stocks, bonds, ETFs straight out of downtown Chicago. This is Zach's Market Edge. Welcome to Zach's Market Edge, the podcast about investing in your life. I'm your host, Tracy Rinek.
And this week, I'm tackling the tough subject. Is Nvidia a bubble? I've been getting asked this question a lot lately, and I know some of you are thinking the same thing because it just keeps running. And a lot of people are looking at the evaluation scratching their head.
But bubbles are a little bit different than just having a bull rally or the stock is up a lot. It has momentum. It's quite to it being a bubble. But why are some of us starting to think like maybe it has some bubble-licious fundamentals going on there and factors that are at play, whether or not it's actually in a bubble, we're going to examine.
But it does look like it's a bit stretched here. And as I said, some bubble-licious factors are appearing. And one of those is that people who never cared about Nvidia, who don't know how to pronounce it, who don't know how to spell it, who don't know that the ticker is NVDA, who maybe aren't even in stocks right now. Because remember, only 60% of Americans actually own stocks.
So there is 40% out there who are unaware of Nvidia and don't own it, even in an S&P 500 fund. So those people are starting to show up to the party now. Even myself, I've been starting to get questions at some of our barbecues and from family and friends about Nvidia. And I've been getting asked, should I buy Nvidia, even from people who don't own a lot of individual stocks?
Like they may own the indexes in their retirement accounts, but they don't own the individual stocks. So that's setting up a little bit of a red flag to me. As we know, some of the criteria for a bubble, one of those is that it starts to pull in new types of investors. So these are people that never were in it before.
But the stories are on the news week after week or month after month. Everybody's making money in whatever it may be. It may be Bitcoin. It may be housing.
It may be flipping condos. It may be gold. But in this case, it may be Nvidia. And the stock is up over 150%.
I think it is year to day even. And we know the huge amount. It's up even in just the last 10 years, 26,000%. And so when you start to see numbers like that, there's always people late to the game and wondering or thinking, I can still get in this.
And I too am going to make this kind of money. And it's a sure thing. So we're starting to see some of that now with Nvidia, but trying to time some kind of expansion, rally or bubble is very difficult. Some of the other criteria of bubbles, which we may or may not be seeing now, are in addition to speculation.
Usually, you see a lot of new money, new new investors getting into it. And then you usually do see some kind of fraud. Fraud is kind of at the end. You saw that in the housing bubble when we started seeing fake appraisals.
A lot of just fraud will start to appear even in the dot-com boom. We started to see some fraudulent behavior at the end. But within video, you really have to do look at the fundamentals as well. We're starting to see some of these indications that maybe the speculation is starting to build.
Again, it can take longer than you think for a bubble to build and for it to bust. So even if you had bought Microsoft in 1998 or Cisco in 1998, you still had about two years of a huge run in those stocks before that one inflated enough where it finally busted. So timing the bubble is never a good idea. Even just timing stock investing is never a good idea.
But let's take a look at what the fundamentals look like now with Nvidia. I looked at them a couple of months ago when I made the video that was the case for buying Nvidia right then. But the stock has continued to run since I made that video. And valuations have gotten a little more extreme since then.
But the earnings have also been revised higher since I last talked about it as a standalone here. So is this a bubble? What is it looking like on the actual fundamental side? So let's dive right in.
Okay. So of course we're going to Zacks.com and I'm going to look at the detailed estimates page. And you can find that on the left hand side. You scroll down in this gray area.
You can see detailed earnings estimates. Nvidia is a Zacks number one. It's drawn by right now. You can see here that it's an F for value on the style scores because obviously is there any value here?
No. But it's got the A for growth. That's what we're looking for with Nvidia F for momentum. That's also interesting.
And so it has an overall D score for the VGM, which is all the style scores combined. And so that's a little bit interesting too. But it's got that Zacks number one rank strong by and remember the strong by rank indicates that the analysts are raising their earnings estimates. So once again, the analysts are still a little behind on Nvidia and are continuing to raise.
Okay. Scrolling down is where we see all the action. It starts with the sales estimates. And you can see sales expected to be up 92.9% this fiscal year and another 27% next fiscal year.
And I know I said it in the other video when I made a case for buying Nvidia a couple of months ago that this is an incredible number for a company of this size to go from 60.9 billion last year to 117 billion this year. It's just incredible. And we will never likely see this ever again. So live it up.
You know, look at these numbers in awe as I have been doing because these are just simply incredible numbers. And then next year up to 149 billion. If they can do it, right? These are the expectations.
It's hard for any company to see this kind of revenue growth at this level this quickly and to execute. But right now Nvidia appears to be executing. Okay. Then scrolling down earning estimates, we can see up 113% this fiscal year from $1.18 last year to $2.53 this year.
So that's very bullish obviously next year up another 25% to $3.17. And then scrolling down if it's got the number one rank, I was assuming someone and yes, we're looking at it right now. Someone is raising and they're doing it recently. So two estimates have been raised in the last week for both this year and next year.
So two analysts are saying once again, we're still not bullish enough and we're raising again. Five of us have raised in the last 30 days for this year, four for next year. And then we see in the last 60 days since the last earnings report, 13 are up and 11 are up for next year. We do have some people revising lower in the last 30 days as well.
Five are down, but nobody's revising lower in the last week yet. And they have had some events, the investor events and whatnot outside of the earnings report. So some of the estimates could be adjusted around those events as well. But current 253, it was at 227 just 60 days ago for the year.
But really look at next fiscal year, 317 up from 254 just 60 days ago. That's pretty impressive. And then just scrolling down, you can see some other good information on this detailed estimates page. The surprises, they've got, they've beat the last four quarters, even with raising their guidance.
They're still beating their own raised guidance. And some nice double digit beats in there. It's not huge because they have been raising the guidance as they go along, but they're still able to beat those. Scrolling down some more, you can see it was zacks that recently raised and web bush securities also raised their quarterly estimate there.
So yeah, this is looking pretty good. Now, where you're looking like is it's a bubble? Is it's not? We can look at the PE ratio here.
It's at 46. That's pretty elevated for any company. But these stocks in the tech area, the high tech growth stocks, especially the max ovens, have historically been above 40 times earnings. So this isn't like all that elevated for Nvidia, and it's helpful that the earnings estimates are being revised higher still.
But we've seen Nvidia trade at 50, 60 times in the past. We've seen Amazon trading over 100 times in the past. So this area, this PE is not that elevated. If you look right underneath it, the peg ratio is at 1.2.
That's actually pretty low. It's not at the value peg ratio, which is one or less, but it's certainly not stretched. But that's because we have the earnings growth. We have the analysts revising those estimates still higher.
Now, I like to look at the financials to determine more bubble-ish type of behavior. And so we have this good financial overview page. So I just clicked on that. It'll give you the PE again and the peg ratio.
But looking underneath here, this is the key area, the price ratios that everybody's looking at. And they're concerned with price to sales. It is at 38.3. And that is super high.
So we're not going to know that. No doubt about that. Super high price to book is at 62. These are really, really high numbers, even compared to tech competitors, not even competitors.
I'm not talking about other chip makers, but companies like Microsoft and whatnot. If it gets over 10, that's considered to be pretty stretched. So there are some stretched numbers. But again, if we're asking if it's an actual bubble, you need not just stretched valuations, although that could be present.
But you need the other ingredients that I talked about earlier. You need speculation. You need those new investors coming in and thinking that the price can never go down on Nvidia. And if I get in now, I'm going to make a lot of money.
That's part of the speculation behavior. But we've seen that over and over again in bubbles. We saw it even in the tulip, there were a lot of investors who got in initially in tulips. They made a lot of money.
They got out. But the tulip prices kept rising. So they got a little anxious that they were out of it. They got sucked back in.
And then tulips kept going up for a little while, but then finally collapsed. And a lot of them lost money on the second entry in. We've kind of seen that even with Bitcoin. It really rewarded those early entry investors in.
And then it surged up to about 70,000. Surge all the way back down to 17. So that was seemingly a buying opportunity. Surge back up here close to 70 again has pulled a little bit back.
But for those original investors who got in at 65 or 70 on the prior highs, it hasn't really been all that great of an investment for them because we haven't seen it really break out to the 100,000 or even the 200,000 that everybody was assuming was going to happen. And that's kind of common as a bubble expands. You tend to get tops and then it doesn't continue on in the same kind of bullish manner that we've seen previously. Now I'm not saying that Nvidia has topped out here.
That remains to be seen. As I mentioned earlier, bubbles can take a lot longer to actually expand than many of us think. You might look at these price to sales. That's outrageous at 38 times.
But that doesn't necessarily mean it's not going to go to 45 or 48 times on the price to sales before it finally starts to deflate. Or we get the earnings and the sales rising to mute some of the frothiness in the stock. But we also have to just really check that emotional behavior that's going on because that's really the signs of bubble. Too much money flowing in.
Speculation. Maybe some fraud. Easy money. Everybody thinks they're going to get rich off of it and that the price will never fall.
We know how this works. We've all been involved in various bubbles. Unfortunately, over the last 20 to 25 years, so we've seen it play out. But it's always slow motion and you never really know for sure when you're in a bubble if it really is one.
And you can easily get out of it as many people to say with the tulips a little too early before you really reap all the rewards of the expanding bubble. But as I mentioned earlier, it's really hard to time these kinds of things. So I'm just looking at the fundamentals of Nvidia here and I'm thinking back to my making the case to buy it here video that I did only a couple months ago. It was cheaper on a fundamental basis a couple of months ago.
But I still like that sales growth and that earnings growth that this company is doing. It still is expanding and it still is doing the incredible doubling of its sales within one year or at least the analysts expect it to. And if it does execute and complete that, that's an incredible feat. And I'm still liking the stock here.
I would like to get it cheaper, especially as being a value investor. But let's take a look at the price and consensus chart on Nvidia because this is my favorite chart I show it every time. And now we have some more analysts estimates and some more revisions and you can see it still rising here. But this is the most difficult chart to interpret.
The lines are moving up into the right and very dramatically this year. But there's not big spacing in between. It's not like this has been a consistent play with Nvidia going back to say 2020 or 2021. It's not slow and steady up into the right 10% or 20% earnings growth year over year.
Just crushing it. Bam, bam, bam. No, that's not what this looks like. In fact, let's look at one of the other ones that does look like that that I talked about in recent videos, even just our last one.
And you'll see the difference right away. So look at booking holdings. I own this one in my own portfolio, but it's up into the right. You can see the lines are spaced out.
Also another good one to look at for very consistent double digit growth year after year doing the job to totally Mexican grills. CMG is that ticker? Look at this one up into the right. Bam, Bam, Bam.
Again, 2026, they're expecting further earnings growth. Although it looks like it's turning down a little bit here. We might see some analysts starting to get a little bit not as bullish there, but really, this is just the type of bullish chart you want to see and easier for an investor to interpret it, right? Because the company itself has been so consistent with this type of earnings growth.
This is not indicating to me any kind of bubble in this stock because look at what the earnings are doing. We're not talking about doubling the sales in one year. That's what is getting all the interest in Nvidia. The business is just really doing something that is not the norm.
That's where you get the money flowing in. You get the speculation. You get other things that you might get with a bubble with that type of scenario. Again, looking at the chart for Nvidia on the price of consensus, it looks a lot different.
A lot of the AI stocks do look like Nvidia's chart. That's why people are worried about bubbles in a lot of these stocks, even though revenue and sales and the earnings are following the story and are actually producing this kind of growth. At what point will it not? It keeps up this pace, unlikely, right?
But for right now, Master in the question, is Nvidia a bubble? I'm saying no, not yet. I'm actually saying no, but some of the bubble conditions are present and it takes a long time to inflate. It's very difficult to determine when the top of a bubble may occur and then you get the deflation, right?
You get the bursting in that bubble. For now, no. We may not see an actual bursting in Nvidia. We may just see, like we're seeing right here at the top, we add a top in the stock, it's pulled back a bit.
Maybe it just pulls back even to these lower 24 levels. Maybe it pulls back to 80. That'll feel real rough for recent investors who came in, but it's not going to feel that bad to you if you bought last year. But maybe it comes back down, it takes a time out, and it gets a little bit healthier in terms of its valuations and things.
That would be healthy for this stock and not the end of the world and not necessarily the bursting that we see when bubbles occur. You really don't want your stock to go into a bubble. Maybe this one won't. I'm saying that it's not yet, but we're going to be checking in on it all year long because this story is not going away and certainly not with those analysts revising their earnings estimates higher just in the last week here in July.
All eyes still on Nvidia and the other AI stocks, but I'm saying it here, there's no bubble in Nvidia yet, in my opinion. This is an ongoing story. Tickers, NVDA, and the tickers for the others that I just briefly showed, booking is BKNG. I own that one.
And Chipotle, CMG, all very bullish, all trading near their all-time highs, but no bubble in any of these really right now. So you want to be sure to check out all of our podcasts. You can check out the case for Nvidia. It's there on YouTube.
Just go to zax.com slash YouTube. You'll see it there on the video podcast. Just scroll through. It was from a couple months ago.
I want to say maybe March 2024, March or maybe the beginning of April 2024. It seems like a long time ago, just a couple of months, but it still keeps running here. Nvidia is still an incredible story and something that we may not see again for quite some time. So be sure to check out all of our video podcasts, our podcast and just regular videos.
We have a lot of on Nvidia. We've been covering it all this year on various different avenues to look at it. It's been on aggressive growth stock videos. It's been on I think, both of the day.
I covered it numerous times. How could you not? And I've even covered how the sex rank got Nvidia and some of the other AI stocks right. And it's back to the sex number one rank, strong buy.
It's getting it right again. So be sure to check out all of our content on Nvidia and be sure to subscribe to get all of the market edge podcasts. You can get us on Apple, Spotify, Amazon Music. We're on SoundCloud, anywhere you can get podcasts.
Just get us somewhere and I'll see you again next week with some more stocks. This material is being provided for informational purposes only and nothing herein constitutes investment, legal accounting or tax advice or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal tax or accounting counsel. Publication and distribution of this podcast is not intended to create any information contained herein does not constitute an attorney-client relationship.
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