Ignore Nvidia At Your Own Peril

Almost everywhere you will read, the dark side is constantly waxing negative on Nvidia based on valuation, and its hard to argue with their negative thesis, with the company currently trading at roughly 45x estimated Wall Street earnings of $3.50 per share for the year ending January 2019.

The analyst at Needham and Company had an interesting report out last week that did a what if scenario of sorts on the impact on Nvidia's top and bottom lines based on the amount of Nvidia technology/chips deployed by Toyota in its vehicles in the near future. Based on his analysis, what if the company's partnership with Toyota could add $0.35 per share in earnings to NVDA earnings in 2019 or how about a best case of three or four times that $0.35 per share in earnings in 2019? At $4 or so per share in earnings for FY:19, Nvidia would be currently trading at roughly 40x. How about at $5 per share? That would be a multiple of 32x based on the current price.

How about Nvidia's partnership with Audi? From their recent press release;

"The A8 is packed with NVIDIA powered systems, including revolutionary new user interfaces, a new infotainment system, a new virtual cockpit, and new rear seat entertainment options. .....the A8 features the newest NVIDIA powered MIB+ infotainment system. It's two touch screens, second-generation virtual cockpit, and the new rear seat system with Audi tablets and display controller all feature NVIDIA technology.

What about the Nvidia and Baidu collaboration? Will that not help Nvidia's top and bottom lines? Here is what Nvidia is working on with Baidu:

  • Bring next-generation NVIDIA Volta GPUs to Baidu Cloud, providing cloud customers with the world's leading deep learning platform.
  • Adopt NVIDIA's DRIVE PX platform for Baidu's self-driving car initiative, and develop self-driving cars with major Chinese carmakers.
  • Optimize Baidu's PaddlePaddle open source deep learning framework for NVIDIA Volta GPUs and make it widely available to academics and researchers.
  • Bring AI capabilities to Chinese consumers by adding Baidu's DuerOS conversational AI system to NVIDIA SHIELD TV.

The point here is there are many partnerships/avenues that have now opened to Nvidia going forward that can significantly raise earnings estimates in the near future, maybe even double them from current levels.

In addition, I have not even talked about  Nvidia's existing and future opportunities in gaming, tradition chip business, data centers and other Artificial Intelligence-based applications.

On the flip side, everyday there is no shortage of negativity, whether it's about the market or about a particular stock. Investors are bombarded with negativity from the financial media, the kindly uncles, the darksiders, the do-over Dudleys, all of who are motivated only by the fact that they do not want you to make money and will stoop to almost anything including, outright lying, to increase the fear in the markets and scare you away.

If the above does not work, Wall Street will step it up a notch and engineer a fat-finger trade to shake the tree (make investors part with their shares) so as to keep the commissions flowing into their coffers thanks to accounts being churned.

Just this morning, a sell-sider has downgraded Nvidia rival, AMD, to an Underweight (sell in Wall Street parlance) from an Equal Weight (Hold) which will more than likely pressure the shares of Nvidia as well as the darksiders and kindly uncles to come out with their "I told you so's."

Downgrades and upgrades are normal in the business so it means nothing really but it does provide an opportunity that will more than likely missed by most.

So, if you are long Nvidia already and looking for an opportunity to add, a nibble here could be warranted and if you have missed the boat on Nvidia thus far, a nibble or two could be warranted for you as well.

Barring a market collapse, which no one can predict no matter how much they try and convince you otherwise, the opportunities that lie directly ahead of Nvidia are indicating a higher stock price for the company.

(Long nvda, long and short options)

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