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Comment by Herring | Hacker News Reader

He's setting up a case for shorting the stock, ie if the growth or margins drop a little from any of these (often well-funded) threats. The accuracy of the article is a function of the current valuation.

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Exactly. You just need to see a slight deceleration in projected revenue growth (which has been running 120%+ YoY recently) and some downward pressure on gross margins, and maybe even just some market share loss, and the stock could easily fall 25% from that.

AMD P/E ratio is 109, NVDA is 56. Which stock is overvalued?

If it were all so simple, they wouldn’t pay hedge fund analysts so much money…

No thats not true. Hedge funds get paid so well because getting a small percentage of a big bag of money is still a big bag of money. This statement is more true the closer the big bag of money is to infinity.

That is extraordinarily simplistic. If NVDA is slowing and AMD has gains to realize compared to NVDA, then the 10x difference in market cap would imply that AMD is the better buy. Which is why I am long in AMD. You can't just look at the current P/E delta. You have to look at expectations of one vs the other. AMD gaining 2x over NVDA means they are approximately equivalently valued. If there are unrealized AI related gains all bets are off. AMD closing 50% of the gap in market cap value between NVDA and AMD means AMD is ~2.5x undervalued.

Disclaimer: long AMD, and not precise on percentages. Just illustrating a point.

The point is, it should not be taken for granted that NVDA is overvalued. Their P/E is low enough that if you’re going to state that they are overvalued you have to make the case. The article while well written, fails to make the case because it has a flaw: it assumes that addressing just one of Nvidia’s advantages is enough to make it crash and that’s just not true.

If investing were as simple as looking at the P/E, all P/Es would already be at 15-20, wouldn't they?

Not saying it is as simple as looking at P/E

My point is that you have to make the case for anything being over/undervalued. The null hypothesis is that the market has correctly valued it, after all.

In the long run, probably yes, but a particular stock is less likely to be accurately value in the short run.

If medium to long term you believe the space will eventually get commoditized I the bear case is obvious. And based on history there's a pretty high likelihood for that to happen.

glad you are not my financial adviser :)

On the other hand, getting a bigger slice of the existing cake as a smaller challenger can be easier than baking a bigger cake as the incumbent.

Hey let’s buy intel

NVDA is valued at $3.5 trillion, which means investors think it will grow to around $1 trillion in yearly revenue. Current revenue is around $35 billion per quarter, so call it $140 billion yearly. Investors are betting on a 7x increase in revenue. Not impossible, sounds plausible but you need to assume AMD, INTC, GOOG, AMZN, and all the others who make GPUs/TPUs either won't take market share or the market will be worth multiple trillions per year.

I thought the valuation of public companies at 3x revenues or 5x earnings has long since sailed?

Tech companies are valued higher because lots of people think there's still room for the big tech companies to consolidate market share and for the market itself to grow, especially as they all race towards AI. Low interest rates, tech and AI hype add to it.

Funny timing though, today NVDA lost $589 billion in market cap as the market got spooked.

Intel had a great P/E a couple of years ago as well :)

You have to look at non-gaap numbers, and therefore looking at forward PE ratios is necessary. When you look at that, AMD is cheaper than NVDA. Moreover, the reason why AMD PE ratio looks high is because they bought xilinx, and in order to save on taxes, it makes their PE ratio look really high.

rofl Forward PE ....

> The accuracy of the article is a function of the current valuation.

ah ... no ... that's nonsense trying to hide behind stilted math lingo.

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