Opinions
Bill Baruch, Founder, Blue Line Capital
NVIDIA Corporation
NVDA-Q
PARTIAL SELL
Jun 21, 2024
Stock price when the opinion was issued
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They report later this week. In some ways, they will hit it out of the park, but how much sentiment is built into the stock already? NVDA has had a huge run, doubling since April. He suspects some people are over-invested and few who are under-invested. No, he won't buy it ahead of earnings, unless you're a daytrader looking at options.
The AI hype is way overextended, like the dotcom era. NVDA's market cap is bigger than all of France or the UK or Canada. Ridiculous. If you own it, trim and take profits. NVDA is only one component of AI with software being another. Why is NVDA soaring and the other components are lagging? Is a recipe for disaster.
It just reported a top and bottom line beat and reiterated its full-year forecast, but data centre sales came in a little light, so the stock got dinged after hours. Mostly, the stock was up 35% for the year going into the print and it was priced to be perfect. Overall, a good quarter, but didn't address the conundrum that megatech companies are getting the bang from their buck in buying NVDA stuff. China is another issue. Own this, don't trade it.
Premium contentNVIDIA currently has 1,828 open positions according to data from popular job boards. This figure has risen by 74% over the last few months, suggesting that the company is in a growth and expansion phase. Complementing this, 93% of NVIDIA employees have a positive business outlook, reinforcing the positive sentiment within the company. Social media mentions are up 73.2% in the past 24h.
The poster child. Gone up a lot, and its valuation is probably 40x forward PE. Quite expensive, unless you believe that it can maintain the treadmill of that kind of growth. He's not saying the growth is over, just that maybe the growth slows down from here. Perhaps the valuation has to stay here while earnings catch up, or it has to come down a little bit.
See his Top Picks.
Premium contentWe reiterate NVDA as a TOP PICK. One has to wrap their head around the valuation of 51x earnings and 42x book. However the 100% ROE along with growing cash reserves that are allowing aggressive share buyback and debt retirement attest to its dominate position in the global development of AI. If the US government allows sales to China, NVDA will be unstoppable. We recommend maintaining a tight-stop at $156, looking to achieve $214 -- upside potential of 26%. Yield 0%
(Analysts’ price target is $214.00)A solid hold. Demand for their chips is not going anywhere, peers can't catch up and their technology remains advanced. Earnings are following the stock price. Accumulate this carefully on pullbacks, like now. The PE is not low, can be volatile, so don't buy a full position just yet.
Chip business is cyclical. The downslide can be precipitated by overstocking due to high demand, and that inventory has to be worked through. China has now decided it doesn't need the H20 chip, so all that inventory is now in the supply channel.
When you're paying a high price for these companies, your expectations are for sunny days. But you have to plan for the rainy ones.
He trimmed is Nvidia by 10%. Sometimes after a stock split, shares run up, then pull back by 20-25%, and he's prepared for that here. This is his biggest position. He'll see how it plays out. He could sell more next week. Maybe shares can rise to $160.