When Perfect Is Not Enough
Unpacking Nvidia earnings, the refreshing discipline of Netflix executives, and the implications of OpenAI's investment round.
Hey everyone,
We are closing out the month of February, and this week was no different than the rest of the month. Massive market volatility driven by Trump tantrums, AI fears, and tech earnings.
Let’s get into this week’s news:
Tariffs & AI Doomsday: Both our portfolio and the market spent the entire week recovering from Monday’s drop. The drop was driven by two factors: President Trump announcing his 10% retaliatory tariff after the Supreme Court ruling, and a viral blog post from Citrini Research outlining a 2028 “Global Intelligence Crisis” (an AI doomsday scenario predicting massive white-collar unemployment).
NVIDIA’s perfection wasn’t enough: Tuesday and Wednesday, markets climbed in anticipation of NVIDIA earnings. Perfect results were delivered; they beat expectations and raised guidance, but the stock still dropped 5%. Why? Because the market is not convinced that the AI buildout will continue at this pace. When investors are uncertain, they look for stable, boring businesses, and this week we saw another glaring example of this irrationality: Walmart and Nvidia are currently trading at the exact same trailing P/E ratio. Take a minute to really think about that.
Walmart ( WMT 0.00%↑ ), a business that is predicted to grow 5% YoY with a 3% net margin, is trading at a 45 P/E and a 42.7 forward P/E.
Nvidia ( NVDA 0.00%↑ ), the best business in the world, which has a 55% net margin and is projected to grow 77% YoY, is trading at the same 45 P/E but a wildly cheaper 22.7 forward P/E. Investors are so terrified of the unknown that they are willing to pay AI-level premiums for the absolute certainty of toilet paper and bananas. bliss is having a hard time wrapping his head around this one.
Remember: The market can stay irrational longer than you can stay solvent. In these times of uncertainty, only invest in individual stocks money that you won’t need in the short term.
The $840 Billion OpenAI round: Just as the Friday closing bell rang, news broke that OpenAI secured an $730 billion pre-money valuation in a monstrous $110 billion funding round. Amazon is throwing in $50 billion, SoftBank added $30 billion, and Nvidia pitched in $30 billion. We are still digesting what this means for Amazon. We previously mentioned we didn’t want to see Amazon get involved, but in a separate press release, it was announced that they are getting massive spend commitments on AWS, and even a commitment to train models on Trainium 2 chips. If that is the case, AWS growth should accelerate even further, which will be a strong tailwind for Amazon( AMZN 0.00%↑ ) in the coming quarters.
The AI Labor Paradox & Inflation: Also on Friday, we got a mix of economic indicators. On one side, jobless claims came in under expectations, showing that AI layoffs are not exploding, but at the same time, we saw Block announce a massive AI-driven layoff, cutting 40% of their workforce. In the inflation world, PPI came in above expectations, showing that wholesale inflation is still sticky around the 3% mark. In general, these indicators reduce the likelihood of further Fed rate cuts before June.
Netflix Walks Away: Netflix smartly withdrew its bid for Warner Bros. Discovery. We wrote back in November that this was a great acquisition for Netflix, but everything has a price. To a certain extent, it’s highly refreshing to see that Netflix ( NFLX 0.00%↑ ) executives are not willing to buy assets at any price, and that is exactly why the stock climbed on the news.
Portfolio Update
We spent all week trying to recuperate from Monday’s losses. We were nearly there, but a Friday drop dragged us back down, closing the week at -1.1%. The main culprits? Nubank and Novo Nordisk, which were down 15% and 20%, respectively.
Nubank ( NU 0.00%↑ ) : Nu absolutely crushed earnings. Revenue grew 45% YoY, and revenue per active customer grew 27% year-over-year to $15. Delinquencies dropped to 6.6%. The kicker? They received conditional approval for a U.S. banking charter for 2026. Despite this, the stock dropped 15% this week. This drop does not worry us at all. We are very long on Nu, and this quarter just reinforces our thesis.
Novo Nordisk ( NVO 0.00%↑ ) : We took a massive beating here, down 15% for the week. Shares plummeted to a five-year low after its new obesity treatment, CagriSema, showed less weight loss in trials than Eli Lilly’s Zepbound. Unlike Nubank, this drop worries us. We are starting to lose faith in Novo, but we aren’t capitulating yet because at this point the company is trading at a forward P/E of 12. We are holding the line while we reassess the weight-loss drug war.
A Look Ahead
This morning, breaking news came in that the US has launched a massive military operation in Iran. Crypto prices are already dropping heavily across the board in response to the geopolitical shock, indicating that we could be in for another terrible Monday.
What do you think about the Walmart vs. Nvidia valuation, or the new $840B OpenAI price tag? Let us know in the comments.
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Have a good weekend. Stay hydrated. 💧
Wow, crazy times! Another great read, loved it.