Motley Fool Money - NVIDIA Earnings Blow Everyone Away

Episode Date: August 27, 2026

With a company as large and as meticulously covered as NVIDIA, you would think there wouldn’t be anything that surprises us anymore. So much for that thesis. NVIDIA's most recent earnings and guidance blew past everyone’s expectations and setup another stellar year for anything AI related. Jon, Matt, and Tyler dissect NVIDIA’s most recent earnings as well as the “hidden” winners and losers from the most recent earnings results. Plus, Crowdstrike’s earnings and a mailbag question about local vs. cloud AI. Have a question? Email us; [e-mail] Tyler Crowe, Matt Frankel, and Jon Quast discuss: - NVIDIA’s earnings and guidance update - The winners and losers from NVIDIA’s earnings - Crowdstrike’s earnings - Is Crowdstrike’s stock a buy? - Mailbag: Is local AI a hyperscaler problem? Companies discussed: NVDA, HP, DELL, CRDO, ONTO, IESC, GRMN, RBRK, ZS, SPCX, Host: Tyler Crowe Guests: Jon Quast, Matt Frankel Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Who boy, did Nvidia's earnings deliver? Motley Fool Hidden Gems Investing starts now. Welcome to Mali Full Hidden Gems Investing. I'm your host, Tyler Crow, and today I'm joined by longtime full contributors, Matt Frankel, John Quest. Guys, I think this has kind of been the thing we've all been waiting for this week. It was Nvidia's earnings report. It came out after the close yesterday, probably the most anticipated earnings report,

even more so than like the hyperscalers. And I think it's fair to say that the report did not disappoint. Shares are up for about 7% as we're taping this morning. Somehow, the company smashed earnings expectations and guidance expectations, which at this point, I'm starting to think, like, Nvidia's arguably the most followed company on Wall Street. If the company can blast past expectations like this, almost start to wonder, like, are Wall Street analysts not really good at their jobs?

Or was it just an incredible quarter here? Maybe both? I'm not all Wall Street analysts, but maybe some, but yeah, this is just an incredible quarter. And I mean, it's every investor's birthday today with Nvidia. You look at the largest company in the world reporting 106% revenue growth, like at some sort of scrappy startup. It's utterly unbelievable. And then you look at the guidance for the coming year. So it's guiding for 70% revenue growth on top of what it's reporting this year.

we're talking tens of billions of dollars. And the thing with that guidance is that Wall Street was expecting good stuff. Wall Street is expecting 45% growth in the coming year. InVoset is saying 70% growth. And the thing with that is, it's indicating that it would even be higher if it could physically make the stuff, but saying that it is supply constrained, it's a supply constrained outlook. In other words, if we could have more supply, then perhaps we could deliver more revenue growth in the coming year, we can't. So we're saying around 70%. Unbelievable, the top five

hyperscalers spending roughly $800 billion in CAPEX this year. And many investors believe that's been unsustainable, that pace. But NVIDIA is saying they expect the hyperscalers to spend $1.3 trillion in the coming year. So 500 billion more than what they are going to spend this year. So there's your headline numbers. Yeah. So companies that grow revenue at 106% year every year generally don't trade for 25 times forward earnings like Nvidia does. It's fair to say that the stock is pricing in an eventual deceleration. You mentioned the original estimate was for 45% revenue growth last year, which is a pretty big deceleration from 106%. So now that we're getting 70%, or they're saying 70%,

which they have a good history of low-balling their estimates, that's the real reason the stock is rising. The company said itself that it can only satisfy about 70% of the demand it's seeing for its products. So it's not the earnings themselves. Everyone expects Vida's earnings to be slightly better than the guidance and analyst expectations every quarter. In fact, Invidia initially fell when the report came out before all those forward guidance

numbers were revealed. So, I mean, there are margin compression concerns due to memory costs, but right now you're essentially trading about 300 basis points or three percentage points of your 75% gross margin in exchange for roughly doubling your revenue growth expectations going forward. So the margins will be worth watching. InVioregons have been expanding pretty much without fail for core. quarter after quarter after quarter, and that's no longer the case. But not much not to like about this report.

It's kind of strange. I'm a little bit at a loss for words for this, which makes for arguably the worst podcast media ever. But, you know, this guidance revision this large is obviously going to have like a profound impact on the entire AI infrastructure ecosystem, not just invidia. I mean, we're seeing shares rise today. And this idea that we're actually supply constrained versus, I don't know, maybe some of these new entrants like Google's,

kind of these custom-built chips that all the Heppercule was building themselves. There was like this concern that maybe demand might be there, but it is there. So with that in mind, like all of this supply coming to the market from Nvidia, from these other companies, and we're still supply constrained, you know, we've covered like the picks and shovels of the AI infrastructure buildout a couple of times here. But I want to challenge you guys a bit because this is, the biggest story over the next couple of years. It's hard to avoid. What are some of the

companies in this picks and shovels part of the industry that this revision kind of signals to that are going to be like the winners and losers? And maybe let's focus on some of the ones that are a little lesser known here and really lean into our hidden gems kind of theme here. Well, Tyler, I want to just point out what Matt said here regarding the gross margin concerns going forward for Nvidia, there's higher memory cost going into everything with AI and that is going to impact some of

Nvidia's margins and as you point out, maybe not a big deal with Nvidia, but let me just latch on to that higher memory cost thing. I think that that becomes a little bit problematic for a company such as HP. And this is kind of a loser here because of what's going on here

I'm not just saying that because HP stock is down today, but you look at consumer devices. Many of these memory companies, maybe not many, but some of them have pivoted away from the consumer market entirely because there's so much demand in the AI infrastructure trade. So these memory companies pivoting exclusively to that. So not only are memory prices going up generally, but now some of the companies supplying the consumer market have exited that.

So there's even a bigger shortage in the consumer part of the market. the memory costs are going to be a higher and higher percentage of the overall cost going into making a personal computer. So the cost of a personal computer going up, that is really hard for a business like HP. You look at Dell, at least it has the tailwind from its AI server business that is supporting its growth. HP doesn't really have that. So I would say that's a tough place to be if you're HP.

On the other side, let's talk about a hidden winner here. And we're talking about potentially, I don't know, how many extra GPUs that Nvidia is saying it's going to sell in the next 12 to 24 months. It's going to be a lot. Let's put it that way. So GPU interconnectivity is a bigger and bigger trend. I look at a company such as Credo Technologies, ticker symbol CRDO. This is a company, one of the several companies out there that can benefit from increased need in GPU interconnectivity. But when I look at Credo, one of the things that I do like about it is how small it is.

Invidia is saying $1.3 trillion potentially in spending in the next year from the top five hyperscalers. Okay, CRETA technology only has $1.3 billion in revenue right now. And it's tripled in the last year, expecting 80% growth in the coming year. I believe this stock can be a good performer. Let's say if it reaches $5 billion in revenue within the next several years, that is just a drop of the gush of spending that NVIDIA is projecting here. And so that is one that I think can be under the radar, maybe a hidden winner here.

I mean, I'll call out a few hidden winners and losers here. So a couple of winners, they're both roughly $15 billion market cap companies, and both are companies that most people haven't heard of. The first one's Onto Innovation, O-N-T-O. They make the inspection tools used in making all these memory products that are fueling that supply challenge. And kind of a between the lines takeaway is Vitya's 70% expected growth rate next year. It implies that the company is going to need a lot more memory than expected.

So that could be a positive tail in there. Another one's called IES Holdings. Tiersim was IESC. They design electric systems for data centers. We've talked about comfort systems. It's kind of similar story here, among other end markets they serve. And I mean, if hyperscale or Cappex goes from $800 billion to $1.3 trillion next year, You know, power is a big constraint for data center development.

And so companies like this are going to have not only a lot to do, but a lot of pricing power. But on the loser's end, John really hit the nail on the head when he said that memory, any company that needs memory for any type of consumer electronics could be a loser. So although I love the company and its management team, I got to call out Garmin here, GRMN, they rely on third-party memory for all their products. and as much of a great job as they've done, with companies like Invidius scooping up more and more of the memory capacity, it could raise prices on garment devices or result in margin compression

if they don't want to pass along price increases. It's likely to be a pretty temporary problem, but it's definitely one that's worth watching for companies like that. It'll be interesting to see if the manufacturers, you know, Nvidia is a chip company, but they outsource everything to Taiwan Semiconductor. I will be fascinated to see with the memory companies as well as the chip manufacturers, the foundry companies, if we start talking about significant expansion of production,

because everywhere we look, we're looking at these constrained bottlenecks, whether it be electricity, whether it be GPUs, CPUs, memory, name your chip. We seem to be running short right now. So I feel like one of the stories we're going to be really following in the coming quarters is are we going to see significant expansion of capacity from these, companies to actually meet this demand because otherwise workers is going to be stuck in this demand short on supply short on supply sort of thing and a lot of these companies are going to, you know, have the winners and losers continue down this path unless there is some significant change.

Coming up after the break, we got another earnings report coming up. We got Crowdstrike who was also having an awesome day in the market. Shares of Crowdstrike are up 18% as we're taping right now. After a company reported earnings, another great earnings report, similar to what we we saw with NVIDIA here. And this pairs rather nicely with a lot of things that we were been talking about with AI, because there was this kind of story around, like, AI and hacking and the idea of, like, basically,

most of cybersecurity these days is going to be rendered obsolete by AI agents. But based on these earnings reports and NVIDIA's guidance, it doesn't seem to be the actual issue here. It seems as though AI may be pushing customers to spending, more instead of less. Guys, what did the report say? Yeah, so, I mean, well,

Nvidia's reaction was generally based on its forward guidance. CrowdStrike just reported a blowout quarter, period. Not because revenue grew 26% year-over-year, which was an acceleration. The real number is that net new growth in annual recurring revenue was up

51% year-over-year. That's a company record. That's something CrowdStrike has never been able to do, even in the much earlier phases of its growth, ramping up. Net new ARR that was about 17% higher than even management's own guidance. So AI is clearly fueling demand for cybersecurity at a much stronger rate than more than experts thought. The remaining performance obligation, which is kind of the technical word for the backlog, grew by 49% year every year to a little over $10 billion. Adjusted operating margin grew by

350 basis points. Management raised its full year guidance significantly on both the top and bottom line. There were very high expectations going into this report. It's a highly valued stock, but CrowdStrike really delivered another great quarter. I love this not so subtle zinger from CrowdStrike CEO here from the conference called AI is driving a clear divide between the cybersecurity companies that solve problems and those that compound problems. And I'll let you decide which one CrowdStrike says it is itself. But what is so interesting here is to Matt's point, this was a great new quarter for net new business during the quarter. And the management team saying that this is as a result of the Mythos moment. So if you

remember Mythos coming out and this is one of those AI models out there supposedly broke containment and caused some problems and they had to pull it and yada yada. Investors saw this initially as a threat to the cybersecurity space. Crowdstrike management saying this is actually going to be a benefit for us, and right now the numbers are backing that up. You see the timing of the mythos being released and all that buzz, and then you see the uplift in Crowdstrikes business. That said, I will put on my skeptical hat here because there are some changes, some recent changes in the last couple of years to CrowdStrikes billing methods. And so all new customers are now coming in in this Flex billing model. So whereas before, they signed

contracts maybe for the year and they picked which modules they wanted to adopt from CrowdStrikes roughly two dozen cybersecurity module options. Now you kind of have a spending commitment. You can flex that into modules that you're experimenting with, flex away from the ones that aren't working for you. So you can, and then within that time frame, you can reflex. In other words, when you spend all the money that you had committed, you can just re-up at the same rates that you've negotiated with CrowdStrike. So that really does allow for faster adoption. It allows for rather than waiting for, let's say that you're a business and you see this mythos moment, you're scared, you're wanting to try some things to protect

yourself, whereas before you might need it to wait until your contract was up or that whole thing. Now you can just reflex and you can experiment with things. So management pointing out that new customers who are entering by the Flex business model billing method, that's the one that they have to choose if they're a new customer, there's a significant uptake in the annualized recurring revenue right from the get-go. So maybe this is more of a billing thing that Mythos is showing us why this is such a good way to bill its customers, at least if your crowd strike. But we'll see if that is actually great for both crowds strike and its customers long term. One of the more interesting things about AI actually is the way that it's changing the way a lot of software companies bill or

charge how they're doing. You know, we had this software as a subscription. model, but now it's even starting to go almost like on a usage basis, similar to what we're seeing with like token usage with AI. So who knows, maybe one of the biggest innovations with AI is new billing processes here for these companies. CrowdStrike is another one of these darling companies. It's done incredible for investors. It's up like 114% over the past year.

There's plenty of Motleyful members who've had recommendations on CrowdSike who've done very well. But this is like, I want to put the rubber to the rubber to the rest. here for investors because another great quarter, it seems to continue. And this is the crux of the challenge here is shares trade for 37 times, excuse me, times sales. That means right now it would take 37 years for the company to generate its market gap in revenue. Now, granted, that's if revenue stayed flat. The expectation is would grow, but that's still huge. This was like a discussion during the dot-com bubble with like some microsystems where they're like, this is, isn't our earnings, this is our sales, before we have to actually deduct anything right now.

So this has been the story with Crowdstrike. It's like, it's a great business, it's growing a lot, but the valuation is crazy. So with this valuation today and everything you guys read from the earnings report and what you saw, is this stock an actual buy now? And if not, is there something within, it doesn't have to be cybersecurity, but maybe like the Venn diagram of what you could call, you know, crowd strikes tangential areas where investors should consider instead if you think that this thing is just way too expensive. Well, I mean, Tyler, you're calling out valuation. I will say that I have sold stocks in the past based solely on valuation concerns, solely on valuation concerns. And every single time I have done that, I've lived to regret it in hindsight

because generally speaking, when the business is great, the market is great, everything is great, except for the valuation, selling on that basis alone, it's always been wrong for me. And so I tend to stay away from that more now. I really do try to sell businesses that are performing poorly or industries that I believe are under long-term threat. I'd let that be more my deciding factor. If ever there was a company to not ignore the valuation entirely, but to push it way down your concerns list, I think Crowdstrike is one of them, because it has demonstrated such an

ability to compound its business over time. And I can't think of maybe a more important long-term industry than cybersecurity, one that's growing very, very nicely. And so Crowdstrike is one that if your only concern is valuation, I'd hit pause on that because it really is a phenomenal business and industry. I will say, though, if you are concerned about the valuation here, but want to stay in the same general area, it's not a direct competitor, but I would just point out rubric RBRK. This is a cybersecurity company, but not a direct competitor to CrowdStrike. Trades at only 14 times sales, that's about a third of the valuation, and yet it is growing faster than CrowdStrike. So I think that is something to look at. It does generate free

cash flow. It's got a pretty good balance sheet, so that would be one I'd look at. Yeah, so I'm going to push back a little bit. So if the pandemic era SPAC bubble and the bubbling and high-growth tech stocks taught me anything. It's that valuation always matters at least a little bit. So, I mean, contrary to what John just said, there are several stocks that I regret not selling on ridiculous valuations during that era. I mean, CrowdStrike, just to kind of put the numbers in perspective,

CrowdStrike, they previously targeted 20% long-term revenue growth, like in perpetuity. And at the current valuation, that tells us that the stock trades for about seven times the revenue it will generate in a decade from now. So on one hand, growth is accelerating, which you're right, is rare at this scale. The forward book of business is growing faster than current revenue. That implies acceleration in the near term. And that AI cybersecurity thesis is one that I completely believe in.

But the math here is brutal. Even if, let's say, Crowdstrikes revenue were to triple over the next five years, which I think would be a stretch, the company would still be at about 12-time sales at the current price. So there's a lot not to like here. and I know Tyler's going to be with me on this one. Their stock-based comp is massive enough to completely wipe out that operating income that we talked about. And the company actually reports an operating loss on a gap basis.

Their diluted share count grew by almost 5% over the past year. That's even after some buybacks to help offset it. And I would expect a similar rate going forward. Even though they're a leader, they're not without competition. So to kind of modify a Warren Buffett quote that I love, CrowdStrike is a wonderful business at an uncomfortable price right now. I wouldn't start a new position here today. If you absolutely want to, it's definitely a great case for dollar cost averaging into a position. But as an alternative, I recently bought Z-scaler. They partner with Crowdstrike,

a lot of the same tailwinds, but a much more palatable valuation right now. The stock-based compensation, and this is not just a crowd-tricking, it is something that I have always struggled with when it comes to evaluating businesses. is when there is that much stock-based compensation that wipes out earnings or operating profits in that way, it's hard to assess the success of this business over the long term because so much of it is going to the employees rather than the shareholders. So it will be a story worth following. I mean, with a valuation this high, I know that investors are going to be thinking about that over the long term. Coming up over the break, we're going to dip into the mailbag specifically related to AI.

Hey, everyone, quick reminder. If you want to get a question into us and have it read on air, email us at Podcasts at Fool.com, that's podcast with an S. I've also put the email in the show description so you can get it there as well. Remember, keep it short, keep it foolish, and we cannot give personal advice. So today's question comes from John from New Jersey. And the question is, we have had multiple discussions about whether or not the money invested in data centers will be worth it. And that's a very fair assessment of what we've done here. One of the threats to Data Centers is the idea that many of the new models can be run locally, not necessarily like Claude and OpenEI, but a lot of the Chinese models that we're seeing these days.

One big advantage of these models is that all of your company's data will remain local and will not be sent to another company to possibly be sold on. The newly announced Apple computers, personal computers, I think is the new Mac Mini, are actually designed to run AI locally. This gets to John's question, how much of a threat is local, use of AI to the actual AI cloud companies. I can't tell you how much I love this question. I feel like I've been a local AI crusader for months now,

and I've been all by myself. And so now John from New Jersey is standing with me. We, John's got to stick together. So I'm really thankful to talk local AI. Just briefly, I mean, Apple products, Apple mini products in particular, have already been being used for local AI. and Apple kind of leaning into that with its next generation. But let me answer this question directly.

I don't think that local AI is a threat to the cloud AI industry. I think that they're different use cases. I think that more and more people, individuals, are going to want to run some local AI. So running a model that is personalized to me on my stuff in my home, I think that's going to be a growing trend. There's a lot to unpack with that. There's still a lot of learning how to structure it.

A lot of people out there are trying to solve for this. But beyond individuals, I think that hospitals, schools, government agencies, they're all going to want to run more and more local AI for obvious reasons. They're not going to want all that stuff in the cloud. And yet, I do think that there's still a use case for cloud AI in the future because that's where a lot of the innovation is going to be happening, lot of running your own stuff on your own hardware, there are challenges to that. I think that SpaceX's new Grockbot really is bringing it, making it more usable, perhaps driving an adoption

curve. So definitely watch that, but I still think there's going to be innovation happening and things that you're going to need a cloud AI for. And so I think it's going to be both in the future. I think that we already have so much money being spent going into the data centers, going into those, but I think there's going to be a layer on top of that, which is your own local AI at home. So or in your place of work, place of business, your school, whatever. So I think it's going to be both in the future. So I don't see this as a either or. Yeah, I generally agree with John. It's really a case of a rising tide lifts all ships here when it comes to AI. Data centers and on-device AI are two totally different things that solve two totally different problems.

Plus, I mean, data centers have a few key advantages that are going to help. them continue to grow. We've already mentioned the memory problems several times in this episode. The AI boom has made memory for local AI much more expensive, just to name one thing. So data centers, their operators have a lot more room to win the memory price wars. They have more money. They pay more. If you're investing hundreds of billions of dollars, you get priority. Local inference, it's bound by memory capacity, not by raw compute power. That's not the constraint here. So that is a big challenge. But while local AI is not much of a threat to cloud-based AI, to tie it into our earlier discussion, I do think it could be one of the best things that

ever happened to cybersecurity. So, I mean, think about it. If all of your employees' local devices are running their own AI models, there will be thousands of new AI endpoints that you need to secure inside enterprise networks. So definitely could help companies like CrowdStrike and Z-Skiller going forward just to kind of tie it into what we were saying earlier. There's a real irony here of the entire 2010s was the whole movement of migration to the cloud and every single business wanted to migrate to the cloud. And now we're talking about everything going back onto local servers, local hardware, and keeping your own stuff in-house.

Everything seems to come full circle. Well, guys, that's all the time we have for today. As always, people in the program may have stocks they talk about and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on one. you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements or sponsored content provide for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks for producer Dan Boyd and the rest of the

Motley Fool team. For John, Matt and myself, thanks for listening and we'll chat again soon.