🏃♂️ Nvidia: An Unstoppable Force - Analyzing their Q2 Earnings
Happy Sunday,
Before we get into Nvidia’s earnings, I saw this interesting tweet earlier today about Mark Cuban on Shark Tank:
At first glance it looks like he’s just a bad investor, but I think that the true value of Shark Tank is entertainment + impressions for Mark - which brings not only goodwill but even more deals in his pipeline throughout the time he’s been on the show.
Daymond John, another Shark, ended up replying to this tweet and said the following:
Was this surprising to you, that Shark Tank is a net loss for some of the Sharks? What would be more interesting to see is how much value was added to all the companies that actually got funding - as usually being on Shark Tank increases a businesses revenue by a ton right after their show hits the air. I’ve even had friends apply to Shark Tank, knowingly not wanting to get funding, but just wanting to go on for the attention + inevitable traffic to their stores.
In YouTube news, I’ve been thinking about covering some more news, so you may see some videos from me in the future covering what’s going on in the markets/finance etc. Lastly, if you’re looking for a high yield savings account - we put out a video last week on what I believe are the top 5 high yield bank accounts out right now, it will be linked at the end of this newsletter.
Hope you have a great weekend,
— Humphrey, Tim & Rickie
Market Report
Nvidia recently reported impressive earnings that put away any worries of a chip shortage. The company announced sales of $13.5 billion for the last quarter, more than doubling its revenue from the same period a year ago. Earnings came in at $2.70 a share. Analysts had predicted sales of about $11 billion and an EPS of $2.07.
CEO Jensen Huang emphasized that Nvidia is working diligently to increase its chip supply for the rest of the year and into the next. The company is projecting sales of around $16 billion for the upcoming quarter ending in October, which overshadows Wall Street's expectations of $12.5 billion. Much of Nvidia's success stems from its dominant position in the market for processors that power artificial intelligence technologies, including chatbots like OpenAI’s ChatGPT.
Nvidia's data center chip division, which was once a smaller part of the company's portfolio, has now emerged as its most lucrative segment. Last quarter, this unit generated $10.3 billion in sales, significantly surpassing the estimated $7.98 billion. Meanwhile, the gaming chip sector also performed well, reporting $2.49 billion in revenue, which slightly exceeded the average analyst prediction of $2.38 billion. Additionally, the company's automotive chip division contributed $253 million to revenue.
Huang attributes the outstanding growth to a transition within the computing industry from general-purpose computing towards specialized, accelerated computing to manage AI tasks more efficiently.
Nvidia was co-founded in 1993 by Jensen Huang, who still runs the company. He’s successfully transformed a business making graphics chips for video games into a dominant force in the market for “accelerators” that help train AI software by feeding it with data. Nvidia’s rapid introduction of ever-more powerful processors has left rivals far behind. Customers such as Microsoft and Google, meanwhile, are lining up to take as many chips as Nvidia can supply.
What makes Nvidia’s massive growth all the more impressive is that it can’t sell its full lineup of chips to the largest chip market in the world, China. The US government requires Nvidia to obtain licenses before supplying Chinese customers with its best-performing AI-related chips.
Inflation Coming Down as Powell Stresses for Caution
This week, policymakers from around the world traveled to Jackson Hole, Wyoming, for a two-day economic conference hosted by the Federal Reserve. At the conference, Jerome Powell indicated that the U.S. central bank is prepared to further raise interest rates to keep inflation in check.
While Powell welcomed the recent slow-down in inflation, he emphasized that rates would remain high until inflation shows a sustainable downward trend towards the Fed’s 2% target. The Federal Reserve appears to be adopting a slower approach to its policy, willing to proceed cautiously while continuously assessing incoming economic data.
In line with this approach, the latest data on wage growth in the U.S. could give some relief to Fed officials’ concerns about persistent inflation. According to Indeed's Wage Tracker, the annual rate of wage growth decreased to 4.7% last month, down from 5.8% in April and 8% in July 2022. This slowdown aligns with research from the Federal Reserve Bank of Cleveland, which indicated that the majority of recent wage growth was due to inflation rather than labor supply-demand imbalances.
Only time will tell whether the slowing wage growth + more cautious policy approach will be enough to steer the economy back to stable and sustainable growth.
Forecast Ahead
Big Number: 1% Down Payments on a House
Zillow recently launched a mortgage program requiring just a 1% down payment, aiming to attract buyers in an increasingly unaffordable housing market.
Initially available in Arizona, the offer comes as mortgage rates hit a 22-year high (over 7%). Zillow's 1% down payment is even lower than Freddie Mac's lowest offer of 3%, as Zillow pledges to cover an additional 2% of the down payment at closing. While the move may help Zillow compete with larger players, it could negatively impact the company's profit margins and prove costly in the long run, especially given its past struggles with an ambitious home-flipping venture in 2021.
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