Nvidia’s big GTC showcase barely budged the stock. Is that a problem?
The stock isn’t doing much, a day after Jensen Huang unveiled the new chip and updated manual at Nvidia’s annual GTC conference. Which raises the question: Was this year’s keynote a disappointment? Out of steam in stock? Nvidia has one of the most frustrating stocks on the market, especially for fundamental investors like us. The problem isn’t that the stock has been flat for eight months; The stock remains flat despite positive update after positive update, including blockbuster earnings reports. This makes it a classic example of a bankrupt stock, not a bankrupt company. What we’re hearing in GTC demands that we maintain the position in the name and reminds us that this is a stock to own, trade, and buy for the long term. For those who don’t own any Nvidia shares, the muted response to an eye-catching keynote presents a buying opportunity. There are many reasons why a stock might be stuck. In Nvidia’s case, this may have something to do with options market and hedging activities by liquidity providers and large shareholders, known as market makers, who “fix” the stock around current levels. Without getting too much into it, the point is that the stock’s lack of momentum may be down to market mechanics more than anything else. Could there be other forces keeping the stock in check? Certainly. We can always blame investors’ sentiment, but it’s hard to believe they’re bothered by a company that’s constantly mumbling. After all, consolidation is certainly not due to a lack of growth. Annual revenue growth is expected to accelerate in the next two quarters. What’s on the horizon, because we know some investors are always worried that AI spending has peaked. One of the key headlines in Jensen’s keynote was the announcement that Nvidia has high visibility into at least $1 trillion in revenue from Blackwell and Vera Rubin between 2025 and 2027. In fact, Jensen told us to expect sales increases of several billion dollars in each of the next eight quarters. Grace Blackwell is Nvidia’s current-generation AI computing platform. Rubin is its successor and is set to be released later this year. As for the keynote, analysts expected total data center revenue to be about $960 billion in this three-year period, according to FactSet. This represents an increase of approximately $40 billion over the next eight quarters, or approximately $5 billion per quarter. More importantly, the $1 trillion figure looks like a revenue floor, not some wildly speculative view from management. Why: Only covers high trust visibility into sales for Nvidia’s Blackwell and Rubin era systems. Jensen made that clear in an interview with Jim Cramer on CNBC earlier Tuesday. In other words, that figure doesn’t include Nvidia’s fledgling business selling discrete CPUs, which Jensen on Monday described as a multibillion-dollar business opportunity. Since Nvidia introduced its first central processing unit (CPU) in early 2023, it has always been selling them alongside simple graphics processing units (GPUs) in server racks. It also doesn’t include standalone network sales or the new Groq-powered inference chip. The omission of Groq is particularly notable given that Jensen has said he believes about 25% of the workloads that will run on Vera Rubin would benefit more from running on Groq’s inference-focused chip. The $1 trillion revenue purview doesn’t include any of Nvidia’s segments outside the data center; Arguably the most exciting one is the automotive business. While it’s roughly 1% of last fiscal year’s sales, Nvidia’s auto unit has the potential to generate billions of dollars in recurring sales over time as autonomous vehicle technology improves and more driverless vehicles hit the roads in the coming years. So what do we do if no amount of good news can get Nvidia shares on the rise again? For starters, we should remember the investing rule that “giving up value is a sin.” We must also remember that in the near term, the stock market is a voting machine. But in the long run, this is a weighing machine. Nvidia became even more valuable during this pause period. When a company’s share price remains unchanged but its earnings continue to rise, its stock becomes cheaper as the day is measured by its price-to-earnings ratio. For now, no one seems to care that Nvidia’s P/E ratio has narrowed since the summer. The market is in voting machine mode. This could last a while, and it certainly did. Investors were given reasons to conclude that Nvidia’s growth could not be sustained; customers’ “reckless” drain on their cash flow, a war in Iran, supply chain bottlenecks and competition like Google’s in-house silicon. At some point the increasing weight of earnings growth requires attention. We believe the market will eventually be forced to accept that the stock is trading at a much cheaper valuation than previously thought. We don’t know exactly when this will happen or what will cause it. Perhaps it will be on the back of another announcement, such as strong earnings pressure or capital spending guidance from a major customer. Without a crystal ball, it’s better to stick with the stock and wait for the market to come to its senses rather than trying to trade the name. Considering what we know about Nvidia’s business accounts for this year and next year, the stock’s valuation is starting to get a bit ridiculous. We are not alone. Bernstein analysts told clients Tuesday morning that the stock looks “almost meaninglessly overvalued.” Nvidia shares are trading at about 17 times the 2027 earnings per share (EPS) consensus of $10.68, according to FactSet. It’s even cheaper than that, given that analysts have probably reworked their models to account for Jensen’s $1 trillion announcement. Analysts at Cantor Fitzgerald actually see a path to $15 earnings in 2027, and if that happens it would be around 12 times the stock’s 2027 earnings. As of Tuesday, the S&P 500 was trading at about 18 times 2027 earnings estimates, according to FactSet. Of course, there are still months until 2027 begins. But this does suggest that if Nvidia doesn’t nab a bid soon, we’re likely looking at a stock trading below 15 times forward estimates; Assuming analysts revise their earnings estimates upward and Nvidia books additional orders for 2027. This could happen by the end of this year. At this point, the stock will become very difficult to ignore. In what world should the dominant maker of AI chips be trading at a lower valuation than spice maker McCormick, which is currently trading at around 17 times its 2027 forecast? This is not a knock on McCormick. It makes great seasonings, especially Lawry’s, which is pretty good for canned tuna by the way. However, this is not a technology that is developing at exactly the same level as electricity or the internet. No matter how annoying this consolidation process is, we must remember that investing is about discipline and the disciplined thing to do is to wait patiently and even take advantage of those who give up in disappointment and leave the stock. We are aware that there is an opportunity cost in holding a stock that is of no use for a long time; However, it’s important to recognize that despite this eight-month period of inactivity, the stock is still up more than 50% in the past year. We think there’s a chance for further upside as we head into 2026 and the stock becomes too cheap to ignore. (Jim Cramer’s Charitable Trust is long NVDA and GOOGL. See here for a full list of stocks.) 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