Nvidia Stock CRUSHES | But BAD OMEN INSIDE.

Well, Nvidia just reported earnings and wow, there are some skeletons in the closet, but they're also actually pretty dang good. I just want to be crystal clear about Nvidia. I I think markets are discounting the concern that in the future we're going to see revenues really start kind of second derivative going negative, right? The growth rate going down. Uh and and I think that's why the stock is cheap. It trades for a six uh like a 67 peg ratio, which suggests the stock justifies today a price target well over $300. You could even go all the way up to potentially at the margins they run like an $800 stock. But the biggest thing weighing this down is not only the fact that a lot is based on that future growth rate for this company, but it's a $5 trillion company. It's really difficult to move a $5 trillion company when your revenues are concentrated in the hands of just three bastards. Oh, I shouldn't say bad words. Dang it. First half revenues. 44% of this company's first half revenues came from just three customers. I wrote a little note here that just wait until Elon gets his money on his $400 billion that he's got to raise to get to his 10 gawatt of compute because Elon is going to go Adam Jonas and Morgan Stanley. Please, baby, send me a check for 400 bill. I got to send Jensen some money. And that's pretty much what'll end up leading to more beaten raises from Nvidia, which is what we got. We got a $ 108 billion forecast for Q3, which is bigger than expected. As usual, things are bigger than expected when Nvidia looks at the numbers, but people are so used to it being bigger than expected that the stock doesn't even really move on anymore. This is what happens when you're so big that you're $5 trillion big. The expectation was 105.15 billion for Q3. We got 108. So, that's good, but it's just like, is that enough to really get people really excited again? I don't know. Maybe the stock will go up tomorrow now that this catalyst is over. I actually think that's kind of likely. I mean, we'll see. But usually once you get the catalyst event, it's like a clearing event and people could be like, "Thank goodness. Now, let's focus on the software bottom." No, we'll focus on the software bottom later. Personally, in fairness, do have exposure to CrowdStrike. Do have exposure to Salesforce. Salesforce is up 14%. Crowd Strike up 11%. Did send buy and sell alerts. Well, buy alerts on those. If you want those, remember, join us at the Meet Kevin membership at meetke.com. Coupon expires on Friday. It's coupon code J-hole. So, what do we got over here? We have uh lower investment gains reducing the net income growth at Nvidia. This is understandable because they took massive investment gains uh in the last quarter. We could actually calculate that by just subtracting this quarter's investment gains from last uh the last 6 months. And we can see we had about 16.3 in gains last quarter, 7.7 this quarter from investments into companies like SpaceX or uh OpenAI or Anthropic or wherever they're investing in. The big question to me is like how much more money are they throwing at other businesses? And they did show us that on the cash flow statement somewhere around here. Uh they ended up throwing Okay, well we'll find it in just a moment. Where the heck is it? This is their income statement. We'll come right back to this in a moment. This is their balance sheet. And here we go. $42.4 billion in equity purchases. Purchases. This is the circular financing part at Nvidia. 15 uh.8 billion last quarter. Uh sorry, 15.8 billion this quarter, 42.4 billion in total over the last two quarters. And they did sell 7.2, 2, which means in total they made circular financing purchases of somewhere around $35 billion. That wasn't really the news today that many people really wanted to pay attention to. The bigger news today was that in the CFO commentary, they actually talked about circular leasing deals. And this was quite quite interesting, but basically they signed these 15-year lease contracts where they're basically saying, "Hey, we're going to try to offload those leases to third parties." I translate this and I say, "Yeah, boys. We signed a 15-year lease so they can buy more of our GPUs, and we promise we'll subordinate this toxic debt to a third party private credit company." That's my opinion. Obviously, I I don't know, but that's kind of how I read between the lines here. It's also worth noting in the CFO commentary here that yes, indeed, this is the OpenAI facility, but in August, Nvidia issued guarantees of $105 billion for the OpenAI facility. There are some limited exceptions, and those guarantees do decline as OpenAI starts paying uh Nvidia once this facility actually goes online. It is a 20-year lease to OpenAI, though. So that $15 billion commitment remains a sag like saggy balls. Uh it remains a sag on the stock, right? But it's not just 105. You have to know that it's $105 billion plus the potential expanded capacity. The expanded capacity is right here. Listen to this. Uh over 20 years, we expect the site can support multiple infrastructure upgrade cycles. That doesn't just mean new chips, but it also means larger because they say right here, we also have the option to provide credit support in phases for approximately 3.8 additional gigawatts. Okay. Well, 3.8 additional gigawatts on top of the 4.25 you already had committed to. 4.25 was $ 105 billion of uh guarantees. If you add 89% to that, you basically have $198 billion of guarantees that you're giving OpenAI, that's a lot of a guarantee that doesn't show up on your balance sheet. That's an offbalance sheet commitment. And your balance sheet has weakened a little bit. It's still good. I got 57 billion in cash. I got $43 billion in bills. Okay, what does that get me? 57 minus 43 in bills. That means I got $14 billion in free cash for circular financing. Now, in fairness, I got $63 billion coming in. That brings me up to $77 billion. Then I can subtract out the $48.3 billion of long-term debt they have. Okay, so cash receivables less short-term and long-term debt leaves me at free cash of 28.7 billion. Okay, but if I'm potentially guaranteeing 105 billion to 198 billion to OpenAI plus some other losers 15-year leases, those debts don't show up here. uh at least as far as I can tell. You know, maybe some of the leases do, but I don't I certainly don't think the OpenAI ones do, right? That's problematic. So, that's like shadow debt that does show up here. Now, in fairness, again, they beat and raised. Okay, Q3 guide came in with a larger range than we expected. 108 plus or minus 2% as usual. Data center revenue beat really nicely. We got $89 billion. Great. That's fantastic. That beat by 3.65 65% over the expectations. I got Q2 that beat by 4.1% over the expectations. I got gross margin that came in at 75%. This is still pricing power. They're still cranking money. They're still doing good. These people are printing money. They really are. Uh their margin guide for the third quarter not that great. Uh well, I should let me put it this way. It's still great. It's just not as great as Q2. Q2 75%. We're now guiding 74%. So, a little bit of a decline. They argue some of this is because of memory prices and they raise prices a little bit, but not enough to offset all of that. Honestly, this report overall, like we know what the risks are, but it's pretty good, right? Yes, we've got shadow circular financing going on with leases. We got equity investments being made to other companies. Yes, we know 3% of three customers made up 40 uh 4% of of your first half revenue. We know you guys are really exposed to the hyperscalers. And honestly, that's one of the reasons Dell I think in my opinion is doing so well because Dell is not exposed to the hyperscalers. They're exposed to sovereign AI, neo clouds, and enterprise. And I think that might be why Dell is performing better. But part of it is probably just because Nvidia is such a big company. It's going to take some more effort probably during market open now that the catalysts are clear and people can digest, people could go, this is still a really good company. It's still really freaking cheap. This should be a $300 stock. Now, in fairness, I personally think other stocks are going to be able to outperform Nvidia from here. So, like just in full transparency, I've moved my bets from Nvidia. We've already talked this is old news. We already know that. But that's how I can maintain this belief that like I still think it's a good company. I still think there's money to be made. I still think it's undervalued. I just think I can make more money somewhere else. Mostly because I think software is bottoming. I'm a little pissed because I just sent a buy alert for you know more stocks uh in the Me Kevin membership which you know you could join join the coupon before Friday that's when the J-hole coupon expires uh uh but um you know so we've been buying but I wish I had more but that's always how it is right like you know you buy Crowd Strike and Salesforce which we own and then it goes up 11% and 13% after earnings and then it's just like damn I wish I had more, you know, old news. So, as far as the rest of the Nvidia documents, it's pretty impressive. I want to be really clear like the SpaceX GPUs. Elon's going to blow all his money on these. Jensen is going to make so much money selling this stuff. It's brilliant. The fact that they bought Grog uh or Gro, however you want to say it, and they're now doing the ultra fast token accelerators. Great. This is not necessarily scaled yet, even though it's in production, but it's a slam dunk. It did slam dunk Cerebrris. I actually think Cerebrris is pretty well derisked now that it's down like 50% from IPO. I was bearish on it on IPO. Now I'm actually very optimistic about it. Kind of think the bottom is getting closer. I don't know if it's in yet. Uh but I think it's getting closer. Uh and I'm a big fan of the ultra fast token generation, the basically imperceptible latency for customer service artificial intelligence or whatever. You should try it. You could Google like test cerebrous ap you know uh um voice chat and and there are some websites you can test it on. It's pretty cool. This uh local AI initiative for these open AI or open weight models which they're launching in partnership with deepseek and quen is really important to remember that per the information deepseek has maybe annual recurring revenue of somewhere around $500 million. You have to compare that to anthropic. It basically means uh anthropic is 130 times the size of deepseek. Deepseek open weight anthropic closed weight. That's where the margin is. As soon as you take away that weight, the margin goes away. That sucks. So now the question is, do we uh you know, is that a good thing for Nvidia? Well, Nvidia wants to sell more of their enterprise hardware to people. This makes sense. They're selling their humanoid uh uh uh models and hardware to humanoid robotics companies. My VC company has a lot of exposure into robotics company. Big fan of that. It's really a 2040 long-term play. If there's a recession or a depression between now and then I'll get into robotics, but not now. I think it's a little overhyped right now. Even though we're investors, just being transparent. Uh and then of course they are making more money. They mentioned on their Blackwell systems for enterprise. I can't remember where they mentioned that, but somewhere they mentioned that. I'm very excited about their Blackwell systems. The basically workspace systems. I think that is where the future of the AI spend is going right here. Blackwell workstations offsetting slower PC sales. We do this RTX 6000, RTX, you know, the 5090 gaming PC, doesn't matter. We can use those for local AI, uh, which then we maintain our proprietary data on. We don't have to send that to the cloud. And that's how we run the AI behind the homes AI, which remember the lifetime access for that is going away on Friday. A lot of people right now are bundling up the Meet Kevin membership and the reinvest AI. And if you're a course member and you want a special coupon to bundle them before the lifetime goes away, email us at staffme.com. We'll hook you up. So, uh, going back to the Nvidia document here, these stations, they are now bundling together edge compute revenue and gaming. gaming is usually a drag, a negative, and that's true across the whole sector because memory has gotten so expensive that, you know, people aren't really upgrading their computers or their servers unless they have to outside of artificial intelligence. Edge Research just did a big piece on that and suggest that that's exactly what's happening. So, the upgrade cycle is really slowed for PCs and I think that's why Nvidia is purposefully trying to hide from that a little bit. I did also notice that their operating expenses on research and development did accelerate a little bit in this quarter compared to the last 6 months. Not much, but a little bit. I'm wondering if that's because of spending on grow Grock, whatever, or uh open weight spending. I don't know. They still do have pricing power though because we have a 2.13x gross profit increase from last year. And uh pricing uh or revenue said uh what's what's it called? Um went up 2.05. 05. So, in other words, you made more money on uh on that revenue growth that you had than you previously were making, which is good. That's bullish. Still got revenue gains in here from their equities. Obviously, that goes to a down cycle or in a down cycle that turns to the downside, which is not great. We've got those shadow guarantees. Not great. And uh and then, of course, we're spending more money on uh circular financing over here. We already know that. In fairness, almost $20 billion in buybacks. Uh, however, they issued debt over here of about $25 billion. Although, I think some of that I'm not sure if some of that was um a refinance because I see proceeds over here as well. So, I'm not sure about that. We have to compare the balance sheet. It doesn't matter so much. We we understand roughly the cash position of the company. Uh, and then if I look uh actually that's all I got. That's my take on Nvidia. Uh so we'll cover some of the other companies as well, but uh this is pretty exciting for Nvidia and honestly overall it's good. It's a cheap stock, but is it cheap because of concentration risk and the fear of how long can this giant company keep this going? Especially with those shadow guarantees, maybe. >> Why not advertise these things that you told us here? I feel like nobody else knows about this. >> We'll we'll try a little advertising and see how it goes. >> Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Praath there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.