NVIDIA's Earnings Were Almost Perfect

NVIDIA just reported one of the best quarters you’ll probably see from a company that size.

Still,

The stock went down for the fifth earnings in a row…

That matters a lot more to me than another NVIDIA double beat.

Because at some point, a stock stops being rewarded for delivering incredible numbers and starts being judged on both the quality of those numbers and what the underlying expectations are for the future.

I think NVIDIA just crossed that line.

Don’t get me wrong, nothing about the headline sounds bearish!

However, the numbers underneath all this suggest the company is changing.

Reported earnings are growing much faster than the cash NVIDIA is actually collecting.

Receivables are building as customers aren’t able to fulfill their commitments on time.

And the worst of all,

The balance sheet is increasingly filled with equity stakes, making NVIDIA less of a chip company.

And more of an AI investment portfolio, not unlike MSTR became a Bitcoin holding company.

More of NVIDIA’s balance sheet value is driven by the company financing customers that keep buying GPUS and racks, so every dollar that goes out in equity stakes returns equally valued in receivable account value.

That’s where tonight’s earnings become much more interesting.

The question now becomes what happens when double-digit growth stops for the companies that now make up over 50% of NVIDIA’s balance sheet.

Judging by the fifth consecutive earnings decline…

I think the market is starting to ask the same question.

Revenues continue to grow as more data center commitments and customers pile up to buy NVIDIA products like GPUs and AI server racks.

Nobody can deny there’s a reason why the stock can manage to trade over 10.0x P/S for this long of a timeline.

If you zoom out and consider that all the data center expansion is nowhere near being done (as far as forecasts go), then continued double and even triple-digit growth rates are to be expected.

However,

There is one caveat to how NVIDIA reports data center revenues.

It gets a bit shady when you ask whether this is actually delivered products to running data centers.

Or,

Pre-sales to data centers currently in construction, which are highly exposed to changes or cancelations.

I won’t spoil the party here though; revenue numbers look amazing.

The bottom-line looks just as great.

Earnings beat expectations by a decent margin, and doubled compared to last year.

However, this is where some questions should begin to come afloat, as the stock’s P/E multiple is nothing like the one that should be attached to a company growing by this much.

Downward trajectory, cheapest multiple since 2019.

To an untrained investor, this may look like the deal of a lifetime on one of the largest companies in the world.

Seasoned participants know that this can only mean two things:

You already saw signs of that decline in my analysis of NVIDIA’s 15% price hike.

This is where I begin digging to prove the market’s thinking in its accuracy.

Let’s start with a brief breakdown of the financials, and how exactly they communicate with each other to prove NVIDIA’s earnings quality.

Or in this case…

A lack thereof.