Why Matt is bullish on Nvidia … even while another InvestorPlace analyst just sold it

Today, we’re going to do something different. You’re going to get a peek behind the curtain.

I’ll explain more in a moment, but first, a bit of context …

This past Monday brought news that the technology company, Nvidia has agreed to purchase the networking firm Mellanox Technologies for roughly $7 billion.

Nvidia is primarily known as a GPU chipmaker (“GPU” stands for “graphics processing unit”). These chips are most often used in gaming and cryptocurrency mining.

Mellanox makes Ethernet switches and adapters. That means the acquisition represents an effort from Nvidia to expand beyond its core gaming revenue base — specifically, by bolstering its datacenter and AI business.

Now, while this news might have raised an eyebrow for some on Wall Street, it came as little surprise to Matt McCall and his Investment Opportunities subscribers.

That’s because Matt’s March recommendation was none other than Nvidia. And in his issue, he pointed out the different sectors in which Nvidia is becoming a leader — directly naming datacenters and AI.

Revealing an analyst’s pick so soon after its recommendation is unusual. But in this case, Matt gave me permission. Beyond the timely nature of this buyout news, I wanted to give non-subscribers a sense of what goes into a stock recommendation analysis (it’s often requested).

So, in today’s Digest, you’ll see annotated sections of Matt’s March issue.

A note — be sure to read until the end. You see, it turns out that while Matt has just recommended buying Nvidia, another InvestorPlace analyst recently recommended that his subscribers sell Nvidia.

Why?

You’ll have to read for yourself. But the answer will point us toward one of the most critical aspects of making major, long-term wealth in the stock market.

Let’s jump in …

***Matt begins by helping readers understand his market approach, and what he’s looking for in an investment

You see, there are countless ways to invest — value, trend, technical, buy-and-hold, income-focused, earnings-based … When it comes to investing, “one size” does not fit all. So, Matt clarifies:

Here in Investment Opportunities, we focus on seeing around the corners of the business world … getting into giant investment trends in their early stages.

Our goal is to make early investments in world-changing business trends, like the internet revolution of the 1990s. Investors made 20 times, 30 times, even 40 times their money as the internet changed the way we work and live.

An investor who bases his strategy on finding big trends early and riding them is often called a “thematic” investor. A smart, forward-thinking thematic investor can make stupendous returns by spotting world-shaping business trends early and staking claims.

That’s what we’re after.

Matt then goes on to tell subscribers how rare it is to find one company that has exposure to so many important, long-term investment themes. But that’s exactly what’s happening with his March recommendation, Nvidia.

He then provides some background from readers unfamiliar with the company:

Nvidia is a well-known company that Wall Street traders like to both love and hate, all the while not fully understanding it. It is a $96 billion-dollar global leader in semiconductors that is now completely mispriced, giving us what I expect will be one of the best buying opportunities of the year.

Next, Matt walks readers through the recent selling pressure on Nvidia’s stock. There were concerns that the company had rallied too far, too fast on AI hype … fear that a major investment firm could sell its stake in Nvidia … and an overreaction to a sales and earnings lull.

 

***But then Matt tells us why the naysayers are wrong, and what the future holds

He discusses Nvidia’s dominance in the gaming sector — it’s the clear global leader in gaming GPUs with over 76% market share in the high-end PC gaming industry. It’s also worth noting that Nvidia’s market share has jumped from 57% to 76% in the last two years. During that time, Intel and Advanced Micro Devices have lost market share.

He then walks us through earnings projections based on Nvidia’s current core business.

But then Matt turns toward Nvidia’s future, which is expanding to include many powerful investment themes that will be affecting the markets over the coming years. These themes include AI, gaming, robotics, self-driving cars, datacenters (remember the Mellanox news), blockchain, virtual reality.

***It’s at this point that Matt zeros in one on trend in which Nvidia is involved that he’s especially excited about — autonomous vehicles

From Matt:

I really like Nvidia because of its involvement in several big themes. One I want to highlight in particular is autonomous vehicles (AVs) — or self-driving cars — which will soon hit the roadways in increasing numbers.

In early January at the huge Consumer Electronics Show in Las Vegas, Nvidia announced the world’s first commercially available Level 2+ automated driving system — NVIDIA DRIVE AutoPilot. The system includes what the company calls breakthrough artificial intelligence technologies.

At the very same conference, two major global auto suppliers announced they would integrate NVIDIA DRIVE AutoPilot into their self-driving solutions starting next year. By offering the full system to auto suppliers and automakers, Nvidia is positioning itself to be a major player in the future of AVs.

We’ve talked about the eye-popping numbers before. According to one report, the number of AVs on the road will increase 10-fold in the next seven years. And that is just the beginning. When you think about how parts of the transportation industry have not changed much in over 50 years, you see the potential profits ahead. We have been filling up our gas tanks the same way for as long as we can remember. It is time for Transportation 2.0 to fuel up your portfolio.

Matt wraps up with the following recommendation:

Buy NVDA under $165. The stock is a major player in the future of transportation and a must-own in our Transportation 2.0 basket. Over time, I see it doubling and probably more.

 

***While Matt is very bullish on Nvidia, Louis Navellier recently recommended that his subscribers sell Nvidia — why?

As importantly, how can InvestorPlace have two analysts with conflicting view?

The answer is simple — Matt and Louis have different market strategies. And like virtually all successful investors, they remain faithful to their strategies, knowing exactly what their plan is, why they’re investing, and what circumstances would cause them to sell their investment.

The foundation of Louis’s market approach is earnings strength. At the end of the day, it’s all in the numbers, so that’s what drives his buying and selling.

Below is from the February issue of Growth Investor, in which Louis recommended selling Nvidia:

However, as you know, the third quarter was weaker-than-expected. NVIDIA reported adjusted earnings of $1.84 per share on $3.24 billion in revenue. That topped analysts’ earnings estimates for $1.71 per share, but fell short of sales forecasts for $3.24 billion. What really hit the stock, though, was the company’s guidance, which was below expectations.

… analysts have continued to lower their fourth-quarter estimates.

Louis isn’t looking at the long-term trends that will be affecting Nvidia for years to come. He’s looking at shorter-term earnings results that will likely move the stock price in the quarters to come.

Meanwhile, Matt’s approach is based on a longer period. In his issue, he even acknowledges the potential for shorter-term earnings weakness, but refocuses his subscribers on the longer-term reasons to hold Nvidia. From Matt:

Earnings and revenue are both expected to decline the next few quarters, as we saw in the earlier chart. But growth should return in the next fiscal year when the bottom line is expected to increase 33% and the top line 19.5%.

The stock is a major player in the future of transportation and a must-own in our Transportation 2.0 basket. Over time, I see it doubling and probably more.

Matt and Louis are looking at the same data, yet approach that data with different plans.

Ironically, Louis held shares of Mellanox in his Accelerated Profits portfolio. Why? Simple — outstanding earnings (which is why Nvidia wanted to buy it). From Louis, back in January:

For the fourth quarter, Mellanox Technologies reported 22.1% annual revenue growth, or $290.1 million. Earnings per share surged 73.2% year-over-year to $1.42, topping estimates for $1.30 per share by 9.2%

(Louis’ subscribers have made nearly 50% on Mellanox at the time of this writing.)

If Matt’s style of investing resonates with you and you’d like to learn more, click here. If you find yourself gravitating more toward Louis and his earnings approach, you can get more info by clicking here.

***The critical need to have an investment plan

One of the biggest elements that separates successful investors from non-successful investors is an investment plan. Matt and Louis have them. Do you?

Why are you investing in a specific stock? What will drive it higher? What are the risks if you’re wrong? Under what circumstances will you sell the stock if it turns against you? How long will you hold it if things go well? If the stock soars, will you sell part of it to lock in gains? At what point? Why?

The very best investors have the answers to these questions detailed before they ever put a dime into a new investment. Is that how you invest?

I hope you’ve enjoyed this peek behind the curtain at how Matt views Nvidia. Yet whether you lean more toward Matt’s style of investing or Louis’, one thing is true — it’s critical that you know your own reasons for investing.

Have a good evening,

Jeff Remsburg