Aswath Damodaran Drops PRICELESS INSIGHTS About NVIDIA Stock

Summary

In this video, Tom Nash discusses the investor frenzy around Nvidia's earnings report, emphasizing the company's strong fundamentals and growth potential. He advises against shorting the stock and differentiates between trading and investing strategies. Nash refutes the 'bubble' narrative, highlighting Nvidia's dominance and comparing it favorably to tech giants like Amazon and Microsoft. He also addresses the broader market trends, including small cap underperformance and the importance of investing in companies with solid long-term prospects.

Takeaways

• 📉 Tom Nash is impressed with a CNBC analyst's 3-minute summary of Nvidia's situation before earnings, which he believes answers many common questions about the company.
• 🚫 Nash advises against shorting Nvidia, especially before an earnings report, as it's historically been a poor strategy.
• 🤔 He emphasizes the importance of self-assessment for investors, determining whether they are traders looking for short-term gains or long-term investors focused on fundamentals.
• 💡 Nash highlights that Nvidia is considered a fantastic company with great growth, cash flows, and margins, but it comes at a premium price.
• 💭 He discusses the concept of market 'bubbles', suggesting that labeling something as a bubble often reflects personal bias rather than objective analysis.
• 📉 Nash recounts past experiences where he was criticized for considering Nvidia undervalued, only to see the stock price rise significantly over time.
• 📈 He compares Nvidia's performance to other tech giants like Amazon and Microsoft, noting that while Nvidia has a higher PE ratio, it also has superior growth and margins.
• 💻 The script mentions a prediction of substantial future demand for Nvidia chips by hyperscalers, suggesting a strong outlook for the company's revenue.
• 💹 Nash runs various financial models, including a DCF analysis, indicating that Nvidia's stock is currently undervalued and has significant upside potential.
• 🏆 He argues that Nvidia's dominance in its market, combined with strong management, makes it a compelling investment, despite any short-term volatility.
• 📚 Nash concludes by encouraging viewers to do their own research and use tools like Stock MVP to make informed investment decisions.

Q & A

What is Tom Nash's opinion on Nvidia's stock before earnings?

Tom Nash suggests that Nvidia is a great company with amazing growth and cash flows, but it's trading at a premium price. He advises investors to hold onto Nvidia for the long term, despite potential short-term volatility.

What does the speaker suggest about the idea of Nvidia being in a 'bubble'?

The speaker argues that calling Nvidia a 'bubble' is a sign of ego and a lack of understanding. He believes that the market has its own truth, and just because an individual thinks a stock is overvalued, it doesn't mean it is universally overvalued.

How does the speaker differentiate between a trader and an investor in the context of Nvidia's stock?

The speaker suggests that a trader focuses on buying low and selling high, potentially benefiting from Nvidia's volatility. An investor, on the other hand, looks at the company's fundamentals and long-term growth, making Nvidia an attractive investment despite its premium price.

What is the speaker's view on passing judgment on others' stock transactions?

The speaker advises against passing judgment on others' buying or selling decisions. He emphasizes that everyone has their own truth and should act on their own judgments without criticizing others.

What is the bottom line according to the speaker regarding Nvidia's stock for investors?

The bottom line is that if you're an investor, you should hold onto Nvidia for the long term. It's a dominant company with great potential for the next 10 years, and even if it's trading at a premium, it's a worthwhile investment.

What does the speaker suggest as an alternative to Nvidia for investors?

The speaker suggests Amazon as a potentially better investment than Nvidia, given its lower trading premium and strong fundamentals in the tech sector.

What is the speaker's stance on small cap stocks compared to large cap stocks?

The speaker believes that small cap stocks may have been at a disadvantage due to economic shifts towards winner-take-all businesses. He suggests that the expectation of a return to the historical premium of small caps over large caps might be misplaced.

What is the significance of the Eric Schmidt talk mentioned in the script?

The Eric Schmidt talk is significant because it suggests a massive future spend by hyperscalers on Nvidia chips, indicating a strong demand and a bright future for Nvidia's business.

How does the speaker evaluate the potential of Nvidia's stock based on fundamental tests?

The speaker uses a DCF analysis and a five-year model valuation to suggest that Nvidia's stock is currently undervalued and has significant upside potential, even considering a conservative growth rate.

What is the MVP scorecard, and how did Nvidia perform on it?

The MVP scorecard is a tool used to evaluate a company's fundamentals. Nvidia scored a 90, failing only on the price-to-earnings ratio test, indicating that it is an exceptionally strong company even by stringent metrics.

How does the speaker compare Nvidia to Amazon and Microsoft in terms of growth and financials?

The speaker highlights that Nvidia has a significantly higher revenue growth rate compared to Amazon and Microsoft. Despite having less revenue, Nvidia generates a substantial operating income with lower R&D expenses and capital expenditures, and it has superior operating income margins.