Don’t Be Fooled by Nvidia’s Earnings – Why It’s Still a “Sell”

Hello, Reader.

As we’ve entered the holiday season, many folks are gearing up for Thanksgiving and Christmas, days filled with delicious food, festive music, and spice-filled aromas.

But Wall Street just celebrated its own pseudo-holiday: Nvidia Corp.’s (NVDA) latest quarterly earnings report.

On Wednesday, the AI chip maker reported earnings of $1.30 per share and revenue of $57 billion, beating expectations on the top and bottom lines. Guidance for fourth-quarter sales was also strong.

Nvidia reported it made $51.2 billion in data center sales – $43 billion of which was for the company’s GPUs.

Celebrations ensued as Nvidia’s stock rallied strongly this morning, though it’s fizzling this afternoon

Either way, it’s a major “Sell” in my book. And I’m not the only one to think so.

• Earlier this week, Thiel Macro LLC, the hedge fund of PayPal Holdings Inc. (PYPL) and Palantir Technologies Inc. (PLTR) co-founderPeter Thiel, dumped its stake in Nvidia ahead of the company’s earnings.
• SoftBank Group Corp. revealed last week that it sold its entire stake in Nvidia in October (with potential plans to fund OpenAI instead).
• And two weeks ago, a regulatory filing revealed that Michael Burry – of The Big Short fame – placed significant short bets against the company.

So, in today’s Smart Money, I’ll explain why you also should keep Nvidia out of your portfolio, even as Wall Street celebrates.

I’ll also share another Big Tech stock I believe is a “Sell,” and tell you about some companies you should shift your attention to instead.

Let’s get started…

Why Nvidia Is a “Sell”

Now, I am not here to claim that Nvidia is a terrible stock. It’s not.

It’s been a great stock. And it remains a great company run by great people.

No one can deny how much profit the stock has made for investors. Since the beginning of the year alone, Nvidia has risen 33%, as I write.

This may sound like a good deal on the surface, but I’d like to offer you a different perspective…

I think Nvidia’s big-time money grab is over, and it’s losing runway space along with other Big Tech companies.

Collectively, major tech companies are spending hundreds of billions of dollars to develop leading-edge AI capabilities. The pile of major investments includes Meta Platforms Inc.’s (META) two separate $14 billion expenditures this year (one to build its superintelligence team, and the other for computing power from CoreWeave Inc. [CRWV]); and Nvidia itself announced a $10 billion investment in Anthropic this week.

This kind of monstrous investment imperative could stifle Nvidia’s profit growth and hinder free cash flow generation. This calls forth the scary “bubble” word that has been popping up in headlines over the past few weeks.

Even Alphabet Inc. (GOOGL) CEO Sundar Pichai said on Tuesday, “I think no company is going to be immune [from the potential burst], including us.”

That certainly includes Nvidia.

Now, all hell hasn’t broken loose. But we are watching the chip king’s margins fall year-over-year. In October 2024, Nvidia had a 76.4% gross margin. Now, it’s down to 73.4%. This decrease is due to the company’s transition from chip products to data center solutions. Management has also cited general rising input costs and the need for continued cost improvements to maintain their high margins.

Obviously, increased spending and falling profits aren’t a winning combo. And future margin compression is a key concern for investors due to increasing competition…

Chip Competition… and Another “Sell”

Many of the Magnificent Seven companies are developing their own AI chips.

Google designs and manufactures its own chips, called Tensor Processing Units (TPUs), for AI, data centers, and smartphones. In fact, Apple Inc. (AAPL) uses Google’s TPUs – while also making its own custom processors, known as “Apple Silicon.”

To round it out, Meta started developing and testing its own AI chips, known as Meta Training and Inference Accelerators (MTIA), earlier this year.

All of these chips were created to reduce dependency on Nvidia, which could eventually get cut out of the picture altogether.

In short, Nvidia is losing its shine. So, it’s no surprise to me that important names like Burry, SoftBank, and Thiel cut the company loose.

In fact, Nvidia wasn’t the only high-flying AI stock Thiel offloaded. He also cut down his Tesla Inc. (TSLA) position by over 76%.

Tesla is another “Sell” recommendation of mine. Not even its humanoid robot Optimus can “save” the company in my eyes. There are no formal commitments from large companies wanting to purchase the humanoid robot.

Now that I’ve told you which “celebrated” stocks to avoid, let’s take a look at a couple of stocks I rank as “Buys”…

Your Post-Nvidia Portfolio

While everyone obsesses over Nvidia and its AI chips, they’re missing the one component that makes everything work. Without it, even the most powerful AI chip is just expensive silicon.

At Fry’s Investment Report, I’ve been following a particular under-the-radar company that makes this vital component in AI data centers, allowing servers to communicate and learn from each other.

While Nvidia is up over 30% year-to-date, this company more than doubled that gain with a year-to-date climb of nearly 70%. And it’s currently up 110% since I recommended it to to the paid members of Fry’s Investment Report.

I’ve put all of the information in my special report, Optical-Fiber Fortune: The 10X AI Infrastructure Play Wall Street Is Missing.

While I advise investors to be careful not to be fooled by Nvidia’s hype, the same goes for Tesla.

That’s why, to replace this household name, I’ve put together another special report: Sell This, Buy That: The $24 Trillion Rise of Robotics. This report includes three companies to “Buy” instead of Tesla, all of which are set to capitalize on the emerging multi-trillion-dollar robotics industry.

Click here to learn how to access these “Sell This, Buy That” recommendations.

Regards,

Eric Fry