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Felix Prehn - THIS Is Why Nvidia Crashed 8% Today + Stock Market News 29 August 2024 · Felix Nikolas Prehn's Podcast

• 0:09
  Speaker 1: Okay, we are actually live.
• 0:10
  Speaker 1: Brilliant.
• 0:11
  Speaker 1: Felix, good morning to you.
• 0:12
  Speaker 1: This is the day after the big one, nvidia, which presently is down if you count for yesterday's low, about 5% in total.
• 0:21
  Speaker 1: Not the end of the world, and I want you to understand better than anyone what the heck actually happened here.
• 0:28
  Speaker 1: Is this bad?
• 0:29
  Speaker 1: Is this okay?
• 0:29
  Speaker 1: Is this going to recover?
• 0:30
  Speaker 1: Should we be panicking?
• 0:32
  Speaker 1: Should we be freaking out around AI, or is this actually maybe a misunderstood piece of information?
• 0:39
  Speaker 1: That's really what I'm going to get through here today.
• 0:41
  Speaker 1: So, yes, smash the like button, as Stacey says, appreciate that and let me share my screen with you and we dive straight into it.
• 0:50
  Speaker 1: So this is kind of the most beautiful visual summary of NVIDIA that I could find.
• 0:55
  Speaker 1: And let's just go through the headline stuff right Data center growth plus 16% quarter on quarter that's good, that's a beat.
• 1:00
  Speaker 1: Data center growth plus 16% quarter on quarter that's good, that's a beat.
• 1:04
  Speaker 1: Revenue overall 50% up, that's a beat.
• 1:08
  Speaker 1: Gross profit margins came down a little bit three percentage points still pretty extraordinary at 75%, but it's not wonderful.
• 1:17
  Speaker 1: Similarly, net profit margins came down 2%.
• 1:20
  Speaker 1: That's the only bit of bad news that I see in this, but considering that they brought in $30 billion in revenue and $16.6 billion in profits.
• 1:33
  Speaker 1: I don't think this is terrible in any way, shape or form, and let me show you a few other visuals here, and then I'll show you what JP Morgan thinks of it and Goldman Sachs, and look at the bigger picture and the support and resistance and everything else as well.
• 1:47
  Speaker 1: So lots to get through here.
• 1:49
  Speaker 1: Today, data center revenue grew I need a different color, I don't know here another almost $4 billion.
• 1:55
  Speaker 1: So it's kind of in line with previous quarter's growth and it's pretty staggering, isn't it?
• 2:00
  Speaker 1: This was a business that, in the beginning of 2024, was a $4 billion business.
• 2:06
  Speaker 1: Now it's a $26 billion business.
• 2:10
  Speaker 1: That is pretty bonkers, I'd say.
• 2:15
  Speaker 1: That's really, really, really bonkers.
• 2:18
  Speaker 1: So they, by the way, have very, very funny financial years, if you noticed that.
• 2:23
  Speaker 1: So it's a Taiwanese thing, apparently.
• 2:26
  Speaker 1: So this looks pretty good, right?
• 2:28
  Speaker 1: Growth is there, growth is strong.
• 2:30
  Speaker 1: So what do we have to complain about?
• 2:31
  Speaker 1: Well, it's going up as much, almost as much as our teaching portfolio, and I always like to throw that in just to not to irritate you.
• 2:38
  Speaker 1: You know, I used to get really annoyed when people said, oh, I made this much money.
• 2:41
  Speaker 1: That's not the point, the point that I want to show you is that, yes, we're up 80% on the year and, yes, we use like three steps to do that, and I'll teach it to you for free.
• 2:50
  Speaker 1: If you want to know, you don't have to know, but if you want to know, if you want to know how to maybe make your money work for you, then join our workshop this coming Tuesday.
• 2:56
  Speaker 1: Link is down below in the description.
• 2:59
  Speaker 1: But let's just zoom out for a second here.
• 3:02
  Speaker 1: The data center market share.
• 3:05
  Speaker 1: There's basically only three players.
• 3:07
  Speaker 1: There's NVIDIA and LightBlue.
• 3:08
  Speaker 1: So this is NVDA.
• 3:11
  Speaker 1: Again, this chap who makes this at Goldman Sachs.
• 3:14
  Speaker 1: He only has two colors and they are blue and blue.
• 3:18
  Speaker 1: It's pretty, really baffling.
• 3:19
  Speaker 1: I don't understand why you would make a chart blue and blue.
• 3:22
  Speaker 1: Why not red or something?
• 3:24
  Speaker 1: Anyway, that's Intel, i-n-intel, and then the gray bit there at the top is AMD.
• 3:34
  Speaker 1: So NVIDIA has taken, if I can draw a line across here, almost 80% of the data center market, and they were not really a player in, say, 2020.
• 3:49
  Speaker 1: So insane growth.
• 3:57
  Speaker 1: They continue to hold that market share.
• 3:58
  Speaker 1: So that's pretty good.
• 3:59
  Speaker 1: And guess who spends the most on developing chips?
• 4:00
  Speaker 1: You probably think it's NVIDIA, right?
• 4:02
  Speaker 1: No, no, it's not, it's Intel.
• 4:06
  Speaker 1: Intel spends more money than NVIDIA, significantly, and way more than double of AMD, but obviously not very well, right.
• 4:15
  Speaker 1: So they're wasting a lot of money over there, while NVIDIA is the most efficient operator out there.
• 4:20
  Speaker 1: So so far you know, peer comparisons are important.
• 4:24
  Speaker 1: You value a company against its peers, not against Coca-Cola or something like that.
• 4:29
  Speaker 1: So what about the current pricing?
• 4:35
  Speaker 1: Is it cheap?
• 4:36
  Speaker 1: Is it expensive?
• 4:37
  Speaker 1: Well, if you look at the three-year median price valuation, we are definitely below it.
• 4:46
  Speaker 1: So that's kind of good right.
• 4:48
  Speaker 1: We're near the bottom end of the 2019 valuations.
• 4:51
  Speaker 1: So why is that?
• 4:53
  Speaker 1: Well, I guess people are expecting growth to slow down.
• 4:57
  Speaker 1: If you listen to any of Jensen Huang's interviews he gave in the last 12 hours or so, he tells the opposite story.
• 5:04
  Speaker 1: He's basically saying we're going to be able to produce more because we'll have more supply come on stream in this quarter and first quarter, 25, second quarter of 25, and continuously thereafter.
• 5:17
  Speaker 1: And he says the demand is significantly stronger and bigger than the supply, so the growth is still going to be there.
• 5:25
  Speaker 1: So what's the problem with it?
• 5:27
  Speaker 1: Well, this was JP Morgan's take on it and gives you kind of a feel into why this stock is actually down.
• 5:35
  Speaker 1: So he says in client meetings and calls, it became apparent that the street wanted a bigger beat and a better guide than what we basically got.
• 5:50
  Speaker 1: And then everyone's talking about Blackwell.
• 5:52
  Speaker 1: Blackwell is the next generation of chips.
• 5:55
  Speaker 1: The current ones are H, the next ones are B right, and they will be significantly more energy efficient and significantly more powerful.
• 6:03
  Speaker 1: And they're saying the launch is on track, with a three-month delay.
• 6:10
  Speaker 1: But they didn't really answer on the earnings call specifics.
• 6:16
  Speaker 1: What the CFO said was that they are selling Blackwell chips and that there will be billions of blackwell revenue in Q4, and they're ramping up production from Q4 onwards.
• 6:29
  Speaker 1: But they weren't like super specific on the numbers, which I think the market kind of like doesn't really love.
• 6:36
  Speaker 1: As they say, you know, several billions in black revenue will be on top of that and at the same time the current generation, the H, the hopper, would grow sequentially in Q3 and Q4.
• 6:48
  Speaker 1: So we've got growth from the existing line and we've got a new line on top which is going to bring in additional billions.
• 6:54
  Speaker 1: So is this a bad story?
• 6:55
  Speaker 1: It's not really a bad story, is it?
• 6:58
  Speaker 1: Does that mean Intel is wasting government money?
• 7:01
  Speaker 1: Yeah, you bet.
• 7:02
  Speaker 1: That's what happens when you get subsidies.
• 7:04
  Speaker 1: You just put it in the incinerator, and investors basically want visibility on where we're going and the recovery on Blackwell.
• 7:15
  Speaker 1: But I actually think the Blackwell story is a good one, because the margins on the hopper are insane and they're getting better as they ramp up.
• 7:23
  Speaker 1: So I actually think NVIDIA is doing a smart move here.
• 7:28
  Speaker 1: They're going to improve margins by selling more H100, h200, and then they're going to bring the Blackwell on to full stream towards the tail end of the year and then going into 2025.
• 7:37
  Speaker 1: So and then he says lots of reasons to remain optimistic, let's not lose sight of the fact that the story has not changed and I'm more confident than ever that next year there'll be $4 plus in earnings per share and we have a broadening of capital expenditure into enterprise and sovereign as chip availability improves.
• 8:02
  Speaker 1: So what we're seeing is that at the moment, there is basically a pie of customers for NVIDIA and the pie looks like this, where you have 45%, that is, the super scalers, that's your Microsoft, that's your Meta, that's your Google.
• 8:23
  Speaker 1: Did I forget someone?
• 8:25
  Speaker 1: Amazon, I guess, amazon, amazon.
• 8:28
  Speaker 1: And then you have the 55%, which is everybody else.
• 8:33
  Speaker 1: So that's companies and, yes, governments.
• 8:37
  Speaker 1: So sovereign money, and the way that works is that lots of companies are subsidizing yeah, subsidizing their telcos or their data companies to build out domestic AI infrastructure, because they know, if they don't A, all their knowledge and data and everything else that they have will just move to the US, where the data centers are, and they want to obviously build their own kind of AI industry.
• 9:04
  Speaker 1: So therefore, there's a lot of government money flowing into this as well.
• 9:06
  Speaker 1: So is this a problem?
• 9:08
  Speaker 1: No, I don't think so.
• 9:09
  Speaker 1: I think this actually looks pretty sweet.
• 9:11
  Speaker 1: We're getting more different customers coming on board and remember what he said here.
• 9:16
  Speaker 1: He's confident that we're going to get $4 per share plus earnings per share.
• 9:21
  Speaker 1: That's Goldman, that's JP Morgan and I appreciate I'm running through these numbers, maybe a little bit fast.
• 9:26
  Speaker 1: So, goldman, that's JP Morgan and I appreciate I'm running through these numbers, maybe a little bit fast.
• 9:29
  Speaker 1: So ask if you want me to slow down.
• 9:30
  Speaker 1: Now, goldman Sachs, the other investment bankers with a big, warm, fuzzy heart they're all into kittens and that kind of thing.
• 9:37
  Speaker 1: They are saying that If you look at the earnings per share we need here is earnings per share.
• 9:48
  Speaker 1: They're saying a $4 earnings per share would give us $135 valuation.
• 9:56
  Speaker 1: Where are we trading right now?
• 9:57
  Speaker 1: 121 pre-market.
• 10:01
  Speaker 1: We're down 3%, so that's an upside.
• 10:04
  Speaker 1: Now, if you thought that JP Morgan was a bit conservative because he said $4 plus right, and generally speaking, nvidia sandbags somewhat and then beats Say it became $4.75.
• 10:18
  Speaker 1: Well then, according to Goldman Sachs, the stock should be worth $175, which is a 50% upside.
• 10:24
  Speaker 1: But either way, you're looking at an upside on that valuation.
• 10:28
  Speaker 1: Now, valuations are an opinion, right, it's not fact.
• 10:32
  Speaker 1: It's a bit like the science thing we talked about yesterday, which rather upset a few people and made a few people very happy.
• 10:37
  Speaker 1: A few scientists actually, coming around to my side of the story, which I appreciate, not everybody had their head washed in a tumble dryer.
• 10:46
  Speaker 1: So is that bad?
• 10:48
  Speaker 1: The worst case scenario is we have 15% to go and then we have to wait a little bit for earnings to grow further, going into later next year or into 2026, in which case a higher valuation might again be justified, be justified.
• 11:12
  Speaker 1: So why is the stock down?
• 11:12
  Speaker 1: Well, I think it's just a faction.
• 11:13
  Speaker 1: It really is just people had super, super high expectations.
• 11:16
  Speaker 1: But remember, we looked at this yesterday where my blue lines here this one and that one that was the expected move of NVIDIA after earnings, and we're right now trading here, so we didn't move very much.
• 11:29
  Speaker 1: So this wasn't terrible, but also wasn't wonderful.
• 11:33
  Speaker 1: But we just moved a little bit.
• 11:35
  Speaker 1: So it's kind of a yeah, it's okay, it wasn't like completely amazing blowout quarter.
• 11:44
  Speaker 1: But if you were NVIDIA, what do you have to do to maintain your stock price?
• 11:50
  Speaker 1: The first thing you have to do is you have to beat expectations, and they did that on all fronts Margins, teeny tiny miss on that, but it's not the biggest deal.
• 12:04
  Speaker 1: And then, second, what do you need to do?
• 12:07
  Speaker 1: You need to manage future expectations.
• 12:13
  Speaker 1: Sorry, can't really write very well Future expectations.
• 12:16
  Speaker 1: You know us bankers can barely spell a word expectations.
• 12:20
  Speaker 1: And how do you manage them?
• 12:22
  Speaker 1: Well, you try to sandbag the bloody thing, don't you?
• 12:24
  Speaker 1: So that you can beat in the next quarter.
• 12:27
  Speaker 1: If you actually told the real story and said we're going to carry in this amount, then it'd be incredibly hard for you to beat next time, and you know that the stock price would tank on the next earnings.
• 12:36
  Speaker 1: And I think that's exactly what they've done.
• 12:38
  Speaker 1: I think they've once again sandbagged.
• 12:40
  Speaker 1: I think they've done it rather well.
• 12:41
  Speaker 1: They haven't caused the stock to crash, they just talked a minor correction.
• 12:46
  Speaker 1: And where is our support?
• 12:49
  Speaker 1: Our support sits here at 120.
• 12:52
  Speaker 1: We're trading at 121 right now.
• 12:55
  Speaker 1: If you're wondering where I get that from, it's that little red line there.
• 12:58
  Speaker 1: That's our support line there, that red one.
• 13:00
  Speaker 1: And this is tradevisionio there.
• 13:03
  Speaker 1: It is tradevisionio Link's also in the description.
• 13:06
  Speaker 1: You might want to play with that because it has some really, really, really good insight and you just need to sign up for a trial account and we don't charge you if you quit before the first month.
• 13:15
  Speaker 1: If you like it, you stick around.
• 13:16
  Speaker 1: There's a link.
• 13:17
  Speaker 1: You won't be able to open that until you've created an account.
• 13:20
  Speaker 1: The second thing that we should watch out for today is dark pool trades, and I don't know if I showed you this yesterday.
• 13:29
  Speaker 1: This is again in trade vision.
• 13:30
  Speaker 1: We can see literally in the order of time.
• 13:31
  Speaker 1: So these are the last trades of yesterday.
• 13:33
  Speaker 1: We can see what people were doing and red is pretty bearish, right, and even the bulls.
• 13:38
  Speaker 1: There are a few, but they're not that many.
• 13:40
  Speaker 1: Most people were yesterday quite bearish.
• 13:43
  Speaker 1: They were either taking profits or they were like hedging their positions.
• 13:47
  Speaker 1: This is mostly bearish.
• 13:48
  Speaker 1: So let's see how today and tomorrow, the big boys reposition themselves, because these are big trades, right, there are millions of dollars on options trades and if you're wondering why options institutions 70, 80% of their trades are options, why it's just more profitable.
• 14:08
  Speaker 1: Very simple, which is why I teach it, which is why I trade it.
• 14:11
  Speaker 1: So we have 189 likes.
• 14:14
  Speaker 1: We have about 11 people, 100 people on here, so we have presently 900 bloody freeloaders.
• 14:20
  Speaker 1: I'd appreciate the smash of the like button or you can buzz off.