Why Finimizer Ravi Recommended Nvidia Back In 2021

Why Finimizer Ravi Recommended Nvidia Back In 2021

almost 3 years ago3 mins

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Welcome to the second piece in a new mini-series from the Finimize Community: Finimize Pitch Club. Community members submit their ideas for investments in order to get feedback from other Finimizers and practice building a more disciplined approach to their investments.

*This is an educational exercise and the investments have not been vetted by our analysts

Today’s pitch comes from community member Ravi Sundaram. Ravi leads technology and market strategy in the semiconductor industry, loves investing in tech stocks, and learning about crypto.

What’s the pitch?

Long term investment in Nvidia (ticker: NVDA).

Who are they?

Nvidia is a developer of graphics processing units (GPUs). These are core powerhouse chips that drive today’s and future gaming, visualization softwares, data centers and automobiles. With a price-to-earnings (P/E) ratio of 85, Nvidia is seen as an exciting challenger to giants AMD and Intel.

Tell us your three-point investment thesis

  • Incredible sales growth driven by key macro trends like AI, gaming and data-communications demand growth. The share price is up over 17% this year and soared 122% in 2020. Nvidia topped $5 billion in quarterly sales for the first time in the last quarter.
  • Ongoing acquisition of ARM will further increase its market share and keep its momentum going while keeping its strongest competitor, AMD, in check. (Note this is also a risk. See below).
  • It’s now a “three chip company” and there is continued growth in its core GPU segment, buoyant demand in the datacenter (DPU) segment, and fantastic potential in its artificial intelligence (AI) segment – which is still in its infancy in terms of market potential. (Note part of this may be priced in looking at the high P/E, but still not over valued).

What are the key events you’re watching?

  • Earnings for the first quarter. It is expected that earnings per share will increase to $2.76 from $2.60-ish. Its operating margin widened in the last quarter last year so it is expected to result in a beat in first-quarter revenue.
  • The ARM acquisition story will be a major catalyst and can go both ways depending on how the UK government challenges play out. It’s likely that the UK will be negotiating a good deal and Nvidia will be willing to sweeten the deal. However this is far from done and can cause some volatility to watch out for.

What’s the upside potential if your thesis is correct?

If Nvidia gets a beat for the first quarter and continues to take market share from Intel and AMD, then there is a 8-10% upside potential for the shares in 12 months. If the ARM deal goes through then I am expecting a bigger upside in 12 months, perhaps closer to 12-15%.

What are the big risk factors you’ve identified and how do you plan to mitigate them?

The biggest risk is the ARM deal: if it falls through, it’ll create some downside. I think in the long term this is still a solid buy and in many cases a sleeping giant waiting to be a market leader in some fast-growing segments. To mitigate this I would buy some AMD as well as they will continue to take market share from Intel, where I have not yet seen any strong turnaround activity but the new CEO is still settling in so need to keep an eye here.

Community Sentiment: Vote on whether this is a buy/sell here

NOTE: This stock pitch was submitted on April 29th, 2021.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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