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NVDA: What Do You Pay for Growth?
2024 will go down as another great year for stocks in the trader’s almanack. However, what won’t be recorded is just seven stocks comprised ~54% of the S&P 500 total gains (~24% with two trading days remaining). It’s a bit like golf – you only need to record the final score – not how you did it. However, the how matters (not just the ‘what’). This post will address the question of what to pay for one the most popular stocks today – Nvidia (NVDA). The asking price is $137 at 32x forward earnings. But does that represent great value given its growth assumptions?
Fed’s Balancing Act for 2025
2025 will not be without its challenges for both investors and central baks. For example, if we consider: monetary and fiscal policy risks; likely introduction of tariffs and price increases; geopolitical risks as global central banks navigate U.S. policy; a stronger US dollar with a rising 10-year treasury yield; ongoing debt and deficits concerns; the risk of stubborn inflation (notably services); and a weakening employment picture – this presents a complex web of related variables or risks. How are markets pricing this in? For now they remain complacent – trading at record highs – at near 22x forward earnings.
End of 20-Year Cheap Money Era
Equities were seemingly caught off balance with the Fed’s ‘surprise hawkish shift’. From mine – there was very little surprising about it – you only needed to look at the data. However, what I was more interested in was how Powell would explain why they were cutting rates. As it turns out he struggled – leading to a small sell off in stocks. The irony was Powell did a better job of explaining why rates should not be lowered (which is obviously at odds with their decision to cut).
Zero Sum Game
Trump’s favorite word in the dictionary is “tariff”. In his view, it just needs a little public relations (PR) help. I don’t know about that. Personally, I’m not a fan of tariffs. Over the long-run, history has shown they do more harm to the economy vs help. Better PR won’t change that. However, in the very near-term (24-36 months) – they can be seen to add jobs and create benefits for the protected industry(s). From that lens, people are mistaken to believe they’re working (as that’s what’s visible). But what about the unseen? To help explain, I’ll draw on the timeless work of Adam Smith. The protectionist policies of today are not only reminiscent of those in the seventeenth and eighteenth centuries — but are arguably worse in their complexity and scale.