By Daniel Shvartsman
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When last he published on Nvidia (NVDA), Akram's Razor of The Razor's Edge was looking back on why the short case played out so well in 2018. In an article titled Chipwrecked: Inside The Nvidia Crash, he provided six reasons why Nvidia was uninvestable as of November 2018. They were:
- Nvidia will be lapping its worst crypto quarters as far as pure ASP driven growth in gaming in Q1/Q2 next year. Those comps are not going to be pretty.
- Nvidia’s datacenter segment is just going to see more and more pressure from AI chip competition. Taped out and with early access customers is going to turn into some large scale orders in 2019 for startups. Intel/Xlnx and other big chip companies as well as hyperscalers also coming to the ml/dl hardware party.
- If the stock closes 20% down today it’s still trading at 8.2x this year’s revenue. Intel, AMD are around 3x. The downside is literally impossible to quantify at this point.
- Management’s credibility is severely damaged and sell-side has been humiliated here. It will now be held a lot more accountable by investors on AI chip space. And that’s not going to be a good thing.
- Gaming space in general has issues which are looking more structural.
- Nvidia may have to respond to all these pressures with an expensive acquisition before its market cap shrinks too much.
Life happens, companies and markets evolve, and opinions can and do change. For all that, I found it interesting and surprising when chatting with Akram over recent weeks to hear that he was now bullish on Nvidia.
So, we decided to discuss the new long thesis for this week's podcast. Conveniently, that previous article provided us a framework for how to stress test the thesis. I used that as a loose outline to ask Akram about what changed and why he was so sure Nvidia was untouchable in 2018, and why it's worth holding now. Click play above to have a listen, and watch for the transcript tomorrow or early next week.
Topics Covered- 2:00 minute mark - revisiting the short case
- 12:30 - NVDA's competitive position in artificial intelligence
- 23:00 - Expanded advantage in artificial intelligence, with the USPS deal as an example
- 33:00 - How Nvidia's moat plays out for new potential entrants
- 38:00 - The change in the valuation picture
- 47:00 - How crypto wreaked havoc on understanding Nvidia's gaming segment
- 56:00 - The structural questions in the gaming segment
- 1:11:00 - Mellanox and its import/fit with Nvidia
- 1:19:00 - Has management regained its credibility?
- 1:34:00 - Applying a lens to management's views
See also How To Lose A Monopoly: Microsoft, IBM And Anti-Trust on seekingalpha.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
