Capitalist Investor

Nvidia's Market Run: Bubble or Sustainable Growth?, Ep. 243

• Strategic Wealth Partners

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In this episode of the *Capitalist Investor*, hosts Derek and Luke tackle a medley of intriguing subjects that span tech investments, market dynamics, and personal experiences. Our co-hosts kicked things off with a light-hearted recap of the Indy 500 before diving into the sophisticated waters of tech market giants—specifically, Nvidia. Let's break down the five hot topics that were explored in this engaging episode.

1. Nvidia's Market Performance
Nvidia’s jaw-dropping performance grabbed the spotlight. Derek and Luke dove into the company's incredible financial metrics: year-on-year revenue up 262%, net income skyrocketing by 628%, and net profit margin doubling. These impressive numbers indicated that Nvidia is not just meeting but blowing past expectations. Their chips are in high demand, making Nvidia a critical player in the AI and tech industries.

2. Valuation Concerns
With Nvidia's stock price soaring to around $1,100 per share, Derek and Luke discussed the potential risks of its high valuation. Despite the current bullish performance, Derek expressed skepticism about buying at such a high price point, especially since he doubted it even at $950. The conversation moved towards the broader implications of Nvidia’s market cap approaching that of industry giants like Apple.

3. Long-Term Perspectives and Potential Bubble
Luke raised a provocative point about Nvidia potentially being part of a long-term technology bubble. He discussed theoretical constraints on chip technology, drawing from Moore’s Law and concepts related to the physical limits of chip density. Luke’s concerns highlighted a fascinating debate: what happens when technological advancements start to plateau, and what impact will this have on companies like Nvidia?

4. Trading Strategies: Selling Options on Nvidia
For the trading enthusiasts among their listeners, Luke introduced a sophisticated strategy for dealing with Nvidia’s high volatility. He suggested selling both call and put options—a strategy known as a straddle—to capitalize on the price stability of Nvidia’s stock. This method allows traders to collect premiums while mitigating risks associated with drastic price movements, making it an attractive strategy in a high-valuation environment.

This week’s episode of the *Capitalist Investor* offered a nuanced and multifaceted look at Nvidia’s soaring success and the risks that come with it. From personal stories at the Indy 500 to deep dives into market strategies, Derek and Luke showed why their podcast is a must-listen for anyone interested in the intersection of finance and technology.

Hello, and welcome to this week's episode of the Capitalist Investor. As always, you have me, diamond hands d, and cool hand Luke. What's going on? What up? I survived the Indy 500. Oh, did you go to the Indy 500? Yeah. Oh, that's fantastic. I didn't have any beverages this. This year, and it was actually really cool to watch the race and enjoy the race instead of going, like, to the snake pit, you know, down on. If you know how to operate, but, like, you know, the big party down in the field, and then we have all kinds of other things going on, so it was nice. Just sit in the bleachers, watch 200 laps go round and round, and there was the most yellow flag since 20, I believe, 17. So eight accidents, crashes. Pretty crazy stuff. I think 60 laps were under the yellow flag, so only 140 were actually raised, so pretty crazy. Those races are extremely entertaining. Mm hmm. I'm certainly not. You know, I don't really know what's going on, but I I see, like, the f one. Yep. And apparently, it's, like, super boring, and no one passes anyone. And the indycars, you know, there's a. Bunch of changes, like, going crazy. Yeah. They're going 230 miles an hour. That's what I was gonna say. 225 was, like, the average speed, like, when they were actually rocking. Like, that's insane, dude. Like, 224, 225. Just hearing the sound, the roar of the engines when they pass by, dude, it's. It's exhilarating. Yep. Yeah. I've always wanted. I've always wanted to go to that, but I've always wanted to go to, like, a NASCAR race, too. Yeah. Like, you know, one of the big ones. I don't. Again, I don't know anything about it, but it just looks like a good time. One day. We got to go, man, run an rv. Yeah. That's where our, you know, tank tops, and we'll, you know, have thrown some. Chaws fit right in. All right, well, you know, I think there's really only one thing that we can talk about this week, and that's Nvidia. So just basically blowing out every single number out there. Their market cap is approaching apples, I believe, and 200 billion away. That's it. When I say, that's it, 200, but, like, it's literally not. Yep. And, yeah, they just. They just are selling those chips as fast as they can build them. Everybody wants them. They can't build them. Yeah. They can meet demand, and they're just crushing every number out there. So, would you be buying Nvidia? $1,100 a share at $2.7 trillion. Market cap. You know, it's. I'm going to say no, and that's really only because I said no. At 950, it does seem. It does seem crazy. The valuation seems crazy. However, at the same point in time, they seem to be essentially the only game in town, really, for that one specific function. No one else really can deliver what they're doing right now. And they just blow out every single number, you know, that they, that they report on, really, you know, revenue. Just, just some, just some, some percentages. For context, year on year, their revenue is up 262%. Their net income is up 628%, and their net profit margin is doubled. It's up 101%. They're beating earnings per share in revenue every single quarter, just blowing it out of the water. So, yeah, it is a juggernaut. It's hard to sit here and say, hey, I would bet against it, but at the same point in time, who knows where it could run from here? Honestly, I'm gonna get in trouble for saying this. All right, well, let's hear it. I think long term, I'm not talking this year, next year, even two years down the road, long term, Nvidia could be one of the biggest bubbles. I think that will go down as one of the biggest bubbles in history. And the reason I say that, hear me out. I'm not saying I know technology a lot, but, like, I'm being young. I've been around it my whole life. There's a con. Was it Moore's law? I think it is, is the concept or something like that, where, you know, technology doubles every, like, year and exponentially. But also, there's also another concept, another law slash theory, if you want to call it that. There's only so much technology you can fit on, like, a singular chip, right? There's only so much density you can have through the silicon and the materials that are used to build the chip. So you basically, there's like a opposite of exponential. Like, have you ever seen, like, the log logarithmic lines where they. That, like, curve over the opposite of exponential and they flatten out? We're essentially like, I think, close to that point. With our technology cycle, with these chips, we have to essentially create and find a new material. We have to create a new element on the elemental table to pack more density and allow the electrical units information to flow on these chips. Right. My thinking is, in long term concern with these chips, specifically with Nvidia, is if we are flattening out from the technology cycle, where there's only so much technology we can fit on these chips, what's the incentive? Or what's the reason that companies would go out there and continue to buy more chips ten years down the road when there's really not much? I mean, look at iPhones. Let's just use that, for example, like these cell phones that we have in today's world. Who buys the next new generation? If you bought one this year, why would you really buy the next version next year? There's really not too much new on those cell phones when it comes to cameras or technology. These are even kind of flattening up out from the technology cycle side of things. So the chips are the same way. Once the people get these chips and are able to run the AI, run the cloud, run the servers, they might not upgrade every single year. They might have to wait a couple of years because it gets really expensive, number one, to buy new chips every single year. But also, it's like, what's the point when the technology isn't that much greater? Yep, yep. Very interesting to think about, really. And, you know, I think, I think what's also going to come from this revolution, or whatever you want to call it, I'm going to forget off the top of my head, but the amount of energy that it takes to run the processes, like if you ask chat GPT a question, the amount of energy that that takes is, again, I don't know the exact number, but it's exponentially more than a regular Google search, for example. So it's really going to change the face of everything. If we need devices that can power that type of computation, that, again, you know, battery technology. Right. That's, that's an ever changing thing and it's going to be a big byproduct, I think, of this overall. Yeah. Technology cycle is how all this stuff is going to get powered and how it's actually going to get used kind of in the mainstream. Yep. I think it's still kind of on the, on the fringes right now. So, you know, there's obviously the valuation is kind of scary, but at the same point in time, the Runway and the potential, it seems to be, I don't want to say unlimited, but it seems to be up into the right for sure. I think as of now, I don't think there's any kind of crash to be concerned about. I said this on Stu's show like a week ago, before they reported. I was a little bit, I guess, wrong because it's up like 10% since I was on like, went from like 950 to like 1100, like you said, now. So it's up like 1213 percent. But I said, like, you know, listen, I think they're gonna rock the reports. They're gonna knock it out of the park. Home runs, probably long term, this goes to maybe 1500 bucks a share, but in the short term, most of it's priced in. You're probably gonna see a small positive reaction. And frankly, that's kind of what we saw, a small positive reaction. Now, small is relative. I was thinking more like a four or five or 6% gain after earnings. I think it's closer, probably to ten to ten to 12%. So it's a little bit more, I guess, than small. But I think that's gonna be the name of the game. They're gonna continue to knock it out of the port or knock it out of the park for the next couple quarters. And you'll probably see some small positive reactions. Nothing too crazy to the downside. Probably nothing too crazy to the upside. You can't move a $2.7 trillion stock large amounts. You just can't. All right, well, you know, something that, that obviously is driving the market, something that we've been talking about for a while now, but it seems to be the new, the new name of the game in town. You know, if I was a trader, like, if my day job was to actually, like, look at the markets, try to look like a daily opportunities and try to make money in my personal account or something like that, and that's not my job, I would look to probably sell options on each side. I think the volatility that's priced in, I think it's like ten or 15% month out volatility price in Nvidia, I would sell calls and I would sell puts and I would collect the premiums in between, because I think that Nvidia probably is not going to move very much for. It's probably pretty sideways. That's what I would do right now if I was a trader. Collect the 15% premium on each side and just pocket that premium and change as income. Yep, I like it. I like that a lot. And that with, again, such a large valuation, kind of a long, longer term, sideways, volatile sideways move seems to be kind of what's in store. But I think a straddle adoption strategy is called straddle because the only way you lose money is if it's outside of the range of that 15%. All right, well, thanks for listening to this episode. If you guys have any questions, comments, or concerns. Hit us up at info and we'll talk to you next time. The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.