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Oligopolies THRIVE with NVIDIA

September 5, 2023 / By /
Stock (Symbol)

NVIDIA (NVDA)
Stock Price

$173
Sector
Retail & Travel
Data is as of
September 26, 2017
Expected to Report
Nov 8
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 the brains behind the new generation of computers. Robots that learn, 3-D and life like video games, autonomous cars, voice and face recognition, the ability to turn you into a moving cartoon. NVIDIA’s chipsets and processors are two years ahead of the competition. And with technology moving so fast, their lead seems insurmountable. Here’s NVDA’s five divisions.

  1. Gaming — NVIDIA continues to be the leader in video gaming cards with its GeForce 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 is 53% of company sales and had a year-over-year sales increase of 52% last qtr.
  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 in this division ballooned 175% last qtr and now account for 19% of overall sales, up from 8% a year ago.
  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. Sales increased 10% last qtr and accounted for 11% of revenue overall.
  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 6% of overall sales, with a respectable 19% yoy increase last qtr.
  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 increased 53% in OEM/IP last qtr, and accounted for 11% of total sales, but sales had been trending down in this division prior to last qtr.

Alphabet, Amazon and Microsoft all broke out to new all-time highs today after reporting earnings last night. These oligopolies have the strength and knowledge to crush competitors — legally. Why? NVIDIA. NVIDIA makes them smarter. The only problem with NVDA stock is it was $28 two years ago and is now $197. Profits rose 91%, 183%, 139% and 130% the last 4 qtrs. But the numbers aren’t screaming buy as profit Estimates for the next 4 qtrs are 12%, -2%, 6% and -2%. While the P/E is 48. So comparisons will get tougher, and growth will probably slow. And the stock’s up from $70 a year ago. I’ve been passing on NVDA all year, waiting for a pullback to buy. But it’s not pulling back. Still, experience has taught me to be cautious after a run like this. A stock market correction could cause sellers to come in — sellers who haven’t had a reason to sell in years. NVDA is at the top of my radar. I’m dying to buy, but being prudent in doing so.
One Year Chart
These charts and tables were done a month ago. When the stock was $173. In a month it’s gone from $173 to $197. Profits jumped 130% last qtr, beat estimates of 73%, and sales rose 56%. Four qtrs ago the company got a HUGE boost in Gaming sales from a new GeForce GTX1000 video card. That card took gaming sales to another level. Now analysts will comparing next qtr’s numbers to a big qtr a year ago — when sales started to soar due to a new product. And my guess is profit growth will slow to 40% or less next qtr. Note that’s down from triple-digit growth and that could cause quantitative funds to sell. I should have gotten NVDA when it based around $150.  The Est. LTG here is a joke, this company could compound profits two to three times over during the next decade. During the last 4 qtrs NVDA has beaten the street by 16 cents, beaten by 1 cent, missed by 2 cents, and just recently beat by 23 cents. So in two qtrs out of four it whipped estimates. I would figure that would’ve been better.
Fair Value
My Fair Value on NVDA stock is 45x earnings, or $163 a share. Profits are expected to climb only 9% next year. So last month I felt NVDA was overvalued and now its up another 14%. Look at the profit history too. It’s almost all red. The future estimates are keeping me out of this stock, as well as my stubbornness.
Bottom Line
It’s just hard to fathom almost a ten-fold move without a serious correction. But NVDA is one of those once in a generation stocks. The issue with buying up here is investors got killed in QUALCOMM when it peaked after a run like this in January 2000 when it went from $100 to $64 that month — on its way to bottoming around $15. I don’t think NVDA will do that, but great stocks of that time did decline 50% during the Financial crisis of 2008. This chart is parabolic, and NVDA could be in for a wicked correction just because of the chart pattern. But this is clearly a core stock for growth investors, thus I will keep it at the top of my radar and look to get in soon. With comparisons tough next qtr, perhaps negative news will bring NIVIDIA down to a buyable level.
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