For the moment the up trend of NVDIA is intact - the p/e is lofty but they are consistently beating earnings estimates by a very wide margin. Last quarter the expectations were high but they were crushed by+50% - revenue (near 50%+), income (near trebled) and cash flow (almost treble) have shown an incredible move between 2016 and 2017. The company has little to no debt. Its much better than a Micron or AMD in this respect and those have also shot up over the past couple of years. If we take this into account the p/e multiple will be much lower probably in the (high) twenties.
NVDIA's business is in the sweet spot being at once relevant to the internet of things, blockchain (mining is done with graphics chips), driverless cars (again graphics chips essential-see deal with Mercedes and Uber), virtual reality and all its variants and so forth. They invested well ahead of the curves in these areas already a few years ago and the real harvesting is only just starting. Good news will keep rolling and though the stock would be vulnerable to any results that are short of crushing expectations 2018 wont be the year that they fail in that.
The market is also far more optimistic about NVDA - compare 2.8% short of float to the 5% for Micron or even 20% for AMD. Analysts are quoting 240 to 270 as estimates and this is reflected in the options (a truer measure than opinion as someone is actually paying for the privilege of his opinions). The ATM call for JAN19 38$. So adding that to the strike you see that the options market expects NVDA to be around 270$ by years end else the market is mispricing. The fact that this coherent with high end analysts estimates makes sense to me.
Historically the stock quadrupled in 2016 and doubled in 2017 of course from 30$ to 120$ is 90 bucks and the climb in 2017 was actually also around 100$. From a technical analysis perspective the stock looks safe enough. It tends to have quieter periods at the beginning of the year and making faster moves towards the end. If we presume another 100$ move we get to 320$ for next year. Again the options market is wary because the JAN19 320 call is quoted at 12.55$. The JAN20 calls are not that much more expensive showing that the sky isnt quite the limit but it does seem the whole market is bullish.
NVDA is vulnerable to a couple of things besides a major general market downturn which is sure to affect it. One is that the rampup of everything they are doing hits a glitch somewhere - then customers have to be disappointed and things can go sour quickly. Secondly they need to keep innovating or they could be leap-frogged or have the issue that their next invention just isnt quite so much greater than the original ones that justified the stock move. The Chinese will have their eye on them to do such a thing as would the Koreans. With more stuff on the table there is also more risks of different things starting to go haywire or a major scandal hitting them like it even hit Intel.
So who is right the market or Vanzandt? (Just kidding only time will tell). My own view is that the momentum is such that its unwise to bet against NVDA and the risks they have are manageable. I am guessing a 320-330$ price this time next year and I am already long the JAN19 215$ calls since early December. If I had to get in now I would buy the 260$ calls at 25$, I wouldnt hold the whole year but look at the situation before December. In my opinion this is safer than the deep OTM JAN19 330 calls. They sell for only 11$ right now but say the stock goes to 300$ by early December the 330 calls would lose half their value whereas the 260 calls would have near doubled their value. Even if the stock rose to 330$ by December the JAN19 330 calls would be worth only 15$ whereas the JAN19 260's would have trebled so even allowing for the fact you could buy more JAN19 330 calls you would be making less money. BTW none of these calls are delta <0.1 - the 330 ones are 0.24 which is the last option I see quoted with my limited software.
Sorry for the long reply - I have been long NVDA since April 2016 and hence have had to look carefully at them several times over. Cutting your losses is easier than letting your winners run sometimes.
Yes, I do appreciate for lot work and input into analyze like this.
I do work in tech industry although not directly involved in Nvidia, but have been closely following for years and can do on technicals (not investing technical but IT side) on why I am bullish. Well, first of all, I am normally pessimist and tend to look at what could go wrong initially but it can be a blessing a lot of time. But on Nvidia, I dont see much trouble ahead but see a lot of positives on upcoming years. Second disclaimer: the future can not be predicted with 100% so there is always an air of uncertainty no matter how one can predict.
Saying that here is why I do think Nvidia is bull run:
On AI and GPU graphics side, Intel has been trying to unseat Nvidia with their Nirvana architecture for last few months? may be but it looks like it is not real significant threat: that is because Nvidia's years of technical expertise on graphics but Intel has very limited experience in that. Intel is formidable in terms of cash and mainstream CPU but not in GPU. Hardly anyone has heard of Nirvana although in many aspects it seems to be beating Nvidia's GPU in AI processing. But performance is only one things, accessibility and ecosystem (wide range of brand products and army of developers, ease of development) is huge thing and Nvidia is way ahead in this aspect. Recent years' CUDA programming software dev kit has made even entry level developers and software engineers be able to easily setup development environment and start building application. Intel? Not even close.
AMD is formidable opponent, but still always one or two step behind and AMD is currently cash strapped. Less cash translates to less money for research and development effort and lesser performing product. Going back to ecosystem, AMD GPU programming still not as easily accessible and known as Nvidia's. Just searching on Amazon's for AMD GPU programming book reveals nothing but for nvidia there are at least dozen books have already been published and being sold already on Nvidia technology. It is a big thing.
Google has also made what is TPC, tensor processing cluster that also beats Nvidia in terms of performance in AI processing but it is also mostly being used in-house and has not really made lot of waves. Plus, aside from ad business, Google's tech products rarely succeed and even succeed rarely bring significant revenue and still ad brings in 90% of Google's revenue. So I dont think Google will be catching on this side on Nvidia.
When looking at recent quarterly report most or all of the revenue from their BU is on increasing side. It is rare for the company to be growing in all of its business segment.
With that, at least for now I dont see any serious threats and competitors to Nvidia's main business just have to wait and watch to see what happens.
