Time and again January’s visits to World Economic Forum annual meetings in Davos have opened windows on the Next Big Thing. This year the buzz was all about Artificial Intelligence. That sparked the decision to add AI’s most recognisable beneficiary, Nvidia (see below), to the BizNews model share portfolio.
The portfolio’s purchases are made in equal chunks over a three-month period to avoid unnecessary spikes from share price or exchange rate movements. Our first Nvidia slug was end of January at $191. The final instalment came end March at $265. The average cost came in at $237.36. The price is now $480.
Timing of the purchase was a perfect fluke. Nvidia’s results for the first quarter of 2023 included a massive upgrade in revenue projections due to the AI revolution. Second quarter results, released this week, showed demand continues to accelerate. Nvidia is in poll position to reap maximum benefit from this Next Big Thing.
___STEADY_PAYWALL___True source of the advantage goes back to the faculty of Singularity University’s visit to Johannesburg in May 2015. Peter Diamandis, Salim Ismail and their colleagues delivered a fresh and compelling story. We listened. In the years since, BizNews portfolios have witnessed the power of being a co-owner in exponentially growing companies. First Amazon. Then Microsoft. Now Nvidia. Simply magical.
– Alec Hogg
BizNews portfolio star performer Nvidia growing its way to a cheaper valuation
By Jeran Wittenstein and Ryan Vlastelica of Bloomberg
(Bloomberg) — Investor concerns about Nvidia Corp.’s scorching valuation are being eased every time the chipmaker reports earnings.
That’s because its forecasts have dwarfed Wall Street projections by so much that estimates used to value the stock have risen faster than Nvidia’s shares. Its price relative to projected profits has fallen below 39 times after it delivered its latest eye-popping projection on Wednesday. That’s down from 63 times before its May earnings report.
“There have been questions about whether Nvidia would grow into its valuation, and now it seems like there’s a decent chance it will,” said Michael Kirkbride, portfolio manager at Evercore Wealth Management. “This is not crazy expensive, given the kind of extraordinary growth we’re seeing.”
The stock gained 4.5% on Thursday and hit an intraday record. It has climbed 236% this year.
Nvidia’s rapid expansion supports an argument bulls have been making all year to justify lofty valuations for tech giants: that the companies will deliver bigger profits than contemplated in current estimates, thereby making them cheaper than they appear. Of course, no other megacap is expected to come even remotely close to keeping up with Nvidia when it comes to growth.
To be sure, the firm at the forefront of an industry-wide artificial intelligence race still isn’t cheap. It trades well above the multiples of other technology giants such as Apple Inc., Microsoft Corp. and Meta Platforms Inc. The Nasdaq 100 index trades at around 24 times expected earnings.
Having become the first-ever semiconductor company to rack up a $1 trillion market valuation after another blowout quarter in May, investors had sought evidence that the second quarter was not just a one-time spike. Its earnings Wednesday were more bullish than hoped for.
The $13.5 billion in revenue that Nvidia delivered in the quarter was more than twice as much as sales in the same period a year ago. Even Tesla Inc., whose profits are projected to shrink this year in contrast with Nvidia’s, saw revenue expand at less than half Nvidia’s clip in the second quarter.
But with the shift to AI seen as only beginning, the bet is that the company can continue to grow into its valuation. Its decision to authorize an additional $25 billion in share repurchases has also given bulls another reason to cheer.
“This separates Nvidia from an entrepreneurial startup,” said Quincy Krosby, chief global strategist at LPL Financial. “This is a mature company and you need to see that in this kind of period of business development.”
Faced with skyrocketing demand for its processors, Nvidia more than doubled its revenue in the reported quarter. The semiconductor company’s growth rate is by far the fastest among Nasdaq 100 peers. Electric-vehicle companies Lucid Group Inc. and Tesla Inc. are in second and third position, but their revenue growth is about half that of Nvidia.
Read also:
- Big tech’s concerning AI industry stranglehold – dominance of Nvidia, other tech giants, raises concerns
- From video games to AI dominance with ChatGPT – How Nvidia joined the magic $1 trillion club
- Premium – From the FT: Nvidia’s rally forces money managers to play catch-up
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