Nvidia |ARM | Relax

Published on 08/23/23 | Saurav Sen | 867 Words

The BuyGist:

  • We send out The Buy Scan at least once a week.
  • We cover the most pertinent (and trending) topics in investing.
  • We rely heavily on our primary valuation tool - The Buycaster - to get actionable insights.
  • We hope that each Buy Scan provides at least one salient insight.

The BuyChart of the Day: Buycasting Nvidia

Boy, we’ve made some big mistakes over the last 5 years, but Nvidia was not one of them! Until recently it was in our portfolio, and it still is historically the greatest single contributor to our outperformance. But it looks nuts now – with a caveat.

The caveat is that the level of nuttiness depends on 2 things:

  1. Your desired long-term Return.
  2. Your choices – if not NVDA, then where would you park your money?

I think NVDA is a little too nuts – for me. I always shoot for an 80% cumulative return in 5 years (12.5% CAGR). NVDA looks too richly priced to deliver that. We know of many other candidates out there (thanks to the Buyscreener) that look much more probable to deliver my desired return.

How do we say that NVDA looks nuts? Here’s a quick return scenario analysis with insights straight from the Buycaster:

This chart says that I need to believe too much about Nvidia’s growth over the next 5 years to – confidently – buy the stock today.

The BuyTheme of the Day: Obviously, AI & Big Data

ARM is hogging up a lot of new headlines. The much-anticipated IPO of this British semiconductor IP (Intellectual Property) company is set to hit the market at a valuation range of $60-80 billion. That costs an ARM and a leg! Coincidentally, not so long ago, it was Nvidia that wanted to buy out ARM for around $40 billion from its current owner Softbank. That transaction was blocked.

I don’t know the nuances of the IPO, but word on the street is that $60-80 billion seems ridiculously overvalued based on ARM’s initial SEC filing. I believe that. Once the numbers percolate through the Buycaster, I’d love to dig in. But purely from a story standpoint – I don’t think its hyperbolic to say that ARM is one of the most important companies in the world.

Many people dismiss ARM as a stagnating smartphone chip IP company. And that’s not wrong. But remember the big day in 2021 when Apple decided to furnish its new Macbooks with its custom-made ARM-based M1 chips? I do. I thought this could be the beginning of the end of Intel, and immediately proceeded to sell my Intel shares back then. Maybe that was a bit dramatic back then, but then in hindsight it turned out to be gainful.

Don’t worry, Intel is still doing OK in terms of cash profits, but if I were still invested in Intel, I wouldn’t be able to sleep well at night. I’d have some anxiety over the possibility of Microsoft announcing that they will now furnish their Surface laptops, for example, exclusively with custom-made ARM based CPUs. What if that runs miles better than your average Dell or Lenovo? What would that do to Intel’s revenue growth prospects?

If you don’t know much about ARM, congratulations! You apparently have a life. But really, it’s a super interesting company because they dared to challenge the hegemony of Intel’s basic chip architecture, which was the norm for decades. ARM is a whole different beast. The success of Apple’s M1 and M2 chips should keep Intel up at night.

Macro Dose: Keep Calm and stay invested.

Much ado about nothing – investing is. Honestly, we spend most of our waking hours doing it or thinking about it or writing about it (guilty) because we like the game. Well, I also do it because I want my 12.5% CAGR and because I think I’m in a fortunate position to alleviate a lot of investing-confusion out there.

Nowadays, everyone and their cousin has a strong opinion on what the Fed should do. It always surprises me – the amount of energy investors spend scrutinizing the Fed. I keep track of it, but I don’t have the time or energy to scold Jerome Powell for moving too fast to too slow or question the whole point of fiat currency. It’s exhausting.

Nothing cuts through the forecasting-cacophony quite like this quote that popped up on my Twitter feed – from writer Morgan Housel.

90% of individual investing is just "spend less than you make, diversify, be patient." The other 10% is trying to speed that up, often to your detriment.

I think the biggest source of that detriment is trying to time the market. We’ve all been there, asking ourselves or others, “is it a good time to get in now?”

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