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Bubblicious



Yikes! Nvidia stock has almost doubled this year. The question I hear over and over is "are we in a bubble"?


Source: TC2000 Charting Software

Just looking at the price action? I guess you could say “yes” this is a bubble.

 

But what if it is something more? What if the price action is reasonable and not just based on “clicks” or “eyeballs” as was the case during the internet bubble?

 

How about we look a bit further?

 

Check out the financials below.


Source: YCharts


Just looking at revenue, NVDA sales grew from 6 billion in a quarter to 22 billion in a quarter over a YEAR! Get that, a YEAR! This is a 341% increase in revenue annually.

 

Want some more good news? Look at the gross profit margin (i.e. how much of each sale the company keeps after subtracting Cost of Goods sold).

 

When the company sold only 6 billion in a quarter the gross profit margin was 63%. In the latest quarter when NVDA sold 22 billion the gross profit was 76% - it went UP!

 

I hate exclamation points but give me a break. These numbers are unreal. It’s not only selling more, but also generating more gross profit.


Now I am certainly open to the idea that the price has moved too much in a short time, but I am not going to buy that there aren’t fundamental reasons for the move.

 

Nvidia is working to build an AI infrastructure system and it is selling quickly.

 

Now this note is not a recommendation to go out and stuff your pockets with NVDA but the general thesis that this AI spend is real across the tech sector should at least be considered. Actually it must be considered if you are going to find the next market leaders.

 

So, before you toss a stock because the price action looks ridiculous, do a second level analysis to see if there is a real basis for the move. Always study.


The opinions expressed in this commentary are those of the author and may not necessarily reflect those held Twin Gryphon Advisors, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward-looking and should not be viewed as an indication of future results. 

Investment advisory services offered through Twin Gryphon Advisors, LLC, a registered investment advisor. 

The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. It does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented, nor any opinion expressed, constitutes a solicitation for the purchase or sale of any security. 

Past performance does not guarantee future results. 


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