Nvidia (NVDA 2.73%) doesn't trade cheap. At nearly 95 times trailing sales, one could argue that it trades at a nosebleed valuation. But just because it's pricey doesn't mean that the tech titan has exhausted its runway yet. In this segment of Backstage Pass, recorded on Nov. 19, Fool contributors Nicholas Rossolillo and Toby Bordelon explain.
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Nicholas Rossolillo: Maybe I could just say this because I think the question that always gets asked is, and I've been asked it so many times in the last two years, do I buy Nvidia now? It keeps going up. Do I buy it now? I say this, if you're looking five to 10 years down the road, yes, you buy it, but be ready for a 20%-plus tank at some point.
It's going to happen. I don't know what's going to cause it to happen, but it's going to happen. Remember this stupid video when that happens, remember my stupid face. And remember that someone on the other end is going to remember 40 million users at $1,000 bucks a year, I will take those shares off your hand if you're ready to jump ship. Don't be that person and hit the sell button. Be ready for that dip and buy more when that happens.
Because if you buy today, you have to have at least five- to 10-year visibility down the road. Don't expect to make a bunch of money in the next year or two or three. Buy it now for five to 10-plus years, be ready to buy more when it gets blasted at some point.
Toby Bordelon: Yeah. I think that's probably the way to think about it. I think, one thing I want to say here. We talk about this a lot, buy and be prepared for the drop. The natural response from someone moving to invest like, why wouldn't I wait till it drops 20% and buy?
Why wouldn't I wait till it drops 50% and buy? Why would I buy now, if I expect it to drop like 50%? Which is a legit question. That would be my question too, why in the world would I buy now, if I think it's going to go down by 50%? I think the answer is because you don't know when it's going to happen.
It might double first and then go down 20% and in case you're still better off when you buy it now. [laughs] It might go down 30% tomorrow, and you're like, what did I do?
Then it'll proceed to double from there, in that case you're still better off. It's from your original point. I think the point is you don't know when that's going to happen. If you believe in a business and the potential and what this company looks like in 10 years, you want to be a part of it.
You want to be invested. You just have no idea at all as to when the inevitable drops are going to occur, so you can't wait for it. But you mentally prepare yourself for it is what you do. You mentally prepare yourself for it, so you know that when it does happen, I expected this to happen. I didn't know when.
Now is when it did. Oh look, I just got paid yesterday, so I can buy a little more. That's the approach you take to that. It's hard. I've been in a situation where a stock has dropped a lot on me and I go, what did I do?
Then it's continued to go up after that and then ended up being quite a good deal. It's a mindset thing you've got to get yourself into.