Should You Sell Nvidia (NVDA)?

There are a lot of people watching Nvidia’s meteoric rise with envy… unless they subscribed to George Gilder’s Technology Report…

A few months ago, he boldly claimed that Nvidia is the world’s most important company.

It’s not like he had a crystal ball or anything.

But there isn’t anyone better than George at investing in technology. Period.

This is the same guy who told Ronald Reagan semiconductors would shape the coming decades.

And he was RIGHT.

But even George acknowledged there’s a cult-like following snapping up shares of the AI giant.

So, we posed a simple question to him: Should you sell Nvidia?

His answers might surprise you.

By the Numbers

Let’s start with some basic valuation metrics for Nvidia:

• Price-to-earnings ratio: 74x
• Price-to-free-cash-flow: 80x
• Price-to-operating-cash-flow: 78x

All of these numbers are high. But they’re not as ridiculous as you’d expect.

For the better part of the last decade, Amazon traded at a P/E ratio well over 100x.

Tesla did as well until the last few years.

History tells us only one chapter of a story. We have to look to the future to come up with true value.

And that’s where things get interesting.

Last year, Nvidia’s revenues grew by 126%!

That’s the kind of number you expect from a high-tech startup, not an established player.

Yet, this just scratches the surface.

Underneath, we find the company’s profitability rose alongside revenues.

Year over year, growth for major categories are as follows:

• EBITDA: 384%
• EBIT: 491%
• Net Income: 581%
• Operating Cash Flow: 398%
• Free Cash Flow: 610%

Source: Nvidia Q4 2023 Investor Presentation

These are mind-blowing numbers.

And yes, it all came from AI, a segment that’s seen… no joke… 75% CAGR over the last five years.

Source: Nvidia Q4 2023 Investor Presentation

Is Growth Sustainable?

This incredible performance all stems from the insatiable appetite for AI systems.

Customers like Meta are ordering billions of dollars in chips.

However, a lot of analysts are worried this may turn out like the pandemic — an initial surge that falls back to some sustainable, slower pace.

That’s true… to a point.

Estimates point to a 69% revenue growth next year, with cash flows increasing by 129% and earnings by 149%.

That means the stock trades at 39x next year’s earnings and cash, which is high but not absurd.

In order for today’s prices to be out of touch, growth would need to grind to a complete halt the following year.

Neither we nor George Gilder see that happening.

Will Nvidia keep up this blistering pace?

Unlikely.

But it doesn’t need to.

Achieving double-digit-percentage revenue growth over the next five years, which is definitely feasible, would make the stock pretty cheap today.

Understanding Mania

The thing most investors fail to grasp is that value is all relative.

For example, Advanced Micro Devices (AMD) trades at 398x earnings and 204x operating cash flow, with a year-over-year revenue decline of 3.9% and forward growth estimates of 11.3%.

The stock is up 159% in the last year.

Nvidia is up almost 300% during the same time.

Both are heavily invested in AI technology.

Yet, AMD is the stock that seems absurdly overpriced, not Nvidia.

People often mistake percentage price gains for froth because they’re too lazy to look at the fundamentals.

While it can be a good indicator, it’s the fundamentals that matter in the long run.

Take Super Micro Computers (SMCI) for example.

This stock is up 1,058% in the past year.

Sounds insane.

Yet, the stock trades at 88x earnings and 57x forward earnings.

What about cash?

The company had negative cash flow in 2023.

A lot of folks would stop there at that warning sign.

But if you look deeper, it turns out that’s all from an inventory built for the heavy amount of orders they booked.

Exclude that and the stock trades at around 69x operating cash flow.

Is the stock overpriced?

Given that its 40-60% revenue growth, though exceptional, is not anywhere close to Nvidia’s, we’d argue that compared to Nvidia, yes, it is.

But it’s not stratospheric either.

However, that doesn’t preclude shares from gyrating in wide ranges as they seek an equilibrium.

Where We Stand

These gyrations offer interested investors opportunities to snap up shares at a discount.

But if you expect another 1500% gain on these companies within one to two years, then you’ve got to get ahead of the curve.

George Gilder’s Technology Report is more than just receiving an investment newsletter…

…it’s a visionary’s perspective on the future of technology.

Don’t just watch the future unfold; be an active participant in shaping it.

Invest wisely in the AI revolution, guided by the expertise of George Gilder.

Subscribe to George Gilder’s Technology Report today and take the first step towards securing your stake in the future of technology.