Nvidia is still the Bo Jackson of stocks
There’s only one professional athlete that’s been named an All-Star in two major North American sports.
His name is Bo Jackson, and in a remarkable injury-shortened career, he swung, ran, threw, and slid his way into the coveted All-Star rosters of the MLB and NFL. In the world of investing, Nvidia continues to pull off an almost equally impressive feat.
The Rule of 40
Nvidia continues to deliver that rarest of combinations: growth and profitability.
In its Q1 results yesterday, Nvidia posted a strong revenue beat, with sales coming in at $44.1 billion, up 69% year on year. Over the last four quarters, Nvidia’s net profit margin (pretax) has been 60%. That’s a Jackson-level dual threat that’s entirely unparalleled in large-cap stocks in the public market today, and it goes a long way toward explaining why, even at an eye-watering $3.3 trillion valuation, investors have been bidding up Nvidia’s stock on Thursday.
We can get some helpful context on just how good that is from the “Rule of 40” — a helpful heuristic typically applied to fast-growing startups by venture capital investors that posits that a company’s growth rate plus its margin should equal at least 40%. To be considered “healthy,” you need to be growing fast, solidly profitable, or some decent combination of the two.
Nvidia’s score over the last 12 months would be 69% + 60% = 129%. Compared to its tech peers in the S&P 500 index, most of which unsurprisingly don’t meet that very high bar, that is unrivaled. Meta’s is a solid 60%, but that’s still less than half of Jensen Huang’s company. Apple, one of the more mature members of the Magnificent 7, scored 37%, made up of 5% growth and a 32% margin.
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