The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Nvidia's stock performance this year has been extraordinary, raising a key question: can its shares continue to rise?
A member's message caught my attention, asking, "My investment in Nvidia (NASDAQ: NVDA) has grown from four digits to six digits. What should I do?" This is a common dilemma for many investors.
The Phenomenal Rise of Nvidia
Nvidia, one of our stock picks from September 2018, has seen its shares surge over 1,850%, or more than 19 times their value, excluding dividends. Today, Nvidia stands among giants like Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL), but its stock performance is unparalleled.
According to Barron’s, Nvidia's shares rose by an astounding 240% in 2023, far outpacing Microsoft's 58% and Apple’s 49% year-on-year gains. This momentum continued into 2024, with Nvidia shares up over 120%. Nvidia has contributed almost a third of the S&P 500’s gain so far in 2024, demonstrating its significant impact on the index.
The Business Behind the Boom
For the fiscal year ending January 31, 2024, Nvidia’s revenue soared by 126% year-on-year to $61 billion, while its free cash flow (FCF) jumped more than sevenfold to $27 billion. Analysts project revenue to reach $120 billion this year, with long-term projections suggesting $246 billion in sales by FY2029.
Despite trading at around $131 per share, Nvidia’s price-to-FCF (P/FCF) ratio is nearly 83 times, significantly higher than Microsoft's 47.5 and Apple's 33. The critical question is whether Nvidia can justify this high valuation.
Nvidia has been central to the Generative AI (GenAI) boom, thanks to its graphics-processing units (GPUs), invented in 1999. GPUs are crucial for deep learning, an advanced AI technique that feeds machines vast amounts of data to help them learn by trial and error.
The Long Road to Success
Nvidia's current success results from years of innovation and strategic moves. In 2006, Nvidia made its GPUs programmable through its CUDA (Compute Unified Device Architecture) platform, allowing third-party developers to build applications on its architecture. Today, over 4.7 million developers use CUDA and other Nvidia tools.
Nvidia has introduced several advancements, such as:
- NVLink in 2014 for better GPU connection.
- The acquisition of Mellanox in 2019, bringing InfiniBand architecture for high-performance computing.
- The Nvidia Grace CPU Superchip in 2022, its first ARM-based data center CPU.
So, Should You Sell?
In the short term, predicting Nvidia’s stock movement is challenging. A high P/FCF ratio means shares could fall if results disappoint or rise if the business continues to exceed expectations.
As investors, our focus should be on the long-term sustainability of Nvidia's competitive advantage. If Nvidia can maintain its edge, its shares should perform well over time.
However, it's important to remember why you invested in the first place. If your gains from Nvidia help you achieve your financial goals, consider it a success. The ultimate goal is to meet your personal financial objectives, not just to beat the market or outperform your peers.
Conclusion
Deciding whether to sell Nvidia shares depends on your individual financial goals and risk tolerance. Assess Nvidia’s long-term potential and consider your personal objectives to make an informed decision.
Comments
Post a Comment