Nvidia (NVDA Stock) Headed For Another Correction? Everything Investors Need to Know Now

Happy Thursday, everyone. NVIDIA earnings have finally come out. And was it the biggest earnings of the year? It was as expected. And that's a good thing, even if the stock might be, headed for another dip again. I don't know, post earning stock reactions, we don't pay much attention to, unless it's like, 30 percent up or down, then we probably pay attention. But, less than 10 percent up or down after post earnings. Initial takes no big deal. If you didn't get a chance to watch our pre earnings video on NVIDIA, make sure you check that out. This is obviously post earnings, but some of the points that we mentioned in our pre earnings video are very important to the discussion that we're going to have today, but we'll recap the numbers of course, and we'll discuss some of the investor concerns for NVIDIA, whether NVIDIA is in. a bubble, and we'll also talk about what our plans are for our position in NVIDIA, which has grown to be the largest position in our portfolio, as many of you know, so let's dive in. This episode is sponsored by our friends at public. com. Are you dissatisfied with your savings account? Check out public. com. Public. com has just launched its new high yield cash account, offering an industry leading 5. 1 percent APY. There are no fees, no subscriptions, no minimums or maximums, just 5. 1 interest on your cash. You can transfer or withdraw cash as often as you like, and you get to Up to 5 million in FDIC insurance, grow your cash and an industry leading a 5. 1 percent APY with a high yield cash account at public go to public. com to learn more. Kasey, $30 billion in revenue. What's an extra $2 billion in sales over and above your midpoint of guidance. Not bad, huh? I wish my budget worked like that. Oh, I found an extra, I don't know, even $2000, I found an extra two grand. Yeah. Just hanging out in the cushions of the couch. Not bad. Not a bad day. That, $30 billion of course, made up primarily by data center. But gaming and provis also grew a bit this quarter, which was as expected. We've discussed this recently in another video, which we'll link here. But ProViz up 20 percent year over year, which includes that Omniverse software revenue. And gaming up 16 percent year over year. The previous peak was $3. 6 billion in revenue. Q1 fiscal 2023, which corresponds to calendar year 2022. And then as for data center, there's still a lot of consternation about this, and we'll get to Blackwell and, the delays that everybody is talking about now. But maybe just draw your attention here to the cadence of quarter by quarter increases since a year ago, last summer, when we had that massive, quarter over quarter doubling. And that initial burst in data center from the $4. 3 billion to the $10. 3 billion quarter over quarter last year. Remember that was still in the midst of the bear market. NVIDIA's manufacturing partner, TSMC had excess capacity sitting around waiting to be used. NVIDIA mopped that up. Because they had all this customer demand. But since then, you can see pretty consistent about $4 billion in sequential revenue increases ever since. And so this obviously, as the numbers get bigger, a $4 billion sequential increase on a percentage basis gets smaller. Of course, revenue is decelerating, but this is very much a sign of a company, NVIDIA and Taiwan Semi that are capacity constrained. This is manufacturing folks, and this is where we think a lot of Wall Street has transitioned, a lot of their analysts from analyzing software, the so called infinitely scalable business model from last decade over to semiconductors, now, the hot trend that's propelling us into economic growth again, hopefully. And they're kind of missing the point here. This is not the same as software. It's not infinitely scalable. There's manufacturing at work here and you don't just will a new manufacturing line into existence overnight. It takes time. And so again, I think $4 billion in quarter by quarter increases in data center is indicative of the fact that Nvidia and its partner TSMC are supply constrained. They will continue to be supply constrained based on their guidance for the next quarter, I expect there to be another $4 billion sequential increase in data center revenue in Q3 to about $30 billion with gaming, proViz and auto making up another $3 to $4 billion on top of that. So I think that's the good news, even without Blackwell in the mix, the Hopper architecture accelerated computing systems still very much in high demand and NVIDIA and TSMC cannot get enough of those out the door to fulfill all the orders that they're taking. One investor concern, and probably one of the reasons that the stock price took a little bit of a dip is the gross margin percent that is decreased slightly. In this most recent quarter, it's down to 75%, down from 78%. Now is this new information? I would say most definitely not. This was the guidance that Nvidia provided. Along with this concern that the gross margin has dipped a bit, there has been some proliferation of information that there's a delay on the Blackwell shipments. And I feel like this is probably the, this decrease in gross margin is actually getting pinned on this supposed delay of the Blackwell systems. Absolutely. That's the scapegoat for the dip in gross margins for the mob of investors out there that yeah you know, this was somehow a curve ball for. But our next slide here, Kasey is regarding the guidance on full year gross margin, in the mid 70 percent range, that has not changed. Right from the get go, this year. NVIDIA said that was the guidance mid 70 percent for the full year, even after reporting the spike to 78% last quarter in Q1, they still maintained mid 70%. They've always been saying that Blackwell would ramp up during the second half of this year. And this is what they meant by that. It's a new product. It's a manufactured product. It is really complex to make. And ramping up means we are going to take a hit on our gross margin on product sold as we ramp up this brand new, very complex product. And before we start logging sales of it, our gross margins are going to normalize off of the peak. So I guess you, you know, we can pin this reason on the Blackwell delay, but really this was always embedded in the guidance from the get go. This is a big nothing burger, in my opinion. So putting those two things aside, the dip in gross margin, the Blackwell delays, aka the ramp up of manufacturing, it brings us to the overall longterm thesis for Nvidia. And this is a comment that was made by Jensen Huang in the earnings call. And this is a very key statement that he made. He said, we expect to grow our data center business quite significantly next year. Blackwell is going to be a complete game changer for the industry and Blackwell is going to carry into the following year. How important of a statement is this, Nick, for not only NVIDIA, but accelerated computing as a whole? Well, first of all, it's indicative that the growth trend is by all indications of this at this point at this stage is going to continue into calendar year 2025, fiscal 2026 for NVIDIA. This is maybe the first, not a concrete indicator, but, an indicator that momentum for Blackwell will actually continue into calendar year 2026 as well. They have an extended visibility into customer demand. And this now plays into the second part of the comment here that Jensen repeated multiple times. I got a little bit of a sense that there was maybe some frustration with answering some of these questions because they're the same questions he's been answering for analysts and for investors for the better part of a year now. And so there's maybe a little bit of stubbornness in believing this at this point, somehow, in spite of the, financials more than speaking for themselves. The trend is twofold, there's an existing data center market out there. Part of it is cloud computing, part of it is private data centers that large organizations operate themselves. And all of those existing data centers are in process of getting accelerated. They're plugging GPUs into them so that their applications run more efficiently. They run faster and ultimately consume less power per computation. And now, in addition to that, there's a brand new set of data centers being built, purpose built, I should say, for AI, for artificial intelligence. It could be large language models and generative AI, but there's a lot of different flavors and variations of that. Eventually as it continues to get better, we're now talking about $1 trillion parameter AI models and now scaling towards multiple trillion parameter AI models. Endless use cases for these things. So there's a brand new set of data centers being built around the world that are also worth eventually, the estimate $1 trillion and both of those data centers, once they're built, need refreshed with new equipment, every four to five years. This is the secular growth trend. It's kind of cloud computing of the 2010s, but morphed a little bit with this, accelerated computing spin. Continuation, ultimately of the same secular growth trend that already got kicked off in the 2010s. It's just that NVIDIA changed the game, they leveled the playing field and most of the benefits are now accruing to them. Another really key metric that we saw in this report is share repurchases. They've already utilized $7. 4 billion in cash, including $7. 2 of that for share repurchases, but just a couple days before the earnings report, they approved an additional $50 billion to their share repurchase program. Before this year, the previous authorization was for $25 billion. They've increased it, another $25 billion. They obviously have high confidence in their company. Yeah, of course, NVIDIA still has to execute the share repurchases. This is funny. This blew some investors minds last year when this $25 billion share repurchase plan was announced. Lots of comments about, well, where's that going to come from? This is crazy. Management knows where the money is going to come from. This is perhaps the biggest bullish call on Nvidia stock yet. Jensen and the top team doubling that repurchase plan from a year ago to $50 billion now. They clearly think that they have a lot more growth and a lot more profitability. More importantly, coming down the pike. Okay. Let's talk about our three key takeaways from this most recent earnings report. The first one. Blackwell is still on track. We don't need to worry about Blackwell, not getting to be hyperscalers and there being a big revenue decrease because of that, it's happening. It's going to be a big part of the end of this year and in 2025. Another point that we need to remember is that the Hopper GpU system is also still very useful. And a lot of businesses and enterprise companies are still purchasing that piece of hardware. Our base estimate for the annual revenue for fiscal year 2025, we've increased to around $130 billion and that assumes an operating income of at least $75 billion. Yes, this is still a manufacturing business at some point. We fully expect there is going to be a cyclical downturn for NVIDIA as customers at some point in the future, pause a bit in their purchases, of these systems. Their CapEx spending will slow temporarily. It's just a cycle. This data center market has been in existence for decades. That's just how it works. And we don't think that has changed. We don't know when that will happen yet though. And we're not too concerned about it yet because again, we view this still as just an extension of the cloud computing secular growth trend. And all that's really changed is now NVIDIA is the technological leader, and they are the ones that own the long runway of growth that lies ahead because of the technological change they've helped spur on. Our final point and a question that we get asked so many times is in regards to whether or not it's a good time to buy NVIDIA. And the stock is not cheap and it never really has been. NVIDIA is our largest position. We have no plans on changing anything at this point. We'll keep you all updated on what we're doing. Yeah. And in the case, you're not aware. We did say that we were going to buy the dip in early August. We did. Um, if there's another significant depth after this earnings report, perhaps we will again, if you want updates on that, as we're thinking about doing it, in real time. Check us out on our Discord server. Link to that below. I think for our final concluding comments of this episode, we just want to cordially invite Mr. Jensen Huang on to Chip Stock Investor. If you're watching this or somebody else from the company is watching, You're welcome to join us. That's a long shot, but I promise with all my heart, I will not ask you about your customer's return on investment from adopting your hardware. And I promise not to ask you to re explain to me once again, what the two secular growth trends are that are driving your company's growth. I promise I will not ask those questions. I have much, much more long term, further reaching, maybe even philosophical questions for you, if you decide to come on. And I promise, with all of my heart that I will not use the terms add color and double click, Wall street Analyst cliches that drive Kasey crazy. Now you all know. Yes. If I hear double click 1 more time. Or read double click one more time. I just can't do it anymore. , We'll see you again very soon. We've got a couple more videos coming up this week on monday. com and Shift Four. Make sure you check those out. Make sure you're subbed to the channel and we will see you all again soon at Chip Stock Investor.