NVDA - A Sinking ship?

NVIDIA, a leading technology company, currently boasts a market capitalization that is 60 times higher than that of United Airlines. Its impressive 10-year returns have reached approximately 100 times the initial investment. The company operates primarily in two business segments. The first is graphics, catering to industries like gaming, but has experienced a recent dip of -38% in revenue year over year. The second segment focuses on compute and network solutions, which includes data centers and high-performance computing. This segment is particularly exciting due to its robust growth in automotive revenue, reaching an impressive 114% year over year. In the last earnings call, NVIDIA projected a revenue of 11 billion dollars, propelling its stock to an all-time high. This surge is largely driven by the prevailing hype around artificial intelligence, and NVIDIA has secured substantial orders from prominent companies like ByteDance and Alibaba. After deducting current expenses and operating costs from the projected quarterly revenue, NVIDIA's estimated net income stands at 4.15 billion dollars. Extrapolating this figure over a year, the company could potentially achieve an annual net income of 16 billion dollars. It's important to bear in mind that market expectations play a significant role in stock prices. The current price-to-earnings (P/E) ratio for NVIDIA is quite high, standing at 200. This suggests that investors are anticipating stellar returns from the company. However, history has shown that lofty expectations can sometimes lead to disappointment, as exemplified by Japan's short-lived growth followed by subsequent challenges. On average, both Japan and the USA have experienced long-term returns of around 10%. Moreover, while NVIDIA is projecting robust growth, its supplier TSMC is issuing a more cautious guidance, indicating a -50% downturn. This discrepancy highlights the potential risks and uncertainties in the market. Although NVIDIA is undoubtedly a remarkable company, you may find it challenging to discern whether the current stock price justifies the value you seek. Considering this, I will neither buy nor short NVDA. #nvda #hardware #semiconductor