No. of Recommendations: 17
SA article:

Nvidia: How Much Should The Stock Price Be?
Dec. 10, 2018 7:30 AM ET|10
Khaveen Jeyaratnam

Nvidia is one of the most innovative and high performing semiconductor companies, and until the recent market correction, had a very high Price to Earnings ratio.

Without much of a buffer due to the high P/E, the recent market correction caused the share price to decline by more than 45%.

To identify a potential buying opportunity, I comprehensively valued the company based on fundamentals, DCF valuation, precedent transactions, comparable company analysis, technical analysis and market sentiment.

My commenet:

@Khaveen Jeyaratnam You certainly went to a lot of trouble and work to put together this fine analysis but, in my opinion, it misses the mark as do most analyses of Nvidia because it is based on the wrong business model. The assumption that Nvidia is a semiconductor company is, if not wrong, misguided. There are two lines of thinking to back up my contention, the second one possibly controversial.

Asset light vs. asset heavy. The PC era was dominated by the Wintel duopoly, Intel being asset heavy (fabulous fabs) and Microsoft being asset light. Over a 30 year period INTC produced a 10.3% CAGR while MSFT produced a 13.7% CAGR


10.3 vs. 13.7 might not seem much but over their lifetimes it made a five fold difference

Business model. Nvidia started out as a gaming company and gaming remains a large part of the business. What most analysts miss is the paradigm shift which the market did not miss in 2015 when the price accelerated to reach a bubble like valuation.


The paradigm shift I'm talking about is that the GPU designed for gaming found new and unexpected markets in AI applied to autonomous vehicles, healthcare, retail, and a multitude of other markets with tons of data that can be put to gainful use. In evolution and in the science of complexity this is called "the adjacent possible," when a feature designed for some purpose finds a new application. In this case, the GPU is about to dethrone the decades old von Neumann Architecture where the CPU reigned supreme.

In non-technical terms, the von Neumann Architecture is serial, it computes one thing at a time. The principal way to accelerate it is to make that CPU run faster. Once you reach the limit of Moore's Law, when transistors cannot be packed closer together, you are at the end of the line and the alternative is parallel processing which is what GPUs do. But the hardware is not enough, it needs a software twin just like Intel needed Microsoft (DOS-Windows). The GPU's twin is CUDA, also owned by Nvidia.

Unlike Micron and Intel, Nvidia is asset light because it uses merchant fabs to make the chips and this makes a huge difference as illustrated by the results of the Wintel Twins.

Denny Schlesinger
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