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Long Ideas

NVIDIA is Making Less Money is it still a Value Investment

There is a troublesome economic development in Silicon Valley, NVIDIA is making less money. In fact, NVIDIA’s revenues and income are way down.

For example, NVIDIA’s gross profit fell from $2.068 billion on 29 April 2018 to $1.296 billion a year later. Meanwhile, the Operating income at the NVIDIA Corp (NASDAQ: NVDA) fell from $1.295 billion in April 2018 to $358 million in April 2019. Plus,  NVIDIA’s net income dropped from $1.244 billion on April 29, 2018, to $394 million on April 29, 2019.

Consequently, NVIDIA’s revenues fell from $3.207 billion in April 2018 to $2.22 billion in April 2019. Thus, NVIDIA’s revenues shrank by nearly one billion dollars in a year. Notably, Stockrow estimates NVIDIA’s revenue growth rate fell by 30.78%; or nearly one-third, in the quarter ending on 29 April 2019.

Is the Tech Boom Over?

Many will wonder if the dramatic fall in growth and revenues shows NVIDIA is no longer a fall investment.

Others will wonder if NVIDA’s woes indicate the recent tech boom is over. To explain, NVIDIA manufactures the raw materials from which other companies build our modern tech infrastructure. Notably, NVIDIA offers solutions for almost facet of modern tech from gaming to movie production to autonomous vehicles to robots to artificial intelligence.

For instance, NVIDIA builds the super-fast chips and processors that video games, streaming video, artificial intelligence, cryptocurrency, blockchain, and even mobile phones operation. In fact, NVIDIA solutions like Quadro and Image Engine made the recent boom in superhero movies by enabling producers to bring comic book characters like Thanos to life.

Additionally, NVIDIA helps the streaming video boom through its NVIDIA Shield TV. Interestingly, 9to5 Google describes Shield TV as “the best Android device on the planet.”

Beyond entertainment, NVIDIA’s DRIVE brain for self-driving cars is powering autonomous vehicles from companies as diverse as Toyota Motors (NYSE: TM), Tesla Motors (NASDAQ: TSLA), and Volvo.

Why is NVIDIA Making Less Money?

Falling revenues at NVIDIA worry me because the company’s tech is still among the best.

For instance, NVIDIA’s game ready driver for its GeForce RTX graphics processor unit (GPU) is the first GPU to offer speeds over 60 frames per second (fps), techradar estimates. For non-gamers, that means GeForce shows 62.7 frames of game action a second. Thus, it delivers a faster, more realistic and more compelling game.

Moreover, techradar claims the NVIDIA Game Ready driver can deliver 180 to 200 fps. Therefore, the NVIDIA GPU offers nearly double the performance of its competitor AMD.

Is an Economic Downturn Beginning?

Hence, NVIDIA is making the best gaming tech on the market when video games are becoming the most potent media in our culture. Yet, NVIDIA is making less money which could indicate an economic slowdown.

I think NVIDIA’s woes point to economic trouble ahead, because the only reason I can imagine gamers not buying GeForce is if they lack the money. Consequently, US Senator; and presidential candidate, Elizabeth Warren’s (D-Massachusetts) Medium warning of “The Coming Economic Crash” could be correct.

Specifically, Warren claims “the odds of another economic downturn are high — and growing.” I have to wonder if NVIDIA’s revenue and income drops could be the beginning of that downturn.

Many economists; however, are skeptical of Warren’s diagnosis, the Associated Press notes. Yet economic growth has slowed enough for the Federal Reserve to cut interest rates.

Is America Facing Stagflation?

Personally, I think America is entering a period of stagflation. Thus we will see higher prices and low interest rates but little economic growth.

In classic stagflation, some prices rise but wages and incomes stay low. In particular, economic growth is slow or negative under stagflation. Classic examples of stagflation include Britain in the 1960s and 1970s, and Japan’s lost decade of the 1990s.

Under those circumstances, there will be no crash or recession. However, there will be no significant growth or good times. I think companies like NVIDIA; which manufactures components for luxury high-tech products; VR, gaming systems, high definition television, etc, will struggle in that environment.

NVIDIA will struggle because ordinary people will not be starving, but they will lack extra money for things like games. A young person could have to choose between buying a new gaming unit and paying the rent, for example.

Can NVIDIA Survive the Next Downturn?

However, NVIDIA could survive and potentially thrive in the next downturn by turning its focus from entertainment to manufacturing, vehicles, robotics, and other products for industry.

Notably, NVIDIA is devoting a lot of resources to autonomous machines. Those efforts include the Jetson Nano Developer Kit a small powerful computer NVIDIA designs to run robots, drones, and other autonomous machines. Additionally, NVIDIA makes several models of Jetson which serves the brains for robots and drones.

NVIDIA’s engineers hope solutions like Jetson and the ISAAC SDK (software development kit) will speed the adoption of artificial intelligence in environments like factories. In addition, NVIDIA has developed the Jetson AGX Xavier, a computer that runs industrial and commercial robots.

Notably, Xavier operated robots from Fellow Robotics are already operating at Lowe’s (NYSE: LOW) home improvement stores. The Fellow robots monitor stock levels and alert associates to problems.

Can NVIDIA make money with Autonomous Machines?

I think there could be a huge market for the NVIDIA Jetson AGX Xavier because they design it to make autonomous machines scalable. To explain, autonomous machines are machines that operate themselves.

Another term NVIDIA uses is next-generation intelligent machines. An example of a next generation autonomous machine is a forklift or a bulldozer that operates itself. Beyond bulldozers, there are the notorious semi-trucks some companies are already testing on America’s highways.

The Houston Chronicle claims a company they call TuSimple plans to run autonomous trucks between San Antonio and Arizona, for instance. Notably, analysts value TuSimple at $1 billion. In addition, TuSimple raised $95 million in financing which it could spend on NVIDIA products like DRIVE or Xavier.

The market for autonomous trucks could be vast because there Truckinfo estimates there are 15.5 million trucks and two million semi-tractors operating in the United States alone. In addition, 1.2 million American companies operate trucks.

Will the Luddites come for NVIDIA?

Thus, NVIDIA could make a lot of money by powering the technology jobs apocalypse. However, products like Jetson AGX Xavier could spark an ugly political backlash against NVIDIA. I think NVIDIA is one of several companies that will be targets of modern-day Luddities.

Notably, the first politician to make self-driving trucks and robots a campaign issue, Andrew Yang (D-New York) is attracting attention with his presidential run. In addition, at least one major national pundit, Fox News superstar Tucker Carlson is promoting Yang’s message.

Thus, building autonomous tanks or drones to protect its headquarters from mobs could be a smart move for NVIDIA. The Luddite mobs could come because politicians and pundits will need a scapegoat for technological unemployment and Silicon Valley will make a great scapegoat.  

How Much Cash does NVIDA Generate?

NVIDIA (NASDAQ: NVDA) is still a cash-rich company despite its potentially dark future. Impressively, NVIDIA reported an operating cash flow of $720 million, an investing cash flow of $1.495 billion, and a free cash flow of $592 million on 28 April 2019.

However, NVIDIA is generating far less cash in 2019 than in 2018. For instance, NVIDIA reported an operating cash flow of $1.445 billion and a free cash flow of $1.377 billion 28 April 2018.

Importantly, NVIDIA keeps a lot of that cash on hand. In fact, NVIDIA has more cash now than in 2018. Specifically, NVIDIA reported $7.3 billion in cash and short-term investments on April 29, 2018. In contrast, NVIDIA had $7.802 billion in cash and short-term investments a year later.

Is NVIDIA poised for more Growth?

“Growth and value investing are joined at the hip.” – Warren Buffett.

In detail, NVIDIA reported $2.772 billion in cash and equivalents and $5.03 billion in short-term investments on 29 April 2019. Therefore, NVIDIA has lots of money to pay for research and development in autonomous machines, artificial intelligence, self-driving vehicles, and robotics.

Impressively, NVIDIA is spending that money in those areas to drive growth in areas besides entertainment. I think that spending shows a smart management team that understands the importance of growth.

Specifically Walmart could buy 1,500 robotic floor cleaners, 300 stock-scanning robots, 1,200 FAST autonomous unloaders to unload trucks, and 900 Pickup Towers. A Pickup Tower is an autonomous kiosk where customers can collect merchandise they order online.

Is NVIDIA a Good Dividend Stock?

I consider NVIDIA (NASDAQ: NVDA) a good growth stock that Mr. Market overpriced at $168.89 on 31 July 2019.

Surprisingly, for a tech stock, NVIDIA is also a good dividend stock. For instance, NVIDIA paid a 16₵ dividend on 21 June 2019 and 22 March 2019. Moreover, that Dividend grew by 1₵ in 2019 rising from 15₵ on 21 December 2018.

Notably NVIDIA delivered a dividend yield of 0.38%, an annualized payout of 64₵ a share, and a payout ratio of 9% on 31 July 2019. In addition, credits NVIDIA with six years of dividend growth.

Therefore, I think NVIDIA is a good stock with a bright future. However, I think NVIDIA shareholders can expect falling revenues and incomes for the foreseeable. Thus, I advise delaying NVIDIA purchases until we see how far the share price might fall.

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