Is Nvidia too Big to Fail?

Nvidia reported earnings last Wednesday. In the three sessions since, as of this writing, it has added $484 billion in market cap, or one UnitedHealth Group ($465B). UNH doesn’t get a lot of love because health insurance isn’t a sexy business to talk about. But UNH is a monster. It’s the 15th largest company in the United States. And Nvidia got all that market cap and more in just three sessions.

Investors aren’t smoking drugs. Nvidia is the dominant player in an industry that has the potential to change everything. And its growth is unprecedented. How exactly do you ascribe value to such a company? It’s trading at 42x forward earnings which is high, but not Snoop Dogg high. With growth like this, should it trade at the same multiple as Walmart? (27x forward FWIW)

Nvidia’s revenue more than doubled in its most recent fiscal year, and its operating margin was 61%!

The Data Center business accounted for 36% of its operating income in the first quarter of FY22. That ballooned to 87% in the most recent quarter.

Nvidia generated $3.8 billion in free cash flow in its ‘23 fiscal year. That number went up 7x to 26.9 billion in ‘24.

It’s hard finding words to describe what this business is doing. It’s rewriting what we thought were the laws of growth.

Whatever investors have paid for the stock up until now has been more than justified by the fundamental story. The question now, and let’s be honest, this question has been asked a million times over the last couple of years: Does the price still make sense? How much are investors discounting, and can the business continue to deliver on those high expectations?

Assume you were given $2.7 trillion to buy 100% of these companies, and forget about debt for a minute; which one would you choose? Would anyone in their right mind buy Nvidia instead of Amazon, Netflix, and Walmart? Or J.P. Morgan, Meta, and Berkshire?

Josh and I are covering this and much more on tonight’s What Are Your Thoughts?