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The AI revolution

May 23, 2024

NVIDIA’s CEO stated yesterday that “the next industrial revolution has begun,” and NVIDIA stands to gain the most. The company’s fiscal Q1 revenue hit $28 billion, beating expectations and driving a 4% after-hours stock price jump, on top of a 92% rise this year. Analysts now forecast 35.8% annual earnings growth for the next five years. However, potential risks loom: emerging rivals could disrupt NVIDIA’s market dominance, converting strong sales into profits might prove difficult, and dependence on Amazon, Meta, Microsoft, and Alphabet for 40% of sales could be risky. As of now, investors enjoy that party and the company sends the right messages by announcing a 10-for-1 stock split, 150% dividend hike while its valuation looks reasonable with a forward P/E ratio of 34. While we study AI and its implications not to miss out on the revolution, as value investors we also know that  any the slightest disappointment on growth at NVDIA could hurt its stock price heavily going forward.

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