Any way you look at Nvidia Corporation’s (NASDAQ:NVDA) latest results, profitability is better than ever, and yet analysts continue to play games when it comes to Nvidia stock.
Don’t let them shake you out of your position. Perhaps listen to Softbank Group Corp (OTCMKTS:SFTBF) instead.
The Japanese tech conglomerate reportedly has invested roughly $4 billion, or 4.9%, people familiar with the situation told Bloomberg this morning. Masayoshi Son has long said that he wants to invest heavily in technology, including artificial intelligence — a growing arm of Nvidia’s operations.
I side with Softbank. I believe that short of a global economic catastrophe, Nvidia has an excellent chance of reaching $200 by the end of 2017. Furthermore, it’s a much better chance, in my opinion, than Advanced Micro Devices, Inc. (NASDAQ:AMD) hitting $16.
Not many investment websites allow comments these days thanks to a small minority of retail investors taking potshots at anyone who dares to criticize a stock they might own. It’s rather farcical and very Trump-like in its effect.
One site that hasn’t sent comments packing is Seeking Alpha. As a result, I often go there to read what people are saying about a particular stock I might write about. Not to get an opinion, mind you, but rather to see how “loud” the rhetoric is. Usually, the stocks with the most vocal advocates are the ones you want to avoid at all costs — because if you can’t make an argument without screaming, you probably don’t have a good argument in the first place.
I happened to read a May 23 Seeking Alpha article entitled AMD: Vega Is A Nvidia Killer. I couldn’t tell you if the author is correct or not, but the comments afterward certainly were entertaining.
“Here we go again. Another article on how AMD is the NVDA killer,” someone named Papita commented on May 23. “AMD, with it’s almost zero profit margins, AMD, with a poor operating history and an even worse stock performance for as long as I can remember, AMD, the stock all of $10 is going to kill the best-positioned company in its class.”
An AMD supporter quickly responded coming to the aid of the poor, defenseless semiconductor company.
“What does zero profit have to do with better products coming out? AMD by far has better products out and coming out then INTC and NVDA,” said ProfessorSmatt. “People aren’t used to this, so there’s no confidence yet in AMD. The tides are turning though.”
So, by Professor Smatt’s reasoning, Nvidia’s Q1 2018 operating income of $637 million on $1.9 billion in revenue is a fluke, an aberration that’s going to disappear as soon as investors understand just how good AMD’s new products are in comparison to Nvidia’s mediocre offerings.
Perhaps I’m missing something, but the last time I checked, stock prices move higher based on earnings growth, not product superiority. Advanced Micro Devices’ products might very well be better than Nvidia’s, but until AMD can prove it can consistently make money on a GAAP basis, it’s nothing but a speculative play.
That’s not a bad thing.
However, over the past five years, Nvidia has made $4.6 billion in operating profits. By comparison, AMD has lost $2 billion. Under no circumstances should investors confuse the quality of each company’s financial statements.
In my mind, there’s no question which is the better company.
Millennials Think Otherwise
According to commission-free trading app Robinhood, AMD is the most popular stock among its millennial users and the fifth most popular among all its users.
Popularity’s a great thing if you’re insecure, but it doesn’t matter a lick if you can’t back up that attention with numbers that wow investors. Robinhood’s millennial customers got hurt by following the herd in early May when AMD’s outlook for the second quarter didn’t live up to the hype of its fantastic products discussed above.
Again, I’m not saying Ryzen 5, Ryzen 7, Vega and all the other products coming to market aren’t the greatest things since sliced bread, but when Nvidia is kicking butts and taking no prisoners, you eventually have to walk the talk or pay the price. AMD’s stock paid the price.
Nvidia is also popular among Robinhood’s users, ranked sixth for both millennials and non-millennials.
Over the past five years, we know which company delivered the goods when it comes to making money. Over the same period, NVDA stock generated an annualized total return of 62.0% through May 23 — five times the annual total return of AMD.
Bottom Line on NVDA Stock
Nothing drives share prices like profitable growth. If Nvidia can continue to grow profits at record-setting levels, I don’t see why Nvidia shares can’t keep going higher.
That’s a lot for me to say considering in January, I picked NVDA stock as one of seven stocks I thought investors should sell before they implode. Clearly it hasn’t, and if it keeps delivering excellent results, you can be sure it won’t.
I was wrong about Nvidia. It still has gas in the tank.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.