Is Nvidia Stock Actually Undervalued? And the Insurance Impact of Hurricane Idalia 8/30/23

0:01Right now on fast, a bargain chip. Shares of Nvidia have more than tripled this year and are trading at all time highs. but one top analyst says it's still cheap. We'll hear from Ben Reitzes of Milius Research to find out why he thinks there's more room to run for this red-hot stock. Plus, assessing the damage, her insurance company is bracing for a flood of claims in the wake of Hurricane Adalia. But the impact on the insurance industry could be much greater than this one big storm, an in-depth look coming up. And later, so bad it's good. The chartmaster is here with a couple of beaten down names he says are primed to pop.

0:32I'm Melissa Lee. This is Fast Money. We're live at the Nasdaq MarketSite on the desk tonight. Steve Grasso, Bono and Eisen, Tim Seymour and Julie Beal. We start off with the big tech rally getting refueled in a big way. The Nasdaq leading the broader markets today now up more than 3 percent already this week. The S &P 500 and the Dow also seeing strong gains as the major markets try to end the month on a positive note. NVIDIA, a major driver for the rally, shares hitting another record today and are up 7 percent since Monday. It is now up 237 percent so far this year. It's not the only tech stock seeing strength.

1:05Apple closed back above its 50-day moving average today. Alpha posted its highest close in more than 16 months. So why is tech staging a late summer revival? It feels like we're back, Grasso. Rally Monday's back. You know, it's funny because we've seen this where they were the risk stocks and now they're the security stocks. They're the defensive plays. They were the stocks to sell in a rising rate environment. Then they became the stocks to buy in a rising rate environment. Everything sold off enough to give people a little taste of a bargain. The bargain was still overpriced. But yet people think this is where I'm going to get the gains going into the year end.

1:41Yeah. We've also seen rates sort of come down a bit. Bon, we backed off at that 4.35 percent. We seem to be settling in here just above four. Yeah, for the time being. I mean, we've got some economic data out. We've revised GDP. We had ADP numbers that came in lighter. So we are seeing some signs that perhaps the Fed doesn't need to be as aggressive. I would actually argue that maybe the sentiment is shifting here just a little bit in terms of bad news being good news, right? It seems on the surface that, OK, bad news is good and that it's the rate pressures kind of subside. But I think if you drill down a bit further, I wonder if the rotation and continued participation in these tech names that we're seeing is because people are saying, OK, in fact, if we do continue to soften, where do I want to actually be allocating capital?

2:28And so I think that actually is part of the narrative as well. It's the whole this is the defensive area of the market, the quote unquote, magnificent seven. Tim, that's where you want to be in good times and in bad. It's always the place you want to be. It doesn't make any sense. Well, there's Now, it doesn't totally make sense to me either. And I think we've almost seen the best of times. But the market repositioned significantly going into kind of that high rate turnaround. It was four or five weeks of equity repositioning. And obviously, yields were something on Friday the 18th. It was all we could talk about.

3:04You've had a major reversal there. As Bono and talked about, there has been some data. There's been some dynamics also, I just think, in repositioning. So what I find interesting is that of the mega cap techs, there is new leadership. So Apple and Microsoft, which were the stocks that we were most concerned about. In fact, they made a very healthy bounce off their 100 day. You mentioned they're back above 50, but that was a very key level about a week ago. Both look interesting. But it's Google and NVIDIA that if you look at companies that are making relative highs to the S &P, and that's what I'm looking for.

3:34Because as I've talked about, the fact that the triple Q was not making new highs to the S &P really from that May 24th NVIDIA Q1 print all the way through even its most recent print was unable to make new highs. Well, we're now almost within one and a half percent of that least, you know, that relative high to the S &P. And you're getting leadership from other names. NVIDIA, we're about to try to discuss and argue why it's cheap. It doesn't really matter when, in fact, there are so many people that have been offsides, bears that have been crushed and people that are just underweight the stock that's now the fifth largest stock waiting in the world.

4:11So that's part of the dynamic. And I do think that these stocks, you can make an argument for all seasons. I agree. Also, Bono is talking about bad news is good news. Friday's payroll number I think could be a rocket on a weaker number, especially on wages. Yeah. And we have to remember, of course, this is the last week of summer, basically. Julie, and I know that folks out there are still watching the show, even if they're at the beach or at the barbecue. But, you know, most people are not trading. They've got off. Or they could trade at the beach or the barbecue, too. That is true, too. That is a good point by Grasso, Julie.

4:45But how are you feeling about tech at this point, especially as we are going to, you know, enter a much busier time in the fall? Yeah, I would say trading at the beach is frowned upon where I work. But I understand people have to do what they do. I think, you know, I think it's, again, it's not a monolith. And even within the Magnificent Seven, these businesses are actually pretty different. And I think where I'm willing to pay up a little bit more is for, you know, consistency and durability of earnings. And a lot of that is like recurring revenue. So, you know, for me, Microsoft's multiple makes more sense because, you know, that is a business that can really forecast this revenue pretty accurately and they know where their business is going.

5:26And I think investors are willing to pay for that. You know, NVIDIA is an interesting case where, yes, this is like at the forefront. They basically have a monopoly on a lot of this technology, but it's still a chip maker, right? And we've seen cycles where there's over-ordering and a correction. So to me, that's a little bit different in terms of the durability of the earnings. But I agree with Steve. I think like people saw an opportunity, things were slightly on sale, and they got really hungry for them. Yeah. Would you agree with Julie in terms of arguing for valuation? You're willing to pay for a Microsoft because it seems like the business is more durable, is more consistent, is more recurring.

6:05Yeah. What do you think you want to own in the marketplace? You always want a recurring revenue stream. You always want a secure balance sheet. You always want cash flow. And all of these names do that for you. And think about what left the conversation. Recession. If we're not talking about recession now, there's a case to be made, PMIs, late in 2022, that we might have already had a recession that everyone was focused on. So if you think soft landing or maybe we're taking off again, you want to get into those names that will benefit the most. Do you think that we've heard enough, though, in terms of enterprise spend about whether or not we've passed that sort of recession trough, Bonoan?

6:45I mean, are you still worried that perhaps enterprises are pulling back? because we are hearing that in commentary and conference calls. Yeah, I mean, I think you brought this point up yesterday. There is some divergence within the groups in terms of where money is going to be allocated. And you certainly are concerned about that. But Julie's point, I definitely think, you know, ARR is something, I mean, even in the earliest stages, right, when you're looking at valuations, you're always going to be priced off of ARR. It is like the most sought after type of revenue. So anytime you're kind of moving from, let's take an Apple, for example, right?

7:20And we're talking about their hardware sales and how they're suffering. But the subscription model or the services is where they start to augment that and fill out the rest of that business model. And that's why you attach that premium multiple. So, like, I definitely tend to agree there. All right. Well, let's bring in one of Wall Street's biggest NVIDIA bulls. Ben Reitzis is the head of technology research at Nelius Research. His new note is titled, Dare We Say NVIDIA Is Now Cheap? Yeah, Ben, welcome. dare we say. Nice to phrase it that way, because a lot of people would argue with that. But yet, you argue that it is when you take a look at the multiple based on calendar year 24 earnings, and when you compare it on an EV to EBITDA basis, or EV to sales basis even, to a Microsoft, to an Apple, et cetera.

8:05Yeah, well, when you adjust for growth, there's outsized growth here. We're looking for 40-plus percent growth in sales and EPS, and that's probably really conservative. So right now it's trading at about 29 times next year's number. It could be a bargain. And their TAM is growing really fast, too. And those numbers look really conservative. So why is their total addressable market growing so quickly? It's just the, I mean, the sell through of the AI chip specifically makes the total addressable market much bigger? Well, I don't know. It depends how you want to look at it. The cloud Giants are spending like crazy in this market and you know Google just had an event this week and they announced an expanded partnership with Nvidia and it looks like they're going to be spending a ton on the H100 super chips which have a huge margin and huge ASP and Nvidia is the intel inside for AI to borrow a pun from many years ago and you need Nvidia to serve customers to serve AI and the clouds are rushing to do it.

9:13And then it's giving rise to a whole new GPU as a service core weaves, Lambda Labs, all these second tier GPU as a service firms as well. So there's a lot of spending and we are yet to see whether the apps all come and the enterprise adoption comes, but the spending cycle is going to last well into next year, probably through next year. So the bears will say that there could be overordering, that there's a lot of pull forward of this. And you actually make the point that they're trying to build a more durable stream of revenues, that they are looking to create this sort of ecosystem. Can you explain that?

9:48Because I feel like that is, you know, the notion that it's a one-off, it'll sell its chip and it's done, is the pillar of the bear case at this point. Yeah, I'm really glad you asked this question. Every once in a while, a special company comes along that's a platform. This is one of them. So there was Apple, there was Microsoft, but every once in a while, one of these comes along. It's very rare. And NVIDIA is probably the only company in semis that has the power to do this, to really be an end-to-end full-stack platform. What happens when you're successful doing that is you will generate an outsized proportion of the profits for that industry, and it's more durable than people think.

10:24Just look at Apple. A lot of people thought Apple would be cyclical. You know, the multiple got really low, and obviously now it has almost a 30 PE. this company is probably one of those special companies. They're getting into software, cloud services, and they're generating a ton of cash now. So they're going to buy back stock, potentially like Apple can. Can AMD not do that? Not yet. No, they don't have the software moat. 15 to 20 years ago, NVIDIA made decisions around software that no one can touch. These were decisions made decades ago. You can't just like get into the market with a ported code.

11:00And this is, you know, there's emulation. There are certain things that happen that developers take very seriously and they're trained and they're used to NVIDIA and they want to use it in the clouds and they want to use it for AI apps. You can't really just go in and take a big share. What likely does happen is that 80-20 rule, 90-10 rule, where there could be a second player. But I don't see their share, you know, going below a dominant level. And I see them leading this market and enabling it, frankly. What kind of reception did you get to this call today? Well, you know, some people, I mean, look, you know, you definitely got a lot of eyeballs on it.

11:40Do you need security on the ride home or are you good? I don't need security on the ride home. I mean, look, it wasn't that hard of a note to write because the numbers are the numbers. I just pointed it out. I would say that some folks are like, whoa, you know, there's a digestion period going on right now, and sometimes it's just good to look at the obvious, is we had a big run into the call, and a lot of folks were like, well, is there double ordering? Is there this? Is there that? And people got concerned about that kind of stuff, is supply meeting demand. And then sometimes you just have to take a step back, and you have to say, are we being compensated for the growth?

12:14And look, management is going to be on the road at a lot of conferences. There's a lot of positive news flow to come. I think they're going to do a great job of explaining their moat, the end demand and how they are creating a platform. And when you look at the growth, you'll go, yeah, I'll take a stab at that because it is cheaper now. But, you know, the fun is the revisions are so robust that you got to keep up with it. It sounds almost too good to be. I mean, every part of the story is so bullish, Ben. You've been in this industry for a long time covering technology. Yeah. Doesn't it give you pause?

12:49I do get nervous. I felt that the last week, you know, we got a lot of questions before. Oh, is AMD coming? What about competition? And then this week, a lot of things said, is this a bridge to nowhere? Where are the apps? Where's the enterprise demand? And I think that, look, Google had an event, and it was really clear, though, there's still a race and all the cloud guys to spend here. But you do worry about it. You know, NVIDIA actually, I think, I think they asked their customers who their customers are, and they're trying to sell this. And they have to do that also so stuff doesn't wind up in China, by the way.

13:22But they are doing a really good job of figuring out where this is going, but it's not perfect. And you always worry, and I was around in the bubble. I hopefully look younger than that. But I was around. I saw a lot of spending that wound up not being needed. You always worry about that. But when you do the bottoms-up work and you look sequentially out, five or six quarters, it's really tough to not think they grow sequentially. And then the numbers come out to be fantastic, like we said. But you've got to be careful. You always, you know, there's another data point every day and things move fast.

14:00But for right now, when you, when you, I cover Google, I cover Microsoft. When you look at what they're spending, there's upside to those CapEx. There's not downside. So CoreWeave, Lambda Labs, these others are racing. So for now, it looks pretty good. And the best information we have is that these guys keep killing it. Ben, thank you so much for coming by. Thanks. It's great to be here. Ben Reitz of Milius. Julie, are you convinced? No, I mean, you know, my fiance says this a lot. You know, both can be true. It can be true that Nvidia is a platform that no one can catch it, that it will own 90 % of the market.

14:39I actually believe that. I think that's totally true. But it doesn't mean that we can't hit air pockets. It doesn't mean that growing that quickly isn't stressful on a business. It ends up being actually pretty hard to grow that fast and do it well. And so even Apple has had periods where they've grown really strong and then they've had to kind of retrench. And so my biggest concern is kind of what you touched on towards the end, which is where is the enterprise on this and do they really want to spend? I understand that Google and everyone is in a race because this is a new business opportunity for them.

15:12But I'm concerned that it's not, it's, you know, the baseball field that will be not used if they build it. I don't know. What is that thing? They will come. But I'm worried that, you know, they're going to build it and not necessarily everyone's going to come. Yeah. Grasso, it sounds like you're more bullish on the economy, at least for now. And so does that mean that you should be more bullish on a name like an NVIDIA? Yeah, this is one of the names that obviously it's up 240 percent or thereabouts for the year. It's very difficult. These are one of those names that I've said when it was up 100 percent, 150 percent.

15:42Sometimes you have to hold your nose and just buy the stock. And to Ben's point, if they're you know, we talked about this. If they have 85 percent market share and you've said it's theirs to lose. How long? How long is it their market share to lose? How long are they insulated? He said there's a moat around it, which makes me feel even more bullish about it. And then people are going to start talking about a stock split, which does nothing for the shareholder value other than more shares. So when you look at these names, you would have thought coming out of earnings that the whole space would have rose.

16:14It didn't. NVIDIA did. The rest of the space is basically treating NVIDIA like winner take all. So right now, if you want to be in the AI space, you need to own NVIDIA in your portfolio. You own it. I don't own it, but I'm going to wind up paying it up. I've owned it. I've sold it. I've owned it. I've sold it. I'm going to have to hold my nose once again and buy the stock. All right. Let's move on here. Checkout shares of Salesforce on the move after reporting results. The cloud company beating on the top and the bottom lines and offering better than expected guidance for the current quarter. The conference call is just getting underway.

16:46Our Steve Kovacs got more details on the quarter. Steve. Yeah, Melissa. Well, yeah, like you said, beats across the board for Salesforce and EPS. That was the big one after the company was cutting costs and increased its prices this year. Strong beat with two dollars and 12 cents a share versus the dollar 90 the street was looking for for EPS and revenue beat, too. But that was top line growth slowing. It's up 11 percent year over year to eight point six billion dollars. Now compare that to the 22 percent revenue growth reported in the same quarter last year. More positive news in here. The company raising its revenue guidance for the full fiscal year of 24, easing fears that enterprise software spending would keep on falling.

17:27CEO Mark Benioff saying in the release, the back half of the year is looking strong. Salesforce expecting up to$8.72 billion in sales for its third quarter. That's above estimates. And EPS guidance smashing expectations as well, expecting up to$2.06 a share. Street was looking for$1.83. And the call has been going on about 15 minutes or so. So I'll be back with any good headlines out of Mr. Benioff, Melissa. All right. Keep us posted, Steve. Thanks, Steve Kovach. Bono in. What do you make of CRM? Yeah, frankly, this is one I was a bit concerned about. I thought it might have been levitating on the AI story.

18:02But truthfully, this is really about operating efficiency. If you kind of drill down, right, you look at Free Castle for the quarter, 630 versus 445 expected, and then raising guidance and then the operating margin. I think they beat by about 300, 315 basis points. That's real material. And so it shows that there's some real meat on the bone here in terms of operating efficiency and profitability. Yeah. Tim? Everything that we've heard both from Ben's argument for NVIDIA and what we're hearing from Salesforce is also just this argument that this CapEx recycling or the cyclicality of this is alive and well.

18:38And that was one of the biggest questions around both NVIDIA and certainly where Salesforce was at the start of the year from investors perspective. What were you willing to pay for? And the valuation of Salesforce, we're talking about 25 times 24 EV to free cash flow. I mean, it's not cheap, but the enterprise spend and the capex within the industry and everyone, you know, people have been wrong in terms of what we could expect from mega cap tech companies in terms of spend. And that's what this announcement's about. So it goes higher. It was down into the print. It was down 5 % to 8 % over the last month or so.

19:15Not surprised to see the pop. Coming up, more earnings action after the break. Crowd strike in Okta, both on the move after reporting numbers out of the quarters. We got those next. And lifting things up from the inside, shares of Lyft topping the tape after some more insider buying. It's with driving all the optimism from the C-suite. The details next. Fast Money's back in two.

19:41Welcome back to Fast Money. We've got earnings alerts on CrowdStrike and Okta, both names on the move after reporting results. Christina Parts and Nevelis got the details on both the stocks. Christina. Well, when it came to earnings, cybersecurity name CrowdStrike beat across the board, including its Q3 and full year EPS and revenue guidance. There was one important metric that came in a little light that caused the stock to drop, actually fall in the negative and why it's only up about less than 1%. That's net new annual reoccurring revenue, which is a key metric for cyber software names since it really gives us a snapshot of current live contracts.

20:12CrowdStrike posted 196.2 million in the quarter. Mizuho cited buy-side estimates at about 198. Some saying the whisper number was 200 million. So CrowdStrike came in a little light. There was also its billings number that came in at 835 million. That was slightly lower than the estimate of 863 million. So those two reasons could be why you saw that volatility post 4 p.m. in the red. And now we're coming up now that the call is underway and they're talking up AI. That's for sure. But also a commonality between both CrowdStrike and Okta that you're seeing on your screen right now is that IT spend continues to remain robust.

20:50Okta's results were better than expected with very strong Q3 and full year revenue guidance. But the CEO did note that they are, quote, maintaining a cautious near-term outlook with growth driven more by existing business rather than new customers, which could also explain why CrowdStrike's net new ARR came in a little light. Nonetheless, Okta shares up double digits right now, 10 percent. Melissa? Christina, thank you. Tim Seymour, your thoughts on CrowdStrike? Well, on CrowdStrike, coming into these numbers, I think sentiment's actually been very poor. there's been some concern that they are not able to gain incremental market share.

21:27And that, I think, in market saturation are what they're competing against. Those numbers and the guide continue to tell you that that's not the case. It's really going to come back to valuation. But I still think that this is a place where companies are not letting go. You look at the ARR, it continues to build. It's a slower build. And it's not competing with AI. So I'm along the stock. I actually have number of accounts that are along the stock, and I like these numbers. All right. Meantime, let's get to Lyft topping the tape today, jumping more than 8 % on a board member buying binge, the company's lead independent director, Sean Agrawal, purchasing nearly 97 ,000 shares, more than$1 million worth of the rideshare stock.

22:07The bulk buy follows CEO David Risher's$100 ,000 purchase earlier this month, but the stock still remains on pace for an August decline as it continues to trail rival Uber. How are you feeling about Lyft? So many different levers when you talk about Uber versus Lyft. And Lyft decided to be focused on one thing and one thing only, pretty much. And the stock price reflects that. Uber just outblows them away on revenue, which gives them the ability to put more money back into the company. It's really Uber's game, and Lyft is sort of living in that world. The stock chart does not look great to me.

22:41I still wouldn't be a buyer. I mean, I don't think the insider buying is reason enough to rush into the stock. I do think that it's a relative duopoly and that there's plenty of room for both. You know, honestly, I thought the pure play coming out was probably the way to go, a focused approach to a new type of enterprise that's proven not to be the case. And Steve has already spoken to the lack of diversity in revenue streams. With that said, if you kind of look historically, I mean, I don't know how much further the stock could drop. I don't know how much more negative the sentiment could be around the stock.

23:10And typically when you are seeing, I would rather see insiders buy than seeing some type of stock split or reverse stock split or divestiture. So, you know what, I think there's not much downside from here, even if I'm not really bulled up about the name. There's a lot more fast money to come. Here's what's coming up next. Going nuclear. Uranium surging, adding to an already big year. But can the heavy metal move keep on rocking? We'll debate. Plus, insurance impact, the season's first major hurricane making landfall in the southeast. But the impact could be felt across a much broader area. More on the effects from the storm ahead.

23:50You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.