At the dawn of the automobile, you might have been right that cars were going to be big, but would most likely still have been wrong about which manufacturer to back. The answer with hindsight, as Warren Buffett points out, was to short horses. It is his reason for being reticent in investing in new technology.
At the dawn of self-driving vehicles, believers are faced with a similar challenge: do you bet on Tesla Motors, Google, Apple or a traditional carmaker? Predicted safety gains mean you could perhaps short Mr Buffett’s car insurers. There is, however, a lower-risk long alternative: Nvidia, the chipmaker, which sells its graphics processing units to more than 80 companies developing autonomous cars. As an added bonus, it solves the problem of which company to back if you are excited about virtual reality: do not worry about picking between Sony, HTC and Oculus. Nvidia’s graphics processing units power VR too.
The shares have been on a tear — up more than 80 per cent this year and a further 3 per cent after-market following strong earnings on Thursday evening. There could easily be big bumps ahead. For now, the relatively old-fashioned business of PC gaming accounts for the bulk of revenues. The adoption of autonomous driving is still frustratingly hard to predict. Virtual reality in its first mass-market offerings could be a flop.
But even though it is the best-performing US tech stock this year, Nvidia’s shares do not look to be inhabiting an alternate reality of their own. Its enterprise value is about 20 times estimated 2016 sales — punchy, yes, but about half the multiple at Arm Holdings, the UK chip designer being acquired by SoftBank. And revenues of $1.4bn in the quarter are growing at 24 per cent a year. Forecasts looks unduly modest, pricing in a softening of gross margins. Automotive revenues are less than 10 per cent of the total and most of these are for “infotainment” rather than autonomous driving. There is plenty of road ahead.
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