Nvidia's Great Big Non-Event

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Jeff’s Random Words

Jeff is on vacation. Again. Only bankers and educators get this much time off.

Jason’s Random Words

Nvidia is an interesting company to follow right now. The more I have studied AI and the massive spending that is basically all going to Nvidia, the more I realize that the seemingly absurd numbers that are being tossed around for possible spending to build out the necessary computing infrastructure could actually be underestimating the scale of the AI opportunity.

I am also reminded that, so far, few companies have really done anything with generative AI that makes them money; so far it’s mostly been Nvidia, AMD, and the companies making the machines, tooling, and software used to manufacture semiconductors that are profiting. If that doesn’t change, this could play out exactly like the dot com boom and bust; i.e. a lot of money gets lost by investors over the next half-decade.

Which brings me back to Nvidia. Well, really it brings be back to Nvidia, along with math and psychology. This past week I made a couple of videos about the Nvidia stock split. The first video was just a breakdown of what was happening (the 8-piece Nvidia pizza getting cut into an 80-piece pizza) and that the best thing investors should focus on what the opportunity and fundamentals. The second video came about in response to a lot of the comments — and the things I was reading and hearing in the pre-split zeitgeist — of people trying to figure out what to do. Generally these were the questions people had been asking before the split, which happened after the close on Friday:

• Should I buy before the split?

• Should I sell before the split?

• Should I buy after the split?

• Should I sell after the split?

There were also lots of questions and some pretty dumb assertions around the valuation post-split. One YouTube commentor who claimed to be the CFO of a big company, and said that the PE ratio would fall from the pre-split 70 to 7 after the split. Yeah, that’s not how splits work. I hope that guy (it’s always a guy posting ignorant nonsense anon on stock videos on YouTube) isn’t really a CFO.

So the math is simple, and Nvidia’s potential is pretty simple, too. The AI boom has to just keep booming, and the companies like Microsoft and Meta Platforms and a dozen or a hundred more who are also working on building tools out of generative AI just have to start selling them to their customers, and their customers have to get enough benefit to keep buying and buy more. If that happens, the math gets very favorable for Nvidia to get even bigger and more profitable and for investors to keep winning over the long term.

Now, the psychology. Our YouTube channel is almost two years old, and we had around 5,000 subscribers prior to making those two videos. About a week since posting the first one, and we have over 6,100 subscribers. Those two videos increased our subscriber count by what we generally pick up in about three months. They have also generated more than 21% of our total traffic for all of 2024.

And this is all over something that, intellectually, we all know is a non-event: a stock split.

Thing is, we are humans, and humans are constantly looking for indicators, triggers, and patterns that can give us an edge. Greed and fear have driven us for millennia, and our ability to know when to act has proven just as valuable as knowing what to do. A few thousand years ago, if you knew when the fruiting trees in that valley to the north would produce fruit, getting there before the local wildlife did could be the difference between life and death.

The thing is, the parts of our brain that process information and look for signals and patterns can’t tell the difference, and it will ignore the rational mind that says “nothing to see here.” Overriding the rational mind paid dividends when we slept in trees or on the ground and could literally be eaten alive by predators every night. But it’s a serious detriment to a lot of parts of modern life, particularly making better investment decisions.

So what to do? I think it gets back to having an investing framework that’s built around your short- and long-term goals, and filling your toolbox with tools that help you make the most of the things you’re good at, and harder to do the things that can undermine your success. Jeff and I talked a little about this in three recent episodes, Imposer or Investor, 3 Things to Know Before Buying Your First (or Next) Stock, and How to Be a Successful Stock Seller.

There will always be pretty, shiny, distractions standing between you and financial success. And I think just as Odysseus did with the Harpies, we should both listen to them, and tie ourselves to the mast of our investing ship. We have to know what they look like and sound like, and we also have to take steps to keep from acting on them.

You can do it,

Jason

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