Long Live the King

Hi everyone,

Earnings season is important because it gives you a “boots on the ground” look at the world's most important companies.

No company is more important than Nvidia right now.

Nvidia CEO Jensen Huang and his team are the conductors on the freight train of artificial intelligence that is barrelling the new economy forward.

Just how big has Nvidia become? Here are some fast facts that outline it perfectly:

In a market-cap-weighted index like the S&P, concentration weighs heavily at the top. If we look at the YTD returns, tech is carrying the boulder on their shoulders, with Nvidia doing most of the heavy lifting:

This is what makes Nvidia’s earnings report so important:

1. Return contribution in the S&P500

2. Nvidia’s much more elevated weight in the market; and

3. It is the hottest stock in the current sector - this drives sentiment.

Now onto the print.

By all accounts, Nvidia’s quarter was spectacular and met high expectations. If we break it down by the numbers:

• This quarter’s revenue came in at $26B (+262% YoY), ahead of the estimate of $24.7B and in line with buy-side estimates of $26B

• The guide for next quarter’s revenue came in at $28B, ahead of street estimates of $26.8B and in line with buy-side estimates of $28B

• Gross Profit Margin of 78.9%, up from 66.8% in the same quarter last year

• EPS of $6.12, beating expectations of $5.60, vs. the same quarter last year’s EPS of $0.87

This is a hardware company operating even better than software profitability. Two things stood out to me when reading the print:

1) Revenue growth met even the high “whisper” expectations. When you see the sell side come out with their estimates, you must bump that number slightly with Nvidia. The “whisper” or “buy-side expectation” is a better barometer of expectations than the sell-side figures, as the company commonly guides these sell-side analysts towards numbers they can beat. Nvidia delivered on high expectations even at this massive scale

2) Profitability shows pricing power. Nvidia also keeps driving margins higher. This speaks to the fact that the company still has a lot of pricing power, meaning the demand for their superior product far outstrips supply, which is a strong indicator of strengthening competitive advantage.

Now onto the call.

When a company releases earnings, the trading algorithms typically pull from the headline numbers as the stock gyrates around in the aftermarket. Nvidia released the numbers at 4:20 pm ET, then followed up on the call at 5:00 pm ET. The call had several critical pieces of information that sent the stock up even further:

• Blackwell Series Revenue will happen sooner than expected. Nvidia is releasing the next generation of its flagship product, Graphics Processing Unit (GPU). The current-run is called Hopper, the next run is called Blackwell. Blackwell trains AI models 4x faster than Hopper, with 30x more powerful inference (calling the model). There previously were concerns about an “air pocket” in the market as customers switched between Hopper and Blackwell. However, Nvidia highlighted that they still have a long order list of Hopper chips and that Blackwell will come online earlier than expected. When Jensen said this on the call, the stock popped another 3-4%.

• The value proposition highlighted clear ROI. Nvidia also highlighted on the call that for every $1 that the major cloud providers (Microsoft, Amazon, Google) spend on Nvidia chips, they can expect to earn $5 over four years, AKA a one-year payback on their investment. Additionally, Companies that sell access to AI models through APIs can generate $7 for every $1 spent on Nvidia chips. There's your value prop for you.

• Customer diversification. While the major cloud players are the biggest customers for Nvidia, the company continues to diversify its customer base. The share of sales from cloud providers had dropped from more than half of data center revenue to 45% in the April quarter. This is largely due to surging orders from other customers: large enterprises and governments, increasingly purchasing chips for their own data centers.

Lights out quarter from a lights out company, and this was an absolute pleasure to witness.

However, while I am a big fan of Nvidia, you must also keep a level head when thinking about a stock. You need to address the other side of the equation.

This is not the first CAPEX buildout cycle the stock market has seen. We had one in the 2000s around telecom and one in 2013 around Oil. Both had spectacular rises but equally perilous falls.

Will the party end? Absolutely. But will it end soon? Absolutely not.

Cheers,

The GRIT Alpha Team

The author of this newsletter owns a position in Nvidia (NVDA) in their portfolio or the funds they manage. There is no guarantee that the author will maintain such a position in the future.

Grit is a publisher of financial information, not an investment advisor. Grit does not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient. Grit does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. INVESTORS SHOULD OBTAIN INDIVIDUAL INVESTMENT ADVICE BASED ON THEIR OWN CIRCUMSTANCES BEFORE MAKING AN INVESTMENT DECISION

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.

The author, publisher or insiders of the publisher may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and Grit undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

Grit does not accept any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any related social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

Grit publishes content through Beehiiv, an email newsletter platform and operates the websites Gritcap.io and Get-versed.io and and social media accounts (including but not limited to): Instagram, Twitter, Linkedin, TikTok, YouTube, SnapChat, Facebook and Threads. By accessing Grit’s content, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof or any of Grit’s content. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website or Grit constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Grit is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Grit does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors ONLY who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Grit does not verify the adequacy, accuracy or completeness of any information. Neither Grit nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Grit nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis.

Please read: Terms of Use, Privacy Policy, Disclosure Policy, State Disclosure Policy, and Disclaimer Policy

If you have any questions please contact us at [email protected]