[FREE] NVIDIA Q2 Earnings; How Big is NVIDIA's Economic and Technological Moat? A Masterclass by The Pragmatic Inv...

Growth Is Slowing, Funds Are Selling And Investors Aren't Happy ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more --------------------------------------------------------------- [[FREE] NVIDIA Q2 Earnings; How Big is NVIDIA's Economic and Technological Moat? A Masterclass by The Pragmatic Investor]( Growth Is Slowing, Funds Are Selling And Investors Aren't Happy [James Foord](jamesfoord) Aug 29 ∙ Guest post jamesfoord   [READ IN APP](   NVIDIA, the market's AI darling, reported earnings yesterday, and the stock is actually down 6% after hours. Despite beating earnings and revenue estimates and announcing a $50 billion buyback it would seem that investors have been disappointed by the company’s guidance. Ultimately, investors are faced with this simple question; How Slow Can NVIDIA Grow? (And Maintain Its Current Valuation) That’s what we will be looking at today. Expect to learn: - Why NVIDIA’s stock fell despite beating estimates - How buybacks will affect the share price - Key insights from the CEO, Jensen Huang - How NVIDIA’s stock could plummet even as the AI revolution continues - 2 Key Risk Factors For NVIDIA - Technical Levels to Watch But first, a little bit about me, The Pragmatic Investor An approach that assesses the truth of meaning of theories or beliefs in terms of the success of their practical application. That is Pragmatism, and it guides my investment philosophy.Through many years of analyzing markets, I have found this is what works. [The Pragmatic Investor]( Macro, Fundamentals and Technicals. This is the three-pronged approach that has helped me beat markets over the last five years. For long-term investing, there’s nothing better than understanding business cycles, macroeconomic trends and geopolitics. On the other hand, when it comes to short-term moves in markets, the best tool we have is technical analysis. And not just a specific form of technical analysis but a robust set of tools that can all work in conjunction to help us find great setups. I actually recently designed my own algorithm, you can see it here: [The Algorithm]( My Substack is designed to guide investors of all levels in their journey. - Understand markets with the weekly newsletter. - Build a diversified global portfolio that will stand the test of time. - Get actionable trade ideas to take your investment returns to the next level. Every week I give a macro update, a technical analysis update on the main indexes and stocks and I cover a stock in-depth, looking at its fundamentals. NVIDIA: Earnings Overview Nvidia's impressive year-over-year revenue growth was largely driven by its Data Center segment, which saw a 155% increase compared to the previous year's quarter. This outpaced the 122% overall revenue growth, highlighting the segment's significant contribution to Nvidia's success. Gaming also showed some growth, after falling in the last quarter, which was encouraging. Notice that quarterly growth has decelerated noticeably every quarter, with this one being no exception. While 16.4% QoQ growth is still very impressive, the slowdown could be concerning. We can also see below how each of the segments fared over the last quarter.  Other segments, like Professional Visualization and Automotive, show steady, but smaller contributions, highlighting Nvidia's stronghold in the data center sector as the primary growth driver.  Now let’s look at the margins: Revenue surged 122% year-over-year (YoY) to $30.04 billion, with net income also up 152% YoY. However, there’s a noticeable decline in gross margin, down 3.2 percentage points quarter-over-quarter (QoQ) to 75.7%. This margin decrease could indicate rising costs or pricing pressures, possibly due to the company’s reliance on its data center segment. Despite the robust revenue growth, the drop in margins is a potential concern for future profitability. Lastly, NVIDIA announced [$50 billion in buybacks]( While NVIDIA's new $50 billion share, these buybacks represent only a 1.5% reduction in shares annually. Even if NVIDIA accelerates its buyback pace, the impact on share count will likely be minimal due to ongoing share issuance to employees and management. Consequently, buybacks may not significantly contribute to earnings per share growth.  Enjoying this post so far? Share the Alpha with a friend! [Share]( Guidance and Earnings Call  Now, let's look at some of the insights from the earnings call. Total revenue is expected to be $32.5 billion, plus or minus 2%. Our third-quarter revenue outlook incorporates continued growth of our Hopper architecture and sampling of our Blackwell products. We expect Blackwell production ramp in Q4. GAAP and non-GAAP gross margins are expected to be 74.4% and 75%, respectively, plus or minus 50 basis points. Source: [NVIDIA Earnings Call]( At $32.5 billion, that would be roughly an 8% QoQ increase, reinforcing the idea that growth continues to slow down on a sequential basis. Meanwhile, margins should come in around 75%, just a little lower than this quarter. And what can we expect from NVIDIA’s new flagship, the Blackwell? In Q4, we expect to ship several billion dollars in Blackwell revenue. Hopper shipments are expected to increase in the second half of fiscal 2025. Hopper supply and availability have improved. Demand for Blackwell platforms is well above supply, and we expect this to continue into next year.  Source: [NVIDIA Earnings Call]( Despite some rumours of delays around the Blackwell, it seems like the company fully expects to begin shipping meaningful amounts in Q4, with the demand still outstripping supply. Finally, when asked about AI demand, this is what CEO Jensen Huang had to say. I'm going to work backwards. I really appreciate the question, Tim. So remember, the world is moving from general purpose computing to accelerated computing. And the world builds about $1 trillion dollars’ worth of data centers -- $1 trillion dollars’ worth of data centers in a few years will be all accelerated computing. In the past, no GPUs are in data centers, just CPUs. In the future, every single data center will have GPUs. And the reason for that is very clear is because we need to accelerate workloads so that we can continue to be sustainable, continue to drive down the cost of computing so that when we do more computing our -- we don't experience computing inflation. Source: [NVIDIA Earnings Call]( While semiconductors have always been seen as cyclical in nature, it’s important to note that what we are seeing with AI is a fundamental shift in how we view computing, and therefore demand could continue to increase for years to come. The Cisco Comparison; Growth Matters But despite what was arguably a strong release, NVIDIA is selling off. Investors are not pleased with the declaration of growth, and it makes sense. NVIDIA commands a very high valuation, trading at a PE of over 70. This has led many to many comparisons with one of the darlings of the dot-com bubble, CISCO Systems (CSCO). Nvidia's situation shares similarities with Cisco Systems (CSCO) during the 1990s internet hype. Cisco, a key infrastructure provider during that era, thrived due to its essential role in the expanding tech ecosystem, much like how Nvidia's GPUs are critical to the current AI and data center boom. CSCO reached a price of over $80, with a PE of over 200, and then the stock plummeted. Surely, revenues must have sharply fallen too. Actually, that was not the case. CSCO’s revenues continued to steadily grow throughout the 2000s with only a couple of years of no growth.  With NVIDIA’s current slowdown in revenue growth, is it possible that the share price could suffer the same fate? It doesn’t take much to derail a company, especially when expectations are so high, and this is clear from the last earnings. The Pragmatic Investor is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. [The Pragmatic Investor]( 2 More Warning Signs On top of that, we have at least two more clear warning signs that suggest NVIDIA’s stock price could be topping. Hedge Funds Are Selling It’s noteworthy that several large funds have begun reducing or completely exiting their NVIDIA positions, as revealed by recent 13F filings. High-profile [investors like George Soros]( Stanley Druckenmiller, and the Bill and Melinda Gates Foundation have entirely sold off their NVIDIA shares.  Additionally, Appaloosa Management, a $14 billion fund, significantly trimmed its NVIDIA holdings during Q2 while maintaining substantial exposure to Advanced Micro Devices, Inc. (AMD). This shift suggests a growing caution among major investors regarding NVIDIA's stock. While plenty of funds also bought NVIDIA shares, it’s quite significant, especially as we also know that the CEO has sold off a meaningful position [in the last month.]( Key Clients May Be Overinvesting NVIDIA relies on a few key clients, all chasing the AI holy grail. What we are seeing is a dynamic whereby a lot of these companies are investing out of fear of being left out. This much has been expressed by Meta CEO Mark Zuckerberg and Alphabet CEO Sundar Pichai. I think that there’s a meaningful chance that a lot of the companies are overbuilding now and that you look back and you’re like, oh, we maybe all spent some number of billions of dollars more than we had to”  Source: [Emily Chang Podcast]( When we go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting for us here, Source: [Alphabet Earnings Call]( A lot of companies are already being scrutinized by investors in terms of AI spending. While a year ago, simply saying you were investing in AI was seen as a positive, now investors need to see the results of these investments. The tide could quickly turn, and it would only take a few companies deciding that AI is not worth it to really take a toll on NVIDIA’s bottom line: Valuation and Technical Analysis So, what can we expect moving forward? A lot will depend on how earnings evolve, which will carry deep implications for NVIDIA’s valuation. While NVIDIA trades at a PE of over 70, one could argue it trades at a reasonable price when we take into account growth expectations. That is, if we look for example at the FWD PE and also the FWD PEG. However, this metric is at risk of quickly changing too if NVIDIA’s growth slows down. At this point, it would not be crazy to see NVIDIA’s PE fall back down to more reasonable levels for a Mega Cap, such as 30. That would be a big burn for investors. However, if NVIDIA keeps selling off, one might be tempted to add. Let’s look at some key areas here that could act as support/resistance As we can see from the Trendspider chart, we could argue that NVIDIA has actually completed a five wave impulse from its lows back in 2022. If we measure this current rally, we can find significant support areas using Fibonacci retracements. As we can see, we already sold-off and rallied from the 38.2% level. If what we are now witnessing is indeed an ABC retracement. As I have labelled here, then we could re-test the recent lows, and even break below that to the 50% or even 61.8% retracement level, which is of course the golden ratio. Notice we have meaningful volume support at $90, and that’s also where the 200 EMA comes in. Therefore, this will be a key area to hold if we want to see more upside. Below this, however, the sell-off could accelerate quickly towards $75 or even $60. We can also see on the right that September is usually a seasonally weak month for NVIDIA, with a mean change of -5.6%. A lot of the data shown above has been sourced from Seeking Alpha. If you interested in getting more data on valuations, earnings reports and access to countless high-quality articles on stocks? Then I highly recommend you check out Seeking Alpha.  Furthermore, if like me you use Technical Analysis, then you may also want to consider using Trendpsider. They have some really cool features such as auto trend finder, and seasonality data and you can even build your own trading algorithm, just like I did. You can find discount codes for these on The Pragmatic Investor’s Algorithm page: The Pragmatic Investor [My Trading System And (Market Beating) Algorithm]( Overview… [Read more]( 7 days ago · 27 likes · James Foord Final Thoughts NVIDIA's recent earnings report showcased significant year-over-year growth, especially in its data center segment, which saw a 155% increase. Despite beating earnings estimates and announcing a $50 billion buyback, the stock fell due to concerns over slowing growth and margin compression.  While the company's future looks bright with ongoing AI-driven demand, I am cautious about NVIDIA's heavy reliance on its data center business.  Additionally, major funds like those led by Soros and Druckenmiller have exited their positions, signalling potential risks and questions are now being raised over the actual profitability of AI. NVIDIA’s revenues don’t need to plummet to see a meaningful sell-off in the stock, we just need growth to slow down more than expected, and that seems to be more likely after the last earnings. --------------------------------------------------------------- Thank you so much for reading! If you enjoyed this post and want to receive more in-depth stock reports, macro analysis and trade ideas consider subscribing to The Pragmatic Investor. [The Pragmatic Investor]( A guest post by [James Foord](jamesfoord?utm_campaign=guest_post_bio&utm_medium=email) Hi, my name is James and I have been studying and writing about stock markets for the last seven years. [Subscribe to James]( Join almost 1 Million investors trading with the US Stock Insider and win a Tesla [Upgrade to paid](   [Like]( [Comment]( [Restack](   © 2024 Daily Moat, LLC 1111b South Governors Avenue, Dover, DE 19904 US [Unsubscribe]() [Get the app]( writing]()