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I’m Not as Bullish on NVIDIA, and It’s a Problem

November 20, 2018 / By /
Stock (Symbol)

NVIDIA (NVDA)
Stock Price

$224
Sector
Retail & Travel
Data is as of
January 11, 2018
Expected to Report
Feb 7
Company Description
Nvidia Corporation focuses on personal computer (PC) graphics, graphics processing unit (GPU) and also on artificial intelligence (AI). The Company’s operates through two segments: GPU and Tegra Processor. The Company’s GPU product brands are aimed at specialized markets, including GeForce for gamers; Quadro for designers; Tesla and DGX for AI data scientists and big data researchers; and GRID for cloud-based visual computing users. The Company’s Tegra brand integrates an entire computer onto a single chip, and incorporates GPUs and multi-core central processing units (CPUs) to drive supercomputing for mobile gaming and entertainment devices, as well as autonomous robots, drones and cars. Source: Thomson Financial
Sharek’s Take
David SharekNVIDIA (NVDA) is taking over the world, as it’s the brains behind the new generation of computers. NVIDIA’s chipsets and processors are perhaps two years ahead of the competition. And with technology moving so fast, their lead is breathtaking. Here’s NVDA’s five divisions.

  1. Gaming — NVIDIA continues to be the leader in video gaming cards with its GForce line. Its advanced chips and gaming devices turn science fiction into reality. You will be playing or watching like you’re actually there. In the last five years video game technology has grown ten-fold, and is now a $5 billion industry. Watching games taking place is growing in popularity and sometimes gets viewership numbers comparable to real sporting events. Gaming accounts for half company sales.
  2. Datacenter — This is the division that could send the stock soaring. The next big thing could be a new server device that NVIDIA is expected to debut this Fall that does the work of what 400 servers do now. Sales are around 20% of overall company sales.
  3. Professional Visualization — This is character animation, pose estimation, face recognition, virtual security guards. NVIDIA estimates there will be 1 billion cameras in cities worldwide by 2020 to help find lost people, improve traffic and enhance law enforcement. This division is 10% of NVDA sales.
  4. Auto — the brains of the Autonomous car, advanced computers which visualize the environment around you and predict where the cars could be headed to prevent accidents. Sales in this division are only around 5% of total sales
  5. OEM & IP — royalty payments from Intel and low-end graphics chips. This is a low-margin business, and is not where the company wants to be. Sales are around 10% of total sales,

NVIDIA is really the brains of the new AI economy with virtual reality and electronic cars. These high production computer chips are needed to mine crypto-currencies like Bitcoin, which is a worldwide phenomenon. In countries outside the U.S. people are buying state-of-the-art computers to search for or mine for coins. The only problem with NVDA stock is it’s up ten-fold in two years. It sells for around 50x earnings and grew profits 35% last qtr with profit Estimates for the next 4 qtrs of 16%, 23%, 16% and -3%. And it’s technically a semiconductor stock, which have little consistency and thus low certainty. Obviously I’m wrong, and I’ve missed out on a ten-bagger (and used to own the stock many years ago). NVDA is at the top of my radar. I’m dying to buy, and have been waiting for an opportunity since $150.
One Year Chart
What I mean by little consistency is profits used to be up-and-down in years past. Notice the red Annual Profit figures to the right. In my book, anytime a stock doesn’t hit a record high in annual profit growth, I highlight the figure in red. Then poof, profits soared in 2016 and 2017. Now 2018 profits are expected to climb just 12%. But profit estimates have been soaring, so what do you believe? Est. LTG of 15% a year is quite low.
Fair Value
My Fair Value on NVDA stock is 45x earnings, which is $212 and the stock’s blown past that mark. Notice how this stock had a P/E in the 20s in 2015 and 2016.
Bottom Line
It’s just hard to fathom almost a ten-fold move without a serious correction. But NVDA is doing that. This chart shows an extended stock, yet investors must be looking ahead for something bigger. I have NVDA at the top of my radar and feel if the stock market corrects this stock could give us an excellent buying opportunity. But I said that around 50% ago too.
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