Lecture on Fed Commentary and Nvidia's Momentum

Jul 17, 2024

Lecture on Fed Commentary and Nvidia's Momentum

Breaking the Addiction to Fed Commentary

  • Recent focus on Fed commentary and speculation is seen as unhealthy.
  • Obsession with Fed actions has distracted from market fundamentals.
  • Fed Influence on Rates:
    • Misconception: Fed sets interest rates.
    • Reality: Fed influences but doesn't set rates.
    • Investing should be based on fundamentals, not Fed actions.

Technical Sector and Nvidia's Influence

  • General Take on Tech: Nvidia's Impact
    • Nvidia is benefiting from strong momentum.
    • Comparison to past examples:
      • Tesla (2020)
      • Facebook and Google (mid-2010s)
    • Nvidia's current state: "Everything they touch turns to gold."
  • Analyzing Nvidia's Numbers
    • Key questions:
      • What are the expectations vs. actual numbers?
      • Current perception: Nvidia will always beat expectations.
    • Stock Momentum Tied to Business
      • Nvidia's business growth in revenue and earnings is driving market expectations.
      • Interesting point: At $2.5 trillion market cap, what long-term growth rates are assumed?

Market Expectations and AI

  • AI Market and Nvidia's Valuation
    • Momentum is based on solid foundations (earnings, revenues).
    • Considerations at current market cap ($2.5 trillion):
      • AI chip market size cannot match Nvidia's valuation alone.
      • Future market exploration needed for Nvidia to justify current valuation.
    • Probability vs. Plausibility:
      • Long-term growth: Is it a possible or plausible outcome?

Private vs. Public Market Valuations

  • Valuation Gaps: IPO Observations
    • Current market conditions delaying expected tech IPOs.
    • Gap exists between valuations of profitable large tech companies and unprofitable small tech firms.
    • Disconnect:
      • High valuations in large, money-making tech.
      • Limited IPO activity due to differences in valuation expectations.

Skepticism and Future Projections for Nvidia

  • Nvidia: Is It Truly Cheaper Now?
    • Argument: Nvidia appears cheaper due to increased earnings estimates.
    • Challenges Ahead:
      • High market share and gross margins at risk from future competition.
      • High returns could attract competitors, affecting future performance.
    • Short-Term vs. Long-Term:
      • Nvidia likely to beat short-term expectations.
      • Long-term sustainability of growth is uncertain and critical.