NVDA YOLO – We win by keeping our heads when others lose them

To win, simply remember the simple truths and act accordingly. Don’t let anyone convince you otherwise. Don’t let the noise distract you. Don’t let market movements change your perception of reality, because they don’t decide that.

All known information is taken into account, that’s true. Its interpretation is not. It can’t be. As investors, we fundamentally disagree on how to weight all the data. That interpretation is your alpha. And then there’s the constant barrage of media stories that change people’s perceptions. Don’t be fooled by the noise. That’s your alpha.

So what is true?

Computers can now read and write. Tell yourself. Computers can read and write. If someone had told you that this would happen in 2024, would you have believed them?

The question “Will AGI happen or not?” is a red herring for nerds. A diversion. Even if the new technology stagnates here, there would be 20 years of economic gains simply because computers can now read and write.

But that’s not all that’s been unlocked, is it? They can also hear and speak. They can see and act. Self-driving cars are here. Waymo has them. Tesla will have them soon.

I am an AI engineer. I read and reread the original Transformers paper over and over again until I understood every word. That’s how I learn. Over and over again, deeper and deeper, until it all clicked. I can see with 100% confidence that the technology behind LLMs is absolutely not specific to any specific domain.

We have only just begun to harness this new power.

Inputs in. Predictions out. Past in. Future out. That’s it. It can learn any pattern in the world. Compress the information from the past into a machine that can predict the future. I don’t know how big that opportunity is. But I do know we’ll underestimate it. We always do. Unless you’re von Neumann.

This is obviously going to create a huge bubble. You can’t have that kind of transformation without people getting excited for a few years. But we’re not there yet. Look at how long the dot-com bubble lasted, and more importantly, look at the endgame – the IPO boom. Until we have a wave of IPOs, we’re not in the endgame. Until we see an IPO for SexRobots Inc., we’re not in the endgame.

Right now, we have a handful of companies beating expectations on AI revenue (good for Nvidia, long term), and some beating expectations on capex on AI spending (good for Nvidia, short term).

The current situation

Look at Nvidia’s P/E versus its stock price. We’re halfway through the year. At the end of this fiscal year, Nvidia will be worth $180 at the midpoint of this trend. It’s currently at $113. That’s a 57% return, or 157% on an annualized basis.

https://preview.redd.it/i4tguqzn8yed1.png?width=2324&format=png&auto=webp&s=d0e0112355ff9ff89dac811c03202050eadf34a6

Nvidia is down 17% from its peak. It’s hard to predict the bottom, but yesterday we saw a major flash crash followed by a rally in AV. Just like the opposite of the “blow-out” tops we see when the bull market tops.

Big sales volume, big purchases volume. Big drop, big rise.

I expect the fast bears to have taken advantage of this to get out. The slower ones will see their profits start to erode before they pull back and take their gains. The slower ones will hit their stops, and the slower ones will fall back into the red.

If you are a bear in the green, take the W and get out

Catalysts to come

Other corporate results next week – MSFT, META, SNAP, AMD, ARM

Next benefits

What are the market’s expectations for the next earnings? They say they expect $0.59 per share. But last quarter, Nvidia hit that number, on $26 billion in revenue. For this quarter, Nvidia expected $28 billion in revenue. If they hit that number, we’re looking at $0.66. But of course, they’re conservative. Why wouldn’t they? When you’re growing at 262%, you have a lot of room to make conservative estimates.

How conservative are they in general? Last time they forecasted $24 billion and they got $26 billion. If that extra amount happens again, we’re looking at $30 billion in revenue and $0.70 in profit.

My positions

$100 Call expiring 8/16 (bought +20 for $32,000)

Don’t do what I do. Buy a longer expiration date.