{"id":63517,"date":"2024-11-19T10:40:11","date_gmt":"2024-11-19T15:40:11","guid":{"rendered":"https:\/\/www.technologyinvestor.com\/?p=63517"},"modified":"2024-11-19T15:17:20","modified_gmt":"2024-11-19T20:17:20","slug":"the-key-to-picking-a-great-stock-yes-another-diatribe-from-harry-on-nvidia","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=63517","title":{"rendered":"The key to picking a great stock. Yes, another diatribe from Harry on Nvidia"},"content":{"rendered":"

I wake mulling “What’s the ONE key to picking a great stock?<\/em>“<\/p>\n

It’s simple: Is the founder still running the place?<\/p>\n

That’s it.<\/p>\n

I direct you now to a newsletter called Barron’s Tech. Yesterday’s featured an excerpt from on an upcoming book\u00a0 by Tae Kim on — guess what — Nvidia.<\/p>\n

Here you are. The whole newsletter. As a result of what I read in the newsletter, I bought more shares in Nvidia. And I’ve ordered the book.<\/p>\n

The Nvidia Way.\u00a0<\/strong>When I started\u00a0working on a book<\/a>\u00a0about\u00a0Nvidia<\/strong>\u00a0in early May 2023, the artificial-intelligence boom was still in its infancy. Based on my years covering the chip sector, and tech more broadly, I was confident the party was just getting started, with Nvidia at the center of it all. The company already fetched a market value of $700 billion; the exclusive trillion-dollar club seemed within reach.<\/div>\n
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But even I couldn\u2019t imagine what was about to come. A few weeks into my book research, Nvidia posted what one analyst called \u201cthe greatest beat of all time.\u201d The company went on to report a series of quarterly results with triple-digit growth rates\u2014an unprecedented stretch for a company of its size. Today, all of Big Tech is clamoring for its products. Access to the company\u2019s graphics processing units has become a question of national security for the world\u2019s superpowers. And Nvidia has a market value of $3.6 trillion, making it the most valuable company of all time.<\/div>\n
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I\u2019ve been fortunate to have a front-row seat to the run, including interviews with key Nvidia partners and executives\u2014and\u00a0co-founder and CEO Jensen Huang<\/a>, who essentially willed Nvidia into existence three decades ago. His story has essential lessons for all tech investors and entrepreneurs.<\/div>\n
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IN ANOTHER LIFE,\u00a0Jensen Huang<\/strong>\u00a0might have been a teacher. His preferred medium is the whiteboard: At many of the meetings he attends at Nvidia, where he has been the CEO since he co-founded the company in 1993, he will leap up, his favorite chisel-tip, dry-erase marker in hand, and diagram a problem or sketch out an idea\u2014even if someone else is speaking or whiteboarding themselves at the same time. In fact, he alternates between teacher and student, fostering a collaborative ethos among his employees to develop their thinking and solve the issues they face. His sketches are so precise that they could be turned into usable schematics for technical documents; colleagues call him \u201cProfessor Jensen\u201d for his ability to explain complicated concepts on the whiteboard in a way just about anyone can understand.<\/div>\n
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At Nvidia, the whiteboard is more than the primary form of communication at meetings. It represents both possibility and ephemerality\u2014the belief that a successful idea, no matter how brilliant, must eventually be erased, and a new one must take its place. Every conference room in the company\u2019s two headquarters buildings in Santa Clara, Calif., has a whiteboard, signaling that each day and each meeting is a new opportunity, and that innovation is a necessity, not an option. Whiteboarding also requires active thinking and inevitably reveals how well (or not) any employee, including an executive, knows the material. Employees must demonstrate their thought process in real time, in front of an audience; there\u2019s no hiding behind neatly formatted slides or slick marketing videos.<\/div>\n
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The whiteboard is perhaps the ultimate symbol of the unique culture at Nvidia\u2014the microchip designer that has grown from humble beginnings in the 1990s, when it was one of dozens of computer graphics chip companies and known mainly by hardcore gamers seeking the best performance for the first-person shooter\u00a0Quake<\/em>\u00a0and other games, into the premiere supplier of advanced processors for\u00a0our age of artificial intelligence<\/a>.<\/div>\n
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The architecture of the company\u2019s processors is well suited for AI workloads because of its ability to perform mathematical calculations simultaneously\u2014essential for training and running advanced large-language AI models. Nvidia\u2019s early recognition of the significance of AI and its forward-thinking investments over the course of more than a decade\u2014including enhancement of hardware capabilities, development of AI software tools, and optimization of networking performance\u2014made the company\u2019s technology platform perfectly positioned to capitalize on and become the primary beneficiary of the current AI wave. AI use cases are now plentiful. Companies are harnessing Nvidia-powered AI servers to boost programmer productivity by generating lower-level code that developers find tedious to write, automating repetitive customer-service tasks, and empowering designers to create and alter images on the basis of text prompts, enabling the faster iteration of ideas.<\/div>\n
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Nvidia\u2019s reinvention has paid off: On June 18, 2024, the company surpassed\u00a0Microsoft<\/strong>\u00a0to become\u00a0the world\u2019s most valuable company<\/a>, at a market capitalization of $3.3 trillion. It reached that milestone on the back of the immense demand for its AI chips; the company\u2019s stock price had tripled over the previous 12 months.<\/div>\n
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To call Nvidia\u2019s stock a historically good investment is to understate things. From its initial public offering in early 1999 to the end of 2023, Nvidia investors enjoyed a 33% annualized compounded return, the highest growth rate for any U.S. stock with at least a 20-year trading history. If an investor had purchased $10,000 of Nvidia stock when it made its market debut on Jan. 22, 1999, that stock would have been worth $13.2 million on Dec. 31, 2023.<\/div>\n
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Nvidia\u2019s culture starts with Jen-Hsun Huang, who is known simply as \u201cJensen\u201d to his friends, employees, suppliers, competitors, investors, and admirers. (This is how I refer to him throughout the book.) He had already found a modicum of fame before the AI boom, having been named to Time magazine\u2019s list of the 100 most influential people in the world in 2021. But as Nvidia\u2019s value reached $1 trillion, then $2 trillion, and then $3 trillion, his profile has grown commensurately. It is now common to see his trademark leather jacket and shock of silver hair, always combed into a simple side part, in articles and video clips, many of which described Jensen as the \u201cgenius you\u2019ve never heard of.<\/div>\n
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To those of us who have covered the semiconductor industry, Jensen has been a known quantity for some time. He has run Nvidia for its entire three-decade history, the longest tenure of any current technology CEO. He has driven the company not only to survive, but also to surpass all of its competitors in the unforgiving and volatile chip sector, and to surpass just about every other company on Earth, as well.<\/div>\n
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I have been following Nvidia in a professional capacity for much of my career\u2014first as an equity analyst and now as a journalist\u2014and I have seen how Jensen\u2019s guidance and strategic vision have shaped the company over the years. Even so, my view has remained that of the outside observer, dependent as much on interpretation as on concrete fact. To learn the secrets of Nvidia\u2019s success, I would have to talk with many people, inside and outside the company. I would also have to speak with Jensen himself: to become his student, much like his employees do.<\/div>\n
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I GOT MY CHANCE JUST four days before Nvidia became the most valuable company in the world. Nvidia knew I was writing a book, and, in early June 2024, a representative offered to arrange a meeting with Jensen to occur immediately after his commencement address to the California Institute of Technology\u2019s graduating class of 2024. I agreed, and a few minutes before 10 a.m. on Friday, June 14, I found myself in front of a stage, waiting for Jensen to appear. It was a perfect California day, clear blue sky and warm sunshine. The students and their families took their seats under a large white tent. David Thompson, the chair of Caltech\u2019s board of trustees, introduced Jensen and joked that the Nvidia CEO had drawn so much attention earlier in the day, as the two made their way around campus, that it felt like he had been walking alongside Elvis.<\/div>\n
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During his speech, Jensen suggested to the students that their graduation from Caltech would mark one of the peaks of their lives. He mentioned that he knew something about peaks, too. \u201cWe are both at the peaks of our career,\u201d he said. \u201cFor all of you who have been paying attention to Nvidia and myself, you know what I mean. It\u2019s just that in your case, you\u2019ll have many, many more peaks to go. I just hope that today is not my peak. Not the peak.\u201d He vowed to work as hard as ever to ensure that there would be even more peaks ahead for Nvidia, implying that the new graduates should follow his example.<\/div>\n
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After Jensen concluded, I was whisked over to the Keck Center for Space Studies and led into a wood-paneled conference room with black-and-white photos of pilots, astronauts, and presidents on the walls, where he was waiting for me. We chatted a bit before I got to my prepared questions. I explained that I was a PC gaming nerd who had been building my own computers since the 1990s. I first encountered Nvidia while researching graphics cards and invariably chose its products. And I mentioned that earlier in my career, at a Wall Street fund, an investment in Nvidia became my first big winner.<\/div>\n
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\u201cGood for you,\u201d Jensen deadpanned. \u201cNvidia is my first big winner, too.\u201d<\/div>\n
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We launched into a wide-ranging discussion of the company\u2019s history. Jensen knows that many of his former employees look back on Nvidia\u2019s beginnings with nostalgia. But he resists overly positive accounts of Nvidia\u2019s start-up period\u2014and his own missteps.<\/div>\n
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\u201cWhen we were younger, Tae, we sucked at a lot of things. Nvidia wasn\u2019t a great company on day one. We made it great over 31 years. It didn\u2019t come out great,\u201d he said. \u201cYou didn\u2019t build NV1 because you were great. You didn\u2019t build NV2 because you were great,\u201d he said, referring to the company\u2019s first two chip designs, both of which were flops that nearly killed Nvidia. \u201cWe survived ourselves. We were our own worst enemy.\u201d<\/div>\n
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There were several more near-death experiences. But each time, amid the stress and the pressure, the company learned from its mistakes. It retained a core of die-hard employees, many of whom remain in the fold to this day. Of course, there were also people who didn\u2019t stay, requiring the company to integrate new hires. \u201cEvery single time, somebody left, and every single time we picked ourselves up. We healed the company into existence,\u201d he said.<\/div>\n
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He slipped into the third person. \u201cIf Jensen wasn\u2019t even involved in the first 15 years of our company, I would really like that,\u201d he laughed, meaning he wasn\u2019t proud of how the company was managed then or of his own naivet\u00e9 and lack of strategic thinking.<\/div>\n
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I was put in the unusual position of defending Nvidia\u2019s past to its founder. I pointed out that the early decisions\u2014about which I had learned a great deal by this point in my research process\u2014weren\u2019t all bad ones. While mistakes were made, some of the misfires were tied to factors that were unpredictable or out of his or the company\u2019s control. With hindsight, many of them appeared to have been unavoidable.<\/div>\n
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\u201cYeah, that\u2019s fine,\u201d said Jensen. \u201cI don\u2019t love talking about our past.\u201d<\/div>\n
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I FOUND THIS TO BE a pervasive attitude within Nvidia: that the culture of the place discourages looking back, whether at errors or successes, in favor of focusing on the future\u2014the blank whiteboard of opportunity. But you cannot understand what Nvidia is today without understanding how it got to this point.<\/div>\n
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During the course of my reporting I began to understand what makes Nvidia special. Its defining characteristic is not its technological prowess, which is more a consequence than a root cause. It is not the financial resources and the new opportunities that come from a high market valuation. It is not a mystical ability to see the future. It is not luck. Rather, it is a unique organizational design and work culture that I have come to call \u201cthe Nvidia Way.\u201d This culture combines unusual independence for each employee with the highest possible standards; it encourages maximum speed while demanding maximum quality; it allows Jensen to act as strategist and enforcer with a direct line of sight to everyone and everything at the company. Above all, it demands an almost superhuman level of effort and mental resilience from everyone. It\u2019s not just that working at Nvidia is intense, though it certainly is; it\u2019s that Jensen\u2019s management style is unlike anything else found in American corporations.<\/div>\n
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Jensen runs the company in the way he does because he believes that Nvidia\u2019s worst enemy is not the competition, but itself\u2014more specifically, the complacency that grips any successful company, particularly one with a long and impressive track record such as Nvidia. In my work as a journalist, I have seen that companies tend to become dysfunctional as they succeed and grow, largely because of internal politics, with employees focused not on driving innovation or serving customers but on advancing their bosses\u2019 careers. This jockeying distracts them from doing their best work and leaves them constantly looking over their shoulder for the threat from the next office over. It is something that Jensen has structured Nvidia to eliminate.<\/div>\n
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\u201cOver the years, I realized what was happening, how people protect their turf and they protect their ideas. I created a much flatter organization,\u201d Jensen said. His antidote to the backstabbing, the gaming of metrics, and the political infighting is public accountability and, if needed, public embarrassment. \u201cIf we have leaders who are not fighting for other people to be successful and [who are] depriving opportunities to others, I\u2019ll just say it out loud,\u201d he said. \u201cI\u2019ve got no trouble calling people out. You do that once or twice, nobody\u2019s going to go near that again.\u201d<\/div>\n
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Nvidia\u2019s unique culture might sound strange or unusually grueling, even for the tech industry. But among all of the former Nvidia employees I talked to, it was hard to find a dissenter. They all reported that the company was largely free from the internal politics and indecisiveness typical in large organizations. They mentioned how difficult it was to adjust to working at other companies where direct, blunt communication is rare and there\u2019s far less urgency to get things done. And they described how Nvidia not only empowered them, but also required them to fulfill their professional calling, as a necessary condition of employment.<\/div>\n
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In a sense, that is the Nvidia Way in its purest form. It is the unwavering belief that there is tremendous reward in doing your job the best you can. It is the drive to persevere amid adversity. Or, as Jensen put it when looking directly into my eyes: The secret to his company\u2019s success is nothing more than \u201csheer will.\u201d<\/div>\n
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MORE PRECISELY, IT IS JENSEN\u2019S personal will that has shaped Nvidia. He has made the most consequential decisions in its history. His ability to place the right major bets on emerging technologies stems from his deep technical knowledge\u2014a founder with an engineering background. I have tried in this book to distill the Nvidia Way down to a set of principles that anyone can learn from, if not use. But behind them all lurks a question: Can you really separate Nvidia from its CEO?<\/div>\n
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As of this writing, Jensen is 61 years old. He has run the company for 31 years\u2014more than half of his life. Nvidia is bigger, more profitable, and more crucial to the global economy than ever before. Yet it still relies on Jensen, as a business leader and a tone setter.\u00a0Apple<\/strong>\u00a0survived the ouster of Steve Jobs in 1985 and his death in 2011;\u00a0Amazon.com<\/strong>, Microsoft, and\u00a0Alphabet<\/strong>\u00a0all did well after Jeff Bezos, Bill Gates, and Larry Page and Sergey Brin wanted to move on. Someday, Nvidia will have to face a similar transition. It is not quite clear what the company might look like post-Jensen\u2014whether its culture will survive, whether it will maintain its momentum.<\/div>\n
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After all, a whiteboard is only as useful as the person who holds the marker. It can reflect genius, but it cannot create it.<\/div>\n
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Write to me at\u00a0tae.kim@barrons.com<\/a><\/div>\n
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Nvidia reports after the bell tomorrow, Wednesday. It’s presently up 2.1%.<\/div>\n
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Want a spec? Buy some SMCI. I think it was or is Nvidia’s biggest customer.<\/div>\n
<\/div>\n","protected":false},"excerpt":{"rendered":"

I wake mulling “What’s the ONE key to picking a great stock?“ It’s simple: Is the founder still running the place? That’s it. I direct you now to a newsletter called Barron’s Tech. Yesterday’s featured an excerpt from on an upcoming book\u00a0 by Tae Kim on — guess what — Nvidia. Here you are. The […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-63517","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/63517","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=63517"}],"version-history":[{"count":5,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/63517\/revisions"}],"predecessor-version":[{"id":63522,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/63517\/revisions\/63522"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=63517"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=63517"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=63517"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}