By Nigam Arora & Dr. Natasha Arora
Signal(s) to enter, add, reduce, exit, hold or change.
Golden Age
ChatGPT started the golden age of artificial intelligence. Prudent investors will make a fortune from artificial intelligence over the next seven years. However, many in the momo crowd will lose their shirts.
ChatGPT was trained on 10,000 NVDA GPUs.
The Most Important Stock
At this time, Nvidia (NVDA) is the most important artificial intelligence stock. However, keep in mind that artificial intelligence is developing very quickly and there will be many opportunities other than NVDA.
The Chart
Please click here for an annotated chart of NVDA. The chart shows that NVDA was in the Arora Buy Zone not long ago. Since then, NVDA has experienced a very strong up move, resulting in a 93% gain. Most of the up move is due to exuberance about artificial intelligence.
The chart shows a strong up move on earnings.
Earnings
From the Morning Capsule:
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The chart shows a strong move up in NVDA stock when earnings were released after the market closed yesterday.
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NVDA reported earnings of $0.88 vs. $0.81 consensus.
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NVDA reported revenue of $6.05B vs. $6.01B consensus.
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NVDA is projecting Q1 revenue of $6.5B ± 2% vs. $6.3B consensus.
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In The Arora Report analysis, the most important observation from the earnings is that the demand from data centers for GPUs has not only bottomed but is likely to increase as the year progresses. There is a high level of confidence in this analysis because AMD (AMD) said the same thing in its conference call.
Great Strides
In The Arora Report analysis, as Microsoft (MSFT) scales ChatGPT, NVDA has the potential to generate revenues of $5B – $10B from ChatGPT over the next 12 – 24 months. Of course, it depends on how fast MSFT scales ChatGPT. MSFT has already made ChatGPT available in its Bing search engine.
NVDA is making great strides not only in the hardware but also in the software for artificial intelligence. Software will become a high-growth, high-margin business.
NVDA is likely to grow 25% – 35% per year.
From the Morning Capsule:
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CEO of NVDA, Jensen Huang said, “AI is at an inflection point, setting up for broad adoption reaching into every industry…From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI. We are set to help customers take advantage of breakthroughs in generative AI and large language models. Our new AI supercomputer, with H100 and its Transformer Engine and Quantum-2 networking fabric, is in full production. Gaming is recovering from the post-pandemic downturn, with gamers enthusiastically embracing the new Ada architecture GPUs with AI neural rendering,”
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NVDA said, “Customers will be able to engage each layer of NVIDIA AI – the AI supercomputer, acceleration libraries software or pretrained generative AI models – as a cloud service. Using their browser, they will be able to engage an NVIDIA DGX(TM) AI supercomputer through the NVIDIA DGX Cloud, which is already offered on Oracle Cloud Infrastructure, with Microsoft Azure, Google Cloud Platform and others expected soon. At the AI platform software layer, they will be able to access NVIDIA AI Enterprise for training and deploying large language models or other AI workloads. And at the AI-model-as-a-service layer, NVIDIA will offer its NeMo and BioNeMo customizable AI models to enterprise customers who want to build proprietary generative AI models and services for their businesses. Further details will be shared at the company’s GTC developer conference, taking place virtually March 20-23.”
Expensive
As great as NVDA is, it is an expensive stock. It trades at a trailing P/E of 94 and a forward P/E of 51.
It trades at 19 times sales.
PEG ratio based on the next five years is 5.23.
Since NVDA is such an expensive stock, it is important to bring sophistication to your investing to be successful. Start by understanding the difference between very long term core strategic positions and tactical positions. If you are a new member, please see the “Strategic Vs. Tactical,” “Strategy,” and “Tactics” sections of the Afternoon Capsules. It is also important to use billionaire and hedge fund techniques to control risks and maximize profits — please see the Trade Management Guidelines.
Zones
For those who are following the Good Way, the Buy Now rating is 🔒 (To see the locked content, please take a 30 day free trial).
For those following the Best Way, the buy zone is 🔒.
The recommended quantity is 🔒.
The very long term target zone is 🔒.
What To Do Now – Core Strategic Position
Those in the stock may consider continuing to hold. Those not in the stock may consider following the parameters given above.
What To Do Now – Tactical Position
Very nice partial profits have already been taken on the tactical position. Consider holding the remaining tactical position for the time being.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
