Priced to perfection

NVDA results were published yesterday. Since it is the poster child of AI, and has become the backbone of the market and quite frankly, the economy, its financial health, has a huge impact on almost everything. In terms of revenues, the results are impressive. Revenues were up 62% YoY with a net income increase of 109%. That’s the impressive part. The worrisome part is the surging inventory ↑96% and the increase of +45% on accounts receivables, which implies declining Cash Flows from operations. In simple terms, it looks like demand for NVDA’s chips is strong, so strong that their clients don’t have enough cash to pay for everything they want/need, and NVDA is acting like a credit card, financing those purchases. Also, there has been a lot of criticism about amortization practices: if you produce a cutting edge chip, and come up with a new model every year, the amortization should be aggressive, but the conpany argues that older chips are still 100% in use, and therefore their useful life is still long enough to justify amortizing it over 3-5 years. The overall Market sentiment seems to be positive, but skepticism is growing, not in NVDA’s technology per se, but on its clients ability to keep buying at the pace they have, particularly when they have to tap the bond market in massive amounts to fulfill their plans. Priced to perfection?

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