Yeah, so NVDA just did that.
A 30% jump in one day to $87/share.
Let’s face it. Picking a winner and being a winner are two different things.
But to me, I like to think my prescient selection makes me a winner here. And as I’m finding out, being a winner is tough. Just look at Charlie Sheen, does he make it look easy?
Anyway, in this post I’ll explore what happened today to our hero NVDA, and how I plan to handle this hot potato going forward.
So why did NVDA pop today?
Usually a jump like this would mean it’s getting bought out.
But no, it simply obliterated already high growth earnings estimates of $0.57 EPS on $1.69 Billion of revenue to $0.94 EPS on $2 Bn in revenue.
Turns out when you beat what analysts think by a lot that’s a good thing.
And Nvidia is providing guidance of higher growth than expected in Q4 – with revenue expected to increase to $2.1 billion.
Seriously guys? Only a measly $0.1 billion increase over Q3?
Between you and me, my conspiracy theory is they’re aiming a bit low based on their trajectory, so they can pull off the same “beating analyst expectations” thing next time around, since it’s obviously working so well for them.
Which reminds me of a story of how a talented co-worker of mine lost his job and was going on job interviews for months and couldn’t land a job. When I asked him what was going wrong, he said that he would tell them he was terrible at things so when they hired him they would be so impressed with him since he set expectations so low. So maybe that’s what NVDA is doing here a bit for Q4 guidance. But I digress.
Anyway, if you’re here you probably like dividends, right? Well, the company just voted to hike their dividend by 22% to $0.14/ share, and instituted a buyback program, which isn’t bad either.
Why I love NVDA more than my girlfriend
What’s more exciting exciting than just beating some analysts expectations is that they’re just getting started. Their areas of strategic focus are all winners and their technology is essentially becoming the standard “Intel Inside” technology so-to-speak powering gaming, virtual reality, deep learning, self-driving cars and artificial intelligence computing. all high growth areas that will transform how we live and work over the next 5-10 years.
So to me NVDA beats my girlfriend anyday. Since a) I don’t have a girlfriend, and b) girlfriends won’t just give you 30% more love one day without asking for something in return like a diamond ring or going to an expensive restaurant.
So I think you agree with my assessment here.
The New FANG?
NVDA is going to take the place of Netflix in FANG. Or FANA – since Google became Alphabet.
So I hereby declare N to be NVDA. And FANG is FANA.
Yes, you heard it here first.
I should also add that a full 56% of my current portfolio after this increase is made up of FANA. A high concentration, but as Warren Buffett says, Diversification is just protection against ignorance. And I’m not ignorant. I hope.
In my view we are entering a new era of technology, and these are my top bets to win. So we’ll see how it goes.
The psychological game of picking a winner
First, anytime the market is rising, it’s not hard to feel like Buffett.
But truly after a recent 30% increase, it does become a question on how to play this going forward.
Based on a pure DCF basis, I think NVDA is currently overvalued, but you could argue perhaps it was before today’s increase, too.
Here you’re paying up bigly for growth.
As far as I can see, I have 3 choices after today:
- Buy more
- Sell it all
- Sell some of it and let the rest ride
Selling part of it – trimming the fat, so to speak – is probably the most principled and safest decision.
As for me, I decided to hold for now, for the following reasons:
- I believe in the company and long term thesis.
- With it’s increase, it’s now my 4th largest position, and I’m good with that level of risk.
- Frankly I don’t have a better idea than this.
How to play this IMHO if you are on the sidelines and jelly of all this winning
What if I had no exposure. Would I want to buy in at this price?
It depends on your outlook.
If you’re a deep value guy, I’d say you’d have a hard time making the case.
Now if you want a good way to play AI and autonomous vehicles and deep learning, with a small dividend but future growth prospects, you could give it a looksee.
So for me, I would look to buy on dips, recognizing that it’s psychologically hard to buy on the way up and increase your cost basis. I did this last time, and it seemed like it was stretched then.
But I think if your time horizon is 10 years or more, I’m betting you won’t be disappointed with the stock, and you’re buying low from that perspective. At least, that’s my bet. It could still go back to whence it came, but I highly doubt it. This could be a buy on the dips as there’s profit taking and additional volatility around potential interest rate increases that may be in the cards.
So put it on your watchlist, and maybe do some research if you’re feeling the NVDA love.
Keep your eye on this hot potato, I think as hard as it might be to believe this, it may get even hotter.
At least, that’s my take.
What do you think? Is this a buy, sell, or hold? Why?
Thanks for stopping by!
Full Disclosure: Long NVDA
Legal Disclaimer: I am not an investment professional, just a dude on the Internet chronicling his journey to being a winner. This post is purely for informational/ entertainment purposes and also because I may just be a closet narcissist and want a public forum to pat myself on the back for being such a winner. Have a nice day!