NVIDIA – Crescat Capital Updates Bullish Thesis On NVDA
We are pleased to report mid-month and year to date performance. Additionally, we’ve provided an update to a favorite long position, NVIDIA (NVDA). All three Crescat Strategies have performed well year to date, as the S&P 500 has been on a roller coaster. We remain well-hedged across our macro themes.
May Month to Date Net Estimates (through 5/13/16)
Crescat Global Macro: +1.9%
Crescat Equity Long/Short: +1.8%
Crescat Large Cap: -1.8%
S&P 500: -0.8%
2016 Year to Date Net Estimates (through 5/13/16)
Crescat Global Macro: +4.3%
Crescat Equity Long/Short: +4.5%
Crescat Large Cap: +5.5%
S&P 500: +1.0%
We have some great news! NVIDIA (NVDA) was up 15.2% today (5/13/16). It was the best performing stock in the S&P 500 after a strong earnings beat and raise. The upside came mostly from the datacenter (up 63% YY, 47% QQ) as the company started shipping its new Pascal GPU (Graphics Processing Unit) platform for deep learning and artificial intelligence applications.
NVDA is Crescat’s largest single stock position across all three of our strategies that is not a part of spread trade (i.e. Yahoo/Alibaba spread). The company is part of our Digital Evolution theme, which focuses on finding winners and losers in highly competitive technology industries. Kevin presented NVDA at the ValueX Vail Conference in June 2014 when the stock was trading at $19.14/share. At that time our discounted free cash flow valuation and 3-year target price was $50. It is almost two years later and the stock closed today at $40.98.
In the last year, NVDA has outperformed all of the more well-known tech darlings, aka the FANG stocks (Facebook, Amazon, Netflix, and Google) all of whom are NVIDIA customers. We are still looking for $50 within the next year and we believe NVIDIA could be one of the great S&P 500 secular growth tech stocks to buy and hold for the next ten years.
With over 10,000 patents and, NVIDIA is the inventor of the GPU and the market leader in graphics processing semiconductors. They have created the next generation platform for high performance computing, including artificial intelligence, virtual reality, and autonomous cars. NVIDIA is already the leader in the video game graphics semiconductors, a steady growth market in which it dominates its next closest competitor, Advanced Micro Devices. NVIDIA has one of Silicon Valley’s most visionary and dynamic CEOs, Jen-Hsun Huang, pronounced Jenson Wong. See his recent Pascal GPU launch presentation here.
Here are a few telling quotes from the analysts’ reports after yesterday’s earnings:
“We have underestimated the overall growth materially.” – Morgan Stanley
“NVIDIA faces no competition.” – Raymond James
“NVDA offers leverage to the most interesting areas of tech, namely Deep Learning/Artificial Intelligence, Automotive, and Virtual Reality/Augmented Reality that make the company one of the most interesting growth stories in semis.” – Evercore
“NVDA product gross margins have expanded from 46.8% to 55.7% over the past four years, which we think signals its shift to a platform supplier from a chip supplier.” – Jefferies
NVDA is a well-managed business with strong free cash flow generation and cash flow return to shareholders. It still has good value, strong growth, shareholder friendly capital allocation through strong R&D spend, as well as dividends and stock buybacks, and a strong balance sheet. It still scores in the 99th percentile within Crescat’s systematic fundamental equity model.
Lastly, April performance reports are now available for download – please click below. Our focus and motivation is and always has been on the protection and growth of capital for each of our clients. We appreciate and thank you for your continued support of Crescat Capital.
The Crescat Investment Team
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