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I think what I would tell you is that the bigger principle and we've talked about this a lot Jason is that in capitalism when you over earn for enough of a time what happens is competitors decide to try to compete away your earnings in the absence of a monopoly the amount of time that you have tends to be small and it shrinks so in the case of a monopoly for example take Google you can over earn for decades chath palahia explains that in capitalism High profits attract competition unless a monopoly protects them as seen with Google Nvidia is now experiencing massive earnings raising the question of who will compete to erode its dominance he highlights that AI demand is driven by big tech companies leveraging their balance sheets but much of this demand supports experimental apps rather than impactful Revenue generating products the challenge is turning massive investments into sustainable returns looking forward true Innovation often comes from smaller players creating transformative applications while nvidia's growth may continue its long-term valuation depends on shifts within the Tex stack and how value moves to the application layer and it takes a very very long time for somebody to try to displace you we're just starting to see the beginnings of that with things like perplexity and other services that are chipping away at the Google Monopoly but at some point in time all of these excess profits are competed away in the case of Nvidia what you're now starting to see is them over earn in a very massive way so the real question is who will step up to try to compete away those profits the old Bezos quote right your margin is my opportunity and I think we're starting to see and you've mentioned grock who had a super viral moment I think this week but you're starting to see the emergence of a more detailed understanding of what this Market actually means and as a result who will compete away the inference Market who will compete away the training market and the economics of that are just becoming known to now more and more people I I would like to tie it together with freiberg's point so at some point all of this spend has to make money right otherwise you you're going to look really foolish for having spent 20 and 30 and $40 billion so Nick if you just go back to the to the revenue slide of Nvidia I can try to give you a framing of this at least the way that I think about it so if if you look at this like what you're talking talking about is look who going to spend $22.1 billion well you said it Jason it's all a big Tech why because they have that money on the balance sheet sitting idle but when you spend $22 billion their investors are going to demand a rate of return on that and so if you think about what a reasonable rate of return is call it 30 40 50% and then you factor in and that's profit and then you factor in all of the other things that need to support that that $22 billion a spend needs to generate probably $45 billion of Revenue and so Jason the question to your point and to Freed Brook's Point The $64,000 Question is who in this last quarter is going to make 45 billion on that 22 billion of spend and again what I would tell you to be really honest about this is that what you're seeing is more about big companies musling people around with their balance sheet and being able to go to Nvidia and say I will give you committed pre purchases over the next 3 or four quarters and less about here is a product that I'm shipping that actually makes money which I need enormous more compute resources for it's not the ladder most of the apps the overwhelming majority of the apps that we're seeing in AI today are toy apps that are run as proofs of concept and demos and run in a sand box it is not production code this is not we've rebuilt the entire autopilot system for the Boeing and it's now run with agents and Bots and all of this training that's not what's happening so it is a really important question today the demand is clear it's the big guys with huge gobs of money and by the way Nvidia is super smart to take it because they can now forecast demand for the next two or three quarters I think we still need to see the next big thing and if you look in the past what the past has showed you it's the big guys don't really invent the new things that make a ton of money it's the new guys who because they don't have a lot of money and they have to be a little bit more industrious come up with something really authentic and new yeah constraint makes for great arm yeah we haven't seen that yet so I think the revenue scale will continue for like the next 2 or three years probably for NVIDIA but the real question is what is the terminal value and it's the same thing that Sac showed in that Cisco slide people ultimately realized that the value was going to go to other parts of the stack the application layer and as more and more money was aced at the application layer of the internet less and less Revenue multiple and credit was given to Cisco and that's nothing against Cisco because their revenue continued to compound right and they did an incredible job but the valuation got cut Nvidia has stalled a bit from its highs above 153 if you look at the chart it hit you know 1533 it's come down a little bit off that now starting to firm up here around 137 it's almost trading 139 now this morning up a full percent so what do we look at Nvidia you know this is still a company that the AI driven growth of this company is unmatched by anyone it's it's virtually the whispers of Monopoly are all over this because no one can seem to close the gap but regulatory problems are on the horizon and customer needs are shifting and M you know what is going to be the future what inning is NVIDIA in there's all the concerns about Nvidia that have caused it to stall up here remember it hit 140 for the first time last June is the first time it closed it it traded 140 and it's still trading right around $140 so it's been rangeb now for quite a while even though earnings are still expected to grow 55 to 60% through full year 2026 this is a company still in the early stages and then here's the question that everyone has to answer what's in the pipeline for NVIDIA are they getting into Healthcare are they getting into other companies what's the next thing much like we talk about with Tesla what's in the pipeline for a video that we don't even know about yet we know there's a chip behind Blackwell right so the way we want to trade this is quite simple we're going to do the long call diagonal buying we're going to give ourselves some time going out to February 14th buying the 139 call kind of at the money call than selling this week's January 24th 144 call all I did basically whenever the stack TR buy the E the money about a month out sell look at the expected move which for this week is about $45 $430 to be exact and sell that short call use that as the long call diagonal that's uh the look we're doing in Nvidia now it gives you about 37 long Deltas it's collecting Theta each day that number will pick up and you're looking for a move up towards the 144 strike now if it gets up there remember you're you're spending $530 is where we put it in it's trading about5 20 now that's wide that's more than the width of the strike so you have to be a little careful if it gets up towards that short strike either want to close the trade or make an adjustment on your strikes so make sure you un understand that call diagonal so the risk is the is the amount paid whatever the debit is there's your risk on the trade so you're looking for a move from where it is now up towards the 144 strike in Nvidia like I said about 37 deltas per trade all right those are our trades today a a a short iron condor in Netflix ahead of their earnings and they're inflated implied volatility but one with a little attitude giving you a little bit long Delta and then a long called Diago in Nvidia that's our show for today that's all for daily Trader we'll see you tomorrow with another edition of daily Trader I'm Kevin HS we have gone pretty far already and particularly in certain sectors and so on but the biggest influence is going to be what I'm talking about because if you have those multiples and you have a rise in interest rates right okay you will have a pop mhm so as we focus on that deficit question but yes of course it's fragment I think that there um it's of course led by the sectors U that are great sectors the the disruptors the F the AI and so on I don't think it's been carried uh down to the um applications of AI in other words the uses of AI right so if you're watching as I'm watching around the world and by the way it's very interesting what's going on in China with AI in terms of applications other places the applications of AI are under discounted I think and then of course what is the term what is the multiple the multiples an extension of the interest nvidia's current success in the AI Market is being challenged by growing compet ition especially from Big Tech and Innovative newcomers while the company is seeing massive profits now the question remains whether it can maintain its dominance as AI applications evolve and new players emerge additionally while nvidia's growth is expected to continue in the short term its long-term value is uncertain with concerns about shifting customer demands and Regulatory pressures will Nvidia be able to sustain its leadership in the AI Market amidst increasing competition how will Nvidia adapt to the changing landscape of AI applications
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