What Happened:  NVIDIA delivers another jaw-dropping quarterly report with $26B in sales and $6.12 earnings per share.

 

What Does it Mean?

The Artificial Intelligence (AI) boom continues and investors are still underestimating the financial upside.

 

Unfortunately, we think most investors fail to realize that NVIDIA is similar to the pickaxe business during a gold rush. While NVIDIA continues to see stellar revenue results, this is coming from unprecedented orders for their chips which power the revolutionary AI boom we’re witnessing at this very moment.

 

Consider this hypothetical example for a moment, a company that wants to develop a new product using AI. They start by building the computer that will hold the large language model or AI software and must power this computer with the fastest chip possible in order to process massive amounts of data. Their answer? Call NVIDIA. Think for just a moment about the thousands of businesses that must be implementing these chips in order for NVIDIA to be putting up over $26B in sales in 3 months! It’s mind blowing.

 

While not all of these gold miners aka AI businesses will be successful with their pursuits, we believe many will which will translate into higher profit margins and a potentially better user experience for the customer. In my opinion, while NVIDIA has been the front line benefactor of this movement, we haven’t even begun to see this new technology completely infused into the business world and therefore may just be scratching the surface as to how this actually impacts the general market as a whole.

 

Why Do We Care?

As investors our job is to understand the potential for hidden value. Each semester I have the privilege of teaching Seniors who are approaching graduation at the University of Kentucky. We manage $5MM in real money and the students are charged with tracking, following and reporting on the investments held in the portfolio as well as adding new names before they graduate.

 

One of my goals for this class is for students to use their brains far beyond that of simply looking at a financial ratio or some metric that anyone can see. For example, years ago one bright student recognized that a new running shoe was taking the nation by storm and that the Hoka brand may just provide new value for its parent company Deckers. The student calculated that if he was right, Deckers was possibly significantly undervalued despite the high-paid analysts on Wall-Street saying otherwise. The stock was around $100 when the student pitched Deckers for our class portfolio. Deckers just passed $1,000 as I write this piece today. If you were ever curious why I nabbed Logan from that class, you now have an understanding as to why.

 

The point is that anyone can look at a market and cite a PE ratio or some common multiple that anyone with a high school education can review. Seasoned investors, however, look to where value is being created and consider just what things may be worth should that value actually come to fruition.

 

We have remained correctly bullish since September 2022 and our piece A New Bull? Despite our views, most investors remain pessimistic and fearful. Until that changes my guess is we have higher prices ahead.

 

Quint sat down with the folks from CNBC to talk about a few stocks. Click HERE or below to watch:

 

 

Until next time

~ Quint

 

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