While this title might be confusing, this article is simply about the valuation of Nvidia not expressed in dollars, but in Tesla shares. People in crypto are used to this habit of looking at prices of cryptos not in terms of dollars, but in terms of what are called cross-charts (as the name suggest which cross the price of 1 asset vs another) or of ETH/BTC as the most common example. People observing ETH/BTC may wonder how many fractions of a Bitcoin can an Ethereum token buy in the future, or vice versa.
Why is this useful?
I think cross-charts are a very useful and underrated approach in thinking about stocks (at least I have not seen anyone else do it). Just like looking at crypto prices in other crypto prices can be useful to decide between tokens, I believe looking at stock prices denominated against each other can help me decide what stocks to sell and what other stocks to buy in their place). Ironically because more people do this in crypto markets, it may be less efficient than for stocks where nobody does it, which is why I look at stocks in this way.
In addition, as my own portfolio manager I try to decide what stock I should overweight and what stock I should underweight (this means the decision to sell a stock and buy a new stock in its place is not enough. I must also decide on the proportion of my budget I use for this new stock and any other new stocks. In other words, I must choose where to allocate a higher percentage of my available cash and where to allocate a lower percentage of my available cash, following the sale of a previous position.
This is not an easy process as my long-term analysis and mid-term analysis often do not suggest the same things.
For instance, NVDA already had it's original stocks split 48 times, meaning that one NVDA IPO share is worth about $11,040 (48x230).
At the same time, each Tesla stock was split only 15 times and has value of $3,000 on IPO share (15x$200). This suggests that Tesla stock would have to grow by 268% from its price at $200 to about $736 for it to reach the Enterprise Value of NVDIA. While you may wonder why comparing stock-splits and enterprise value may matter at all, to me looking at IPO stock values is important because knowing that each IPO Microsoft share now cost $70,000 gives me an indication that to reach Microsoft, NVIDIA would need to grow by 7x, and Tesla would need to grow by 20-24x. This is useful in another way, to never be confused that a stock that has a value of 70k like Microsoft or a stock like Apple at $33,824 and had its stock split into 224 (slightly lower than Microsoft) can ever outperform a company like Nvidia or Tesla which barely had 48 and 15 stock splits respectively. In other words, I find it better to compare Apples to Apples, not split-apples vs not-split-apples.
To sum up:
Tesla>Nvidia>Apple>Microsoft based on potential future returns and obtaining additional stocks as a result of a stock split due to growth
Microsoft>Apple>Nvidia> Tesla based on Enterprise value and past returns or the least chance that enterprise value grows in such a way that it has 10-20-30 more stock splits
The interplay between Nvidia and Tesla is the one that is the most interesting to me, as this would suggest I'd be better off to own Tesla. However, what does other evidence suggest?
Let us examine Figure 1. NVDA/TSLA to visually understand the cross-chart relationship between the two stocks. In 2010-2011, NVDA shares used to buy about 1.5 Tesla shares. However, as bitcoin grew and the bitcoin mining industry grew, the spill over effect for NVDA was that it grew to become worth 4 Tesla shares. Oppositely as Bitcoin crashed by 90% during 2011-2013, Tesla shares outperformed and became worth 3 shares of NVDA, as each NVDA share could buy only 0.3 Tesla shares during 2013-2014. The growth of NVDA relative to Tesla shares started again in 2015 with Bitcoin's bull-market and continued up to 2017 whereby each NVDA share grew to be from 0.3 TSLA shares to about 2 Tesla shares again (a 5,6x gain for Nvida over Tesla during 2015-2017). NVDA had only a 50% correction vs Tesla shares to 1 in 2018 and then grew again from 2018 to 2019 to about 4 shares of Tesla (or a 12x gain from 2013 lows to 2019 highs).
Figure 1. NVDA/TSLA cross-chart, expressing how many Tesla shares 1 NVDA share buys
At the moment, we are currently at about 1-1.2 (simply calculated by dividing NVDA PRICE of $235 by the price of Tesla of about $200 = 1,13 (as of 28/02/2023). This is interesting as it suggests that in the next 3-4 years, NVDA is likely to grow firstly to about 2-3 Tesla shares again, say by Q1 2026. It also suggests that on a 6 year basis from 2023 to 2029 NVIDIA may grow to about 3.5-4.5 Tesla shares from its current 2023 low of about 0.5 Tesla shares (where 1 Tesla stock bought 2 Nvda stocks).
In other words, from 2019 to 2023, Tesla share has outperformed NVIDIA shares as each Tesla share used to buy only 0.25 shares of Nvidia in 2019 (as 1 Nvidia share used to buy 4 Tesla shares in 2019) and grew to buy 2 Nvidia shares by 2023 (as 1 Nvidia share used to buy 0.5 Tesla shares). From here, this creates an opposing view with the view that based on Enterprise value Tesla is the best stock to own. As a result, this leads me to formulate a research question.
Research question: Can one 1 NVDA share grow from 1.15 Tesla shares to 3.5-4 Tesla shares due to the growth of Bitcoin in by mid 2025/Q1 2026?
To begin to answer this question, I refer back to the chart above, on the 4-5y frame, the chart above suggests that 1 NVDA share may grow to at least 3-3.5 Tesla shares. It should be noted that the 2011 high was about 4.2 shares and the 2019 high was about 4 shares (slightly lower). While, it is not necessary for this pattern to repeat itself, the logical explanation here would be that we will have a Bitcoin bull market, which will drive the price of NVDA higher for the next 2-3 years. It also, suggests that Tesla has already outperformed NVDA from 2019 to 2023 (in other words, the 4 years of dominance for Tesla might be over).
Based on the chart above, it can be seen that neither earnings, nor products, nor any of the fundamental variables actually can predict why NVDA grew vs Tesla. Therefore, this research argues that it is the Bitcoin performance (and it's 2.5y bull and bear cycles). These align perfectly (at least correlation, we do not know about cause yet before testing it). To see if this pattern is meaningful, I will formulate hypotheses. The key independent variable which we are testing to influence NVDA performance is - Bitcoin performance. The key dependent variable is NVDA performance. Even if you don't understand independent and dependent variables, this basically means we are answering the question "does Bitcoin performance (e.g. growth/decline) result into NVDA (growth/decline) vs Tesla stock?"
Testable Hypotheses:
Hypothesis is an assumption or an idea proposed for the sake of argument so that it can be tested. It is a precise, testable statement of what the researcher predicts will be outcome of the study. It is an integral part of the scientific method that forms the basis of scientific experiments.
Unlike those in an experiment, these are called - directional hypotheses
They specify the expected direction to be followed to determine the relationship between variables and are derived from theory. Furthermore, they imply the researcher’s intellectual commitment to a particular outcome.
Below I have outlined my 4 directional hypotheses based on this piece. I like hypotheses as a tool to outline statements which can be turned into a testable prediction. After all, we all have our hobbies and mine is to write research and test my own hypotheses.
Hypothesis 1a: When Bitcoin grows NVDA stock outperforms Tesla stock
Hypothesis 1b: In the next 4 years, NVDA will become equal to 3.5 TSLA
Hypothesis 2: When Bitcoin falls NVDA underperforms Tesla
Hypothesis 2b: After each NVDA share reaches a top in Tesla shares, it will drop back to at least 1=1 (i.e. by 50-70%).
The purpose of these hypotheses is for me to summarize my opinion in a few statements, test them and write subsequent pieces in which I discuss whether these hypotheses were accepted or rejected, as a requirement of the scientific method to be valid and a continuation of this hobby.
Practical Implications for my investing decisions
For me this suggests that if I wanted to buy more Tesla shares because I am a fan of Tesla, I'd actually buy NVDA shares because if each NVDA share grows by 209%-250% vs Tesla shares, this literally means I can sell 1 NVDA share to buy 3-3.5 Tesla shares (this is because if 1 NVDA share has 200% gain it becomes 3 NVDA shares 1+2 and similarly at 250% it would be 1+2.5 = 3.5 shares). Because shares cannot be sold at halves, I'd rather have a round number, i.e. 2 shares NVDA for 6-7 shares of Tesla or 40 shares of NVDA to buy at least 120 Tesla shares.
The practical application of this research will answer a simple question as well: Why would I buy 1 Tesla share, when I could buy 1 NVDA share and then ideally sell it to buy buy 3-4 Tesla shares?
This is not a tip to buy NVDA. This is my way of showing that we are used to seeing stock prices denominated in dollars. However, for me, there is extreme value in denominating stocks in terms of other stocks, which helps me select where to allocate more of my funds. As a person who owns Tesla stocks since 2017, I have a significant interest in acquiring more Tesla shares. To read why I love Tesla shares over the next 10-15y, you can click
here.
A final thought (GPU for AI-operations + data centres)
A follow-up on this article could be: Can NVDA shares actually become 6-8 Tesla shares? Such a thing would have to be the result of two independent variables - bitcoin performance + AI adoption as determinants of the dependent variable = NVDA performance
Nvidia now has the first, $12,000-$70,000 GPU designed specifically for AI operations and data centres (NVDA A100). If this is such a game changer as NVDA video cards have been in the past, these may eventually be found in anything which has anything to do with AI (from self-driving cars to EVTOLS - flying EVs to data centres and any number of applications). One of these GPUs can cost as much as a Tesla car. That's funny to think about, but it also represents the newness of this technology. As with first generation GPUs, we had a 128 MB version at 2,000 euros in 2000s. Now, we have this at an extremely high price end, obviously intended only for enterprise clients. However, such or a similar calibre of GPUs are needed for each of Tesla's products (be it the Optimus - shown below - the AI robot, or the self-driving cars). I personally believe about 10% of every expense that Tesla faces in the future will be to buy Nvidia GPUs.
However, depending on how fast the demand for AI-supporting GPU grows, this could be the first step in NVDA's future dominance in the AI-related GPUs. Therefore, this raises a question if NVDA can actually for the first time become worth more than 4 TESLA shares? However, answering this question would have importance to me if and when one NVDA reaches a price that allows the purchase of 3-4.5 shares of Tesla.
As time goes, more information would become available to be analysed and testing additional hypothesis relative to this topic would require the first 4 to be accepted in the next 4-5 years. If this is the case, then we have about 5 years to answer the first part of the question - posed as the title of this article, after which I might follow-up on this article in the next 2-4 years to see the progress the outlined hypotheses. In about 5-6 years, it might be relevant to answer the second research question: Can an NVDA share for the first time ever grow to buy 6-8 Tesla shares before a major reversal in favour of Tesla after that?
I also explain the reasons why NVIDIA is the key company behind the infrastructure of AI products (i.e. the most profitable in the AI sector
here). In that piece I explain that I find Nvidia as the top hardware AI stock and Palantir as the top software AI stock. I also have key explanations about AI and the future expected growth of the AI industry as a whole.
If you are curious you can see how my opinion is working out for me by clicking here. Because this will show you only the price of NVDA, you can also click here to see the price of Tesla. To determine the ratio on NVDA/TSLA, I simply take the price of 1 NVDA share say 232/200 = 1.16 (and this will continue to change as both prices change).
Reminder
If this is the first piece that you read on this blog, I strongly advise you to go to the "purpose of the blog" page to understand what this blog is about. You can do this by clicking here. At least scroll down to the middle of the page and read the section labelled - "What does this blog include?" for an explanation on each of my blog series and the type of content that is included in each of the series.
Disclaimer
No one should buy or sell anything because of anything I post inside my blog. This is all that it is, a way for me to track my own thoughts, organize my research and share my unique opinions. Any opinion posted on this blog is just that - an opinion. The purpose of these pieces are to act as a motivational information tool. This is a blog about my life goals and the decisions I use to try to achieve them.
Nothing on this Blog constitutes financial or investment advice, a recommendation that any security/cryptocurrency, portfolio of securities/cryptocurrencies, other investment products, transaction or investment strategy is suitable for any specific person. Every person has unique personal circumstances, financial situation, goals, and risk capacity. No one should use the content of this Blog to make financial decisions.
In short, nothing in this blog is financial advice! Do your own research & Do your own due diligence. If you have investment questions, I highly recommend you seek help from an authorized (regulated) financial planner, which I am not.
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