Why Nvidia Stock is TANKING

hey everyone welcome to a summary of

what the heck just happened at Nvidia

let's start with the obvious Jensen

signing the tit was the tip but in the

meantime we should get into some of the

risk factors and some of the good things

about Nvidia because quite frankly the

earnings were actually pretty dang good

I actually think the market mostly

overreacted when it sold off Nvidia 42%

before the earnings call started and

sold it down all the way to 8% as much

as 8% when the earnings call was over

however we did get some AI news today

outside of Invidia that could help us

understand what the future of Nvidia

might look like and I call it a software

consolidation risk let me give you an

example after I first explained what I

mean if businesses fail because AI helps

businesses defeat their competitors

those competitors are gone and then you

have less of a need from certain

business businesses to have software

otherwise that's option one or option

number two is fewer people are doing

jobs because of AI leading to a

reduction in the amount of licenses or

SAS seats we like to call them that you

have because of AI now an example Clara

has 5,000 employees and in an article in

Fortune today they CEO and co-founder

thought that they could get their

employee count from 5,000 at Peak down

to 2,000 now they're a buy now pay later

company like airm and they think they

can go from 5,000 to 2,000 not by firing

people but just by no longer hiring

people because they're just going to use

AI they literally said their AI chatbot

that they made in collaboration with

open aai does the work of about 700

customer service agents now obviously

this is really really good right but AI

might end up giving us the winner of

some uh in terms of a scenario or what

we end up getting right where companies

in my opinion like Amazon and Walmart or

in this case clarina they can win big

because they can do things a lot more

efficiently but because they can do

things a lot more efficiently you

actually have those companies spending a

lot less money maybe on other products

and services like something that was in

Seeking Alpha today also about Clara

where they said thanks to AI we're able

to consolidate create a more lightweight

Tech stock and stop using both workday

and Salesforce so in other words you

have ai helping Clara make more

money but they're also cutting out a

bunch of AI like other software that

they don't need anymore because of AI so

AI in some regard is helping the

companies using AI or helping the people

use AI but could end up leading to fewer

people with jobs

fewer software companies getting or or

competing well I guess more software

companies competing for fewer dollars

basically and of course if you have less

people in seats then you need less

licenses anyway so it's really

interesting because it's kind of like

who exactly is going to win well at

least at the moment the biggest winner

has been Nvidia because after all they

design chips and their valuation is

actually relatively reasonable as long

as you assume that this AI Factory is

going to keep growing see remember they

talk about this all the time that oh hey

you know we're the uh uh AI uh we're

creating the AI factories and there's a

trillion dollar opportunity to build out

all these new GPU powered AI

infrastructure servers data centers

whatever but the problem is and Jensen

somewhat touched on it in the earnings

call is like hey you know once the

trillion

doll AI data center is up and running

what do we got to do from there and his

argument is we got to get even more

efficient and have even better chips but

wait a minute the market actually sold

off after he made that comment because I

think people were starting to go yeah

that's a good point like once we have

the trillion dollar AI Factory open even

if it's open with h100s 200s or whatever

do we really need Blackwell version 10

of course over time we sort of slowly

stair step up in quality and efficiency

but there is also this potential risk

that the Big Boost is what we've already

seen that's what created the hype and

momentum and if that growth rate slows

then people sell the stock because again

I think if the growth rate stays I think

the valuation is actually not horribly

unreasonable the valuation right now

sits uh somewhere at about a 1.45 peg uh

sorry a 1.75 Peg that's based on a p

ratio of

45 and a

25.6 expected growth

rate uh one sec there we

go just make sure somebody's got that

okay cool sorry anyway so in other words

uh Wall Street consensus is that Nvidia

is going to grow at

25.6% over the next 3

years at a 45 PE now it's only got a peg

of

175 and right now they're growing at

about 8% per quarter 88.3% per quarter

uh the benefit of 88.3% per quarter is

you're actually growing at 33%

annualized so you're going above that

Wall Street consensus for the next 3

years where the concern comes in is what

happens when that starts slowing down

because now let's link that to what I

said at the beginning if businesses are

bankrupting other businesses now those

bankrupt businesses don't end up using

software if businesses are like we don't

need to hire more people people we're

actually going to use less software and

not more because the quality of software

has gotten better because of AI we might

not even need a trillion doll software

stack or or infrastructure stack maybe

we only need a $500 billion doll

infrastructure stack because that's good

enough we don't need more AI I don't

know that's but you know I'm trying to

put together what markets might be

thinking here right because in my

opinion these earnings were actually

pretty good you're growing at a fast

fter annualized growth rate on the

quarter than than uh markets are

expecting for consensus going forward uh

the numbers that came out in my opinion

we actually pretty dang good let's go

through some of those uh Q3 uh revenues

expected to be at 32.5 billion we almost

always beat that consensus today was

just a little over 28.8 6 billion we

beat that with 30 we had a 3.9% beat

there Blackwell samples have already

started shipping and The Mask update

that they're doing the lithography mask

that update has already been completed

that could be a timec consuming process

but they've already done that so they're

going to continue to ramp Blackwell in

Q4 uh and next year they don't expect to

provide any guidance on Q4 but in terms

of their Q3 guide they're still

expecting good growth their EPS beat

their gaming sector beat their adjusted

gross margin while it came down from the

levels we saw last quarter is still

amazing

75.7% as you know basically a company

that just designs chips because remember

they don't manufacture chips they design

chips it's pretty crazy this is all

actually pretty good and there's one

section that I really want to hit on

that I think is really important uh

because it also affects stocks like

Tesla and I want to hit on that one do

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okay so the risk for Tesla is that you

do still see this Automotive expansion

5% quarter on quarter 37% year-over-year

it's a little bit of a Slowdown given

that that means you're at uh 20%

annualized right now on Automotive

growth I and they're talking about

obviously other you know oems car

manufacturers or whatever basically

trying to uh create their own FSD if you

will whether it's Mercedes or Ford or

whomever and Nvidia sort of provides

that platform for them to be able to do

that worth keeping an eye on that uh as

far as some of the comments that we got

from the earnings call and some other

details they talk about the

opportunities not only in automotive but

in healthc care in medical imaging uh

imagery uh drug Discovery Health record

processing imagine Insurance processing

uh every PC with RTX is an AI PC

honestly I wrote next to that that I'm

AI exhausted I'm a little exhausted by

like the same explanation over and over

again from Jensen explaining explaining

how transformative AI is I mean if it's

going to lose a lot of people jobs and

make software better and higher quality

and bankrupt a bunch of businesses I

guess on one hand that's good for better

software but it's bad for all those

people losing their jobs but you know I

mean I guess that's just creative

destruction I suppose talk about liquid

cooling liquid cooling got a big shout

out here Hopper will continue to grow in

the second half half Jensen believes Q4

no guide yet the complexity of AI is

growing uh Blackwell rack is sold in

parts that's because everyone's rack is

a little different it's a word for word

quote from him our customers don't want

us to do integration blah blah blah this

is basically you know they don't want to

Rob like a super micro from building the

racks or

otherwise uh the stock initially sold

off when there was a remark about

changes needed to improve Blackwell

production but again they already

finished that they they you know made

the modifications to the chip mask and

it seems to be fine now 45% of data

center Revenue comes from cloud service

providers uh that represents over 85% of

nvidia's Revenue data center sales and

you know I have to say these numbers are

really good the cash flows great they

boosted their buyback authorization by

$50 billion their valuation Fair like

everything about Nvidia is is fantastic

it's a great company by all respect

effects this this company should be up

not down you know the 6.4% it's down

right now but you know the stock market

isn't always rational the stock market

has to price in election risk the stock

market has to price in that we're about

to un invert in the yield curve which

could be the start of recession the

stock market has to price in recession

the stock market also has to price in

rotating between uh you know something

like uh uh you know Mega caps and uh and

then potentially going over to small

caps who knows maybe we're going to be

at small caps at some point uh here uh

ABS in a recession I personally don't

want to be in small caps because I am

worried about a recession you know

earlier for example we went through a

firm a firm absolutely killed it you

know they're lowering their expenses

they're increasing their bottom line

they expect to be profitable by the end

of the year uh they're able to grow

their business at 30% while reducing

expenses and taking lower loss reserves

on their loans that they're making which

they hold a lot of on their books it's

all really good

except in a recession you go in a

recession those loans lose a lot more

money than you expect a firm goes

bankrupt maybe maybe not uh and then

obviously AI investment slows down

especially if software companies start

getting burned like you know uh whatever

it might be it could be um

uh you know Salesforce getting burned or

snowflake getting burned or whatever

we'll see but anyway uh that's my take

overall great job Nvidia love the

company I'm is not a buyer right now

because well mostly recession recession

and momentum I think momentum is topped

and when Jensen signed the tit it was

the tip anyway check out the Labor Day

Sale over at meetkevin.com thank you so

very much for being here and folks we'll

see you in the next one goodbye and good

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congratulations man you have done so

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you Kevin PA there financial analyst and

YouTuber meet Kevin always been to get

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