Is Nvidia (NVDA) a Buy at $940?
TLDRThe video discusses the performance and investment potential of Nvidia, highlighting its significant growth due to the demand for AI chips. It emphasizes the importance of second-level thinking in investment, using the dividend discount model to analyze Nvidia's valuation and future growth expectations. The video compares Nvidia's growth rate to Apple's post-iPhone era, noting the high expectations and competitive risks for Nvidia.
Takeaways
- 🚀 Nvidia's stock has seen a significant increase, going up 19.7% in the last month and tripling from $300 to over $900 per share in 2024.
- 📈 The company's extraordinary performance is attributed to the rise of artificial intelligence, with Nvidia being a key player in providing the necessary AI chips.
- 🤔 The video discusses the importance of both first-level and second-level thinking in investment, emphasizing the need to look beyond the current popularity of AI-related stocks.
- 💡 The concept of valuation is crucial in investing, with the video introducing the dividend discount model as a method to determine a company's worth based on future dividends.
- 📊 The video uses Nvidia's sales and profits over the past year to argue that the company's stock price increase is justified by its financial performance.
- 🔄 The payout ratio of Nvidia is currently low at 1%, but the video suggests that it may increase in the future, similar to more mature semiconductor companies like Texas Instruments.
- 💹 To justify its current market cap, Nvidia would need to grow its profits significantly, with a compound annual growth rate (CAGR) of 20.4% over the next 15 years.
- 🍏 The video compares Nvidia's growth expectations to Apple's success with the iPhone, noting that Nvidia's future growth targets are ambitious and may be challenging to achieve.
- 🏆 Despite the high expectations, the video highlights the risks involved in investing in Nvidia, including competition, the difficulty of scaling a large company, and potential execution risks.
- 🔍 For a deeper analysis, the video encourages viewers to explore reverse dividend discount models and offers resources for further investment research.
Q & A
What was the main question posed by Tech peeves about Nvidia?
-Tech peeves asked for an analysis on Nvidia to understand if it's a good investment and whether they should buy the stock now.
How has Nvidia's stock performance been in the last month and the last 5 years?
-In the last month, Nvidia's stock has increased by 19.7%. Over the last 5 years, it has shown an extraordinary performance, with an increase of 26%.
What is the primary reason behind the surge in Nvidia and other semiconductor stocks?
-The primary reason is the increasing investment in artificial intelligence by companies worldwide, which requires Nvidia chips to run AI algorithms.
What are the two levels of thinking in investing mentioned in the script?
-First level thinking is a basic assumption that AI-related companies are good investments because of the future of AI. Second level thinking involves a deeper analysis of whether the current stock price reflects the market's expectations and whether the company's future can justify that price.
What is the dividend discount model and its basic assumption?
-The dividend discount model, introduced by John Burr Williams, assumes that a business is worth what its owners can take out in the future in the form of dividends. It suggests that a company's value is based on the expectation of future dividend payments.
What is the concept of payout ratio and how does it apply to Nvidia?
-The payout ratio indicates the percentage of a company's earnings paid out as dividends. Nvidia currently has a low payout ratio of about 1%, but it's expected to increase to a more mature level, like that of Texas Instruments, which is around 71%.
What growth rate does Nvidia need to maintain to justify its current market value according to the reverse dividend discount model?
-Nvidia needs to grow at a compound annual growth rate of 20.4% over the next 15 years to justify its current market value based on the reverse dividend discount model.
How does Nvidia's expected growth rate compare to Apple's growth rate after introducing the iPhone?
-Apple's net income grew at a compound annual growth rate of 22.5% after introducing the iPhone. The market expects Nvidia to grow at a similar rate, which is a very high expectation considering Nvidia's current size and market conditions.
What are some risks to Nvidia's growth as outlined in the script?
-Some risks include the difficulty of growing a large company like Nvidia, increased competition from other tech giants like Apple, and the challenges of executing strategy and technology development at a large scale.
What does the script suggest about the future prospects of investing in Nvidia?
-The script suggests that while Nvidia has shown impressive growth, the expectations for the future are very high. Investors need to consider whether Nvidia can maintain the projected growth rate and whether the current stock price is justified based on these expectations.
How can one access more in-depth analysis and tools like the reverse dividend discount model?
-For more in-depth analysis and access to tools like the reverse dividend discount model, one can visit the speaker's Patreon page where an Excel spreadsheet is provided for further study and application.
Outlines
📈 Nvidia's Stock Performance and Market Outlook
This paragraph discusses the impressive performance of Nvidia's stock, highlighting its 19.7% increase in the last month and a staggering 26% growth over the last five years. The video emphasizes the significant role of artificial intelligence (AI) in driving the demand for Nvidia's semiconductor chips, indicating a bright future for the company. However, it also introduces the concept of first and second level thinking for investors, suggesting that while the general consensus may see AI as a positive for Nvidia, a deeper analysis of the stock's valuation and future growth potential is required to make informed investment decisions.
🤔 Understanding Valuation Through Dividend Discount Model
The paragraph delves into the principles of the dividend discount model (DDM), explaining its assumptions and application in valuing a company. It outlines the importance of future dividends, the required return on investment represented by the discount rate, and the typical growth phases a company experiences. The video uses Nvidia's financials, including its sales, earnings, and dividend payout ratio, to build a reverse DDM. This model aims to determine the growth rate Nvidia must achieve to justify its current market value, setting the stage for a detailed analysis in the following paragraphs.
🔢 Nvidia's Growth Projections and Risks
This section provides a detailed analysis of Nvidia's required growth rate to validate its stock price based on the reverse dividend discount model. It highlights the need for an extraordinary 20.4% annual growth rate over 15 years to meet the projected future profits and justify the current valuation. The video compares Nvidia's growth expectations with Apple's performance after introducing the iPhone, noting the challenges of sustaining high growth for a large, established company like Nvidia. It also discusses the risks associated with such growth, including competition and the difficulty of executing strategy at scale, ultimately emphasizing that investment decisions should be based on one's view of the company's future relative to market expectations.
Mindmap
Keywords
💡Nvidia
💡Stock Market
💡Artificial Intelligence (AI)
💡First Level and Second Level Thinking
💡Dividend Discount Model
💡Valuation
💡Payout Ratio
💡Market Cap
💡Compound Annual Growth Rate (CAGR)
💡Execution Risk
💡Competition
Highlights
Nvidia's stock has increased by 19.7% in the last month alone.
Over the last 5 years, Nvidia's stock has risen by 26%.
In the past 12 months, Nvidia's stock price has tripled, from around $300 to over $900 per share.
The surge in Nvidia's stock price is largely attributed to the growing demand for semiconductor chips due to artificial intelligence.
The video discusses the importance of first and second level thinking in investment decisions.
Investors should consider the market's current pricing and the actual future potential of a company, not just the apparent growth.
The dividend discount model is introduced as a method for valuing a company based on its future dividend payments.
Nvidia's sales have more than doubled, and their profits have tripled in the past year.
Nvidia currently has a low payout ratio of 1%, which is expected to increase as the company matures.
The market capitalization of Nvidia is approximately $2.2 trillion.
To justify its current market value, Nvidia needs to grow its profits at a compound annual growth rate of 20.4% over the next 15 years.
Nvidia's future growth expectations are compared to Apple's growth following the introduction of the iPhone in 2007.
Investors should be aware of the risks involved, such as competition and the challenges of managing a large company.
The video provides an in-depth analysis using the reverse dividend discount model for investors interested in company valuation.
Supporting the video creator's Patreon page grants access to an Excel spreadsheet for further study on company valuation.