00:00Okay, guys, before we go any further,
00:03this is the grand part of the show.
00:06Let's delve deeply into NVIDIA.
00:10So first of all, NVIDIA, as you know,
00:14announced their quarter last week,
00:15specifically on August 28.
00:18And I think the only real sin that they committed
00:21is that they didn't beat the Wall Street estimates,
00:25either with what they reported
00:27or got it to for the next quarter by enough.
00:31So in the quarter just announced,
00:33they beat the Wall Street earnings estimate by 6%.
00:38Now, a year ago, four quarters ago,
00:41they beat the Wall Street estimate by 19%.
00:45And so are we seeing a growth slowdown?
00:49Not necessarily, but we are seeing smaller and smaller beats
00:54versus Wall Street expectations.
00:56I don't think a stock should be punished this much on that.
01:02The other thing that I think is interesting
01:04is the average company in America
01:08or the average company in the S&P 500
01:11has a gross margin of about 40%.
01:15The gross margin at NVIDIA
01:18will start to shrink a little bit
01:20as the company continues to expand,
01:23but the guidance from the company
01:25is for a gross margin of still to be 75% this year.
01:30You guys, 75% versus 40% for the average company.
01:37That is more like a software company margin
01:40than a semiconductor company margin.
01:42But remember, this is not just a semiconductor play.
01:45They have that ecosystem and AI infrastructure building.
01:49Just like years ago,
01:51Apple had that ecosystem
01:53with all their interrelated products in the 90s
01:55and the early part of 2000s
01:57when it rose to be the world's number one market cap stock.
02:00Now, their next generation of chips at NVIDIA
02:04is called Blackwell.
02:06And they did, as was reported in some periodicals
02:09a couple of weeks before they reported,
02:11they actually started the slide in the stock.
02:13They did have a manufacturing glitch,
02:16but I don't think it's that big of a deal
02:18because it's about a 90-day delay.
02:22Who cares?
02:22That's just one quarter.
02:23And they're so far ahead
02:25in all other aspects of their business
02:28that this is not gonna be lost revenues
02:30to AMD or anybody else.
02:32It's just gonna be deferred.
02:34And if it's just deferred for 90 days, who cares?
02:37Don't overreact.
02:39And it looks like they have already started
02:41to implement a new photo mask.
02:44And a photo mask is a part of the etching process
02:48for semiconductors.
02:50So they have the new photo mask
02:52that should solve some manufacturing issues.
02:55The new products are sampling
02:57and they're gonna be just fine with the Blackwell chip.
03:01Don't stress.
03:02But one of the reasons for, at least in the near term,
03:05for their gross margin to fall a little bit
03:07is extra cost of goods sold
03:09or extra manufacturing costs for this fix.
03:13Again, don't stress too much.
03:15Today, and this is probably something
03:18that we have to worry a little bit more about.
03:20Whatever happens is when you are on a pedestal,
03:23like this company has been for a couple of years,
03:26all your competitors wanna knock you off.
03:29And so all of Nvidia's competitors
03:31have ratted on the company.
03:33And now the Department of Justice here in the United States
03:36has issued a subpoena to the company
03:40for an antitrust inquiry.
03:43So whatever happens in these situations,
03:46maybe they have to change their business practices
03:49with how they sell products a little bit.
03:51I think it would just be a tweak.
03:53And then also when you have these legal issues,
03:56they are not solved in months or quarters,
03:59sometimes it's years.
04:01So I don't see this having a material impact
04:04for Nvidia anytime soon, and maybe never.
04:09And the valuation, I get some pushback from people
04:12and they say, Paul, how can you like this stock?
04:17How can you think it's not overvalued
04:18when it tripled last year
04:19and it's working on a double this year?
04:22But here's the rub, it's earnings, sales, cashflow
04:26have grown even faster.
04:28So this is not a situation where the valuation
04:33expanded on this company.
04:34It's still at the same price ratios,
04:38things like price to earnings, price to cashflow,
04:40price to sales, but all those metrics have just popped
04:43so much.
04:44So consider this, next year.
04:48So this is the fiscal year ended January 31, 2026.
04:52Nvidia is supposed to grow its earnings per share
04:56by over 40%.
05:00Its PE ratio today is 29 times earnings.
05:05So look to the PE to growth ratio.
05:08In the numerator is 29 times earnings.
05:12In the denominator is the growth rate, 42%.
05:16So this is a stock that is trading at a PEG ratio
05:19of 70% or only 0.7 of one.
05:25When you look for stocks that are cheap,
05:26you're looking for PEGs that are less than one.
05:30And here is one, 0.7.
05:32So it's not expensive.
05:34I can make the cases cheap.
05:36And if you wanna do the ultimate compare and contrast,
05:38take a look at Apple.
05:40Apple today trading at 33 times next year's earnings.
05:45Remember Nvidia is 29 times,
05:48but Apple's earnings per share growth
05:51is only supposed to grow 11% next year.
05:55So it has a PEG ratio of three times.
05:57Its PE ratio is three times its earnings growth rate.
06:02Where Nvidia's PE ratio is only 70%
06:06of its earnings growth rate.
06:08Which stock is more expensive?
06:10Apple, I say.
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