right now at $300. It was 30x last week.

Even if they cut wages and manufacturing and tax costs totally to zero, and all sales became pure profit, they’re still more expensive than Apple or Google on P/E ratio.

The stock was $108 about 6 months ago, and $318 last week.

Their new products this year are not looking good:

“Do Not Buy”

(Do Not Buy: NVIDIA GeForce RTX 4060 Ti 8GB GPU Review & Benchmarks - YouTube)

“we just can’t recommend it”

(RTX 4060 Ti 8GB - we just can't recommend it [Full Review] - YouTube)

This is what mania looks like. Buzzwords, fat margins and technology stagnation.

I suspect the stock will dump when the results come out this evening.

No position long or short.

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I think NVDA is at the forefront with chips for AI and they are way ahead of the competition. I believe thats what driving AMD up as well because they have a new chip for AI. Of course, until after the earnings report this is pure speculation on my part…doc

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Well, looks like we have answer as to if it is cheap or not. :slight_smile:

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I wish I would have bought some NVDA! It has gone up crazy and is heading higher this year apparently…doc

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An industry leader. Well managed with plans to continue leading. But also good at feeding PR to Wall Streeet. Not just processors for gaming, but also self driving autos, crypto mining, and now AI. What next?

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If people are buying it because it’s going up… do yourself a favor and put in a trailing 4 or 5% stop order. Don’t get sucked into the SaaS destruction. Just… take whatever profits you can MECHANICALLY and get out if it starts dropping. High visibility/high pr / OMG everybody’sgottahaveitstock - works great as long as the institutions are filing into the movie theater, buying tickets. Once they start quietly filing out - follow them out. Don’t hold “because it’s gotta come back, amirite?”

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I have a PhD in AI, and over 2 decades working in AI or following AI closely, as well as similar length of time in experience with NVIDIA’s chips. What follows is my personal opinion. You should verify these claims for yourself:

NVIDIA are an awesome company. Their products, historically (and currently at the high-end) are really great.

They do not deserve a PER of over 200x. Their products at the low-end and mid-range are a joke, currently. In fact, they are still struggling to shift their 2020-era products, currently. They are significantly exposed to manufacturing risks in China/Taiwan.

NVIDIA has unfortunately been maximising its margins on products with the result that competition is muscling in (e.g. Intel moving into discrete GPUs and AI accelerators). Also, NVIDIA became a success by supplying GPUs to the gaming market, but in the last 5-10 years has begun to neglect them even though they are a significant source of revenue.

I encourage you to read up on the “AI winter”, this wouldn’t be the first time there has been a lot of hype around AI and money poured into it, followed by calamity, when ‘cool’ failed to turn into ‘reliable and practical’.

I believe anyone investing in NVIDIA at the $300-400 level this year will be burned about as badly in the medium term as those who invested in NVIDIA at the $300-400 level in 2021. (where the price subsequently dropped more than 60%)

As far as “AI chips” go, any chip can be an AI chip. Training requires more power, but ‘using’ AI requires very little. Indeed, your phone likely already has a significantly powerful AI accelerator in it that’s more than adequate for a wide range of tasks. NVIDIA’s advantage isn’t so much the chip tech. It’s the software that lets you transfer AI tasks onto the chips, and the competition are not far behind in that regard.

But, each to their own. All stocks have an element of valuation due to economics and an element of valuation due to sentiment and willingness to suspend disbelief. Prices are not determined by experts in the topic, but by the crowd.

Great company, but a crazy overpriced stock.

Oh, and one other point: they have used much of their earnings to do buybacks at these crazy prices, and I believe they then re-issue quite a lot of stock as grants to employees. So all that hard-earned shareholder wealth turns into … ? hmm.

Again; this is all my personal opinion, not financial advice, etc.

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Thanks for your great input…doc

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It turns into retained employees? Every company that provides stock incentives to their employees (either through share purchase plans or RSUs) either has to purchase such in the secondary market or by issuing new shares. I certainly know which I would rather see them do and which would increase my shareholder value - and it isn’t issuing new shares.

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The issue is not whether employees are retained by being handed stock that was paid for out of profits (or rather, ‘profits’).

To paraphrase Buffett:

  • if stock incentives to staff aren’t compensation, what are they?

  • if compensation isn’t an expense, what is it?

  • if expenses aren’t being offset against revenue, thus reducing net profit, why not?

The issue here is that the hilariously microscopic profits nvidia are making (vs their present market cap), would be rather closer to zero if their ‘buybacks’ were accounted for as part of salary expenses from revenue rather than ‘a use of profit’.

On the other hand, perhaps you’re right. Maybe NVIDIA should start paying chip suppliers with stock incentives too in place of cash (then fix the dilution with buybacks from ‘profit’). And then they can pay their taxes the same way (and use the new profits to do more buybacks). And interest on debt (and more profit and more buybacks). And so on.

Suddenly, 100% of revenue becomes profit, and the P/S of 35x becomes a P/E of 35x (tragically, all of which must now be spent on buybacks to offset all the dilution).

What a wonderful way of doing business :slight_smile:

Lux