Nvidia Now the World's Most Valuable Company, Time to Buy? Ep. 251

Explore the hot topic of Nvidia's market domination and whether it's the right time to invest with host Derek, Tony, and Dave Abate. Delve into the intriguing dynamics of Nvidia's growth, valuation comparisons with tech giants, potential risks, and the importance of strategic investments like AMD. Learn about dollar-cost averaging to mitigate risks in the evolving market landscape. Prepare for insightful discussions on AI revolution, long-term investment strategies, and the evolving market trends shaping investment decisions. Tune in to The Capitalist Investor for expert analysis and actionable insights.

Transcript

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Hello and welcome to this week's episode of the Capitalist Investor. As always, you have me, diamond hands D, and Tony the tiger, back as always, and filling in again for this show, Dave Abate. Welcome back. Thank you, guys. All right, well, we got a good topic for you today. Really, what's, you know, a lot of people have been talking about Nvidia taking over as the, the number one market cap out there. Looks like this was, as of, I guess, Tuesday the 18th market closed. They were at 3.34 trillion and then Microsoft at 3.32 and Apple at 3.27. So we're kind of neck and neck right there between those three. But I think really, the main question we'll talk about after this historic run that Nvidia has been on. Is it too late to get in? You know, should, should we, should we wait on the sidelines for a pullback or is this thing just going to continue to go right to the moon, man? Literally, literally a million dollar question for some people, right? Yeah. All right, so I did, I did field a phone call, a couple calls, like, and we, Dave, you and I talked to people before, like, hey, Nvidia is splitting. I've always heard when a stock splits, it goes up. Like, you know, and there's this, there's all these statistics, you know, behind, you know, a company splitting. So, no, it doesn't always mean it goes up. I saw the statistic. It's like 55% of the time it's up 3612 months later. So the catalyst of splitting does not mean it's going further. What it's, all it's doing is that it's giving it a chance to be more invested in. When you take a $1000 stock, people don't have to come to the table with $1,000 to buy one share. They can. Now, if they do a ten to one split, they can bring$100, and now they can take dollar 500 and get five shares. And now they're still involved. So there's that, I think there's that catalyst of like, you know, enticing people to invest more, smaller amounts into a stock like that. Now, I saw this, like, you know, Nvidia has 80% of market share and AI chips for data centers. Well, data centers are the big thing because they're just storing all of the cloud stuff, right? The clouds, not in the cloud. It's down here on earth. Right. But when, but when you start taking a look at the big, some of the big boys, the Metas, apples and Microsoft of the world, for example, like Microsoft, their forward PE is 31. Now, what that means is that people are willing to pay $31 for $1 of earnings approximately. Right. That gives you an idea how much you're paying to be involved in that stock. Their gross revenue is $230 billion. Their net revenue is$85 billion. Nvidia, their PE is 70. So it's more than two times more expensive. What people are willing to pay to be involved in Nvidia, people are paying more money to be involved in Nvidia. And their gross revenues are 80 billion. So roughly three times less than Microsoft. Their revenues are 40 billion, half of that. So I could look at just those two numbers and say they don't even, they don't even make as much money, yet they're the highest valued company. However, you know, they seem that, you know, making 80 billion and netting 40 billion. That sounds, that's the best ratio of all the big boys, you know, because I can also see meta and Apple and their ratios are like one to, you know, three to one. This is like a two to one ratio of like, what they're actually keeping. So they're very profitable. So great question. Is it, is it the time to buy or not? So, Tony, I don't want to put. You on the spot, man. No, no, I want to give you. Because I got the pros and the cons. I want to give you my take. So from a fundamental point of view, when you look at the metrics of the stock, it definitely appears stretched. Right. And it's warranted. Right. The major theme that we're in right now is this AI revolution. And they're at the epicenter of this whole story, right. They're benefiting from this whole idea. The parallel to me is like when the Internet started to become more mainstream 30 years ago. Whatever timeframe we want to look at, they're the poster child for this whole thought. Now, that being said, the research shows you it's harder for the stock to outperform once it hits these elevated valuation levels. So that's like one piece to think about. That being said, it's hard for us not to be a participant in this stock, so we're going to continue to, like, recommend holding it. We're less enthusiastic about putting new money to work. And truth be told, we've probably been trimming it the last twelve to 18 months as it's expanded in our portfolio. Because we manage risk. You can't just have somebody's portfolio with 25% in Nvidia unless you are the ultimate risk taker and you don't care. And you think this thing is the problem to every solution on earth. One more quick anecdote for me is that, as Tony mentioned, my flag has started. The red flags have started to appear in that I'm getting more and more unscheduled calls from clients, younger people, less sophisticated investors. My litmus test is when it becomes a kitchen table subject for people that normally don't follow the stock market. That really freaks me out and says, hey, this is probably a topping process at this point. Bitcoin was similar feel to me when it was first making its run, so it's given us some caution. You make a great point. When everyone starts talking about it, it could be the top. Yep. That is an excellent point. So the only thing I will say, I think long term, though, long term, they have the product. It reminds me a lot of Apple on the way up because they had the product, it was a smartphone and everyone wanted it. They could essentially charge whatever they wanted for it. And, you know, that that was really the product that took that company way over the top and proved everybody wrong. The product, I think, is something that is going to be sustainable for a long period of time. And while their revenue isn't where the other big boys are, it's certainly tracking in that direction. Every single time that they have a quarterly investor call or whatever, it seems that they just blow every single number out of the water. So that's hard to ignore. So it's definitely a balance right now. But is it going to go up from here? Right now, I don't have that answer, but I think on a long term perspective, I think it's going to be a stock you're going to want to own for a long period of time. Then if that's, and I don't disagree with that whatsoever. So if that is, if that is a strategy and that makes sense to people listening, you know, there's a thing called dollar cost averaging. Exactly. You don't just throw, hey, I got ten grand, I'm gonna put it all in today. You know, it could be like, hey, I'm gonna put three grand in this month, three grand in two months from now, and three grand three months from then, or maybe speed it up in every other month because you. Because you got fomo if you're missing out. So, like, maybe you do it in a couple weeks or a month or something, but space it out. Dollar cost averaging also, just keep this in the back of your mind. Last year's returns and most of this year's returns of the stock market have come from mega tech and weight loss drugs. So Eli Lilly's of the world. So everything else has not participated in the market. So my theory is though, something needs to give either everything else catches up. So like medical devices, highly backward, you know, like they just did not participate. They were up a couple percent when the market was up 20 last year. Well, Pete, guess what? People still have heart attacks. They need heart valves, they need hip replacements, they need knees, you know, but those companies did not participate because again, of, you know, people are like shiny object, oh, let's go invest in it, right? And so one of two things need to happen. Everything else needs to catch up to the mega tech stocks and weight loss drugs or they're gonna come down to everyone else. So again, buyer beware if you want, if you got to get involved and you want to be involved, you know, dollar cost average in, or even take a look at alternative investments like AMD. I do own, you know, as a disclaimer, I do own Nvidia and I do AMD because I'm trying to diversify my risk on the AI front. You know, AMD makes their chips and things like that and they're nowhere near the valuation of Nvidia. So others, other, and there's other ways to invest in it, so. Alright, d well, thanks for listening this week. If you have any questions, comments or concerns, hit us up at info connect.com and we'll talk to you next week. 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.