NVDA Infographic
Whether it’s just a Santa Claus rally, a sigh of relief from falling inflation, or a sign that investors are not particularly concerned about a recession, the stock market indices are knocking on the door of record highs.
This is great for stock portfolios but makes it much more difficult to find solid bargains. For instance, Microsoft trades near its all-time high, and its price-to-earnings (P/E) ratio of 36 hasn’t been seen since the tech bubble of 2021. It isn’t alone.
With CDs and bonds offering 5% yields, some investors are sitting more on cash or trimming their stock holdings as the market becomes increasingly expensive. This could be a smart move. Stock market pullbacks are tricky to time (or else we would all be rich, right?), but they will inevitably come.
When they do, it’s good to have a wish list of terrific companies to buy. Here is mine.
The AI enabler
The artificial intelligence (AI) market is exploding. Companies are dedicating significant funding to generative AI (things like chatbots), speech recognition, robotic process automation, and more. Nvidia’s (NASDAQ: NVDA) powerful graphics processing units (GPUs) and other hardware and software make this possible. Its most significant problem in 2023 wasn’t marketing but rather making enough products to keep up with booming demand.
Here is a visual that really brings Nvidia’s dominance to light:
NVDA infographic
OEM = original equipment manufacturer.
As you can see on the top left, data center revenue exploded last quarter to $14.5 billion on an unbelievable 279% growth. The other huge takeaway is in the top-right corner: $9.2 billion in net income — a 50% margin. Nvidia’s margins are a Business 101 lesson on supply and demand. Demand is so high that Nvidia has incredible pricing power and, hence, industry-leading margins.
None of this is a secret, so the stock is up more than 230% in 2023, and the forward P/E ratio is nearly 40. Nvidia is poised for many years of success, but much of this is priced in. However, if the market pulls back and drags Nvidia stock down with it, I’ll be first in…
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