Holy Crap Nvidia... Full Earnings & Earnings Call Breakdown [Summary Q2 2023].

well holy smokes Nvidia knocked it out

of the park with earnings implying maybe

artificial intelligence isn't a flash in

the pan maybe just because people aren't

necessarily incorporating AI into

everything they're doing in their lives

yet doesn't necessarily mean that

companies especially big csps also known

as cloud service providers aren't

throwing every bit of coal they have

into the furnace of artificial

intelligence I think that is a sign that

AI has massive staying power even if

it's just starting to come to consumers

in other words even if consumers might

not wake up every day and say I want AI

the companies that know to use AI or the

cloud service providers and all the

software companies built on top of that

layer in other words your Amazon your

meta Facebook your Google and your

Microsoft or going to plow money into AI

data centers so that way other software

companies like snowflake or maybe

palantir or whatever can make more data

based and provide more data based

insights and conclusions to their

customers and therefore sell more

software whether that's in cyber

security business analytics whatever

point is you don't have to rely on

normal people walking down the street

going oh yeah it was GPT all day long

who cares oh what maybe 50 percent of

people have actually heard about it when

surveyed in the United States maybe 20

percent have actually tried it and maybe

half of those 20 actually end up using

it every single day so I bet the actual

AI use of people it's probably only

somewhere around like one in ten people

actually using AI practically on a daily

basis now but it's the cloud service

providers that know this is the next

Frontier why not advertise these things

that you told us

[Music]

we'll try a little advertising and see

how it goes congratulations man you have

done so much people love you people

looked up to you financial analyst and

YouTuber meet Kevin always great to get

your take

and this is what's motivated Jensen to

say which he said in the last earnings

call as well we made a video about how

this could happen and that this could

double down that the cloud service

providers are going to make the

investment and whether or not the

software actually works they're betting

on it and the chips will sell well

that's what's happening but what's worth

noting is Jensen mentioned these cloud

service providers right now are spending

about 250 billion dollars every single

year on Capital expenditures for data

centers and he expects a large portion

of that to shift over to generative Ai

and accelerate compute and this is

basically what Nvidia is providing chips

for and so that is what brings us to

this incredible beat and we're going to

go through the numbers but we'll also do

some brief projections here uh to get

into uh you know is is this all just

hype or is this real the reality is when

a company can offer a three billion

dollars in Buybacks in just the last

three months they they got some money

but it's not just three billion dollars

in BuyBacks over the last three months

or 1.2 billion dollars in debt paydown

is that they just authorized another 25

billion dollars in BuyBacks because

their cash flow is huge six billion

dollars of free cash flow in six months

that works out to 24 billion dollars of

free cash flow per year this is now a

trillion dollar Company by market cap

they're paying out close to a billion

dollars or around thirty two thousand

dollars per three months on average to

their employees in stock based

compensation it's also worth noting

they've got about 16 bill in cash but

again that's growing by about six

billion dollars every three months crazy

they've got total debt uh sitting at

about 20 billion dollars when you factor

out their leases which means they can

basically pay off all their debt and pay

out massive BuyBacks which is great that

is the 10 tax effective way to get

dividends basically right because with

BuyBacks you push the stock up people

can choose to sell the stock if they

want and choose to pay the taxes rather

than being forced to pay the taxes we

actually look at the numbers I want you

to pay specific attention to the r d

numbers and the growth numbers of these

expenses in fact if we jump on over I

want to say I wrote the notes down a

little bit uh whatever we'll just look

at them here the point is the r d

numbers aren't actually moving that much

based on their growth look at their

growth you 2xed Revenue growth over the

last three months year over year you

grew them 38 with the last six months

compared to the last six months prior

meaning a lot of that growth is

happening likely in the last three

months so you massively are exploding

revenues but what are you doing in terms

of r d and sales you're barely growing

them sales barely moved up I mean that's

about a five percent move in sales here

while they doubled their revenues on a

six month period thirty eight percent

and only a five percent move in sales

that's because these Nvidia chips are

set and systems are selling themselves

their r d folks they already developed

it now you just start working on Next

Generation so it's not like they're

having to blow up their r d expenses

they pop them up less than ten percent

here call it about 10 to make math just

simple rounded numbers here so you're

barely moving sales you're barely moving

r d but you're milking tendies your

margin is going up uh your margin

actually moved up in the last quarter uh

compared to your last six months from

about 68.1 percent gross profit to

seventy percent so you're actually

making more money as you're selling more

keep in mind they've got insane profit

these h100s are expected to have a

profit margin you know expected to cost

like three thousand dollars but because

there's such little Supply they're

basically selling them for like 25 to

thirty thousand dollars a potential

thousand percent markup and some folks

are like hey isn't that at some point

going to compress uh margins and the

idea here is not necessarily because if

a small portion of your Revenue right

now is h100s you're selling at a

thousand percent profit maybe eight

hundred percent margin whatever profit

margin whatever eventually As you move

to that being a larger percentage and

you get more in line with selling it for

maybe like a 2X profit right uh or a 70

gross profit that's okay because you're

growing the quantity you're able to

supply and in the earnings call we heard

hey they are ramping as much as they can

and working with their suppliers on

ramping to get these chips out the door

as fast as possible they said they're

happy with the suppliers but let's be

clear they said they expect to be

ramping through 2024. so we're still in

an 18-month ramp cycle for these chips

and actually being able to manufacture

enough of these chips they just can't

get enough of them out the door this is

important this is a very very big

indication uh that Nvidia has massive

massive pricing power and remember it's

not consumers buying this stuff it's the

Microsoft's The Meta the Amazon the

Google you know you could break down

chip data all day long the point is they

told us on their earnings call 50 of

their customers are cloud service

providers that's that's where 50 of

their data center revenue is coming from

cloud service providers after that

you're looking at about I think it was

uh let me see here I'll give you the

exact numbers to confirm so 50

was cloud service providers the next was

a consumer internet at about 25 and then

Enterprise it's worth noting Enterprise

was actually still towards the end it

was so it's not actually yet Enterprise

that's providing most of the revenue for

NVIDIA but then again most of the

Enterprise customers are going to go to

like a VMware and go look we don't

understand this whole AI stuff we're not

going to buy Nvidia chips we just want

to like like just give us the product

well Nvidia just partnered with VMware

to provide the part product so then

VMware and the other cloud service

providers can invest even more in chips

uh it's absolutely incredible so uh

anywho let's keep going here so uh this

is a big deal okay uh what else do we

see here so this is the income statement

we saw the balance sheet we saw the cash

flow statement worth noting how much of

a beat this was you beat data center

Revenue by 29 You're Expecting 7.98

billion dollars that actually came in at

10.32 billion uh Jensen says this is a

new era of cloud compute it's the same

thing he said last time except they're

reiterating their staying power saying

here look our Cuda software stack has a

moat you want to be with Nvidia and as a

result they're actually not having to

Market more that's the thing they're not

having to Market more everybody's going

to Nvidia without them having to

advertise more that just increases their

margin they're the you know hot

commodity on the Block and everybody

wants them right now that is pricing

power in the Nvidia h100s and the

associated uh you know HDX platforms and

otherwise they are the iPhone of

artificial intelligence and anybody

who's anybody in in software is is

making sure that they have the

Competitive Edge and so they're

investing and as a result they're mostly

buying Nvidia chips uh the fact that

gaming grew was a surprise I'm actually

I've got uh the RTX 40 80 and 90 in this

office right here in the studio I think

they're great chips and uh that segment

actually grew again beat expectations

and grew the segment that failed for

NVIDIA uh to beat expectations was

Automotive driven by weak Automotive

demand in China not a surprise since

China is really expected to be going

through uh probably a depression not

fantastic for a company like Tesla

selling cars in China but then again

Giga Shanghai is really turning into the

export market so manufacturing these

vehicles in China and then shipping them

around the world think about some of the

moats that Nvidia has Coda free

marketing and they're the ones everybody

talk talks about when you want the

latest and the best product it's kind of

interesting it's hard to find something

bad here especially when you've even got

companies like Oracle going all in for

these and Jensen and their CFO suggest

there is quote tremendous demand for

these products now who knows maybe

they're just you know saying it but

let's just say they just said it in the

last earnings call

and they proved it in this earnings

report so you're kind of on a trajectory

of believability here especially when

Facebook says when they apply AI based

recommendations they actually increase

the time people spend on Facebook or

Instagram by about 24 so generative Ai

and accelerate compute already affecting

how much time people are spending all

attached to things like Instagram or

YouTube or whatever

as a result leading Facebook to want to

spend even more money on on these front

of uh uh you know what do they call them

front of front of app uh a family of

apps foa family of apps uh software

suite so it's gonna be your facebook.com

your Instagram threads and otherwise and

Facebook I read through the earnings

report this morning with course members

and they say they spend 80 percent of

their cap X on their apps not on reality

Labs reality Labs is only 20 that means

they're spending on data center AI for

lattice advertising data centers that's

where the money's going and they're

calling up Nvidia to buy chips no doubt

uh Shutterstock involved with them as

well for generative AI blah blah blah

the US is the strongest sector for uh

this growth although uh China uh China's

AI demand also sitting about 20 to 25

percent so China Automotive suffering

but China AI doesn't want to stay behind

this is because we might be in not an

Enterprise recession but a consumer

recession where the consumer suffers or

many consumers suffer and can't spend

that much on places like Target or

cheesecake or Walmart or Nike or under

armor or Lulu or whatever

but the Enterprise companies Google and

Microsoft and Amazon and apple these are

the companies that have money to spend

and they spend billions of dollars

they're not feeling the recession the

people are feeling a recession but not

the big companies and so who are the big

companies buying from Nvidia whether

it's for those Cloud compute uh products

whether it's for infiniband which is

basically their version of ethernet for

data centers think about it as cabling

infrastructure Network switches uh you

know server racks it's actually

connecting all of the hardware together

using infiniband

Jensen mentioned founder and CEO of

Nvidia mentioned numerous times in the

last earnings called reiterated again

and this time that infiniband basically

sells itself because once you apply it

your cost of running a Data Center

plummets and we're sitting at a trillion

dollar Legacy data center uh environment

and we are just at the beginning of a

transition to Cloud compute uh via

accelerated and generative Ai and so

this is this is not a matter of being a

consumer flash in the pan or not this is

an Enterprise movement into generative

Ai and cloudtribute as a result all of

the cloud service providers the csps are

like we better be ready for all that

demand if we build it they will come so

to speak and because if we don't build

it the other CSP will so in other words

like Microsoft's like well if we don't

build a data center Amazon will do it

and they'll take our customers right so

they the same thing with Google and

otherwise this is actually very

interesting uh regarding the

sustainability of demand there was a

question about this and they they spoke

about on their earnings call about uh

they're going to be ramping well into

next year and obviously they need a lot

of parts but they see uh this this as a

long-term industry and sustainably

long-term uh based transition a lot of

growth of various different verticals of

the business talked a lot about some of

the individual chips but they think they

have excellent visibility into this year

and next and they're basically saying

demand ain't going away for the next two

years

that's visibility they have for the next

two years keep in mind I don't think the

big customers the csps are fickle like

consumers where they're like hey we want

all the AI stuff and then they go in and

cancel orders I think the you know

Google or whatever the Googles of the

world are kind of like please Microsoft

cancel so we can get more you know this

is literally like hell no why are you

canceling because then you're just gonna

take it it's kind of brilliant when you

think about it from an Enterprise point

of view Nvidia has just got to be on

Cloud9 right now and this is great for

the arm IPO though I think the arm IPO

will create a buy the dip opportunity

for NVIDIA because people shift some

money over there I think that'll be a

mistake I think the only reason you want

to shift away from Nvidia is if you want

to diversify into like real estate or

something like that but that's just to

you know minimize swings in your

portfolios uh but other than that this

this is absolutely fantastic now what

else did we learn well we learned that

uh Nvidia is is is expecting 250 million

dollars in data center spend per year

okay so uh what is actually 250 billion

dollars in data center spend per year

let me correct myself there uh Nvidia in

my opinion uh well first of all nvidia's

total revenue uh right now is somewhere

around 40 billion for the Year let me

see the current estimate is 44 billion

dollars for the year

data center alone I would not be

surprised if Nvidia could end up polling

in the future 100 million out of a full

250 sorry 100 billion uh of data center

spend that'd be about 40 but let's go a

little more generic and let's go a

little more

conservative let's say and Go with 25

of a quarter billion dollars uh a

quarter of a trillion dollars I wrote

this down wrong that's why I keep saying

it just change that to a b really quick

there we go

if Nvidia captures just 25

of that 250 billion dollar per year

spend that's 62.5 billion dollars of

data center Revenue

right now the data center revenue is a

big portion of nvidia's income but that

could represent over the next uh you

know year to two years somewhere around

a 50 to 75 to 50 percent growth rate for

their Top Line earnings and I think

you'll probably end up averaging over

the next few years as they continue to

introduce Next Generation AI Hardware

like the Next Generation h100 you're

probably looking at a growth rate for

this company that'll end up averaging

over the next four years closer to 35

percent Wall Street right now is only

pricing in 25 growth so I'm not here to

say oh it's going to be 100 or 50 growth

every single year for the next four

years but if you price in just to show

you the valuation of this if you price

Nvidia at a 35 growth rate take their

stock price at say 510

divided by call it 9 dollars and fifty

cents of earnings to get you to the end

of this year their end of this year is

January of 2024. that puts you at about

53.6 times earnings now what we're going

to do is divide that to get a PEG ratio

by 35 percent

you're looking at

a 1.5 Peg that means Nvidia is actually

trading closer in valuation right now to

end phase than Tesla Tesla is trading at

a peg of about 2.3 sitting at about a 69

p e call it 30 growth rate on earnings

that's about a 2.3 Peg that actually

makes nvidia's valuation extremely

attractive now let's go back to just

being even more conservative say their

EPS only grows at 25 the way Wall Street

expects over the next four years on

average that puts them at a 2.1 Peg

still cheaper than Tesla now some people

are wondering is this potentially

inflationary

no this is actually deflationary this is

why companies are replacing more back

office jobs because they can get more

done with artificial intelligence they

can get more done with Cloud compute and

they need less people in back offices so

this is a deflationary force even though

it's more spend on the Next Generation

technology it's really incredible so

Nvidia is phenomenally positioned here

and just with some very generic math the

numbers for NVIDIA can be absolutely

phenomenal here again understand data

center Revenue right now sitting at 10.3

billion uh Rec you know total revenue at

13.5 so it's obviously very clear that

data center revenue is already a bulk of

their revenue it already makes up about

76 of their revenue but if if we get to

25 of that 250 billion dollar market in

the future that's 60 2.5 and I expect

that'll grow over time as well and that

just represents 76 percent because

you've got gaming and automotive and

these other segments as well nvidia's

Revenue could be closer to 82 billion

dollars very quickly Wall Street does

not expect that nvidia's revenue is

going to Broach 80 billion dollars until

2026. it'll actually probably happen in

2024 or 5. so I think this growth is

going to happen a lot faster and sooner

than expected and it'll be growth for

asml it'll be growth for TSM it'll be

growth for Intel and it'll be growth for

NVIDIA because this transition is not

just going to be a one-time transition

it'll be all right we got the iPhone 1

in now

who's got the iPhone 2 when video is

already working on the iPhone 2 well the

iPhone 3G is what the iPhone 2 was

called but you know what I mean anyway

this is incredibly bullish uh now we

have to sort of temper expectations here

because there is this potential for the

stock market to try to price in too much

of that growth right and we are still in

a very uncertain macro environment uh

and the level of software revenues are

still questionable from companies like

you know soft uh snowflake Microsoft and

otherwise but we did also just have

snowflake revenues and Autodesk revenues

and guess what both of them beat

so kind of impressive I have to say

there's little to be upset about about

this what I would do uh and this is not

personalized Financial advice for you

because I don't know your personalized

financial situation but I like the idea

of and this is what I'm personally going

to do I like the idea of allocating uh

money to stuff like uh uh Nvidia TSM

asml uh Intel Tesla but I'm gonna put in

that basket

solar so that way if these these you

know uh uh pick and shovel sellers do

well and solar keeps sucking that's okay

my portfolio is growing but when solar

booms and the chips start going like

okay like we've had our run

that's when I expect the portfolio just

keeps rocketing and I think one of the

nice ways to do that is is through you

know an ETF that that focuses on on a

strategy like that especially since you

can take advantage of some of the tax

benefits that are associated with

investing in ETFs where ETFs can

rebalance uh taxable gains for example

uh about uh six weeks or so ago the fund

that I manage we had somewhere around a

four million dollars in gains and we

traded out of a certain stock into a

different allocation and we saved

investors somewhere between one and a

half to two million dollars in taxes on

that because they were short-term gains

but because of the way ETFs are

structured if you set them up a certain

way you could actually reallocate

without paying taxes uh the ETA you know

obviously assuming you have gains and

stuff like that talk to your CPA right

I'm just trying to educate on how ETF

structures work so

um

yeah ETF structure very very interesting

Nvidia very very interesting and I would

balance my enthusiasm for chips and AI

especially cloud with solar mate anyway

thank you so very much for watching

really appreciate you all and we'll see

you in the next one goodbye