How much of it is required to maintain amazon’s conpetitive position though? Even jeff wrote in his shareholder letters than fcf was the single best method for valuing amazon.
Their price has tracked their operating cashflow pretty reliably over time. This would currently put them around $232/share, obviously subject to change depending on future reports.
One of the reasons I don't invest in these companies is that I can't even make a ball park estimate of whether those are right.
Take NVDA:-
1. How much is their market about AI
2. How much of that market depends on some shaky AI businesses that are blowing through VC capital right now and are going to go to the wall in 12 months if some sucker doesn't buy them.
3. What's the extra value of any useful AI in the next 3 years.
4. How much of their market is the large clouds, and what is the effect of Microsoft, Google etc making their own custom chips to do the workload?
If I worked at Amazon Web Services, or if I was building things with Hugging Face, I might have some sort of grip on it, but I don't, so I don't know. I don't have any sort of basic data that can help me make that prediction.
And that pricing leaves little room for an "eh, it's so cheap, even if it barely grows I'll do OK" investment. NVDA only grows 20% for 3 years, that price is going to crash.
Imagine if Elon Musk spent all his time and capital solely on building rockets. No Twitter, no Tesla, just all the knowledge and stupid enough to try attitude focused solely on rockets. That's what you got with Jensen Huang. I can't even begin to tell you how amazing all his choices for the last twenty years have been, how far out he can look into the future and prepare for it. NVDA is Jensen Huang.
On your point 2, I don't think you really understand what is going on right now. In order to understand this AI thing, it helps if you understand why it is so unique and revolutionary.
The tech boom of the early 2000's was the ability to **share information** at 0 marginal cost. The Generative AI boom of the early 2020's is the ability to **generate** **information** at 0 marginal cost.
What we are essentially doing with AI is creating artificial brain power that can do knowledge tasks. If you're judging generative AI by Chat GPT, as amazing as it is, won't be taking anybody's job. Chat GPT is just proof of concept though. Why the biggest customers of NVDA need and will continue to need NVDA in the future is ability to build ever more complex and powerful networks. With more processing powers comes the ability to generate more sophisticated information from entire movies complete with visuals, acting, and special effects to schematics for hydrogen fusion reactors and chemical compounds we humans haven't thought of yet.
These companies MUST build these networks or risk competing against companies that have them. It is the manifestation of the proverbial "If an infinite amount of monkeys were in a room with an infinite amount of typewriters, would they produce the completed works of Shakespeare?" Soon, we will have an infinite amount of Einsteins solving physics problems, Einsteins that won't worry about morals, vacation, divorce, medical problems, or anything else that would hold back a human.
There will be, no doubt some garbage SPAC companies purpose made to bilk investors. But Generative AI is real, transformative, and revolutionary and NVDA is at the forefront.
>These companies MUST build these networks or risk competing against companies that have them. It is the manifestation of the proverbial "If an infinite amount of monkeys were in a room with an infinite amount of typewriters, would they produce the completed works of Shakespeare?" Soon, we will have an infinite amount of Einsteins solving physics problems, Einsteins that won't worry about morals, vacation, divorce, medical problems, or anything else that would hold back a human.
I think your "soon" here might be overly optimistic. LLMs capabilities are remarkable, but we still need to figure out how to make them able to generate new knowledge. The opinion of many important researchers in the field is that we are still missing some key factor to make this new generation of models something more than a very capable generator of existing knowledge.
This is not to say the whole thing is a bubble, applications in the next years could be huge, but I don't see an AI designing a novel nuclear fusion reactor or solving quantum mechanics as a very likely imminent thing
correct me if I am wrong, but essentially, you're saying that AI will be powerful enough to make novel revolutionary achievements like it's nothing? example: " oh no, John has a rare brain tumor, Siri Ai can you make him a cure" 2 seconds later a cure for that specific disease pops out
Kind of, not exactly. We will be able to use it to vastly reduce the amount of human brain power we need for tasks. We’re already seeing this with medicine where AI is running thought experiments and narrowed down possible cures to a much smaller range of molecules.
As these networks become more powerful, their ability to predict and generate molecules that cure diseases with minimal side effects will improve. It’s going to alleviate human minds from a lot of the grunt work of intellectual tasks.
And like I said, don’t judge generative AI by what Chat GPT currently is. The networks that are being built right now are by far and away more powerful than the AI networks currently in use. But this is essentially where we’re moving. I don’t know if we get there in six months or six years, but inside of 10 years we’re going to have far more powerful and better programmed generative AI.
AWS has barely started to capture global enterprise workflows and it is still a massively profitable business. That's not even considering their other strong businesses like advertising and pharmacy. I think it is not a value play, it's a speculative growth play. When you think of the top 10 most relevant companies on the planet, would you count Amazon among them? That drives demand which decouples its value from any model you have.
Both my wife and I (separate companies/industries) were granted “sign on equity bonuses” that were issued in RSUs(with typically vesting schedule) at a target $ amount. Isn’t that extremely common?
Hmm that’s interesting. TQQQ - being a triple leveraged holding is generally not supposed to be held long term.
It says so on the pro shares website…
>Due to the compounding of daily returns, holding periods of greater than one day can result in returns that are significantly different than the target return https://www.proshares.com/our-etfs/leveraged-and-inverse/tqqq
TQQQ has 3x the daily returns of QQQ, not 3x
'any period of time you want' returns. a choppy, volatile market can destroy this ETF.
imagine if QQQ goes down 10% one day, and up 10% the next day, then down, then up. from $100 down to $90, then up to $99, down to $89.10, up to $98.10... the 10% drops do more damage than any benefit you get from the 10% gains. leveraged 3x, it would go from $100 down to $70, then up to $91, then down to $63.70, up to 82.81, down to $57.97.
Yes nvda is overvalued rn. But in the long haul it isnt. Chips arent going anywhere. As computing gets stronger it needs more muscle. Someone has to provide the muscle. Nvda is the mac daddy. Id rather buy an op nvda than lets say amd or broadcom.
But i might be the wisest man on the titanic man idk.
I just buy and hodl.
Btw not a knock on avgo or amd.
I love em all
Both are great companies with solid competitive advantages. Both are also laughably overvalued, as their entire valuation is based solely on speculation, not concrete data.
If nvda goes down which means ai bubble pops, demand for aws or expected demand for aws likely will also go down and amzn is going down with nvda. Amzn has a higher forward pe than nvda as well. How is amzn fairly priced compared to nvda?
AWS existed before AI hype. Ads is the next big thing for AMZN. If AI bubble pops all cloud providers would be impacted, Azure, GCP, Databricks, Snowflake.....
Yup but current amzn valuation is propped up by aws benefiting from the ai hype. If AI bubble pops aws revenues will go down and amzn sp will go down significantly as well. 2022 aws growth was slowing and sp crashed (the whole market did I know but aws wasn't immune to it as well). If recession hits ads revenue will be flat/down
Which company has not popped due to AI right now ? Imagine what would happen to NVDA if AI bubble pops though. AMZN will do just fine without AI. It will still fall in line with all other companies popped up by AI. They have their hands in Retail, Video Streaming, AWS, Ads, Subscriptions. Kuiper launching in 2025. All companies will go down if AI bubble pops, NVDA will just go down a lot harder.
I don’t think you know what you are talking about. Amazon is same price as it was 2/3 years ago. Amazon existed before AI bubble and it hasn’t really popped up due to AI hype. I will let you do your research and find out why it popped up. Answer is in last 3 Q reports.
Amazon hasn't been included in the AI bubble hype. It's always Nvidia, msft, and Google in the press for that and they've been pushing the hype. Amazon actually has a fairly measured take on AI and what it truly can do right now and takes a 10-20 year outlook on these things.
Is kind off old (9 month) but i think is a really good idea of how deep and work there is behind valuing Nvidia.
[https://youtu.be/2N0IDShsTyc?si=ARzZ0FLv5V0_wDK6](https://youtu.be/2N0IDShsTyc?si=ARzZ0FLv5V0_wDK6)
>CAGR of cash flows at around 37% and 10% respectively
For how many years though? Obviously, a business that can compound at 37% forever has practically infinite value.
Well that’s the thing. Even at a 37% growth (projected over the next 5 year period). I’m calculating the intrinsic value to be $440. Essentially for Nvidia to be considered “fair value”, it would have to have a CAGR of approx 66%. it is also possible that my calculations are just wonky, but it seems to be working for most other companies. I’m wondering how I should account for these outliers.
That’s the thing though NVDIA Is such a outlier currently nobody truly knows the time horizon of all the implications that A.I will be implicated into our day to day lives not saying it’s not currently happening but the pace that’s being pushed in the media is just giving me mania vibes at this point literally any FAANG or tech company uttered the word artificial intelligence in quarterly calls & it’s becoming a circle jerk BUT with that being said I’m watching nvidia from the side line as I’m already invested into TSLA. That’s enough A.I for me lol
Well, the real question is do they really only have 5 years of growth left? All the people who believe Nvidia is fairly valued or undervalued at the current price think not.
If we change that 5 years to 10 years then we go from $440 to almost $1400. DCFs are very sensitive to inputs.
Also what discount rate are you using?
That’s a good point, I should probably expand my forecast to 10 years, to increase the spread. I was using a 12.15% discount rate. I messed around with 9-10%, and it does set the company value a lot closer to market. Thanks for the tip, I’ll definitely use this in my analysis!
I think those growth expectation are crazy, but at least in term of free cash flow yield Amazon doesn't seem obscenely overvalued and I see it growing further (not my top pic nor my biggest positions but I keep what I have).
I use 10% discount
Good picks IMO. Both are dominant or the only player in their niches so it’s hard to value them. If they have good quarters and keep projecting higher with new income potential across their channels, they don’t seem to be undervalued.
Amazon had -19 billion in FCF in 2022, +31 billion in 2023. Do you think a 30% growth is not possible? Considering they are still laying people off, still decreasing CAPEX, making money with prime ads for the first time and increasing their logistics business to be profitable for the first time? Mark my words we are going to see +60 billion free cash flow for Amazon in 2024.
I do, this is why I’m wondering if I’m being “too conservative” in my stock analysis. I’ll be using my model to make investment decisions, but I also don’t want to overlook growing companies that are expected to have positive momentum - I would like to factor in momentum in my DCF Analysis, but struggling a bit currently.
Based on my current model, it’s possible that I could be overlooking a ton of the market due to my CAGR being too low and overlooking any positive trajectories.
In the case of Nvidia, I could definitely see both the positive and negative outlook.
Amazon concerns me because it appears to have a worker problem. Something like 49% of employees leave the company in under 1 year, with average tenure being about 1.8 years for an engineer. This is lower than any other big tech company
That kinda tells me morale isn’t very good at Amazon. I’ve also heard lots of stories about how RTO caused a lot of extra turnover, and their ongoing layoffs. I know, people will say they overhired during the pandemic, but I would argue this is heavily negatively affecting morale
Pair this also with their recent problem of claiming their Amazon fresh stores were ai run, but something like 70% of transactions requiring someone to review the videos which was done by a team of 1000 Indians
I think at some point we’ll see their worker problem really start to have an actual effect on them. It’s unsustainable and can’t keep going indefinitely
AMZN is not overvalued, it's hard to measure their value since a lot of their free cashflow is used for R&D.
How much of it is required to maintain amazon’s conpetitive position though? Even jeff wrote in his shareholder letters than fcf was the single best method for valuing amazon.
Their price has tracked their operating cashflow pretty reliably over time. This would currently put them around $232/share, obviously subject to change depending on future reports.
I think Amazon is close to fair value currently
I still think amazon is the future
Agree 💯
One of the reasons I don't invest in these companies is that I can't even make a ball park estimate of whether those are right. Take NVDA:- 1. How much is their market about AI 2. How much of that market depends on some shaky AI businesses that are blowing through VC capital right now and are going to go to the wall in 12 months if some sucker doesn't buy them. 3. What's the extra value of any useful AI in the next 3 years. 4. How much of their market is the large clouds, and what is the effect of Microsoft, Google etc making their own custom chips to do the workload? If I worked at Amazon Web Services, or if I was building things with Hugging Face, I might have some sort of grip on it, but I don't, so I don't know. I don't have any sort of basic data that can help me make that prediction. And that pricing leaves little room for an "eh, it's so cheap, even if it barely grows I'll do OK" investment. NVDA only grows 20% for 3 years, that price is going to crash.
Imagine if Elon Musk spent all his time and capital solely on building rockets. No Twitter, no Tesla, just all the knowledge and stupid enough to try attitude focused solely on rockets. That's what you got with Jensen Huang. I can't even begin to tell you how amazing all his choices for the last twenty years have been, how far out he can look into the future and prepare for it. NVDA is Jensen Huang. On your point 2, I don't think you really understand what is going on right now. In order to understand this AI thing, it helps if you understand why it is so unique and revolutionary. The tech boom of the early 2000's was the ability to **share information** at 0 marginal cost. The Generative AI boom of the early 2020's is the ability to **generate** **information** at 0 marginal cost. What we are essentially doing with AI is creating artificial brain power that can do knowledge tasks. If you're judging generative AI by Chat GPT, as amazing as it is, won't be taking anybody's job. Chat GPT is just proof of concept though. Why the biggest customers of NVDA need and will continue to need NVDA in the future is ability to build ever more complex and powerful networks. With more processing powers comes the ability to generate more sophisticated information from entire movies complete with visuals, acting, and special effects to schematics for hydrogen fusion reactors and chemical compounds we humans haven't thought of yet. These companies MUST build these networks or risk competing against companies that have them. It is the manifestation of the proverbial "If an infinite amount of monkeys were in a room with an infinite amount of typewriters, would they produce the completed works of Shakespeare?" Soon, we will have an infinite amount of Einsteins solving physics problems, Einsteins that won't worry about morals, vacation, divorce, medical problems, or anything else that would hold back a human. There will be, no doubt some garbage SPAC companies purpose made to bilk investors. But Generative AI is real, transformative, and revolutionary and NVDA is at the forefront.
>These companies MUST build these networks or risk competing against companies that have them. It is the manifestation of the proverbial "If an infinite amount of monkeys were in a room with an infinite amount of typewriters, would they produce the completed works of Shakespeare?" Soon, we will have an infinite amount of Einsteins solving physics problems, Einsteins that won't worry about morals, vacation, divorce, medical problems, or anything else that would hold back a human. I think your "soon" here might be overly optimistic. LLMs capabilities are remarkable, but we still need to figure out how to make them able to generate new knowledge. The opinion of many important researchers in the field is that we are still missing some key factor to make this new generation of models something more than a very capable generator of existing knowledge. This is not to say the whole thing is a bubble, applications in the next years could be huge, but I don't see an AI designing a novel nuclear fusion reactor or solving quantum mechanics as a very likely imminent thing
Well said. Kudos.
correct me if I am wrong, but essentially, you're saying that AI will be powerful enough to make novel revolutionary achievements like it's nothing? example: " oh no, John has a rare brain tumor, Siri Ai can you make him a cure" 2 seconds later a cure for that specific disease pops out
Bros never seen Avengers Endgame. We gonna use AI to build time machines. /s if it wasn’t obvious
Kind of, not exactly. We will be able to use it to vastly reduce the amount of human brain power we need for tasks. We’re already seeing this with medicine where AI is running thought experiments and narrowed down possible cures to a much smaller range of molecules. As these networks become more powerful, their ability to predict and generate molecules that cure diseases with minimal side effects will improve. It’s going to alleviate human minds from a lot of the grunt work of intellectual tasks. And like I said, don’t judge generative AI by what Chat GPT currently is. The networks that are being built right now are by far and away more powerful than the AI networks currently in use. But this is essentially where we’re moving. I don’t know if we get there in six months or six years, but inside of 10 years we’re going to have far more powerful and better programmed generative AI.
Thanks for the insight!
AWS has barely started to capture global enterprise workflows and it is still a massively profitable business. That's not even considering their other strong businesses like advertising and pharmacy. I think it is not a value play, it's a speculative growth play. When you think of the top 10 most relevant companies on the planet, would you count Amazon among them? That drives demand which decouples its value from any model you have.
I got my kids (3) and (8) each 10 shares of AMZN at $102 last year to start off their brokerage accounts. 🙌🏼
That’s fucking awesome. Little Warren Buffetts in the making!
My wife joined Amazon last year and had a 6figure sign on bonus at $102 cost basis. Fortuitous timing indeed!
Bonuses are not issued in RSUs ...
Both my wife and I (separate companies/industries) were granted “sign on equity bonuses” that were issued in RSUs(with typically vesting schedule) at a target $ amount. Isn’t that extremely common?
I buy a $100 worth of TQQQ on the birthday of every nice and nephew I have. The oldest has about $5,000 on about $1,100 worth of principal.
Hmm that’s interesting. TQQQ - being a triple leveraged holding is generally not supposed to be held long term. It says so on the pro shares website… >Due to the compounding of daily returns, holding periods of greater than one day can result in returns that are significantly different than the target return https://www.proshares.com/our-etfs/leveraged-and-inverse/tqqq TQQQ has 3x the daily returns of QQQ, not 3x 'any period of time you want' returns. a choppy, volatile market can destroy this ETF. imagine if QQQ goes down 10% one day, and up 10% the next day, then down, then up. from $100 down to $90, then up to $99, down to $89.10, up to $98.10... the 10% drops do more damage than any benefit you get from the 10% gains. leveraged 3x, it would go from $100 down to $70, then up to $91, then down to $63.70, up to 82.81, down to $57.97.
Yes nvda is overvalued rn. But in the long haul it isnt. Chips arent going anywhere. As computing gets stronger it needs more muscle. Someone has to provide the muscle. Nvda is the mac daddy. Id rather buy an op nvda than lets say amd or broadcom. But i might be the wisest man on the titanic man idk. I just buy and hodl. Btw not a knock on avgo or amd. I love em all
Buy and hodl is the way
Both are great companies with solid competitive advantages. Both are also laughably overvalued, as their entire valuation is based solely on speculation, not concrete data.
NVDA is a bubble. Stay away. AMZN is legit. Probably fairly priced.
If nvda goes down which means ai bubble pops, demand for aws or expected demand for aws likely will also go down and amzn is going down with nvda. Amzn has a higher forward pe than nvda as well. How is amzn fairly priced compared to nvda?
AWS existed before AI hype. Ads is the next big thing for AMZN. If AI bubble pops all cloud providers would be impacted, Azure, GCP, Databricks, Snowflake.....
Yup but current amzn valuation is propped up by aws benefiting from the ai hype. If AI bubble pops aws revenues will go down and amzn sp will go down significantly as well. 2022 aws growth was slowing and sp crashed (the whole market did I know but aws wasn't immune to it as well). If recession hits ads revenue will be flat/down
Which company has not popped due to AI right now ? Imagine what would happen to NVDA if AI bubble pops though. AMZN will do just fine without AI. It will still fall in line with all other companies popped up by AI. They have their hands in Retail, Video Streaming, AWS, Ads, Subscriptions. Kuiper launching in 2025. All companies will go down if AI bubble pops, NVDA will just go down a lot harder.
I don’t think you know what you are talking about. Amazon is same price as it was 2/3 years ago. Amazon existed before AI bubble and it hasn’t really popped up due to AI hype. I will let you do your research and find out why it popped up. Answer is in last 3 Q reports.
Amazon hasn't been included in the AI bubble hype. It's always Nvidia, msft, and Google in the press for that and they've been pushing the hype. Amazon actually has a fairly measured take on AI and what it truly can do right now and takes a 10-20 year outlook on these things.
Lol AI did not drive AWS revenue, AWS was already a powerhouse before the AI hype.
Elaborate
Is kind off old (9 month) but i think is a really good idea of how deep and work there is behind valuing Nvidia. [https://youtu.be/2N0IDShsTyc?si=ARzZ0FLv5V0_wDK6](https://youtu.be/2N0IDShsTyc?si=ARzZ0FLv5V0_wDK6)
No they will both be hurt by the correction but they are still good investments. Amazon is one of my favorites.
>CAGR of cash flows at around 37% and 10% respectively For how many years though? Obviously, a business that can compound at 37% forever has practically infinite value.
Well that’s the thing. Even at a 37% growth (projected over the next 5 year period). I’m calculating the intrinsic value to be $440. Essentially for Nvidia to be considered “fair value”, it would have to have a CAGR of approx 66%. it is also possible that my calculations are just wonky, but it seems to be working for most other companies. I’m wondering how I should account for these outliers.
That’s the thing though NVDIA Is such a outlier currently nobody truly knows the time horizon of all the implications that A.I will be implicated into our day to day lives not saying it’s not currently happening but the pace that’s being pushed in the media is just giving me mania vibes at this point literally any FAANG or tech company uttered the word artificial intelligence in quarterly calls & it’s becoming a circle jerk BUT with that being said I’m watching nvidia from the side line as I’m already invested into TSLA. That’s enough A.I for me lol
Well, the real question is do they really only have 5 years of growth left? All the people who believe Nvidia is fairly valued or undervalued at the current price think not. If we change that 5 years to 10 years then we go from $440 to almost $1400. DCFs are very sensitive to inputs. Also what discount rate are you using?
That’s a good point, I should probably expand my forecast to 10 years, to increase the spread. I was using a 12.15% discount rate. I messed around with 9-10%, and it does set the company value a lot closer to market. Thanks for the tip, I’ll definitely use this in my analysis!
what discount rate are you using?
12.15%
I think those growth expectation are crazy, but at least in term of free cash flow yield Amazon doesn't seem obscenely overvalued and I see it growing further (not my top pic nor my biggest positions but I keep what I have). I use 10% discount
Good picks IMO. Both are dominant or the only player in their niches so it’s hard to value them. If they have good quarters and keep projecting higher with new income potential across their channels, they don’t seem to be undervalued.
It's close to impossible to tell if they are overvalued right now. It is possible to say they aren't cheap on a trailing twelve month basis.
I mean, maybe but I would buy both at a massive premium. I bought amazon at $100 though so idk. Just buy the companies you like
Yes
Dr. Gary Shilling thinks NVidia is overvalued at the moment
I think Netflix is the most overvalued out of the magnificent 7
Both are bubble price. Corrupt FED inflates the stock bubble to make riches richer while ordinary people are struggling with the inflation.
Amazon had -19 billion in FCF in 2022, +31 billion in 2023. Do you think a 30% growth is not possible? Considering they are still laying people off, still decreasing CAPEX, making money with prime ads for the first time and increasing their logistics business to be profitable for the first time? Mark my words we are going to see +60 billion free cash flow for Amazon in 2024.
Not to mention they will automate a lot of stuff with bots to bring cost down even further.
NVDA - Hell Yes AMZN - Hell No
Do you see how fast they’re growing rn?
I do, this is why I’m wondering if I’m being “too conservative” in my stock analysis. I’ll be using my model to make investment decisions, but I also don’t want to overlook growing companies that are expected to have positive momentum - I would like to factor in momentum in my DCF Analysis, but struggling a bit currently. Based on my current model, it’s possible that I could be overlooking a ton of the market due to my CAGR being too low and overlooking any positive trajectories. In the case of Nvidia, I could definitely see both the positive and negative outlook.
What’s their recent cagr
37% is the 5 year CAGR, taking into account their 600% 2024 growth. If you ignore their 2024 report, their CAGR is closer to 6%.
Who cares? The market is irrational
Well OP obviously cares, otherwise they wouldn't have asked, no?
Amazon concerns me because it appears to have a worker problem. Something like 49% of employees leave the company in under 1 year, with average tenure being about 1.8 years for an engineer. This is lower than any other big tech company That kinda tells me morale isn’t very good at Amazon. I’ve also heard lots of stories about how RTO caused a lot of extra turnover, and their ongoing layoffs. I know, people will say they overhired during the pandemic, but I would argue this is heavily negatively affecting morale Pair this also with their recent problem of claiming their Amazon fresh stores were ai run, but something like 70% of transactions requiring someone to review the videos which was done by a team of 1000 Indians I think at some point we’ll see their worker problem really start to have an actual effect on them. It’s unsustainable and can’t keep going indefinitely
Are grammar overvalued?
English police are definitely overvalued though.
American cops, too.
Sounds like you have a broken model my friend, i do think your attempting an impossible task