Convequity MSU: NVIDIA - Dec 2023
Summary
- We kick-off the application of the Convequity MSU framework on NVDA.
- We provide a very brief 12-point summary of our MSU framework application followed by detailed insights about NVDA, the AI chip landscape, and its competitors.
- As this is a new type of report, there will be a degree of iteration as we strive to make the MSU framework maximally useful for investors.
In general, compared to U, M and S are more optimistic about NVDA's market leadership, growth potential, and product innovations, underestimating the impact of external factors and competitive pressures.
High-Level 12-point Overview of the MSU Application on NVDA
Following on from our introductory report to the MSU framework, we have amended the scoring system. M, S, and U will be given one of the following scores:+++, ++, +, /, -, --, ---
The forward slash is a neutral view on the stock. +++ is the most bullish and --- is the most bearish.
For the NVDA MSU, we make the following scores to compare and distinguish the three types of views:
M+++, S++, U/
Here is a 12-point overview highlighting the key areas where our views (U) differ from the Market View (M) and Street View (S):
- Perception of NVDA's AI Chip Dominance:
- M: Views NVDA as a long-term leader in AI chips.
- S: Expresses skepticism about competitors like GOOGL's TPU, noting internal preferences for NVDA.
- U: Sees NVDA's dominance as challenged by emerging technologies and competitors.
- Competitor Analysis (AMD, GOOGL, and Others):
- M & S: Recognize potential threats from AMD, GOOGL, and other tech giants.
- U: Believes NVDA maintains an edge due to competitors’ software limitations and NVDA's CUDA ecosystem.
- Market Share and Supply Chain Dynamics:
- M: Anticipates balance in supply and demand by end of CY24, with potential market share shifts.
- S: Tracks supply chain closely, forecasting resolution of constraints by end of CY24.
- U: Highlights geopolitical risks, particularly in China and the Middle East, impacting market share.
- Revenue Growth and Valuation:
- M: Projects significant future revenue growth but is sensitive to growth rates.
- S: Expects high revenue growth, extrapolating from current trends.
- U: Cautious about growth forecasts, considering potential market saturation and geopolitical factors.
- Pricing Strategy and Margins:
- M: Overlooks the high selling price of NVDA products relative to COGS.
- U: Anticipates a significant reduction in pricing and margins in the future.
- CUDA's Role and Future:
- M: Underestimates the strategic importance of CUDA.
- S: Considers CUDA a significant competitive moat.
- U: Recognizes CUDA's current strength but foresees potential challenges from memory technology and competitors.
- Networking Chip Segment:
- U: Predicts challenges in NVDA's networking chip revenue and margins due to market shifts.
- New Product Development and Impact:
- S: Positive about NVDA's innovations like GH200 and H200.
- U: Questions the effectiveness and innovation level of NVDA's new products.
- Gaming GPU Market Dynamics:
- S: Acknowledges NVDA's strong position in gaming GPUs.
- U: Foresees potential challenges in the gaming GPU market from competitors and technology shifts.
- Geopolitical Impact:
- M: Downplays the immediate impact of losing the Chinese market.
- S & U: Concerned about the long-term impact of geopolitical tensions, particularly in China and the Middle East.
- Future Market Trends and AI Chip Demand:
- S: Optimistic about future demand for AI chips.
- U: Cautious about the AI market's growth, considering potential stagnation and new competitors.
- Capacity and Supply Constraints:
- M & S: Acknowledge current supply challenges.
- U: Highlights TSM's capacity limitations affecting NVDA's supply chain.
Now we will share detailed thoughts and insights on NVDA through the lens of MSU.
