Nvidia tangos with an activist hedge fund: An excerpt from Tae Kim's new book on the tech giant
Starboard Value's Jeff Smith knows his firm sold its Nvidia stake way too soon, Tae Kim writes in "The Nvidia Way: Jensen Huang and the Making of a Tech Giant."
Early in 2013, Nvidia's shareholders were getting restless. The stock price had been roughly flat for four years, and the financial performance was mixed. In its latest quarter ending in January, sales were up 7 percent year-over-year, but earnings were down 2 percent.
Nvidia had a strong balance sheet of about $3 billion in net cash, which was a significant asset when the overall market value of the company was $8 billion total. However, its growth rate was only in the single digits, which resulted in a price-to-earnings (P/E) multiple of just 14 times earnings. After backing out Nvidia's cash on hand, Starboard believed that the company was severely undervalued, and its core assets had far more room to grow. The fund pounced: according to Securities and Exchange Commission 13F filings, the hedge fund accumulated a stake of 4.4 million shares in Nvidia, worth about $62 million, during the quarter ending in June of 2013.