Hi YXI friends,

Today, we are going to look at Nvidia (NVDA), the world’s third most valuable company after Apple and Microsoft.

A key question on everyone’s mind is that after reaching the all-time-high of $140 in June, has the stock price peaked for good? And importantly, what should we expect on Wednesday August 28th, the next earnings report?

As usual, we approach the analysis of NVDA through a set of fundamental analysis, comparable valuations, discounted cash flow analysis, and technical analysis.

Spoiler alert - NVDA’s fundamentals and price action may not align.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. You can’t dig up gold without a shovel

If you listened to the earnings calls or company interviews of AMZN, GOOGL, MSFT, META, and TSLA Chief Executives, they all claim to be great Nvidia customers.

Cloud Service Providers (AWS, Azure, Google Cloud etc) need a tonne of GPUs for their AI infrastructure and services. Meta needs GPUs to power their social media addiction algorithms. Tesla needs Nvidia’s platform to power autonomous driving. Then you have the gaming industry that requires high-performance graphics rendering for video games. The health industry needs GPUs to do medical imaging, drug discovery, and genomic analysis. Architects, engineers, and entertainment companies need GPUs for advanced visualisation tasks.

So yes, AI is going to be everywhere. It doesn’t matter if it will be. It matters if companies think that it will be. That’s why the largest companies in the world are engaged in an extremely competitive AI race. Their CapEX is ballooning, and not going to slow down any time soon. Web3 is so yesterday.

Technology goes through cycles. This means with every hype, there draws real customer demand for companies like Nvidia, who’s selling shovels for companies to realise their dream visions. But with every cycle, the customer demand leads to oversupply, when people realised either 1) innovations are not breaking through nearly as fast as everyone imagined at the beginning, or 2) there are much fewer real use cases for the new technology than people initially hoped.

Where are we in that cycle?

2. How NVIDIA Makes Money

Nvidia makes money by selling its graphics cards (GPUs), computer systems, and software across four key markets: Data Centers, Gaming, Professional Visualisation, and Automotive.

Data Center is by far the biggest revenue driver of Nvidia’s revenue, accounting for 87%. Nvidia’s Hopper and Blackwell platforms are used for AI training and high-performance computing.

Gaming accounts for 10% of the overall revenue. Professional Visualisation 1.6%, and Auto just 1.3%.

Needless to say, NVDA’s business in the past two years has been nothing but phenomenal. In Q1 FY25 (the latest quarter), Data Center revenue grew by 427% YoY. Now, if you compare with NVDA’s stock price going from $30 before Q1 FY24 report to $110 after the Q1 FY25 report, it sounds totally rational.

As you can see on the chart above, Gaming and Professional Visualisation revenues are still growing very quickly, but are already slowing down a lot compared with Q3 and Q4.

3. Growth on a rocket ship

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