Join Paul Meeks, CFA, CAIA, Top Tech Analyst, Portfolio Manager, & Market Commentator every week on BenzingaTV, as he delves into the latest developments in the tech sector, covering the giants that shape our digital world. From earnings reports to groundbreaking innovations, Meeks provides insightful analysis and expert commentary on companies like Apple, Microsoft, Nvidia, and more!
Category
đź—ž
NewsTranscript
00:00Okay, guys, before we go any further,
00:03this is the grand part of the show.
00:06Let's delve deeply into NVIDIA.
00:10So first of all, NVIDIA, as you know,
00:14announced their quarter last week,
00:15specifically on August 28.
00:18And I think the only real sin that they committed
00:21is that they didn't beat the Wall Street estimates,
00:25either with what they reported
00:27or got it to for the next quarter by enough.
00:31So in the quarter just announced,
00:33they beat the Wall Street earnings estimate by 6%.
00:38Now, a year ago, four quarters ago,
00:41they beat the Wall Street estimate by 19%.
00:45And so are we seeing a growth slowdown?
00:49Not necessarily, but we are seeing smaller and smaller beats
00:54versus Wall Street expectations.
00:56I don't think a stock should be punished this much on that.
01:02The other thing that I think is interesting
01:04is the average company in America
01:08or the average company in the S&P 500
01:11has a gross margin of about 40%.
01:15The gross margin at NVIDIA
01:18will start to shrink a little bit
01:20as the company continues to expand,
01:23but the guidance from the company
01:25is for a gross margin of still to be 75% this year.
01:30You guys, 75% versus 40% for the average company.
01:37That is more like a software company margin
01:40than a semiconductor company margin.
01:42But remember, this is not just a semiconductor play.
01:45They have that ecosystem and AI infrastructure building.
01:49Just like years ago,
01:51Apple had that ecosystem
01:53with all their interrelated products in the 90s
01:55and the early part of 2000s
01:57when it rose to be the world's number one market cap stock.
02:00Now, their next generation of chips at NVIDIA
02:04is called Blackwell.
02:06And they did, as was reported in some periodicals
02:09a couple of weeks before they reported,
02:11they actually started the slide in the stock.
02:13They did have a manufacturing glitch,
02:16but I don't think it's that big of a deal
02:18because it's about a 90-day delay.
02:22Who cares?
02:22That's just one quarter.
02:23And they're so far ahead
02:25in all other aspects of their business
02:28that this is not gonna be lost revenues
02:30to AMD or anybody else.
02:32It's just gonna be deferred.
02:34And if it's just deferred for 90 days, who cares?
02:37Don't overreact.
02:39And it looks like they have already started
02:41to implement a new photo mask.
02:44And a photo mask is a part of the etching process
02:48for semiconductors.
02:50So they have the new photo mask
02:52that should solve some manufacturing issues.
02:55The new products are sampling
02:57and they're gonna be just fine with the Blackwell chip.
03:01Don't stress.
03:02But one of the reasons for, at least in the near term,
03:05for their gross margin to fall a little bit
03:07is extra cost of goods sold
03:09or extra manufacturing costs for this fix.
03:13Again, don't stress too much.
03:15Today, and this is probably something
03:18that we have to worry a little bit more about.
03:20Whatever happens is when you are on a pedestal,
03:23like this company has been for a couple of years,
03:26all your competitors wanna knock you off.
03:29And so all of Nvidia's competitors
03:31have ratted on the company.
03:33And now the Department of Justice here in the United States
03:36has issued a subpoena to the company
03:40for an antitrust inquiry.
03:43So whatever happens in these situations,
03:46maybe they have to change their business practices
03:49with how they sell products a little bit.
03:51I think it would just be a tweak.
03:53And then also when you have these legal issues,
03:56they are not solved in months or quarters,
03:59sometimes it's years.
04:01So I don't see this having a material impact
04:04for Nvidia anytime soon, and maybe never.
04:09And the valuation, I get some pushback from people
04:12and they say, Paul, how can you like this stock?
04:17How can you think it's not overvalued
04:18when it tripled last year
04:19and it's working on a double this year?
04:22But here's the rub, it's earnings, sales, cashflow
04:26have grown even faster.
04:28So this is not a situation where the valuation
04:33expanded on this company.
04:34It's still at the same price ratios,
04:38things like price to earnings, price to cashflow,
04:40price to sales, but all those metrics have just popped
04:43so much.
04:44So consider this, next year.
04:48So this is the fiscal year ended January 31, 2026.
04:52Nvidia is supposed to grow its earnings per share
04:56by over 40%.
05:00Its PE ratio today is 29 times earnings.
05:05So look to the PE to growth ratio.
05:08In the numerator is 29 times earnings.
05:12In the denominator is the growth rate, 42%.
05:16So this is a stock that is trading at a PEG ratio
05:19of 70% or only 0.7 of one.
05:25When you look for stocks that are cheap,
05:26you're looking for PEGs that are less than one.
05:30And here is one, 0.7.
05:32So it's not expensive.
05:34I can make the cases cheap.
05:36And if you wanna do the ultimate compare and contrast,
05:38take a look at Apple.
05:40Apple today trading at 33 times next year's earnings.
05:45Remember Nvidia is 29 times,
05:48but Apple's earnings per share growth
05:51is only supposed to grow 11% next year.
05:55So it has a PEG ratio of three times.
05:57Its PE ratio is three times its earnings growth rate.
06:02Where Nvidia's PE ratio is only 70%
06:06of its earnings growth rate.
06:08Which stock is more expensive?
06:10Apple, I say.