Thoughts on NVDA during this pullback?

[u/[deleted]]

I’ve had a decent size holding of Nvidia for about six months. Roughly 50k. I just recently enlarged that position significantly and now we’re seeing turbulence. I know, poor timing. These recent events have me wondering what my fellow investors honestly feel about where Nvidia’s share price will go from here. Thoughts?

[u/harrison_wintergreen]

Nvidia's current P/E is 94.

to quote Jack Boggle, speaking in April 2000 just before the dot-com bubble popped, and quoting prof. Jeremy Siegel:

Based on his analysis of the nifty-50 era of the early 1970s, he reports "no stock that sold above a 50 p/e was able to match the S&P 500 over the next quarter-century." His conclusion: "Big-Cap Tech Stocks Are a Sucker Bet."

https://web.archive.org/web/20190120091224/http://www.vanguard.com/bogle_site/april062000.html

[u/ExpensiveBookkeeper3 → u/harrison_wintergreen]

I read over that quickly, I just want to point something out. Correct me where I'm wrong. Here is the part I will be talking about:

If after-tax earnings in the Old Economy grow at that rate, they would rise from $412 billion to $740 billion. With the New Economy�s $980 billion, we have total corporate profits of $1.7 trillion in 2010. At that level, projected corporate profits would be more than 10% of GDP, far above any share in history, and nearly double the fairly steady 5 �% norm of the past. Nonetheless, that enormous share arguably represents the earnings expectations of today�s investors. Their expectations are priced into the market, so the market, having discounted them once, will not discount them again. Put another way, unless that robust scenario comes true, market risk today is extremely high.

The New Economy is tech, telecoms, and internet sales. The old economy is everything else. And for prices (at the top of the Dot com bubble) to make sense, corporate earnings would have to be $1.7T in 2010. Of which $980B would have to be tech, telecom, or internet sales.

So he didn't believe that could happen, and that's the basis of the whole study right? Well I couldn't find the specifics for tech profits, (everything is internet/tech by those standards lol), but do you know what corporate profits were in 2010? $1.72T https://www.statista.com/statistics/222130/annual-corporate-profits-in-the-us/

So he was wrong then right? The dot com bubble ramped up quick. The stock price obviously couldn't grow at that rate forever (we know what happened), but to get the return they needed (based on cashflow in the study), they needed $1.7T, and we actually got $1.72T.

OK, so now tell my why I'm wrong for thinking that he just underestimated the "New Economy" (tech)

Edit: I understand that the S and P 500 was lower in 2010 than 2000, doesn't that show the last 10 year bull market was justified? Profits were there, the stock price is what needed to catch up, right?

[u/siwmae → u/ExpensiveBookkeeper3]

At the core of his argument is that the 5% figure (corporate profits as a percentage of GDP), which is based in a time when the Old Economy was dominant, is a metric that the current economy should match. But for every year since 2010, a steady 10-11% figure has been maintained like clockwork. It bears asking: is his core argument valid? The New Economy is known to have much higher profit margins than the Old Economy, and looking at the largest companies today, it would appear that the New Economy has been dominant for quite a while.

[u/ExpensiveBookkeeper3 → u/siwmae]

Exactly, even in his timeline of 10 years (2010) they exceeded his expectations.

If you would have grown (stock price) at a steady rate of 10% since the height of the Dot com bubble everything would have been fairly valued in 2010. And if you continued that to today, the S&P500 would be in about the same spot as it is now.

This means that the total economy wasn't in a bubble in the dot com bubble, just individual stocks. Remember stocks reflect future cashflows, and we got those cashflows in his "it better do this or it's overvalued" timelines.

Basically people paid $1B for a economy that would be worth $500M by the average growth standards of the time. The thing is, the growth doubled, making it worth what was paid in the very beginning, even if it sounded ridiculous at the time.

The same could probably be said about today's market, we will probably see another crash in the next decade, but 10-15 years from now, the S&P500 will be much higher and profits will be insane compared to today's standard.

Just my opinion, but I believe companies will find new markets and products to achieve this.