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In Defense Of Nvidia

Jun. 06, 2023 2:48 PM ETNVIDIA Corporation (NVDA)QCOM, AAPL86 Comments
Moe Value Picks profile picture
Moe Value Picks


  • Seeking Alpha analysts are cautious on Nvidia Corporation stock, with 22 rating it as a hold, 13 as a sell, and only 12 as a buy or strong buy.
  • The bear theses revolve mainly around the stock's valuation. Dismissing a stock with Nvidia's secular tailwinds purely on valuation could be a mistake.
  • This article aims to provide a more nuanced approach to valuing Nvidia by looking at historical cases and discussing the risks investors should monitor.

Artificial Intelligence processor unit. Powerful Quantum AI component on PCB motherboard with data transfers.

Don't be too quick to dismiss Nvidia because of valuation


Despite its meteoric rise this year (or maybe because of it), Seeking Alpha analysts have grown careful on Nvidia Corporation (NASDAQ:NVDA) stock, at least according to analyst

This article was written by

Moe Value Picks profile picture
I'm an individual investor who looks for opportunities primarily in unloved stocks. For the past 10 years, I've invested in stocks in the US as well as abroad in unloved markets like the Middle-East and Africa. Thomas Phelps' 100-1 and Philip Phisher are huge inspirations to my investing approach. I'll look to write about stocks that present Time Arbitrage opportunities or have some optionality embedded in them.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of NVDA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

My position is a short put option in Nvidia rather than a call or ownership of the shares. My strike price is at $310.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (86)

Graphcore has been acquired by Meta earlier this year. Microsoft, Google, Meta are all working on their own AI systems. Their systems and SOCs have been architected with AI workloads specifically, of course they have had to adjust to the rapidly changing times and align with generative AI, but they will be competitive, especially from a TCO perspective.
Moe Value Picks profile picture
@faraday_maxwell yeah I think that is certainly a risk.
On the other side, if AI ends up being so popular that hyperscalers and dedicating their own chip design, nvidia can still own the rest of the market.
So there is always something for Nvidia as long as the AI narrative is intact
@Moe Value Picks They can build their own chips but ...
No one has an AI GPU with AI Tensor cores.
Nvidia released their first AI tensor core processor in 2016.
Nvidia is now on It's 4th generation of AI tensor cores GPUs
AMD and Intel plain Jane GPUs not based on artificial intelligence.
Neither company has AI operating systems for a general platform for vertical markets for any application.
AMD and Intel do not have software stacks yet.
they don't have the AI CUDA software platform, They don't have the AI cuda operating systems. They don't have the AI vertical market application software.
They do not have the software stacks.
Nvidia's been designing and building AI software and hardware since s2005.
Nvidia has over 33,000 engineers working on artificial intelligence in hardware and in software.
Good luck in your investing
Sighcopath profile picture
Going to be interesting to see what AMD has to say about AI, AI products and AI partnerships on June13. From listening to the AI hype machine some investors call NVDA it would appear that NVDA is about 10 years ahead of everyone else in the race to produce AI. This investor sees a real problem trying to monetize AI for profitability when a Chat GPT 4 machine looks to have a price tag of around $100 million dollars. How many companies have a research and development budget of $100 million? Then ask of those companies how many have the research and development budget (of another $100 Million?) to pay for CUDA and train that LLM? Finally ask yourself how is that company going to make a profit on that $200 million investment. The USA government can only afford a set number of $300,000.00 toilet seats for the military! Perhaps AMD CEO can cut through the hype and actually project a way to make money on AI rather than spend, spend, spend, on AI!
@Sighcopath I think it's even more than $100 million, I see numbers of about 20,000 to 30,000 A100s (or maybe lower for H100s) for a ChatGPT. Not sure if every company needs a system that powerful, depending on how many parameters I suppose. Not sure why you added another $100 million for R&D to train a LLM, should be much less than that. But right, a company is going to need to see a path to recovering that $250 million or so for the HW cost before they go and buy it themselves. One would think they'd use a CSP first.
@faraday_maxwell AI is going to be a service. The cloud infrastructure companies (i.e., Oracle, Microsoft, Google, and Amazon) will consolidate the SaaS model for AI. They can afford and make the investment for the masses.
Moe Value Picks profile picture
@faraday_maxwell and I think there is a lot of nuance to the cost debate right? Because u will be able to cut costs on other sides and generate new revenue. Not to mention training the models is essentially a sunk cost. Those buying the system will make money on the application side or the inference portion.
So there are a lot of considerations in determining whether it’s cheap or expensive.
I suggest that people listen to Jensens keynote: www.nvidia.com/...

You can come to own investment conclusions.
GameBuzz profile picture
Depending on when those less-than-positive articles were written, they were right on as the stock retreated from its opening high ever since (Tier1Alpha reported Monday that it had been under distribution in large blocks since Thursday; only accumulation was in small blocks, presumably retail). It was a great *trade.*

I sold so many spreads on it in the last couple weeks, mostly calls, that I thought it was too easy and I was being too greedy so I refrained this week , but all were winners (including those I was thinking about this week so far). However, the stock is still my largest holding LT.
Moe Value Picks profile picture
@GameBuzz from even before the earnings. The data on Seeking Alpha's analyst are usually over a preiod of 30 days.
There is a lot of short term hype built into NVDA stock now and a short term pullback would not be at all surprising; however, it is difficult to bet against them long term. Of course, there will always be competition and new competitors, but the strength of NVDA has been built over the past 20 years and it will be difficult to dislodge them. I trimmed about 10% of my position recently but will trim no more. One way to play a near term pullback, if one is still bullish on the long term story, is sell deep out of the money puts while retaining a core position in the stock.
I liked the article, overall.
1) Waiting 22 years to make an $80 profit on a $100 QCOM investment is a compounded return of about 3% per year, not including inflation between 2000 and 2022.
2) What is a "reductive conclusion?"
"... may lead to a reductive conclusion."
Moe Value Picks profile picture
@corvid hey thanks for reading the article.

2) So the reductive conclusion is to think that one can make an assessment on any stock, simply by looking at quantitative measures like P/E and that's whether that's sell it because the P/E is high or buy it because the P/E is low.

1) I agree with you 100% than 3% return is really bad. But that's also literally the highest valuation you could have paid for the company. My point was the following and I'm curious what your thoughts are:

Valuation did not cause the move in Qualcomm's stock, it was the introduction of 2G and 3G technologies and the developments in their respective markets. At least that's my take. The reason the stock eventually rebounded, was because 3G brought in more demand and more profits, not because the earnings multiple expanded. Yet some investors would pass on Qualcomm at the 2000 high for a company heavily in debt with negative cash flows, saying there is "value" there somewhere, without knowing exactly what that value is. It's a blind bet on multiple expansion or cyclicality in earnings that they haven't done the research to have any conviction on.
So applying that to Nvidia, I'd rather buy a small amount in Nvidia and hold. If I get any drop in price that's purely on valuation and not business development, I'd grow that stake. I think that would work far better than buying, say, Altice at 5x earnings. That's because Nvidia has a great balance sheet and a lot of ideas on how to grow the business. So you have a chance of growing into the valuation. Meanwhile Altice has a bad balance sheet, with no idea how to keep the business going.
Usta Stockman profile picture
Tens and hundreds of thousands of shares being dumped by NVDA insiders

" HOLD MY BAGS ' they shouted in glee as they sold at the peak of ai hype
Hudson Investments profile picture
@Usta Stockman shares dumped by insiders as well as outsiders.
William Darusmont profile picture
Timely as Druckemiller this morning on Bloomberg said he believes NVDA can do well even IF the market turns down.
Hudson Investments profile picture
@William Darusmont today’s downside move doesn’t say much for Druckenmiller’s prediction.
William Darusmont profile picture
@Hudson Investments Markets are determined not by ONE day but a series of days and patterns. Selloff??? Hello?
Oh wait: today must be the dawning of a new bull market!@
Hudson Investments profile picture
@William Darusmont Did you hear that day traders? Today’s the dawning of a new bull market!
AnimeSnoopy profile picture
Greedy little piggies, eat eat!
So so beautiful, my fat little round piggies!!

Ahh... The pigs are really hungry this quarter.
It's good to see!!

I keep shorting $NVDA every day and closing out for easy daily profits.
Keep a few short shares though.
The time for slaughter is near : )
William Darusmont profile picture
@AnimeSnoopy Too bad you didn't hear Stan Druckenmiller today on Bloomberg! He feels that NVDA can do better even IF the market turns bear! Also, he shared his big mistakes...almost all involved SHORTING stocks. An old adage: with a short you can lose an infinite amount of money (he cited one where he lost $9 million on a $3 billion short!), and the BEST you can do is double. Bad odds those!
Moe Value Picks profile picture
@William Darusmont Yeah I think its going to be hard to stop Nvidia for a few quarters at the very least.
And the company's balance sheet is really solid so they are not under pressure to pursue short term profits either if they have bigger fish to fry.

It's not cheap by any stretch of the imagination, but it might end up being not expensive either.

Like I was thinking earlier if computing is moving more and more to the cloud. The specs of your PC or laptop will become less important. With time, you can almost think of it as a piece of plastic.

In that environment, would you rather buy HP Inc. at 10x earnings, or Nvidia at 50x?
@AnimeSnoopy: So will you claim you had easy profits Friday the 9th doing that?

So many random people claiming to be great traders on SA. In the real world, since 99% or people can't out-trade the market over time, the bias toward lying or cherry picking or exaggerating is PAINFULLY OBVIOUS.
astute pathways profile picture
A stock normally stays hot until the next earnings report
@astute pathways and then it gets better 😊
Moe Value Picks profile picture
@Ruger4444 Yeah. The beat is essentially all data center. But other verticals like autos and gaming will also have long-term strong demand. I remember making a comment on one of the bearish Nvidia article that mentioned valuation saying no one will pay attention to that. All eyes will be on AI. The stock was up 25% on the guidance. It is just the start.
How long it lasts is the question. Because there is an argument that AMD is in all the same markets at roughly a fifth of the valuation. That's one hell of a motivation.
@Moe Value Picks Auto looks like it will be a big part of earnings a few quarters out if it keeps going like this! The announcement of the H100 in December I heard a lot about but I see another one that recently started to sell and I can’t find when they announced it, I guess I missed the announcement
AnimeSnoopy profile picture
Short $NVDA.
Simple as.
The NVIDIA CEO banged the drum of AI and the share price skyrocketed. The latest issue of Time magazine shows just how dangerous AI is to humanity.
AI is now a poison chalice and the share price will collapse.
I’m curious that if SA quant rating ever gave nvda a buy rating in the past three years (2022-2023 current)?
Moe Value Picks profile picture
@jeanjl I don't know how to track that. But SA quant rating gives the stock an A or A+ on all metrics except valuation where the stock gets F
Good point that so many on authors on SA are convinced that NVDA has such a high valuation. Based on consensus estimates next fiscal year (feb-24 to jan-25) consensus EPS is 10.39. This gives NVDA a forward P/E of 37 right now. Not really very expensive for a company that is a clear and outstanding winner in a growth market. I think that the professional analysts (on e,g, TipRanks), are better at math that most of SA's columnists who simply parrot each other about the high valuation, rather than checking all facts. On TipRanks, the stock has 32 buys, 4 holds and no sells,
@Guttaperka: And of course the estimates for earnings a year to two from now couldn't POSSIBLY be wrong...
Samsara Growth profile picture
Thanks for your article, long 150 NVDA
I was in Silicon Valley when this was going on.
Bill Gates step down and gave the CEO job to Steve Ballmer in 2000. The #3 man was Mike Maples. Mike Maples should have been given the CEO job far more qualified. Who is Steve Ballmer ? Steve Jobs roommate at Harvard. Non-technical cheerleader that's what he unfortunately was. Mike Maples was smart executive I knew him for my years in Austin in high tech.
Steve Baumer what's the worst pic of the 20th century for CEO.
Continued one bad decision after another as Microsoft CEO.
That's what brought Microsoft down.
Bill Gates let it happen for some unknown reason. Once Satya Narayana Nadella took over in 2014 The turnaround began for all the mistakes Ballmer had made we're being changed for the better. Satya Nadella is brilliant engineer understands technology as Gates had. Ballmer couldn't see the forest through the trees.
The Captain's the most important part on a ship or in a company.
Nvidia it's the captain Jensen Huang.
Jensen formed Nvidia with two engineers who came from Sun Micro. One of the engineer had developed the GPU for Sun
The other engineer had developed the Spark proprietary CPU for Sun Micro.
Jensen set the company up to solve problems that have never been solved before. To create solutions where there were no solutions for the problems.
It's been in a DNA since 1993.
Nvidia has never introduced a me too product since they're conception. Always the first company in a new market with a solution.
I did research 7 years ago and concluded the only company that was going to develop AI successfully in the early stages was Nvidia.
Nvidia had the CEO it had the Executive staff and Engineering staff. Their DNA to be at the forefront in technology with solutions for the bottlenecks and problems.
In that research I concluded Nvidia was leading AI R&D in hardware and CUDA software.
Nvidia in 2005 formed a separate division for AI Research and development in AI GPUs and AI CUDA Software.
Nvidia provided funding for research and development Scientist worldwide. Nvidia provided funding to Universities in AI Research and Development. Nvidia provided AI hardware and AI software engineers as well as Financial Funding for co-development.
Nvidia provided free of charge GPUs and CUDA software to Research Scientist and Universities
Nvidia has developed close relationships in Universities and Research Scientist beginning in 2005
So AI /ML / Generative AI are in Nvidia's DNA since 2005.
Jensen Huang Founder and CEO was honored last week to be the Keynote speaker at Computex 2023 in Taipei. Jensen's Keynote speech was a little less than 2 hours. It contained Revolutionary announcements in AI hardware, CUDA AI software, AI systems AI accelerators, CUDA AI platforms. A 1st of a kind Revolutionary Ethernet switch. The leader in Ethernet switches has been Broadcom with their Tomahawk Switch.
Broadcom's tomahawk was scalped by the new Revolutionary Nvidia series x switch.
Nvidia is shipping their new revolutionary Grace Hopper combo CPU GPU based on ARM.
Most powerful in the world.
I suggest you watch this 2-hour YouTube video.
It's available in 4K you have to change in settings as it automatically sets 1080 in YouTube.

Good luck in your investing.
I've held all my stock for 6 1/2 years. I haven't sold a single share. Sooner or later they'll get taken out but it's the future is so bright I'm wearing sunglasses 😎
I will sell when I see competition getting close but right now they have no competition and it takes years to develop when you're 18 years behind.
My average purchase price of the stock is $29 including the 4 to 1 split in July 2021.
@SirLiberte excellent once again, you get the basic fundamentals, I am with you all the way. In NVDA February 2018 😎
Samsara Growth profile picture
@SirLiberte Congratulations
@Samsara Growth Thank you Good luck in your investing
I have to agree that in the bear-breathing heavy time, most analysts have been harping on NVDA for having high PE ratio before the earnings and they were proven wrong and it got even cheaper after earnings with a large price improvement. Clearly they were proven wrong and they caused their followers a lost opportunity to invest in a really good quality company. The wronged analysts are still repeating the mistake and stuck to their wrongful recommendations.
@TripLiars making a bad decision a worse one😊👍
Hudson Investments profile picture
@TripLiars pump then dump is what it’s called.
@Hudson Investments it was the opposite for NVDA.
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