Why I am NOT a buyer… yet. - June 2024 (#25)

Greetings dear reader! Your dude Brent thought he’d share his thoughts on the hottest stock on the planet (not to mention one of the most valuable) and how I plan to play this thing. Lets go!

Motivation

“Greatness does not come from intelligence. Greatness comes from character, and character isn’t formed out of smart people: it’s formed out of people who have suffered”

-Jensen Huang, NVIDIA CEO

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Money

TLDR; Nvidia is just the latest stock in a historical pattern that, because of legitimate innovation, is probably overpriced. I’ll wait til it drops big to buy.

You may have noticed that I haven’t directly taken on Nvidia yet, only mentioned it in other newsletters. I have good reason for this, as I’ll explain later. As of writing this, Nvidia appears to be at an inflection point, so it seemed like a good time to finally share my thoughts.

For those of you who don’t rabidly follow financial news like myself, Nvidia is a chip maker. A BIG TIME chip maker. The chips they make power everything from video games, to cryptocurrency, to AI large language models like Chat-GPT. As of right now no one can touch them in their space, their rivals are years behind them in making a chip as useful to AI as theirs. Nvidia’s growth has been an enormous part of the gains in the main stock market indexes this year.

And because AI is the hot thing on Wall Street right now. Everyone wants to invest in the hardware that can power this revolution. The thinking behind this popular Wall Street play is the old ‘shovels’ adage about the California Gold Rush. According to lore the first millionaires of the Gold Rush sold shovels. The next were Levi Strauss and Co who sold jeans that could withstand the brutal work gold prospecting required. So if the gold rush is AI, then NVIDIA is about the only company providing ‘shovels’ right now.

So it makes complete sense that NVIDIA’s stock price has gone BONKERS. For a brief time it was even the most valuable company on earth! Since then it has taken a breather and many are wondering if now is the time to buy or if the company has further to fall.

So here’s where I share my take. I think NVIDIA is just the latest chapter of market mania driven by real innovation. Not too long ago streaming services went up to insane valuations because content streaming was the hot innovation. Back in the 90s several hot tech stocks had insane valuations because the internet was the hot thing. Before then there were the insane valuations of car companies in the roaring 1920s . Even further back railroad stocks were changing hands at astronomical rates in the 1870s.

What I’m trying to spell out is that this is just the latest in a historical pattern. Even though the innovation behind these trends is 100% legitimate, the associated stocks tend to get ludicrously expensive and eventually the prices come down HARD.

I personally missed the boat on Nvidia a few years ago. I heard it was a good play on Cryptocurrency and AI, but never pulled the trigger. I was too busy trying not to eat Tide Pods (THE ULTIMATE FORBIDDEN FRUIT!!!). Since then its gone bonkers and I’ve got no sensible way of knowing if its going up or down from here. As such I’m not touching it…. until it cools off. If I had to guess, I think Nvidia’s stock is probably near the peak. I have no other logic to that statement except when you see the CEO dressed up in a sweet leather jacket signing boobs…  it seems pretty toppy lol.

The stock market is absolutely littered of examples of great companies who had sky-high stock valuations, then went to near nothing, then came back as juggernauts. Amazon is a great example. Even though the revenue steadily climbed during the 90s into the 00s its stock price has had insane price swings. In fact its stock has averaged near 25% returns for years… but thats the average. In reality it’s stock price has been all over the place and you’d have been in a world of hurt for YEARS if you bought it when it was the ‘hot thing’ during the Dot Com Bubble.  

So following that same logic I ain’t buying… yet. I’ll wait til the media has written off Nvidia’s stock price as ‘a train wreck’ or ‘absolute and complete disaster.’ Then I’ll be all over that stock like it’s the new extra strength Tide Pod. Mmmmm…

FINAL MEMES

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That’s all folks!

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