Just Nibbling

My entry points for four stocks

Since the stock market began dropping in February I've been nibbling at stocks that I formerly believed were too expensive relative to their growth prospects. Of course, I had not anticipated the stock market rout from the Trump tariffs announced yesterday, in which case I have bought too soon. (Analysts expect more declines as other countries, especially China, respond with "retaliatory" tariffs.)

I've invested less than 2% of my retirement monies so far and will close my eyes and buy more if declines continue. I am still confident that stock prices will be higher in a year, and though they were not bought at the bottom I will be glad I nibbled.

Would You Keep Paul McCartney Waiting?

CNBC's Jim Cramer was bantering with fellow stock market commentator David Faber when Jensen Huang (shown in background) arrived nearly half an hour early for an interview with Cramer.

Jensen Huang and Elon Musk are the rock-starrish two most famous businessmen on the planet (the difference is that they're mobbed by nerdy guys instead of women).

Others who used to hold that lofty position, like Bill Gates and Jeff Bezos, have reduced their roles in the companies that made them centi-billionaires.

It's a sign of Jensen Huang's humility that he patiently waited for Jim Cramer to finish his segment, although Jensen is even busier than normal at this week's Nvidia GTC (GPU Technology Conference) in San Jose.

This blogger's question to Mr. Cramer: would you keep Paul McCartney waiting?

Even the Nvidia Tree Doesn't Grow to the Sky

On November 30, 2022 OpenAI's ChatGPT provided to the general public an inkling of what Artificial Intelligence can do, and Nvidia stock. then $16.91, has never looked back. NVDA is the clear-cut leader in making the fastest chips that power AI models, and the largest hyper-scalers like Microsoft and Google regularly order tens of $billions of Nvidia's most advanced chips every year.

One week ago China's DeepSeek released two products, DeepSeek-R1-Zero and DeepSeek R1 (aka "Reasoner"), that showed that it is possible to produce AI that is nearly equal in performance to the most advanced models with lesser chips. The stock market reckoning occurred earlier today.

The tech-heavy Nasdaq fell 3.1%, driven by a 16.9% dive in Nvidia shares. Nvidia dominates the market in advanced AI chips. Its stock had surged more than 10-fold since early 2023—achieving a more than $3.3 trillion market valuation until Monday—as tech giants announced hefty outlays on AI.

Enter DeepSeek, which last week released a new R1 model that claims to be as advanced as OpenAI’s on math, code and reasoning tasks. Tech gurus who inspected the model agreed. One economist asked R1 how much Donald Trump’s proposed 25% tariffs will affect Canada’s GDP, and it spit back an answer close to that of a major bank’s estimate in 12 seconds. Along with the detailed steps R1 used to get to the answer.

More startling, DeepSeek required far fewer chips to train than other advanced AI models and thus cost only an estimated $5.6 million to develop. Other advanced models cost in the neighborhood of $1 billion. Venture capitalist Marc Andreessen called it “AI’s Sputnik moment,” and he may be right.

DeepSeek is challenging assumptions about the computing power and spending needed for AI advances. OpenAI, Oracle and SoftBank last week made headlines when they announced a joint venture, Stargate, to invest up to $500 billion in building out AI infrastructure. Microsoft plans to spend $80 billion on AI data centers this year.

If DeepSeek's numbers can be believed, its R1 costs less than one percent (1%) of other models. Even if this was an exaggeration, the cost differential is so vast that Nvidia's valuation fell $589 billion today.

Chips have progressed so rapidly that the industry grew lazy. Why program efficiently when you can "brute force" solutions through advancing hardware? DeepSeek proved that paying attention to software practices can be enormously productive.

Game on!

Nvidia's Management Secret: Top Five Things

(Bennett / aol photo)

Founders of world-class companies each have their distinguishing management characteristics--think Steve Jobs' perfectionism, Bill Gates' ruthlessness, and Elon Musk's first principles. Jensen Huang's is T5T (Top Five Things):

T5T emails began as a solution to a surprisingly tricky problem. Huang is allergic to the bureaucracy that infects organizations as they get bigger. But as his startup grew, he “needed to somehow keep tabs on what was going on inside Nvidia in order to make sure everyone had the right priorities,” [“The Nvidia Way" author Tae] Kim writes.

This turned out to be harder than etching billions of transistors on a silicon wafer.

The documents that make it to a typical CEO tend to get so watered down along the way that they’re liable to leave a puddle on his desk. Huang doesn’t bother with any of them. He doesn’t believe in formal strategic planning or status reports, either. “Status reports are meta-information by the time you get them,” Huang said last year. “They’re barely informative.”

He doesn’t want information that has already made its way through layers of management. What he wants is “information from the edge,” he said last month in a public interview with Laurene Powell Jobs.

The way he solved this problem was by asking roughly 30,000 employees at every level of the company to send regular emails to their teams and executives that even the CEO can access. Which he does—every single day. They’re usually brief and include a few bullet points, and glancing at them gives Huang a snapshot of what’s happening inside Nvidia, Kim writes.

It might just be the only way he can get the sort of unvarnished truth that nobody wants to give the CEO but every CEO needs to get. After all, Nvidia’s employees are not telling Huang what they think he wants to hear. They’re just telling him things.

T5T emails became a “crucial feedback channel” for Huang, Kim writes, because they allowed him to pick up on trends that were obvious to junior employees, even when top executives were completely oblivious.

All the aforementioned founders have been called workaholics because they don't make the mistake of over-delegation. Over-delegation tempts them to coast on their marketplace dominance, which dissipates often invisibly because they took their foot off the gas.

Through T5T Jensen Huang seems to have found an efficient way to access uncurated information flowing through his vast organization, but he still has to work around the clock. May he remain at Nvidia's helm for many years.

Every Bar is Lowered

My portfolio in blue, S&P 500 in gray

My retirement portfolio is up 11% year-to-date, which is well behind the 14% recorded by the S&P 500. Nevertheless, I'm happy with a six-month increase of 11%.

It's a good thing that I'm not a professional money manager that has to explain why he didn't buy more Nvidia to keep up with the S&P:

Nvidia’s ascent is a big reason the S&P 500 has climbed 14% this year—nearly as much as in last year’s standout first half—even as a series of hot inflation readings damped investors’ hopes that the Federal Reserve would soon begin to cut interest rates...

So far, Nvidia has contributed 30% of the S&P 500’s total return, including dividends, this year through Wednesday, according to S&P Dow Jones Indices.

If the market doesn't go up or down in the second half, I'll still be content with 11%. When one is retired, every bar is lowered.

NVDA: Now the Top of the Heap

MSFT and AAPL rose 81% and 65%, respectively, while NVDA returned 754% over the last two years.

Today, with no international crises or natural disasters as competition, the headlines again return to Nvidia, which surpassed Microsoft as the most valuable company in the world. [bold added]

Nvidia, a 31-year-old company, became the world’s most valuable firm on Tuesday. The stock closed at $135.58, giving the chip maker a valuation of $3.335 trillion, just above Microsoft at $3.317 trillion. [Blogger's note: Apple closed in third place at $3.286 trillion.]

It marks the first time a company other than Microsoft or Apple has held the title of largest company since February 2019 when Amazon.com briefly topped the list. Nvidia was ranked fifth largest by market valuation a year ago and was ranked 10th largest two years ago. Five years ago, it wasn’t in the top 20 largest companies.

How could so many on Wall Street have been so wrong about Nvidia? One easy explanation: investors had become jaded because the realization of artificial intelligence was always sometime in the future. That is, until the release of ChatGPT in November, 2022, showed everyone how millions could become instantaneously more productive in research and writing reports. Just imagine the possibilties in hundreds of other endeavors. Note from the graph that Nvidia's stock price growth separated itself from Microsoft, Apple, and other tech companies in November, 2022.

Nvidia's limits will eventually be reached when the companies that can buy its chips for multi-million-dollar data centers find that they can't realize a return on their investment. But that moment is years away, especially with everyone jockeying for leadership positions in markets that no one fully understands.

Apple: the Primacy of Privacy

AAPL sold off 2% today

After its run-up to the Worldwide Developers Conference, Apple stock sold off 2% today, as traders greeted Apple's introduction of its artificial-intelligence products with a yawn.

Apple said its new software will retrieve information from across apps and scan personal information to help users proofread text, call up photographs of specific family members or gauge traffic patterns ahead of an atypical commute. Users can create images and emojis and even convert rough sketches into polished diagrams...

For certain complex Siri requests, Apple will surface a prompt to ask if the user wants to connect with ChatGPT to get a better answer. Apple is also allowing ChatGPT to connect with other areas of the operating system, such as using the AI to help with composing text. Apple said it gives users the ability to control when and if they want to use ChatGPT...

Apple's AI features didn't overtake the competition technically, but as an Apple customer I really liked the emphasis on privacy. (By way of contrast Microsoft Windows' AI tool "Recall" takes snapshots of users' screens every five seconds and stores the images on an unencrypted database that is easily hacked.) [bold added]

Privacy is at the heart of Apple’s new AI capabilities, a feature that could further lock users into its ecosystem. Most processing will be done on a device instead of shipping to the servers in the cloud. But the company said for running larger AI models Apple will keep it private by running its own servers with what it calls Private Cloud Compute. It will only send data relevant to the task to these servers. The data isn’t stored or accessible by Apple for further training, the company said.

ChatGPT queries from Apple devices will be routed to OpenAI servers, but user information won’t be shared with OpenAI, and the startup won’t be able to identify the queries from specific Apple users. Apple will use a version of ChatGPT that is available free elsewhere online, but those with premium ChatGPT subscriptions will be able to link their accounts.

Users' data is stored on the device itself. If more processing power is needed, then tasks are diverted to Apple's private servers. Users can call on Open AI's ChatGPT, but even here protections are in place.

user information won’t be shared with OpenAI, and the startup won’t be able to identify the queries from specific Apple users.

As an Apple investor and a customer with privacy concerns, I appreciate the fact that Apple will be using its own silicon and not be as beholden as everyone else to external data centers running on Nvidia chips.

This fall I'll be buying a new iPhone 16. My six-year-old iPhone XS Max has served me well, but it's time to move on to the brave new AI world (as well as a much better camera and battery).

I'm not so presumptuous as to believe that hundreds of millions of iPhone, Mac, and iPad customers think like me and will soon upgrade their hardware, but there's a good chance that will be true, so if I didn't already own Apple stock, I'd be buying some.

Nvidia and Apple: Matters of the Heart

Nvidia's Santa Clara HQ (NY Post)

Homegrown $2.3 trillion-dollar tech giant Nvidia gives a much needed shot in the arm to the Bay Area economy.

Headline: Nvidia widens South Bay property holdings with $350 million-plus deal

Nvidia has bought several office and research buildings in Santa Clara in a deal that tops $350 million and greatly broadens the fast-expanding tech company’s holdings in Silicon Valley...

The sites Nvidia bought are adjacent to and near the tech company’s modern and futuristic-looking headquarters complex at 2788 San Tomas Expressway. The just-bought properties could be redeveloped with new office and research buildings, potentially totaling up to 2 million square feet, according to Santa Clara city planning records.

Unlike big-name companies (Tesla, Oracle, HP) that have moved their headquarters from California, Alphabet (Google) and Meta (Facebook) have indicated that they are staying put by continuing to add people and real estate in the Bay Area, recent layoffs notwithstanding.

But Apple and Nvidia are special cases. When Apple built its $5 billion spaceship headquarters in Cupertino, it was an announcement to the world that it would always be based in Cupertino. Similarly, Nvidia bought, not rented, additional real estate, a signal that it, too, would not only be staying but expanding in Silicon Valley.

Cost-benefit analysis always produces the same result: expand anywhere outside of California because of California's high-cost housing, high taxes, and onerous regulation. Sometimes, after succeeding with a far-flung workforce, these companies move their headquarters away.

But Nvidia and Apple won't be moving away for the foreseeable future. Nvidia and Apple's founders got their start in the Bay Area, have a great deal of affection for their home towns, and most importantly controlled their companies. And who knows...the heart sometimes sees the future better than the head.

Nvidia: Grand Slam Origins

Denny’s CEO Kelli Valade and Nvidia’s Jensen Huang
at the Denny’s where Nvidia took shape. (WSJ photo)

In Silicon Valley, when young inventors need to build a prototype, they use their parents' garage.

When developing designs and business plans, a tolerant restaurant or coffee shop is the setting de rigueur.

And so it was that Nvidia, the newest entry in the trillion-dollar-market-value club, commemorated its founding 30 years ago at a Denny's restaurant in San Jose:

Last week, a San Jose Denny’s officially became a part of Silicon Valley lore.

The world’s tech capital is crawling with iconic names like Apple and Hewlett Packard that were founded in someone’s garage. Now the chain diner is officially credited as the birthplace of Nvidia, the chip company at the heart of the artificial intelligence revolution. With local news cameras in tow, Nvidia Chief Executive and co-founder Jensen Huang met Denny’s CEO Kelli Valade to unveil a plaque marking the booth where he and his co-founders sketched out the idea for the company back in 1993.

Denny's was more than the place where Jensen Huang came up with the idea for Nvidia:

As a young man, he worked at Denny's in San Jose.

"Oh, yeah, I was a dishwasher, I was a busboy, I was a waiter,” he said.

While on welfare J,K. Rowling wrote the first several Harry Potter books in Edinburgh cafés.

“It’s no secret that the best place to write, in my opinion, is in a café. You don’t have to make your own coffee, you don’t have to feel like you’re in solitary confinement and if you have writers block, you can get up and walk to the next café while giving your batteries time to recharge and brain time to think. The best writing café is crowded enough to allow you blend in, but not too crowded that you have to share a table with someone else.”

Ever since retirement I've been spending a lot of time at diners and coffee shops, waiting for inspiration to strike. And yet the $millions haven't rolled in....

Nvidia: at the Center of A.I.'s iPhone Moment

Two-year price chart of NVDA

Over ten years ago an engineering friend recommended Nvidia stock (he wasn't an insider, just a contract programmer who was impressed by the company when he worked for them between jobs). I passed.

At the time NVDA seemed to be over-priced; it made the fastest gaming boards, but it had a very high price-earnings ratio. It dominated the gaming market, but it was a niche business. Its upside was capped.

In 2011 Bitcoin began to seep into the public consciousness. Over the next decade Bitcoin and other crypto-currencies went through boom-and-bust cycles, but always with higher highs. Crypto-currency coins could be created through an increasingly costly process called "mining", and the race went to those who used fast Nvidia cards. The price of Nvidia stock reached an all-time high in November, 2021, the same month that Bitcoin reached its high of $67,567 (chart above).

In 2022 crypto prices crashed for a variety of reasons, which included a trading ban in China, the bankruptcy of crypto funds and exchanges, and U.S. interest rate hikes that had a highly negative effect on speculative assets. From peak to trough in the ensuing twelve months Nvidia stock lost more than half its value.

Ignoring the Wall Street adage, "never try to catch a falling knife," your humble blogger-speculator was driven by the fear of missing out and made a small investment in NVDA at $211 and later at $142. Then the artificial intelligence "chatbot" known as ChatGPT was released to the general public on November 30, 2022, and the stocks of companies that had been involved in artificial intelligence took off. Nvidia makes the chips that everyone in A.I. must use, and its stock rocketed past its previous all-time high today. A year ago I had been regretting my purchase. Now I wish I had bought more.

Jensen Huang, the CEO of Nvidia, said "This is the iPhone moment of artificial intelligence." Millions of consumers, investors, and producers agree with him.

AI: Where Export Sanctions Are Working

NVIDIA's H100 chip is 814 sq mm (CNET)

Chinese developers of artificial intelligence have been hampered by U.S. export sanctions: [bold added]

Chinese companies are cut off from Nvidia’s A100 chips, the most popular within the industry for AI development, and the next generation version, the H100 released in March, which offers more computational power.

Nvidia created downgraded versions of its chips for the Chinese market, called the A800 and H800, respectively, to meet sanction requirements. Both modified chips reduce the capacity of a chip to communicate with others.

The products provide an effective alternative for developing small-scale AI models, such as those used in the recommendation algorithm driving ByteDance’s short-video app TikTok. But the handicap throttles the development of larger AI models, which require the coordination of hundreds or thousands of chips.

Through software workarounds, clustering of NVIDIA's less powerful H800's, and designing their own chips, the Chinese hope to keep pace with AI development elsewhere.

Given the speed of technological advancement, small leads become larger over time if one side lacks the tools. The sanctions are not completely leakproof, but they appear to be having their intended effect.

Disappointment At the Genius Bar

Within a few minutes the Apple Genius diagnosed why the MacBook had been freezing on startup: a graphics card gone bad.

The NVIDIA graphics processors on early-2008 MacBook Pro's were known to fail as early as 2008, and Apple and NVIDIA agreed to effect a free repair within four years from the date of purchase and only if the card failed.

Of course, the law of warranties applied in this situation (the product breaks after the warranty expires), so I would have to pay $320 to fix the laptop. I said that I would think about it, especially after looking at all the shiny new laptops in the Apple Store. (Replacing the soldered card is beyond my capabilities, so a do-it-yourself repair is out.)

I have PC's, an iPad, and an iPhone, and my business needs for a MacBook aren't urgent. Nevertheless, it's disappointing that there's not an economical solution to this problem.

[Update: I took the laptop to We Fix Macs, a long-time Apple repair shop next to the Fry's in Palo Alto. They quoted $450. We're going in the wrong direction.]