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all right guys it's Tuesday Nvidia is up minorly today but yesterday it started the day basically at 403 and it's currently at 4 43. at one point today was over 450. so Nvidia is clearly the hype stock of 2023. before it was electric vehicles now it's AI before electric vehicles it was Cannabis maybe what was it before cannabis mixed in there with the um hydrogen cars that was a big push oh I don't remember the solar panels either way that's the hype that's going on right now you know what we think about hype we tend to avoid it guys we're gonna go over Nvidia here we're going to go over some of the high level metrics the company bring over some Bull and Bear cases some analyst estimates of course we're going to cover our eight pillar process and then we're gonna use our assumptions about the future to figure out the most important thing you're probably looking for which is what price to pay for NVIDIA today okay now we're gonna do all this our videos involve things for beginners Advanced investors everything between so follow the entire video watch the whole thing you'll learn something no matter where you are in the process so guys let's go over Nvidia Nvidia market cap over a trillion dollars I remember when a trillion dollars a lot of money in the stock market now it's like oh you have an idea cool it's a trillion bucks now here's the metric that scares me the most about in video price to sales ratio this is when you take the market cap of the company and divide it by the revenue over the last year 42.5 so let's put this in perspective because those you out there who are like looking at us going what the hell does that mean let's go to a company like Microsoft which we actually think is overpriced we've done videos in the past about it it's selling for 11 times price to sales ratio okay all right what about apple apple is the darling of Wall Street the stock that can't go down 7.3 times price to sales ratio all right what about Tesla what about Tesla Tesla one of the most overpriced companies in history 7.86 times oh boy what about the googly moogly the goog 5.76 times all right so we have a really interesting bear case on Nvidia when it comes to the price of sales ratio and we'll get to that in just a few seconds but let me go over a couple more things about Nvidia first off I love this gross margin 56 this is big numbers right here Mo that's huge that means for every extra dollar they sell today they'll put 56 cents of that 56 of it to their bottom line before taxes with a bottom line margin over the last five years of 27 and last year of 18 and a half percent there's some piddly dividend yield of 400 million dollars sick yeah you're but yeah that's terrible now five year average free cash flow and last year's free cash flow this kind of surprises me they're pretty much the same thing for a company that's supposed to be like killing it how is their five-year average free cash flow the same as their one year free cash flow now this is a good thing to point out though for a company that's supposedly killing it the story is killing it by the way I'm sure the red company is doing extremely well their revenue beat and things like that that's a good example of you would say oh the stock price is up what percent 160 percent use this year and here's the interesting part oh yes what does it follow look at this you're right year to date it's up 210 you're an idiot there you go I do not know it was a billion percent more damn it five-year return on invested capital is 18 one year is 9.7 so those of you who don't understand what that is that that is the money that's invested in the business what kind of return do they get on that money how are they killing it and the return of message capital is actually almost half what it was the last five years that kind of blows my mind but either way let's go look at the um the revenue by quarter what'd they do last quarter Mo in what Revenue yes hold on one second what are you giggling my chair is about to fall apart is it how do we buy such crappy chairs uh we spent all this money on this great studio and then we don't have good chairs 7.19 in the last quarter well no I meant for the actual oh they haven't reported July yet um I don't think so let me go Okay so 7.19 but guys here's the interesting part what'd they do last April 8.29 so they're down and yet the stock is up an insane amount in the last year Okay so let's go over some news and some Bull and Bear cases for the company Mo start us out with some good news what are some bold cases for the company okay so a little technical here the Nvidia h100 tensor core GPU that's being used I don't think you need to know about that specifically but that's being used with Microsoft's Azure virtual machine Series so that's I think the big way to look at it is okay now they're Incorporated with Microsoft Azure that's great okay that's got it as as of June of 2023 Nvidia held 80 percent of the AI chip Market wow which is supposed to grow 37.4 percent component annual growth rate through 2030.
now I think to myself there's no way that's sustainable really think about the competition that's going to come in there and remember Intel I mean you're right but Intel held 90 of the chip market for a long time long time we're talking about like decades yeah yeah it very well could be and it's really it's all about first to Market and who's who's got the rep now for a great AI it's them it's them yeah and they make a great graphics card chip they make they really do dominate their industry but guys I want you to remember we're here as investors we're trying to separate the stock from the company the company can be an absolutely amazing company but the stock price could be crap in fact the stock price the valuation could be so bad because of what an amazing company is because everybody out there sees a stock going up and says I gotta get in on it because the story is great but as our friend Professor Oswald status a story without numbers is a fairy tale and a fair and a number is not a story is a spreadsheet so we gotta remember we don't want to have a fairy tale here we want to be the smart people out there who say wait a second this is awesome but I can't just pay whatever price for awesome okay let's go to some bear cases on Nvidia is it possible that we even have bear cases on this company three major customers Amazon meta and Google all making their own version of nvidia's a100 Chip Amazon has already been in talks with AMD to start using their chips and their Amazons for their new gpus does Amazon what do they not want to do they want to do everything they really do they just want to throw a bunch of you know what at the wall and whatever sticks great man great more power to them now give us the staircase having to do with price to sales guys this is a very interesting stat that our researcher Dalton came up with who's actually in studio today but we're going to talk about this amazing stack so this is from Siegel and Schwartz research 2022.
stocks that sell at a greater than 25 percent price I'm sorry 25 price to sales return an average of negative 23 over the next five years is that annualized or overall overall guys it makes sense think about it this way the more you pay for something the less return you're going to make yeah okay then again guys I've been I was saying um Tesla's overpriced much much longer ago than Nvidia and Tesla's going through my values even when I said they're overpriced they've blown through those values so yeah it's possible this stat could keep going up the business gets better and the stock never goes down until the business justifies today's price but even look at look at Tesla they're down over 40 from their all-time high even though the numbers have gotten better since hitting that high over the long period of time tendency with hype yes in the short run stocks are voting machine in the long run their weighing machine in the short one whatever's popular is going to go up whatever's not popular is going to go down in the long run the fundamentals of the business are what's going to drive the value as long as you pay a reasonable price you're going to do very well the business does very well but if you pay nosebleed prices and dare I say that Nvidia is overpriced guys if you're in the comments please tell me how stupid I am I'd love to hear it if you agree with me please tell me that you agree with me doesn't matter to me I want to get the engagement going because I could very well be wrong about Nvidia but if I'm wrong about Nvidia it because they did something well beyond what they're even thinking they're going to do because these valuations are insurmountable unless they do something well above and beyond what they think they're going to do and if you're the person that's betting on that it's gonna be a hard process for investing for the rest of your life because you can't always bet on companies doing better than expected because they rarely do all right so let's take out the eight pillars on Nvidia all right so not a big deal MO shares outstanding her up slightly not a big deal I don't blame them I'd be printing shares like it was like I was the Federal Government right you'd be printing more shares than they are 100 would be I'd be like oh you guys are all crack kids that want my crack there you go here's more shares who wants more shares oh Grandma Betty who's in your nursing home who's her kids talking about a video there you go there you go more and more shares now guys remember if you're part of our community you get ersions but back to our pillars 209 times five year earnings not bad 216 times 5-year free cash flow oh boy we are late I just feel like we're late in a market cycle and to justify these valuations and be very the hardest one is Amazon and Tesla because I've been saying Amazon Tesla I've been overpriced for 10 years almost on Amazon like eight years and it is not it has gone straight up and now their value is way higher than when I first said they were the value I come up with is way higher than I first said they were overpriced yeah they killed it and it would build into a Raging Bull Market same thing with Tesla but we'll see I wouldn't be surprised if 10 years from now all these companies are below the prices they're at today all right so analyst estimates what are the ever so bullish analysts have to say 3.33 last year in EPs and they're expecting to get make eight dollars this year and wow this is bizarre do you see the smell yeah the revenue is bizarre too are you looking at wow the 2027 yeah yeah look at the revenue we'll also look at 2026.
oh that is and in 2028 wow look at the revenue yeah this is odd all right so guys there's a lot of growth potential and it leaves us one one decision to make all right what do we pay for the company right so guys really quick if you like our software you'd like all the tools that are actually available in addition to all the things you've seen you haven't even touched the the software here if you want access to 10 000 companies on your phone on your computer it'll change the way it'll make life easier for you you'll sleep better understanding a process we're here to teach a process that's all we're trying to do and this software makes it better the EM Community has thousands of investors who are like-minded who exchange messages every day that's how he found Dalton so guys sign up at everythingmoney.com we have a special running right now 20 off go check it out about a dollar a day gets you access all the software so Mo let's do a 10-year analysis let's um give me some Revenue grow by the way revenue is down 12.4 percent 12.4 in the last year but the Stock's up a billion let's see what is this stock up in the last year one year 132 percent oh okay cool that kind of sucks all right so give me the revenue growth numbers you'd assume though 12 16 and 20.
wow go big or go home what about profit margin um 24 30. what do you think sure I was gonna go a little bit lower on the low side I can go 22. all right let's go 26 and 30. all right free classroom margin I would do the same thing same thing very similar so guys what we're doing here is we're looking at the past and we're trying to figure out okay is it past gonna be replicated what is the path pass look like how does it look like for the future we can make any assumptions we tend to go higher on our highest number because you want to see the extremes and the low and the high side like okay if this price comes out and the current stock price is well above even this value it can give you a perspective on how overvalued the company is and on the low side if the stock is really low like for example Alibaba we run the numbers on Alibaba and the stock price is 20 below our lowest numbers so it tells us like hey this thing is really undervalued if we're right on this thing so that's the point of using this that's why stock analyzer tool is used thousands of times per day by our users literally over two million times since we started keeping track less than two years ago a year and a half ago okay so what about PE now keep in mind guys this PE makes me want to kill puppies and keep in mind I have four puppies so the fact that I want to kill dogs after seeing this PE should just be very revealing the way we look at it is we think you should start at 15 because that's the market average and go higher with Revenue growth and roic and moat and I think Nvidia has all three they have Revenue growth potential they have a good roic historically and they have the moat in this computer chip in this um Graphics chip Market wouldn't you say that's true so you go up from 15 when those things are good down when those things are bad so Mo give me your PE here I did 16 20 and 24.
that's exactly what I was thinking about Mo cool guys I want to keep in mind we're going super high here for a reason we want to see is this price even attainable on our best of assumptions now finally our desired return this is basically our margin of safety guys what margin of save do you want the lower the assumptions the less return you need because you've already been conservative but as you go higher in your assumptions you need a higher desired return and that gives you that margin of safety that everyone talks about just like a bridge when you build a bridge that hates the whole 10 000 pounds you build the bridge to hold twenty thousand pounds you don't hold to hold you don't hold it for ten thousand pounds because there's no margin of safety there same thing here with your Investments we want you to have margin of safety Mo hit me straight I did 10 12 and a half and fifteen percent so I would have done a little bit different but let's stick this one I would have done 11 13 and 16.
not I would go a little bit higher on the high side I think these are just so absurd MO I mean this is so high this is like literally every pot we're talking about growth rate the same as the last 10 years for the next 10 years we're talking about profit margin almost 20 higher than the last 10 years yeah it hits on every cylinder basically okay you know so guys I'm gonna hit analyze now keep in mind several numbers are going to pop up we've got one minute left in this video stay for the entire video and don't forget to check out everythingmoney.com for 20 off on this amazing software that you can use every single day 66 on the low side 150 on the high side 100 in the middle if you buy it at today's value nna Lose 11 a year middle assumptions occur you're gonna lose four percent if the best of best of best assumptions occur you'll make 2.1 percent guys thank you very much for your time talk to you later
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