In case anyone here took the Inverse-Cramer investing method seriously, he was advocating people dump NVIDIA 8 months ago. If you bought then you tripled your money.
Looks like that ETF is just noise[0]. I've never followed Cramer, but this pretty much fits the narrative that he's just saying random things. If he's throwing around random opinions about given stock, then it's not difficult to cherry pick that one case when he was wrong at a right time.
The ETF seems to be a bad idea because of how it's run. That's different from people who advocate "Always bet against Cramer", who say that as a strategy and on who the ETF is based.
Its all just an overheated market that has zero ability to project the future tech landscape yet suffers enormous FOMO
Will AI be "big" business? Under what business model. And who will benefit? Will Nvidia be the only one selling shovels? And how many will be buying shovels and to what end?
Does Mr Market project that AI is going to get "democratized"? Who will be running AI models and what have they being doing until now without high end GPU's?
Everything is up in the air and that includes the stock price
I guess from Nvidia’s perspective a lot of those thing don’t really matter as long as the people making/using “AI” need hardware. As long as Nvidia is a semi-monopoly it’s probably one of the safest bets in that way
There are echoes of the cryptomania boom here. Nvidia had the field for itself there too. The question is how soon, how fast, how widespread, in what shape and how lucrative the permanent adoption of AI algorithms.
For example, if the largest models are trained and shared as open source and only inference is done locally, its dominant position will be erode much faster.
On the other hand if only a few supersized entities train large models and serve them through API's they will eventually have their own datacenter chips.
Ultimately the Nvidia booms and busts reflect the lack of serious competition in this space. Once the previous oligopolist made the wrong calls on multi-core CPU designs, the field was left wide open.
The more general challenge for these players is how their offering will land in the post-Moore's law landscape.
These accelerator type chips are hard to program, consume lots of electricity and are good for very specific tasks. The mechanics and economics of the mass market CPU era dont apply.
> For example, if the largest models are trained and shared as open source and only inference is done locally, its dominant position will be erode much faster.
Open source models would still need to be trained on Nvidia’s HW?
I agree with your other points though, if the market becomes heavily concentrated I just don’t see the larger companies not developing their own chips/funding Nvidia’s competitors. Data center seems to be fundamentally different from the gaming market in the way that price/performance is the only thing that really matters. Which would imply that it should be easier for other competitors to challenge Nvidia.
> Open source models would still need to be trained on Nvidia’s HW?
yes, but how much hardware would really be required for training in this scenario and does it support a stratospheric valuation? Training models versus using models are dramatically different processes. Training is very intensive in cycles and memory but it is one-off and centralized to the model developer. Inferencing is in contrast relatively less intensive but its use is continuous and decentralized to potentially billions of users. Consider also that we are likely in the brute-force era and model size will keep shrinking, potentially quite dramatically.
While models have a lifecycle and will, in general, need to be retrained with new data, be specialized to private data etc, once a model is released it may be used for years without change. In fact you want this stability and longevity to release things in production.
My guess (but it is only a guess in what is a very uncertain landscape) is that just like mass-produced general purpose CPU's eventually won the economics game and became the dominant chip design (disrupting both the RISC workstations and HPC supercomputer clusters of the time), inferencing chips will win the mass produced "AI" economics game and will become the dominant accelerator, co-processor or super-sized CPU design.
The important commonality between inferencing and training is that both are numerical linear algebra. The economic model that will successfully commercialize inferencing is thus likely to drive the entire architecture for this specialized type of compute - the mass produced inferencing architectures will subsidize developing the higher-end training configurations.
Of-course, even if that reading is accurate, Nvidia could still somehow compete, but it could also be disrupted fairly structurally.
All these “market cap” exercises just take whatever the last trade happened to be, for some relatively small number of shares, and then multiply it by the total number of shares.
This is an okay, but far from perfect, way to value a company.
This is why when a company is purchased in entirety, it’s often at a large premium or discount to the market cap.
Is Nvidia really worth about 1T? Maybe, likely not though.
I think most people would rather have one third of Apple than all of Nvidia.
A lot of people will rather own a third of Apple, but the market, thus by extension, most people who actually invest, think that Nvidia is worth a third of Apple, on last Friday at least.
No, that is not at all what it means - that’s my point.
All of Nvidia was not purchased in Friday, and neither was 1/3 if Apple. We don’t really know what those things are worth, because we do not have such a transaction. To base that on.
All we know is what a bunch of individuals would buy or sell a small number of shares for. Very different.
But fact is, there are many cases where one investor tries to buy the whole company, the investor has to pay a premium over what the market currently values it at (Musk buying Twitter for example). So the current market price is a good approximation for what its real value is. Unless you think you know better than what our modern finance theory says, then I don't think your point is valid at all.
I think it's a lost cause. People don't want to understand. It would shatter their worldview on both net worth of the rich (you can't tax imaginary money) and their own net worth.
Market value is a basis for most modern accounting and finance theory, so there isn't anything outrageous about it, otherwise people would have changed how finance is taught long ago.
Regarding his point 2 about cuda, I remember in the early days of computation on the gpu there were no such luxuries. People would formulate their problems as say a pixel shader, and use a texture as input and read an image as output. Was called gpgpu. So cuda was basically a way of making an existing practice easier.
Here's a fundamental: Meta is spending $10B/year on NVIDIA. You can bet Microsoft will be spending $15B/yr, Apple probably $3B, and the US Gov $2-5B. Anyone who wants to get in on AI or HPC is going to buy NVIDIA headless GPUs.
The reason no one uses ATI is because their dev support is a disaster.
Seems weird for a hardware company who doesn't build the hardware or fab the chips to be worth that much. Their supply chain looks extremely risky (Taiwan) and some of their competitors do have their own fabs.
It is strange that the market cap of companies that make parts of the shovels have not had same trajectory. Or even fraction of it. Shovel maker can't sell shovels if they don't have parts to make them.
They've made big noise about future GPU and compute products; We'll see if they're actually "competition" in this sector when they actually get released in competitive SKUs.
Though many of those products may end up using TSMC too, but that's an option Intel have likely chosen for capacity/price/performance issues, rather than a hard requirement.
It's practically impossible that the world has changed so much in the last 6-12 months to warrant such jump in valuation.
The stock market has become a meme market, today nVidia is hot...10 weeks from now it will be something else entirely that people fall in love with.
I predict that all the crypto-boys will have an epiphany "if you can beat them join them" and will pump JPMorgan and Bank of America to the moon, as always completely removed from any fundamentals.
It's practically impossible that the world has changed so much in the last 6-12 months to warrant such jump in valuation.
We're on the threshold of the mother of all gold rushes, and everybody else's shovels are made out of either rubber or Chinese pot metal.
So, yes, Nvidia is in a very good position right now. About the only things that can derail them are war in Taiwan or the appearance of new techniques that make inference computationally very cheap.
> appearance of new techniques that make inference computationally very cheap
So long as training (computation of the gradient and update) remains expensive, nVidia - and others - will be fine. At the moment, between the global cloud providers and smaller players, there appears to be effectively "unlimited" demand for GPUs. This is likely to continue, as ML gets used for more and more things.
Remember - the GPTs are the new hotness, and certainly hog their share of GPUs right now, but there are a lot of models just quietly working without making anywhere near the splash; all of these need GPUs too.
The stock market isn't based on the present state of the world, it's based on future expectations of earnings. So no, the current state of the world hasn't changed much in the past 6-12 months but clearly perceptions of the future have.
JD Rockefeller first signed off the oil revolution, then he got rich.
Henry Ford first signed off the Model T and then got rich.
I could go on, we used to reward practical improvment in quality of life, not just expectations . The thing about rewarding people for creating expectations is that false dawns can be natural (and they do happen), but they can also be manufactured artificially to get rich.
And also quite frankly Chat-GPT is being developed in the wealthiest area in the world where everybody hangs out together in one giant Fed fueled party. If this was something as revolutionary as the wheel like many commentators said, surely the movement would have preceded the unveil not the other way around.
It's got nothing to do with rewarding anyone. People are buying nvda because they think the company is worth a lot because future earnings are going to be much higher than today because demand for their products will be extremely high. They expect many dollars to flow back into their pockets from such purchases. They aren't trying to line Jensen's pockets, they are trying to line their own.
There is nothing wrong with that logic. NVDA are extremely well placed with their chips and cuda. Demand is high. It doesn't appear to be going anywhere but up. Their competitive position is good. Maybe the price is too high, but it's not anything even approaching a meme stock. There are real fundamentals behind that valuation.
Rockefeller and Ford both raised significant investments before their companies practically improved quality of life and irrational speculation is as old as the stock market itself. For example during the rise of Standard Oil 1880s there was a massive speculative bubble in railroads that led to a collapse during the 1890s. Bringing up those examples without considering the failures is survivorship bias.
And also quite frankly Chat-GPT is being developed in the wealthiest area in the world
AI may not lead to a promising future, but a blind insistence on viewing everything through the lenses of class and history definitely won't.
If this was something as revolutionary as the wheel like many commentators said, surely the movement would have preceded the unveil not the other way around.
“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?” — Scott McNealy, Business Week, 2002
The simple truth is that the people bidding it up indiscriminately have no clue about the fundamentals. You only win if you get out before reality sets in.
This is not some microcap company that can eventually justify such an extreme multiple via actual growth
The simple truth is that relying on LTM sales is something only people who don't understand the business fundamentals do.
Nvidia is in a very good position in a rapidly growing market. For folks who don't understand that, it might be comforting to look at recent history for sales numbers, gross margins etc. Those numbers are practically meaningless for Nvidia 2032 financials.
In 2004 "value" guys were looking at Google's IPO and calling bs. 20 years later, sales are up 100x. Market cap is up 60 or 70x. Those value guys were looking at LTM.
King of value guys, Warren Buffett:
"Future profitability of the industry will be determined by current competitive characteristics, not past ones. Many managers have been slow to recognize this. It’s not only generals that prefer to fight the last war. Most business and investment analysis also comes from the rear-view mirror."
Finger in the air - 10 years, $200 bill rev at 25% net income margin and 30x earnings multiple seems totally reasonable.
Not a great return from current prices, but this situation is nowhere near detached from fundamentals. The only people making that claim aren't grasping the situation we are in with respect to demand for GPUs from AI and the competitive position Nvidia have managed to get themselves into. The world has changed in the last few months as far as computing is concerned.
So given those numbers, you are projecting to earn a 50% return in total over 10 years, or 4.1% per year.
Current market cap $1T, projected market cap in 10y $1.5T given 50B net income * 30.
That’s quite terrible given the commensurate risks. You aren’t pricing in at all that CPUs can be used for inference, FAANGs will compete, AMD cards will surely become viable too if the market is growing that quickly. Apple’s chips today can be used for fast LLM inference for large models, and they weren’t even designed with that intention in mind. Competitors didn’t care before because it was a small market.
So how is it logical at all to invest at these prices? Even if you double the revenue projection to $400B, the total return is not very compelling over 10 years, and carries a large amount of downside risk versus alternatives.
I have no doubt that people will make money playing hot potato with it over the next few months, but the stock price is likely to go nowhere over a longer timeframe. Eventually the greater fools run out
Yes, antitrust/legal risks increase as well, and so on. Unfortunately you have a mania here that could last for many months, or even a bit longer (see: dotcom bubble)
There is effectively no rational fundamental argument for nvidia to go materially higher such that compensates for the risks. Rationality is not what’s at play though
I can use a pen and paper for inference too. I can even do training with pen and paper.
The claim for AMD has been there for years. They can't write software. Cuda and Nvidia chips are the only real game in town and have been for longer than most expected and there is really nothing that looks like it will take over. Custom ASICs were going to take over, until they didn't.
Anyone making these claims isn't close enough to the market. The real fundamentals are in the details, not in hand wavy nonsense.
Investing has nothing to do with whether technology is legitimate, real or cool, and everything to do with the amount of money you can make from that technology. And the numbers show NVDA will be a poor to middling investment in the long run even if the strongest bull case to the fundamentals materializes. Even if you 2x, 3x, 4x the numbers you provided. If you have to use extremely optimistically bullish numbers to get to a 10% CAGR (matching the index), there's a big problem.
Competition drives numbers. Nobody mentioned cool or anything like it. You are grasping at straws.
Those numbers are my estimates. I don't own the stock. I don't think it's a great buy. They do illustrate that the situation isn't detached from reality. People who own it aren't idiots, they are just a little more optimistic than I am. A little more optimism on margins (which may be warranted) and market size and it starts to look good. Just increase my 3 assumptions 20% each and it goes to $2.5 tril instead of $1.5 tril, ie ~10% return. Doesn't need 2x, 3x or anything of that nature.
