NVIDIA Will Never Be The Same After This

Intro it finally happened Nvidia reported earnings after being down 2% on the day the stock is trading around a lot but it's now down 5% what is going on with nvidia's earnings we'll be taking a look at the full numbers here giving a breakdown segment by segment and why the stock is going down even though Nvidia beat on both the earnings per share and the revenue Salesforce also reported today this is one of the companies I own it was down 2% on the day but after the report the stock has shot up 32% we'll be discussing what's going on with Salesforce and then finally we have crowd strike like the other ones it was down 2% on the day but the stock is having a nice bounce as well up 3% after reporting earnings crowd strike is being sued by Delta Airlines we'll get an update on how that's going so we'll be going over all three of these earnings reports taking a look at how these companies are doing and we have some other news to discuss as well Mark Zuckerberg recently apologized in a letter to the house Judiciary Committee for censoring certain information regarding covid the telegram CEO was arrested in France on charges of online criminality this has caused an ongoing debate of what type of responsibility a platform has or doesn't have to be transparent with what their users are doing and then finally the pelon's former CEO that was once a billionaire now says he's lost all of his assets he once had a $50 million home that he's now sold he has lost his wealth with the crash of pelaton stock and there's a lot to learn in this story we'll be looking at the downfall of the pelaton co so we NVIDIA Earnings have all of that to get into plus much more we'll be looking at my portfolio and how these earnings have affected my performance now let's first go ahead and jump into the headline news here Nvidia just reported earnings and so far the stock has been bouncing around up and down a little bit but overall in the red in the red from anywhere of 3 to 5% and this is a different reaction than what we've seen from Nvidia especially because it's down 3% after beating on the earnings per share and revenue the earnings per share were 68 cents versus 64 Revenue was 3.04 billion versus 28.7 billion even in the expectations Nvidia Beat Again saying that they're expecting 32.5 billion in Revenue versus Wall Street estimates of 31.7 so to summarize this quarter so far Nvidia beat on the top line they beat on the bottom line and they beat in their expectations all around this company Beat every expectation that was on paper and the stock is still in the red now what does this mean for the stock first of all things could change they still have the earnings called there could be commentary that could change the sentiment of investors but I doubt it's going to change that much Nvidia will likely trade down a few percentages or it might trade back up close to level either way this quarter is one of the first quarters of Nvidia not moving into the positive by a huge amount on qualum we have the most recent numbers and we can look at a revenue breakdown of Nvidia if we look at the growth overall we can see that the company grew 123% year-over-year which is just incredible but if we break down the different segments we can start off with Automotive this is their smallest segment this grew 36% it's good they Automotive segments doing well but that's only a couple hundred million we look at professional visualization this grew 20% nothing notable there we look at the gaming this grew 16% nothing too notable there and it looks flat over the past 3 or four quarters but then we get to the data center and here's where all the growth is really coming from Nvidia grew their Data Center business to 26.3 Bill ion this is a 150% increase year-over-year so they beat their expectations but we still get a muted response from investors so what does this mean for NVIDIA why are investors becoming less enthused about this stock why is it trading down when they beat on every metric possible I believe it's because Nvidia is now getting to a point where the difference between what they're reporting and the expectations are becoming closer and closer together meaning that the alpha in the stock is becoming more and more narrow the earnings reports are becoming more muted expectations of Nvidia are now so close to what they're actually reporting that it's difficult to find as much upside and this is a natural case for most stocks Nvidia went through a parabolic surge in demand but that demand was not going to be parabolic forever anytime you see these type of charts they never go on forever it just doesn't happen at a certain point there's going to be massive deceleration things will start to top out out moderate and slow down and we're seeing that with Nvidia one month ago I published a video with the title The Nvidia bubble is about to pop now that's a bit of a juicy title I may have oversold the video but the entire purpose of that episode one month ago was to outline the situation that Nvidia faces and how they're now facing a massive uphill battle when I observe the different situations that stocks are in and the ones that do really well and the ones that do poorly the ones that are in the situation of doing really well have accelerating Revenue growth they have accelerating earnings per share growth they have expanding margins they have low starting valuations leading to multiple expansion that is the perfect situation for a stock if you can find a company that has all of these qualities odds are it's going to go up and in most cases it'll beat the market of course the perfect Situation's difficult to find but that's the four major characteristics on the inverse we have the worst situation decelerating Revenue growth decelerating earnings per share growth margin's compressing and with a high starting valuation that's more likely to lead to multiple compression than expansion if we rewind time 3 years ago Nvidia was in the best situation the stock had accelerating Revenue growth in fact massively accelerating Revenue growth it had margins expanding and it had a low starting valuation everything was set up perfectly for this stock to explode but now we find ourselves in the inverse you can see that the revenue growth is not exactly accelerating it's holding a bit steady and it's starting to slow down a little bit this chart is such an uphill battle for NVIDIA because while they have 150% Revenue growth today as the quarters go on and they don't grow quite as fast as they used to the comparables the year-over-year is going to get slower and slower and slower that is the definition of decelerating Revenue growth and they have the same issue with earnings per share as the quarters go by the earnings will grow at a slower rate causing the stock to decelerate in its earning ears per share growth and the margins are already so high for the business they also have nowhere else to go but down they started with a 78% gross margin which is down 3% quarter over quarter so I don't say any of this to bash Nvidia stock I think it's one of the most incredible companies in the market today and it's one of the most amazing Stories over the past 5 years it is incredible what they've accomplished but it is the conclusion of almost every story that's experienced this parabolic growth it just doesn't go on forever these type of charts don't continue in perpetuity and you can't extrapolate this growth into the future at some point these growth rates will come down substantially Nvidia will have difficulty growing year-over-year now it may be slightly above or below what investors are pricing in but we can say definitively with this report that the upside in the stock today is far less than it was a year ago the future expected returns are far lower Nvidia will trade closer to expectations and it'll be harder to get gains out of this company so what does it mean if we have more moderate growth expectations and earnings from Nvidia in the future what if it trades a bit more in line with every other company what if we don't see this company double and double again well that helps out individual investors specifically ones that don't hold Nvidia in their portfolio so far this portfolio has outperformed the market for the past three years on a Time weighted basis now this year is a close race between my portfolio and the S&P 500 with Nvidia tapering off and now no longer in and of itself pushing the indexes up that makes my job easier as a stock picker when I don't own that company the relative performance of this portfolio should do better if Nvidia is no longer pushing the market higher so all it does when it cools off a bit and grows around the same Pace as other companies with your 5 to 10% gains that makes my job easier as a stock picker now one of the companies Salesforce Earnings in my portfolio in fact the only one that I'm currently in the red on is Salesforce and this is also one of my most recent buys my total position size is $56,000 with currently $4,000 in the red so this one has been a red so far and I've said repeatedly that I think this is temporary over time I believe the earnings growth and the free cash flow per share growth will push Salesforce back into the green Salesforce just recently reported their earnings and the stock is currently up 3.3% the earnings of Salesforce can be best summarized by a tweet from the CEO Mark benof he goes through the most important three metrics of the company first of all the revenue growth you can see the revenue growth every single Financial Year from 2014 up until 2024 the revenue went from 31.4 billion to 34.9 and the guidance was 38 it is a lockstep move upwards and upwards for the revenue of this company we can take a look at the margins the margins are a clear indicator of the mo and pricing power of a company if a company raises its margins year after year after year while growing Revenue that is a strong strong indication that the company has a wide mode and we see that with Salesforce from 2020 it was 16.8% all the way up to 30.5% in 2024 we can look at the operating cash flow it goes from 7.1 billion in 2023 to 10.3 billion in 20124 the guidance so far is 12.8 billion in 2025 now Salesforce is down 2% on the day but Up 3 and 1 half% after hours and I believe the reason that the stock is trading up after hours is because expectations for Salesforce have remained low investors aren't too excited about this company they don't view it as a big AI winner they view it as a victim of AI a company that's going to be engulfed or beat by AI companies I see things differently and I think the numbers prove that the revenue breakdown shows that Salesforce is growing once again in every category overall the company grew 99.47% if we cross out the other segments and look at the sales Cloud That Grew by 9% we look at service Cloud That Grew 10% we look at the platform and other that's things that have to do with the developers That Grew 9% we look at marketing and e-commerce those are tools to create your own online websites and different things with Salesforce That Grew 5% we look at integration and analytics That Grew 133% Salesforce has deep integration and concentration of market share with every one of these segments and all of them are contributing to the overall growth the other important metric and one that I believe investors are looking at today is the total performance obligations this shows the total number of dollars committed to be spent on Salesforce that are Beyond a 12-month contract so if a company signs a 2-year or 5-year obligation it shows up here it was $ 53.5 billion in the last quarter which is almost a 16% increase year-over-year so even their obligations which is a form of deferred revenue is increasing the free cash flow that Salesforce generates continues to increase and this last quarter was no different it was a step up from the same quarter one year ago if we zoom into the past 3 years we can see see this more clearly one year ago they generated $628 million in free cash flow this quarter they generated $800 million so we have a nice increase of around $200 million in free cash flow year-over-year and all of that is adding up to explosive free cash flow growth so I don't know to tell you I look at Salesforce and I see everything going well with this company I see organic Revenue growth I see share BuyBacks I see free cash flow growth substantial free cash flow per share growth even when we look at some of the red flags for the company or some things that people are concerned about like the stock based compensation that is not as big of a concern as it used to be we can take a look at the trend and it's going down year-over-year so they're getting a greater control over their expenses and they've said that stock-based comp will never be above 8% of revenues and all the while this is going on the valuation Still Remains rather low for the company it's a much higher free cashow yield than most tech companies and a lower PE ratio for comparable companies I like the earnings report so far I see no big red flags with it and I still believe that the free cash flow per share will ultimately push this stock back into the green we can already see that happening a little bit after hours now next up of course we have crowd strike the company was down 2% on the day but they also reported after hours and the stock is currently up bouncing around plus 2% around that territory they reported a slight beat on earnings per share and revenue so they checked those two boxes the revenue growth was 32% year-over-year which is very strong growth and that is organic Revenue growth coming in from their current customer base or new customers selling more products to them or raising prices of that Revenue the huge majority of it is annually recurring Revenue so crowd strike has a really good Revenue profile now of course they have to face that mishandled content update which caused an enormous outage and billions of dollars worth of damages to other companies through lost revenues and upset customers so George CTS the CEO of crowd strike is going to have to go and explain to investors and give a positive update and if I was to guess I think it's going to be better than expected I think on the phone call investors are bracing for the worst they know that the company's under distress it has a very CrowdStrike Earnings stressful situation they're facing and I think any positive momentum any positive news on that front will be viewed very favorably by investors so I'm not shocked to see that the stock is up after hours I think investors were bracing for the worst hair the stock was down 20% into earnings and I think that investors are quick to forget large blunders like crowd strikes George CTS is going to be doing media rounds tomorrow he's going to be on Mad Money giving Jim Kramer an interview and explaining some context and updates into what's going on so I think he's doing a good job with public relations getting in front of investors trying to be transparent with how the company's doing so far it looks like crowd strikes pass this earnings without much damage so overall when I look at the earnings reports of any of these companies with Salesforce and crowd strike they seem rather mundane Nvidia seems to be the most shocking one that the stock isn't going crazy after earnings and I think that's the single biggest development of this earning season up until now Nvidia has been called the most important earnings report of the season but I think after this earnings report we can safely say that's no longer the case Nvidia is not the most exciting not the most crazy not the most important Mark Zuckerberg Gives Clarity to Censorship earnings report of the season now let's go Ahad and move on to some other news here we have an admission from Mark Zuckerberg we have more clarity of what happened around covid-19 with Facebook he actually wrote a page-long letter to the house Judiciary Committee explaining what went down he says there's a lot of talk right now around how the US government interacts with companies like meta and I want to be clear about our position our platforms are for everyone we're about promoting free speech and helping people connect in a safe and secure way as part of this we regularly hear from governments around the world and others with various concerns around public discourse and Public Safety so he's introducing the plat form saying it's for everyone saying they're promoting free speech and then he goes on into this letter to explain how previously just a couple years ago Facebook was not about free speech and they worked in concert with the government to censor certain viewpoints and certain memes and certain jokes in 2021 senior officials from the Biden Administration including the White House repeatedly pressured our teams for months to censor certain covid-19 content including humor and satire and express a lot of frustration with our team when we didn't agree ultimately it was our decision whether or not to take the content down and we own our decisions including covid-19 related changes we made to our enforcement in the wake of this pressure I believe the government pressure was wrong and I regret that we were not more outspoken about it I also think we made some choices that with the benefit of hindsight and new information we wouldn't make today like I said to our teams at the time I feel strongly that we should not compromise our content standards due to pressure from any Administration in either direction and we're ready to push back if something like this happens again now he continues on in this letter detailing the specifics of the pressure all the differences they made to their policies the perspectives and viewpoints that they censored and how they were doing it based off of limited information and basically how they cave to pressure and he regrets doing so now I'll give credit to Mark Zuckerberg for first of all being trans arent about this and second of all apologizing and saying he won't do this in the future I think you have to give him points for at least that he's not doubling down on it he's not saying he's going the other direction he's saying that he'll push back in the future which is what I like to see but it is scary to know that some of the biggest companies in the world will work in concert with the government to censor certain perspectives and I think the scariest amongst that is humor and satire he outlined specifically that the government pressured him into censoring certain humor and satire now I know the defense for this for people that are in favor of censorship is that sometimes humor and satire can be used as misinformation that's the term that's used but that is very ambiguous that's a very difficult way to manage content moderation without completely censoring certain perspectives one of the most difficult things Mark Zuckerberg is going to continue to struggle with managing meta is content moderation there's no way to make every single person happy with the content moderation strategy that they implement but I think at the very least at the very least the content moderation strategy should not be a result of pressure from the central government of course they should abide by the laws of the country but specifically censoring different viewpoints because of the central government I think sets a dangerous president so I'm happy to see Mark Zuckerberg moving in the other direction now here's a story that came up recently Telegram CEO Arrested the CEO of telegram was arrested in France over a probe of online criminality now now they say that the investigation is examining 12 potential criminal violations including being complicit in spreading child content refusing to cooperate with authorities and complicit in fraud investigators haven't named durov or anyone else yet as the target of their probe according to the statement the prosecutors said they have 96 hours or until Wednesday to hold him for questioning the authorities are arguing that telegram is nothing more than a conduit a catalyst for Crime a place where all sorts of online crimes and trafficking and child content are traded online in secrecy Telegram in and of itself doesn't seem like anything special it's a basic messaging app that's end to end encrypted so users can send messages and if it's from one user to another not a group message it should be encrypted end to end so there's no prying eyes into what those messages contain so it's a basic messaging app but it seems as though a lot of the uses of telegram are associated with crime all different Western governments are pointing to telegram saying that they have a lack of content moderation they say that it's opening the platform specifically for potential use in money laundering drug trafficking and sharing materials linked to exploitation and that Telegram in and of itself is not doing enough to police these problems telegram says that they're doing everything they can to police these type of issues they're working with authorities but they also value the privacy of their users they don't want backdoors or the government to be looking at their messages currently this is one of those few stories where I haven't fully made up my mind mind I want to see what he's actually charged with what the authorities say and how much validity there is to those charges so as of right now I haven't made up my mind on this but I'll be following this case now we also heard recently that the Peloton CEO Loses All His Money pelaton former CEO says that he's lost all of his money and had to sell his possessions this is a story of the downfall of a once billionaire he said before you know at one point I had a lot of money on paper of course he had money in pelaton stock and on paper with pelaton stock he was once a billionaire if we bring up pelaton stock here anywhere around here he was a billionaire but anywhere around here he's no longer a billionaire so life can come at you fast when a stock drops from $150 per share to a couple dollars you're paper wealth can vanish quickly one of the things that he sold was his $55 million East Hampton waterfront home he had to uproot his family move out of the home my wife's super supportive my kids are probably better for it if we're keeping it real now I have to give them credit here having your wealth ripped away having to lose your $55 million ridiculously expensive Mansion can't be a fun experience right you feel like you've earned it you've moved in you feel like you're living this high life and all of a sudden you're right back to reality you're poor again and even though he's going through that very humbling experience it seems like his family's taken it well his wife's supportive his kids are better off for it they probably don't care at all I don't think little kids care that much about where you live so overall it seems like his family's taking it about as well as you can now they say the conclusion with this story is that none of the wealth Is For Real if it's just on paper stocks go up and down and if a company collapses like pelaton the stock price will collapse right along with it but I think there's other takeaways as well and one of them is being blinded by hubris people like John Foley who once had a billion dollars of value in his assets he once had a company value that much but didn't put anything set aside to sustain a lifestyle that is hubris huis is what caused him to hold on to the company through its incredible decline that's all for this episode I hope you enjoyed and I'll see you in the next one