Hi Multis
They say meeting your heroes often turns out to be a disappointment. For me, it was even better than I could have ever imagined.
On Thursday, I got to spend a few hours talking with David Gardner in Dublin, and he even bought me a Guinness. I also got to wear his legendary jester hat for a moment.
I don’t know if many of you know him, but David Gardner co-founded The Motley Fool with his brother Tom in 1993.
He is an independent thinker in the stock market who has openly shown people how he picked dozens of stocks that went on to multiply many times over. He picked at least 7 stocks that went up more than 100x.
Nvidia is up 1,425x since he first bought it in 2005. That means every $1,000 invested turned into $1.425 million.
But it’s not really about the money. It’s about the way he approaches life.
He knows money is a nice bonus, but far from the most important thing in life. For example, he owns 679 board games and plays a game every single day, either in person or online.
There aren’t many people I truly look up to. A few years ago, I was standing just a few meters away from Bill Gates in Omaha, and it didn’t really do anything for me. While I have respect for what Bill Gates built out with Microsoft (how could you not?), I never saw him as a personal example of how to live a good life. Mind you, that was before the whole Epstein thing associated with him now came out.
David Gardner was a huge influence on Potential Multibaggers. I’d say Potential Multibaggers is 50% David Gardner, 25% Phil Fisher and 25% everyone else combined (with Peter Lynch and Charlie Munger leading that pack).
This is how David signed my copy of his book.
Every speaker tipped three stocks, so David Gardner did this as well. Two are Potential Multibaggers already: Mercado Libre and Axon Enterprise. I have been looking at the last one quite intensely lately. Not because David Gardner called it, but because the stock price is down so much: Intuitive Surgical. I will not be a Potential Multibagger, but I could see myself buying it for my portfolio. It’s having its second-biggest drop in the last decade.
Last month, I discussed the idea of buying Intuitive Surgical with a friend in this business. He had talked about this stock to doctors, all specialists. All knew and loved this brand and that’s usually a very good sign.
I also discussed the most recent Potential Multibaggers stock with David Gardner and let me tell you, he’s also very excited about this company.
That leads us to the next part of this Overview Of The Week.
Articles In The Past Week
This is just the second article this week, but that doesn’t mean you didn’t have enough to read. The first article of the new Potential Multibaggers pick goes deep and it’s as long as three typical articles. You can read it here.
Memes Of The Week
No memes this week, I thought. And then I saw this headline. It’s not meant as a joke, but it is one.
This is like excluding Lionel Messi from the 100 greatest soccer players, Usain Bolt from the 100 greatest sprinters and Tom Brady from the 100 best quarterbacks. In other words: utterly ridiculous. In the previous years, Jensen Huang had always been included, so it was a deliberate and extremely dumb intentional choice.
Interesting Podcasts Or Books
Even the book I will be talking about has a link with David Gardner this week.
And, no, I’m not talking about his own book about investing, which I highly recommend. I have three copies. I have already listened to the audio version, I pre-ordered the hardcover version before it was out and let David sign that one. It will be on a bookstand in my library soon, next to my other investing idol, whom I look up to at least as much, if not more, for his life wisdom as for his investing: Charlie Munger. The third copy is the paperback version to annotate. I’m reading that one now and adding my own thoughts in the margins.
But I’m always reading multiple books simultaneously, and that’s the case right now as well. The book is called The Score.
I listened to David Gardner’s interview in his series ‘Authors In August’ and I decided to buy the book right away. I not that far yet, but I really like it already.
You can listen to the interview with C. Thi Nguyen here.
The markets in the past week
So, what did the indexes do this week? Let’s find out.
As you can see, there’s a discrepancy between the S&P 500 and the Nasdaq at one side and the Russell 2000 on the other hand. This is the reason.
As you can see, of the Mag7, only Tesla was down. This made the difference compared to the Russell 2000, where the Mag7 is obviously not in.
The Greed & Fear Index remained in NEUTRAL.
Quick Facts
1. The Nvidia Earnings
As many of you will know, I’ve been an Nvidia shareholder since 2017. In 2020, I sold a big part of my position to buy a car but I built up my position again from that point and multiple of my buys after that are also up more than 10x.
This week, the company reported its earnings. Let’s look at the numbers first:
The numbers:
Revenue: +106% YoY to $96.2B, a $4.1B beat (4.4%).
Gross margin: 75% GAAP and non-GAAP
Operating margin: 66%
Non-GAAP EPS: $2.22, a $0.13 beat, +128% YoY.
GAAP EPS, fully diluted: $2.46, +128% YoY. This includes Nvidia’s stakes in other companies and that’s why non-GAAP is better in this case.
Data Center: $89B, vs. consensus of $85B, +117% YoY and +18.3% QoQ.
Hyperscale $48.7B, +13% QoQ
AI Clouds, Industrial & Enterprise $40.3B, +25% QoQ and +138% YoY
Edge Computing: $7.2B, +27.5% YoY, +13% QoQ.
Operating cash flow: +57% to $24.1B,
Free cash flow: +59% to $21.3B.
Capital return: $20B buybacks, $6B dividends in this quarter. That’s 60% of the free cash flow vs. a target of 50%.
Q3 guidance: Revenue $108B +/-2%, +12% QoQ and +89% YoY, $3.4B better than the consensus. Gross margin 74%.
FY28 guidance: This was very strong: revenue growth of 70%, not comparable to the consensus of 44%.
This is crazy, never seen before. The fact that Nvidia, the world’s largest company, keeps growing by more than 100% is just breathtaking. It added nearly $15 billion in revenue sequentially and it said to expect to add another $12 billion next quarter.
This was the fourth consecutive quarter in which revenue growth accelerated, which is against all odds for a company of this size.
But the biggest news was that CFO Colette Kress guided for 70% revenue growth for next year. Wall Street looked like a fool with that 44% revenue growth consensus. To add to that humiliation, Nvidia’s executive said it would have doubled if there had been no memory shortage.
Probably, Nvidia will do better than that guidance again. So, it could end up with $680 billion in revenue next year. That’s more than Alphabet and Apple, with higher margins.
Seriously, who are the people who are bearish about either Nvidia or memory companies like Micron?
So, why didn’t the stock shoot up, as you would expect after such incredible earnings?
To be honest, I don’t know. Some pointed at the margin guidance. Nvidia sees them drop from 75% this quarter to 74% in Q3, 71%-72% in Q4, then 72%-73% for FY28. The culprit is memory, which sees “extreme pricing conditions.”
But seriously, if a company guides for 70% revenue growth, saying it would be above 100% without constraints, and you are bearish because of a margin that might drop (it’s just guidance), I think you focus on the wrong thing.
If you look at this, you also see something incredible.
I think it’s safe to say the consensus is too low, as not all analysts have already updated their guesstimates. But even with these, the stock is very cheap.
The forward PEG divides the forward PE by the growth. Lower than 1 is cheap, between 1 and 2 is fair, above 2 is expensive.
Nvidia has a forward PEG of 0.25 for this year (even if the company only reports in January). For next year, that’s 0.22. So, the stock is still incredibly cheap.
And if you think that Nvidia is not profitable, its profit in the last quarter was bigger than that of 12 iconic companies, including Apple, Walmart, and Coca-Cola.
2. Warren Buffett Turns 96
Today, Sunday, August 30, Warren Buffett turns 96. He is not the CEO and Chairman of Berkshire Hathaway anymore, but he still goes to office every day. Recently, he announced that he was the one behind the big Alphabet investment, not Greg Abel. So, he is still very much active.
Last year, for his 95th birthday, I compiled 95 lessons from the investing GOAT. 95 quotes and a short takeaway from each. The document is chock-full of his best insights. You can find it here.
3. The Return of all Nasdaq 100 stocks
This week, I saw this and I think it gives a good overview of all the Nasdaq stocks.
Below the line: the warning I have about one of my picks after its outstanding earnings, a new stock on my radar, the new chip that surprised everyone, the legendary CEO stepping down and much more. Don’t want to miss all the valuable info?