Well, let's talk about Nvidia reports earnings today, but we've got to go through some of the big competitive advantages for NVIDIA even Beyond earnings. We'll talk a little bit about earnings expectations and some of the things to look for in the finances. But most importantly, we want to talk about what makes Nvidia an interesting, potentially unique investment opportunity in the long term. What are some of its advantages? So outside of the short-term news, what's the long-term thesis for investing in video and what do those finances look like? Well, let's start just there.

So when we actually look at the finances, we can see that Nvidia and much like most of the chip companies, are quite frankly, in a bit of an earnings, well, recession. This is the latest Uh Nvidia report for the Year. This is their latest annual report for the year ended January 2023. So in other words, uh, the full year of basically 2022 Jan De Jane You can see that Revenue was flat, while Revenue was flat their cost of sales.

So their costs of goods sold their products cost them 23 percent more. So their income was flat, but 23 more cost for the actual products. Their research and development up 39 sales and general and administrative SG a of 12.6 leading to a net income decline of 44.7 That is a negative. A negative 44.7 decline in uh, net income.

This is an example of your earnings recession. Now it could be argued that hey, look, the company exploded and the fact that you have flat revenue is actually fantastic. Because think about it, you went from 16, uh, 0.6 billies in January of 2020 uh uh, one to 26.9 Billies of Revies right after that. Uh, which is freaking awesome because if you look at that, it's like hey, wait a minute Kevin that is a 62 increase.

And the fact that we're flat off of that? Not bad. It's literally like growing like this, then having this exponential explosion uh, and then being flat. Yeah, I Wish it didn't correct because I liked my drawing better. It's kind of like growing like that and then having this explosion of exponential and then flattening.

At least it didn't plummet back down to where it was just sort of a little triangle there, right? So this is actually pretty powerful. Even though costs are going up, the revenues are flat, and then that income is like down 44. You've left the stimulus era, right? So of course you've got these really negative calms. And these negative comps have led a lot of these manufacturing company or a certain manufacturing companies.

these chip designing companies like Nvidia AMD right? They all pretty much use Tsmc to manufacture. Maybe Intel will come in the race in the future though they've got some work to do. They actually think that Intel could be a big player in the one and a half to two nanometer chip space. We're not quite there yet right now.

we're working in the three to five nanometer uh chipset space. That's the spacing of uh transistors and chips. The the smaller in theory, the more efficient and the better these chips could be. the stronger and more powerful that's all down the road.

Well, Intel could be a game changer in manufacturing probably in 2024. 25, 26. Uh, although they could also be a value trap and end up going bankrupt. but that's really a topic for a different video.

we talk about Intel a lot in the course member streams. Uh, mostly because that thing's trading for a PEG ratio of like 0.5 Now before I lose you on PEG ratio. Remember what a PEG ratio is, it's how much you're paying for growth at a company. And one of the things that I like is I Like looking at companies uh, usually around a one and a half to 1.69 1.7 PEG ratio.

That's about where Tesla is trading. Now it's about where end phase is trading now. Etsy is trading below that right now. a problem with something like Nvidia is it's trading for a little bit above that range.

Right now at 306 dollars per share 306 dollars, this is your share price and you'll see how to calculate Peg as well. Uh, right now we're looking at an a full year of 2023. So first quarter earnings aside, full year of 2023, which is their fiscal 24. we are looking at earnings of about four dollars and 60 cents projected.

We'll get some guidance on that, but it'll probably be somewhere close to that. 306 divided by 4.60 puts you at a P E ratio a forward P ratio. So we say FPE a forward P E ratio of 66.5 That's a little bit rich now. the company in terms of growth is expected for 25, 6, 7, and 28 all together to average about 25 growth.

Well, if we divide by uh, 25 growth. So in other words, that P E by 25 uh, removing the percent is what you do for this math. divide 66.5 by 25, you get a PEG ratio of about 2.66 Unfortunately, just on a simplified valuation measure that's quite a bit above where we probably ought to be of closer to 1.6 1.7 It's about 66 above that. That's quite a bit stretched right now now.

Maybe Nvidia's earnings will explode more. and that's possible. That's the hope is that Nvidia's earnings will explode more because of. well, the whole reason people are investing in video right now and it's obviously artificial Intelligence everyone's investing in Nvidia right now because it's seen as the best play for artificial intelligence going forward.

And that might be the case because quite frankly, when it comes to Dedicated Gpus graphic processing units uh which are going to be the strongest and most powerful for providing data and services for, well, artificial Intelligence Nvidia takes about 80 to 88 of the market share. That's really, really powerful. So when you have Nvidia taking 80 to 80 percent of that market share, you kind of look and go well. If you're going to want to invest in AI maybe just maybe investing in Nvidia is the place to do it.

The problem is AI has really been hype trained up before. we've actually started to confirm where AI revenues are going to come from. This is something that I always caution and it is this idea of okay, well look AI we know is going to be great I Think all of us agree that it's going to add productivity to us as individuals. If you're not becoming more productive because of, uh, artificial intelligence, you're probably going to end up getting left behind.

You don't want to get left behind because if you get left behind, you're more likely to lose your job. you're less likely to get a promotion. You're less likely to as actually get ahead in life. So you want to incorporate AI in your life and we want to invest in AI related plays.

This is why I have a program on building your wealth. So we've got programs on investing stocks and real estate. We do fundamental analysis on stocks. You know we'll do some fundamental analysis on Nvidia here as well.

and we'll do some earnings expectations. but also well. we have a course on building your income, how to make more money and get sh19 done faster. featuring AI the AI segment and how to actually incorporate AI in your life comes out June 1st.

So check that out before the pricing goes up after that content drops. But what do we know about Nvidia Well, we know a lot. We know that Nvidia is uh, using Tsmc to manufacture a lot of their chips and they sell their Gpus to the software companies and server companies that use them for artificial intelligence. Think Microsoft AWS Google Cloud all of them when they use AI most of the AI technology and processing in the compute power hours being put through Nvidia Gpus.

Now Google does have these Tpus, which we don't want to go into this super detail of what all these different processing units are. In that case, that's a tensor processing unit and Amazon's also making its own server-based Uh chipsets. But when it comes to actually processing artificial intelligence, Nvidia has like I said 80 80 of the lead. Now there are two different types of Graphics units.

They're sort of your integrated Graphics chips, in which case Nvidia actually has a very small market share of them. This is sort of for your regular consumer products, whether it's a laptop or whatever. but when it comes to Dedicated graphic processing which used to be uh, Ethereum mining for example, with Gpus which no longer is, that's LED their Gaming revenue to absolutely tank. that's contributed to their earnings recession.

Uh, that's gone now, right? But when we have dedicated uses for artificial intelligence, what are we looking for with looking for dedicated use? Chips in Nvidia is the 80 to 88 market share of this and again they're using Tsmc to manufacture, but Tsmc has also got a little bit of an up. Their evaluation probably also trading for somewhere right around a three peg, but people see Nvidia as the really shovels of the gold mining race in artificial intelligence and the reason people call it sort of a picks and shovels play is again, we don't know which software companies are going to win when it comes to Aeon. We think that oh, Google's going to win or open AI is going to win Or all of these. You know maybe Microsoft will win because of their investments into uh uh, you know open AI Or you know Google's Bard will win.

But the problem with this is we don't know yet which software is going to win. In my opinion, the best software is where people are going to flock to. As soon as there's a better chat bot, everybody goes over to that chat bot and dumps The Bard and open AI behind. That's a big problem, especially since when you look at a company like Google in terms of an investment, you're looking at advertising revenue and network placing placements on websites representing 69 of the company's income.

Well, if that income starts bleeding down because you need to search, less, sure AI will contribute to some sort of income. Uh, at Google How do we know how much income that's going to contribute? What I worry about is that AI will contribute Revenue Like this for Google Well, their ad Revenue goes down so you'll see an increase of AI Revenue here for Google but you'll see search and advertising Revenue Decline and you potentially have this massive loss as potentially some of these ads go to other AI platforms. We just don't have that certainty yet. But we do know that Nvidia is probably your AI processing play and that's exciting.

This is one of the reasons Nvidia's blown up so much recently. One of the things to know as well is that a lot of people use the Nvidia architecture for actually building applications or programming on and I'm not a programmer, but a lot of people use the software stack that Nvidia uses to extract the power out of Gpus. The coda system is amazing for doing exactly this, and a lot of people prefer it. and when they prefer this for their server infrastructure, they have to use Nvidia chips.

AMD is not even close yet. In in terms of these, these AI processing chips that Nvidia has and they're just now I mean way after Nvidia have they gotten into creating their own software Stacks to try to compete with it? What? Nvidia has? So Nvidia has some massive advantages. Now, what's also exciting? A lot of the Cuda by the way, creates a massive mode for NVIDIA. so when you're investing in video, you're not just creating it or not just investing in this chip designer, you're also investing in their software and the moat that they have because of their software.

whether it's the Omniverse or Cuda or otherwise. Now, it's worth noting that if you look at the top, about 111 actual Graphics units listed on Benchmark UL What's remarkable is the first 111 chips basically show you a dual opoly you have AMD and Nvidia. That's it when it comes to graphic units, but when it comes to AI once for those servers, Nvidia is the winner. It's not until the 112th chip that you actually get to an Intel graphic Processing Unit which is pretty remarkable.

Now, one of the downsides that you're seeing right now is unfortunately: Nvidia has this huge backlog of inventory of Gpus because of the lack of use from Ethereum Mining and also everybody's already bought their new gaming PC during Covid. So you have this massive PC Crush you've got a massive inventory glut. so you actually have some risk factors for NVIDIA in the short term that potentially inventory gluts are going to reduce pricing power at companies like Nvidia you're going to see reduced margins and you're going to see reduced revenues before you actually see the AI revenues come through. Just because AI started becoming really exciting in the last two months doesn't mean all of a sudden, every company Under the Sun is buying more Nvidia chips.

It could take years to really see AI play out at Nvidia. So I think Nvidia is really this play that you have to look at from a long-term point of view rather than something that you want to play short term. I actually actually would be short-term bearish on Nvidia trying to play earnings mostly because we don't know I mean maybe that's already built into the expectations. That's always the funny thing with earnings.

Uh, you know, when you look at earnings, you're looking at an implied one-day volatility movement of 4.7 percent. So 4.7 stock movement after this earnings doesn't seem that big. Uh, Nvidia's EPS has beat four out of eight times, so it's a total coin toss. although their revenue has beat seven out of eight of the last times, so there's a good chance they'll beat on the top line again, but potentially again miss on the bottom line so we'll see.

But we know Nvidia's had one heck of a run-up recently because of AI and I Don't think AI is going to be contributing to a big portion of their revenue anytime soon. even though we do know and maybe they're forecasting, their guide will help because if they give a really Rosy full year guide, maybe that'll help boost the stock. But I Really think it's going to be a minute before we see some of this this Revenue actually pushed through Nvidia doesn't really do a 5G We know this is more of a Qualcomm play, but some people have been asking about that. You've got competition coming for a manufacturing, but that could actually contribute uh to uh to Nvidia The more companies like Intel or Applied Materials or whatever uh Micron uh in America that might end up manufacturing under the Chips act.

those companies uh will benefit from from the stimulus checks the governments are handing out for manufacturing chips in the United States This is good and that could be good for potentially reducing some of the costs of Nvidia actually having to manufacture chips because remember Nvidia doesn't manufacture. They design and create software and then they Outsource the manufacturing. This is very typical only Intel really does both. They both design and manufacture.

but even like a Tesla they might design their own chips but have somebody else manufacture them. So uh, there is some excitement about this manufacturing Coming to America This sort of reassuring some worry that this is going to be inflationary and actually increase the cost of of chips and even the CEO of Nvidia Just today on the Financial Times argued that we have to be careful about more of these restrictions against China and sort of limiting China's exports. Uh, mostly because they could end up hurting Nvidia's ability to actually sell this massive backlog of chips that they have. So there are some short-term concerns as well with the United States potentially being too aggressive against Uh China and how more of these chip bans could potentially actually encourage China to uh to manufacture their own proprietary chips at the downside or to the downside of Nvidia But just today, in the financial times, you have the CEO of Nvidia warning about enormous damage from the escalating battle over chips between Washington and Beijing suggesting that your tying silicon Valley's hands behind their back if China can't buy from the United States and they just end up building their own chips.

So a big warning there from Jensen your CEO of course China's uh China Before all of these Uh sanctions or as many of these sanctions, China represented somewhere around 24 of Nvidia's order book so big chunk of it. I Actually like investing in companies that have exposure to China generally because I don't have to invest in Chinese companies to get Chinese growth I can invest in American companies to get that growth I like that. Uh, you did just also have an announcement between Apple and Broadcom, but that's more of a middle finger to Qualcomm than it is to Nvidia Intel dominates the CPU market and maybe the integrated GPU Market contributes to this. But really, Nvidia When it comes to Dedicated trips and AI chips, they're the almost the only game in town.

On top of that, they're paying somewhere around 1.9 percent in taxes because they run a lot of their revenue through subsidiaries whether it's in the Cayman, Islands the Netherlands or other countries in Europe. This has led a lot of people to be very frustrated over some of the tax credits and and opportunities that they're able to do to avoid or take advantage of to avoid taxes and a lot of people. Slam In a video for this, Nvidia sees this as just smart taxation running some of their revenue even through Israel or Hong Kong and they suggest this allows them to spend more money on R D which Nvidia will also benefit from chips uh, the Chips Act and R D spending which is great. Remember this is this is stimulus money.

It's basically free stimulus money uh, which is very exciting. These these companies will benefit tremendously from Investments directly from the government and money printing. So if you like investing where stimulus money is going, chips, manufacturing, and chips, you have to be careful though, because if you search like top chip companies in America, you might get search results like Frito-Lay or Lays or whatever. It's a problem so you have to be careful.

But uh, anyway. I I do I I Just want to make sure we're doubling down on how important Cuda is because a lot of current AI systems are actually trained on this coding infrastructure of Cuda It is a massive mode for NVIDIA It has been in development for 16 years. It's their proprietary Uh software stack and it lets you extract That Power from the Nvidia GPU. So if you just if you want to run processing through the Gpus rather than just the CPUs, you have to use Cuda Uh, and and Cuda is just.

it's robust. It's great. It's a fantastic software, so the competition just doesn't hold a candle to this. And so people like manufacturer or basically coding with this compared to Uh Amd's uh Rock M which is, you know, sort of your closest second.

but it's still a big second. Uh, it's probably some people say it's nine years behind Cuda It probably isn't nine full years behind. It's probably more like two or three years behind. but uh, it came nine years later.

So uh, it's also worth noting that Nvidia has transitioned from gaming to Data Centers And this has been critically important because gaming has just absolutely gotten destroyed uh, or post covet, because again, everybody's already got their uh uh, they've already got their new gaming PC Uh, and gaming has been substantially less of of a level of importance for Nvidia's Revenue Uh, Amd's catching up on gaming as well, so maybe less of an area to to really grow. But really, what's what's important to know is that right now, the market is already pricing in about 25 percent growth for NVIDIA. Uh, and that's at a PEG ratio of 2.6 I Think we said uh yeah, 2.66 You're already paying a premium for that 25 Growth I Think 306 is a high level I'm not saying that Nvidia deserves to go down I Wouldn't short this stock just because it's such a blindly easy pick for institutions to go. Oh, we need AI exposure.

Just buy Nvidia like a drunken sailor because yeah, artificial intelligence. That doesn't mean it's going to outperform other stocks though in the near terms. So while I have exposure to Nvidia I'm not I'm not very excited about having a super high allocation to Nvidia Uh, right now, would I consider trimming before earnings? potentially am I going to I I Have no idea. Uh I I don't generally like playing or earnings I Think it's very risky to do that, but I do think there's a lot of enthusiasm that's coming before the the actual stake, right? Like the analogy of selling the sizzle before the steak.

Yay! AI Boom! Okay, where are the AI revenues? Uh, they'll be here in a few years like they will come, but it's going to take a little minute. and and at this PEG ratio I think there are better deals to buy? Uh I mean you know we just had a report uh from Goldman Sachs that online retail is starting to explode again in April based on retail sales reports from April and you're looking at uh Etsy trading at about a 1.3 times Peg So it makes you wonder. Okay, do you want to get into that kind of consumer discretionary? do you? If you want AI Tesla's much cheaper than in video right now at you know, somewhere around a 1.6 to 1.8 Peg You have to be careful when you do these these uh calculations as well not to use 2022 numbers. you have to go current current year out.

So 9 to 16 18 months out is generally what I do with evaluations because you're getting away from some of the whole of the earnings recession that you saw in 2022.. So uh, do keep in mind for expectations: We're looking at 92 cents of adjusted EPS Gap EPS We're looking at 61 cents Revenue Expectation: We're looking at 6.52 billion dollars net income 2.27 Bill expected. Uh, data center revenue is expected to jump nicely, so hopefully that uh, that stays that way. uh again, if if you run some DCFS on these, you're you're really looking at growth already priced in at least 25 already priced in.

Some are arguing depending on how you run your DCF that you could be sitting around 30 already priced in 35 Price? Damn. Uh, so a lot of, uh, a lot of uh, richness already priced there. We'll leave it at that. but again, you know they're going to have a great growth story over the next decade.

and it's possible that the growth that's been forecast before this AI boom hasn't yet really been updated to reflect how much growth is truly going to come from. AI though I will say I think AI is going to be a big part of what we hear about in the earnings call today, so that'll be fascinating. And so I'm super excited to see what happens here at the same time Again, AMD is is really focused on gaming and yes, they're going to focus on to some extent uh, servers. and and AI for Enterprise the the right focus in my opinion is on Ai And and these server chips and I think Nvidia is just playing the game correctly.

here. they've got the edge with good. they've got the moat with Cuda uh and uh, and they just they're dominant in the market. So there's little you could say about how Nvidia is not going to be a massive beneficiary of AI.

They almost certainly will be a massive beneficiary of AI. But uh, the valuation today? Hey, let's just say you know I I hope uh I Hope they crash uh over the next few earning Cycles so you could pick up Nvidia cheaper. Maybe when the AI hype cycle dies down a little bit. Uh, am I jumping up and down about buying in a 306? Hey, who knows? You know? Maybe they give Rosie guidance and they're up 10 and you're like, ah, should have bought, You know.

But the valuation is Rich and usually the market does a good job of eventually leveling out those Rich valuations. So uh, if I had to say what would be a little bit more of a fair price right now uh for NVIDIA I'd probably say you'd want to be closer to and people are gonna get mad at me saying it. but probably 200 to 250 would be more reasonable if you were under 200 like we were for a while when I initiated my position in it around 150. well then it was just juicy.

but duh, I mean it's doubled since then. so uh anyway. uh, remember if you want all of my buy and sell alerts, join the Stocks and Psychology of Money Group link down below. If you want to join me on the AI drop, make sure you join before June 1st for the how to make more Money and get sh9t done faster course members who are already part of uh, the income course or getting that sector for free and you can lock in your price as well before we increase the price again.

when the content actually comes out on June 1st the other content's already in there, but the AI content is coming out on June 1st. Uh. So with that said, very excited about Nvidia long term short-term bearish. Uh, it doesn't mean I'm gonna dump all of my uh Nvidia exposure beforehand though.

but uh, who knows. maybe a little trim is in store. But yeah, anyway, that gives you some insight on a video. Hopefully it's useful for you even Beyond this next, uh, earnings? uh set that comes out and uh yeah? I Wouldn't bet against them long term for sure.

Just like you should bet against those courses on building your wealth thing down below. See you later now I Want you to know this when it comes to AI time is what's going to make you money, and if you can prove that value to an employer, you'll always be able to be employed. So this is another way of making sure that you don't get replaced. A quick follow-up on: Nvidia Some people want me to look at the balance sheet and the cash flow statement.

Fine, fine. I'll do that. Okay, here's the quick skinny on it: They've got about 13.2 billion dollars of cash and marketable securities. They've got a short-term liabilities in in the Kevin Math I do Kevin math a certain way of about five Billies, and maybe about 11.6 in long-term debt.

Free cash flow. You're sitting at about 3.8 billion. so you've got free cash flow so the the debts don't terribly much matter here. They've got plenty of operating room.

Uh, actually pretty pretty good financials.