“Nvidia went public January 22, 1999, about a year before the tech and Internet bubble burst and tech stocks crashed. Even with the bursting of the tech bubble, Nvidia stock has returned roughly 64,000% from IPO to 2/26/2022. During that same time period, the S&P 500 total return was roughly 453%. NVDA annualized at about 32% per year since 1999 while the S&P 500 annualized at roughly 7.7%. A mind blowing return if you had the ability to buy and hold through the wild times we have in markets. ”
COMPANY PROFILE
With the belief that the PC one day would become a consumer device for enjoying games and multimedia, NVIDIA is founded by Jensen Huang, Chris Malachowsky and Curtis Priem in 1983. At the time, there were more than two dozen graphics chips companies, a number that would soar to 70 three years later. By 2006, NVIDIA was the only independent still operating. Scientists, researchers, developers, and creators are using NVIDIA to do amazing things. More than 2.5 million developers and 8,500 startups create thousands of applications for accelerated computing. NVDA has shipped more than a billion CUDA®-based GPUs. NVIDIA is the pioneer of GPU-accelerated computing. NVDA specializes in products and platforms for the large, growing markets of gaming, professional visualization, data center, and automotive. NVIDIA’s invention of the GPU in 1999 sparked the growth of the PC gaming market and has redefined modern computer graphics, high performance computing and artificial intelligence. The company’s pioneering work in accelerated computing and AI is reshaping trillion-dollar industries, such as transportation, healthcare and manufacturing, and fueling the growth of many others.
Our creations are loved by the most demanding computer users in the world – gamers, designers, and scientists. And our work is at the center of the most consequential mega-trends in technology.
Style Factor Benefits
From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Nvidia scores well as of 2/23/22:
84% high margins versus industry peers
84% strong operating king - a multi-factor score combining sales growth trends, margin trends and margins versus industry peers
80% high free cash flow growth
99% strong 9 month momentum trends
98% high and attractive dividend growth
88% low debt/EV
85% high operating ROIC
97% high blended wide moat scores
84% high free cash flow generation
96% strong revision trends across important operating metrics
87% highly attractive innovation scores using R&D as a key metric
2/18/22 Earnings Update
Nvidia is such a monster. I’m not sure there’s another company that has continuously pushed the boundaries of innovation like Jensen Huang and his team have. From gaming GPU’s to a major pivot toward data centers, crypto, automotive software platforms that power major auto brand vehicles, the company seems to re-invent new revenue streams for itself time after time. That’s the thing with technology, one innovation creates the need for another and another. NVDA has been at the center of this innovation for decades. The strong and growing exposure to the cloud and data centers will continue to offer stability and more recurring revenues which drive more R&D spending to advance into other rapidly emerging opportunities like autonomous driving technology, professional visualization, and artificial intelligence. The stock is not and has never been “cheap” on current metrics but given the 64,000% return since the ipo in 1999, many would say the stock was incredibly cheap if one had the understanding of what Jensen and his team was building. When you uncover a truly special founder, sometimes you have to bet on the founder and their vision regardless if the stock looks too expensive. Jensen has become a legend in the industry and his humility is something I’ve always been impressed with.
Q4 was very strong, above consensus and the trends in the business are quite strong. Again, you can always ding a company for its valuation and right now, very expensive stocks are generally being taken out to the wood-shed but when I recently got back into the stock after a 25% drawdown, I felt a sense of real relief to get back on on this dip. It’s by no means cheap on an absolute basis but a marquee brand in a very important industry with a 25% off sale, yes please. Q4 saw $7.64B in revenue with a strong guide for Q1 2022. Data centers and cloud were very strong, gaming was $3.4B +37% YOY with professional visualization +109% YOY to $643M in revenues. This segment primarily serves the hybrid work from home market. The emerging software business is what’s really exciting though. AI, DRIVE technology working with auto manufacturers (Jaguar, Mercedes), etc. The company continues to have expanding total addressable markets and continues its innovation and technology lead over peers. Trust me, the semiconductor business is unbelievably competitive and there’s a massive number of private semiconductor businesses coming for every legacy semi brand but NVDA just continues to strengthen its moat and expand its lead over peers.
For me, the big risk in all these names is a potential inventory build into a potential short term slowdown. For now, trends in data center, cloud, gaming, and “other innovation” all point to a very strong business climate for NVDA and others in the peer group. The pivot to data center offers very strong stability and a great gross margin profile
