NVidia Q2-2025

I am only making a comment on the raw magnitude of money they are making and making some simple calculations with it.

For the quarter, $46.7 billion in revenues. Gross margin of 72%. Bottom-line after-tax figure of $26.4 billion.

The half-year figures look “worse”, with 67% gross margins and a $45.2 billion bottom-line, but man, that’s still a crazy ton of money they are making.

Let’s take the quarter that has just passed and multiply by 4. I know these figures are projected to grow (for how long?) but let’s just play with the past quarter and extrapolate.

The last quarter times 4 is $106 billion a year in income annualized, or $4.31 per diluted share.

NVidia closed trading at $181.60 per share, giving it a P/E of 42.

What’s funny is there are some other well established companies that are even more expensive when using this simple metric.

Costco, for example, is trading at a P/E of 55. One isn’t going to accuse Costco of having their customers wanting to build trillions of dollars of factories to sell product in Costco’s warehouses, or having 70% gross margins for that matter!

However, let’s go back to NVidia.

If I was a serious long-term investor (not too many of those left these days), the biggest concern of mine would be on the cash flow statement.

In the first half of the fiscal year (start of February to end of July) they generated $42.8 billion in cash through operations. This is less than the net income primarily due to increases in AR and inventories – this is logical considering their revenues are skyrocketing.

However, the biggest concern I would have is the $23.8 billion they blew out the door in stock repurchases and the additional $3.4 billion paid out in taxes relating to option exercises.

What did shareholders get for $23.8 billion going out into the equity markets? In Q4-2024, NVDA had 24.489 billion weighted shares outstanding (basic), while in Q2-2025 they had 24.366 billion, a reduction of 123 million shares or 0.5% of shares outstanding. Percentage-wise it is a drop in the bucket, but because we are dealing with huge numbers, $23.8 billion dollars could have gone in many other places! Perhaps they could buy 20% of Intel along with the US Government……

Needless to say, a lot of hidden compensation is going out the window in equity. While employees and executives are getting very rich (if you have some and haven’t diversified yet, might be a good time to consider it!), shareholders will eventually be paying for this somewhat more hidden compensation. It is a repeat of the dot-com era stock option craze – the public investors have done well, but the buyback is a serious cash drag on the company.

The Dell and PC hardware value trap

I noticed recently that Dell (Nasdaq: DELL) slipped below $10/share. They’re now at $9.5/share or roughly a market capitalization of 16 billion (if you net out the cash and debt, the enterprise value is about $12 billion). This is on $3 billion income for the trailing 12 months, so something is completely out of whack – the market is either nuts, or they’re betting that Dell’s net income is going to drop significantly in the future. The latter is more likely to be the case.

I still don’t see anything worth investing in unless if you have a good sense of salvage or residual cash flow analysis. Dell is facing a compounding problem of being in a low margin industry that is not only shrinking, but is facing longer lifespan cycles and technological shifting.

In other words, they don’t have a proprietary tablet to be selling for ultra-large margins like some other fruity-named company.

Intel (Nasdaq: INTC) has an escape route – their processors can be used elsewhere and can command market pricing. They’ll take collateral damage, but will do relatively better. However, since the consumer end is still a significant portion of their market, I will also continue to lump them in the value trap category. Their anti-trust shield, AMD (NYSE: AMD), should also struggle. Considering that embedded chip makers such as ARM (Nasdaq: ARMH) are stronger competition to Intel, it makes you wonder if AMD is at all relevant any more and will get taken out by Intel finally.

This is similar to the fate that graphic chip designers were all finally consolidated into Nvidia (Nasdaq: NVDA) – which in itself might get munched by Intel. Its as good a time as any for consolidation in this entire PC sector.

Finally, it is always easy to point out share buybacks are a mistake when your stock is richly priced, but in Dell’s case, they have cumulatively spent $32.1 billion of cash on repurchasing 1.2 billion shares of stock – an average price of $26.79 per share. If from day zero they banked this cash and simply traded at a market cap of their net cash value (not even the higher book value), they would be trading at $11.93/share today. If they traded at the premium above book value as they are trading today, they would be at $15.26/share. Quite a bit of value destruction went on with those share buybacks.