It’s been called the “most important stock on planet Earth” – and we’ve had it in our Spaceship Universe Portfolio since 2018, and our Spaceship Earth Portfolio since 2020.
What is Nvidia?
When Nvidia invented the Graphic Processing Unit (GPU) in 1999 it ended up being a huge deal.
First it helped kickstart gaming and revived video graphics, and then it threw fuel on the AI fire: the GPU acts as the brain of digital products, including ChatGPT.
It turns out calculating all those pixels on computer screens in parallel, was helpful in crunching large data sets all at once, a helpful process for AI.
Who’s in charge?
The guy in charge at Nvidia is named Jensen Huang. He co-founded the company in 1993.
Despite now being worth more than $50 billion, he’s said that “nobody in their right mind would start a business”.
“Building Nvidia turned out to have been a million times harder than I expected it to be—than any of us expected it to be,” Huang said.
“If we realised the pain and suffering [involved] and just how vulnerable you’re going to feel, the challenges that you’re going to endure, the embarrassment and the shame, and the list of all the things that go wrong—I don’t think anybody would start a company.”
Why’s it blowing up now?
You can think of Nvidia as being like the Beyonce of stocks: you wonder how she’ll keep delivering, and she keeps delivering.
Nvidia announced earnings last week: expectations were sky high, and the company smashed them.
Quarterly revenue for the quarter ending 28 January 2024, was up 265% from a year ago, and full-year revenue was up 126%.
Nvidia also became the third largest company in the world for a few days, with a bigger market cap than both Google and Amazon.
“NVIDIA's full stack computing platform with industry-specific application frameworks and a huge developer and partner ecosystem gives us the speed, scale, and reach to help every company, to help companies in every industry become an AI company," said Huang, in his earnings call.
Does Nvidia prove that AI is the real deal, or is it a bubble?
We asked our Spaceship Voyager Investment Team.
“Nvidia delivered impressive financial results, but what truly boosted the stock, in our view, was management's optimistic growth projections and commentary.
That led the market to believe revenue may be more sustainable than expectations, with Nvidia emphasising that
at least 40% of revenue stems from AI inferencing, which is the usage of AI models.
Jensen Huang said, “Almost every single time you interact with ChatGPT, that we're inferencing.
Every time you use Midjourney, we're inferencing.
Every time you see amazing – these Sora videos that are being generated or Runway, the videos that they're editing, Firefly, NVIDIA is doing inferencing.
The inference part of our business has grown tremendously. We estimate about 40%.
The amount of training is continuing, because these models are getting larger and larger, the amount of inference is increasing.”
We think this is important because of the perceived stability of inferencing revenue, with Nvidia benefitting from AI usage as compared to upfront AI training where the market believes the spending is not as sustainable.
Additionally, Jensen Huang sized Nvidia’s addressable market, hinting at its potential to double over the next five years.
He said that “Generative AI has kicked off a whole new investment cycle to build the next trillion dollars of infrastructure of AI generation factories.
We believe these two trends will drive a doubling of the world's data center infrastructure installed base in the next five years and will represent an annual market opportunity in the hundreds of billions.”
We think the earnings result has led to higher revenue expectations and higher perceived revenue durability – and that Nvidia is a double threat like Beyonce."
Some of our Spaceship Voyager portfolios invest in Nvidia at the time of writing.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.
