Decoding The NVIDIA Trade — With Michael Batnick

Michael Batnick is managing partner at Ritholtz Wealth Management and co-host of The Compound and Friends Podcast. Batnick joins Big Technology Podcast for a conversation that asks all the questions about NVIDIA's historic run. We cover the valuation, volatility, competition, chances to keep going, and AI fatigue. We also ask whether NVIDIA could give up its gains just as fast as it built them, whether it will become an Apple-like fixture in portfolios, and how algorithmic trading might play a role in its massive growth. ---- You can subscribe to Big Technology Premium for 25% off at https://bit.ly/bigtechnology Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Questions? Feedback? Write to: [email protected] Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

  Let's decode the Nvidia trade, examining why it became the world's most valuable company last week and what comes next with one of the world's most astute investors. That's coming up right after this. This episode is brought to you by Genesis. What does it actually take to put Agentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience and what companies need to get right in the AI era. Then I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large-scale Agentic CX transformation, including the business decisions, trade-offs, and lessons along the way.

• 0:42Alex Kantrowitz?

  You can watch both conversations now on my YouTube channel today. It's never been more challenging to get frontier compute. How do you know where to look, who to trust, or how much to pay? Akash is an open cloud that provides easy access, flexibility, and peace of mind. That's how companies like Razer were able to cut their inference cost by 15 times. Visit akash.network/alex for a free consultation. That's akash.network/alex for a free consultation.

• 1:14Alex Kantrowitz?

  Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. We're joined today by the great Michael Batnick. He's a managing partner in Ritholtz Wealth Management. He's the co-host of The Compound and Friends, which is one of my favorite shows, and also the host of the Animal Spirits Podcast, Michael Batnick. Welcome to the show. Great to have you here for the first time.

• 1:33Speaker 01

  What an introduction. World's most astute investors. I've definitely never been called that before, but thank you for having me. I'm excited to talk about Nvidia and all things tech.

• 1:39Alex Kantrowitz?

  Yeah, well, you guys were in Nvidia way, way early, and so I think it's well-earned.

• 1:43Speaker 01

  I wasn't. I wasn't. Josh was.

• 1:46Alex Kantrowitz?

  Okay, so Josh Brown, I mean, anyway, it's group credit here. We'll give you guys.

• 1:51Speaker 01

  Listen, I followed Josh into enough things. All right, he got lucky on this one. Credit to him.

• 1:55Alex Kantrowitz?

  Okay, sounds good. So let me read you a couple of stats about Nvidia. We're obviously like talking, it's been a kind of an interesting week. They were the world's most valuable company for a minute last week. They've fallen a little bit back to earth this week, but still they are, they've done incredible this year. And they are really the story of this AI boom. So this is what we can say about Nvidia today. They are a $2.9 trillion company. They're up 145% year to date. They've added $1 trillion in market cap since February. And this is from Fortune, if Nvidia were to lose the gains it has made this year, overnight, the S and P 500 would have to come down approximately 4.5%. So they're really carrying the market. First question for you, is there any precedent here? Like, is this something we've seen before?

• 2:40Speaker 01

  No, it's a short answer. And I'll just say in fairness to the comment I made about Josh, years ago, he was actually dead right on this. I remember he wrote a great blog post saying that semis were the new Dow transports. The way that information is disseminated, it's no longer on rail, it's on these little tiny chips. And he absolutely nailed that trade. To answer your question, has anything like this ever happened? There have been lots of fabulous growth stocks over the years and decades. But there hasn't been, at least as far as I know. In fact, you know what? No, there hasn't been. There has never been a company of this size, growing this quickly.

• 3:22Speaker 01

  In May, the company reported in the data center alone, 400, this is obviously their main business, 430% year over year revenue growth. Overall revenue growth was 262%. You've never seen a company in the trillions of dollars growing their top line and bottom line this quickly.

• 3:46Alex Kantrowitz?

  Right. But the question is like, how do you value the company? Because there were the... Right. So there were two interesting headlines in Bloomberg over the past couple of days. Like, side by side, one was like Nvidia is growing so fast, Wall Street can't keep up. And then the next one was Nvidia enters a massive correction. So let's go one by one on those. So the first one, in terms of being able to value the company. So this is from Bloomberg. "In the age of artificial intelligence, no one can figure out what the chipmaker's revenues are actually going to be, not the Wall Street analysts covering Nvidia or Nvidia executives themselves. Analysts aren't making up numbers. They take their cues from management like they do with every other company.

• 4:25Alex Kantrowitz?

  However, even Nvidia's leadership is struggling to anticipate how much money the chipmaker will generate three months into the future." And this is the actual data. "Since Nvidia's sales began exploding in the fiscal quarter that ended in April 2023, revenue has exceeded the midpoint of the company's own forecast by an average of 13%." So basically Nvidia is setting this bar for what it expects to earn and just blowing it out by double digits almost every quarter. And then the question is, okay, so how do you value it? Because it is somewhat expensive if you look at its valuation, according to this story at least.

• 4:58Speaker 01

  It is somewhat expensive. I think the easiest historical analog that people are comparing Nvidia to is understandably the dot com boom and bust in the late 90s. And Cisco was the poster child for that. Cisco got as expensive as I think it was 130 forward times earnings. Right now Nvidia is trading somewhere between 40, let's call it 40 times forward earnings. And the question, Alex, as you stupidly asked, is like, well, what is the proper valuation? And this is what makes it so fun and so exciting is you don't know. We'll find, I'll tell you what the proper valuation is three years from now. We'll find out what it was. But what should a company trade at that is growing this quickly?

• 5:43Speaker 01

  That is defining a new category that can be world changing? That has margins like this, that has no competitors? I don't know what the right answer is, but it probably shouldn't be traded at a market multiple, call it 20 times or so. So it certainly has earned a premium that it's trading at. The question is, okay, yeah, growth stocks deserve a premium, but how big is too big?

• 6:06Speaker 01

  And can a company that's in the trillions now $3 trillion, and it just became the largest company briefly for minutes or passing Apple and Microsoft, it's only the 12th or 13th company over the last 100 years to wear the crown of the number one company in the S and P 500. There's not been a lot of turnover at top. There's only 12 names and Nvidia is one of them. And so I would argue, and I think there's a, there's a ton of arguments on the internet about is this a bubble? Does this make sense? And you've got the market people like myself talking about historical precedent and growth rates and assumptions. And then you've got sort of generalist business people talking

• 6:51Speaker 01

  about, well, doesn't competition have to come in? Their margins are unsustainably high. But I think what is missing from the conversation is like actual experts that might have more insight on the business and how quick they can grow. Of course, we're all sort of estimating and guessing the best we can. So I don't know what the proper multiple should be for this company, but it is doing something no company has ever done. It continues to beat the loftiest of estimates. And as long as it does that, I actually, I shouldn't even say that. I was about to say as long as it does that it's going to be fine. Who knows? It might, there could be a point in time, one of these quarters where it does beat and the stock drops 20%. You can't predict how the crowd is going to react. You just can't.

• 7:37Alex Kantrowitz?

  And I'm going to get into some of the objections that people have on Nvidia and we can go through them, including the competition side in a bit. But let's talk a little bit about what happened this week with this kind of, I called it a massive correction. It's actually a mini correction, but it's just a lot of money. So this is again from Bloomberg, like a day after Wall Street can't keep up. It says Nvidia enters correction territory as slump erases $430 billion in market cap. Like, you know, that's a, that's a lifetime of work for most companies, but it's a week of losses.

• 8:05Speaker 01

  There's, there's 14.

• 8:09Speaker 01

  There's 14 companies in the S and P 500 that are bigger than the market cap that was raised in three days. That's it. Only 14 companies are more than $430 billion. That's, that's as big as Mastercard and it did it in three days. So yeah, the, the numbers are getting like alarming and startling.

• 8:25Alex Kantrowitz?

  Right. And this is from, from the story, the Nvidia entered correction territory on Monday as the ongoing sell off erased a historic amount of value for the AI focused chip maker. Actually, I'll pick a bone with the chip maker detail, but we'll go, we'll go through that in, in a bit. It said the stock fell 6.7%. The, and the three day drop erased 430 billion of Nvidia's market cap, the biggest three day loss for any company in history. So is it just that with Nvidia, where because it's growing and because there's so much volatility or because there's like so much uncertainty, there's going to be volatility? Is that just something that's going to be baked into it?

• 9:04Speaker 01

  What happened over the last three days is abnormal in terms of the market cap losses, but for a company that's doubled and doubled again and doubled again, or whatever the performance has been, for it to lose 13% in three days is completely normal. I mean, that is, there's nothing abnormal about that, except for the size and the mag, you know, the magnitude of the drop. And matter of fact, it, so it had a 13% drop, give or take over the last three days. It did that back in April. Remember the correction back in April, which actually came and went. So the stock was in a, was in a 20% drawdown. And I think we sort of forgot about it because since that drawdown, it, it almost doubled. And again, that drawdown that I'm describing

• 9:47Speaker 01

  happened from April to May. And then from, from then to here, the stock almost doubled.

• 9:53Alex Kantrowitz?

  That's crazy. Yeah. And when you talk a little bit about valuations, talking about it shouldn't have a market valuation, but it could have a growth valuation. So can you explain a little bit about what you mean there in terms of like, all right, so it's making a certain amount of money. We're not going to value it as every other company in the stock market, but there's that, there's another range that it should be in.

• 10:14Speaker 01

  Yeah. So Nvidia has gotten cheaper over the course of the run because the fundamentals have outrun even the incredible share price. So over the last, so last year Nvidia earned a dollar nine. That was their earnings per share. Over the last 12 months, it's done $6.12. So its earnings per share has sextuppled over the last year, which is astronomical. So stocks like air quotes are a discounted cash flow, right? You discount all the future cash flows and you get to a current value. You use some sort of discount rate, whatever the appropriate may be, which of course, nobody knows. We're all guessing.

• 10:57Speaker 01

  And so with a company like this, where it is growing so quickly, it's not what did it earn last year? Or what did it earn this year? It's what can it be, what can it be expected to earn over the next 12 months, over the next 24 months? And you never really know how far out the like we are going when we discount these things. But the fact is that valuation matters and it doesn't matter. It doesn't matter today because the buyers today are momentum buyers. And that's not, that's not disparaging. Momentum is a great strategy and momentum buyers of Nvidia have been rewarded heavily. And momentum buyers of all big tech have been heavily rewarded. But I don't think the marginal buyer today really gives a shit about what Nvidia might earn in 2026.

• 11:42Speaker 01

  They just don't. Now, it will matter because these are actually businesses that we're investing in. And in this respect, Cisco might or might not be a good analog, but there is a potential lesson here to learn.

• 11:57Speaker 01

  Cisco, the business compounded its earnings at something like 15% in the 15 to 20 years after the bubble burst. The stock got destroyed because it wasn't discounting 15 to 20% earnings per share growth. It ended up discounting like 40 to 50%. And so valuation matters eventually.

• 12:21Speaker 01

  But if Nvidia can continue to do what it's been doing, and that's beyond, you know, I have no idea. But if it can, if it can do, I'm making this up, $8 next year, $10 the year after, $14 in 2027. The stock can be at a, the stock can be $5 trillion.

• 12:40Alex Kantrowitz?

  That's crazy. So yeah, let's, let's talk a little bit about the objections to like, you know, this is sort of the bull case. Here's the bear case, right? Or actually, maybe just some general questions about this run and whether it can keep going. First question I have for you is, is this something that is kind of like the next Tesla, right? Like Tesla sort of became something of a meme stock, like it had earnings, but it also became this like place where you put money if you believed in like the EV revolution and just wanted to, you know, park your money somewhere. And it was like worth, you know, multiple times of a Ford, even though it was selling less cars than a Ford. Uh, is this something that could happen with Nvidia that like maybe some of the Tesla money has flown into Nvidia and it becomes something of like a,

• 13:23Alex Kantrowitz?

  you know, almost a bigger game, maybe like a GameStop with, with earnings?

• 13:28Speaker 01

  Yeah, it's an interesting question. Two things have happened over the last couple of years in businesses that parallel each other that I think are really fascinating. One is, is Tesla. And you mentioned Ford and GM and everybody else chasing Tesla because they were taking a lot of market share, creating a new category, uh, the electric vehicle. And it was, it was growing rapidly. But then competition came in too heavily. They overproduced and now there's too many EVs and uh, there's too much supply and these companies are not doing well. The same thing happened with Netflix and all of its competitors. Everybody saw what Netflix was doing with streaming and of course the, the competition didn't want to cannibalize itself,

• 14:09Speaker 01

  understandable. They were late to do so, but then during the pandemic, everybody was watching Netflix and the stock price was being rewarded because these, these SaaS businesses or the, the recurring revenue businesses, um, were trading at a ridiculous premium. And so all of their competitors jumped into the deep end. And what they really did was they followed the Roadrunner off the cliff.

• 14:36Speaker 01

  And I think the question is, is a similar trajectory going to happen with Nvidia? Are its competitors, are, I don't even know who their competitors are, honestly. I don't even know who does what they do. I know some of the other names, but the question is, are they going to overbuild for an AI world? That might not be quite as powerful as everybody is projecting. Another bear case, which I'm sure we're going to get to is, and maybe this is bearish, maybe it actually, maybe it's actually bullish. The fact that so many of its, of its revenues is concentrated in five customers. Is that, is that a good thing? Because what happened with Cisco is that all of its customers basically went bust. Right? But the, but the flip side is like, okay, well, how much?

• 15:20Speaker 01

  How much is Amazon going to, to buy from Nvidia and the, and the other players? Like, how much is Facebook going to spend? Did they already spend 80% of what they're going to spend in the next three years? I don't know how, how financially intensive these businesses are. I mean, obviously you know a lot better than I do, but I think that's, that's the big question is what does this look like? How much do their customers spend and where, when does competition really come in?

• 15:44Alex Kantrowitz?

  Right. And like something like 45% of Nvidia's data center revenue is coming from the big cloud providers like those five customers. Right? So I'm curious, well, you brought it up. Do you think that it is a liability or, or a strength?

• 15:57Speaker 01

  I think you can make both, you can make good points on both sides.

• 16:01Alex Kantrowitz?

  Yeah, talk us through the argument.

• 16:02Speaker 01

  Yeah, I, I think, I think the bull case would be these are the biggest companies in the world.

• 16:08Alex Kantrowitz?

  Right. They're not going to go under like the Cisco buyers.

• 16:10Speaker 01

  Exactly. They have the best balance sheets. They're spending billions, billions of, on R and D a year. I don't know what the number is for some of these companies, but I think, I think is Apple spending $25 billion a year on R and D? Whatever the numbers are, they're, they're, they're immense. And so they've got the pockets and they are committed to funding the next big thing. This, this AI thing, whatever it turns into. Then I guess the flip side would be. Okay, but that's like baked into the pie. Like even if you assume that their that their prior spending is going to continue, where are the incremental buyers for these data centers? I don't I don't know. Well, I mean, what's your take? Is that bullish or bearish?

• 16:55Alex Kantrowitz?

  Yeah, it's it's a good question. I mean, the whole thing is predicated on whether this AI quote unquote revolution will continue to go apace. Because the technology is good enough right now that it's worth investing in for companies who want to build with it. But it's not mature enough to the point where like it's a definite game changer. It's like a it's almost like potential game changer. The good thing and the good news, and I think this is why like there's a floor here, is because, and we talked about this a little bit on the compound when we spoke a couple of weeks ago. These companies will continue to use Nvidia chips even if generative AI sort of hits a wall. Right, like those chips are very useful to do ranking on reels or to help with the metaverse.

• 17:33Alex Kantrowitz?

  So Meta, as Meta which said this year, it's going to go from 350 to 650,000 Nvidia H100 GPUs or equivalent, which is an incredible increase, right? Like they're going to continue to spend on it because it makes the entire product better and is used in the AI that sort of underpins everything. But you would need to see more progress in this generative AI move. Talking about better chatbots, but also capabilities like agent like behavior and reasoning that can sort of unpack a command and like go through a bunch of different steps. And we're not 100% there yet. So it seems it seems like they are going to be able to continue to sell and they are going to be able to sell to these customers. But there is still that big question mark of like, where does this all end up?

• 18:18Alex Kantrowitz?

  And from everything that I hear, it's going to be the next 18 months that will basically decide. Like if they do 18 more months of development of these models within OpenAI, within Anthropic, within Microsoft and Meta, and don't see sort of step change increase in results, then this thing is going to slow down. But if they continue to see the the results they've seen through each generation of the models. Then I mean Nvidia, you're right, could just keep selling like crazy because and this is sort of like the thing I was pointing out when I poked out the chipmaker title is it's just not the chips. It's the chips, it's the software used to train and it's the networking, the even the bands between servers that will allow the companies that are training on Nvidia models to be able to do more efficient and better training.

• 19:02Alex Kantrowitz?

  Or sorry, on Nvidia chips to be to do more efficient and better training because everything is just so connected where like you look at the competitors and they don't have it. So like when you asked before, like, what's the competition to Nvidia? My, my perspective on this really is that the competition is the AI boom slowing down more than it is any other company that's going to come in and take their lunch.

• 19:22Speaker 01

  So you mentioned like we'll know in the next 18 months or so, whether or not businesses are getting an ROI on all the spending because right now we know that they're not. I forget what the numbers are, but for every $10 billion spent, they're whatever it is, it's moving the revenue by like 3%. But do you think that they're going to get the ROI necessary to continue to spend?

• 19:44Alex Kantrowitz?

  I think that that's a great question. I think that's, so I think within the next 18 months, we're going to know if the models get better. I think the ROI question might be even further pushed out. And so we haven't heard a lot of clamoring about ROI yet. Like there's this one like Sequoia capital number that's been thrown out that like 50 billion for every 50 billion spent, maybe 3 billion has been returned.

• 20:04Speaker 01

  Right.

• 20:04Alex Kantrowitz?

  Which is really, really bad.

• 20:07Speaker 01

  But it's the top of the first inning, no?

• 20:08Alex Kantrowitz?

  Exactly. So it's so.

• 20:10Speaker 01

  Is that number even relevant at this point?

• 20:12Alex Kantrowitz?

  No, but it is a preview of what we're going to start to see as we sort of, as these timelines get extended further, right? Because like right now, there's this sort of move because the improvements are so close, like the potential improvements are so apparent that people are willing to spend because they think they're coming. But if they, if they don't come, then the ROI question becomes much more clear because you're not looking at like, all right, if we spend this this year, we're going to get this, you know, in one or two years. Right? Is it, it's like, you know, are, how, how can companies basically say, stick with us? It's going to be a five year project or a 10 year project. That's, it's not really done often in software projects.

• 20:50Speaker 01

  Well, they're able to do soft, semis have typically been a very cyclical industry.

• 20:55Alex Kantrowitz?

  Right.

• 20:55Speaker 01

  And there's no real reason to expect this to be different. If the economy were to go into a recession, you would think that these companies would pull back, no?

• 21:05Alex Kantrowitz?

  Yeah, exactly. So, and that's sort of another question that I had for you is, which is, you know, there are all these different things that could happen in this, in this moment, right? Is it a change in the AI story? Is it a move to, let's say, a drawback in the economy? And is it possible for the, sort of the, the money to flow out of the stock as fast as it went in?

• 21:27Speaker 01

  Hmm, that's a good question. Uh, yeah, but listen, I mean, we just saw a 20% drawdown that happened in a couple of weeks. And like I said, it, it gained like 90% after that. So I'm talking about from, when did this peak? From March, over, I don't know, a five week period, it lost 20%. But I guess what I would say is, can this thing get cut in half? Absolutely, it can get cut in half. But does that prove the, does that prove that the bears were right? I don't think so. Growth stocks get cut in half all the time. Nvidia, I mean, this is, this is obviously very different because the business was different. Uh, this is, this is pre the gigantic data set of revenue

• 22:08Speaker 01

  growth, but Nvidia lost almost 70% of its market cap a couple of years ago.

• 22:13Alex Kantrowitz?

  Right.

• 22:14Speaker 01

  So can you see a spectacular crash in this thing? Sure you can. I sort of feel like too many people want that to happen for that to actually happen.

• 22:25Alex Kantrowitz?

  Why do they want that to happen? Yeah.

• 22:26Speaker 01

  There still seems to be, and it's, listen, I'm, I'm making this up. It's hard to like, it's hard to like, I quantify what I'm saying here. But there still seems to be a lot of doubt. But listen, again, for every doubt, you could say, hey asshole, it's 3 point, it's 3.3 trillion dollars. What are you talking about doubt? I guess what I would say is, if I had to guess, and we're all just guessing here, these things, these things end in bubbles, usually. And as dumb as you think they might be, they always get dumber. And have we reached the level of sufficiently dumbness? That's like the $3 trillion question. Who knows?

• 22:59Alex Kantrowitz?

  Yeah. And we gotta go to break. But before we do, I gotta ask you one question. What did Kathy Wood see when she decided to sell so much Nvidia before the whole run up?

• 23:08Speaker 01

  Yeah, this is, I was talking about this, uh, the other day. I don't like to kick people when they're down, but, uh, this is a tough one. It was a really tough one. She, um, she sold it before the run. And

• 23:22Speaker 01

  Listen, she has a difficult job, but to make matters worse, like she never got back on. And there was a lot of opportunity for her to do so. And when you market yourself as the innovation fund and you miss the biggest innovation of the last, I don't know how many decades since the internet potentially, that's gotta hurt.

• 23:40Alex Kantrowitz?

  It must. You know, that that fund has really languished. It hit a couple during the pandemic with the Zoom and some others, Tesla. But yeah, especially now Tesla is dragging it down. I don't know how many predictions that Tesla is going to end up being a $15 trillion company by 2030 will help that fund. Okay, let's take a break and then talk about what Nvidia looks like looking ahead, how sustainable this is going to be and does the stock transform and become basically part of people's portfolio, maybe like an Apple has to this point where it's held by institutions and not as volatile. Okay, we'll be back right after this. This episode is brought to you by Avpoint. Everyone's racing to roll out AI right now.

• 24:24Alex Kantrowitz?

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• 25:05Alex Kantrowitz?

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• 25:20Alex Kantrowitz?

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• 26:20Alex Kantrowitz?

  And we're back here on Big Technology Podcast with Michael Batnick. He's a managing partner at Ritholtz Wealth Management, the host of the Compound and Friends Podcast, and also the host of Animal Spirits. Michael, great having you here for the first time.

• 26:31Speaker 01

  I'm fine, thank you.

• 26:32Alex Kantrowitz?

  Yeah, yeah, definitely, definitely the right stock to be talking about. Before the break, I mentioned, like, does this thing become a stock in people's portfolios like an Apple, right? Where Apple is like, of course, it's an impressive company, but the stock has become effectively something that institutions hold almost, I don't know, almost like a standard part of their portfolio, no matter what.

• 26:52Speaker 01

  You gotta be equally at Apple at least, right?

• 26:54Alex Kantrowitz?

  Yes, exactly. So is this something that Nvidia can achieve? How hard is it to get there?

• 26:57Speaker 01

  No, no, it can't. I think the reason why Apple became so ubiquitous in portfolios across America is because the brand, the products, became so ubiquitous across America. I don't know what the average American has in their house in terms of the iPhone, maybe an Apple TV, an iPad, an iMac, or what have you. Nvidia is just not the same. And it's never going to be the same. It's never going to be the household brand. And so I think it's just, it's not going to get there. No chance.

• 27:28Alex Kantrowitz?

  Okay, so then also in terms of the split, right? The split seemed like something that people that would encourage a lot of people to buy. I remember, okay, I was at the bagel shop here in New York and a woman walked up to me and she goes, "Hey, do I know you from MSNBC?" I'm like, "Do you mean CNBC?" She said, "Yeah." And she's like, "Yeah, I've been saving up to buy an Nvidia."

• 27:51Speaker 01

  Oh, no.

• 27:52Alex Kantrowitz?

  Yes.

• 27:53Speaker 01

  Did you think she meant to share a stock?

• 27:55Alex Kantrowitz?

  One share, yeah.

• 27:56Speaker 01

  Yeah.

• 27:57Alex Kantrowitz?

  Or basically she was like, "I'm in these stocks, but I can't afford Nvidia."

• 28:00Speaker 01

  Okay.

• 28:00Alex Kantrowitz?

  So she was waiting.

• 28:02Speaker 01

  Yeah, listen, we know economically a split doesn't matter, but guess what? It matters. It matters because exactly what you just said, people think a stock that's cheaper becomes more affordable, rightly or wrongly, and perception is reality in the stock market sometimes.

• 28:17Alex Kantrowitz?

  And so, but it's interesting because it did split and now it's going through this correction. But maybe over time it will just make more money come into the stock.

• 28:26Speaker 01

  Uh, yeah, counterpoint in like 15 sessions it gained 40%. So again, this, this, this, this pullback, I don't know if this is, if this is it, if it goes lower or higher. This is nothing. This is the most normal thing ever. If you chart any stock that's gained 150% in six months, it gives a little back. Nothing goes straight up. In fact, uh, the price action over the last couple of weeks became alarming. If you look at Nvidia as a percentage of the S and P or the Qs or whatever, it had been going straight up. And that type of price action is concerning. So you need this.

• 29:07Speaker 01

  If you're, if you're bullish on Nvidia long-term or even like short to medium term, this should not concern you. You should say, "Okay, good." Like, because the, the higher it goes vertical, then you've got like a really unstable potential situation.

• 29:19Alex Kantrowitz?

  Why is that concerning?

• 29:21Speaker 01

  It just becomes, it just becomes delicate and fragile. I don't, I wish I had like better words to, to describe it, but once something goes straight up, it's just not, it's not healthy market behavior. You don't want to see a buying mania because buying manias inevitably lead to selling manias.

• 29:38Alex Kantrowitz?

  Right. The other thing about this is that as, so speaking of like the mania thing, actually it's a perfect lead into this question. So how much of the trading is actually like algorithmic or like the algorithms see like AI, they see other people getting into it and then just like institutions who have like turned their trading over to the algorithms just pile into a stock like this? Is that partially responsible for why Nvidia has run up this way?

• 30:00Speaker 01

  So I'm not a master at market structure and volatility implied and actual and whatever, whatever. But I know this, there is a levered product, the ticker is NVDL and it gives you twice the daily exposure to Nvidia. If Nvidia is up 1%, this will be up 2% and if it's down 2%, it'll be down 4%. That's on a daily basis. So it doesn't track it twice. It doesn't give you twice the exposure over a longer periods of time. Coming into January 2024, this product and Nvidia had already been on the run. This product had $225 million in

• 30:39Speaker 01

  assets under management. It has ballooned to $4.2 billion today. Now, I don't know who this $4.2 billion represents. If it's degenerates and I, I don't know, is that term pejoratively? If it's institutional investors, if it's, who, who knows? I, I, I don't know who's, who's holding this. But the underlying instruments that it uses to gain twice the exposure has to be having an impact, not just because this is $4 billion, but if you look at the options activity and the size of the options market, just the, and I don't want to get too far out of my skis, but the dealers and the hedging and the Greeks and all that sort of stuff. I don't see how that's not having at least

• 31:23Speaker 01

  a marginal impact on the price of the stock.

• 31:26Alex Kantrowitz?

  And then, this is just a basic question, but for listeners, does Nvidia get the money that is pouring into the stock? Or is this just other shareholders being reimbursed for holding it for that long?

• 31:38Speaker 01

  Yeah, so the, the, the answer is no, this is not going into Nvidia's balance sheet, but the stock is their currency. And this is how they attract the best talent. This is, this is their firepower to do acquisitions. And so even though, no, they are not getting the money directly, their employees are. And it absolutely has a monster impact on the company. Make no mistake about it.

• 32:04Alex Kantrowitz?

  Yeah, I mean, I definitely saw a lot of smiles when I was out there a couple of weeks ago. People seemed happy, so. I mean, anyone who basically has come in within the past year has really just done very well in terms of comp.

• 32:17Speaker 01

  Yeah, just, yeah, I saw some, some staff floating out that if a junior engineer started five years ago, or whatever, whatever, you know, their, their comp would be worth $10 million or something crazy.

• 32:27Alex Kantrowitz?

  Yeah, and somehow it doesn't seem like they're retiring. Like, there's, there's been some stories about people from Nvidia retiring as like a liability for the company. But a lot of people that I met when I was out there were like 10-year veterans of the company who just seemed pretty engaged still.

• 32:42Speaker 01

  Uh, there was, let me find this. Sherwood had a really neat chart showing that Nvidia's market cap is worth more than $100 million per employee. And for context, the next two biggest are Apple and Meta at $19 million per employee.

• 33:05Alex Kantrowitz?

  That's crazy.

• 33:06Speaker 01

  It's crazy. So, listen, I think this is why the game is so much fun. Because I'm, I go back and forth. On the one hand, yeah, this doesn't make sense. I'm like, I am, I'm normally on the side of the market is right most of the time. Or at the very least, it's going to be right a lot more than you. And the market is really hard to beat because it's all of us, right? Like, it's almost arrogant to think that you know something that nobody else does, that you know better than all of us know. Uh, so I'm usually of the mind that the market is sober and is the market getting a little, a little tipsy, dare I say drunk, it's not quite blackout. I don't know. I don't know how drunk the market is on the stock, but I know that it's definitely having a good time.

• 33:51Alex Kantrowitz?

  So I've heard from so many people that, oh, I wish I would have gotten an Nvidia, but I missed it. It kind of sounds like the Bitcoin FOMO that we've heard. What do you guys tell clients? Who are like, I want to get in, but I think I'm too late.

• 34:04Speaker 01

  Yeah, you're in, you're in whether you know it or not, unless you, unless you are invested 100% in international stocks, which I know nobody is, you own the stock. It's 6% of the S and P 500. Uh, it just got added to XLK. It's a huge, uh, I can't, I saw the number yesterday. It's a monster. So that's just a, the, a tech ETF. Um, let's see, there was some shakeups there. It is 20% of XLK. It's a huge weighting of the NASDAQ 100. So I understand the feeling of, oh my God,

• 34:45Speaker 01

  I missed it. Nobody likes missing gigantic winners, but you've got exposure. It's certainly having a halo effect on the market, right? The AI trade in, in, in my estimation, saved the market in 2023 from what could have been a very ugly year. So you're there, you're getting the benefit of Nvidia, even if you don't have the 140% gain in the single stock.

• 35:06Alex Kantrowitz?

  Okay. And this is not an investment advice podcast, but if people want to buy more of the individual Nvidia stock, is that risky?

• 35:15Speaker 01

  Yeah.

• 35:17Alex Kantrowitz?

  Same way.

• 35:17Speaker 01

  Yeah, of course it's risky. So what I would say is if you, if you really can't help yourself, and if you really can't help yourself, shouldn't that give you pause? If you want to buy the stock so badly, do you think that that feeling is unique to you? Or do you think that a lot of other people are feeling that feeling and then potentially might feel the exact opposite if the stock were to fall, I don't know, 12% three days after you bought it?

• 35:44Alex Kantrowitz?

  Right.

• 35:44Speaker 01

  So I would say if you, if you have to, just position sizing. Listen, I have no problem with picking individual stocks. I do it. I have fun with doing it, but keep it to a very small percentage of your portfolio.

• 35:55Alex Kantrowitz?

  Right. And here's the last one, because there are some people who are listening, uh, who've probably held for a long time. And when we were on the show, Josh, uh, Josh Brown, uh, together on Compound, uh, Josh had said that when Nvidia hits three trillion, he thinks he needs to trim and it hit three trillion, actually while we were recording. When is the right time to take profits on this stock? Because obviously, like we talked about before the break with Kathy, sometimes you can go way too early. So what, how do you think about that philosophically?

• 36:22Speaker 01

  So I'm, I'm a terrible person to ask this question to because I do not have the ability to ride a 10 bagger. I just don't. And this might sound like cocky or stupid or, or whatever, but I know too much. I've seen too much. I know the data on how unlikely it is for stocks to do what Nvidia is doing. I know the data that for every Nvidia, there's 3,000 other companies that haven't done what it's done. I also know the data on the gigantic drawdowns that every mega winner has gone through. And so I don't have the stomach for that. I don't have the risk tolerance for that. Um, and so I'm the bad person to ask this question because I can't ride these winners.

• 37:08Speaker 01

  And if you asked me a year ago, I would probably give you the same answer, which would have been very wrong a year ago, which would have been now.

• 37:14Speaker 01

  Now's the time to trim.

• 37:15Alex Kantrowitz?

  Yeah.

• 37:15Speaker 01

  And so what I do know is that the stock went from a not so small $300 billion to $3.3 trillion. I'm not calling the top. I don't know. Can it go to five trillion? I don't know. Why not? There's no, you know, there's no laws of gravity in the stock market.

• 37:35Alex Kantrowitz?

  Right.

• 37:35Speaker 01

  But it's not going to 10x like it did over the last couple of years. So I would say at this point, you're probably not thinking objectively. You're probably thinking with emotions and money. And so what I would do is have, at least if you're thinking about, when do I sell? Whatever you decide to do this, listen, this is not science, right? It's just not, it's emotions. Write it down. Write it down and hold yourself to that. So if you say, okay, uh, I'm up a ton. I don't want to give back too much. If it falls, I'm making this up below 110, I'll sell a third of it. Whatever, whatever it is, write it down and then you have a chance of sticking with it.

• 38:13Alex Kantrowitz?

  Right. Okay. Last thing, one of the things I love about your and Josh's writing is that you'll talk about things that are financial, but also non-financial related. And you had a post recently about how to ask for help, which I thought was so good. Do you want to share a couple of pointers before we leave?

• 38:28Speaker 01

  Yeah, so I feel, I feel incredibly, uh, lucky and fortunate and blessed and all those good things. To have people reach out to me, young people reach out to me for advice. Because my career is a bit of a miracle. I, I could, it could have gone much differently and in almost any other universe it would have. Josh saved my life and so I feel like I owe it to younger people to help them out if I can, even if it's just a phone call, even if I can't help just to, just to listen. So I love to do it. I got a phone call the other day. So, so whenever I get emails from, from kids or people that maybe feel stuck in their career, I always give them my phone number and I say, hey, I'm, I'm happy to talk anytime, just call me.

• 39:09Speaker 01

  So I had a call and the kid goes, my first question is, how did you get into the stock market? And I'm like, huh. Um, I, I'm like, I, I just, you know, I, I, somebody sent me an email, some self-side research. I loved it. I fell in love with it. I started reading it. I don't know. I just, I just, I love the game. I love the competition and, and I, you know, a real quick answer. He's like, okay, my next question is, what do you do on a day to the, and I'm like, stop. I said, listen, John.

• 39:41Speaker 01

  I want to help you. I don't want to be interviewed. What's going on in your world? And how can I be helpful and be as specific as possible? And eventually, we, I think I gave him some great advice. We spoke, the, the TLDR is he's getting taken advantage of, uh, I don't know, it might be too strong. He's not getting properly compensated for all of the work that he's doing, and he doesn't know how to ask for a raise. I said, great, I can help you.

• 40:07Alex Kantrowitz?

  Right.

• 40:07Speaker 01

  Um, but I've been in his shoes, and I remember flailing at 23 years old. I got a job interview, not a job interview, excuse me, a meeting group with somebody. And he said, do you want to be on the buy side or the sell side? And I said, any side. And I, I didn't know how to ask for help. And, uh, the way that you ask for help is you be as specific as possible. Not, I, I like the market. That doesn't mean anything. That's what I said. I like the market. That doesn't mean anything. Uh, be specific, because when you're asking people for help, I can't give it, I can't give advice through an email. I don't know the person. I don't know if, I don't know if they're more salesy, if they're more operations personality based, like, so, uh, yeah, you got, you gotta learn to ask for help the right way.

• 40:52Alex Kantrowitz?

  Yep. The podcast is The Compound and Friends, one of my favorite listens. I listen every week and I've also been lucky enough to have been on a couple of times with Michael and Josh Brown. So definitely recommend you check it out. You could also check out Michael's other podcast, Animal Spirits. Thank you so much, Michael Batnick, for coming on and talking with us about Nvidia. I think I understand the trade a little bit more now.

• 41:10Speaker 01

  My pleasure, Alex. I'm such a huge fan of the podcast as well. So thank you for having me on.

• 41:14Alex Kantrowitz?

  Awesome. Thanks so much for coming on. We'll be back on Friday with another news breakdown with Ron John Roy. Until then, have a good week and we'll see you next time on Big Technology Podcast.

• 41:24Speaker 02

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