Motley Fool Hidden Gems Investing - Millions, Billions, Trillions for Nvidia

Episode Date: June 21, 2024

Nvidia’s been on such a tear, it’s tough to keep the zeroes straight. We talk through its status as a top dog in the market and how top-heavy the S&P 500 is. (:21) Ron Gross and Bill Mann discuss: - How Nvidia stacks up to fellow titan Microsoft, and whether investors should be worried about how much of the market’s returns are being driven by a few companies. - An luxury-fashion IPO that wasn’t in Italy. - AI pushing Accenture through a slowdown in its core business and how Darden’s Restaurant chains are holding up as pricing comes into focus for food . (19:11) Fawn Weaver, CEO of Uncle Nearest, the fastest growing and most awarded whiskey and bourbon brand of the past few years, tells one of the greatest stories in the alcohol business and offers up a cocktail to beat the heat this summer. (35:20) Ron and Bill break down two stocks on their radar: Old Dominion Freight Line and McCormick. Stocks discussed: NVDA, MSFT, F, ACN, DRI, MCK, ODFL Host: Dylan Lewis Guests: Bill Mann, Ron Gross, Fawn Weaver Engineers: Dan Boyd, Austin Morgan Learn more about your ad choices. Visit megaphone.fm/adchoices

It continues to be NVIDIA's market. We're all just living in it. This week's Motley Fool Money Radio Show starts now. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Dylan Lewis.

Joining me over the airwaves, Motley Fool senior analysts Bill Mann and Ron Gross. Fools, great to have you both here. How you doing, Dylan? Hey, Dylan. We've got one of the greatest stories of the alcohol business, straight talk on EVs from one of the legacy auto giants, and, of course, stocks on our radar. We are kicking off, though, this week looking at the market cap race. Ron, there was a moment where a new company was atop the market, albeit briefly.

This week, chip giant NVIDIA passed Microsoft to become the largest company in the world. As we tape, Friday morning, they are neck and neck, falling a little bit behind Microsoft. Let's do a little side-by-side here. How does NVIDIA stack up to Microsoft, Ron? Do you think most people heard of NVIDIA until this year? I feel like it came out of nowhere. Yes, it's a skin cream, right? That's great. I mean, if you were a gamer, you knew it. Sophisticated chips for the video game market and a very important part of that market. But here we are in the AI world, and they have now 80% of the market for AI chips and data centers. And it has been quite the year for

them. Microsoft, I think we all know, cloud being a big part of their business over the last several years, but we certainly know the Windows and the Office software products as well, gaming, and the computer hardware. Microsoft has been a beneficiary of the AI boom, took a significant stake in OpenAI, integrating AI into their products. They're actually one of the biggest buyers of NVIDIA's graphic processing units, GPUs, if you will. So it's interesting. And as you said, they're both kind of neck and neck around $3.3 million in market cap. But in terms of operating metrics, they're not very much alike, with Microsoft being significantly larger for now. A few metrics, NVIDIA, $80 billion in revenue, Microsoft, $237 billion in revenue. Operating

income, NVIDIA, $48 billion, Microsoft more than double that at $107 billion. Now, margins gets a little more interesting here with NVIDIA kind of overtaking Microsoft. NVIDIA has 60% operating margins. Microsoft has 45%. Not too shabby, but NVIDIA beats Microsoft out there. Similar disparity with profit margins. Growth rates, NVIDIA, not surprisingly perhaps, is the leader. 32% growth expected over the next year, 14% growth for Microsoft. And this all shows up in the valuation multiples. You got to pay 47 times forward earnings for Nvidia. You get away with 35 times for Microsoft, not as fast growing, but still obviously one of the best companies that we have. I've been an owner for quite some time and have been very pleased. You see the same thing

with other cashflow multiples as well. So you got to pay up for Nvidia for sure, but Microsoft is the larger company. I like the fact right out of the gate that you actually said 3.3 million and not even billion in terms. Did I say million? You did. You did. We'll cut that out in post, Bill. No one will ever know. These numbers are so big. They're so big. NVIDIA in the last year has added market cap that is equivalent to the GDP of Italy in a year. In two years, it's gone from 400 billion, which I don't know if you guys know this, is a pretty big number to $3.3 trillion. Is that billion or million, Bill? Did I get it right? I feel like I got it right. I think you did. If you have any hopes for doubling your money in NVIDIA, you've got

to believe in a $6.6 trillion public company. Fascinating. A lot of very happy shareholders all around when it comes to the NVIDIA and Microsoft conversation, NVIDIA in particular. I did see a piece earlier this June that year to date, NVIDIA makes up about a third of the return of the total S&P 500's returns so far. Since that article published, the stock is up 15%, Bill. When you see that, obviously an incredible story, but does the concentration of returns in the market here concern you at all? We have never been at a point in time in which we have had more of the market concentrated in the top five names than we do now. And similarly, maybe even more importantly, we've never had a time in which those top five names were all in

the same industry and they're that concentrated. It is well over 25% with the top five names for the S&P 500, which means that they are essentially the same size as the bottom 400. It's a bit of an unnerving market structure. I know we don't spend a whole lot of time talking about market structure, But there is a very simple fact that if any of these, particularly the big three, sneeze, the entire market, as measured by the S&P, is going to get hit and hit very, very hard. Ron, I see you nodding. What's your take here? I would say, you know, if your goal is to beat the market in 2024, good luck if you don't own NVIDIA, as you said earlier. Nvidia up around 175% this year. S&P is up 15%. Nvidia responsible for about one-third of the gains of the S&P 500. As a result, the average S&P 500 stock is trailing the index by almost

11%. That's the worst underperformance since 1990. You better get on board. Otherwise, we'll look to 2025 in terms of beating the market. I got to say, I feel like there are a lot of fund managers out there that chose to benchmark to something that nvidia is not in feeling pretty good this year about their comps now you're right exactly now now you got to be careful because this this harkens back this reminds me a lot of the the dot-com telecommunications equipment bubble back before the dot-com bubble kind of blew up where cisco kind of overtook microsoft actually to become the most valuable company at one point in time and this was back in march 2000 let's say in those days cisco was 77 per share 24 years later it's 47 per share you have a lost almost

two and a half decades of cisco if you were a purchaser in march of 2000 by the way i was a purchaser in february of 2000 so he shows you what i know you did it but it's a very interesting parallel and i'll take it one step further i bought nvidia last month so very very similar I'm up now, but am I going to have a lost two and a half decades? Time will tell. Ron, I want to stick with that for a second, because I'm sure there are some folks out there that don't own it in their portfolios and are asking that very question. Is this something I should be buying, even given the growth that it's gone on and the

amazing status it has right now? If you're thinking about that, how would you be looking at it? I'll give you a non-professional answer. I didn't want to miss it. I had FOMO. I didn't want to risk my retirement, but I wanted to participate. So I took what I considered to be a reasonable to low amount of money so I could participate if this thing continues to be unbelievable. And it is the burgeoning, it is the internet back in the year 2000. It's very,

very interesting to me. I wanted to participate. I would like to speak on behalf of the passive investors out there and just remind people that if you do own an S&P 500 index fund, you already have a very, very large stake in NVIDIA, Apple, and Microsoft. So congratulations on participating. There you go. You can choose your ticket to ride. You have a couple different options there. NVIDIA is certainly the name of the moment. Europe was hoping to add a big name to its public markets this week. Shares of luxury sneaker maker Golden Goose supposed to hit the public markets this week on the Italian exchange in Milan. If you don't know the name, maybe you've seen the star on the logos of shoes worn by Taylor Swift. That's them. We had a Bloomberg

piece reporting that the offering had priced an implied valuation of $1.7 billion. Shares were supposed to start trading today, Bill, and yet they aren't. What exactly happened here? I love the way that market commentators always talk about IPO markets being good or bad. And if you are a buyer, you need to flip those words on their head. A good IPO market means that they're able to sell at a high price, which means that you would have to buy at a high price. So in this case, there's a private equity firm called Permira, and they've specialized in this type of thing. They took Doc Martin public three years ago. So they're trying to bring Golden Goose, which makes some form of used sneakers and sells them for 500 bucks a pop.

And so, you know, if you need some used sneakers, I have some here at the house that I'd be willing to sell you for nearly that price. So, yeah, when you see an IPO market where the promoters are pulling IPO listings, it should tell you that the market is offering some bargains because they are not selling because they don't think that they're going to raise enough money. So, this gets me interested in looking again at similar companies that are trading in Italy and elsewhere in Europe. Bill, there's an elephant in the room joke-wise that I don't know if I can sit on. I think I have to swing at this pitch. The company cited a lot of concerns over the macro environment in Europe and the political environment in Europe. Is Golden Goose killing its Golden Goose by delaying this IPO? Oh, that's not good. I'm leaving. It's not even punny.

I had to go for it. I had to go for it. You did. I appreciate Emmanuel swinging a pitch that fat. No, I don't think it does at all. Keep in mind that 99.9% of the people who are spending $500 on sneakers that look used are not really worried about whether this is a public or a private company. This is a fashion brand, and fashion brands have a great deal of risks that have nothing to do with the public markets. Now, to be fair, in an IPO market, they are trying to raise money. Companies are not publicly listed for our convenience. They are publicly listed for their convenience. And all they're telling you right now is they didn't think they were

going to be able to raise as much money in this environment. And so the goose right now is not particularly golden, more bronze. I love it. Thank you for indulging me. All right. Coming up after the break, we've got to check in on EVs and the tail end of earnings season. Stay right here. You're listening to Motley Fool Money. You just found out that your sales team is at risk of missing quota. Don't panic. Just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforce into a meeting-ready dashboard showing quota attainment, headcount plan, and monthly revenue to quota by region.

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Welcome back to Motley Fool Money. I'm Dylan Lewis here on air with Bill Mann and Ron Gross. If you're a follower of the EV space, you've gotten used to some waves. This month, Ford CEO signaling another one might be coming. Bill, you wanted to zoom in on some comments from Jim Farley this week. What jumped out to you? So Jim Farley is the CEO of Ford, and Ford, by some measures, they are somewhat agnostic as to the platform that their vehicles run on. They sell ICEs.

They sell electric vehicles. They also sell hybrids. in the EV space, they're losing, by some measures, about $100,000 for every car that they sell, which I don't know if you know this is kind of a lot. Kind of a tough business model. Yeah, it's tough to make up on volume, too. So, Jim Farley came out and said that you need to be careful about pushing all the way to an electric vehicle future because it may not be what everyone wants. And he pointed to the fact that hybrids are selling much better and growing much faster in the market this year than EVs have been. And we've all heard about the stall, but he put some

numbers behind it. EVs grew 46% in 2023, but only 3% in the first quarter of 2024. Now, it's just a quarter, so I don't want to extrapolate too much, but we do know for a fact that there are steps that need to be taken for more of the population to find EVs to be the most convenient vehicle. And the price point is still higher than the other two platforms. Bill, I like your reminder there that Ford operates in all the markets when it comes to cars. And maybe this is a reminder here that the companies that are more diversified are going to go where the money goes. And the innovation and the real push when it comes to EVs are going to be in the concentrated players that really have their livelihoods attached to it.

Exactly right. You show me what you do, and I'll show you what it is that you are trying to promote. In the case of Ford, they just want to be on the winning platform. They're somewhat agnostic. I mean, $100,000 loss per EV maybe is not that agnostic, but they just want to go where the winner is going to be. And it may not turn out that there's any winner at all, And Ford would like to be able to compete in all of those markets as well. So I think really what he's saying is be careful from a legislative standpoint, from a policy standpoint of thinking that the EV future is all of that. All right. We've got the tail end of earnings season wrapping up. Results from Darden Restaurants and Accenture this week.

Ron, shares of Darden Restaurants up 5% this week, helped by earnings that came in ahead of expectations on the bottom line. This is a business that's known for when you're here, your family. How's the family of Darden businesses looking? You're right that they beat expectations, but it was definitely a mixed report for me. Things are not firing on all cylinders here. There are some bright spots, but to look at a few of the metrics, you had net sales were up almost 7%. That's okay. Driven by the acquisition of Ruth's Chris, hard to say, Ruth's Chris Steakhouse and 37 other new locations. But overall, same-star sales were flat. Olive Garden, which we've talked about a lot on this show over the years, Steve Broido's favorite dining

establishment, same-star sales down 1.5% for them. Their fine dining restaurants, Capital Grill, my favorite, by the way, Eddie V's, those same-star sales were down 2.6%. percent. So, not great metrics. Longhorn Steakhouse is their only segment that was up in terms of same-store sales, up 4%. So, they've got some work to do here. They're seeing a pricing pressure game going on here that they don't want to play in. Competition is lowering prices. They want to hold steady. Interestingly, fast food prices are actually up. I think we have some fast food restaurants that are going to try to combat that in the coming weeks. But there is a price war going on here. Only 16 times forward earnings

for Darden. I own it. I'm happy to keep hanging on to it. 3.6% dividend yield as well. But they do have some work to do. All right. We'll wrap with a look at AI and tech spend. Results in from consulting firm Accenture. Bill, results came in slightly below expectations. Market didn't seem to mine. Shares were up 7% on the report. Why was the market willing to look past the miss? So let's start with a little bit of a trivia question. Which company has higher revenue, NVIDIA or Accenture? Well, Ron did give us that rundown earlier. And or based in Ireland. I'm going to have to go with Accenture based on the premise of the question. Yeah. Based on the setup, that was a bit of a giveaway. Yeah. $21.1 billion in revenues,

an increase of 22% over the last quarter, 26% in local currency. Really importantly, they have grown their generative AI bookings from nowhere to about $900 million, of over $900 million, so for $2 billion year-to-date in generative AI bookings. So, things are going absolutely fine at Accenture. I mean, obviously, it's not a company that has the Lollapalooza expectations that a company like NVIDIA does, but they have transformed themselves from a straight consulting company to being a really sneakily powerful AI-driven company. And I think they actually do it quite well. I think it's a very, very well-run company. You got to pay 26 times forward earnings for it. It's not the cheapest company in the world,

but it's also not a tech company. We're not talking about tech multiples here. So you can get into a little sneaky AI play here for 26 times, 1.7% dividend yield that just raised that 15%. So I kind of like some of these metrics here and I like the company. Bill, it's kind of an interesting time to check in on Accenture because in general, the story has been corporate spend ramping down, budgets getting tighter, but they have this mega tailwind when it comes to AI consulting. Is the outlook here, hey, we know those budgets are coming back. We've got something that can kind of buoy us in the meantime, this will be fine. Yeah, they feel like that they've got a really great position in digital space and cloud and generative AI and in security,

which is the other large growth area for corporates. You can hear with every single company that they are trying to figure out how to fit these things and how to implement better security and better artificial intelligence into their systems everywhere. And so Accenture as a consultancy should benefit. All right, Bill Mann, Ron Gross, fellas, we're going to see you guys a little bit later in the show. Up next, we've got the scoop behind the most decorated whiskey brand of the past few years. Stay right here. You're listening to Motley Fool Money. And nothing, oh, nothing is going right. Close your eyes and think of me.

And soon I will be. If the sea was whiskey. Welcome back to Motley Fool Money. I'm Dylan Lewis. This week, the stock market was closed Wednesday in observance of Juneteenth, commemorating the end of slavery in the United States. June 19th was first a stock market holiday in 2022, a relatively new development in observance of a day Americans have celebrated for a long time. That idea of recognition is central to our interview this week. I spoke with Fawn Weaver, CEO of Uncle Nearest, the fastest growing and most awarded whiskey and bourbon brand of the past few years.

The company owes its name and legacy to Nathan Nearest Green, a distiller and formerly enslaved person that taught household name Jack Daniels how to make whiskey. Green was the first African American master distiller in the United States on record, and thanks to Weaver and her team, his contribution to history is now recognized and his legacy lives on at Uncle Nearest today. His great-great-granddaughter, Victoria Eadie Butler, is the company's master distiller. Weaver walked me through the history and her book, Love and Whiskey, and offered up a cocktail if you want to beat the heat and raise a glass to Nearest Green this summer. So you've written on love and you've written on relationships in the past.

This book, Love and Whiskey, may seem a little bit different, but it is very much focused on a partnership, one between Nearest Green and Jack Daniel, and your process of learning about that partnership and then building the Uncle Nearest Company. It starts with a New York Times story and ends with a whiskey brand in 50 states of distribution. At what point do you know where this is going and what it's building to? It was actually very early on. And it was early on because when I began doing the research in Lynchburg, it came up very early into the process. So the serendipity of how this came to be is something that is absolutely made for TV or, as they would say, are made for a movie, which, of course, we're already talking about that.

When I arrived in Lynchburg to begin doing the research on this book, very early in, within hours, we connected with one of Jack's eldest descendants. That wasn't something that we were trying to do. So to the rest of the world, Jack Daniel is a person on a bottle, right? To me, he's a human being, a really incredible human being who lived, who left an extraordinary legacy and his descendants, they are still very much so in Lynchburg, Tennessee. And so the eldest, the second eldest living descendant showed up at the library where I was doing research. And in that very short window of time that we had a conversation and I told her what I was working on, she let me know that the farm that Jack Daniel grew up and Nearest Green was the master distiller for the person who had previously been credited with teaching Jack Daniel, right? a white preacher and distiller. And now it has been proven that it was an enslaved man on that property that actually did do it. But that property, I had no idea that property was for sale. So if you think about this, 313 acres, the original home, the original spring where all of the Jack Daniels came from during the years that, that nearest green was the master distiller all

coming off this property. We buy the property because she tells us it's available and her cousin then takes us as the realtor to go see the property. And not long after us making an offer on it, just from a real estate portfolio side. I mean, this is a piece of American history. We had no idea what we were going to do with it. If you saw the original drawings that the architect did, you would probably shoot us. If we did that, we, we literally outfitted the whole house. We made the entire inside of the house modern. It was a white kitchen. I mean, it's absolutely absurd to think we were going to do that. But when we first purchased it, we weren't thinking about it being for a whiskey brand. And so we were looking at this as this is a piece of American history.

It's incredible. It turned into a bed and breakfast, right? So it's a whole other thing. But the realtor who we purchased the property from very early on in the process said, hey, you know, if you, if you ever decide to honor nearest with a bottle, I will come out of retirement to make sure you get it right. Well, as it turns out, she had been in the family business her whole life, which is Jack Daniels. And when she retired after 31 years, she retired as the head of whiskey operations. So you're looking at two different things that were not a part of the plan when I went down to research. That all happened in a matter of two days. So once that happened, of course, the trajectory of everything changed. We now own this property. What are we

going to do with this property? I mean, it wasn't cheap. So now what are we going to do with it? It has to make money when you spend that much. We certainly weren't buying a vacation home. And then you have this other person who knew whiskey through and through. Truly, it was in her blood and her lineage. And so it was something that happened organically, but it was clearly meant to be. As I was reading through the book and really familiarizing myself with your story, with the story here, I was really overcome by the power of story, period. And I think it's something that you really hone in on and realize very quickly as you're learning the history here. I hear you talk about bringing in a distiller to help you with this and the power of that story

being helpful in getting other people involved and creating what this ultimately has become so far. The thing is, is that we have a lot of stories in American history, right? And when you're talking about race and you're talking about relationships between blacks and whites, especially something that is in the 19th century, I would venture to say there are not going to be a whole lot of positive ones. I can't personally name one off the top of my head, right? I think that our country was due for a great American story between people of different races, between black and white, a story of redemption, a story of hope. I think we are due for a story like this and that I get to be the one to bring this forth is extraordinary to me. I am deeply honored to be able to do that, especially during a period of time where race seems to be a topic every single day. So to be able to present a book that that is the origin story, but the pages of it are filled with so much hope because of how incredible Jack was as a human being and Nearest Green.

And so I love that this this book truly has two heroes. And and and it just I am currently reading it for the audio book. And I am so in love with this book. And it's my book. A lot of authors get to the end of writing a book and they're like, good riddance. They're ready for it to be over and to move on to writing a new book. And this one, I'm like, I could read this 20 more times because it gives me so much hope for America every single time I read through it. I think when you last spoke with The Motley Fool, it was back in 2020.

And at that point, I remember Uncle Nearest was literally flying off the shelves. I had heard that there was distribution near me in D.C., went to the store, And I was late. I was too late to get there. And I think that was a common story because people loved the product so much and loved the story behind it. That growth, it seems, has continued based on some of the numbers I've seen. I saw you guys were looking at about $100 million in revenue for 2024, and your sales have tripled since 2021. What did the next couple of years look like for you guys? For us, we just acquired a vodka company. And so you're looking