⁠The Kobeissi Letter
BREAKING: President Trump is granting a 1-month tariff exemption to the Big 3 automakers, per WSJ. https://t.co/OW2KQ7ggBR
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⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: A quality valuation analysis on $NVDA 🧘🏽‍♂️

•NTM P/E Ratio: 25.37x
•10-Year Mean: 35.93x

•NTM FCF Yield: 3.54%
•10-Year Mean: 3.08%

As you can see, $NVDA appears to be trading below fair value

Going forward, investors can receive ~42% MORE in earnings per share & ~15% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $NVDA is a quality business

BALANCE SHEET✅
•Cash & Short-Term Inv: $43.21B
•Long-Term Debt: $8.46B

$NVDA has a strong balance sheet, an AA- S&P Credit Rating, & 259x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2020: 19.1%
•2021: 19.1%
•2022: 26.0%
•2023: 16.2%
•2024: 60.5%
•2025: 90.0%

RETURN ON EQUITY✅
•2020: 26.0%
•2021: 29.8%
•2022: 44.8%
•2023: 17.9%
•2024: 91.5%
•2025: 119.2%

$NVDA has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2020: $10.92B
•2025: $130.50
•CAGR: 64.23%

FREE CASH FLOW✅
•2020: $4.27B
•2025: $60.85B
•CAGR: 70.12%

NORMALIZED EPS✅
•2020: $0.14
•2025: $2.99
•CAGR: 84.46%

SHARE BUYBACKS🆗
•2020 Shares Outstanding: 24.72B
•LTM Shares Outstanding: 24.80B

$NVDA is investing in its own growth, driving innovation, and expanding its market leadership. This strategic use of capital is generating higher returns for investors

MARGINS✅
•LTM Gross Margins: 75.0%
•LTM Operating Margins: 62.4%
•LTM Net Income Margins: 55.8%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~42% MORE in EPS & ~15% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $NVDA has to grow earnings at a 12.68% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2026 - 2028 EPS growth over the next few years to be more than the (12.68%) required growth rate:

2026E: $4.50 (50.4% YoY) *FY Jan
2026E: $5.72 (27.2% YoY)
2027E: $6.42 (12.3% YoY)

$NVDA has an excellent track record of meeting analyst estimates ~2 years out, but let’s assume $NVDA ends 2027 with $6.42 in EPS & see its CAGR potential assuming different multiples

28x P/E: $179.76💵 … ~18.0% CAGR

27x P/E: $173.34💵 … ~16.5% CAGR

26x P/E: $166.92💵 … ~15.0% CAGR

25x P/E: $160.50💵 … ~13.5% CAGR

24x P/E: $154.08💵 … ~11.9% CAGR

23x P/E: $147.66💵 … ~10.3% CAGR

As you can see, $NVDA appears to have attractive return potential EVEN IF we assume some multiple compression relying on 24x earnings, a multiple generally below its historical averages & a multiple that’s justified given the company’s growth rate & moat

$NVDA is a good consideration today at $111💵

Given its volatility & high uncertainty, I’d likely strategically buy in tranches, enhancing margin of safety, while positioning myself to win-win regardless of short-term price action

E.g. purchase 1/3 at ~$111, 1/3 at ~$90, & 1/3 at ~$77

If the stock price goes 📉 I can accumulate more shares at an even more attractive valuation, if the stock price goes 📈 I’m in the green
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢�[...]

� 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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⁠Finding Compounders
Sources of Competitive Advantage

Source: Pitch The Perfect Investment (https://t.co/7p00pxapvZ) https://t.co/9F6wjUeO7Z
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⁠App Economy Insights
$GOOG Google Introduces AI Mode for Search

🔍 AI Overviews get a Gemini 2.0 upgrade.
🤖 New AI Mode with deeper reasoning, comparisons & follow-ups for complex searches.
🎟️ Early access for Google One AI Premium subscribers starting today. https://t.co/3jh5DspXcZ
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⁠The Investing for Beginners Podcast
Howard Marks on 1st Level Thinking vs 2nd Level:

First-level thinking says, “It’s a good company, let’s buy the stock”. Second-level thinking says, “It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.

First-level thinking says, “The outlook calls for low growth and rising inflation. Let’s dump our stocks.” Second-level thinking says, “The outlook stinks, but everyone else is selling in panic. Buy!
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⁠Value Spotlight (Andrew Sather)
Can ROIIC show us improvements in business model?

Checking $GM 's ROIC during EV transition https://t.co/VYBFoI6Gal
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⁠The All-In Podcast
The robots are coming!

Chamath: We are a couple of years away from autonomous robots in the house

On E217, @chamath broke down a video from @Figure_robot after CEO @adcock_brett announced they were accelerating their timeline to get robots into homes.

In the video, you can see two autonomous robots communicating and working together!

Chamath:

"(Brett is) going to be beta testing robots in the home by the middle to end of this year."

"In this example, what you're seeing are the two robots basically figuring out how to communicate semantically between (them), and that's incredibly powerful."

"The coolest part of this demo, by the way, which I loved, was they take an apple and then the second robot figures out that it should go in the fruit bowl (and) pushes the fruit bowl to the first robot."

@Jason:

"Oh, that's cool. There it is!"

Chamath:

"That level of semantic awareness and understanding between two models working dependently is very cool."

Jason:

"If they can make these for, what, Chamath, $20K? When do you think it becomes something a middle class household, you know, dual-income household would buy one of these?"

"We're probably a couple years away."
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⁠The Kobeissi Letter
BREAKING: US stocks extend gains on auto tariff delays, the S&P 500 is now over +100 points in 2 hours. https://t.co/1JgPhmeYA4
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