NVIDIA's forward P/E ratio is approximately 29.94, indicating the price investors are willing to pay for each dollar of estimated future earnings. This ratio is lower than its trailing P/E of around ~53. How are they overvalued? They're making more money than ever in a rapidly growing new industry that is completely changing the landscape of the entire world.
“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes which is very hard. And that assumes you pay no taxes on your dividends which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?”
Written some time ago by the CFO of a company that was making more money than ever in a rapidly growing new industry that was completely changing the landscape of the entire world. (Not investment advice - it could be different this time.)
> How are *they* overvalued?
By the way, you forgot to mention that TESLA's forward P/E ratio is approximately 203.39, indicating the price investors are willing to pay for each dollar of estimated future earnings. This ratio is lower than its trailing P/E of around ~259.
This morning [Merrill Lynch computer hardware analyst and long-term Sun Micro bull Steve Milunovich] increased his price target to $140 a share, or 42 times his fiscal 2000 earnings estimate of $3.30 a share on sales of $13.9 billion. For fiscal 1999, he expects the company to have earnings of $2.79 a share and sales of $11.62 billion. "Sun is increasingly at the heart of Internet computing. Its stubbornness in developing its own technology is paying off," says Milunovich.
What is the track record of these analysts? I don't know of any analysts doing these forecasts which have hold against reality at all in the span of 10 years, if anyone knows of one analyst whose forecasts have held 50% of the time they predicted something in the span of 10 years I'd love to see the data :)
They have always been profitable as a company, and even after all the hype, I would still value them as a "Cash printing machine". Which is what you want when you buy an asset such as a stock.
With the US trying to hyperinflate their debt away, the only safe havens have proven to be cash generating tech businesses and its going to be that way for the forseeable future. Valuations are only going to get crazier from here.
Again, since revenue is the denominator in sales ratio, you are conflating what the OP said...
The difference here and between the .com bubble is these companies have high earnings. They are literally walking cash cows and are printing money... AKA the earnings, with revenue not being important here because that's what CAUSED the .com crash. (High revenues, but absolutely burning money).
NVIDIA is in the business of selling shovels to the gold miners in this scenario, not the gold miners themselves.
One exception i will grant you, is they started giving away some of their tools on equity (investments in openAI, stargate, etc. are very circular), and then will turn around and sell that back to them at their prefered COGS+Profit.
> The difference here and between the .com bubble is these companies have high earnings. They are literally walking cash cows and are printing money...
The difference between you and me is that I know that Sun Microsystems was not burning money and had a price to earnings ratio similar to Nvidia now.
What are “these companies” by the way? Do you mean Tesla?
Sun microsystems was mainly selling to startups, who could go bankrupt. Nvidia is selling to Oracle, Microsoft, Apple, Tesla, Xai and to some extent Google. Excluding potential bubbles here which are coreweave, OpenAI, Antrhopic, etc.
And by "these companies" I mean all the companies i just listed excluding the potential bubbles.
They are all making heaps of cash, buying from a company who is also making heaps of cash on each sale. You also have to price in the geopolitical influence of controling such a important piece of tech.
> Sun microsystems was mainly selling to startups, who could go bankrupt. Nvidia is selling to Oracle, Microsoft, Apple, Tesla, Xai and to some extent Google.
Excuse my ignorance, but who are Oracle, Microsoft, Apple, Tesla, Xai, Meta, and Google getting their revenue from?
Oracle, Microsoft: Fortune 500, governments and big cos everywhere in the west.
Apple: their loyal fanbase everywhere.
Google, Meta: advertisers everywhere.
Tesla, Xai: not sure, but definitely not just startups.
Implying these will go under and therefore NVIDIA is in trouble is a stretch. Far more likely they wean off its hw and use inhouse, or OpenAI and Anthropic go under, or AMD catches up, or there is WW3.
Ok, if Tesla is literally a walking cash cow so are Ford or GM to name just a couple of companies in the same sector. (Both together are valued at less than one tenth of Tesla and print five times as much cash.)
I agree that it's better that your customers do not go out of business. One should not forget though that they may have other reasons to buy less of the thing you sell or they may prefer to get it from someone else.
