Hs the Nvidia (NVDA) and SMCI Bubble Burst?

So Yesterday Nvidia reported earnings that were much better than expected they beat on Revenue they beat on earnings they were buying back 50 billion shares that reported raising their forward guidance but despite that the stock price dropped over 7% after hours so does that mean that the Nvidia bubble has finally burst and we'll also take a look at Super Micro computer smci that just got accused of accounting uh irregularities that caused a share price to create over 20% yesterday let's find out more in this video whether these are buys holes or [Music] selles so yesterday almost everyone in the market was waiting for nvidia's earnings because Nvidia is one of the most valuable companies on the planet today and their earnings didn't disappoint they in fact reported better than expected earnings uh here's a quick summary so their revenue came in at $30 billion which was 1.3 billion above expectations their earnings per share came in at 68 cents which was a bit of 4 cents and they raised their quarter Tre 2025 guidance to 32.5 billion in Revenue which was um an increase of8 billion uh in terms of year on-year increase which to me is the most important thing their revenue came in for the quarter at 30 billion which is up 15% from quarter 1 but more importantly year on year Revenue excuse me is up 122% and the let's see the earnings which are Gap diluted share earnings was up 168% from a year ago and non- GAP earnings was up 152% from a year ago so as an investor when I take a look at this I asked myself this question when I first valued this stock it's based on certain growth projections so when these earnings report come in is it in line with the growth assumptions I made in my valuation in in the case of Nvidia so far pretty pretty good it is in line in fact it's slightly above uh what I projected in my valuations so in case you don't know I think I mentioned it before my latest valuation for NVIDIA there's no change for the valuation and my valuation is at uh let just take a look uh $122 so that is my intrinsic value of Nvidia now because Nvidia there is again a bit of uncertainty of their future growth so I like to have what I call an optimistic growth projection or rather base case and a more pessimistic like if everything goes wrong and they don't grow as much as people think then what are the shares worth okay so for my pessimistic valuation it is $94 so that is my conservative valuation that is my base case valuation so this is what I call my valuation range so once I know my valuation range it becomes very simple right as long as the stock price goes below the intrinsic value and I've got a margin of safety I would happily add more shares okay now but given I already have kind of like a full position in Nvidia Nvidia is already about the fifth largest position in my portfolio so I would not add more unless it gets much much cheaper okay so what I do for all my subscri rers in the ultimate investors Playbook is that I will update the intrinsic value of every stock every month but of course you can do it yourself you can always uh download my intrinsic value calculator as part of the whale investor cost learn how to Value the stock really simple takes 10 minutes to to do it and you can do your own valuation okay so you can see for every stock I've got my valuation range and I also identify at least three to four buy points where I would add shares and these buy points are based on technical analysis based on support levels so you can see that for NVIDIA my support levels where I would add shares as an investor would be 105 that is my first buy level right which gives me a margin of safety below the intrinsic value 105 the next support level to add would be $95 these are the black lines Next Level to add will be 75 and finally $71 so given that I already have quite a bit of Nvidia shares I won't add more even if it drops to 105 because to me at 105 is it's okay it's below valuation but it's not super compelling right so I'll only add more personally if it gets uh to nearer $95 so what I did a few days ago which I sent the notification to my subscribers was I sold cash secure put options at 97 strike price and I collected a premium of about about close to $2 premium right so which means if Nvidia stays below $97 in 30 days I'll be assigned Nvidia shares at $97 strike price minus the premium I collected my average purchase price for more Nvidia be $95 which I think is a damn good deal okay but I think for now I don't think Nvidia will drop below 97 it looks like uh it dropped 7% aftermarket hours and today if you take a look at the pre-market you can see Nvidia is trading at a pre-market of 121 right now so unlikely that right now it's going to drop below 97 and unlikely I can add any shares yeah okay but having said that if I was an investor with no Nvidia shares and I wanted to start buying would I buy at this price no I would right because it's right now at a fair value it's at a fair price but as an investor we want to only buy when it's below the valuation so we get a margin of safety so again as a new investor to edit for the first time I want want I want to get it at least at 105 so does it mean that it's going to go to 105 of course not we can't predict the future if it doesn't so be it buy something else there a lot of efficien see if it goes to 105 great opportunity to add more Nvidia now you know the funny thing is that you know some people would would be asking they say but you know Nvidia has gone up so much uh in the last two years or so and is it the end of the run for for NVIDIA is it you know is is it at top of the bubble and they like to compare it with Cisco those of you who are old enough will remember that during the dot Boom the dot boom started in late 94 1994 to 2000 so that was a time where people went crazy all the internet is going to change the world and everything a dotom people bought and share price went up even for companies that were not making money right now at a time Cisco was the most important company uh for the internet uh Revolution right because Cisco was involved in building the backbone the infrastructure of the internet very similar to Nvidia which is now building the infrastructure and backbone of the AI Revolution so it's a pretty good comparison right so true enough Cisco um you know their revenue was growing their share price was growing and eventually of course the bubble burst because it got ahead of itself and then it collapsed and slowly it's it's coming back up taking a long time to go back up so people are saying hey is NVIDIA also at the end and this is a very quick question to answer that question let's put them side by side and let's see if we can find any similarities so first let's look take a look at a dotcom bubble or doom boom which turned into a bubble so the dotcom boom started in late 1994 and it peaked in the year 2000 where the bubble burst so it was a six-year Run for the do boom so during during this six years Cisco which again was the most important company the AI sorry in the internet Revolution uh their revenue during that six years their revenue increased 1, 1400% which is 15 fold and at that time their share price increased 4,100 which is 42 times okay so where is NVIDIA now based on this comparison so the current AI Revolution started with the launch of cck GPT which was late 2022 in fact November 2022 so from then to now which is August 2024 it's about 1.7 years so if you compare that 1.7 years to 6 years you know there's still a couple of years to go if you want to do that comparison okay now so far in this 1.7 years what has happened to nvidia's revenue nvidia's revenue has increased 400% or fivefold which again is nowhere near Cisco's Revenue that increased 15 fold so in other words Nvidia could still have a long Runway to go in this AI Revolution all right at the same time from the start off that that AI Revolution check GPT launching Nvidia stock price has increased 830 on 9.34 which some people would think W it's already gone up nine times how much higher can it go hey Cisco went up freaking 42 times 42 times we could be just at the beginning okay so because of that no I ain't selling I'm not selling my Nvidia shares I'm holding it for the 42x yeah okay will he get it I don't know he will get there I think so right maybe more maybe less but you know somewhere around there now having said that you may say but Adam if you are so confident it's going to go up so much more why you just going and buy more now why because remember nothing goes up in a straight line the stock price will not go up every day every week every month every year for for the next four years right there will be big ups and downs be like a roller coaster so I don't want to jump in while it's you know still near a high I want to get in after a wave down like Buffett always says you got to be greedy when everyone is panicking everyone is fearful people think we're going to die that's when you get a damn good price that's when you buy at a share price way below the intrinsic value get a marginal safety okay by the way if you take a look at Cisco Cisco went up 4,000% the share price but during that sixe run Cisco's stock price had multiple declines or Draw Downs of between 20 to 30% during its ascent so similarly I can tell you that although I think Nvidia can still grow tremendously in the next 4 years there will be crashes we wouldn't call it crashes there there will be pullbacks or Draw Downs of 20 to 30% there will be I can guarantee you that in fact who knows right now we could drop another 20% right we could I don't know right so there will be opportunities to add more in the future so uh that's why I would say don't chase the girl when a girl runs away don't chase the girl wait for the girl to run into your arms when she's fearful because she'll always get fearful once in a while or guy whatever is your your gender preference right let me talk about super micro computer smci holy all right the the stock price is down like uh what 64% from the high from 1229 it's down 443 and pre-market it looks like it's going down more to 427 430 so of course I've got questions from people is this a buy is this an opportunity to buy a stock when it's down so much when it looks like it's really undervalued and people are panicking first let me set the record straight okay if you guys recall 6 months ago I made a video about smci because it was one of the hottest stocks and I said at a time that my intrinsic value calculation was $1,006 okay and I said if it goes below that to these buy levels hey could be something to buy all right I said that and then uh after smci crashed especially the last few days people say hey you said this cheap what's going on Adam obviously these people didn't read my followup post okay because after I created this video I did more research into the company and I said oh I don't think I'm going to buy it anymore all right I found some things that were really concerning and I actually posted this on all my social media including YouTu YouTube and this was 6 months ago and uh it was there right and uh I said that yep Al although smci looks like a very profitable business with revenues growing and blah blah blah however I had a few concerns that do not meet my investment criteria as you guys know I only invest in the top 1% of companies in the world that are very very very safe that are very predictable that are very consistent and once I find there could be something wrong no thank you I I don't buy that right that's the reason I don't buy snowflake or or or pelatin or or Tesla because you know all these companies that's there always something wrong which no thanks I'm going to avoid them right so for smci what did I find wrong uh number one the company has inconsistent negative free cash flow in certain years so whenever a company has got revenue growing profits growing but free cash flow negative usually there's something wrong there's a red flag they could be doctoring their account and I've seen that before in other companies like in Singapore one company called uh high flux and another one that was if I'm Nobel group same issue right uh so when I looked at it I say okay I think something's wrong I'm I'm going to avoid that yeah next high customer concentration risk a significant percentage of Revenue comes from a few customers that was another concern they don't have a very strong economic mode right so basically smci their products they look like eeka shelves okay right and while their mode is stronger than Dell and h HP it is not strong enough uh a mode and economic mode for me to be comfortable in um at the same time their core components used in their servers are commodity components that can easily be replicated by other players right so because of that I I said to my subscribers I shared on my social media I said I won't buy this stock all right so to set the record straight I I already said so don't buy it yeah now but to be and and after that what happened was obviously the stock started going down okay but then what happened was two days ago Hindenburg which is a research firm that specializes in finding companies that engage in fraud and they shot these companies they said that they found that smci uh they accused smci of um doctoring their accounts now now this was something that is very hard to predict okay now I didn't predict it myself I didn't predict it myself right so and the whole thing came down there's no way to predict it but it happens okay so the stock created in the in the last two days so the question is uh is this an opportunity to buy and from my experience I will never touch these kind of stocks here's the thing I love great companies when they're hit by bad news all kinds of bad news like they miss their earnings they miss their revenue China we I'll buy it because these are solvable problems these are short-term issues but the moment a company's accused of financial irregularities once they accused of do doctoring their books I will never touch this company why few reasons number one You Don't Know How Deep The Rabbit Hole goes when there's smoke there's fire and whatever valuation I did where I calculated the intrinsic value which was ,000 is based on data that I thought I could trust based on revenues and and earnings right but now if you tell me that all these are doctored they are misrepresented then what's the intrinsic value it could be anything right the value of the stock could be a th000 it could be 500 it could be freaking zero all right so you know no thank you I'm not going to buy this kind of stock it's kind of like in a marriage for example if your husband or or wife makes a mistake you know for example the uh you know they lose their job their business goes bus you stick with them through thick and thin all right because they can solve the problems but the moment you catch your husband coming home with lipstick on the shirt or a condom drops off of his pocket the marriage is over right you know that you can't trust this guy anymore okay and the worst thing is that if you caught him cheating before and it's not the first time and in fact this is what is happening to super micr computers so it is not the first time they're being accused of fraud they were accused before they admitted it yeah we we did it they paid a fine and they're doing it again or looks like they're doing it again right so that is really scary so this is from the report of Hindenburg and they found glaring accounting red flags evidence of undisclosed related party transactions sanctions that they went against export control failures and customer issues in 2018 by the way I did read read this before I forgot that I read it and now it became clear in 2018 super micro was temporarily delisted from NASDAQ for failing to file their financial statements and by August 2020 the company was charged by the SEC for widespread accounting violations so they did this before they were caught cheating before it's not the first time and it was related to $200 million in improperly recognized revenue and understated expenses resulting in AR officially elevated sales earnings and profit margins here's a scary thing Less Than 3 months after paying 17.5 million fine for their wrongdoing they fired those Executives who were dishonors but 3 months later they rehired these top Executives that were directly involved in the accounting Scandal it's like okay let's do it again right right it's like again you know you caught your husband cheating he broke up with with his that girlfriend he was affair with and then he meets That Girl Again okay and a former salesperson told us that almost all of them are back almost all the people that were let go that were the cause of the of this m how the hell do you pronounce this m sense oh that's beyond my english comprehension they are back okay so yeah because of that you know what I'm not going to touch this stock if I was in this stock I would just get out I would just get out now again is it possible that after I sell the price rebounds back up of course it's possible right I can predict the short-term movement all right but I'm not willing to take the risk because I've seen this movie before companies that are accused of financial fraud if it is really really bad the company can go to zero right so if I own the shares I rather lose 30% of my money or 40% than freaking 100% and for those of you who are not old enough to remember these two companies really taught me this lesson to avoid companies once they accused of financial fraud the first is Worldcom Worldcom was the second largest Telephone Company in the us at the time and Worldcom was in the Dow Jones Industrials average was one of the biggest companies in the world and in the S&P 500 and it was selling at $55 per share and once they were once they started to be accused of financial fraud their CEO resigned and the the stock basically went to zero another one is Enron again Enron was one of the biggest companies in the world so these are not small companies these were huge Dow Jones Industrial S&P 500 and Enron was named America's most Innovative company for six consecutive years it was one of the biggest energy commodity companies in the world and from a share price of 90 sorry $86 again once they found that the revenue and profits were fraudulent they were all faked right stock went to freaking zero so all I can say is and this is something I teach in my investing course that once a company's accus of financial fraud get out just get the F out all right so that's it for this video hope you learned something may the markets be with you and I'll see you guys in the next video if you want to catch my latest videos click on the sub subscribe button right now click on the Bell so you get instant notifications once I upload my latest video if you want to check out my online courses go on to pprof docomo to learn how to invest and how to trade the financial markets and create an income from all around the world if you want to join my live wealth Academy program go on to wealth Academy global.com and find out more about how you can learn investing and trading live online this is Adam coup and may the markets be with you