Dismissing the 'Conspiracy Theories' on Nvidia, There's More Doubts Needed to Be Cleared
$NVIDIA(NVDA.US$ dilivered a remarkable earnings report two weeks ago, exceeding analysts' expectations for the second quarter and providing even stronger guidance for future revenues and earnings. Nevertheless, there are concerns about questionable disclosures and management actions that investors should take note of.
• Incredible Cost Management & Gross Margin
Nvidia's Q2/F24 revenues were $13.5 billion, which is a 102% YoY increase and exceeded analyst estimates by $2.4 billion. The company experienced significant growth in Data Centers with revenues of $10.3 billion, driven by the demand for GPUs to fuel large language models and generative AI. This amount was higher than the analysts' estimate of $8.0 billion. Remarkably, Nvidia's phenomenal growth has been achieved with little additional costs, as Cost of Revenues rose only 6.8% YoY, resulting in a remarkable gross margin of 70.1%. With such strong top-line results, Nvidia exceeded the EPS estimates with $2.48 compared to the expected $2.09.
• Confused Relationship With Its Customers
This impressive performance by such a mega-cap company is unprecedented in beating such wide margins. Surprisingly, it appears Wall Street analysts were totally out to lunch in their forecasts for the chipmaker.
The soaring demand for generative AI enabled Nvidia to achieve a significant Data Center revenue beat. But how did they manage it? Following their impressive quarter, some market participants speculated that an AI startup called Coreweave might have contributed to Nvidia's Q2 revenue beat.
The potential link between Coreweave and Nvidia's revenue beat raises concerns for several reasons:
• Firstly, as Nvidia is one of Coreweave's investors, it creates doubts about whether Nvidia had any influence over Coreweave's purchasing decisions.
• Secondly, in early August, Coreweave raised a debt facility of $2.3 billion that was secured by Nvidia's GPUs. Interestingly, this amount corresponds to the size of Nvidia's Data Center revenues beat ($10.3 billion vs. $8.0 billion estimate).
• Finally, although this practice may be legal, it highlights the need for better disclosure of Nvidia's relationships with its customers.
• Timing of Buybacks Raises Questions
Nvidia's approval of an additional $25 billion in buybacks, along with the remaining $4 billion at the end of Q2, received applause from analysts and investors.
However, their management choices regarding buybacks are perplexing. The 10Q reports reveal that the company didn't repurchase any shares in Q1/F24, but in Q2/F24, they repurchased 7.5 million shares for $3.28 billion. Additionally, they bought back 2 million shares for $998 million from July 31, 2023, to August 24, 2024. These purchases were made at an average price of $437 and $499 per share, respectively, while the stock traded above these prices for only a few days during Q2/F24. Therefore, Nvidia appears to be buying back shares at the top of the market rather than using a volume-weighted average price program to avoid influencing the stock price.
• Insiders Selling Accelerate
Nvidia's insiders have been selling their stock while the company continues to repurchase shares at record highs. In the last six months, insiders sold shares worth $234 million, excluding the CEO's proposed sale. The CFO sold $2.3 million on August 28th and $2.5 million on May 30th, among other sales.
Additionally, Nvidia CEO Jensen Huang has recently sold $42.8 million worth of stock in the company, according to new filings. The filings reveal that Huang exercised stock options for blocks of 29,688 shares with an exercise price of $4. These shares were then sold in three separate transactions over the course of five trading days. It is worth mentioning that the sale comes at a time when the NASDAQ has experienced consecutive down days, leading to some nervousness among investors.
However, Bernstein analyst Stacy Rasgon responds to these concerns by disproving the theories and offering a logical explanation for the company's performance.
• Clarification on Nvidia's Revenue And Cost of Goods
Rasgon discredits a theory that Nvidia's doubling revenue while the cost of goods hardly increased is dubious. He explains that Nvidia incurred significant charges, such as inventory reserves, in the previous year, which artificially decreased the cost of goods. After excluding these charges, the cost of goods increased by approximately 70% in the second quarter, reflecting the data-center sales' strength, and it is a standard reflection of the business's performance.
• Debunking Claims of Data-Center Sales Manipulation
There is another theory concerning GPU cloud vendor Coreweave Inc., which used Nvidia AI chips as collateral for financing. There are speculations that Nvidia may have exploited this to manipulate their data-center sales. However, Rasgon debunks this claim by emphasizing that the debt facility was announced after the quarter had ended, indicating that the chip deployment is unlikely to have occurred yet. Furthermore, he explains that Nvidia's investments in AI startups like Coreweave are beneficial to enhance its influence and counter larger cloud service providers' threat.
• Beware of Conspiracy Theories
Rasgon has an 'Outperform' rating on Nvidia's stock and discredits social media conspiracy theories, urging investors not to rely on unreliable sources of information. He emphasizes that the majority of analysts covering Nvidia have buy ratings on the stock, indicating confidence in its prospects. Therefore, investors must approach such baseless theories with caution and rely on trustworthy sources when making investment decisions.
The 'conspiracy theories' have led a larger 9% correction since establishing a fresh all-time high of $502 on Aug. 24. Despite the mentioned slide, NVDA gains still stood at 225% year-to-date. Several market commentators have rang the alarm on Nvidia as it surges to sky-high valuations, driven by investor excitement over artificial intelligence. Nvidia's stocks have formed an asset bubble following this year's stunning rally — and should it pop, that could trigger a broader market crash, investing legend Rob Arnott says.
Source: Seeking Alpha, Benzinga, SEC Form 4, Market Watch, Investing.com
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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T-Ed : If this is true, why would NVIDIA’s CEO and CFO sell their shares. They even forgo the dividend.
Broccolee T-Ed : Because cash is king
战狼(粉红) T-Ed : Because they want to reward themselves with cash for their hard work
William LEW : If this is true, this story could launch more than one movie in Hollywood. The title of the movie is: * An AI that comes out of thin air, and you'll be shocked *
conscientious Ibex_8 : The theories were in depth and the "debunking" was just, "Come on, who would do that?"
ccc7 : 。。
AMC博文 : 。。。