Nvidia a Must-Buy from 7th October ?
Nvidia’s So Far.
It is no secret that Artificial Intelligence (AI) stocks have dominated the market for the last year and this year.
Accounting firm PricewaterhouseCoopers (PwC) -- one of the "big four" has lay claims that AI could add $15.7 trillion to the global economy by 2030, a hype that is gaining traction.
AI revolution poster child, $NVIDIA Corp(NVDA)$ has seen its stock price skyrocket nearly +1000% from late 2022 to present.
However, the last few months have not been as kind to it.
After peaking in June 2024, shares of Nvidia are down about -10%. (see above)
Investors have become wary about Nvidia, due to concerns about the US economy and the possibility of a slower AI growth.
So, where to go from here?
AI Summit (Oct 07 - 09).
As the leader of the AI pack, Nvidia will need to take charge and continue to lead.
The 2024 AI Summit that is a chance for Nvidia to bring together industry leaders and experts to advance AI cause.
The 3-day event will explore how AI can tackle some of the biggest challenges, with particular focus on:
Healthcare.
Cybersecurity.
Manufacturing and more,
Pertinent questions, investors will have include:
Whether AI really makes an impact in real-world applications.
Is AI (hardware) that is very expensive, a worth while investment.
The summit presents an opportunity for Nvidia to :
Show (the public) how AI can address above “concerns”.
Communicate its AI-vision to the public.
The event in and of itself is unlikely to move the needle, but it may help ease some fears and get investors thinking about the possibilities and power of AI. Luckily, the event isn't happening in a vacuum.
The event itself will not become a “success” overnight.
However, it could help (i) to make people feel a lot less worried about AI and (ii) appreciates its potentials more.
Below are reasons why Nvidia stands to benefit from the event.
1. Nvidia's next gen’s AI Chip.
On 05 Aug 2024, it was first reported that Nvidia’s next generation AI-chip, “The Blackwell” would be delayed. (see above)
Since the AI boom took flight from early 2023, this was the first ever major “obstacle” that Nvidia did not manage to overcome.
Technical challenges encountered:
Result in Nvidia’s ability to scale up production (volume).
At the same time, required the AI leader to create a new system (previously unplanned), that would affect dozens of upstream & downstream suppliers.
Nvidia assured the delay would only be for a quarter (at most), but some investors believed the problems were more serious and the delay would be longer.
The fears were unfounded. (see above)
On 26 Sep 2024, it was reported that the first batch of Blackwell chips will be shipped as early as December 2024., something that Nvidia has neither deny nor confirm.
The revised shipment date was only 6 weeks behind original schedule.
If the rumour is true, it would do a lot to ease investors' anxiety.
Worse case scenario — assuming Nvidia failed to meet the December timeline, the rollout will be huge for the company.
This is because the financial impact will be felt (immediately) with billions in sales expected before end Q4 2024. (see below)
This has been affirmed by CEO, Jensen Huang on 03 Oct 2024. (see above)
2. Vision - an Asset.
When evaluating a company and its businesses, it is important to look beyond its numbers and financial statements.
Intangible assets like a company’s vision will be the determinant, that makes it an “outstanding” one and Nvidia has a strong vision.
Under CEO Jensen Huang, Nvidia has been a leader in several important tech trends.
In early 90s, Huang recognized that computer graphics would be huge, focused company’s resources to develop and lead in its graphics processing units (GPUs).
In doing so, it prospers and enabled the video game industry to evolve to where it is today.
In 2020s, Nvidia's vision is the reason why it controls about 90% of the AI chip market.
Nvidia saw that its GPUs could do more than just improve computer graphics but power a new technology revolution.
This is why Nvidia is ahead of its competitors.
Since the AI boom that started in late 2022, Nvidia's chips performances, have consistently been miles ahead.
For many years, Nvidia and $Advanced Micro Devices(AMD)$ were about the same size. With its lead in the AI-arena, Nvidia is much bigger now.
In FY 2023, Nvidia’s net profit is already more than AMD’s total revenue, this is a big difference.
Thanks to its profitability, Nvidia could invest more on R&D and Marketing and widen its moat to fend off competitors.
3. Nvidia’s Intrinsic value.
a. Price-earning-ratio (P/E).
Nvidia’s P/E stands at “56”, indicating it is not a cheap stock.
b. Forward P/E.
Is derived based on a company’s expected earnings in the next 12 months.
As Nvidia is growing rapidly, looking at its Forward P/E, seems more appropriate.
With a forward P/E of “31”, this is not bad for a tech company.
And its reading is similar to $Apple(AAPL)$ and $Amazon.com(AMZN)$ .
c. PEG ratio.
This is derived using the P/E ratio divided by the expected earnings growth.
This will be a useful metric for companies with growth potentials, like Nvidia.
As a general rule of thumb, a PEG under “1.0” is most ideal.
Guessed what, Nvidia’s PEG ratio is “0.94”.
With AI, Nvidia has a lot of potential to grow, justifying its current valuation.
However, metrics are not perfect, especially those that rely on expected earnings.
This is because it is hard to predict the future.
Considering everything discussed, Nvidia still has a long runway ahead. With the AI Summit event, attention will be focused on Nvidia. This will be good news for the leading AI chipmaker.
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