Nvidia Stock Is a Clear Case Study of an Indispensable Investing Principle From Warren Buffett

Core Insights - Warren Buffett, with a net worth of 155 billion, is recognized as a leading figure in value investing, primarily achieving his wealth through stock market investments [1] - The distinction between growth investing and value investing is highlighted, with Buffett emphasizing that growth is a critical component in assessing value [2][6] Company Analysis: Nvidia - Nvidia's GPUs, initially designed for gaming, have expanded their applications to cryptocurrency mining and AI, significantly boosting the company's stock appeal [3] - At the start of 2023, Nvidia's stock had a high P/E ratio of 62, which deterred traditional value investors, especially when compared to the S&P 500's P/E ratio of about 22 [4] - Despite the high valuation, Nvidia's stock was retrospectively a strong value investment, with a share price of 14.50 reflecting a valuation of less than 5 times its reported EPS of $2.94 for fiscal 2025 [5] - Nvidia's EPS surged from$0.17 in fiscal 2023 to $2.94 in fiscal 2025, indicating a 17-fold increase in profits over two years, which supports the argument for its value proposition [7] Investment Principles - Investors should focus on future financial results rather than past performance, as emphasized by both Buffett and investor Bill Miller [8] - Understanding a company's future growth potential is essential for evaluating its stock value, and investors should operate within their "circle of competence" to make informed decisions [9] - This approach can prevent investors from missing significant opportunities, as seen with Nvidia's stock performance, which increased over 700% since the beginning of 2023 [10]