NOT A BUBBLE! NVIDIA Earnings, Buffett Buying Google Proves It

0:29Hello, everyone. into today's conversation with Phil. I need your help. My goal is to get to 1 million subscribers on YouTube. Before we get to a million, we got to get to 40 ,000. We just crossed over 39 ,000, which means we're right there on the edge. Hit the subscribe button and let's get into this conversation with Phil. All right, Phil, we got a bunch of great charts today. The first one is the S &P 500 is going to put in, it looks like two straight 20 plus percent performances back-to-back years. This has happened a couple of times in history. What happens next? So we are actually on track for a third one this year.

1:01And we're at about 16 % right now. And the fourth quarter is usually pretty good. I know we've had a tech sell off in the last couple weeks. But I'm betting on a third straight year of 20 % gains. And that's very unusual, because usually we're at about 8%. So we're going to more than double what the usual third year is after a run like this. And what's funny is that people will point to the dot com era as another time we've seen that happen with a third year having a more than 20 % gain. But as we know, valuations are not the same today as they were back then. I think the bull market is still very strong right now.

1:35And so the average return after the S &P puts in two plus 20 % years is that average of 8%. And you're saying that if we actually get another 20%, that looks like that happened in 1997, 1998, 1999. And that's pretty much the only other time in history. We got three 20 pluses in a row? Yeah. So I think the red flag that you could point to in this instance is that the last - The fourth year? Yeah. Well, it's the technological revolution then and now. You're seeing a lot of similar data come out about percent changes and maybe concentration at the top of the market. But again, these companies are so robust, we're in a totally different era.

2:14All right. Now you got the K-shaped divergence for consumer discretionary and consumer staple stocks. Explain what this is showing us. the high income households and asset allocators are doing so well, and they've been doing very well for several years, but lower and middle income households are not doing well. And this shows up in the stock market, which I think a lot of people wouldn't expect because you would think that a rising market lifts everything, especially when you're talking about simply investors versus non-investors. But I thought this chart was interesting because it's essentially saying stocks like Amazon, Home Depot, Starbucks in the discretionary sector.

2:49Those have all been rising in the last few months. And these are things that people can spend money on, but they're nice to haves, not need to haves. And then you have the consumer staples, which is Costco, Walmart, Coca-Cola. These things are more essentials, I would say. And these are things that middle and lower income households shop at these companies. So this divergence, this is just another example of sort of tale of two economies we have. And we see the same thing with the rising S &P and lowering consumer sentiment and other examples. Now, I will say you put the K here. Most people, they put the two arrows, but the K, that's why you have the best charts.

3:26It's because you put the K, say, hey, this is K-shaped. This is how a K looks. Here we go from there, which is very helpful for folks paying attention at home. Now, Bitcoin, very disappointing year. A lot of people are not very happy. You have a chart here that makes me want to cry. It says Bitcoin turns negative on the year. What do you take from this? So I think there's only been three other times in the last 15 years that we've seen negative Bitcoin in an annual return. And that's pretty much pushing back on everything we expected coming into this year. You had the crypto friendly White House.

3:55You had the ETFs. You had momentum from the halvings. You had rate cut expectations. So everything pointed to pretty much a generational run for Bitcoin. And that's just not what we've seen and there's a bunch of factors that you know better than me on why that's not happened. But gold and S &P has done very well. You know, one thing that I think people lose in the analysis, if you go back like 14 months instead of 12 months, now all of a sudden, if people forget that on November 1st, if I remember correctly, Bitcoin's price was at 69 ,000. So Bitcoin went up, call it somewhere around, you know, 40 to 50%, depending on which day you measure from.

4:33And then it's pretty much gone sideways since then. So it did have this kind of big run. Now, nobody cares because when you put up that one year chart, it's flat to negative, right? Year to date, flat to negative. And so they don't give you credit for those two months before that big run up, especially the people who are first buying Bitcoin today. But it is kind of interesting that it was$69 ,000 on November 1st of 2024. Just now people are disappointed because they thought that moment was going to carry us to, you know, I heard some people saying 500K. Yeah. I mean, I saw a bunch of$150K outlooks from the start of this year to December.

5:06And yeah, this chart is also, as you say, this is an example of how charts can lie because we were at$69 ,000 this month last year, but that's not reflected in the exact 12-month chart. Okay. Now, Warren Buffett, the GOAT investor, he has been synonymous with Berkshire Hathaway. Buffett, Berkshire, got a little bit of play on words going on, right? They're ready to rock and roll. All of a sudden, Buffett steps back. The question is, is Berkshire going to lose its position, its premium luxury position in the market? They recently announced a position in Alphabet. They bought some stock. What happened?

5:42So Alphabet stock went up 3%. And this is a$3 trillion company. So 3 % in Alphabet, just because the news came out, Berkshire took a stake. That's essentially a whole Robin Hood that Alphabet increased because Berkshire took a stake. And we don't even know if it was Buffett's call or maybe his successor or the team, because Buffett is historically, he's not really a tech guy. But this could be his last move as CEO of Berkshire. And it's absurd because the actual stake for Berkshire is like one and a half percent in the Berkshire portfolio. Yeah. $4.3 billion stake you have here. Yeah. And that is enormous in day to day life.

6:29But because Berkshire's balance sheet is so big and their stock portfolio is so big, this barely moves the needle for Berkshire. And yet it literally changed you could say it changed google's entire uh the perception people have of it and it also pushes back on the idea that ai is a bubble because if you have berkshire hathaway's stock picking team with buffett they're not going to buy into a bubble because they that's just not what they do they've never done that and if they're betting now on google when a lot of people have said we've missed the run already if you're buying it now this is a big deal this is a huge deal yeah All right.

7:04So there's two other things that I think are interesting here. The first is Apple has been a big beneficiary of Buffett buying Apple stock because it was like, it's so good that even Buffett bought tech, right? Like the fact that he doesn't buy tech historically, and then he put something in, they gets like a supercharged. The fact that he's doing, I think Google's getting a little bit of the benefit there. So people know that he has historically been somewhat shy about tech, but Oh, Google, Google has met the Buffett filter, right? So they get the shine. The second thing is I don't know how big the complex is, but there's a lot of people who just follow Buffett.

7:35You know, when those announcements come out, they just, you know, they just fast follow, right? Hey, if it's good enough for Buffett, it's good enough for me. Whether they're actually like dollar for dollar portfolio mirroring, or it's just people saying if, you know, Buffett bought, so I'm going to go and kind of buy afterwards. That probably also drives quite a bit of movement in the stock as well. We're probably never going to see a halo effect like Warren Buffett, because everything he buys, it's going to go up and everyone's going to love it for years. but we're never going to see this again once Buffett steps down.

8:03I don't know. Eric Jackson, he got a hot hand, right? This is true. This is true. All right. NVIDIA is up 1 ,400 % since ChatGPT debuted. I saw Dan Ives. He was calling Jensen the godfather of AI. He was saying NVIDIA is the foundation on which AI is built. Like, is this just the greatest company ever of our lifetime? Possibly. I mean, it's going to get to$5 trillion market cap pretty soon, most likely. And we've never seen a company so levered to a single technology is how I see this chart. And when you think about ChatGBT before and after, like how much the world has changed, that is pretty much what this chart is saying, because everyone wants what NVIDIA is selling.

8:46And NVIDIA sort of figured this out. And now they have deals with literally every single company, big and small, private, public. And I don't know how this company doesn't continue to accelerate as far as the demand story. I think Jensen said they already have$500 billion of orders for next year. And we're going to find out more this week with earnings. But it's just an unbelievable company. And the idea that you can see before and after ChatGPT, it sounds like fiction. Like it doesn't make any sense. Now, you know what's interesting to me is a lot of people would look at the stock chart and be like, there's no way a company went up 1 ,500 % and it's not overvalued.

9:26The multiples actually come down. And what that means is that the company is growing so fast, both revenue and EBITDA, that it is outpacing the increase in the stock price, which is mind boggling that you can have a stock do that well, but the multiple comes down. With all the bubble talk, I've been talking to some very, very smart investors, way smarter than me, been in the business for decades. They still think NVIDIA is undervalued in many ways. And so if that is the perception of NVIDIA from the quote unquote smart money, no wonder people are still buying it, fueling the stock continuing to rise.

10:00So it's one of these things where if you actually dig into the data, and I think this is why Tom Lee, Dan Ives, a bunch of these folks who have been really kind of bullish on the AI trend have been so right, is they're just looking at the information. They're saying, what's the multiple now? What was it 12 months ago? Wait a minute. It's growing fast. The multiple is actually lower today than it was 12 months ago. we're more convinced today that AI is real versus we were 12 or 24 months ago. This doesn't make it like it's undervalued by. And I would argue that we're not even to the point where AI is that disruptive.

10:34I think we have some tools that make individuals more productive, but we haven't seen the vast rollout of, okay, we're going to make countries more productive yet. But I think we're getting pretty close. All right. Now you got this chart that says, are we in a bubble? Valuations in dot-com bubble versus today. this made me feel pretty good. I mean, I just might chill out a little bit and not be too worried. This is an extension of the NVIDIA chart, right? NVIDIA has a lower PE than Costco and Walmart and Netflix, Eli Lilly. So you could go across sectors and NVIDIA is actually cheaper, according to this measure, than a bunch of these other companies.

11:09And if the poster child of the AI revolution, the AI bubble fears is cheaper than all these staple companies we've had for decades, that that again is something that pushes back on this bubble narrative and uh yeah what you're showing here is what you have intel microsoft oracle and cisco 47 times uh pe ratio all the way up to 130 back during the uh 2000.com bust today there's only you know what 25 to 32 these are very fair and pretty vanilla valuations i would argue especially in today's environment. Yeah, we're not anywhere close to what the tech companies were doing at 2000. And also the tech companies back then, their balance sheets were nowhere close to what we have today.

11:57They weren't making the products, the profitability. They didn't have the, let's say, the bet on innovation that we have today. It's like, yes, the internet was revolutionary, but there wasn't the same intrigue and expectation around, okay, this is world-changing, productivity, increasing tech, is what I would argue. Now, you know what's interesting to me is people think that Apple is behind the curve on AI. They kind of like missed out, I think, as part of the narrative. Are they going to have to partner? Will they, you know, kind of FOMO in and buy a company or something? They try to do self-driving car, right?

12:31That seems to have kind of gone to the wayside. You've got other companies that have stepped in and either their startups like the Open AIs of the world or Microsoft, I think people see as way further ahead in AI. they have a higher PE ratio than NVIDIA. And people still like Apple stock more than NVIDIA. Like a lot of people that think it's a bubble, they will go to Apple because they say, look, they're the only ones with hardware that people are using all around the world today. And I would push back on that. I think NVIDIA's demand story is, if you extend it out for a decade, I think it's probably stronger than Apple's today.

13:06But who knows? Who knows? All right, you've got opening bell. Describe a little bit of what you guys do on a day-to-day basis and then talk about this Best Ideas Club. Yeah. So I write a newsletter every day, Financial Markets. There's always a bunch of charts, a bunch of data, a bunch of interviews. And I've been doing it every single day for years now because I was doing it before at my last company, writing this markets newsletter. And I think our team would say it's the best markets newsletter in the world. I agree. It's the best data, best charts. The charts. The charts is one of the best parts.

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15:44Or you just Google Opening Bell Daily or Phil Rosen. Just Google me. That's what he is. Google me. All right. We'll see you guys tomorrow. Now I told you, Phil always brings great data and great charts and today was no different. I hope that was valuable for you. I learned a lot and hopefully you did too. That's it for today. Please remember to continue to subscribe on YouTube. Hit the subscribe button and I'll see you guys live tomorrow from the desk of Anthony Pompliano.