Hogs Get Slaughtered
Yes, we’re doing this again. And the bacon will be spicy.
I can’t stop thinking about Selena Gomez. Maybe it’s because Only Murderers in the Building is back for a fourth season on Hulu. Maybe it’s because I occasionally watch her cooking show on Max with my wife. Maybe it’s because she makes fun music. Actually no.
It’s none of that. It’s because of this:
Selena explaining synthetic CDOs in The Big Short is top of mind. Why? Because financial derivatives are still all the rage today. Maybe more so than back then. Yesterday, you could bet on NVIDIA NVDA 0.00%↑ going long. You could bet against NVIDIA going short. Or you could puke six figures in an evening by getting crushed playing the options when your calls go bust and you light 90% of your account on fire before the champagne is even poured.
Isolated incident?
Maybe. Maybe not. Bitcoin bulls have McDonalds MCD 0.00%↑ . NVDA call players have Wendy’s. Rejoice! There’s a burger flipper role for everyone…
That is, until ‘AI’ robots start making the burgers.
There was a literal earnings “watch party” at a bar in NYC yesterday. We are now at the phase of this hysteria where we’re treating the earnings reports of one of the largest companies in the world as though we would the NFL Draft.
Perhaps an important distinction is necessary. I’m seeing a lot of pushback on the interwebs to the assertion that NVIDIA stock was/is in a bubble. Assuming the company is not committing fraud (cough like a fellow AI spectacle might be cough), NVDA isn’t the bubble. It’s a real company with a real product that has a really filthy good margin. That’s not the bubble.
“AI” is the bubble.
Companies (NVIDIA’s customers) are dropping billions in capex on technology that they don’t know how to monetize. They’re doing it because they think they have to. Thus, the very real “AI” bubble is why NVIDIA has had the success that it has had the last several quarters. If the “AI” bubble pops, and there are certainly signs that it is doing so already, then the frantic FOMO buying of ‘picks and shovels’ by the Gold prospectors is on borrowed time.
I mean seriously, read this sh!t:
Q: What do they do?
A: I don’t know. Just buy them.
Most expensive wall art ever. Surely it continues. Speaking of art… sharing the story of Bored Ape Yacht Club specifically yesterday was not a mistake:
Two years later, the apes who aped into the apes are down 90% and it’s so bad that, to them, it’s embarrassing to even admit they still like them. That’s where that mania is at the moment.
The beauty of the bearish NVDA bet is that bears don’t need fraud to win. It’s just as much a bet against NVIDIA’s customers continuing to incinerate capital on hardware that can’t be monetized. That’s the angle and it’s really that simple, in my view.
We could talk all about year over year comps, but I’ve made that point already in a previous post. It gets very challenging from here. Sequentially, revenue growth is clearly slowing down:
To me, being concerned about a growth stock trading at 25x forward sales while also exhibiting slowing growth is completely valid. But I think the real signal is sort of obvious. The announcement of a $50 billion stock buyback program is a tell and not a good one. NVIDIA has $30 billion in cash. A stock buyback program for a company that is trading at a 700% forward price to book premium relative to sector peers is a joke and a terrible use of corporate capital. Especially given the amount of shares company executives have been selling since May:
The CEO has been selling $10-15 million in stock daily for months. Yes, he has quite a bit more. Like a lot more. But he’s realizing some of these gains rather than sitting entirely in theoretical value. I know, I don’t want to hear it. There are many reasons to sell a stock. Not all of them are bad. But the optics are atrocious. Insiders dump their stock yet the company piggy bank will be used to keep a bid on the screen? Gross.
Here’s a very simple question: the stock beat expectations and still sold off anyway. It was different this time. Why?
Here’s my attempt at an answer: because it’s all priced in now. Beating earnings isn’t good enough anymore. The company needs to blow everyone out of the water and I don’t think they can keep doing it.
Look, I get it. Some of you, maybe many of you, are probably tired of hearing this. I already tried to call the “top” in NVDA and I was wrong. I held on to a losing short proxy way too long and lost some money on that position. I was wrong. I’ve been wrong. It won’t be the last time.
I’m not telling you to short NVDA. I’m not even telling you to sell all of your NVDA. But I know several of you are in this name. What I am telling you is to just think about realizing some of this win. The CEO is.
Disclaimer: I’m not an investment advisor. I’m a degenerate gambler who does degenerate gambler things. I have short exposure to NVDA, again.
“We are two lesser forms of filth. Not to push the bounds and cross over into true corruption. Into our domain.” - Murphy MacManus