Bull v. Bear: NVDA AI Moat Expands & Valuation Shrinks

get your podcasts. Welcome back to Fast Market. I'm Nicole Petallides. It is 12:19 p.m. Eastern Time. We are live on the floor of the New York Stock Exchange. And I'm so glad you are with us. Let's bring in our cohost once again, Tom White and Kevin Henkes with us taking a look at Nvidia. Nvidia shares even though the S&P is down for the week, Nvidia shares are up 3.9% this week. So let's talk about it. And we're looking at these shares which right now are down about no. They're up 0.9% at 210 at this moment. So let's get your thoughts here. Tom and Kevin. Go ahead. I think Kevin, you're starting on this one to tell us a little bit about your thoughts. One year up 23%. Yeah Nvidia has had a rough go of it. A good week but a fairly ugly looking chart before the last you know, five or 7 or 8 days. It's made a nice recovery. But you know this stock is trading $236. And it got down to, you know below 200 at one point. This is a company that everyone fears. There's a couple of things happening that China is going to make cheaper chips than they're making, although I don't think China's ever going to be allowed to enter. Our markets. And other hyperscalers are making chips and competing with with Nvidia. And that could be realistic. Nvidia is also going to make CPUs and compete with some of them. So Jensen Wong continues to grow his company by doing two things. He's creating tools like GPUs and CPUs, foundational tools for companies. Then what's he doing? Then he's taking that money, which you've seen for the last, you know, 12, 18, 24 months. And he's taking equity stakes and all these other emerging companies. And at some point that's going to be a massive pile. There's going to be winners, and losers. But eventually these equity stakes that that he's taking are going to be substantial. And so that's the bet he's making. He's not buying a stock. He's not giving out a dividend. He's investing in some of these companies in, in this sector that are so, you know, have such promising futures. So it's tricky. You know, it's widely, widely held. And so it seems to sell off, you know, be not as strong as it should be, but they are still as dominant as ever. Tom and Nicole. Yeah. And you know, what I thought was interesting too, is that Jensen Wong made a post on X for the very first time. I was reading that today. I hadn't seen it. And it said that open models strengthen safety and cybersecurity accelerate innovation and diffusion and enable sovereignty. So he said, for my first post, I'm sharing a letter that Nvidia signed on why open models matter? Interesting that so many of the other leaders are on X or get out there with some of the comments, but this was his first post that he found he felt really was important. Let's talk a little more about Nvidia before we get to some of the example trades. Tom. Yeah. You look at the growth rate last quarter 85% growth rate. They continue to expand the valuation on this company. What on a forward 12 month basis 24 times. You know Nvidia is above 70 times. Intel going into those earnings was 100 times. So they got the growth rate. I think some of the concerns here going forward are the fact that other companies are trying to develop their own chips, whether it's TPUs relying more on the CPUs. So trying to diversify their supply chains where they're not reliant on Nvidia. So I think investors are a little bit frightened there. But think about this, guys over the last three years in Nvidia. I mean this stock was in the $30 range three years ago right. You saw gains in 39% in 2025, 171% in 2024 and 239% in 2023. So there's been massive gains for this stock. But on a valuation basis, it's relatively inexpensive to its peers. It's just above the forward p e of the S&P 500. And those companies in the S&P 500 don't have a growth rate of 85% at this point. So yeah, this has been a head scratcher trade for a lot of investors. But at the same time, it's had massive gains over the last three years. Yeah. It's come down from that top of $236 now trading at 210 today. And to your point, Tom many of these hyperscalers are more affordable. Now as you look at those p e ratios, they're cheaper than they were in January, for lack of a better word. Let's take a look at some of the example trades. And Kevin, I think you're starting us off. How would you go about trading Nvidia. Now. Nvidia has earnings August 26th. But that's but there's an important date ahead of that which is August 4th when AMD comes out with earnings. This will probably no doubt move on that earnings report as well. A Broadcom is September 3rd. So what I looked at August 26th is their earnings. I went to the August 21st ahead. I stayed ahead of the earnings event. I looked at the expected move about $19.5. Let's round that up to an even $20. And I looked at just an unbalanced butterfly, something to give you duration and movement. On the upside for buying the two tech call I remember August 21st is my is my date buying the 210 call, selling two of the 230 calls. There's that $20 expected move during that period. And then buying one of the 235 calls. So Tom, an unbalanced call butterfly in line with the expected move out to August 21st. Ahead of that August 26th earnings event. But August 4th might be an important day for Nvidia as well when AMD comes out with their earnings. Tom. Yep. Let's break this one down. Bullish given Kevin Kevin's given duration on this example. Trade to the upside gives you upside exposure August 21st monthly options. So 28 days to expiration. Buy one of the 210 strike call that's at the money. Sell two of the 230 calls. As Kevin mentioned, it's about that one standard deviation that the option market is pricing in. And then buy one of the 235 calls unbalanced or broken wing call butterfly to the upside, paying roughly about a $6 debit. It might be a little bit higher than that. The stock has moved higher, but the debit you pay is going to be $600 per spread on this, and it takes your break even up to 216. So you're going to need a move to the upside to get above that break even. You can see here from the risk profile of this type of strategy, the apex of profitability at or near that 230 strike where you're short two options. But even if this stock does continue to move higher above the 235 level or the outside of this call butterfly, it's still going to be more than a double in profitability on this. That apex of profitability tops out at about $1,400 if you pin that 230 strike. But this gives you upside exposure while reducing some of the risk on this trade. The debit that you pay because you're doing the unbalanced call butterfly as opposed to maybe just buying the 210 230 call vertical. You sell that $5 wide call vertical at the top end of this, and that reduces the initial risk price on this trade. But it gives you exposure, avoids earnings and gives you a little bit of duration four weeks in that trade. So there's Kevin's bullish example. Kevin I'm going to switch it up here a little bit. Mine's not a bearish trade. It can be bearish but it could be bullish also with earnings next week. And you know AMD doesn't report as you mentioned until early August. But next week we get a bunch of big tech companies reporting Microsoft meta Apple Amazon those might be catalysts for some movement in the stock. So I looked at a strategy that needs to move. I don't care if it goes higher. I don't care if it goes lower. I just want it to move over. The next week. I went out to the July 31st weekly cycle that expires in seven days, and I'm buying an out of the money call vertical and buying it out of the money, put vertical on the put side, buying the 205 put and selling the 200 put. On the call side, I'm buying the 215 call, selling the 220 call. So a long iron condor, $5 wide. I'm paying roughly about a 250 debit for it. That's going to be a risk $250 per spread with the potential to make 250. And that's below two 200 on the downside or above 220 on the upside on this one. So you're risking one to make one on this type of position. Kev. When you look at a trade like this hey I want it below either 202 50 or I want it above two 1750. And there's a bunch of catalysts next week, Kevin, that could move this stock. What I don't want to happen is a stock to just kind of consolidate right here around 210 Kev you know when you look at a trade like this and skeptics might say, well you're spending $2.50 to make $2.50, but you have an opportunity to be profitable in either direction. You're not doing just one way or the other. So is this a bear straight? Yes, it is a bullish trade. Yes it is. You want movement and you don't care which way. Tom. You want one of these $5 spreads to go as close to $5 as possible. And so you're not betting on direction. You're betting on movement and velocity. And that's the that's the trade that you, you you've put on. You don't know where the stock is going, but you think it might go somewhere big. That's the trade you have on Tom. Yep. Need a move type of strategy. Long iron condor where time decay works against you on this one. But if implied volatility rises maybe this expands also. But you need to move on this type of strategy. And there you go Nicole. Bull bear debate and on my trade. And then Kevin's is bullish.