Convequity MSU: NVIDIA - Dec 2023

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):

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Networking Chip Segment:
    • U: Predicts challenges in NVDA's networking chip revenue and margins due to market shifts.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.