NVDA Undervalued? Wayne Kaufman's Bull Case After Earnings

Opening Bell. It's time for the very latest here from the floor of the New York Stock Exchange. You see a lot of action here. And in fact the Dow is up 283 points. Wayne Kaufman is with me, chief market analyst at Phoenix Financial Services. And we've had the sell off for the Dow. The Nasdaq and the S&P were down for three days. And Wayne, you were saying maybe some of the stocks could be oversold. Some of your thoughts. So I think the market's been digesting a tremendous first half. And you know there was a big flip here in the third quarter. But in the first half you had an amazing run up of tech stocks semiconductor stocks. They became historically overbought. They couldn't just keep going up in a straight line. And then we had that story with the, you know, situational awareness that fund manager and and all that. So this quarter's been different, but I think it's a consolidation. We have seen market breadth deteriorating and we have seen some multiple contraction, especially in some of the tech stocks and the AI related stocks. But I think that consolidation probably needs to continue for a little while. But then, you know, because the market is facing some some real issues, inflation is the number one issue. And you've got oil prices high. You've got bond yields moving up the bond yields. Not that concerning to me. But the inflation is a big issue. You know we know that manufacturing is doing great. But we just had reports on manufacturing from the fed regional banks. We had the S&P global numbers and we had ISM numbers. And while manufacturing is doing great their costs continue to rise. So and we're seeing commodity prices making highs. You know copper is right around. Its all time high. We're seeing even agricultural commodities you know corn and wheat making highs. So this is definitely an issue. And we've got the election coming up. It could be a crazy election. But I think that the bull market will continue once we get through this because earnings are fantastic. And our companies and I've said this many, many times, we have amazing companies. Earnings are at record levels. This last earnings season was incredible, especially considering it was gains that you usually only see coming out of recessions or troughs like we had with Covid. But seeing gains like this on top of already excellent numbers, it's just really phenomenal. I thought it was interesting when you talked about the multiple contraction. Contraction. When we look at PES, for example, and something I had a guest on talking about Marvell the prior day, it was like 80 times, you know, the p e ratio was 80 times future earnings. And then it came down into the 50s, you know, and so Nvidia has come down some and that's a name that you like to watch. Yeah. There are many people who are coming on and saying the valuation of Nvidia is looking pretty good. Phenomenal. You like Nvidia but you want to wait. Nvidia. Well I do own it. But with the current market volatility I think most of these stocks are trading stocks. But if people do have a longer term horizon then they can buy it. And the stocks that I think people should look at are tech stocks, some of the health care stocks and some of the industrials. But Nvidia in particular, I think the stock is very cheap. Now maybe it's over owned. And that's why it doesn't move up. But you know this year they're free cash flow $193 billion. That's this year for next year $323 billion in free cash flow. I think the stock is worth a lot more than where it is. But of course, you know, a stock and the company are two different things. And and we've seen that with talking about the multiple contraction, a lot of these stocks that had huge run ups because they were involved in the data center build out, which is still ongoing. But a lot of these stocks are down 50% from the highs they hit a couple of months ago. So I think people are just a little short term concerned. We do have negative seasonality, but we are short term. We did get to short term oversold levels yesterday. Only 22% of the S&P 1500 were over there on ten day average. So this bounce is good. But we'll see if if we really start to see a lot more buying a lot more investor demand. So a bit oversold, but you want to wait and see. Also we're getting in a jobs report. We have CPI on the 11th. We have the fed on the 16th. And you know I was also thinking about AI adoption overall. You know are you a believer in the AI trade or not. I'm very much bullish. I'll tell you. Jensen Wong is speaking now to the G20. And he was urging the G20 and all those finance ministers to speed AI adoption as a key to growth. You're there right? Absolutely. And Dell with their numbers last night. Yeah. And it will be interesting to watch Dell over the next week or so. Can it make a new high. Because their numbers are astonishing. So as as we're Nvidia's and you know a bunch of other companies, AI is not going away. And people who are so concerned about the circular financing that they always talk about, yeah, that's, that's not going to come into play, at least for a couple of years. And that's why I cited Nvidia's free cash flow, because, you know, they're the big octopus with their tentacles all over this. But you know, you talk about 5 billion to them or 10 billion to them. It's nothing. And one thing I've said ever since all the CapEx started was these are the smartest people in the world, in my opinion. And they get not daily. They get information by the second of the demand for AI, and they continue to say, we need more and more compute. I got to I got to believe in them. And they're looking ahead. Not this week, not this month, not one year. They're looking ahead years and years and decades. And so it is something different than maybe maybe a friend you talk to on the daily. Right? Talk about the September seasonality and how consumers in this case, shaped economy have to navigate. You have a high bond yield, very high bond yield that could affect folks and whether they have loans or credit cards or things like that, the market comes down. Maybe people won't be as euphoric. Your thoughts? Well, I think if they're not as euphoric, I think that's good. Okay. Because you get too much bullishness is a headwind, right? I like to see a certain amount of skepticism, if not bearishness, but the consumer overall is in very good shape. Consumer balance sheets are in good shape. Corporate balance sheets are in phenomenal shape. So I think again, we're just that the market had to digest the phenomenal gains that we saw in the first half. And yeah you know it's been a flip over. And that's to me just the digestion. And I think once we get through this period, I've been saying that I expect fourth quarter to be very good. So is there a wild card of this inflation. And if commodities keep rising. Yes. And who knows what the fed will do. But I'm not sure. You know, the odds are saying that the fed is going to hike. And certainly by the end of the year or January, even 50 basis points higher. But do you see that coming? You think that's likely. You know, there's an old saying that the cure for higher prices in commodities is higher prices. So is the fed going to let the economy do its own natural slowdown? I don't see what raising rates is going to do that. Actually, when you've got when you've got shortages created by supply chains, how does how does raising interest rates help that? So, you know, I think I'd like to see them stay where they are. But the market is projecting hikes. Okay. Well it's great to see you Wayne. Thank you so much for being here in person and telling us