Anyone who bought Nvidia (NASDAQ:NVDA) stock at the end of 2018 is probably saying, “heck yes” to my question in the headline. Up 22% so far this year through May 14, Nvidia stock will have risen 87% in 2019 if it reaches $250 by the end of the year.
But as my colleague, Dana Blankenhorn, recently commented, that isn’t going to happen, thanks to President Trump’s insane tariff war with China.
“The best thing for investors to do is wait out the storm and buy when Trump finds another shiny object to hate and decides he needs the tech economy,” Blankenhorn stated. “As I’ve said many times, trade wars are unhealthy for economies and other living things.”
Amen to that.
Nvidia stock has been a constant pain in my backside during the past two years, as I’ve banged the drum in support of it over arch rival Advanced Micro Devices (NASDAQ:AMD). Although NVDA has much healthier financial statements than AMD, NVDA stock has gotten crushed by its smaller competitor over the past 52 weeks.
AMD stock has’s gained 123% over the past year, compared to about 36% for Nvidia stock.
My History With AMD Stock
Live by the sword, die by the sword.
In October 2017, I suggested that Nvidia stock would hit $350 before AMD hit $25. At the time, NVDA was trading around $200 and climbing fast. Several months earlier, when NVDA stock was trading around $136, I predicted it would hit $200 before AMD hit $16.
That prediction came to pass; AMD traded around $12 when NVDA broke through $200.
However, as I’ve said many times, share price predictions are like the wind; they’ll change direction if you wait long enough.
Fast forward another 11 months to September 2018, and I’m eating my initial words. While Nvidia stock was struggling to get to $300, let alone $350, AMD blew past $25 in late August.
Not wanting to admit defeat and confident that Nvidia’s profitability would win the day, I upped the ante predicting NVDA stock would hit $500 by the end of 2020, before AMD would hit $45.
I’m doing pitifully.
On September 4, 2018, NVDA and AMD were trading at $272 and $27 respectively. As of today, Nvidia stock has lost about 40% of its market value since then, while AMD is flat.
The moral of the story: Stock price predictions are futile.
What the Future Holds
If you haven’t been paying attention, I have no idea what the future holds for NVDA stock.
What I do know is that AMD has delivered for shareholders over the past year in a way that Nvidia investors could only wish for. That said, I’m a believer in companies with strong free cash flow generation, and NVDA fits the bill.
In Nvidia’s latest fiscal year it had free cash flow of $3.14 billion or 27% of its $11.7 billion of annual revenue, down three percentage points from its FCF as a percentage of revenue in 2018, but still an excellent number. By comparison, AMD’s free cash flow in its latest fiscal year was -129 million or -2% of its $6.5 billion of total revenue.
If the U.S., China spat turns into something more permanent, I know which stock I’d rather own. That’s not to say that I don’t have a lot of respect for AMD CEO Linda Su; she’s done an excellent job turning the company into a bona fide leader in its field.
It’s just that free cash flow is a big part of how I evaluate stocks. It’s nothing personal.
Can Nvidia stock get to $250 before AMD hits $45?
That’s for you to decide. I’m out of the share price-prediction game.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
