NVIDIA captured the first-quarter crown, soaring an astounding ~90% over the three-month period. The chipmaker is not only the Club's best-performing holding, but the biggest winner in the entire SP500. The driving force behind NVIDIA's move: artificial intelligence. Artificial intelligence (AI) is the world’s most important computational problem, and NVIDIA has already an incredibly strong position within AI, and it is the only company in the world that produces and ships semi-custom supercomputers in high volume. And if investors hold on to this stock, then historically the probability of an outperformance is not a fringe one. Why? Because NVIDIA has no intention of ceding its AI dominance - which began when the hardware and software company helped power the deep learning “revolution” of a decade ago. In fact, the foundation and infrastructure for the digital economy is the NVIDIA software and hardware stacks, which give modern data centers the power to accelerate generative AI and high-performance computing workloads. NVIDIA shows few signs of losing its lead as generative AI explodes with tools like ChatGPT. The company is significantly ahead in customizing higher level libraries for specific verticals and industries. With the company having more software engineers than hardware and significantly greater R&D budgets than its peers, this AI software advantage is likely to persist for a long time. And given how markets usually reward companies with demonstrated commitment to capital returns and solid balance sheet, we do expect an increase in price as % of value. I warmly recommend reading our NVIDIA Valuation Presentation Summary FY2017-2023 that sheds insight into our thinking, investment philosophy, conviction, and more.
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