Elnora H. and William B. Quarton Professor of Business Administration and Economics, Coe College, Iowa
Nvidia is hot, 4/23/2023
Nvidia is hot. It is both a trend-following and a growth stock right now. With AI, especially ChatGPT, in the news every day, Nvidia is the darling of investors who want to chase this AI craze. In a sideways market, Nvidia's stock is strikingly impressive. It keeps breaking the 52-week high. As a matter of fact, the sideways market favors winners. When most stocks are not going anywhere, investors concentrate their capital on a few big, established stocks such as Apple and Microsoft. Nvidia is also right there with Apple and Microsoft.
What about the growth aspect? Its revenue is actually flat or even declining. How can we call that a growth stock? I think it feels like Tesla in 2020 before Elon's company started to show phenomenal growth. What investors care about Nvidia now is its GPU business. There's no alternative to Nvidia's GPU. If you want to have ChatGPT-styled capacity, you need to buy A100 or H100 GUPs from Nvidia. Lots of them. Why does ChatGPT throttle your queries? They don't have enough GPUs! So the trend of Nvidia's revenue might look flat now, but it doesn't account for the future! Investors are buying the jump, or a dream, according to eager short sellers (How can they resist the 150+ P/E ratio?)
But shorting Nvidia is not advised right now. The momentum is too awesome to be stopped. If you have to short it, you must wait until the climb is finally over. When will it be over? Nobody knows.
For me, the question now is how to treat the stock. Do I treat it like a trend-following hotshot? If so, I will have to cash out when I detect the sentiment shift. A good trend follower sells the stock on the way down. You will see the sentiment shift if the stock doesn't react positively to good news. Not now, but I don't know when.
Do I treat it like a long-term growth stock? If so, I will have to sit on it for a few more years, enduring potentially big corrections. Nvidia is a one-of-a-kind business. I remember 20 years ago in my business school class, my teammates and I did a strategic analysis on the new company. It was a game-chip company then. Over the next two decades, it has evolved from a game-chip company to an essential tool for crypto miners and the AI boom. It is just an amazing business run by an amazing CEO, Jensen Huang. Good growth stock investors don't just buy the growing industry, but also the CEO. I genuinely like the business and the man very much.
So I am still debating with myself, but for now, it is my largest holding and rightly so.
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