Is Today’s NVIDIA Like 2011’s Apple or 2008’s Blackberry?

Many asked the question how today’s NVIDIA (NASDAQ: NVDA) is compared with 2010’s Apple (NASDAQ: AAPL) one year after the first iPhone was launched.  It would be interesting and illuminating if we went back to look at the stocks under the same circumstances to see if we could have predicted their outcomes based on the information available then.  Or, the use the historical experiences of such stocks may shed some light on the question of where NVIDIA will go from here.

Of course Apple is selected for comparison since it was at a similar product life cycle as NVIDIA today. For a further comparison, we also include RIM’s BlackBerry (NASDAQ: BBRM), which had virtually the same run up in stock returns, as AAPL and NVDA, after their “Curve” and “Pearl” launched.  However, in contrast to AAPL’s additional +300% gain, BBRM has dropped more than 70% in the following 3 years. (Figure 1).

Baseline (T = 0)

We are setting the stage for the inqusitions. To be comparable with today’s NVIDIA, the base event time line, (T = 0), for Apple and Blackberry were selected to ensure that (1) each stock has just made a significant recent advance, say similar to NVDA’s 200%, for the recent 1 year, and (2) such increases in stock returns had been supported by a major product launch.   Therefore, the Baseline for NVIDIA is the current time February 2017.  We chose July 2012 for Apple, and May 2008 for BlackBerry.  From Figure 1 above, at the individual time point, each of the three stocks has just experienced more than 200% return over the past 12-18 months.  In addition, at the Baseline, all three companies just had major product launches:

BlackBerry 2007’s “Curve”

Before the term smartphone was invented, RIM’s BlackBerry, a. k. a, “Crack Berry,” has been considered a status symbol for the elite, i.e., Wall Street professionals.  RIM’s first consumer phone came out at the same time as the iPhone in 2007 and was called the “Curve,” following “Pearl” in 2006, and original BlackBerry 957 in 2000. The BlackBerry 957 was considered a landmark device for RIM, though it may not have seemed that way at the time. At its release, it was little more than an overgrown 950, but unlike its little brother, the 957’s basic form factor would ultimately stand the test of time — and if you let your eyes go out of focus just a bit, you can actually see the beginnings of the ubiquitous user interface found on every BlackBerry sold today.

Apple’s 2007’s IPhone

On January 9, 2007, Steve Jobs said, “I have been looking forward to this for two and a half years”, and that “today, Apple is going to reinvent the phone.”  Jobs introduced the iPhone as a combination of three devices: a “widescreen iPod with touch controls”; a “revolutionary mobile phone”; and a “breakthrough Internet communicator”.

NVIDIA’s 2014’s GeForce 900 Series

The Company has recently solidified themselves as the technological leader in GPU technology.  In late 2014, NVIDIA released their 900 series GPUs. They had three different offerings in order to capture as much of the market as possible. The GeForce 960 was the economy model. This affordable GPU was more than capable of handling most of graphic tasks the user needed, but for serious high-end gaming purposes, it didn’t quite have the power. It was marginally cheaper than AMD’s comparable offering at that time. Next, we have the GeForce 970, the company’s mid-range offering. For the price, this thing was a powerhouse. At just under $330 when released, it performed exactly the same as AMD’s high end offering with a price tag of $550.  Lastly, we have the GeForce 980. The performance this card could offer was beyond anything that AMD had at that moment. In fact, it took AMD almost 1 year to release a GPU that was comparable in terms of both price and performance.  At the end of 2016, NVIDIA has taken 30% of the discrete GPU market share from AMD within an 18 month period (Figure below).

exhibit-8

Fundamentals

At a glance of the each company’s fundamentals, at T = 0, it is clear that BlackBerry had an obvious advantage in fundamental, compared with Apple and NVIDIA in virtually all aspects except a slight lower profit margin.  BlackBerry had more than twice of the revenue and cash flow growths than NVIDIA under the same circumstance that both stocks have been advancing more than 200% in a short period.

fund

Estimates

That being said, the analysts, then, were still realistic in formulating their forecasts even after exponentially high growth rates. Blackberry’s 98% historical revenue growth was reduced to 83% forecast for the following year, and the earnings’ 105% was dropped to 48%.  Both NVIDIA and Apple’s forward estimates were cut into more than half from the past-year actual s (38% to 16% for NVIDIA, and 66% to 30% for Apple).  One year later, Apple 2011’s actual revenue growth beat by 15% and earnings by 2%, while BlackBerry 2009’s revenue missed by 3% and earnings by 1.20%, respectively.  Of course, for NVIDIA, we shall wait till 2018.

est

Valuations

Probably the more telling is the valuation story at each time point.  Based on simple price multiples, it is clear that BlackBerry had the significantly higher valuations across all metrics.  The NVIDIA long side may be a bit disturbed that, given less than half of the forward fundamental estimates, NVIDIA’s valuation is “disproportionally” closer to the higher valued BlackBerry than to Apple.   In other words, NVDA is more likely overvalued.  One silver lining is that the typical price multiples have been often criticized for being overly simplistic.  The more sophisticated analyst estimates suggested that BlackBerry was undervalued by 17% in 2008 and Apple was undervalued by 46% in 2011.   Today, NVDA is considered to be undervalued by 12% by the analysts.

val

It may be frustrating that we cannot predict the drastically different outcomes of AAPL versus BBRM which had seemingly similar product lines and relative fundamentals at the time.  It is equally encouraging that nobody can predict the drastically different outcomes of AAPL versus BBRM, using all available information at the time.  Hindsight is 2020. One “ex post” clue we can see is that the BlackBerry did have experienced consecutive, negative revenue and earnings misses after 2008, while Apple had multiple beats after 2011 (see Figure above).  This resulted in reversing BlackBerry’s leading global market share 20% versus Apple’s 11% at 2008 to BlackBerry’s 4% and Apple’s 21% in 2013 (see Figure below).

handset-market-share

This may help explain why AAPL advanced another 300% and BBRY nearly lost everything (see Figure 1 above) in the following four years.

Finally, no one can be like Michael J. Fox to go “Back to the Future.”   One takeaway from AAPL/BBRM’s story is that we all have to wait to see how NVIDIA’s future growth will play out.

 

 

 

 

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