People are always asking why I like technology so much. They want to know whether I have fallen in love with FAANG, my acronym for Facebook (FB) , Amazon (AMZN) , Apple (AAPL) , Netflix (NFLX) and Google (Alphabet) (GOOGL) . Whether I have gotten too gaga over Microsoft (MSFT) . Whether I had gone nuts by naming my dearly departed rescue dog after the finest semiconductor of our time, Nvidia (NVDA) .
Yet, on a day like today, I want to say are you kidding me? While I know these are just pieces of paper, technology stocks work, because the companies underneath them are forever changing and changing in a spectacular way.
Just today we saw two classic examples of exactly what I am talking about when Nvidia announced a raft of new products, everything from autonomous car chips, to high performance chips that are 10 times faster than Nvidia’s current stable, to chips directly challenging Intel (INTC) and AMD (AMD) for central processing units. The boldness of one of the new computer lines, named Grace, after Grace Hopper the late Rear Admiral and a pioneer in programming, is stunning and the challenge to not just Intel and AMD but all comers is stunning.
I think Jensen Huang, amazingly, has actually outdone himself. I often call him the Da Vinci of our time. He does me one better: “Nvidia is a computer platform company helping to advance the work for the Da Vincis of our time – in language, understanding, drug discovery, or quantum computing,” he explained during the firm’s analyst day, wearing his characteristic leather jacket, but coming from his uncharacteristic kitchen as the specter of COVID is still with us. He concluded by saying, “Nvidia is the instrument for your life’s work.”
I know, it sounds very ethereal, but while Huang is an artist, Nvidia is all business.
I say that because the company also used the occasion to announce in advance sharply better-than-expected numbers. As the news flow of products came out, the stock was creeping up, but when the company announced that business was much stronger than even the loftiest of projections, shares really took off.
Why is this so important to me? Why did I rename my dog, formerly Everest after this living, breathing organization that is Nvidia? It is simple: Because this company reinvents itself every single year and that’s created a colossus that is now the most valuable semiconductor company in the U.S., although after today I hesitate to call it a semiconductor company as these devices are meant to be written on and are loaded with the kind of software that defines artificial intelligence.
Huang’s never afraid to challenge conventional wisdom and right now, that conventional wisdom includes the notion that autonomous driving might be a bust. But when you consider what Huang has done with an array of Chinese car manufacturers, you will see someone who hasn’t given up on the practical realities of the holy grail for the 10 trillion dollar auto market.
When I was out there a few years ago, Huang showed me where they were on autonomous, which he admitted was very tough to do. Well, they did it.
Now, let’s reduce everything to what Wall Street wants, which his better-than-expected numbers. I have said time and again that Nvidia’s stock always looks expensive. It seems like it sells a gigantic multiple to earnings – not sales, but earnings. It’s so expensive that both analysts and institutions reject the valuations and go looking for value in tech.
Nothing could be a worse decision, because those projections are usually beaten so handily that they are almost irrelevant. The stock ultimately turns out to be cheap, while the value plays turn out to be expensive, because they can’t make the numbers.
They aren’t afraid to better their own product. Today, in true fashion of the late Andy Grove — once Intel’s fearless leader who wrote the best business book ever, “Only the Paranoid Survive” — he crushed his current offerings with devices that are 10 times more powerful.
Once again the estimates will be bumped, once again I am certain that a company that says it can’t meet the demand for any of its products, will surprise to the upside and an expensive stock will turn out to be a value play.
Now lets talk about another way that tech reinvents itself: acquisitions. Microsoft announced Monday it is purchasing Nuance (NUAN) , a one-time, second rate catch-all of technologies that has worked to develop conversational artificial intelligence that digitizes what many consider to be the most intractable segment of the economy: health care. Nuance has forged strong ties with both Cerner (CERN) and the private EPIC that amount to a major breakthrough for providers who use their services. As Satya Nadella explained to me, when I asked him if this tie-up would benefit the patient, it is really meant to make it so doctors don’t have to spend two hours on paper work for every hour that they spend on patients.
It’s a $19.6 billion deal, which seems like a great deal of money to lots of companies, so big that you would expect a stock component, but Microsoft, like so many other big-cap tech companies, is swimming with cash, at last look $130 billion, so it barely hits the kitty. Nadella said on “Squawk on the Street” that this acquisition could ultimately double the total addressable markets that Microsoft plays in, which is remarkable in itself, because the company has its hands full with what it already competes in. Once again, though, a company that sells at 38-times earnings suddenly seems a lot less expensive to me.
These kinds of things simply aren’t unusual in the tech world. Sometimes, these companies are making far less than they could be. The other day a co-worker of mine asked me how much money Facebook makes from WhatsApp. I said it was free, they haven’t even begun to monetize it. I feel the same way about Alphabet, which can do so much more with YouTube. Apple’s inventing by the day even, as so many analysts continue to say that it will miss the numbers, because of heavy reliance on the cellphone. Do you want to go against Amazon, when every major company I talk to is proud of being affiliated in some form with Amazon Web Services?
These reinventions are all part of what happens when a tech company puts out what’s been on the drawing board for years. Sometimes, I have to wonder why were people so astonished at what Nvidia unveiled Monday? What did they think would happen on the company’s analyst day? Did they expect incremental changes to the line-up? Perhaps a better Ethereum miner? Maybe an announcement that it planned one day to go head to head with Intel but it wasn’t ready yet?
That’s not Nvidia. That’s not Jensen Huang. And that’s why you can’t buy tech on future vision and nobody in the world has vision like Jensen Huang. Nvidia lives on, both the dog and he company, but only one’s still a living, breathing organism and that trade on the Nasdaq at 613, up 37 on the day and still inexpensive as you will see when we get to 2022.
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