I have an important topic that I have been wanting to write about, but I feel like this topic today is just too important, too timely, and too much fun. We rarely have fun here at the C Thomas Printer Cooperative. This is a place of vegetables and protractors not slip and slides and pillow fights. Today we need to take a little detour from the gloom and the doom to watch a firework show. This will be something that you will tell your children about. Forget Tulip bulbs, forget the South Seas, we have Nvidia and it will go down in history as one for the ages.
I want to talk about this now because it might not be here in a week. Nvidia sold off 13% in 3 days, or roughly the market cap of Wal-mart, the world’s largest retailer. Nivida is currently valued at 40 times sales. There was a CEO during the dot com bubble from Sun Microsystems I believe, and his company was trading at a multiple of sales. He said something to the effect of if I gave you every dollar for the next x amount of years, then and only then would the valuation be justified. He was referring the multiple of sales. Nivida is trading at 40 years of sales, every dollar would be needed to justify the price. My favorite recent stat is that Warren Buffet has owned Berkshire Hathaway for almost 60 years delivering the greatest returns the world has ever seen as a capital allocator and he still hasn’t taken Berkshire Hathaway to a trillion-dollar company. Nivida has grown from $2 trillion to $3 trillion in 96 days.
Nvidia’s founder Jensen Huang is signing women’s chests and becoming a Messi-like cult figure around the globe. Women are screaming and fainting at the mere sight of the man. Tesla was an incredible bubble stock and I always like to watch how many shares of Tesla traded as the day traders fawn over Father Elon. Tesla traded 63 million shares while NVDA traded 425 million. The water cooler attention, the FOMO, the randomness of the people that are putting huge and I mean huge percentages of their capital in this one stock is incredible. The entire stock market is riding 7 stocks in the S&P 500 while the other 493 are basically flat or down on the year. They are either Nvidia or a huge customer of Nvidia. This AI craze reminds me of the dot.com melt up so much it is eerie.
This time is different is a familiar and dangerous statement when talking about the markets, but this time it feels the same. There are differences in that many dot com companies didn’t have the money making engine that Nvidia has. They were selling a computer platform and an idea at worst and an unprofitable business at best. I always pooh-pooh revenue generating companies that eschew profit because I don’t like vulnerable companies to market and macro shocks, well I love the profit generating proven power of Nvidia. I love it. This from Chris McKay in maginative.com “In Q1 FY25, NVIDIA reported revenue of $26 billion with 20.4 billion gross profit. In that same period, Microsoft reported $61.9 billion in revenue with $43.4 billion in gross profit. Apple reported $90.8 billion in revenue and $42.3 billion in gross profit.” Unlike our government, which prints money Nvidia prints profit. So why am I calling this a bubble?
C Thomas you fool! This isn’t a bubble, this is AI, this is the future. This is the greatest thing since sliced bread, sliced honey dew melon or slice proof golf balls. How can you be hating on this? I am not hating, at all. I am admiring. So it is trading at 40 times sales, so what that it was the largest stock in the market last week, so what that it is driving a boom that doesn’t work. Oops, there is the first crack in the armor. Not in Nvidia directly of course, but in its customers.
Let’s say we all lived back in the days of the kings and lords and beautiful princesses that wore corsets that made their waists smaller and their bosoms bigger. It would be a glorious time especially if you were a blacksmith specializing in watch chain rocks. Now most blacksmiths were pounding away on horseshoes, so your little business is very niche as you take a small rock and drill a very small hole in it and attach a chain. People who couldn’t afford a watch could pretend by taking the rock out of their only pocket and pretending to look at the time. Like Nvidia making GPUs or specialized computer chips, you are the only company in the land that could make chain rocks. This is where Nvidia found itself for many years. They were making chips for video gamers. These weren’t real athletes but people that sat in basements and pretending to play soldier, athlete, or Italian brothers trying to save a princess. Like you, Nvidia worked very hard and produced a great product, but all that changed.
Generative AI came along and required their particular brand of chip and then generative AI convinced a lazy society that it could do even less work if it outsourced its thinking to a regurgitated language model. This generative AI caught society at a perfect time. It was just after Covid so everyone had lots of money from not paying their rent, student loan, or electric bill. The government had been sending them checks so they were free to not work and pursue their passions. These passion projects sprouted up everywhere like bars where you could take your pet and have a beer. Nothing is more appealing than adults, playing on their phones, pausing to dip a chip, and then realizing sparky had dropped a growler on the grass and they proceeded to plastic glove up, take a swig of their beer, and manhandle that turd into a depository. After stripping the glove inside out, they would go back to their beer, dip a chip, and then proceed to play with their phone. When they would leave they would mask up so as not spread germs. This society needed to outsource their thinking and generative AI helped fill the bill by writing employee evaluations, leaving yelp reviews, and ordering door dash so they wouldn’t be bothered with driving to Chipotle because Elon Musk failed in his promise to deliver full autonomous driving 5 years ago.
Generative AI capital expenditures exploded as mega rich companies sitting on piles of cash from selling advertising to a society of consumers decided to outsource their customer’s thinking for them and that they did. These products didn’t even work, but our poopie pawed pet lover couldn’t be bothered with details. Should you eat rocks, yes? Let’s try it out. The Nazis were black and Vietnamese? I didn’t know that, how fascinating. Call it a perfect marriage of dumb and dumber. This is why I love Nvidia. They sold these chips to these companies. The companies were lined up and there was a tremendous backlog. Elon Musk of Tesla bought chips for his company only to say he was using those chips for another of his companies. Shareholders of Tesla didn’t blink and voted him a $56 billion pay package. Less thinking, more to the Mars talk Elon! This was a special society but it was exactly like the society of the chain rock wearers.
One day the King of the land, perhaps he wore no clothes, saw someone pull out their chain from their pocket and look at their rock as if studying the time before putting it away and the king was fascinated. He thought the rock chain the greatest thing ever because he had no sense of time because he was the king. Time waited on him. He had to have one at once. He simply had the subject he saw divest himself of his chain lest he end of on the wrong end of a guillotine. Now the king wore his chain rock, and he wore it proudly. He was constantly pulling out his rock and checking it like an oracle. He simply refused to talk to anyone that didn’t consult a rock of their own and soon the orders rolled into the one company that could make the rock chains. Orders for the little drills took years because a little elf had to manufacture it while on furlough from the North Pole so our little watch maker was bombarded with orders, and he soon raised his prices and he raised them more but price was no object so he raised them still more. Women asked him to sign their corsets when he ventured around town as he tended to his own sustenance. The king was the ultimate fashion maker and the large social media networks fill the same role today.
There was only one problem, the rock chains were as useless as tits on a boar, a screen door on a submarine, or a condom on a porcupine. They didn’t serve any useful purpose. If the king asked a subject a question, pulling out a chain and looking at a rock only fulfilled the same purpose as today’s stupidly overdone response, that is an excellent question. It means you need time to think about it because you don’t have the answer. They didn’t either. It didn’t matter to the chain rock maker as he was busy filling orders as fast as he could and Nvidia does the same today. It isn’t their problem that some estimate are the capital spending is 15 times larger than any revenues generated from the AI technology. It doesn’t matter to Jensen that nobody can quite figure out how to make this AI thing work. It is wrong, far too often to have any meaningful place in business and it has shown very little ability to think just regurgitate. Think of it doing from the opposite end of what the dog was doing in the beer bottle dog park. It doesn’t matter because people will simply not notice as they too are looking at their phones.
Nvidia and the rock chain magnate become historical successes, but it will be short lived. When the enthralled king summons all of the nation’s resources into producing rock chains so the people can enjoy his favorite pastime, his enemies will storm down the gates, chop of his head with a dull axe, and put his head upon a gate as a sign of what not to do. Nvidia’s customers will soon realize that despite their best efforts the product isn’t good enough. The orders will dry up, get cancelled, and soon Nvidia will go back to being a very very very rich company in a very very cyclical industry. The trillions will disappear but the company will likely still be a functioning chipmaker and we will discuss it like Microsoft. Microsoft was a company that was one of the largest in the late 1990s but then it took almost 15 years for the stock price to recover from the crash of the dot com bust. It was and is a great company but the stock took a wild ride and perhaps that is the fate of Nvidia.
The insiders are selling stock so fast at Nvidia right now it is inspiring. They are locking in these gains because they know this won’t last. The king might have ended up with his head on a pike, but the Nvidia insiders are taking their gains and going home with it. The heads on pikes will be the money managers that blindly stuck passive money into a company that is so obviously not just in a bubble but a spectacular bubble. It doesn’t get any easier to recognize than this, but some people are saying that it can go even higher and it may but there is nothing logical about it doing so. The timing of when it busts is also unknown. I could have written this last year when the market took off, but it didn’t seem relevant, but now it is because damn near every single 401k in the land is invested in this Jack and the Beanstalk fairy tale. As I remember it didn’t work out too well for the stalk. Fee-fi-fo fum!
Think about what is happening now in this recession. We start out with the most vulnerable and they are struggling to make ends meet and consuming less as their government teat money dries up like a three-year-old mother and the credit cards are being declined like another helping of garlic Kool-Aid. The large tech giants, the googles, the amazons, the metas they are all spending money like crazy but slowly their customers are buying less and less and that means that they have less cash to reinvest into crazy projects like AI. Soon the stocks take a hit and they are forced to cancel orders from Nvidia. Then Nvidia has a bad stock report and the market which is dependent on both starts to decline. The wealthy customers see their portfolios starting to shrink and cut back their spending a little more and that means the companies they buy from cut back on their advertising a little more and the cycle of doom begins with Nvidia holding a much lower stock price and hatful of cash, but the retail customer that was passively pushed into this terrible top heavy stock environment will simply provide the hat as their last symbolic loss.
I don’t know if Nvidia is done going up or if it has a few months left and many trillions to go, but I do know that it will blow up like the firework it is. This shouldn’t be surprising, it is simply the most obvious thing in the world. People are stumbling over themselves and they know it is going higher, it is C Thomas, it is they say. It has given them hope, hope for a financial miracle to save their financial lives, but they are flying with wings of pastrami. That is the great thing about bubbles, kings with no clothes, and 7th inning no hitters, no one wants to say a word before it is over because it might spoil it. Call me the party pooper if you will but you will never find me among watching dogs do their business approvingly at a dog park either. I will beg your leave today with a poem in honor of beanstalks and delusion.
Fee-Fi Fo Fum
Watching dogs poop is no fun
Fee-Fi Fo Fum
My glove split and now its on my thumb.
Sincerely Yours,
C Thomas Printer
On this date in history… 48 years ago to be exact, the CN Tower in Toronto opened to the public.
Also born on this date … an absolute giant in his field, Lord Kelvin, the brilliant mathematician and physicist.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.