I've been browsing Steemit for a little over a week now and for a community that is able to recognize value, potential, and opportunity such as this: I was shocked at how little content there was about investments that excite a crowd like ours. So, for my first post of any real content, I'd like to share the first investment I've ever made with you all: Nvidia (NVDA). It's excited me for years now and I believe it will continue to do so.
Last Year, NVDA
My long term reasons for investing are more focused on Nvidia's burgeoning development in the automotive, deep learning, and data center markets (which I will explore in later posts), but the company's continually strong position in the high performance gaming GPU (Graphics Processing Unit) market is what interests me today.
To those who are already aware of Nvidia’s forte in GPUs, I will be saying nothing new and there are hundreds of reviews covering the specs of these cards. In my posting I hope to avoid any lingo that could be confusing to those with less technical knowledge and in order to achieve that I will try to write this post in the same language that I explained this to my parents. Without any further ado,
Here's why:
For years, high quality PC gaming and the astounding graphics that are associated with it have been reserved for the fanatics of the “PC MASTER RACE” who were willing to shell out big bucks for the best performing parts on the market. These parts were innately expensive to begin with reaching prices upwards of the $400-700 range. In this market, Nvidia reigned supreme over their main competitor, Advanced Micro Devices (AMD), with an astounding market share sitting above 80%. In addition to the superior speed and capabilities of Nvidia’s products, I believe this dominance was helped by the market’s naturally high price points.
If a customer is willing to drop the equivalent of a new gaming console on a singular graphics card, spending a bit more to get substantially better performance seems to be a bit of a no-brainer. If given the option between buying a Ford Taurus or a Bentley for an extra $100-200, I believe most would choose the Bentley. There’s nothing wrong with the Ford and it certainly gets the job done, but I would have a much more luxurious ride in the Bentley that was well worth the extra money. Plus, people are impressed when you drive around in the best car in town.
This recognition of brand and quality could be seen in nearly every forum discussing the topic. AMD has a history of making big promises and underperforming when it comes time to deliver.
Nvidia on the other hand has consistently satisfied, if not blown away consumer’s expectations.
When I first started researching Nvidia 4 years ago, and up until about a month ago, the consensus of opinions I found for which graphics card maker to go with was: “Hands down Nvidia, unless you really need the extra money for that heart transplant in which case I guess it’d be reasonable to choose AMD.”
So, what happened a month ago? Before we get there, a feel that a little backstory is relevant.
AMD had been promising to deliver a new line of GPUs that would perform at a $500 level and with half the power consumption for an astounding $200. Given the company’s track record, the market was skeptical and AMD’s share price reflected that throughout the calendar year of 2015 and up to April 15 of 2016; starting the period at $2.67 and rising only +0.03 (1.12%) in that time frame.
Then, during after hours trading between April 21st and 22nd, AMD’s price shot up +1.37 (52.29%) to $3.99 after they announced their first quarter earnings (where the company incurred a loss of -$0.14 per share but beat the Zacks Consensus Estimate of $-0.15. “AMD might not be dead yet, woo!”) in conjunction with announcing a new licensing deal for their x86 server chips for CPUs with the Chinese venture capital firm Tianjin Haiguang Advanced Technology Investment Co. (THATIC) While this was certainly good news for AMD and their processor market, they face an even more intimidating foe than Nvidia in this market in Intel.
Mercury Reaserch estimated that of all x86 chips shipped in 2015, Intel supplied 87.7% while AMD accounted for 12.1% with Via Technologies filling the remaining fraction of a percent. More importantly, for large corporate data centers which rely on these chips, Intel provided for 99.4% of the market while AMD (who used to account for ⅓ of the market) came in at 0.6%. From this data I concluded that it wouldn’t be unreasonable to see THATIC having leverage and negotiating power against the once almost-bankrupt AMD in that situation which would lead to a favorable deal on their end. As I mentioned earlier, AMD is lucky to have it’s head above water. This is not to say that this is bad deal for AMD, it was much needed and the adoption of their technology wherever possible is always a good thing. How far this good thing will go remains to be seen.
Last 6 Months, AMD
My point in mentioning all of this is to show that while AMD is growing in some regards, it still faces a steep uphill climb to regain any form of financial comfort.
AMD’s price continued to rise after April 22 through May and June thanks to a new deal to create semi-custom chips for the big three of console manufacturers: Sony, Microsoft, and Nintendo. This announcement, compounded with AMD-provided benchmarks of their new Radeon line of GPUs based off of the new Polaris framework, provided a period of excitement around AMD and their stock price showed it as it rallied to $5.13 on June 29.
Old habits die hard…
AMD released the much anticipated RX 480 and was met with near instant rebuttals to their claims of performance and power efficiency. Performance numbers were not high enough and the amount of power drawn was too high, using around 168W instead of the promised 150W (more concerningly, the cards drew more power from a connection than is recommended for that port and caused fears of motherboard damage in low-grade systems which it was marketed towards).
AMD released a patch to fix these problems and while the RX 480 runs closer to the promised specs now, they arrived at this point only after misleading their customer base and receiving threats of a class action lawsuit over misrepresenting their products. That being said, the RX 480 is ready to support virtual reality games, the next big thing in gaming, but it is only JUST able to do so. When I say that, I mean that it is above “unable” and “capable,” but should the system requirements advance in the future, I fear the RX 480 could begin to struggle as it has no chance to run games in 4k resolution is truly only optimized for 1080p..
For the time being, it will handle everything just fine and “support” VR in Facebook’s Oculus Rift and the HTC Vive headsets.
Now for the good stuff:
Nvidia’s answer to the $200 RX 480 comes in the form of the GTX 1060 starting at $250. Benchmark testing is already arriving online (http://videocardz.com/62364/nvidia-geforce-gtx-1060-reviews) and from what I have seen so far the Nvidia 1060s are running about 15-20% faster than AMD’s 480 at roughly 10% more cost, which already makes Nvidia look like a Bentley again. This was before I found out that the GTX 1060s run at only 120W… Faster, Cooler, Less Electicity… I feel like there’s nothing more that could make Nvidia mor- OH WAIT.
Looking Ahead:
As I mentioned at the beginning of this article, there was a consensus among PC gamers that Nvidia was the GPU to buy if given the choice, even if it costs a bit more. The same appears to be running true for the company’s foray into entry level cards with high level performance. Why is this critical in my bullish stance on Nvidia today? Nvidia’s stock price has faltered slightly in the past month due to fear of competition from AMD’s new wondercard amid their already successful first quarter, perspectively.
What I believe the market is missing is that in the core market for both businesses, Nvidia and AMD, is that preference has favored Nvidia for years and AMD has failed to do much to sway that and, in my opinion, ultimately reinforced its image of an underperforming underdog to Nvidia. AMD still has an upside from licensing deals and console sales (although I liquidated my holdings at the market’s opening this morning in order to buy later this week at a lower price point), but the attitudes and performances in the core GPU market remain the same.
The hype over AMD’s recent earnings are partially valid as I believe they will continue to grow, but all of the other investment blogs and shows that I’ve read and seen have failed to take note of the fact that in AMD’s recent earning spree, the individual customer has no choice in the matter of which GPU they can purchase. Chinese Deal: State driven sales. Console Deals: Consumers buy the console and the company’s exclusive games, not the GPU. RX 480 from June 29-July19: hands down the best GPU on the market at the time WITH NO COMPETITOR.
When it comes to customer choice, those who know enough about performance and value choose Nvidia. Those who don’t know are likely to ask someone who does know, who, 80% of the time, will recommend Nvidia. Countries and Companies seek to get great deals on their bulk purchases, but the Consumer tends to want the best and I’ve continued to see that ring true with the GTX 1060.
Disclosure: I am long Nvidia (NVDA) and AMD (AMD).
Thank you for reading and I hope this was helpful. Please comment and let me know if there’s anything that I should clarify, or if there is a position that needs more explanation. I’ll do my best to respond to any questions in the comments, and I will feature the best ones in the post in future edits. Good day! (at the time of writing, NVDA is up +0.44% since markets opened this morning, AMD down -2.00%)
Last 6 Months, AMD
Last Year, NVDA
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