BEWARE: The Coming, Huge AI Stock Crash.

AI stocks will crash in this video I'm

going to explain exactly what is going

to crash what that's going to mean for

the prices of stocks and we'll

specifically touch on Nvidia super micro

computer and we'll apply this to the

broader industry of where opportunities

could be I want to be very clear upfront

I am invested in ships and ship making

Technologies both personally and through

an actively managed ETF that I run now

in this video I'm going to make some

very clear concern concs known to the

world the last time I discussed Nvidia

on its own video I predicted that the

stock would go to the $600 to $700 range

I predicted that would happen in 2 years

this makes this a $600 stock by 2026

with this sort of growth rate and if we

include the other aspects of the

business you're actually at close to an

$840 stock you're looking at potentially

a you know what 80% return over the next

uh 3 years to potentially a double even

at today's levels at 375 unfortunately

it happened within 9 months or I guess

fortunately depending on how invested

you were it happened way quicker than

expected so my timing on that was wrong

but now given that we're sitting right

up against the next Fibonacci

retracement level which is serving as a

resistance for NVIDIA it's about 7:31 we

have to ask ourselves are we ready to

move to 969 or are we going right back

to where we were at 493 where we topped

out in this video we're going to work to

address this we're also going to

consider super micro computer who has

maybe an 8% net profit margin selling

you server racks to basically put your

AI chips on but currently has a relative

strength index of 90 down from the 95

that it had this morning so in other

words something's either got a relax

here or the growth probably has to stop

at some point in the stock evaluation

because it's done a pretty dang number

already and from a technical basis it is

ready to either pause or come right back

down so in this video we're going to

present the potential for the AI crash

now what we have to understand is that

AI will crash but first we have to

realize how it will crash so let's come

up with an example to make this

relatable and simple

let's say you do not have a cell phone

you have no phone at

all so in order for you to check your

email you have to go to a computer you

have to go to a landline to make phone

calls and maybe you're faxing things

that need to show up quickly I I don't

know whatever right you don't have a

phone we all know we all have a phone

everybody's like come on man how is this

relatable well because I want you to

think about for a moment not having a

phone and then I want you to think about

having a

phone what you've done is you've thought

about going from zero productivity in

your pants in your pockets to a lot of

productivity okay now I want you to

sincerely tell

me how much does your productivity go up

when you go from that iPhone 14 to that

iPhone

15 not much more you're probably about

the same level of productive maybe

you're 1 or 2% more productive but you

infinitely more productive than before

you had the phone well and of course we

could argue about that we could be well

you get distracted in the bathroom on

Tik Tok or whatever this really a topic

for a different video but the point is

you went from zero to a massive level of

productivity having a phone having the

Next Generation phone your productivity

probably didn't move that much that is

the difference between an infinite

growth

curve and a marginal growth curve and

what is that going to look like for AI

and the AI moment well in my opinion and

this is inspired by a course member

lecture that we did this morning this AI

had a massive growth impetus companies

went from we have ai or or sorry we we

have no AI to now we need AI servers

okay so we need AI servers so what are

we going to do we're going to call up

super micro computer we call up super yo

we need we need a th server racks as

soon as possible hey AMD we need 1,000

CPUs Nvidia we need 8,000

h100s everybody's going from zero to a

lot and that's how when you go to a

company like Nvidia or super micro

computer you look at their growth

year-over-year in like q1 Q2 of this

year you're double right these companies

revenues doubled it happened to Nvidia

it happened to Super Micro computer

you've seen it at that companies like

AMD I mean look at Nvidia for example

you went from $7 billion of Revenue uh

ending April 30th of 2023 to double that

13.5 well so roughly double that right

uh that's pretty incredible that's

actually really really good that's great

because the quarter before that they

they didn't grow much at all in fact

they

shrunk so what's remarkable is you had a

PC

hole where now Nvidia is trying to get

you to install llms on RTX PCS to

motivate you to buy more PCS so you can

download your own RTX chatbot now and

install it it's like a 35 GB file it's a

big deal a lot of people are talking

about it actually have it right here I

just haven't finished installing the

darn thing uh but anyway what what's

remarkable is you went from a company

that was really focused on gaming

computers and yes to some extent helping

in automotive and servers to having a

product that was perfect for this moment

this spark the AI the moment of

companies going from we have cloud

compute we have cloud storage but crap

we have no inference we have no AI okay

so what do we do well we create the AI

servers now we have ai servers do we

need to replace all of our h100s that we

just overpaid for you know $35,000 for

something with an MSRP of $8,000 do we

really need to go replace all of those

to get the

h200 which is all the rage right now why

because well Nvidia tells you it's all

the rage it's so much better why would

you buy the h100 or the cheaper a100

when you could have the h200 and soon

we'll be on the

B100 keep in mind that like these charts

are designed to sell you the product the

reality is all of these chips are

incredibly powerful and if you actually

showed the whole bar chart you're

probably only looking at like nominal

differences that they've zoomed in on

but that's okay that's that's how

product refresh Cycles work notify me

when the product becomes available for

the h200 tensor cord

GPU point is that the next model of the

GPU just like the iPhone 3G or the 3Gs

thereafter is not the big deal the big

deal is the moment you go from iPhone or

from no iPhone to iPhone or no phone to

phone right for you Android folks I have

an Android too okay it's actually pretty

good I just hate that I can't easily get

files it's like FaceTime somebody oh

here's your Google link what what's that

oh I shouldn't I shouldn't go down this

shouldn't go down that path uh I do have

it it it takes great photos I will tell

you that the pixel is pretty good

but this is going to happen not only is

it going to happen this crash is already

occurring this is not necessarily a

crash in the stock price however a crash

in stock prices can happen we're going

to talk about that in a moment this is a

crash in growth so when I say AI is

going to crash that is not speculation

AI is going to crash it will crash these

a company's growth levels will crash

there is zero question about that

because we already know it's happening

go into nvidia's earnings sorry we got a

bunch of notes written on here from what

we do in our course member live streams

but look we've gone from doubling

Revenue quarter over quarter to Growing

Revenue say 60% quarter over quarter to

Growing Revenue oh 34% now that was a

beat that 13.5 million uh uh billion was

a great beat it's

13,500 Millions is the way this is

written so therefore 13.5 billion that

was a beat but we went from doubling our

growth to Growing 34% over each quarter

and that's still phenomenal growth but

wait a minute now they're only

projecting 10.3% growth ah it's slowing

quarter over quarter of course it is

because now everybody who needs an

iPhone has the iPhone just to stay with

the scenario right okay so so now Nvidia

does have a tendency of beating right

now they're forecasting $20 billion in

Q4 their earnings are you know next week

on the 24st of February they'll probably

beat again they usually beat by a factor

of 1.8 to 1.48 post AI don't worry about

how I came up with that the point is

they'll probably end up showing

somewhere between 15 to 19% growth in Q4

Cal their their uh rather sorry their

fiscal Q4 2024 in other words the next

time they have earnings okay so they'll

probably show some some good growth but

it's not a double anymore it's not even

a third growth anymore so the point is

the crash of growth is happening so then

we have to evaluate

okay when we conduct a fundamental

analysis on a stock we generally look at

earnings okay so what what are earnings

going to provide us how much cash flow

am I going to get now in the case of

Nvidia the cash flow generation is

phenomenal but for that's for the

company's cash flow your cash flow is

earnings per share you get earnings per

share growth then the stock either goes

up or they pay it out in

dividends so earnings per share growth

is one way that we can it's just one of

many ways we can conduct a fundamental

analysis on a company and so what we

want to see are earnings growing

earnings can grow in a number of ways

they can grow through more Revenue

adding a new vertical like the AI

inflection point that drives the Top

Line way up and of course the botom line

way up uh or you can become more

efficient by potentially laying people

off or spending less money on research

because you maybe you don't need to as

much anymore whatever right those are

all ways you can grow

earnings when it comes to the artificial

intelligence Revolution that we've hit

once companies have their artificial

intelligence the question becomes how

much is earnings uh per share going to

grow at AI related in AI adjacent

companies like super micro computer

after we're done with the AI CR well

part of this has to to do with a very

special word

margin if you were previously which is a

pure definition of of absolute pricing

power as a result of supply chain

shortages if you were pricing h100 chips

at

$35,000 and your MSRP is $8,000 and your

cost to build the chips is $44,000 so

that's cost that's manufactured

suggested retail price and you're able

to sell them your actual sell price is

$35,000 well the reason there's a wedge

here is because there's a supply

shortage so you raise the price it's

kind of price gouging really rich

companies is what it is and that's okay

like whoever is willing to pay the most

should get the product that's how

capitalism works it's like an auction

effect when there's a shortage okay

fantastic so what happens when that

shortage goes away because that boom the

adoption of AI is gone well when the

boom goes away then what also goes away

well it's obvious your ability to charge

$35,000 for a chip goes away now don't

get me wrong it's so fantastic that you

could sell these chips that you're not

even making Nvidia you're just designing

them that's not to like insult you which

is like it's really impressive right um

the point is you're going to see margin

compression from AI because we are at

insanely inflated levels of margin today

so there will be margin compression as

Supply equalizes and of course

competition increases I mean don't count

out AMD here or some of the other

competitors trying to get into AI there

there will be competition and eventually

just like there's the Android and the

iPhone choice or whatever there will be

many equally capable some slightly

better than the other chips sitting here

and like comparing specs of different

chips doesn't matter because what really

matters is going from no AI to AI okay

but that's happened so the price levels

to some extent are

Justified because we do now have a new

Revenue vertical and we do have more

earnings per share which is likely to be

durable that earnings per share will

will likely stay for a while so I mean

Nvidia is now pumping out nearly $5 in

earnings per share the question is when

does that $5 per share change well it

could change very slowly unless there's

another AI impetus consider that by the

end of 2025 will be at6 to

$6.50 current forecast so and and before

that just to go back another year we

were sitting at like 60 cents of

earnings per share so draw this for a

moment right here you're at 60 cents of

eps then you get to $5 of eps per

quarter and then you're at $6 of eps per

quarter of course the growth rate is

insane over here and then of course

you're going to get articles like you

get from Barons they're being some

Knuckleheads right now uh Baron's uh put

together an article and they're like oh

Nvidia is really really cheap look at

this if you take the growth between 2023

and 2025 nvidia's PEG ratio is just3

whoa whoa whoaa wait a minute wait a

minute you can't take last year's growth

levels and average it with the forward

growth

levels because we just went through a

massive adoption phase I mean it's the

same thing as having like a giant

one-time expense okay let's say on your

house you spend $30,000 a year to live

in your house that's your payment and

maintenance okay the furnace goes out

whatever $30,000 a year is what you

spend but one year you spend $60,000

because you install a solar system oh my

gosh your costs of living in your home

just doubled well yeah but it it was a

onetime adjustment then we're back at 30

right so now we're back at normal level

so we have to adjust for those things

it's the same thing for Revenue okay if

we go from zero to say 60 and then we go

to 66 we went through infinite growth to

10% growth so the growth is still going

to be there it's just going to be more

incremental as you go through product

refresh refresh Cycles just like you do

with the iPhone okay fantastic so what

does that mean for valuations and how do

you actually run a valuation on a

company like this okay so this is what I

like to do uh personally okay so this

just put it all out there I'm going to

make this very simple and we'll run

through a few of these together so I

like to discount for this AI segment

future growth rates and what I'm going

to do is I'm going to run Peg ratios

based on what I think is personally

reasonable so this is you know not a

guarantee but we look at a company like

Nvidia nvidia's growth that is projected

over the next and it's so hard to look

out right but the next four years of

growth for NVIDIA are currently

projected to be

70.5% PS growth 16.5 17.2 17.7 that's

121% but we divide that by four we have

an average growth rate of about 30 so

30.5% EPS projected growth I personally

think Wall Street analysts are probably

being too bullish on this number why

because product refresh does not mean

the growth goes on forever A and B

margin compression literally barren is

screwing this up trying to tell you that

Nvidia has a23 Peg using last year's

momentous growth you can't do that it's

stupid it's it's a great way to like

delude yourself so what would I rather

like to do well I would rather like to

go in here and uh we're going to go

slash that because I am worried I'm

substantially worried

about margin compression okay I'm going

to say if we could just keep the

earnings and grow it a little bit we're

doing good so let's say we grow at 10%

nominal product refresh cycle growth

let's just say this could be way too

bearish for the company okay but I'm

going to go with it anyway I'm going to

go with 10% the current price of Nvidia

is sitting at about resistance so 730

divided by uh earnings per share for

this year uh which is the earning cycle

that uh is being announced next week

we're going to divide that by

1236 which is the expectation puts us at

59 times so now I'm going to divide that

by 10 my PEG ratio for NVIDIA is

actually 5.9 that's pretty high with 10%

growth so if I think that the PEG ratio

should be 3% because sentiment is strong

and people want to allocate to AI be

part of the future whatever it's a

stretchy PEG ratio but let's go with 3%

then the stock is probably worth half of

what it's trading for right now at 10%

growth that might be too aggressive and

and and I realize that I don't think 375

is the right number so what happens just

so you can see how quickly this could

change what happens if we assume Nvidia

has 15% growth and we're okay with a

three peg okay simple so we can back

this in

$750 divided by the 1236 1236 that gets

us to that number about the 8ish right

and in this case sparing you the math a

reasonable price range for NVIDIA in my

opinion is probably 550 to 600 that's

probably where we ought to be and if

growth ends up going lower than this

then I think the stock will get

substantially squeezed down possibly

back to that 495 rage region it all

going to come down to growth projections

if wall Street's right and we end up

getting this 30.5 EPS growth well by all

means then that's fantastic now we're at

a

onepeg so that's great and if it's

supposed to be trading if we're going to

have 30.5% growth going forward and this

stock is going to trade at a thre Peg

then a fair valuation based on what Wall

Street is saying is actually

1130 so where growth ends up the longer

term 4year growth pra trajectory where

it ends up is what is going to decide

the value of these companies so now as

an investor we look at let's go

optimistic and say Wall Street is right

we're going to go 30% okay what's the

potential growth we have for the stock

well 1130 divided by today's price 730

still 50% growth in it in that

optimistic scenario it's also possible

wall Street's too pessimistic that AI is

going to grow even more than anybody

ever thought possible in that invent

well the stock could be worth a lot more

what if what if growths 40% you know run

that for example 40 % take to 1236 we'll

take a three peg uh that's going to

bring us to $1,500 a

share so everything's going to come down

to where what that terminal rate of

growth is for these companies on an

annual basis and that's why I'm saying

the crash will come in growth and I'm

concerned because we've gone through

this momentous shift that analysts are

being too optimistic on these companies

for growing so that's my take on Nvidia

now how does this Supply to companies uh

that are AI adjacent so what about like

a super micro computer well I would

actually be even more concerned for a

company like super micro because I think

once the servers are installed you're

not refreshing the server Rex you're

refreshing maybe you're going from the

h100 to the B100 right you do every

2-year cycle refresh unless you're

expanding more servers you're not

necessarily buying more racks and so I'd

be more concerned for a company like

super micro computer and I'd be more

skeptical of their EPS growth going

forward than I would be for NVIDIA like

I I have less concerns about Nvidia than

I do for super micr computer but then

again their stock does look really

beautiful for now uh so what about a

company like Intel well Intel really

hasn't even had an opportunity to

participate here yet Intel's really just

operating in my opinion I don't

underwrite Intel as a company that's

really a chip designer I underwrite them

as a chip maker a Manufacturing Company

a plant that's being subsidized by the

US government

via massive chip supporting stimulus

checks that that game is still that

still has room to play out I think this

is a 6465 stock I think it's a

diversifier it's it's a you know could

be a value trap but I I see it as an

opportunity to diversify with so then

you have to ask yourself after growth

crashes for the AI companies are people

going to say all right I guess I have to

go find another growth stock and then

sentiment shifts probably sentiment will

shift sentiment is very bubbly right now

it's very fomo uh hugely momentum driven

on these stocks that's why the rsis are

as high as they are that almost Rhymes

but anyway sentiment will shift at some

point and that sentiment does not

necessarily mean the sock will crash

look nvidia's RSI went over here to 49

to 50 when the stock was

flat the stock just has to stop

skyrocketing and the RSI can come down

you don't necessarily have to have these

stocks crash in stock value so uh for me

it's very difficult to short these

companies certainly with uh like

short-term options I mean you could go

into earnings obviously and try to play

a short here uh the volatility is a

little high on Nvidia right now so you'd

probably be better off selling options

what I would personally like to do is

make sure that I'm Diversified as well

as possible into where's the next wave I

don't know that we're ready or primed

for like the next big AI breakout like

that next inflection point I don't think

it's here so then the question is okay

well what other stocks would people go

into once they start selling the AI

sector or we stop having as many

inflows probably at this point that

becomes a better investment than chasing

AI after what it's already done knowing

that the growth will and is already

crashing everything next week is going

to depend on nvidia's guidance if Nvidia

tells us oh my gosh growth is

accelerating way faster than we thought

all of our estimates are wrong all the

orders that came in in January oh my

gosh there are even more than we even

thought possible we thought last year we

had shortages now it's even worse the

stock will

double it's just not

ending if you know

they beat slightly and then they give

their forecast they're like okay so we

grew 18% this quarter next quarter we'll

probably be at the same level and they

go flat growth quarter over

quarter try to do a PEG ratio on a

company with no

growth it don't look very good you don't

use Peg ratios for companies with no

growth it's not possible uh but uh but

the point is you can't divide by zero

but uh the point is at some point

and we don't know when that

is growth will

flatten margins will compress and there

is substantial risk that EPS projections

are way too optimistic there is also the

potential that you could end up with

negative EPS on what I call Tough

comps that's really bad because now you

have negative growth you want to know

what company had negative

growth well there are two I could think

of one is called end phase and it did

that

another's called Tesla investors hate

negative or shrinking earnings per share

but when you have companies and this is

really important to remember too when

you have companies with really really

bad numbers for a year what you've done

is you've set up an easy beat next year

people like oh the numbers have stopped

going negative oh wow look y'all are

growing like crazy duh cuz you're

comparing to a low number and then the

question is can you sustain that growth

how long can you sustain that growth

right but now it's the opposite at

Nvidia or or a lot of these AI companies

it's like oh the growth is so hot oh why

is it going

down it's all going to come down to

growth I think we had our AI wave I

don't know we're going to have the next

part of this massive wave for another 5

to 10 years so I'm becoming a little why

not adver these things that you told us

here I feel like nobody else knows about

this we'll we'll try a little

advertising and see how it goes

congratulations man you have done so

much people love you people look up to

you Kevin pafra there financial analyst

and YouTuber meet Kevin always great to

get your

take even though I'm a licensed

financial adviser real estate broker and

becoming a stock broker this video is

neither personalized Financial advice

nor real estate advice for you it is not

tax legal or otherwise personalized

advice tailor to you this video provides

generalized perspective information and

commentary any third party content my

show should not be deemed endorsed by me

this video is not and shall never be

deemed reasonably sufficient information

for the purpose of evaluating a security

or investment decision any links or

promoted products are either paid

affiliations or products or Services

which we may benefit from I personally

operate and actively managed ETF and

hold long positions in various

Securities potentially including those

mentioned in this video however I have

no relationship to any issuers other

than house act nor am I presently acting

as a market

maker

oh