Kimihiko commented on a stock · Nov 26, 2024 23:12

Nvidia: We're amazed - 6 latest insights to clarify the medium-term outlook

Mr. Jenson Huang, CEO of NVIDIA Corporation, made it clear that earnings will grow strongly over the medium to long term, and there is a possibility that current earnings will double or triple, strengthening NVIDIA's market leadership.
Nvidia's strategic partnerships in India and other countries highlight the company's expansion of AI infrastructure and continue to drive global demand for the company's chips.
TSM has promised to double its chip production capacity by 2025, and Foxconn is building a new plant in Mexico to ensure strong supply to meet Nvidia's high demand.
Continued innovation in Nvidia's algorithms will improve the performance of existing chips, maintain partial value, and drive ongoing software subscription revenue.

I first posted an article on Seeking Alpha a few months ago, and IAbout Nvidia's market, market share, profit margin, and ratioNvidia Corporation (NASDAQ: NVDA ) was recommended. We wanted to help investors think big about Nvidia's potential growth, at least in the medium term.
In this article, we'll look at six developments and small stories that investors may have overlooked that have been secretly revealed in public. It demonstrates that sales are expected to perform well not only in the next quarter, but over the next few years. Finally, I'll explain the specific risks and discuss the “Strong Buy” rating that I have reconfirmed.
1. CEO Jensen Huang's recent confessions
OctoberIn a conversation I had with Ultimator Capital hedge fund manager Brad Gerstner, the lower limit of NVIDIA's medium-term growth outlook was surprisingly clearly shown compared to the information I had seen and read about this matter so far. During the conversation, Mr. Brad asked CEO Jensen an important question.

Brad Gerstner: If you're sitting here today, why can't you double or triple your earnings today in the future when you only have 125 billion dollars out of trillions of dollars in TAM?
JENSEN FANG: No.
Jensen further explains that market makers like Nvidia have the potential to succeed and “grow quite large” if they invent a new market or create a new pond for fish, but fish remaining in a small pond are limited to the maximum size limited by that small pond.
I think this part of the interview is an important part for investors and those who criticize Nvidia's outlook to understand. Mr. Jensen is conservative about the outlook for financial results announcements, for the next quarter orNext year'sThey talked about possibilities, but they didn't overtly solidify the company's medium- and even long-term earnings prospects. Perhaps this is because his remarks were not prepared in advance. Thankfully, he revealed his true views on earnings potential over the next few years.
2. Nvidia partners with India
NVIDIA's recent partnership in India indicates that the company will build AI infrastructure outside of the United States. As the company's chips spread to second-tier and third-tier companies and countries other than Magnificent 7 and other major US companies, investors can expect this trend to continue.
Reliance Industries (RLNIY), Tata Communications, Infosys (INFY), TCS, Tech Mahindra, Wipro (Indian companies such as (WIT) have registered to participate in efforts to introduce AI data centers in India. The goal is for small businesses that don't have the capital required for data centers Reliance GeoFrom AI models of major companies such as, it is possible to use AI from servers on a pay-as-you-go system in the form of cloud computing.
In India, large companies are developing AI infrastructureIt's just one of over 100 countries we're considering. There are already a few examples, so investors didSecondary demandIt must be incorporated into the forecast.
3. Blackwell sells out 2025
In case you missed it, I'll let you know that Nvidia's Blackwell chips are for 2025 (Nvidia's 2026)Officially sold out. There was a lot of discussion and compilation on this subject a few weeks ago, but it's worth looking into a little more detail for a few reasons.
As many investors know, Nvidia's sales have not been driven by demand, but have depended on actual chipmakers' production volume and yield maximums. Actually, TSMC ( TSM) allows more H100 and Blackwell series chips to be manufactured (at a higher sales price), so gaming chips It had to be put on the back burner. This was already in JuneI was warned, but thisWhat is the deploymentIt was confirmed in the latest earnings report.
Additionally, TSM has promised to significantly increase production capacity both this year and next. This means that 1) current production capacity is sold out, but potential production capacity is not. 2) Therefore, as production capacity of TSM and other manufacturers further increases, sales will increase beyond the sell-out level in 2025.
4. NVIDIA asks SK Hynix to accelerate memory chip production
It is reported that in early November, Mr. Jensen asked SK Hynix Chairman Choi Tae-won whether production (supply) of high-bandwidth memory (HBM) chips could be brought forward by 6 months. This is probably to help NVIDIA meet the “abnormal” demand for AI chips.
On the technical side,announcingI will quote from reports related to
HBM is a type of dynamic random access memory, called DRAM, where chips are stacked vertically to save space and reduce power consumption. Adding layers to HBM would theoretically improve its ability to handle complex AI applications.
Keen investors will find that all input into Nvidia chips supplied by more than a dozen companies must be processed quickly to meet huge demand.
Requests for increased parts supply are useful for showing expectations for NVIDIA's future sales. Keen investors will be watching closely for announcements from NVIDIA or its suppliers regarding supply boosting efforts.
5. TSM promises to double chip production capacity in 2025
Similar to the above, as some investors may know, TSM will be in 2025Chip productionThe promise to double capacity is another, and probably one of the strongest, signs that customer demand for Nvidia chips is healthy. This production capacity is expected to be offered to other clients such as Microsoft and Amazon, but Nvidia is reported to account for more than 50% of this new production capacity.
TSM, Nvidia's main chip maker, has spent billions of dollars of capital (described later) to meet increased demand from just a handful of customers, including Nvidia, and this statement of trust shows a strong belief in continued demand over not just a year but several years (which is a waste of factory money).
6. Nvidia invents new algorithms to make old infrastructure more efficient
The general paradigm idea is that once a chip is sold to a customer, the customer must buy a new chip to improve performance. In the same interview quoted above, Jensen revealed that Nvidia chips work differently.
We also put a lot of effort into continuously re-inventing new algorithms. As a result, when needed, the Hopper architecture is 2, 3, and 4 times better than when purchased, and its revenue — or infrastructure — continues to be effective.
This means that the H100 series of Nvidia chips will retain ownership even though they are not currently the best chips Nvidia sells. Not only is it compatible with the new Blackwell chips, but it also improves performance.
You can continue with your software subscription as long as you maintain ownership. Another possibility is that the value will increase if the H100 series is updated with new algorithms. Some big tech companies may want to sell them to smaller businesses and use that cash to buy more of the latest Blackwell or Rubin chips. This has continued for a long time against the backdrop that major technology companies are literally attributing part of their growth to AIThere is a hole in the “profitability of AI” or ROAI debate. This is due to a more powerful algorithm Meta Platforms with improved user engagement ( Meta) andThe use of Azure is increasing Microsoft ( MSFT ) is included.
6. Foxconn to build an AI factory dedicated to Nvidia's GB200 series in Mexico
Investors who were worried about the centralization of chip manufacturing no longer need to worry.Foxconn recentlyIt was announced that they will build a factory dedicated to one level of the NVIDIA chip group, that is, the highest GB200 series, in Mexico. This is the chip Hyperscaler is buying. This means that the majority of NVIDIA's earnings will have a production pipeline that is unaffected during a potential dispute between China and Taiwan, at least compared to when Taiwan's dependence on TSM is high.
In addition to this, TSM itself is building a $65 billion chip factory in Phoenix, Arizona as part of efforts to increase AI chip supply for Nvidia. FactoriesWhen I was facing difficulties at firstHowever, TSM has recently achieved success, and according to the announcement on 10/24, production volume has surpassed TaiwanannouncingI did it.
valuations
When I rated Nvidia as a “strong buy” in late September, the company's stock price was $116.52. The results for the next quarter were then announced. Revenue increased 16.78%. The current stock price is hovering around $137, up 17.58%. So since I first reported on Nvidia, my ratings have changed very little. What is Blackwell's “masking” problemResolvedOverheating of the attached chip is a matter of course when installing a chip, and engineers are making adjustments on siteIt has been explained.
Of the most recent quarterRevenue of 35 billion dollarsWith $35 billion of chip demand (and the gaming, automotive, and other segments) already met, future demand can be seen to be declining. As Jensen has repeatedly stated, I consider it to be 35 billion dollars of the 2 trillion dollar chip exchange and growth expected over the next 4 to 6 years. Therefore, the total addressable market (TAM) for GPUs is growing in the 20% CAGR range, particularly according to JensenIf you think aboutThere is still much demand left for NVIDIA to meet.
I developed my ownThe five element modeland I would like to apply it to future Nvidia reviewsKey element updatesBased on that, the company's stock price is trading at a very reasonable 4.8% forward (R&D+EBIT) /EV. This is quite acceptable given the incredible growth rate that seems to be on track. For those unaware, this number means that if Nvidia cuts all of its research and development expenses and instead divides it and operating profit with a 100% dividend ratio, the forward yield will be 4.8% on a pre-tax, pre-adjusted basis.
conclusions
Steady progress is being made. Nvidia is still in the early stages of a multi-year phenomenon. This phenomenon is being driven by hundreds or thousands of businesses, countries, universities, military forces, and billions of citizens who have finally obtained chips and models capable enough to perform the computations needed for AI and related large-scale computational use cases. There is little point in withdrawing from Nvidia until there is a clear outlook on where this demand will calm down. until demand is met, even valuation values of any kindIt's an investor's job to overcome it, even at an exorbitant level.
In my article, I've focused on a few key trends and trivia that show that the overall demand trend is still very strong. This is evidenced by the construction of a new factory dedicated to GB200 series chips, partnerships with foreign countries, requests for suppliers to increase production volumes, and other indicators quoted above.
CEO Jensen Huang literally says there's no way revenue will double or triple over the next few years, so it's hard to imagine a clearer signal unless Jenson shows specific numbers or dates. Of course, if that happens, Jenson might face problems. Therefore, I rate Nvidia as a “strong buy.” Investors need to know that my “strong buy” evaluation indicates that I own shares in the company I am taking up, and I am not giving a “buy” rating. Nvidia is the largest shareholding with far more than a double-digit percentage, and compared to other holdings, I feel equally at ease with this level of concentration.

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