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.
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.