Subject: Re: OT: NVDA
I have no idea whether NVDA is currently priced right. Their stock has come a long, long way ... but their future is very bright. (Worth twice all the oil companies combined?) If I was forced to guess, I'd say they'll be down a year from now. It feels a little like 2000 when shorting certain tech stocks was the correct trade ... but a bad long term strategy.

Sounds not crazy.

I would add this: the really big firms who are their clients are spending VAST amounts of money on their products. They have the means, opportunity, and motive to build an alternative themselves. Nvidia doesn't merely design chips, their software ecosystem is an excellent lock-in I'm told, but even that merely becomes a hurdle if someone very rich and motivated decides to find a way out of spending so much money. So...their lead may not last very well, meaning their moat may fade in a medium time frame. Nobody with an alternative likes to have a supplier making vast margins.

But the best way to think about the pricing of a business with a "high growth" price level is to think what has to happen for investment at current levels to turn out to have been a good one.
A possible scenario:
* They are quite profitable, so we can think about earnings rather than building it up from sales and margin trajectories.
* One source has estimated old fashioned earnings at $2.60 this year and $3.35 next year (put in whatever numbers you like).
* That's a growth rate of 29%.
* Imagine their impressive earnings growth rate fades so that each year is only X% of the prior year's growth rate, so we have a glide path of growth rates, giving us a trajectory of earnings.
* We add the assumption that no firm trades at a multiple over 19 forever, and so few manage it for very long that it can be ignored as a possible assumption.
* So, we have an earnings growth "shape" and a terminal multiple.
* I usually take the average EPS 5-10 years into the future, and estimated share price from that, to get a CAGR annualized from 7.5 year hold.
So, we end up with the following: to get a 9.0%/year return starting from here (nominal), you need each year's earnings growth rate to be about 93.3% of the prior year's earnings growth rate (all earnings nominal).
i.e., this series:
EPS growth 2024-2025: +29%
2025 to 2026: +27%
+25%
+23%
+22%
+20%
+19%
+17%
+16%
+15%

So, having worked backwards, this makes it a simpler question: to believe that the current price is a good place for a medium-long term hold, getting you you sort of have to find that trajectory to be sufficiently certain to be believable to allow a reasonable margin of safety -- or at least more certain than other investment alternatives available to you.

Note, none of this is a forecast. I'm just suggesting a way of working backwards that I have sometimes found useful...what HAS to happen for the current price to be a decently good one?

Personally I don't immediately see that as a sensible baseline assumption, primarily because I think they will see some tough competition at some point. But I do currently hold a tiny bit of the stock for the short term as a momentum play. Even if it's a bubble (which it may not be), a bubble is a terrible thing to waste. The thing about bubbles is, they generally burst a lot more slowly than most people realize. As long as you know firmly in advance that you're not going to continue investing as if the bubble were still happening long after it has plainly ended, there is sometimes some good money to be made. You don't have to nail the top, you mainly have to know that you're going to stop that kind of investing when it's time.

Jim