$NVDA Beats Q2 Expectations But the Stock Still Dropped: Why Doesn't the Market Make Sense?

0:00 Nvidia's earnings just popped up out of the corner of my eyes. Okay, pop we're moving over to that. Hold on. >> Let's do it. >> Okay, here we go. >> Okay, so revenue was a 4.5% beat. The expectation was $92 billion of revenue and it came in at over $96 billion in revenue. EPS was a 6% beat. They were analysts were expecting a $2 EPS and it came in at around $220 and let's see the stock is currently down >> after despite the >> Yes.

0:40 >> this is Nvidia like was down seven days in a row up until like yesterday. >> Oh, really? No, I I haven't been following it closely. but u but >> yeah, their longest down streak all time was nine days in a row. a 4% beat on revenue on topline by the way is roughly $4 billion for them which is pretty incredible right so it's like 96 billion versus 92 and then the the 6% beat on EPS makes it even better I mean like it this company just is continuing to crush it $96 billion annualized is basically over $400 billion run rate assuming they don't even grow from here or like roughly $400 billion run rate assuming they don't grow. and of course they're they're still growing like gang busters.

1:31 So it'll be interesting to see what their report indicates for like next quarter. But but these are fantastic results. Like I don't know what the market is expecting. there's so many companies that are actually overvalued that that the market should be reacting in these ways when they report. But but for a company that is reporting like huge amounts of revenue and profits and has a forward PE of just 20, what is it? 21. for it to react negatively to that is is pretty incredible.

2:06 >> Yeah, you can see that big drop here after hours after the release. So I don't know what the market was anticipating or if they're just playing mind games, which you know the market loves to do. just a couple things to call out here. Nvidia has beat their revenue estimate 16 of the last 17 quarters. So, this is a company that continuously has been able to beat expectations even well before you know the insane growth they've had with AI.

2:39 and then next quarter the estimates right now are 103.5 billion dollars of revenue. So, a significant jump from the actual numbers of of this quarter at $96 billion. >> It'll be interesting to see what they say on the earnings call as well, which you know I'll be listening to after this. But but yeah, very cool >> question to both your idea why Nvidia not moving for many months having fantastic performance. Would you sell Nvidia if you had it with 200% profit now and buy something else? Why?

3:21 >> My Okay, so not investment advice, but this is the most interested in Nvidia I've ever been because now they're they're the most undervalued it feels like they have been and they continue to u execute exceptionally well. So my my view is not that something else is more interesting. well I mean maybe Micron is more interesting to me specifically but but I wouldn't sell Nvidia to buy AMD or you know like AVGO or Broadcom or what one of these other chip makers or semiconductor companies because amongst them Nvidia is the most attractive. Like to me it doesn't make sense why people are buying Intel right like it doesn't make sense why people are buying AMD where Nvidia is as inexpensive as it is. So the fundamentals and valuations matter from my perspective and this is what I was talking about at the beginning is that if there was a major market correction u because of you you know like these companies starting to maybe the AI spend starts to slow down or stagnates. Well, if Nvidia revenues and profits don't grow and stay at this point, well, they only have the same PE as every other S&P 500 company, so would I want to or the average S&P 500 company? So, would I want to own the average S&P 500 company here or would I want to own Nvidia? And the answer to me for for me at least is like I would way more be more excited about Nvidia and what the future might hold for them as opposed to the average S&P 500 company.

4:59 But if it stagnates from here and then I own Intel and then Intel revenues don't grow, well that is going to be a major problem because Intel's u you know like revenue and profits don't support its current valuation. It has a hold on let me pull it up real quick. It has a forward PE of 65. meaning assuming they they make as much profits as they're expected to make over the next 12 months, there's they're still going to be valued at three times higher than the average S&P 500 company. So, if they stagnate here, they could go down by 70% in in the stock price and still be more expensive than the average S&P 500 company from an price earnings perspective, right? So I mean obviously price earnings is not the end all beall but it is an important metric at least from my perspective and you know I I think that the financials of the company matter a lot and the valuations matter a lot how quickly they can grow their revenues profits all of that stuff is critical fundamentally from the type of investor that I am it always comes down to the earnings for me so I like Nvidia here I I don't currently own any, but it's more exciting to me than most other companies.

6:24 >> Dustin, what are your thoughts on >> Yeah, so let's visualize what you're saying here because we have this great feature on earnings hub which is the EHS score that shows off how a stock is performing relative to the other 500 most popular stocks on earnings hub, right? and I know we're cutting off some of this a little bit, but this top left corner here is showing Nvidia has 83% revenue growth. and you could see majority of the companies have about 2 to 10% revenue growth.

7:04 Nvidia has again 83%. >> So, it's an outlier in a very very positive way. Keep going. just just to clarify what that means. >> Yeah, please. same similar with EPS growth. EPS growth, Nvidia is at 89%. Not as much of a of an outlier, but still very much an outlier. and the typical again popular company on earnings hub is ranges from 0 to 20%. EPS growth. Now typically with these companies that have high growth also comes high valuations but that is not the case for Nvidia again relative to the other 500 most popular companies.

7:48 So you could see it's kind of bunched together with the the more popular or the more common companies here. So Nvidia's PE ratio is about 30 which is inline. I mean most of the pees here are 10 to 35 we'll call it. So it's like in the range >> right >> forward PE is roughly 8 and a half to 2530 and embedded forward PE is 22. Now where they are a bit of an outlier is their price to sales ratio again I know it's a bit cut off here where the more common price to sale ratios are closer to 0ero to five. Nvidia's price to sales ratio is 16.

8:47 >> And this one is an outlier in a negative way, but ju just to sort of like talk about that for for a moment, like grocery stores, let's say Walmart for example or Costco or whatever, these guys have extremely low margins. They they operate with like 10 or 15% margins as opposed to Nvidia which operates at 80% or you know 75 80% margins. So, the price to sales ratio on high margin companies is generally much much higher and therefore they're generally going to be outliers anyway. So, on that particular metric. So, >> right.

9:22 >> all right. so all that is to say, if I already owned Nvidia, meaning I was already bought into, you know, the the the valuation and what they're doing as a company, >> what would I be doing with those shares today? To Hamid's point, they've only become a better company fundamentally. So the the only reason to question it from the from the listener question here is their their price has their stock price has been stagnant. But I don't think that's a reason to sell.

9:56 because based on based on the fundamentals, it seems like stock price will eventually have to catch up, >> right? >> Okay. We're going to do two more. >> All right. this is okay also on Nvidia but it also ties into Micron. How do you see Nvidia IR page stating that there are commitments increased to 279 billion from 119 billion due to procurement of memory chips. Super bullish for Micron and other memory companies. I hope >> I haven't seen that particular investment relations update. but that that seems like a good thing and I would agree with that sentiment. I don't know if you know anything more about that, Dustin.

10:43 >> No, I haven't I haven't seen anything about this either, but agree. another bullish sign. >> If you enjoyed this clip, consider subscribing to the Buy Hold Rant podcast on YouTube, Apple Podcasts, or Spotify. New episodes are released every Wednesday, and you can watch them live on YouTube.