It’s the most closely watched stock this year…
Nvidia is the leading maker of the specialist chips that power ChatGPT and other artificial intelligence (“AI”) systems.
It has a roughly 80% share of the AI market. Without this one company’s chips, these systems aren’t viable at scale.
And to say it’s a market darling is an understatement. Its shares are up 218% so far this year.
That’s about 21 times the average yearly gain for the tech-heavy Nasdaq over the past 20 years.
And the chipmaker has joined the ranks of Apple, Microsoft, Google, and Amazon as one of only five companies in the world with a $1 trillion-plus market value.
Last Wednesday, this tech behemoth released earnings results for the April-to-June quarter.
As my colleague Colin Tedards reported back to his readers, expectations were high going into Nvidia’s earnings release. But the company still managed to surprise everyone to the upside – even him.
And as you’ll see today, that means the AI opportunity is bigger than even the boldest estimates out today.
Before we dive in, a quick shoutout to new readers…
We created The Daily Cut to make sure you never miss a moneymaking idea from Legacy Research.
It’s the publisher of Teeka Tiwari, Nomi Prins, Phil Anderson, Larry Benedict, Jeff Clark, and Imre Gams.
And we’re always hunting for new talent to help you move the needle on your wealth… and become a better manager of your financial future.
That’s why, in June, we brought Colin onto the team as our new tech investing expert.
He’s not your typical Wall Street analyst…
Colin was a coder… entrepreneur… and individual investor for 20 years before starting The Investor Channel.
It’s a YouTube channel for everyday investors with 126,000 subscribers and more than 10 million views.
Colin posts videos there breaking down the fundamentals and technicals (chart patterns) of the world’s most exciting technology stocks.
He specializes in covering earnings reports like the one Nvidia released last week. That makes him the perfect person to guide us through what went down… and what it means for the AI boom we’ve been tracking in these pages.
And Nvidia smashed even his bullish forecast.
Colin expected Nvidia to top $11.5 billion in sales for the quarter…
That was $500 million more than the average Wall Street analyst was expecting.
But Nvidia’s sales came in at a whopping $13.5 billion. That’s nearly 20% higher than Colin’s estimate… and certainly higher than Wall Street’s.
That wasn’t the only impressive number the company posted. Here are some of the other highlights. All figures show year-over-year change…
-
Sales – up 101%
-
Gross margin (a key measure of profitability) – up 27%
-
Operating income (a measure of how efficient a company’s operations are) – up 1,263%
-
Net income (or total profits) – up 843%
-
Earnings per share (a per-share assessment of a company’s profitability) – up 854%
There’s clearly huge demand for Nvidia’s chips. And it’s not just for AI systems.
They’re used in computer gaming for rendering graphics… And accelerating analytics in data centers.
They also power self-driving cars and trucks. Scientists rely on them for simulations and computations. The military even uses them for image recognition systems in drones and in sonar and radar signal processing.
But what shocked Colin most wasn’t that demand was so high. It was how fast Nvidia was able to get its chips into the hands of its customers.
Take Nvidia’s most advanced chip, the H100…
Every software-maker is scrambling to get their hands on these chips to build and train their AI models.
And they’re extraordinarily complex to manufacture.
One H100 weighs 70 pounds. It has 35,000 parts and nearly 1 trillion transistors.
You need to have extremely tight control of your supply chain to make each unit.
Here’s Colin with more on that…
Nvidia relies on a web of suppliers and testing companies to source parts and make sure each unit is running at peak performance.
There was some concern that if even one of these suppliers fell short the entire supply chain would be disrupted. But these suppliers ramped up their operations to meet Nvidia’s surging demand.
In short, Nvidia’s H100 chips are the best in class. If you’re a tech executive trying to build the next great AI model, they’re you’re go-to. And the company isn’t letting supply chain issues rain on its parade.
That’s put Nvidia in a dominant market position in the AI industry.
But before you dash off to buy Nvidia shares, know this…
The surging sales shows the AI opportunity is even bigger than the boldest estimates out right now.
That’s why Colin says backing best-in-breed AI stocks is the best way to grow your wealth in the stock market today.
But Nvidia is NOT the best way to gain exposure to the AI megatrend. Here’s Colin again…
If Nvidia’s rapid sales growth is anything to go by, that’s great news for us as AI investors. But with a market value now north of $1 trillion, it takes a lot to move this stock.
The company must add $10 billion in market value to move the stock 1% higher. By contrast, if a stock is worth $10 billion, it only has to add $100 million in market value to have the same effect.
Another problem is that Nvidia is priced for perfection. Its shares trade for price-to-sales ratio of 35. That means you pay $35 dollars as a shareholder for every dollar of sales the company has. And it’s 4.6x higher than its nearest rival, Advanced Micro Devices (AMD).
As a company, Nvidia has a bright future. But as an investment, its days of explosive growth potential are over.
If you already own Nvidia, kudos. You’ve been riding a rocket ship for the past eight months. And this is a great stock to continue holding in your portfolio.
But if you’re looking to buy in now, Colin is urging caution. The company’s size… plus its rich valuation… means there are better ways to play the AI megatrend.
I’ll have more for you on some of Colin’s top alternatives later in the week.
In the meantime, make sure to check out Colin’s YouTube channel. You can find his full breakdown of Nvidia’s second-quarter earnings results here.
And if you find value in it and the other earnings breakdowns he does there, make sure to subscribe.
I’ve learned a ton from watching them. I bet you will, too.
In the mailbag: “I appreciate that you remain laser-focused on the best investments”…
Colin’s readers have been flooding his mailbag since he first joined the Legacy Research team back in June this year.
So, for today’s mailbag, we’re featuring a highlights reel of his subscribers’ comments and praise…
Colin, I am enjoying the content coming from Brownstone publications! Thanks for your focus and input!
– Duane D.
Hi Colin. It’s interesting to learn about technology, but I know you have limited time. So I appreciate that you remain laser-focused on the best investments. That is the main reason I subscribe. Keep up the good work and thank you for your efforts!
– David N.
Hello to you all at Brownstone Research. I’m a very small-time investor in the U.S. markets as New Zealand is my main base of investment.
But I wish to say that I very much like your new editor with Near Future Report, Mr. Colin Tedards, as he is very thorough.
– Averil P.
You can write in your comments and questions to Colin or any of the experts here at Legacy at [email protected].
Regards,
 |
Chris Lowe
Editor, The Daily Cut