Nvidia passes its quarterly future-shock stress test

{"text":[[{"start":8,"text":"The problem with the future is that it hasn’t happened yet. "},{"start":11.129,"text":"Betting on companies whose value largely resides in educated guesswork is therefore not for the weak of stomach. "},{"start":16.872,"text":"Nvidia, Palantir, AppLovin and MicroStrategy — the four best-performing US technology stocks of 2024 — are all putting investors through their paces. "}],[{"start":26.8,"text":"Nvidia, through its sheer size, inspires more cortisol than most. "},{"start":31.467,"text":"The $3tn chipmaker, whose silicon powers the artificial intelligence boom, almost tripled in market capitalisation in 2024, but is down about 6 per cent this year. "},{"start":41.647,"text":"Its fourth-quarter earnings comfortably beat analysts’ expectations, but investors are more focused on what comes next. "}],[{"start":48.29,"text":"For now, all is going to plan. "},{"start":50.732,"text":"Boss Jensen Huang says demand for the company’s new high-powered Blackwell chips is “amazing”. "},{"start":55.748999999999995,"text":"Profitability is being squeezed a little by the new ranges, but revenue for the current three-month period should be higher than previously thought. "},{"start":62.817,"text":"The trouble is that beyond that, detail is elusive. "},{"start":66.009,"text":"Every quarter is a new nail-biter. "}],[{"start":null,"text":"

"}],[{"start":69.03,"text":"Buying a company’s stock is always a bet on distant income streams; the lion’s share of value comes from “terminal value”. "},{"start":75.522,"text":"For example, take the next five years’ worth of analysts’ estimates of Nvidia’s cash flows, according to Visible Alpha, discount them back at 10 per cent a year, and they’re worth just over $500bn today. "},{"start":87.00200000000001,"text":"That means 80 per cent of Nvidia’s $3tn market value consists of money due after 2030. "}],[{"start":93.85,"text":"Much can happen in those short windows of time. "},{"start":96.729,"text":"Just ask the millions of investors who had never heard of Nvidia five years ago. "},{"start":100.972,"text":"And tech stocks are unusually sensitive to sudden shifts. "},{"start":104.252,"text":"Nvidia, for example, gets about one-third of its revenue from just three customers, who in turn sell on its goods to others. "},{"start":111.26899999999999,"text":"Its sales to China are subject to tariff policy which, as the Trump administration has shown multiple times already, can turn on a dime. "}],[{"start":null,"text":""}],[{"start":119.66,"text":"The other members of this fantastic four are having a tougher time. "},{"start":123.377,"text":"Software company Palantir has slumped on reports that the Pentagon wants to slash budgets, potentially unhelpful to a company that gets more than half of its revenue from governments. "},{"start":132.40699999999998,"text":"It still, though, trades at around 50 times forward revenue, making Nvidia’s 16 times feel positively staid. "},{"start":139.624,"text":"MicroStrategy, meanwhile, has its own unique quirks: it’s mostly a piggy bank filled with bitcoin, the price of which — always mercurial — has sagged. "}],[{"start":149.6,"text":"AppLovin’s reversal is particularly sudden. "},{"start":152.554,"text":"The company, which brokers ad space within gaming apps, tanked after two short seller reports suggested its rapid growth might be less sustainable than it looked. "},{"start":160.87199999999999,"text":"Slower-moving, more predictable companies are much less vulnerable to that kind of attack on investors’ future cash flow confidence. "}],[{"start":168.32999999999998,"text":"For Nvidia, some things, at least, are certain. "},{"start":172.23399999999998,"text":"Its biggest customers — companies such as Microsoft and Amazon — have buckets of cash and are determined to spend it on chips. "},{"start":179.052,"text":"At present, they have few, if any, other options when it comes to AI processors. "},{"start":184.319,"text":"And investors, for now, are relaxed. "},{"start":187.237,"text":"The stress test has been passed; another will be along soon enough. "}],[{"start":191.04999999999998,"text":""}]],"url":"https://d33mkcasurz97s.cloudfront.net/album/194526-1740628429.mp3"}