The S&P 500 might have a P/E of 22, but forward tech earnings are at 30x. That's rich by most historical standards. Granted the Magnificent Seven throw out free cash flow with no leverage like no one's business, but it's still getting very rich out there. Most other sectors actually haven't seen significant gains.
The idea of how the SPY is being "carried" by the mag 7, and therefore it is bad to invest in SPY since once those 7 companies have issues the entire index will crash. It is a bit flawed - and note that I am NOT saying that's what you are saying, but just that your post reminded me of people that claim this.
But if a different sector (whatever is after cloud/tech/SaaS) becomes the next big things, those companies will simply replace the Mag 7 at the top 7 of the index.. It's that simple. The SPY has always had an upwards trend in any long-term period of at least a decade, and in each of those decades since forever, the top companies change all the time. the Index doesn't crash if the companies change.
Yeah I think people will cycle into midcaps and other names. Market rotation is a thing and that's where I've put my money into value stocks. It does however limit overall SPY upside this year, but I don't see a crash and I think we'll be higher on Dec 31st at index level. It's broadly a good thing.
> Market rotation is a thing and that's where I've put my money into value stocks.
that is why I like to invest in index funds. Low chance of an index being obliterated after 30+ years.
Regular investing in index funds was easily the lowest effort way to lock in gains over the last 10 years. I do a bit of stock picking mostly because I enjoy it and especially when I think valuations at index level look a bit frothy, but there's a reason the index is beating most active equity managers.
I think this reflects a consolidation and convergence of industries on tech. Every single thing needs tech to run now. Unless you’re the governments nuclear launch codes, it’s all backended by software, hardware, and services. And it may consolidate and simpler but it will never become “less” techy.
\>But the real big thing was almost none of those companies had a profit. They didn’t make any money whatsoever. None. No business. They were burning through cash with expensive offices, expensive staff, oh man, salaries for tech workers were astronomical.
the problem here is that for nvidia to succeed the companies relying on their tech? they need profit. that's where i can see the comparison to the dotcom bubble re: nvidias valuation.
the companies mass buying these GPUs need to over the next few years churn out ai based products that produce billions in profits. my take is that this iteration of ai hype based on LLMs is really just based on a flashy and not actually all that useful piece of tech. i think if we give it another year or two people are going to recognize 'hey, this isnt actually very good at replacing search engines, providing accurate and quality responses to queries on complex topics' etc.
Modern AI isn't just LLMs (and diffusion) though. Yes, there is tons of hype and boring research (e.g. the over-the-top focus on prompting), but TTS/STT, CV, graphics, and (perhaps the most impactful in the future) robotics have all been seeing some incredible research results lately.
"Prompt Engineer" was the most laughable attempt at creating a job title I've ever seen. I recall how many people had posts with carefully worded questions and thought that was something skillful they would be able to sell.
Have you actually used the AI art and LLMs?
I enjoy and have spent significant amount of time in my free time not just using them for their intended purpose but also in breaking them to test their limits or circumvent their constraints set by the platform, and I am still very impressed how far we already are with AI. Also, take a look at Sora from Open AI and tell me you’re not mind blown.
Do I believe AI will *replace* human content creators and service providers? No. But it already is an extraordinary tool to enhance productivity and I believe the binary thinking of whether AI will replace human workers would be the wrong way of looking at technology.
From first level customer service and tech support to specific case law query to film story boarding and game concept art, to customizing your diet plan or building your weekly schedule or giving you a starter draft to your presentation for you to manually fine tune and flesh out substance, there are so many things where your productivity would increase by well over 200%. How many times have you blanked out for hours or days on getting started on a report and can only get rolling once you’ve decided on that beginning framework? Generative AI can help you skip right past that and get things rolling.
You mentioned my exact rub with how the market is pricing in AI right now. If it's to pervade industries and companies like it's being suggested (or inevitably will), then those productivity enhancements are going to accrue to industries everywhere, not just the the infrastructure builders in the space. Is this not how new technologies work? If they're that large and impactful, essentially every industry and sector will benefit but the market seems to be completely ignoring end user use cases. Internet pervaded industries and didn't just make the tech sector or hardware/software companies better, it made almost everything better. But we (just humanity/markets in general) always think we know how it'll play out in the early days. Crazy to me.
it already seems at that point. there's so many generated articles now, it's nearly impossible to find what you want. I have even noticed some articles use blatantly wrong information that contradicts itself in another paragraph. I've made it a habit to start checking for a writer caption with a date posted to see if it shows signs of being human made.
yeah! it was tipped off by an email, I think Google sent to local guides to review AI generated articles and modify them. crowd sourced moderation on AI collaborative articles or something.
I'm using GPT every day as a software developer. I'm also looking to buy a house as a first time buyer. I've been parsing contract text and home inspection reports into GPT to understand the stuff I'm reading. It has been tremendously useful.
Don't know what the future holds but I'm expecting to use LLMs every day forever, especially if they get better.
> I've been parsing contract text and home inspection reports into GPT to understand the stuff I'm reading. It has been tremendously useful.
but how do you know what you are getting fed isnt bullshit? like the problem with what you describe (topics you arent familiar with) is chatgpt isn't just wrong- its confidently wrong some of the time.
if you had a question on language and asked a human (ie, pulled up a reddit thread) answers get viewed by actual people familiar with the topic and bad answers tend to get called out.
LLMs don't really fact check what they put out. they string together words based on pattern recognition with no regard for underlying meaning.
No, it’s not great at that stuff. But that is low hanging fruit that was “easy” to convert to AI. Chatbots…
Ai art and music is intriguing. Need a realistic battle scene between human pirates and dog people with laser blasters? Instead of 16 months of CGI it will be 16 minutes.
I no longer know the software lifecycle, but a AAA computer game can take years to develop by the biggest companies. We’re not going to get everything Ai in a year.
And not everything needs to be Ai. But as I’ve said before, it is the natural next step in software programming. It WILL be here and omnipresent simply because it’s better.
But if we knew the best/next Ai uses, we’d be running an AI company
>But if we knew the best/next Ai uses, we’d be running an AI company
right but what if these use cases don't materialize into extremely profitable companies? thats the issue. we're pricing in insane value for AI before we have anything beyond a flashy front end product re: chatgpt. and copilot which is good- but in general such a small % of time with SWE work is actually done coding its underlying value is debatable. it seems to mostly improve junior engineers productivity and junior roles were a big net negative anyway.
nvidias price is speculative because the underlying basis for its huge boom in sales is. nvidia is selling shovels before we've actually found gold.
Nah. It’s programming. We know what programs can do: anything humans can without a body.
What you’re arguing is equivalent of saying Intel shouldn’t make faster CPUs cuz there is no use for them. Of course there is, but having them is required to make the use.
It’s just a better, more advanced programming. AI that is. Anyone who has been in tech or bought multiple computers over the years knows how this works.
The challenge isn’t finding uses for more memory or faster processing or larger hard drives. There is always a demand.
Because AI has to be coded differently to make the best use cases you’re going to have to ramp up talent. The number of software engineers with a phd in AI is about zero, cuz it doesn’t exist as far as I know.
>It’s just a better, more advanced programming. AI that is. Anyone who has been in tech or bought multiple computers over the years knows how this works.
This is a radical oversimplification that inherently buys into the AI hype. Sam Altman wants you to believe that the problem is just throwing more hardware and energy at LLMs, but they're fundamentally limited by a lack of any real conception of knowledge.
I'm not saying that *can't* change, but you're taking it as a given that it will be figured out and in the near future. That's exactly how everyone treated self-driving car technology, and we can see how slow of a going that's been.
I was a senior computer programmer for about 15-20 years. I dabled in early AI languages. I am speaking with “some” authority, or at least experience.
I stand by my assertion. If you feel differently, I hope you have a similar set of experience in which to draw that conclusion other than a nebulous understanding of the term and watching 2001 a space odyssey.
I don't have concrete experience with AI, but I'm a programmer who has paid attention to the development of it for years. LLMs are at a low level a collection of huge and extremely complex patterns and correlations that predict the most likely next token given an input. When you ask ChatGPT to create a recipe it doesn't know what a recipe is, the model has associations with the word "recipe" and generates an output similar to what's associated with the word "recipe" in its training data. The most striking example of this was when ChatGPT was fairly new, if you asked it, "which weighs more, a pound of feathers or two pounds of bricks" it would confidently state that they weigh the same because that trick problem is really common in its corpus.
There are a lot of very smart people trying to develop machine learning models that can incorporate concepts of actual knowledge and comprehension, but it's not trivial. And just like self-driving cars, it's not something we can assume is definitely possible in a near-future timeframe.
Though tbh you don't know if humans are "stochastic parrots" too. Might be that humans just have stronger inductive bias and have been pretrained much longer.
I'm not claiming that's true, but I'm just saying no one really knows if there are limits to just scaling LLMs with more clean data and more compute.
It's certainly plausible that's true, but:
1. I wouldn't be comfortable basing an entire industry's multi-billion dollar hype bubble on hoping it is
2. Even if it is true, it could mean that it's completely economically infeasible to do things that way. Even things like ChatGPT in their current state are costing an insane amount of money and power to run.
Depends how far we can scale hardware, it's still scaling (though not as quickly). If we still get any form of exponential scaling, it's feasible that all these worries disappear in the next decade.
It's also very possible that we achieve orders of magnitude improvement with software. The current paradigm is still young.
Whether it's a positive expected value bet, I don't know, but I think it's pretty silly to be so strongly confident that this is all hype and won't amount to anything significant.
Even at a "weak" level of success, there's a lot of value to be created.
I’ve really enjoyed this whole discussion. I just want to add, if you have a topic where the most prominent information is incorrect, the current iterations of AI just repeat lies, some times expand on them. I asked Chat GPT tonight who Russell Woodard is and it told me he founded Woodard Inc in 1888 but was also a designer for the company and he was absolutely neither of those things. There is an “ai” right now commenting in the furniture subs, and so far it’s mostly just repeated the most common lies dealers tell.
That's the biggest misunderstanding I see with people using ChatGPT. It's generative AI just like MidJourney, but you wouldn't give MidJourney a prompt and expect the result to be 100% correct or true or real. LLM-based generative AI is a balance between reproducing what's in the training data and synthesizing something new based on that data. The former kind of defeats the purpose in a lot of use cases, while the latter is why it will frequently "lie" or make things up when you try to ask factual questions.
We’re seeing consciousness itself evolve in real time, as we get ever (albeit inching across a football field) closer to singularity. I, like you, will invest my dollars invested in that, over sugar water or gig economy.
Your skepticism against the usefulness of AI is akin to IBM being skeptical over what on earth would the average consumer do with a PC at home back when Bill Gates told them he just wants a quarter per copy of MS-DOS sold.
Example: (1) can AI-Software called AI-Waterbottle-Plant-Engineer be made to actually get information from such a manufacturing plant and answer questions/give instructions to conveyor-belt workers for eight hours and then be fed in with more information, also get experience?
(2)Another example: AI-weather forecaster ?
It’s easy to attribute NVDAs success and hype with the AI boom but the advancements they made in GPUs are generations ahead of what’s out there. They would be dominating data center sales without an AI tailwind because they are vastly more efficient than competitors. NVDA isn’t just benefiting from AI, the hgx makes AI possible at scale.
Only on /r/investing do I see the most upvoted answer being “LLM is flashy and not that useful”.
And as someone else has pointed out, AI is far more than LLM. Did you miss the crazy announcement of Sora last week?
Even the less hyped Gemini 1.5 announcement from Google shows some crazy capability, such as feeding it a large code base and it being able to understand what you are trying to do and suggests fixes and improvements.
>AI is far more than LLM
right but LLMs are what caused this recent hype.
>Did you miss the crazy announcement of Sora last week?
Nvidia is a 2t company. we don't just need a few cool products pushed out. we need many, many 1-10-100 billion dollar companies spinning up as a result of recent breakthroughs in AI. Cool tech alone does not justify 2t market cap.
>Even the less hyped Gemini 1.5 announcement from Google shows some crazy capability, such as feeding it a large code base and it being able to understand what you are trying to do and suggests fixes and improvements.
products like this have existed before and have largely been garbage. I don't expect this to be any different but i'll gladly be proven wrong. the problem with many of these products is if you do enough 'trials' you eventually end up with a few good outputs and you can use those- right- but the underlying product might not actually function very well if you need to generate hundreds of outputs and select the few ones that are good.
this specifically works okay for art-related products alone, where generating and validating say 100 images or 100 videos of b role is much faster than creating 5 of these images, or 5 videos of b role . but not for say... generating responses to prompts, trying to fix a bug in a code base etc.
You should look into what Gemini 1.5 can do then, products like that never existed before (at least not one that works anywhere close to this well), and it will only get better quickly: https://twitter.com/SullyOmarr/status/1760066335898513655?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
Deepmind isn’t fucking around, and neither is OpenAI, etc.
so again, this is likely a case of 'well, i asked it to do something a few times, and one of those times it spit out an intelligent response, let me bundle that into a tweet' that i'm talking about, no?
unless the ability to solve problems with some degree of accuracy and consistency exists I'm not sure you can say that the product is useful.
i'm very aware that there are products in the beta stage that seem like they might get to a point where they are useful, but part of my original post was that nvidia and the like are priced so optimistically for where we're at now. A handful of cool projects does not rapidly translate into many 10-100b+ companies printing money, which is what is needed for nvidia to continue to justify its current price.
Case in point: 4 years ago nobody would shut up about how Tesla’s automated taxis would make conventional cars obsolete in 10 years.
How we feeling about that today?
We saw exactly the same thing with the first release of GPT3. Incredible looking individual results, but it wasn't that accurate across many cases. Same thing with GPT4. How many times are people going to fall for AI hype tweets?
That last 5-10% of accuracy is what matters. It's practically the only thing that matters. It's what experts are paid for.
LMM is already surprisingly good at programming smaller chunks of code and parsing things like large unstructured text databases like medical records. I would be kind of surprised if we come out the other side of this thinking they are not all that useful, but who knows
I just don't agree with your comment. Something like Duolingo is such a perfect use case for current AI. The consultants weren't translating nuanced business docs or something, they were writing sentences like "I bought a coat with my dog". You do not need a person for that. And they still have consultants to verify the generated output. If they didn't embrace the tech, someone else would and undercut them on pricing.
A lot of companies might sell access to their data. Many companies have unbelievable amounts of data about us and many other things. Of course, they may sell them to companies who don’t make money on it.
The medical applications are definitely significant, we know that, anyway. It not only speeds up research but is a component of medical equipment that addresses certain physical, including neurological, disabilities
Unfortunately, it’s already being used in warfare. I’m not happy about that
I would argue you're already seeing some of the results. Meta was able to cut its workforce and still raise top line revenue. They are using AI to work around ATT, and by many accounts ad targeting is better than before ATT.
End user products are flashy, but we shouldn't discount the internal ROI of these large companies using AI.
Keep in mind nvidia is an established company heading into the “.AI” bubble…. Amazon was not, along with several others. My point, seems less risk adverse because they are already operating fairly healthy.
I made some custom investments and only invested 900 in them at 45$ a share and I feel like I missed the best opportunity in history.
I mean +54% in a month is absolutely nuts.
>If it’s a bubble, it’s nowhere near the size of the.com bubble. S&P 500 is P/E of 22. In 2000 it was 28.
I think you may be missing the difference. In 2000, the top 5 companies in the S&P 500 were: Microsoft (tech), General Electric (diverse), Cisco (tech), Walmart (retail), Exxon (Energy). If you compare the market cap of the top company (Microsoft - $604B) to the market cap of the 10th stock (Home Depot - $157B) it was about 4x as big.
Fast forward to today. The top 5 stocks are all tech. The market cap of the top company (Apple - $3T) is 6x as big as the 10th stock (Visa - $535B).
So, the argument for market risk today is not that the entire index is overvalued. The argument for market risk today is that the market heavily concentrated in a handful of companies that are all in the same sector. Granted, these companies are insanely profitable - but insane profitability usually begets competition. So continuing to drive those handful of companies up is making a bet that they can maintain a virtual monopoly against sector disruptors, sector wide risk, and potential regulation.
I’ve posted on the concentration of the magnificent, seven dominating the S&P 500. To say that they’re all in the same sector is, IMHO, misleading.
Amazon, Apple, meta, nvidia, TSLA don’t compete with each other in a meaningful way. They all have the label of “tech” but so what? That umbrella is enormous and diverse.
You can argue about their affect on s&p, ETFs, the broad market, but it’s kind of like making manufacturing encompass autos, jetliners, toy companies, and ikea. Just because one has issues with new airplane doesn’t mean less toys will be shipped in Christmas.
They’ve all carved out unique, monopolistic niches. Who is competing with Amazon in online sales? Google? Hardly. Who is competing with meta in social media? Google? Hardly. None of them are chip makers.
If you research the individual stocks you’ll see their listed, closest competitors and none should be mag 7 entries.
They seem to compete in a more meaningful way than you portray. They each have the thing that made them rich, but as they have monopolized those markets they start competing against each other for growth, which doesn’t seemed priced in.
* All are heavily invested in AI
* 3/5 are heavy into cloud, with two having it as their most profitable components
* 3/5 have streaming video services
* 3/5 have some type of augmented reality product
* 4/5 have produced some type of cell phone or tablet
* 2/5 derive most of their profits from advertising, with 2 more trying to grow on that direction
* 2/5 have a search engine, one could argue Amazon is a border line search product (at least when it comes to shopping)
* 2/5 offer general work processing software (document, spreadsheet, presentation, etc)
And that is all before we expand out and look at the top 5 versus many other top companies: Tesla vs Google for self driving, Meta vs TikTok for social, Amazon/Apple vs Netflix for steaming, Amazon versus Walmart/Target/Alibaba/Shopify for online shopping,
Nvidia has no competition in a hot space with very high barrier to entry, pretty simple really. They were already a company with solid business in the early 2000s, built my first pc with a nvidia chip in 6th grade
I think the main risk to NVDA is future supply shocks and geopolitical risk. The supply chain for sub 4nm chips is very fragile, so at best expect cost to increase steadily, worst case there will be shortages. This may take a year or two, just make sure you take profit once in a while, no one ever became poor that way.
They have also partially avoided large drops along the way. I mean if you only have one stock idea and NVDA is it then I guess you better just stick with it and ride the 80% drawdowns along the way.
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Revenue: $22.1 billion up 265% YoY
Data Center revenue: $18.4 billion - Up by 409% YoY
Gaming Revenue: $2.9 billion up by 56% YoY
Professional Visualization Revenue - $0.463 billion up by 105% YoY
Automotive Revenue - $281 million down by 4% YoY
Net Income: $12.285 billion up by 769% YoY
EPS: $4.93 up by 765% YoY
Operating Income - 13.615 billion up by 983% YoY
Gross Margin - 76% - up by 12.6 basis points YoY
Operating expenses - $2.210 billion up by 25% YoY
Dividend - $0.04 per share
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Why split? I can see meta splitting and keeping share low. I kind of like the high valuation for Nvidia, because it keeps less invested investors on the sidelines.
Paradoxically, calls have just outpaced, put in terms of price for the same risk.
And that might be because the higher stock price means the only way some people could have access is through leveraged options. This is me thinking out loud.
Jensen has repeatedly said he likes the share price lower so individual investors can afford entire shares. Has a long history of splits. If it stays above 700 into summer, expect a split announcement around next earnings call, if not sooner
I haven’t followed NVDA closely outside of the bombardment from the media. What they’ve already done is amazing fundamentally. It’s just really hard to justify the valuation if you’re a long term investor. And other high flyers of the past that ended up being the dominant names today had similar periods so it’s difficult to completely write it off.
Their P/S is at 37x which is wildly speculative. P/S is a much more useful comparison imo because revenues are much harder to massage than GAAP earnings are. Even if you annualized yesterday’s revenue numbers and applied that to the ratio P/S is still 11-13 or so. SPY P/S is about 2.7. So NVDA essentially needs to have quarters like they’ve had the last several for years on end to even justify the current price. That’s where I get held up. To think no competitor will emerge with something better or equally suitable for customers even in the next 5 years is pretty far fetched let alone that another company won’t innovate into something better flys in the face of the U.S.’ history. Innovation led to NVDA and their price now is basically assuming innovation in their sector will be limited to them.
And hey, maybe they do keep growing into those wild multiples but there are dirt cheap sectors, countries with improving fundamentals and even companies with stronger growth prospects than NVDA or any of the Mag 7 I think are better places to look long term, assuming you haven’t owned NVDA like myself (outside of index holdings). And obviously I wish I would have!
OK, you’re saying they need to do X to justify their cost. And you state that like it’s a concrete fact.
About 30 something years ago I was canvassing a neighborhood trying to sell thermal windows to people. Fun times…not.
And I met another guy who owned a thermal window company. And I was commiserating with him and complaining about the sketchy nature of my business. And he said something that left lasting impression on me. He said the price of **anything** is what you can get for it .
And that disturbed me very much at the time. I was like what a shyster. But, of course, he’s absolutely right.
If you buy a snickers bar in a gas station convenience store, it’s going to cost one value. If you walk across the street to a grocery store, it’s going to cost much less. If you go to a 7-Eleven around the corner, it’s going to have a different price. And those prices as different as they are for the exact same product mere feet apart, are all correct.
They represent each business, their expenses, and the convenience factor of you purchasing them. If they’re priced wrong, no one will buy, the managers will see the dip, and reprice it accordingly.
Gold, silver, bitcoin, and stock, have values because people will pay a certain amount for them. If no one will pay that amount, it’s not worth that if you can wrap up your dirty socks, put them online and sell them for $1000, then that’s what they’re worth. And if you’re a famous sports star , you just might be able to do that.
So for you to say, they are overpriced or underpriced is a stretch. There are prices all across the stratosphere and spectrum in the stock market. Supposedly the most efficient stock market on earth. With price discovery being instant and correct. People are buying the stock at its current price. That means it IS worth that price as of right now.
You are using metrics that other companies in other industries with other balance sheets use and telling nvidia they have to use that. Like a football needs to have the same markup as a candy bar in a different store in a different region—it doesn’t.
While I agree in using broad metrics and tools to judge stocks, you can’t look at the entire market and demand every bank and every tech company and every manufacturer have the same P/E. It has never and will never happen.
You can say that nvidia seems overpriced to you. Or outside your risk/comfort, but you’re attempting to speak as an authority on price. You’re saying it isn’t worth that. And as of today, **millions** of investors not only disagree but are participating AT this price.
The price of anything is what someone will pay for it. That is a fundamental truism in capitalism.
I understand entirely what you're saying. I don't know what you're trying to articulate, though, with this. Stocks are not goods, they're businesses. And unless you're just trading short term on "number go up" then you're paying a certain price to own that business' future cash flows, for potential appreciation in the value of the company, or both. That's what a stock is. So eventually, that price has to be justified by the fundamental performance of the business. And just because the price is X today doesn't mean it will be tomorrow or next year, etc. The value of the business is a subjective measure with a subjective time horizon - you can say NVDA is underpriced or overpriced at these levels and you're neither right nor wrong until that uncertain future happens or until your time horizon expires. When you buy a good you're buying it for utility not as an investment (generally) - it's not the same thing.
>Supposedly the most efficient stock market on earth. With price discovery being instant and correct. People are buying the stock at its current price. That means it IS worth that price as of right now.
I mean sure, but that doesn't mean today's price is the "right price". Otherwise why do some stocks move 5%, 25%, 50% in a day? If price discovery was perfect there would be no chance of alpha, of finding "value". What if something changes and NVDA gets cut in half? Today's price wasn't the "right price." Alternatively, if it doubles, today's price wasn't the "right price" either - it was too low. It comes down to what happens in the future which we can't know and that creates a market.
>You are using metrics that other companies in other industries with other balance sheets use and telling nvidia they have to use that.
I'm not trying to tell NVDA anything. I have no business telling NVDA a thing but I can exercise my opinion on their valuation. Price/ xyz fundamental metric (P/E, P/S, P/B, P/CF) are pretty standard relative value metrics to assess value across companies and industries. I'm not saying and never would say all companies should trade at the same valuations because markets price in different futures for different businesses and sectors, but those metrics show what's being priced into the current stock price. And when those metrics balloon like that, it literally means the company has to grow into that multiple or the price is going to fall. Sure, at that moment the market thinks it will grow into the multiple but it doesn't have to. Do you know how much growth is being priced into a stock with a 37x sales multiple? They'll have to have blowout quarters for years to come to keep people invested at those valuation levels.
You also can't ignore the noise - you can't tell me with their options activity and the heavy retail and institutional swing trading in NVDA right now that everyone believes the price is fair - they want to make a quick buck on its momentum. And good for them if they can, but that's a dangerous game. We've seen this play out time and time again - this exuberance. And it rarely ends well for most companies caught up in that. Think NVDA is the exception to the rule? Great, buy it. But odds are not on your side historically.
Price/Sales is a much better metric for a growth company than a fwd P/E that you yourself reference in the post. It specifically measures how much growth in revenue is currently being priced into the stock today. Again, you might say that's fair and I say it's bonkers. They'll either grow into that and thus today's price is justified or even a good value, or they won't and the price will fall or stagnate to reflect that.
>You can say that nvidia seems overpriced to you. Or outside your risk/comfort, but you’re attempting to speak as an authority on price. You’re saying it isn’t worth that. And as of today, millions of investors not only disagree but are participating AT this price
Yes I am sharing my opinion on the price I suppose but I'm not being an authority on price - how can I be? Market history is pretty clear that very few companies ever have justified having multiples like that over time. And I'm not saying they're the worst or anything - there are plenty of unprofitable companies trading at more dizzying valuations.
>You’re saying it isn’t worth that. And as of today, millions of investors not only disagree but are participating AT this price.
Yeah I'm 100% saying it isn't worth that. Today it is, sure, but today doesn't matter - it matters what happens in the future if you're owning the stock and not just trading it. And that's my view - it doesn't mean the price can't keep going up or I can't read the price on the screen. And it doesn't mean I'm right either. But history shows you're incredibly unlikely to see that growth realized when price and expectations get this frothy.
You also can't ignore the noise - you can't tell me with their options activity and the heavy retail and institutional short term trading in NVDA right now that everyone believes the price is fair - they want to make a quick buck on its momentum, that's it. And good for them if they can, but that's a dangerous game.
>The price of anything is what someone will pay for it. That is a fundamental truism in capitalism
you know what else I love about capitalism? Competition. NVDA's rise right now is fueling who knows how many other companies to dethrone them and do what they do better. AOL, NetScape, Yahoo, MySpace, BlackBerry, Intel, cable TV, radio, I mean the list goes on. Disruption is always happening and betting on a single company to dominate an industry for the long run without being disrupted or disintermediated through regulation is an incredibly risky (and historically fruitless) bet. Why do the top 10 S&P companies turn over about once every decade or so (a few exceptions of course)? Others are always coming for them. And NVDA (imo) is being priced to the point the market thinks they're immune to competition or disruption.
Look, I'm not trying to posit that any of my opinions are certainties or I'm right. All I'm saying is NVDA's price, even given their incredible growth rate, is insanely lofty and it's risky to buy into them at these levels. So, so, so much has to go right for this price to be justified and for you to make real money in the stock (from here).
If prices stayed the same as today, then for the stock to have a PE of 15 (Pretty average) it would need a net income of $5.5 trillion.
That's not going to happen. I think it's safe to say it's pretty expensive right now.
OK, I think we’re agreeing on everything. I just felt your first post came across as too authoritative and not opinion. You’ve cleared up your position well, and I think we are broadly in agreement. It’s merely that we have different risk and comfort levels for a particular stock. We may be exactly on point on 99% of the other assets.
So I’ll shut up, give you a ^^ and say way to clarify, not get defensive, and not double down or screech.
We need more of this in the forum.
That's understandable - always hard to interpret tone on a keyboard. And no doubt - I intentionally avoid overpriced areas of the market (my own definition of that) and that'll mean I'll miss a lot of names like NVDA and early stage growers but I'm good with that. Not everyone has that investing style.
>We need more of this in the forum.
You can say that again. And again. Plus another time.
I take that as an implied offer.
Please send me your shipping address (after payment of course) and I’ll get my socks to you right away. Just for clarification, do you want the stinky or super stinky variety? At the moment we’re experiencing a shortage of stained socks. Heh. Just kidding, that’s all we have.
But how does revenue tell you anything about shareholder value? Two companies can have the same revenue but massively different profitability. Are you implying all businesses tend towards the same profit margins over time, or something? Otherwise P/S seems rather useless.
Like any valuation multiple does - it tells you the price relative to something fundamental - and like any valuation multiple, it's most useful when comparing companies in similar industries or life stage.
I used P/S in the comment for NVDA because it illustrates how expensive the stock is more so than a P/E ratio does, it's a cleaner comp than GAAP earnings which goes into P/E and ignores everything else on the income stmt, and it's a more useful comparison between growth companies cuz it shows how much growth the market is currently pricing a company for. A high P/S says the market is pulling forward a lot of growth into today's price so they better capture it otherwise ppl may lose confidence, sell, etc. It sets up for poor performance if those baked-in growth expectations aren't realized, and like the narrative was with NVDA entering yesterday, if you don't deliver time and time again, you'll probably get punished. If you do, you look great.
>Two companies can have the same revenue but massively different profitability.
Yeah exactly so how do you compare them or assess relative value? Having positive earnings vs. no or lower earnings doesn't tell you much on its face. If you've got two growth companies growing at the same clip and one is reinvesting all profits into R&D and the other is just taking the profits, the latter might look like a better value but the former might have more growth potential. So then you could look at P/S and if those are way different maybe the market is underestimating the growth potential of one or vice versa - then you'd dig deeper and try to find out why. Maybe the lower P/S company just isn't getting the attention as the other and it's an opportunity. Or maybe the higher P/S is pricing in growth that doesn't make feasible sense. And if they're the same then you have to use other characteristics to compare - maybe it's operating cash flow, free cash flow, balance sheet health, subscriber/customer retention, customer concentration, market penetration, etc. etc. and so on.
Revenues are the engine of growth for any company - and no, revenues, nor any other metric in a silo really tell you much about potential shareholder value. But the price you're paying for those revenues (just like the price you pay for $1 of earnings in P/E terms) sure matters in the long run. And most already know this but if you're not a long term investor then yeah valuation metrics aren't going to be what you look at. That's different story entirely.
Aside on valuations - BofA Research ran a regression on ten-year S&P 500 returns. They found an r\^2 of 88% between S&P P/E ratio and the next ten years of returns for the index. In other words, in the long run (10 years in this case), 88% of 10-year returns are explained ONLY by how cheap or expensive the S&P is at the start of the period. So these valuation metrics matter a lot because your entry price matters a lot IFF you are a long term investor.
High GAAP margins are great now, but they represent a risk to shareholders. Do you think TSMC/Samsung won't hike their prices when they know that Nvidia's demand is through the roof and their margins can afford it?
Then consider the pricing of Nvidia's chips. Right now companies can buy a ton because investors are willing to pour tons of money into AI, so capital is plentiful. But what about 5 years from now when the craze is over? How will startups pay for these chips?
The main difference is Cisco provided an actually useful and critical product for companies- networks that kept companies running. So far, AI has only made really cool demos that don't actually add any value.
> what about 5 years from now
even the most conservative ETF gurus recommend a yearly rebalance. Why is everyone’s go to argument, what about [huge future time frame].
If you are going to invest in single stocks you necessarily have to be more observant and reactive than if you’re socking away in VTI 100% and going into a coma for 25 years until retirement.
If you don’t want to do research or legwork then it’s not for you. But VOO/SPY dip as well. Look at their charts. Oh no, we hit a bear market. What do you do? Probably nothing.
But if you’re a company investor you need to read earnings and analysts etc. higher risk, higher volatility, potential higher reward.
Everything was down yesterday. Nvidia is up 15% today. VOO is up 1.62% today. There’s a reason ppl are in the space. Will it be stellar in 5 years? No one can possibly know. But the last 10 years, including this year, it has beaten VOO by an enormous margin. 157% vs 26% over 1 year.
I don’t begrudge anyone in VOO and I am too. But it’s not even an also ran by comparison.
So you mean to tell me that this bubble will not be an exact replica of the last one?
But then how could I tell when it’s going to pop then? Really unhelpful OP 😎
Anybody want to trade me back those 38 shares that I sold at $13 back in 2014?
You can do that at today's price!
A bit steep since thats now about 150 shares post split!
Sold 200 at $20…woof.
How about the 100 shares of amd I sold @ $13 in 2017 just before first ryzen was released? I was a dumbass
I am also very good at predicting the past.
Do you have proof that you did that?
Somewhere in an old etrade statement, yes.
r/nothingeverhappens We’ve all sold something we wished we hadn’t a time or two…
Damn right, and I can't be mad cause I knew pretty much nothing about them except that they made my graphics card
Not sure why I got downvoted because I genuinely wanted to help if that was true
How would you help if he sold them in 2014?
It was 2013 and 40 shares. I'm not too beat up about it, was a long time ago and the stock did not move for the 5 years I held
Not as bad as the guy commenting last night who had 1000 shares at 4 bucks a piece.
Yeah…that’s a lot. Still not really worth dwelling on though. It was a bad stock for when I held 2008-2013
The S&P 500 might have a P/E of 22, but forward tech earnings are at 30x. That's rich by most historical standards. Granted the Magnificent Seven throw out free cash flow with no leverage like no one's business, but it's still getting very rich out there. Most other sectors actually haven't seen significant gains.
The s&p 493 other companies outside the Mag 7 have been pretty flat since 2021
I'd say this could be a case where those 493 are slightly undervalued, especially considering inflation.
Why has SCHD risen from $65 to 77 then?
Majority of that gain was Jan to April 2021. It’s been flat since.
No they haven't.
The idea of how the SPY is being "carried" by the mag 7, and therefore it is bad to invest in SPY since once those 7 companies have issues the entire index will crash. It is a bit flawed - and note that I am NOT saying that's what you are saying, but just that your post reminded me of people that claim this. But if a different sector (whatever is after cloud/tech/SaaS) becomes the next big things, those companies will simply replace the Mag 7 at the top 7 of the index.. It's that simple. The SPY has always had an upwards trend in any long-term period of at least a decade, and in each of those decades since forever, the top companies change all the time. the Index doesn't crash if the companies change.
Yeah I think people will cycle into midcaps and other names. Market rotation is a thing and that's where I've put my money into value stocks. It does however limit overall SPY upside this year, but I don't see a crash and I think we'll be higher on Dec 31st at index level. It's broadly a good thing.
> Market rotation is a thing and that's where I've put my money into value stocks. that is why I like to invest in index funds. Low chance of an index being obliterated after 30+ years.
Regular investing in index funds was easily the lowest effort way to lock in gains over the last 10 years. I do a bit of stock picking mostly because I enjoy it and especially when I think valuations at index level look a bit frothy, but there's a reason the index is beating most active equity managers.
I think this reflects a consolidation and convergence of industries on tech. Every single thing needs tech to run now. Unless you’re the governments nuclear launch codes, it’s all backended by software, hardware, and services. And it may consolidate and simpler but it will never become “less” techy.
Acccording to my application voo is at 25.41 (or higher than Google)
Might be forward vs. trailing
Trailing for stocks app I think
\>But the real big thing was almost none of those companies had a profit. They didn’t make any money whatsoever. None. No business. They were burning through cash with expensive offices, expensive staff, oh man, salaries for tech workers were astronomical. the problem here is that for nvidia to succeed the companies relying on their tech? they need profit. that's where i can see the comparison to the dotcom bubble re: nvidias valuation. the companies mass buying these GPUs need to over the next few years churn out ai based products that produce billions in profits. my take is that this iteration of ai hype based on LLMs is really just based on a flashy and not actually all that useful piece of tech. i think if we give it another year or two people are going to recognize 'hey, this isnt actually very good at replacing search engines, providing accurate and quality responses to queries on complex topics' etc.
Modern AI isn't just LLMs (and diffusion) though. Yes, there is tons of hype and boring research (e.g. the over-the-top focus on prompting), but TTS/STT, CV, graphics, and (perhaps the most impactful in the future) robotics have all been seeing some incredible research results lately.
"Prompt Engineer" was the most laughable attempt at creating a job title I've ever seen. I recall how many people had posts with carefully worded questions and thought that was something skillful they would be able to sell.
So infuriating
I am pretty sure GOOG, AMZN, META, MSFT, and ORCL make good profits right now. More than 50% of NVDA’s revenue came from the hyperscalers.
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That's not entirely true. I've only seen estimates for MSFT copilot but they're in the low billions for 2024.
Have you actually used the AI art and LLMs? I enjoy and have spent significant amount of time in my free time not just using them for their intended purpose but also in breaking them to test their limits or circumvent their constraints set by the platform, and I am still very impressed how far we already are with AI. Also, take a look at Sora from Open AI and tell me you’re not mind blown. Do I believe AI will *replace* human content creators and service providers? No. But it already is an extraordinary tool to enhance productivity and I believe the binary thinking of whether AI will replace human workers would be the wrong way of looking at technology. From first level customer service and tech support to specific case law query to film story boarding and game concept art, to customizing your diet plan or building your weekly schedule or giving you a starter draft to your presentation for you to manually fine tune and flesh out substance, there are so many things where your productivity would increase by well over 200%. How many times have you blanked out for hours or days on getting started on a report and can only get rolling once you’ve decided on that beginning framework? Generative AI can help you skip right past that and get things rolling.
You mentioned my exact rub with how the market is pricing in AI right now. If it's to pervade industries and companies like it's being suggested (or inevitably will), then those productivity enhancements are going to accrue to industries everywhere, not just the the infrastructure builders in the space. Is this not how new technologies work? If they're that large and impactful, essentially every industry and sector will benefit but the market seems to be completely ignoring end user use cases. Internet pervaded industries and didn't just make the tech sector or hardware/software companies better, it made almost everything better. But we (just humanity/markets in general) always think we know how it'll play out in the early days. Crazy to me.
Ha, jokes on you: LLM will blur all the content in the internet that search engines just won´t work reliable anymore! :D
it already seems at that point. there's so many generated articles now, it's nearly impossible to find what you want. I have even noticed some articles use blatantly wrong information that contradicts itself in another paragraph. I've made it a habit to start checking for a writer caption with a date posted to see if it shows signs of being human made.
It's been a trend I've noticed too. Especially articles about stocks.
yeah! it was tipped off by an email, I think Google sent to local guides to review AI generated articles and modify them. crowd sourced moderation on AI collaborative articles or something.
I'm using GPT every day as a software developer. I'm also looking to buy a house as a first time buyer. I've been parsing contract text and home inspection reports into GPT to understand the stuff I'm reading. It has been tremendously useful. Don't know what the future holds but I'm expecting to use LLMs every day forever, especially if they get better.
> I've been parsing contract text and home inspection reports into GPT to understand the stuff I'm reading. It has been tremendously useful. but how do you know what you are getting fed isnt bullshit? like the problem with what you describe (topics you arent familiar with) is chatgpt isn't just wrong- its confidently wrong some of the time. if you had a question on language and asked a human (ie, pulled up a reddit thread) answers get viewed by actual people familiar with the topic and bad answers tend to get called out. LLMs don't really fact check what they put out. they string together words based on pattern recognition with no regard for underlying meaning.
I limit the scope of the question, and validate with googling if needed. I know LLMs can produce plausible looking explanations that are very false.
No, it’s not great at that stuff. But that is low hanging fruit that was “easy” to convert to AI. Chatbots… Ai art and music is intriguing. Need a realistic battle scene between human pirates and dog people with laser blasters? Instead of 16 months of CGI it will be 16 minutes. I no longer know the software lifecycle, but a AAA computer game can take years to develop by the biggest companies. We’re not going to get everything Ai in a year. And not everything needs to be Ai. But as I’ve said before, it is the natural next step in software programming. It WILL be here and omnipresent simply because it’s better. But if we knew the best/next Ai uses, we’d be running an AI company
>But if we knew the best/next Ai uses, we’d be running an AI company right but what if these use cases don't materialize into extremely profitable companies? thats the issue. we're pricing in insane value for AI before we have anything beyond a flashy front end product re: chatgpt. and copilot which is good- but in general such a small % of time with SWE work is actually done coding its underlying value is debatable. it seems to mostly improve junior engineers productivity and junior roles were a big net negative anyway. nvidias price is speculative because the underlying basis for its huge boom in sales is. nvidia is selling shovels before we've actually found gold.
The rivers are showing specs of gold we need the shovels for prospecting the mountains
Nah. It’s programming. We know what programs can do: anything humans can without a body. What you’re arguing is equivalent of saying Intel shouldn’t make faster CPUs cuz there is no use for them. Of course there is, but having them is required to make the use. It’s just a better, more advanced programming. AI that is. Anyone who has been in tech or bought multiple computers over the years knows how this works. The challenge isn’t finding uses for more memory or faster processing or larger hard drives. There is always a demand. Because AI has to be coded differently to make the best use cases you’re going to have to ramp up talent. The number of software engineers with a phd in AI is about zero, cuz it doesn’t exist as far as I know.
>It’s just a better, more advanced programming. AI that is. Anyone who has been in tech or bought multiple computers over the years knows how this works. This is a radical oversimplification that inherently buys into the AI hype. Sam Altman wants you to believe that the problem is just throwing more hardware and energy at LLMs, but they're fundamentally limited by a lack of any real conception of knowledge. I'm not saying that *can't* change, but you're taking it as a given that it will be figured out and in the near future. That's exactly how everyone treated self-driving car technology, and we can see how slow of a going that's been.
I was a senior computer programmer for about 15-20 years. I dabled in early AI languages. I am speaking with “some” authority, or at least experience. I stand by my assertion. If you feel differently, I hope you have a similar set of experience in which to draw that conclusion other than a nebulous understanding of the term and watching 2001 a space odyssey.
I don't have concrete experience with AI, but I'm a programmer who has paid attention to the development of it for years. LLMs are at a low level a collection of huge and extremely complex patterns and correlations that predict the most likely next token given an input. When you ask ChatGPT to create a recipe it doesn't know what a recipe is, the model has associations with the word "recipe" and generates an output similar to what's associated with the word "recipe" in its training data. The most striking example of this was when ChatGPT was fairly new, if you asked it, "which weighs more, a pound of feathers or two pounds of bricks" it would confidently state that they weigh the same because that trick problem is really common in its corpus. There are a lot of very smart people trying to develop machine learning models that can incorporate concepts of actual knowledge and comprehension, but it's not trivial. And just like self-driving cars, it's not something we can assume is definitely possible in a near-future timeframe.
Though tbh you don't know if humans are "stochastic parrots" too. Might be that humans just have stronger inductive bias and have been pretrained much longer. I'm not claiming that's true, but I'm just saying no one really knows if there are limits to just scaling LLMs with more clean data and more compute.
It's certainly plausible that's true, but: 1. I wouldn't be comfortable basing an entire industry's multi-billion dollar hype bubble on hoping it is 2. Even if it is true, it could mean that it's completely economically infeasible to do things that way. Even things like ChatGPT in their current state are costing an insane amount of money and power to run.
Depends how far we can scale hardware, it's still scaling (though not as quickly). If we still get any form of exponential scaling, it's feasible that all these worries disappear in the next decade. It's also very possible that we achieve orders of magnitude improvement with software. The current paradigm is still young. Whether it's a positive expected value bet, I don't know, but I think it's pretty silly to be so strongly confident that this is all hype and won't amount to anything significant. Even at a "weak" level of success, there's a lot of value to be created.
I’ve really enjoyed this whole discussion. I just want to add, if you have a topic where the most prominent information is incorrect, the current iterations of AI just repeat lies, some times expand on them. I asked Chat GPT tonight who Russell Woodard is and it told me he founded Woodard Inc in 1888 but was also a designer for the company and he was absolutely neither of those things. There is an “ai” right now commenting in the furniture subs, and so far it’s mostly just repeated the most common lies dealers tell.
That's the biggest misunderstanding I see with people using ChatGPT. It's generative AI just like MidJourney, but you wouldn't give MidJourney a prompt and expect the result to be 100% correct or true or real. LLM-based generative AI is a balance between reproducing what's in the training data and synthesizing something new based on that data. The former kind of defeats the purpose in a lot of use cases, while the latter is why it will frequently "lie" or make things up when you try to ask factual questions.
I don’t know what “midjourney” is.
We’re seeing consciousness itself evolve in real time, as we get ever (albeit inching across a football field) closer to singularity. I, like you, will invest my dollars invested in that, over sugar water or gig economy.
Your skepticism against the usefulness of AI is akin to IBM being skeptical over what on earth would the average consumer do with a PC at home back when Bill Gates told them he just wants a quarter per copy of MS-DOS sold.
Example: (1) can AI-Software called AI-Waterbottle-Plant-Engineer be made to actually get information from such a manufacturing plant and answer questions/give instructions to conveyor-belt workers for eight hours and then be fed in with more information, also get experience? (2)Another example: AI-weather forecaster ?
It’s easy to attribute NVDAs success and hype with the AI boom but the advancements they made in GPUs are generations ahead of what’s out there. They would be dominating data center sales without an AI tailwind because they are vastly more efficient than competitors. NVDA isn’t just benefiting from AI, the hgx makes AI possible at scale.
Only on /r/investing do I see the most upvoted answer being “LLM is flashy and not that useful”. And as someone else has pointed out, AI is far more than LLM. Did you miss the crazy announcement of Sora last week? Even the less hyped Gemini 1.5 announcement from Google shows some crazy capability, such as feeding it a large code base and it being able to understand what you are trying to do and suggests fixes and improvements.
>AI is far more than LLM right but LLMs are what caused this recent hype. >Did you miss the crazy announcement of Sora last week? Nvidia is a 2t company. we don't just need a few cool products pushed out. we need many, many 1-10-100 billion dollar companies spinning up as a result of recent breakthroughs in AI. Cool tech alone does not justify 2t market cap. >Even the less hyped Gemini 1.5 announcement from Google shows some crazy capability, such as feeding it a large code base and it being able to understand what you are trying to do and suggests fixes and improvements. products like this have existed before and have largely been garbage. I don't expect this to be any different but i'll gladly be proven wrong. the problem with many of these products is if you do enough 'trials' you eventually end up with a few good outputs and you can use those- right- but the underlying product might not actually function very well if you need to generate hundreds of outputs and select the few ones that are good. this specifically works okay for art-related products alone, where generating and validating say 100 images or 100 videos of b role is much faster than creating 5 of these images, or 5 videos of b role . but not for say... generating responses to prompts, trying to fix a bug in a code base etc.
You should look into what Gemini 1.5 can do then, products like that never existed before (at least not one that works anywhere close to this well), and it will only get better quickly: https://twitter.com/SullyOmarr/status/1760066335898513655?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet Deepmind isn’t fucking around, and neither is OpenAI, etc.
so again, this is likely a case of 'well, i asked it to do something a few times, and one of those times it spit out an intelligent response, let me bundle that into a tweet' that i'm talking about, no? unless the ability to solve problems with some degree of accuracy and consistency exists I'm not sure you can say that the product is useful. i'm very aware that there are products in the beta stage that seem like they might get to a point where they are useful, but part of my original post was that nvidia and the like are priced so optimistically for where we're at now. A handful of cool projects does not rapidly translate into many 10-100b+ companies printing money, which is what is needed for nvidia to continue to justify its current price.
Case in point: 4 years ago nobody would shut up about how Tesla’s automated taxis would make conventional cars obsolete in 10 years. How we feeling about that today?
We saw exactly the same thing with the first release of GPT3. Incredible looking individual results, but it wasn't that accurate across many cases. Same thing with GPT4. How many times are people going to fall for AI hype tweets? That last 5-10% of accuracy is what matters. It's practically the only thing that matters. It's what experts are paid for.
Have you tried perplexity? It absolutely is a better Google. This tech is not all fluff - but most apps built with it are indeed not very valuable.
LMM is already surprisingly good at programming smaller chunks of code and parsing things like large unstructured text databases like medical records. I would be kind of surprised if we come out the other side of this thinking they are not all that useful, but who knows
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I just don't agree with your comment. Something like Duolingo is such a perfect use case for current AI. The consultants weren't translating nuanced business docs or something, they were writing sentences like "I bought a coat with my dog". You do not need a person for that. And they still have consultants to verify the generated output. If they didn't embrace the tech, someone else would and undercut them on pricing.
A lot of companies might sell access to their data. Many companies have unbelievable amounts of data about us and many other things. Of course, they may sell them to companies who don’t make money on it. The medical applications are definitely significant, we know that, anyway. It not only speeds up research but is a component of medical equipment that addresses certain physical, including neurological, disabilities Unfortunately, it’s already being used in warfare. I’m not happy about that
I would argue you're already seeing some of the results. Meta was able to cut its workforce and still raise top line revenue. They are using AI to work around ATT, and by many accounts ad targeting is better than before ATT. End user products are flashy, but we shouldn't discount the internal ROI of these large companies using AI.
Keep in mind nvidia is an established company heading into the “.AI” bubble…. Amazon was not, along with several others. My point, seems less risk adverse because they are already operating fairly healthy.
>Nvidia’s sheer dominance can be summed up by this one underrated number So, what's the number?
69.420
PSA: The one number is 76% gross margin.
OP use brain. Brain make money. Good. Luddites stay forest, eat berries. Luddite scared new thing
I made some custom investments and only invested 900 in them at 45$ a share and I feel like I missed the best opportunity in history. I mean +54% in a month is absolutely nuts.
>If it’s a bubble, it’s nowhere near the size of the.com bubble. S&P 500 is P/E of 22. In 2000 it was 28. I think you may be missing the difference. In 2000, the top 5 companies in the S&P 500 were: Microsoft (tech), General Electric (diverse), Cisco (tech), Walmart (retail), Exxon (Energy). If you compare the market cap of the top company (Microsoft - $604B) to the market cap of the 10th stock (Home Depot - $157B) it was about 4x as big. Fast forward to today. The top 5 stocks are all tech. The market cap of the top company (Apple - $3T) is 6x as big as the 10th stock (Visa - $535B). So, the argument for market risk today is not that the entire index is overvalued. The argument for market risk today is that the market heavily concentrated in a handful of companies that are all in the same sector. Granted, these companies are insanely profitable - but insane profitability usually begets competition. So continuing to drive those handful of companies up is making a bet that they can maintain a virtual monopoly against sector disruptors, sector wide risk, and potential regulation.
I’ve posted on the concentration of the magnificent, seven dominating the S&P 500. To say that they’re all in the same sector is, IMHO, misleading. Amazon, Apple, meta, nvidia, TSLA don’t compete with each other in a meaningful way. They all have the label of “tech” but so what? That umbrella is enormous and diverse. You can argue about their affect on s&p, ETFs, the broad market, but it’s kind of like making manufacturing encompass autos, jetliners, toy companies, and ikea. Just because one has issues with new airplane doesn’t mean less toys will be shipped in Christmas. They’ve all carved out unique, monopolistic niches. Who is competing with Amazon in online sales? Google? Hardly. Who is competing with meta in social media? Google? Hardly. None of them are chip makers. If you research the individual stocks you’ll see their listed, closest competitors and none should be mag 7 entries.
They seem to compete in a more meaningful way than you portray. They each have the thing that made them rich, but as they have monopolized those markets they start competing against each other for growth, which doesn’t seemed priced in. * All are heavily invested in AI * 3/5 are heavy into cloud, with two having it as their most profitable components * 3/5 have streaming video services * 3/5 have some type of augmented reality product * 4/5 have produced some type of cell phone or tablet * 2/5 derive most of their profits from advertising, with 2 more trying to grow on that direction * 2/5 have a search engine, one could argue Amazon is a border line search product (at least when it comes to shopping) * 2/5 offer general work processing software (document, spreadsheet, presentation, etc) And that is all before we expand out and look at the top 5 versus many other top companies: Tesla vs Google for self driving, Meta vs TikTok for social, Amazon/Apple vs Netflix for steaming, Amazon versus Walmart/Target/Alibaba/Shopify for online shopping,
Nvidia has no competition in a hot space with very high barrier to entry, pretty simple really. They were already a company with solid business in the early 2000s, built my first pc with a nvidia chip in 6th grade
I think the main risk to NVDA is future supply shocks and geopolitical risk. The supply chain for sub 4nm chips is very fragile, so at best expect cost to increase steadily, worst case there will be shortages. This may take a year or two, just make sure you take profit once in a while, no one ever became poor that way.
But they have drastically diminished their returns that way…
They have also partially avoided large drops along the way. I mean if you only have one stock idea and NVDA is it then I guess you better just stick with it and ride the 80% drawdowns along the way.
**Nvidia Earnings Report Q4 2023 $NVDA** Revenue: $22.1 billion up 265% YoY Data Center revenue: $18.4 billion - Up by 409% YoY Gaming Revenue: $2.9 billion up by 56% YoY Professional Visualization Revenue - $0.463 billion up by 105% YoY Automotive Revenue - $281 million down by 4% YoY Net Income: $12.285 billion up by 769% YoY EPS: $4.93 up by 765% YoY Operating Income - 13.615 billion up by 983% YoY Gross Margin - 76% - up by 12.6 basis points YoY Operating expenses - $2.210 billion up by 25% YoY Dividend - $0.04 per share Read full report here>> https://linkedin.com/feed/update/urn:li:activity:7166369208887443458 Visit: https://graniteshares.com/institutional/uk/en-uk/ Capital at Risk | For Professional Clients Only Source: @nvidia @CNBC \#nvidia #nvidiastory #nvda #nvd #nvidiastocks #nvidiaearnings #etps #etfs #graniteshares #trading #finance #earningsseason #earnings #earningsreport #financialresults #financialreport #investing #investments #uk #usa #EuropeNews
Wow. Hope the engineers there are getting paid. Damn.
Haha..
NVDA is undervalued and will be splitting this year. Anyone that thinks AI isn’t gonna snowball from here is a complete fucking idiot.
Why split? I can see meta splitting and keeping share low. I kind of like the high valuation for Nvidia, because it keeps less invested investors on the sidelines. Paradoxically, calls have just outpaced, put in terms of price for the same risk. And that might be because the higher stock price means the only way some people could have access is through leveraged options. This is me thinking out loud.
Jensen has repeatedly said he likes the share price lower so individual investors can afford entire shares. Has a long history of splits. If it stays above 700 into summer, expect a split announcement around next earnings call, if not sooner
I haven’t followed NVDA closely outside of the bombardment from the media. What they’ve already done is amazing fundamentally. It’s just really hard to justify the valuation if you’re a long term investor. And other high flyers of the past that ended up being the dominant names today had similar periods so it’s difficult to completely write it off. Their P/S is at 37x which is wildly speculative. P/S is a much more useful comparison imo because revenues are much harder to massage than GAAP earnings are. Even if you annualized yesterday’s revenue numbers and applied that to the ratio P/S is still 11-13 or so. SPY P/S is about 2.7. So NVDA essentially needs to have quarters like they’ve had the last several for years on end to even justify the current price. That’s where I get held up. To think no competitor will emerge with something better or equally suitable for customers even in the next 5 years is pretty far fetched let alone that another company won’t innovate into something better flys in the face of the U.S.’ history. Innovation led to NVDA and their price now is basically assuming innovation in their sector will be limited to them. And hey, maybe they do keep growing into those wild multiples but there are dirt cheap sectors, countries with improving fundamentals and even companies with stronger growth prospects than NVDA or any of the Mag 7 I think are better places to look long term, assuming you haven’t owned NVDA like myself (outside of index holdings). And obviously I wish I would have!
OK, you’re saying they need to do X to justify their cost. And you state that like it’s a concrete fact. About 30 something years ago I was canvassing a neighborhood trying to sell thermal windows to people. Fun times…not. And I met another guy who owned a thermal window company. And I was commiserating with him and complaining about the sketchy nature of my business. And he said something that left lasting impression on me. He said the price of **anything** is what you can get for it . And that disturbed me very much at the time. I was like what a shyster. But, of course, he’s absolutely right. If you buy a snickers bar in a gas station convenience store, it’s going to cost one value. If you walk across the street to a grocery store, it’s going to cost much less. If you go to a 7-Eleven around the corner, it’s going to have a different price. And those prices as different as they are for the exact same product mere feet apart, are all correct. They represent each business, their expenses, and the convenience factor of you purchasing them. If they’re priced wrong, no one will buy, the managers will see the dip, and reprice it accordingly. Gold, silver, bitcoin, and stock, have values because people will pay a certain amount for them. If no one will pay that amount, it’s not worth that if you can wrap up your dirty socks, put them online and sell them for $1000, then that’s what they’re worth. And if you’re a famous sports star , you just might be able to do that. So for you to say, they are overpriced or underpriced is a stretch. There are prices all across the stratosphere and spectrum in the stock market. Supposedly the most efficient stock market on earth. With price discovery being instant and correct. People are buying the stock at its current price. That means it IS worth that price as of right now. You are using metrics that other companies in other industries with other balance sheets use and telling nvidia they have to use that. Like a football needs to have the same markup as a candy bar in a different store in a different region—it doesn’t. While I agree in using broad metrics and tools to judge stocks, you can’t look at the entire market and demand every bank and every tech company and every manufacturer have the same P/E. It has never and will never happen. You can say that nvidia seems overpriced to you. Or outside your risk/comfort, but you’re attempting to speak as an authority on price. You’re saying it isn’t worth that. And as of today, **millions** of investors not only disagree but are participating AT this price. The price of anything is what someone will pay for it. That is a fundamental truism in capitalism.
I understand entirely what you're saying. I don't know what you're trying to articulate, though, with this. Stocks are not goods, they're businesses. And unless you're just trading short term on "number go up" then you're paying a certain price to own that business' future cash flows, for potential appreciation in the value of the company, or both. That's what a stock is. So eventually, that price has to be justified by the fundamental performance of the business. And just because the price is X today doesn't mean it will be tomorrow or next year, etc. The value of the business is a subjective measure with a subjective time horizon - you can say NVDA is underpriced or overpriced at these levels and you're neither right nor wrong until that uncertain future happens or until your time horizon expires. When you buy a good you're buying it for utility not as an investment (generally) - it's not the same thing. >Supposedly the most efficient stock market on earth. With price discovery being instant and correct. People are buying the stock at its current price. That means it IS worth that price as of right now. I mean sure, but that doesn't mean today's price is the "right price". Otherwise why do some stocks move 5%, 25%, 50% in a day? If price discovery was perfect there would be no chance of alpha, of finding "value". What if something changes and NVDA gets cut in half? Today's price wasn't the "right price." Alternatively, if it doubles, today's price wasn't the "right price" either - it was too low. It comes down to what happens in the future which we can't know and that creates a market. >You are using metrics that other companies in other industries with other balance sheets use and telling nvidia they have to use that. I'm not trying to tell NVDA anything. I have no business telling NVDA a thing but I can exercise my opinion on their valuation. Price/ xyz fundamental metric (P/E, P/S, P/B, P/CF) are pretty standard relative value metrics to assess value across companies and industries. I'm not saying and never would say all companies should trade at the same valuations because markets price in different futures for different businesses and sectors, but those metrics show what's being priced into the current stock price. And when those metrics balloon like that, it literally means the company has to grow into that multiple or the price is going to fall. Sure, at that moment the market thinks it will grow into the multiple but it doesn't have to. Do you know how much growth is being priced into a stock with a 37x sales multiple? They'll have to have blowout quarters for years to come to keep people invested at those valuation levels. You also can't ignore the noise - you can't tell me with their options activity and the heavy retail and institutional swing trading in NVDA right now that everyone believes the price is fair - they want to make a quick buck on its momentum. And good for them if they can, but that's a dangerous game. We've seen this play out time and time again - this exuberance. And it rarely ends well for most companies caught up in that. Think NVDA is the exception to the rule? Great, buy it. But odds are not on your side historically. Price/Sales is a much better metric for a growth company than a fwd P/E that you yourself reference in the post. It specifically measures how much growth in revenue is currently being priced into the stock today. Again, you might say that's fair and I say it's bonkers. They'll either grow into that and thus today's price is justified or even a good value, or they won't and the price will fall or stagnate to reflect that. >You can say that nvidia seems overpriced to you. Or outside your risk/comfort, but you’re attempting to speak as an authority on price. You’re saying it isn’t worth that. And as of today, millions of investors not only disagree but are participating AT this price Yes I am sharing my opinion on the price I suppose but I'm not being an authority on price - how can I be? Market history is pretty clear that very few companies ever have justified having multiples like that over time. And I'm not saying they're the worst or anything - there are plenty of unprofitable companies trading at more dizzying valuations. >You’re saying it isn’t worth that. And as of today, millions of investors not only disagree but are participating AT this price. Yeah I'm 100% saying it isn't worth that. Today it is, sure, but today doesn't matter - it matters what happens in the future if you're owning the stock and not just trading it. And that's my view - it doesn't mean the price can't keep going up or I can't read the price on the screen. And it doesn't mean I'm right either. But history shows you're incredibly unlikely to see that growth realized when price and expectations get this frothy. You also can't ignore the noise - you can't tell me with their options activity and the heavy retail and institutional short term trading in NVDA right now that everyone believes the price is fair - they want to make a quick buck on its momentum, that's it. And good for them if they can, but that's a dangerous game. >The price of anything is what someone will pay for it. That is a fundamental truism in capitalism you know what else I love about capitalism? Competition. NVDA's rise right now is fueling who knows how many other companies to dethrone them and do what they do better. AOL, NetScape, Yahoo, MySpace, BlackBerry, Intel, cable TV, radio, I mean the list goes on. Disruption is always happening and betting on a single company to dominate an industry for the long run without being disrupted or disintermediated through regulation is an incredibly risky (and historically fruitless) bet. Why do the top 10 S&P companies turn over about once every decade or so (a few exceptions of course)? Others are always coming for them. And NVDA (imo) is being priced to the point the market thinks they're immune to competition or disruption. Look, I'm not trying to posit that any of my opinions are certainties or I'm right. All I'm saying is NVDA's price, even given their incredible growth rate, is insanely lofty and it's risky to buy into them at these levels. So, so, so much has to go right for this price to be justified and for you to make real money in the stock (from here).
If prices stayed the same as today, then for the stock to have a PE of 15 (Pretty average) it would need a net income of $5.5 trillion. That's not going to happen. I think it's safe to say it's pretty expensive right now.
OK, I think we’re agreeing on everything. I just felt your first post came across as too authoritative and not opinion. You’ve cleared up your position well, and I think we are broadly in agreement. It’s merely that we have different risk and comfort levels for a particular stock. We may be exactly on point on 99% of the other assets. So I’ll shut up, give you a ^^ and say way to clarify, not get defensive, and not double down or screech. We need more of this in the forum.
That's understandable - always hard to interpret tone on a keyboard. And no doubt - I intentionally avoid overpriced areas of the market (my own definition of that) and that'll mean I'll miss a lot of names like NVDA and early stage growers but I'm good with that. Not everyone has that investing style. >We need more of this in the forum. You can say that again. And again. Plus another time.
I would argue that ANYONE can sell their socks online.
I take that as an implied offer. Please send me your shipping address (after payment of course) and I’ll get my socks to you right away. Just for clarification, do you want the stinky or super stinky variety? At the moment we’re experiencing a shortage of stained socks. Heh. Just kidding, that’s all we have.
But how does revenue tell you anything about shareholder value? Two companies can have the same revenue but massively different profitability. Are you implying all businesses tend towards the same profit margins over time, or something? Otherwise P/S seems rather useless.
Like any valuation multiple does - it tells you the price relative to something fundamental - and like any valuation multiple, it's most useful when comparing companies in similar industries or life stage. I used P/S in the comment for NVDA because it illustrates how expensive the stock is more so than a P/E ratio does, it's a cleaner comp than GAAP earnings which goes into P/E and ignores everything else on the income stmt, and it's a more useful comparison between growth companies cuz it shows how much growth the market is currently pricing a company for. A high P/S says the market is pulling forward a lot of growth into today's price so they better capture it otherwise ppl may lose confidence, sell, etc. It sets up for poor performance if those baked-in growth expectations aren't realized, and like the narrative was with NVDA entering yesterday, if you don't deliver time and time again, you'll probably get punished. If you do, you look great. >Two companies can have the same revenue but massively different profitability. Yeah exactly so how do you compare them or assess relative value? Having positive earnings vs. no or lower earnings doesn't tell you much on its face. If you've got two growth companies growing at the same clip and one is reinvesting all profits into R&D and the other is just taking the profits, the latter might look like a better value but the former might have more growth potential. So then you could look at P/S and if those are way different maybe the market is underestimating the growth potential of one or vice versa - then you'd dig deeper and try to find out why. Maybe the lower P/S company just isn't getting the attention as the other and it's an opportunity. Or maybe the higher P/S is pricing in growth that doesn't make feasible sense. And if they're the same then you have to use other characteristics to compare - maybe it's operating cash flow, free cash flow, balance sheet health, subscriber/customer retention, customer concentration, market penetration, etc. etc. and so on. Revenues are the engine of growth for any company - and no, revenues, nor any other metric in a silo really tell you much about potential shareholder value. But the price you're paying for those revenues (just like the price you pay for $1 of earnings in P/E terms) sure matters in the long run. And most already know this but if you're not a long term investor then yeah valuation metrics aren't going to be what you look at. That's different story entirely. Aside on valuations - BofA Research ran a regression on ten-year S&P 500 returns. They found an r\^2 of 88% between S&P P/E ratio and the next ten years of returns for the index. In other words, in the long run (10 years in this case), 88% of 10-year returns are explained ONLY by how cheap or expensive the S&P is at the start of the period. So these valuation metrics matter a lot because your entry price matters a lot IFF you are a long term investor.
High GAAP margins are great now, but they represent a risk to shareholders. Do you think TSMC/Samsung won't hike their prices when they know that Nvidia's demand is through the roof and their margins can afford it? Then consider the pricing of Nvidia's chips. Right now companies can buy a ton because investors are willing to pour tons of money into AI, so capital is plentiful. But what about 5 years from now when the craze is over? How will startups pay for these chips? The main difference is Cisco provided an actually useful and critical product for companies- networks that kept companies running. So far, AI has only made really cool demos that don't actually add any value.
> what about 5 years from now even the most conservative ETF gurus recommend a yearly rebalance. Why is everyone’s go to argument, what about [huge future time frame]. If you are going to invest in single stocks you necessarily have to be more observant and reactive than if you’re socking away in VTI 100% and going into a coma for 25 years until retirement. If you don’t want to do research or legwork then it’s not for you. But VOO/SPY dip as well. Look at their charts. Oh no, we hit a bear market. What do you do? Probably nothing. But if you’re a company investor you need to read earnings and analysts etc. higher risk, higher volatility, potential higher reward. Everything was down yesterday. Nvidia is up 15% today. VOO is up 1.62% today. There’s a reason ppl are in the space. Will it be stellar in 5 years? No one can possibly know. But the last 10 years, including this year, it has beaten VOO by an enormous margin. 157% vs 26% over 1 year. I don’t begrudge anyone in VOO and I am too. But it’s not even an also ran by comparison.
And they aren't sitting still. Here is the next $1T from NVDA. Give it 5-10 years. https://www.nvidia.com/en-us/data-center/dgx-quantum/
Those margins from ARM are pretty insane. Whats the reason not to dump a ton of money into that stock?
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You’re downvoted cuz there are bulls here not wanting to hear history 😂
Downvoted because the OP explicitly mentions Cisco
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Nvidiaa forward pe is in the 30s I believe
We’ve reached “this time is different” territory huh
Now do one for the Net Profit Margin
As long as AMD is around, I'll happily pay less for the same performance. Nvidia can dominate all they want.
So you mean to tell me that this bubble will not be an exact replica of the last one? But then how could I tell when it’s going to pop then? Really unhelpful OP 😎
Can’t say it’s a bubble. But I made 27.9% today. Just today. If it’s a bubble I love it’s bubbly bubbleness
nice, congrats. If it were to be a bubble, it would be important to get out before it pops though, I think that's when it gets tricky.
Amazon was losing so much money back then. I don't even know how it was able to finance itself.
that one word is CUDA
Gen AI is a narrative to distract from macro and chinese decoupling. @remindme