Australia's largest stock trading and investment forum Australia's #1 stock forum

XJO

Click for more information

0.16%

8,004.5 s&p/asx 200

12/02 Indices, page-137

First 137 Last

Share
Profile

Follow
Calvo

10,583 Posts.

1239

16/02/24

17:41

Post #: 72450193
Share

Originally posted by Thejerry01 ↑

Nvidia is nuts, when’s the crash?A chip in every pot© AFP via Getty ImagesNvidia is nuts, when’s the crash? on x (opens in a new window)Nvidia is nuts, when’s the crash? on facebook (opens in a new window)Nvidia is nuts, when’s the crash? on linkedin (opens in a new window)Savecurrent progress 93%Dan McCrum 3 MINUTES AGO0Print this pageUnlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Before the AI fever breaks few will bet against Nvidia’s market value rising further as stock market investors swoon at thoughts of the bot-overlord future.This week Nvidia’s market cap passed the $1.8tn mark, leapfrogging Alphabet — whose 2023 net income was greater than Nvidia’s 2023 revenues — to become the third most valuable US company after Microsoft and Apple. Nvidia options have gone wild — Tesla wild.Nvidia’s chips are essential to the current generation of machine learning models and their associated services, and so will earn the company extraordinary profits for the foreseeable. That seems to be the general idea at least. Pour cold water over it at your peril.Allow us instead to merely pass on a few back-of-the-envelope calculations about what that valuation implies from the tech-focused curmudgeons over at Chameleon Capital.Toby Clothier has pulled a dusty discounted cash flow model from a drawer and plugged in Nvidia’s numbers. To get to a $740 share price simply requires that the company maintain a monopolist-like operating profit margin of 55 per cent for the next decade, while also growing sales tenfold, from $60bn a year to more than $600bn.For context, the entire industry sold $527bn worth of chips last year, according to the the Semiconductor Industry Association.Over the past decade Nvidia did admittedly achieve a similar level of growth: in 2014 its sales were a mere $4bn. However, Clothier points out that Nvidia’s unusual profitability is a recent phenomenon related to the very high prices pushed through in response to overwhelming demand:The EBIT Margins were all over the place from 2014-2023 (range of 12-37 per cent) and certainly nowhere near a steady 55 per cent.So Nvidia shareholders are making a bet that the law of large numbers does not apply, and that competition, innovation, and pricing pressure will not come to bear until at least the mid-2030s. Good to know.Clothier’s discount rate is 10 per cent by the way. At a 15 per cent growth rate and 30 per cent sustainable margins his antiquated model cranks out a share price of $176 — purely as an example for discussion, not a target.Those who have made a fortune from Nvidia are very welcome to share their own assumptions in the comments.

Expand

News flash - Nvidia not expensive - price to cashflow justifies a 100 p/e

XJO Value at posting: 7,658.3
Upvote

0 Great analysis

Reply

Top Stories

AI stocks: What to expect in 2024-25

Talking the US election, the spectre of Trump and what's hot on the ASX200: Wealth Within

BYH

Bryah gains $408K government rebate for work on copper target Narracoota

IVR

Investigator Resources hits 8m @ 1.06% copper on-site Stuart Shelf JV project acreage

WC8

Leia pegmatite pulls up recoveries of 84% lithium for Wildcat in WA

There are more pages in this discussion • 10 more messages in this thread...

First 137 Last

Add XJO (ASX) to my watchlist