Opinions
Barry Schwartz
NVIDIA Corporation
NVDA-Q
HOLD
Jun 07, 2024
Stock price when the opinion was issued
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One of the things his team's looking at right now is that it seems some of the regulations surrounding the semiconductor industry will be reduced (specifically China, but other countries as well). That could mean an expanded market for the semi manufacturing equipment companies, such as KLAC. AVGO has also been a strong performer, and he owns some NVDA. Those two names have strong relative price performance, are economically sensitive, cyclical, and have pricing power.
Premium contentNVIDIA Corporation has established itself as a dominant player in the semiconductor industry, particularly in the field of graphics processing units (GPUs). Founded in 1993, the company has branched out into multiple high-growth markets including AI, gaming, and data centers. Its well-diversified portfolio and continuous innovation have allowed it to enjoy strong revenue growth and high investor interest. As of the latest data, NVIDIA remains one of the most prominent and innovative companies in technology, contributing significantly to advances in artificial intelligence and machine learning applications. Social media mentions are up 37% in the past 24h.
Considers the US restrictions as short-term obstacles. Stock's starting to rebound quite nicely. The leader today in AI computing, and for the foreseeable future. Strong global thirst and demand for AI infrastructure. Unmatched advantages compared to other names in the space. Data centres are driving growth. Recent earnings beat.
AI adoption is still in very early stages. Still trading at 1x PEG ratio. Earnings growth is not reflected in the valuation. Sees EPS at 33% going forward. Yield is 0.03%.
Premium contentNVDA has had some setbacks with AI competition and trade war uncertainty, but recently reported earnings showed a 69% increase in revenues --including a 73% increase in data center revenues. It trades at 46x earnings and supports a ROE over 100%. We like that cash reserves are growing, while shares are aggressively bought back and debt is retired. We recommend setting a stop-loss at $106, looking to achieve $172 -- upside potential of 18%. Yield 0.03%
(Analysts’ price target is $172.22)Semis are cyclical with their highs and lows, and we are possibly in the early innings of AI--who knows where AI will take us. NVDA is getting cheaper as the stock price rises. As earnings rise, so will the stock. In the past 1.5 years, NVDA shares have not risen as fast as earnings growth.
Used to make 75% gross margins, but those have jumped to 90%. If it goes back to historic gross margins, even if sales continue, you'll see a huge degradation in profit. Sweet spot in terms of demand. Market thinks it can do no wrong. Worries that demand will abate or just normalize. Good news is baked in. Watch your position size.
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First-mover advantage. Gross margins are out of sight at 75%. No one's caught up to it yet. At some point, companies will make their own chips and rely less on NVDA, but not right now. Big tech is spending $200B this year on capex to meet AI demand, and a lot of that is going to NVDA.
Arguably inexpensive. At some point growth will tail off, but he's not smart enough to know when that will happen, so it's in the "too hard" pile.