Dream FIRE Portfolio

[curious]

What a massive year this has been for both India and US equity investors. My India portfolio is up 31% whereas my US portfolio is up 51%!!! This “Double Engine” growth has helped me to achieve my financial independence a couple of years earlier than I planned for:)

Varun Beverage is the new multibaggers in my India portfolio. I sold Paytm with flat gain (went with Mr Buffett) and replaced it with Rainbow Children Medicare as it has created its own niche in the Child care segment. Ethos, Polycab, PI Industries, VBL and Granules India came out to be the winners in the India portfolio. My India portfolio 5 year CAGR return has crossed the 20% mark due to this crazy bull market that started in 2020. 10 out of 24 stocks are giving more than 100% return and the average holding period is nearly 2 years as of now.

Not sure if I will take up quant trading if I go for RE after achieving FI to increase my return:) It will surely be new learning for me. I generally avoided short term quant trading as I wanted to do it after automating the entire process. I shunned this idea temporarily after reading the stock trading related book “The man who solved the market” (this is the only stock trading related book I read) After reading the book I somehow understood how difficult it’s to create such system (in fact this team first used AI/ML to do the quant trading) and why it’s futile for me to try the same before achieving my FI:) As a result with a corporate demanding private job in hand, I went with long term investment (along with MF/ETF investment) as it demands little time to generate above average return (specially in India where leaders don’t get disrupted frequently like in US).

Since last year I actually faced a challenge in investing in the US market. If anyone is interested to know about how severe the bear market looks then one can look at the US small cap Russell 2000 chart from 1st Nov, 2021 to Dec 2023. During this time period the US small cap index fell more than 35% from top on 3 different occasions. As my US portfolio is equally divided across Large and Mid/Small cap so as a long term investor I had to negotiate such storms doing just nothing and praying for this to end as early as possible. This period tested my resolve and conviction on my investing thesis. But I survived as I was on the right side of the structural change happening in the tech world.

As a techie I could get a first hand experience on how technology is changing day by day. As I stated earlier I became bullish on Cybersecurity, Cloud and AI (Cloud and AI go hand in hand) related stocks from 2019. Last year here I in fact listed stocks that I believe are the leaders in their respective segments. Those were Nvidia, Microsoft, DataDog, Tradedesk, MongoDB, Snowflake, Hubspot. Crowdstrike, Zscaler, Confluent, Cloudflare, Palantir, Zoom and UIPath. I also have a stake in AI apps like insurer Lemonade and Upstart (two most heavily shorted stocks in the US market). I also have invested heavily in Tesla, Shopify, Intuit and Mercadolibre as they use AI in some way and others and leaders in their respective segments.

Since my initial purchase in late 2019 these investments were going in the right direction. In fact these stocks quickly recovered after covid crash and started making new highs. But then came the 2022 bear market where all these stocks fell on an average 70% from top. Not only did it sucked out all my profits, it also took my portfolio into deep red. As I am a firm believer of these structural changes and familiar with their products so I took the plunge and started buying more as I took it as a golden opportunity to load up. I also noticed that though companies revenue growth rate fell but they were still growing comfortably 30% YoY even in this tough environment. Not only that, these companies became prudent with their expenses and became FCF positive in no time.

This time I understood how difficult it’s to hold onto such stocks when they are getting shunned like plague patients due to the impending recession scare in US that never arrived. But familiarity with these technologies and products helped me to stay the course. And then the advent of chatGPT and the large language model in early 2023 vindicated my investing thesis. Nvidia is now up 4.5X, Microsoft is up 3.5X and others are up an average 70% (except Zoom) in the year 2023. I think these are just getting started and I have no intention to sell them in the foreseeable future. I may rebalance some of Nvidia’s gain with my other dividend investment to increase my income after FIRE:). Having said all that, I am still aware about risks involved with new tech like AI. All bets are off if companies are unable to show productivity gain and thus bottomline gain using AI in near future. Will sell these stocks ruthlessly if revenue growth falls below 15%.

I also think the US Small cap is finally ready to run and may give a similar return as India Small cap gave in this year. One interesting data point, during the 2000-2002 dot com bubble burst Nasdaq which mostly represented loss making high growth companies fell almost 83% from top. But what most people don’t know or admit is that the Nasdaq return is way higher than S&P 500 since it came out from a bear market low sometime in 2003.

Now exactly after 20 years, ARKK which now hosts similar loss-making high growth companies, had a similar fate (fell exactly 83% from top) during the latest US bear market. Can it beat Nasdaq 100 in terms of return on the way to its recovery in due course? I firmly believe so as it rightly invests in companies benefiting from long term structural change:) As usual I may be wrong though.

Happy investing and wish all Happy and Prosperous New Year.

Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.

[curious]

As both India and US stock markets are firing on all cylinders, so is my portfolio. “Double Engine” growth is still intact as both are under the grip of razing hot bull markets. On top of that I got lucky to identify the trend (AI and Cloud technology) of the US bull market way before it started. Though I am using the same long term investment strategy in both markets, interestingly money is being made from completely two different sets of stocks. In the India portfolio I am making money consistently from compounders having low volatility whereas in the US market money is being made from disruptors with very high volatility.

In the India portfolio I sold Polycab with 5X gain (held it for less than 4 yrs) immediately after noticing tax dispute news. I had to sell it as my past experience with companies with similar disputes was not pleasant. It’s very well possible that Polycab won’t get affected at all and continue to march higher. But I took a call as I was suffering from once bitten twice shy syndrome:). I went ahead and invested the entire proceeding (excluding tax outgo) in Trent which is already up more than 20% after declaring stellar results in last quarter. I only find price wise competitive fresh vegetable/grocery items from Start Bazaar in my area. My bad that I did not know the Star Bazaar franchise belonging to Trent. Did not think twice about investing in Trent as soon as I discovered it:) Need to see if I can make 10X of my original investment made on Polycab and Trent in the next 3 years.

In my India portfolio, long time winners like Bajaj Finance/Asian Paints/Pidilite are underperforming big time but other stocks like Granules India (new 5X entrant in my portfolio)/Varun Beverage/Ethos/TCS/Zomato are more than making it up for them and helping me to outperform the market. 5 yrs portfolio CAGR now stands at 23.8%. Among 22 companies in my portfolio I am super bullish on Ethos which has all ingredients to become another 5Xer within the next couple of years.

The US portfolio is all about AI and its related technologies. Latest Nvidia result has firmly established the fact that AI is not a fad and in fact is capable of making long term transformations like the Internet. When I was making an investment on Nvidia during the 2022 bear market then my expectation was to make at most 2X in the next 3 yrs. Never dreamed about making 6X(and counting) in a couple of yrs, unbelievable.

Interestingly bubbles/speculation starts during a low interest rate environment and ends with a high interest rate. But this time the so-called AI frenzy has started when the global interest rate is in decadal high and not much free money is sloshing around the world. Companies are saving money from elsewhere and falling in line to make investment on AI big time. It proves that tech is real, deflationary and has a long runway for growth. If anything else is in the firing line then I would argue that this time it’s EVs and clean/green energy companies whose products/services are inflationary and have high probability to go under if the rate remains higher for longer.

Another observation is that being predominantly a hardware mega cap company (75% gross margin) if Nvidia can appreciate so much in a short period of time then what will happen to AI software winners that command gross margins more than 85%. Given that such companies are still in their infancy and US small/mid caps are still in bear market I can guess (no guarantee though) that such companies will go parabolic when the interest rate cut cycle begins. If the Nvidia stock price appreciates 10X in 3 years (from trough to peak in recent cycle) then one can imagine the scale of price appreciation of such AI software winners. I see that such a journey has already begun by looking at the price action of my portfolio companies such as Confluent/Palantir/Cloudflare/Snowflake/MongoDB/UIPath etc… Few more may emerge as big winners in this space.

Thanks to internet technology, novice investors like me can buy/sell stocks in any market sitting in the comfort of my home in India with a click of a button. Hopefully AI technology can take it to the next level to prevent us from doing crazy things with our own money and hence make us better investors:)

[Shakti_Srivastava]

Great insights curious and good to see the CAGR of your portfolio…

I am finding Indmoney complicated in terms of depositing money…Which platform you use for trading in US stocks …

[curious]

I use US brokerage as I built this portfolio while staying in US.

[cathene]

Could you explain a bit more on the AI related software companies that you have mentioned in your post will be very helpful

[vnikam]

It is certainly possible to build Dividend growth portfolio in India. Not lot of people have tried this and normally comment on Dividend income without much stats. But one can take a look at good companies who pay out dividend consistently. few examples are Tata Investment Corp, Infosys,TCS, Indigrid, BSE, Bajaj Auto, CESC, Balmer and many more.

[curious]

Here are my laundry list of AI companies (public and private) as per my understanding about AI ecosystem

Hardware/Semis (1st order derivative): NVIDIA, AMD, SMCI, ASML. TSMC —> Direct beneficiaries of AI boom

AI Software Infra (2nd Order derivative): All cloud/edge computing vendors, like MSFT, AMZN, Google, Cloudflare (Nvidia’s 40% revenue comes from these companies)

AI software middleware (3rd order derivative): Snowflake, Confluent, MongoDB, Elasticsearch, HuggingFace (private), Cohere (Private), LongChain (Private), Antropic (private), Wix etc…

AI adopters (Top of the value chain, 4th order derivative) : Meta, ByteDance, Trade Desk, Crowdstrike, Palantir, Upstart, Lemonade, UIPath, Pinterest, Biotech(like DNA sequencing/editing companies) and thousands other enterprises/future apps built with 1st - 3rd order derivatives

I started investing in some of these companies in 2019 (few of them came in the public market in 2020-21). Added more during the 2022 bear market when they were available at throwaway prices. Now I have stopped putting new money into these companies. Of course these companies (specially middleware companies) are not out of risk. Beside competitions with peer groups, many of them actually created their own enemy with their free open source counterpart. As a result when push comes to shove (i.e. during cutting cost for survival in this inflationary environment) customers adopt the same free open source software which cannibalizes their top line growth. So please do your due diligence before investing in these companies.

[curious]

My India portfolio is again on track as consumption related stocks have finally started moving after the Election result. For now I see them as hope trades. It may last till the next budget. In this quarter portfolio winners are Trent, Pidilite and Granules India. Pidilite is a 10 bagger in 10 years as I hold the stock with a “no matter what” attitude:) Whereas Granules India is giving 6X return in 6 years.

NVIDIA is the first 10X in my US portfolio. In my 10 years of investing journey (6 years for US stocks) I got blessed with 10X return 4 times. Those were Vaibhav Global, Deepak Nitrite, Pidilite and Nvidia. Except DN I am still holding the other 3 in my portfolio. Both DN and Nvidia reached 10X within 2 years of initial investment. Ultimately I sold DN with a 6X return. This time I am going to sell 50% of my Nvidia holding after the 1:10 stock split takes effect as early as next week. Kabhi na kabhi to 10X return ka maza lena chahiye:)

I personally believe that Nvidia has more room to run. In future all CPU intensive operation will be offloaded to GPU and as a result Nvidia being a monopoly will grab the lion share of new industry which needs support from accelerated computing (for example self driving car tech). Also as expected, hyper-scalar companies like MSFT/AMZN/GOOG have started showing cloud service revenue growth acceleration as developers are experimenting with training new models to solve everyday problems. As a result my Microsoft holding is giving 4X return in 4 years.

At the same time much anticipated revenue growth acceleration of US based SaaS/software infrastructure companies have not been realized yet. In fact, for a few companies growth is going in the wrong direction. The usual chorus here is that big enterprises have stopped buying these softwares due to the so -called macro issue. Somehow the third layer of AI stacks are not showing traction in the middle of raging bull AI hype. Growth may come back when few more AI applications appear in the market. Or in the worst case scenario few of them will be disrupted by newcomers. But whatever the case, my strong belief is that the winner(s) in this space will have a hell of a run for decades to come. As it’s difficult to pick winner(s) so early in this space so I have invested equal amounts in all such companies. Hopefully few of them will turn out to be multibagger even if others falter.

A special mention for cybersecurity company Crowdstrike. My thesis of investing in CRWD was their cloud centric clean architecture to solve some of the tricky issues in the cybersecurity space. This is why they are now beating legacy companies like Palo Alto Networks and Splunk w,r,t winning new multi million dollar deals with their platform centric architecture. I have been holding CRWD from a much lower level (3X return), stocks fell more than 65% from top during the 2022 bear market. Since then it has recovered well and surpassed previous highs convincingly. Now good news is that it’s being added to the prestigious S&P 500 index - this cements its dominance in the field they are operating. At the same time I am patiently waiting for my portfolio stocks Palantir and Trade desk to be added to the same index in the near future. Interestingly all 3 companies are run by founders and I can notice the same confidence/vibe from the respective owners on their products while listening to their quarterly earnings calls.

Interesting fact, during 2022 when US FED started raising interest rate aggressively then majority predicted US recession in 2023. Similarly we all know how exit polls predicted our own election results. Moral of the story is that we need to be careful when there is a widespread consensus view/opinion on some future event’s outcome. Need to be extra cautious while investing based on such a consensus view. In both times I benefited by just doing nothing:)

Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.

[gsapte]

@curious

Interesting fact, during 2022 when US FED started raising interest rate aggressively then majority predicted US recession in 2023. Similarly we all know how exit polls predicted our own election results. Moral of the story is that we need to be careful when there is a widespread consensus view/opinion on some future event’s outcome. Need to be extra cautious while investing based on such a consensus view. In both times I benefited by just doing nothing:)

Do not believe in such future predictions - This could be the key learning.
It only acts as a hindrance to an investor’s own conviction and theory.
Mostly all such predictions are of no use in the world of investing and Doing nothing is the safe approach!! I also have not acted on any of these predictions for my Indian stock portfolio.

Your conviction is US stocks when most of the consensus was suggesting not to invest in them (or there were some concerns about their valuations even in 2020), have given you stellar returns.

[curious]

A quarterly update for my India portfolio

Few stocks in my India portfolio have again started moving after 1.5 years of hiatus. Though Revenue/Earning for these companies were growing at above average rate but markets were ignoring these stocks due to abundance of other growth opportunities in the India market. Now being a long term investor I am naturally averse to chasing growth in unfamiliar sectors like PSU/Capital goods etc. and that is too after ditching long term winners (specially those who are going through temporary slowdown/time correction) in my portfolio. I define stock investment winners which consistently grow revenue and cash flow at above average rate year over year irrespective of market conditions.

Investors like me (who hate selling winners) have two choices in such a scenario, 1) buy more into weakness or 2) just hold tight with the original position hoping that market will shower its blessing at an appropriate time. With strictly following these approaches I have more or less settled with the below portfolio with a 7 year CAGR outperforming indices big time.

​
Stock Allocation Holding Period Comment

Granules India 13% 7 Yrs Bought when the Pharma sector as a whole crashed due to US FDA inspection – which resulted in severe observation and temporary closure of facilities. Somehow held onto it as it was generating above average earnings even in such adverse conditions. Price did not move for couple of years after buying the stock, bulk of the return came in last 1.5 years

Trent 12% 1 Yr As I wrote earlier sold Polycab with 5X return and bought Trent with the entire proceeding. I could have bought it earlier had I known Star Bazaar was part of the Trent franchise. I can clearly observe the crowd pulling capability of Star Bazaar and its nearest competitor from my Balcony:)

Pidilite 10% 8 Yrs Again did not think twice about buying this company after knowing that Fevicol was part of this Franchise. I heard about and used their product while constructing my own home, This is truly a forever stock for me.

Bajaj Finance 8% 4 Yrs Exceptional management with a track record of generating mega multibaggers. I bought this stock just before Pandemic, bought more when it fell more than 50% during pandemic, again bought more during recent underperformance. This is a clear winner in the Indian consumer lending space and I have enough confidence that it will remain so in the foreseeable future. Will be surprised if it does not hit the $500BN market cap in the next 10 years as Visa, which commands a similar market cap in the US market as of now. This is another forever stock for me and bet on exceptional management.

TCS 8.5% 8 Yrs Being a techie this was a no brainer to me . In fact , I was personally involved in deciding to use tech services from TCS for my employer on a few occasions. This is another forever stock for my portfolio.

Zomato 6.5% 2 yrs Bought Paytm and Zomato from a raft of new age stock listings as I am the heavy user of these two apps and I see value it adds to my daily life. Paytm did not work as it’s unable to figure out how to monetize their services, Zomato has become a big hit. Started averaging as soon as it started hinting about making profit. I would like to hold this stock as long as the food aggregator market remains a duopoly business. Also this business model seems to be working all over the world (China/US/India etc…)

Ethos 6% 2 yrs It came out with an IPO a couple of years back. Somewhere I read that Indian Men like to collect and flaunt luxury watches as women do it with Jewellery:) So need to see if it could do the wonder with the Luxury watch business as Titan is doing with the Jewellery business. Till now the story plays out as I was hoping for.

PI industries 5% 6 yrs I need to admit that I don’t have a full grasp of its business model yet, but I am holding it as it delivers above average earnings year after year.

Mold-Tek Pack 5.5% 3 Yrs It’s already a multibagger from my initial buy price, right now I am averaging it as I believe this will come back to life as consumption increases in the Indian economy. Also it has moats as its products/trade secrets are protected by several patents.

Asian Paint 3.5% 4 yrs East or West Asian Paint is the best:) tomorrow if I have to paint my house then I will blindly choose Asian Paint, It’s the true leader in its segment. I keep on averaging this one. It should come to life as and when global crude price falls and consumption goes up. This also belongs to the forever stock bucket.

Varun Beverage 3% 2 yrs Duopoly in its segment, bought when it was going through temporary slow down. Will hold this stock forever.

Vaibhav Global 3% 6 yrs Again It’s a vertically integrated Jewellery product company which operates mainly in western world. Bought it when it wes going through slowdown due to severe competition in its segment. made 10X from this stock post pandemic recovery, Sold a few shares 1 year back. it’s again going through a temporary slowdown, I keep on averaging it. In my opinion these sort of the stocks are prime candidate for “buy into weakness” and hold it for long term

Titan 3% 2 yrs Bought during temporary slow down post pandemic. I intend to hold it forever:)

Kajaria Ceramic 3% 5 yrs if I have to lay tiles on my floor then I will choose Kajaria Ceramic any time among the desi brands. This is the leader in its segment. This is also a forever stock for me.

Bajaj Finserv 2% 4 Yrs Bought Bajaj twins together, managed by same group, it’s also a forever stock for me

Indiamart Intermesh 2% 3 yrs Management is great, huge multi year tailwind is visible, reporting above average earning growth year after year, but stock does not move. Granules India stock used to behave like this 3-4 yrs back. This is another prime “buy the dip” candidate for me, so I keep on buying it.

Jubilant Foodworks 2% 4 yrs DPZ (Dominos Pizza) is a big hit in the US market, I am sure the same story will repeat in the India market as well . Moreover, my family likes this Pizza a lot. I will hold this stock forever.

Mas Financial 1% 2 yrs I must say I don’t understand what’s wrong with this stock as it does not move even after reporting excellent numbers in each quarter. As I am not much familiar with this business so I refrain from adding more into weakness.

Route 1% 1 Yr Twilio of India, I intend to increase allocation in due course

CCL Products 1% 1 Yr Typical compounder, increased allocation gradually when it was an underperforming market in recent months. Will hold it forever.

APL Apollo 1% 3 yrs Again dunno much about this business, seems to have moat around pipe business, heard about and used their product while constructing my own home, will keep allocation intact.

I am fully aware that we are in a raging bull market in India from the year 2020. It’s the very time when the rising tide is lifting all boats. It won’t take much time to take today’s winner down to tomorrow’s loser when the bear strikes. I had a somewhat similar experience in the US market during the 2022 bear market. But I also know good companies recover fast and make up the losses (and more) as the market recovers.

As evident, few of my portfolio stocks have time-tested and came out as big winners on the other side. I have got a few multibaggers stocks holding (and adding into weakness) with a “no matter what” attitude and will continue to do so in the foreseeable future irrespective of market conditions.

My portfolio is proof that long term investment (disciplined buy and hold) works in the India market as well. One can buy/keep on averaging widely familiar/known companies (within a circle of competence) at a reasonable price or price range (specially when they are going through temporary slowdown). After that all it requires just three qualities to generate life changing wealth, patience, patience and lots of patience:).

Of course there are many strategies to make money from the market but this one seems to be the most boring and laziest strategy out there in the market. Only drawback with this approach is that one has to be ready to get hit with a minimum 50% paper loss when the market goes crazy. On top of that sometimes price may not recover as moats get diluted permanently due to competition (this can be mitigated by operating within a circle of competence). That’s why it’s said that investment is simple but not easy:) It’s worked for me both in the US and India market since the last 7-8 years without fail. Will stick to this strategy as long as it works.

Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.

[Yash_Gandhi1]

@curious Congratulations on your 10x Bagger on Nvidia!
I am sure People on social media got sick and tired of telling the whole world how expensive it is and yet look at its returns.

It will be great if you can re-phrase your overall investment style and how you value stocks ? Perhaps you calculated forward multiples, or estimated EPS 4-5 Years down the line or something quantitively parameter/excel model you use ??

Thank you

[curious]

Update on my US portfolio

The US market seems to be in the grip of recession fear from the time the FED started increasing interest rates. Market feared 2000 like a bubble burst when interest rates were going up, now it fears 2007-8 like the apocalypse as the interest rate cut cycle begins. Due to this cross-current market moves one step forward, two steps back. It’s a total madness that has been going on in the biggest markets of the world for the last 3 years.

It’s the classic situation where one needs to either be on the sideline sitting on cash/t-bill and chill or keep fully invested in stocks without doing any tinkering with existing positions. Again as a long term investor I have learned to ignore all this macro noise and choose the later option which gave me my biggest winner of my investment journey till date – NVDA. This year also turns out to be the same as last year where my 50%+ return came in the last couple of months of the year.

As I see, now 70% of my US portfolio is invested in pure AI and its derivative stocks. In fact as I stated earlier I started to build this portfolio from 2019 after getting hands-on experience with AI transformer architecture. It just blew my mind and since then I kept NVDA in my watchlist. Went aggressive during the 2022 bear market and the rest is history.

After chatGPT’s success, I got convinced that AI was a multi year if not decade story like internet technology. Otherwise without huge anticipated/pent-up demand, hyperscalar would not have invested $100BN+ in each year to build the AI infrastructure. Moreover there is a huge multiplier effect on these investments, each dollar invested on NVDA, hyperscalar may earn 3-4 Dollars, software infrastructure companies may earn 7-8 dollars and finally application layers may earn 10-11 Dollars. This is evident from winners from internet technology (e.g. Amazon/google/facebook/netflix vs Cisco/Arista/CRM etc…)

So what I am doing now. I am just putting money where my mouth is:) I have selected 20 odd stocks which should do well if I am right.

Application Layer where maximum profit from AI can be made: Tesla, Shopify, Spotify, Zoom, Palantir, Duolingo, Lemonade, Upstart, Uber, Trade Desk, Soundhound and Fiverr. US small cap stocks are in the dog house since the end of 2021. As a result right now no one wants to touch AI application stocks like Upstart/Lemonade/Fiverr and this is where I see big opportunities to make generational wealth as and when US small caps come to life with full force. Also as evident from internet cycle, applications which make life easier for user come out to be biggest winners (e.g. FANG stocks)

Infra Software and security: Cloudflare, MongoDB, UIPath, Microsoft and Crowdstrike

Hardware: Nvidia (selling slowly and putting money into software layer) and ASML

Right now the US market does not seem to agree with me, especially with the prospects of software stocks, it still thinks AI is a bubble which is about to burst. Clearly I am going against market wisdom and taking huge risks with my conviction. Last time when I did in 2022 I got the biggest winner like Nvidia, Am I going to be lucky this time with software stocks, can I get huge winners from the above list? Fingers crossed:)

Finally a few words on the recent Crowdstrike blue screen of death fiasco:) Even after a 40% drop it remains a big winner in my portfolio. I was personally involved in such a situation when a bug in our product was responsible for bringing down a client’s entire telecom network in India for a couple of hours sometime in 2019. Do you think the client replaced all our products with competitor products? Actually, in reality, our company was able to sell more products to clients to prevent this kind of mishap in future:) Won’t be surprised if the same happens with Crowdstrike as well. Good CEOs won’t let a crisis go to waste ever:)

[curious]

Good question, let me explain my thought process.

First of all, I am not on Twitter for this very reason. Both India and the US market throw curveballs every now and then. I won’t remain sane if I have to take more from Twitter everyday:)

Also I don’t know how to value a disruptive company like Nvidia whose TAM increases continuously. More data center means more server means more GPUs and then more business for Nvidia.

I have found the best way to minimize entry error w.r.t valuation is to buy stocks when there is a bloodbath in market/individual stock. Then by definition all these stocks will be available in throw away prices potential to its future value. And there is huge chance that investment may come out as grand slam dunk. This is easier said than done. It took quiet a bit of time for me to wire this behavior in my head:)

If the entry is secured with downside protection then we need to wait patiently for the desired events to unfold. Once events occur as expected then we need to figure out how long music is going to continue.

In US market tech stocks are valued based on quarterly numbers and very next quarter guidance. That’s it. I don’t think any one has a crystal ball on how a dynamic company like Nvidia is going to perform in next two quarters let alone for next 4-5 years. Unlike software companies, Nvidia provides guidance only for next quarter not even for full fiscal year.

Given this information, growth hungry US investors start rewarding companies those show acceleration in YoY revenue growth with improved gross margin. If company keeps on beating market expectation (revenue growth) with improved/flat gross margin then at some point momentum investors/algo traders arrive with full force and take the stock valuation to the moon:. Then at some point of time earnings won’t even matter because everyone will get convinced about power of AI. That time stock will command 3/4 digits PE and P/S may be over 50, And then eventually stock collapses as it tries to fly too close to the sun:)

Now one has to look at the Nvidia’s YoY revenue growth and quarterly gross margin data for last couple of years.

If an investor enters the stock during Q3-2023 or earlier then she is able to capture YoY revenue acceleration with improved gross margin till Q2-2025 (this is called S curve) by simply getting reassured with next quarter guidance. If same investor is aware about how growth hungry US investors reward such companies then she can peacefully sit tight during entire period irrespective of market/valuation/price fluctuation (Huge AI capex budget reported by large customers add more confidence). These data will also make it clear why stock is getting sold out after recent quarterly result. Just compare growth in YoY revenue guidance (huge growth deceleration) and slight gross margin deceleration. This is pivotal moment w.r.t stock price action. First momentum investors will take full exit. Fundamental investors who are sitting on huge gain may start lightening the position a bit. Though true Nvidia and AI believer will remain invested steadfastly. This is exactly what is happening now.

Now the question is how one might know/sense that Q3-2023 was the best time to enter the stock in hindsight. That time valuation was cheap due to sharp revenue deceleration. But that’s not enough to generate conviction to buy this stock going against market wisdom. For me it was my AI side hustle led me to this investment. Actually these tables are generated by GEN AI model which is able to read unstructured 8-K SEC filing as is and show data io a format that I want it to see. Previously I was able to automate mere 50% flows with the existing AI libraries/models. But that time I was able to automate almost 95% flows training my own GEN AI model. This hands-on experience with AI helped me to increase my conviction on AI’s future capability and led me to invest in AI monopoly stock Nvidia at cheap valuation. Next I became pure lucky as Nvidia entered into its S curve after chatGPT’s success within an year.

Now the question is what should new/existing investors do given the data known to everyone

As explained above, this backdrop is complete no-go for momentum investors.

Traders will enter and exit at appropriate level if stocks remain rangebound

Long term value investors will think that being just a hardware company Nvidia can’t scale/accelerate its GPU product sell forever as there is a limit to expand Data Center globally. Not only that other competitors will come and eat Nvidia’s lunch in not so distant future. Also Nvidia does not have experience in selling software to cover up hardware revenue shortfall. At some point in future, revenue will show massive de-growth, With 1-2 years forward discounting logic, price is too high to pay for now. So it’s either a sell or complete avoid.

Long term AI software enthusiast/practitioner/fundamental investors/analyst will think that Nvidia does not just sell GPU hardware , it also provides software and networking to program/deploy its GPU. It actually controls 70-80% of AI ecosystems as of now. If AI cycle continues for next several years then even if it’s unable to sell enough GPUs, it may cover up the shortfall with selling more software services (as Apple does it with services) and/or with new improved hardware (e.g. Blackwell). For such investors it’s just a start for Nvidia, for new investors it’s a resounding buy and for existing investors it’s a buy on dip.

ASIC/Hardware/Electrical professionals will first try to join Nvidia to earn RSUs for free:) Individual investors may think that as compute power requirement keep on increasing exponentially so Nvidia should be able to create another massive market (similar to Data Center) from scratch (e.g. robotaxi/automotive segment) sometime in future. For them also it’s also a hold or better buy on dip.

Big investors (including hedge fund/institutional investors) who are sitting on cash have crystal ball till next quarter. They have started discounting stocks based on that information only. In my opinion stocks may remain rangebound for some time. Market will decide on next action after being reassured with capex budget reported by hyperscalar in next quarterly earning report.

As most of these assumptions are still up in the air so the conviction with understanding technology/continuous learning/insight plays a huge role behind investment in such companies. At this valuation major accident may happen if these assumptions don’t get materialized in future. But it was always true throughout the existence of Nvidia as public company.

For this very reason, value investors who follow the principal “a bird in hand is worth two in the bush” will stay away from most part of the stock’s public existence and rightly so. But at the same time it’s a dream stock to hold forever for investors who bet on massive growth, innovations and visionary winning CEO (e.g. In my opinion very few companies like Nvidia, Tesla, Amazon, Palantir belongs to such category).

Long story short, investors have to decide on which camp they are in to make life changing wealth holding these kind of stocks for long term irrespective of market/price volatility. That’s why It’s rightly said that investment is simple but not easy:)