The Rundown - Deep Dive: Is Nvidia Undervalued?

Episode Date: February 28, 2026

Nvidia just posted another monster quarter, so why did the stock drop nearly 10% after earnings?In this deep dive, Zaid breaks down Nvidia’s blowout results, the growing fears of an AI bubble, Michael Burry’s warning about massive purchase commitments, and the real risk that hyperscalers could slow their spending. Then we flip to the bull case: agentic AI, a potential China comeback, new inference chips, and why Nvidia might actually be cheap at 22x forward earnings.Check out the Public app for incredible investing tools and to support the show (LINK)Follow us on Instagram (@TheRundownDaily) for bonus content and instant reactions.

Welcome back to the rundown for another weekend deep dive. Today, we are talking about the most important stock in the world right now, Nvidia. Nvidia just dropped their latest earnings report this week, and once again, the numbers blew expectations out of the water, yet the stock still dropped. So in today's deep dive, we'll take a closer look at Nvidia's earnings and why some are concerned about the company moving forward. We'll also take a look at the bull case and why some investors think that Nvidia is actually undervalued right now. We got a great one for you today. Let's dive in.

All right, let's take a closer look at Nvidia's earnings because honestly, the numbers are absurd. For the fourth quarter, Nvidia reported 68.1 billion dollars in revenue. That's up 73% from the same quarter last year. Net income came in at $43 billion, which is a 94% jump year over year. The majority of the growth is coming from the data. business, which includes their AI chips. Data center revenue was $62.3 billion, growing 75% year over year, and now accounts for over 91% of the company's total revenue. You know, it wasn't that long ago that Nvidia was a gaming company, but their gaming division only brought in $3.7 billion in Q4.

These days, Nvidia is a full-on AI chips company. And I was listening to the earnings call. And on that call, Nvidia said that their data center business has increased by 13 times since the launch of ChatGPT. I mean, that was like three and a half years ago. So the growth in NVIDIA's business has been absolutely crazy in a very short amount of time. Now, digging a little deeper, gross margins held strong at 75%, which was right in line with expectations. Now, there's been concerns that NVIDIA's margins might start to slip, but that's not the case so far. Honestly, I find it very impressive that NVIDIA is selling hardware and able to generate software

like margins. And one number that really jumped out to me was their networking revenue. Invita made nearly $11 billion in networking sales, which was up 263% year over year. Now, this networking business includes their NVLink technology and their Spectrum X Ethernet switches. This is the stuff that connects the hundreds of Nvidia GPUs together in data centers to create these massive GPU clusters. So this shows that Nvidia's customers aren't just buying their chips, but they're also buying entire AI systems.

And speaking of Nvidia's customers, from this earnings report, we learned that the hyperscalers accounted for over 50% of Nvidia's data center revenue. The hyperscalers include Microsoft, Meta, Amazon, and Google. So, Nvidia is making half the revenue from just four companies. We're going to talk more about that in a bit. Overall, though, if you zoom out, Nvidia ended their fiscal year with over $215 billion in revenue and $96.7 billion in free cash flow, which is just nuts.

I mean, across the board, this was a dominant quarter, and management doesn't expect things to slow down anytime soon. company expects Q1 revenues to come in at $78 billion, which is higher than the $73 billion that analysts were expecting. Now, Nvidia stock did initially pop around 2 to 3% after their earnings came out on Wednesday afternoon, but then by Thursday the stock had dropped more than 5% and then on Friday, the stock dropped another 4%. So despite beating on every metric across the board, Nvidia stock is down almost 10% following their earnings report. So let's get into the bare case in why investors are suddenly so nervous about Nvidia going forward. All right, so if Nvidia is printing money

and crushing expectations, why do the stock lose nearly 10% of its value in two days? Well, the thing is, the market is forward-looking, and right now, investors are getting seriously spooked by a few looming risk when it comes to AI. I think the market is kind of going through an identity crisis. On one hand, AI is an incredible technology, and it's getting better every month. And companies are embracing it and spending hundreds of billions of dollars on it. But on the other, other hand, some investors are starting to ask, what if AI being so good is actually bad for the economy? A few days ago, there was a substack post by Citrini Research that went mega viral. The post was framed as a research memo from the year 28, and it laid out a completely dystopian view of

AI's economic impact. The whole piece was very long, like 7,000 words, and it essentially makes the point that AI will keep getting better, and companies will keep replacing white-collar workers with AI, and those displaced workers will stop spending money, and that's going to trigger a broader economic collapse. Now, personally, I think the Satrini piece is a bit too sci-fi for me to take seriously, but the markets definitely took notice. Tech stocks fell on Monday following the report, and that just tells you how fragile sentiment is around AI right now.

We saw something similar happen with Deepseek back in January of last year when that Chinese AI startup shocked the market and Nvidia's stock dropped 17% in a single day. So the AI narrative can turn on a dime, and because Nvidia is so tied to the AI narrative, any shift in the sentiment hits Nvidia's stock pretty hard. Now, beyond the AI sentiment, famous shortseller Michael Burry is also getting in on the action. He published a negative piece about Nvidia following their earnings report. Michael Burry pointed to Nvidia's purchase obligations going from $16 billion a year ago to over $95 billion today.

These purchase obligations are non-cancelable commitments that Nvidia have, to make to their suppliers like TSM to secure chip production capacity. And it looks like NVIDIA has already committed pretty much all their free cash flow on this capacity. The point that Bury is trying to make is NVIDIA is being forced to place these massive orders well before they actually know what demand will look like. TSM is requiring these longer term contracts because NVIDIA chips have gotten so complex that TSM has to build custom fabrication capacity just for NVIDIA. So essentially, NVIDIA is placing huge bets on

on future demand without knowing if that demand will be there. Bury compares this to what happened with Cisco back in the dot-com bubble. Cisco was the picks and shovels play of the late 90s internet boom, just like Nvidia is for AI today. At the time, Cisco extended massive purchase commitments expecting 50% annual growth to continue. Well, when enterprise IT spending collapse, Cisco had to write down about 40% of its supply chain obligations and Cisco stock 10. So I think Bury thinks that could also happen to Nvidia.

You know, if there's a pullback on it. on AI spending that some think will happen, maybe Nvidia could suffer the same fate that Cisco did back during the dot-com crash. And that's the key question here, right? Will there actually be a pullback in AI spending? Especially from the hyperscalers. As I mentioned earlier, 50% of Nvidia's revenues

come from meta, Microsoft, Google, and Amazon, and these companies are expected to spend close to $700 billion combined on AI infrastructure this year. But all this cap-back spending is actually wrecking havoc on the balance sheets of these companies. Google, Microsoft, Amazon, and Meadow are all expected to see a noticeable decline in free cash flow this year. In fact, Amazon is expected to go into negative free cash flow from all their CAPEX spending. So it's possible the shareholders of these companies might start pushing back and asking whether this CAPEX spending is actually worth it.

In fact, the stock price for all the hyper-scalers is in the red this year. If the stock price continues to fall, there's going to be more pressure on management to potentially scale back CAPEX. And if that happens, Nvidia could take a big hit. And finally, the last concern when it comes to Nvidia is competition. Now, look, Nvidia still dominates the AI chip market, but for the first time, it feels like competition is getting serious. And the reason competition is heating up is because the industry is shifting. AI is moving from the training phase where you need massive GPU clusters to train frontier

AI models, something that Nvidia chips are really good at, to the inference phase, which is actually running AI to answer queries from users. The thing is inference doesn't always require the same level of, GPU power that training does. And that's opening the door for alternative chips like AMD. In fact, AMD just announced a $100 billion partnership with meta. And meta said that these AMD chips will primarily handle inference workloads. And then you have some of these hyperscalers working on their own AI chips. Google already has their TPU chips. Amazon has their tranium chips. And Microsoft and Meta are working on their own custom silicon as well. These hyperscalers just don't

want to be reliant on Nvidia. So that could hurt Nvidia's market share. and pricing power down the road. Now, Nvidia kind of brushed off to competition concerns on the conference call. The CFO so that Nvidia is the king of inference, which I guess is true for now. But, you know, there are a few reasons to be bullish on Nvidia. So let's talk about the bull case moving forward and why some people think that Nvidia is undervalued right now despite being the most valuable company in the world. Okay, so I've laid out some real concerns when it comes to Nvidia,

but there are several reasons to believe that Nvidia's generational run still has legs. and that the AI trade is alive and well. For one, we got to go back to the hyperscalers. They're planning to spend $700 billion on CAPEX, a lot of that going towards building AI infrastructure. And the thing is, these companies are starting to see a return on their AI investment. Nvidia says that the use of generative AI is already delivering measurable results

for clients in areas like search optimization, ad generation, recommendation systems, and developer productivity. Meta is probably the best example of this in their recent earnings. call, they said that AI is helping them improve ad targeting, which is leading to more revenue. In fact, Meta saw an acceleration of revenue in the recent quarter. Google also said something similar in their earnings call. So I know these Cappex numbers are huge, but as long as these companies are seeing an R.O.i on their Cappex spend, which it looks like they are now, they're not going to slow down

spending anytime soon. And I think investors are going to be okay with it. Again, as long as revenue is accelerating. The reality is, the more money these companies spend, a lot of that's going to trickle to NVIDIA because they still have the best AI chips. In fact, NVIDIA has outlined a $500 billion cumulative revenue opportunity across its Blackwell and upcoming Ruben chip platforms. Based on recent order trends, NVIDIA says that it's already tracking ahead of the demand assumptions it provided just a year ago. So demand has been stronger than they projected themselves.

Now, remember what I said earlier that NVIDIA is starting to face competition, especially when it comes to inference chips. Well, the Wall Street General just reported that NVIDIA is working on a chip specifically designed for inference computing. For this new inference chip, they've incorporated technology from a startup called GROC that Nvidia essentially acquired last year for $20 billion. Now, this chip hasn't even come out yet, and Open AI has already agreed to be one of the largest customers of this chip. So, Nvidia saw the inference threat from AMD and others, and they're moving to address it

head on. Next, let's talk about agentic AI. On the earnings call, CEO Jensen Huang declared that a gentic AI inflection point has arrived, and he called it the next chat GPT moment for the industry. Now, what Agentic AI refers to is AI systems designed to execute complex, multi-step tasks with limited human supervision. These are AI systems that don't just answer questions, they actually take action. These AI systems could be used to monitor patient data in hospitals and flag issues,

or detect cybersecurity threats and respond in real time, or maybe manage entire supply chains autonomously. And the reason why the rise of AI agents matter for Nvidia is up until now, NVIDIA's revenue growth had been heavily concentrated amongst a handful of hyperscalers. But agentic AI is expanding AI adoption into the enterprise world. You know, I'm talking banks, hospitals, manufacturers, logistics companies, they're all going to be needing computing power to run these AI agents. So that means that NVIDIA's customer base could get a lot broader.

Next up, let's talk about China, because this might be the most underappreciated part of the bullcase. Right now, Nvidia generates zero dollars in revenue from China. Keep in mind, China is the largest semi-conductor market in the world, yet Nvidia makes no money from them. And this is all because of export restrictions, but that might be changing soon. So the backstory here is that Nvidia has been locked out of China because of U.S. export restrictions, but the U.S. government recently granted Nvidia a license to export a small number of their powerful H-200 chips to China. But that's just one side of the equation because now the Chinese government has been hesitant to allow invidia's chips into their country due to its own national

security concerns. China also wants to funnel support to their homegrown rivals like Huawei. But Bloomberg recently reported that the Chinese government began telling tech firms like Alibaba that they can prepare to start ordering Nvidia's chips. The market is already adjusted to Nvidia not being in China. So whatever revenue that Nvidia ends up making is just upside. Jensen seems to think this could be a $50 billion opportunity. Now to wrap up the bull case, I have to talk about valuation. I know it sounds kind of crazy to say, but the most valuable company in the world might be undervalue. So hear me out here, okay? Invidia currently trades at less than 22 times forward earnings. This is well below its five-year average of around 37 times.

In fact, Bloomberg reported that Nvidia is now cheaper than roughly one-third of all the stocks in the S&P 500. The best way that I can put this into perspective is that Nvidia's revenues grew 65 percent last year, which makes it the third fastest growing company in all of the S&P 500. And right now, the stock is trading basically at the same forward PE as an average S&P 500 company. Meanwhile, you have a company like Palantir, which has a similar growth rate to Nvidia, but that stock is trading at nearly 100 times forward earnings. So that just kind of puts into perspective why Nvidia might be undervalued trading at 22 times forward earnings. So what's my take here? Well, look, I'm not going to sit here and tell you that

Nvidia is a risk-free investment. In fact, I think that there are valid concerns. I'm also concerned about the AI doomerism stuff where AI is going to destroy the economy. I'm more concerned about the potential pullback in AI spending from the hypers in competition from custom-made chips. But that being said,

the valuation is pretty mind-blowing. Nvidia grew revenues at 65% in 2025 and their guidance continues to blow past expectations moving forward. Not to mention the shift from AI training to a gentic AI is a massive tailwind, and then China could also come back into play. So at 22 times forward earnings, it's hard not to think that Nvidia might be undervalue. The fundamentals of the company are strong. But given that the market is spooked about AI right now, there could be some short-term pain

and volatility as everyone tries to figure out what an AI economy will look like going forward. Well, all right, guys, that's it for today's weekend, deep dive. Hope you guys enjoyed today's episode. Let us know in the comments on Spotify or YouTube, what you thought about today's deep dive, and if you're bullish or bearish on Nvidia moving forward. And while you're at it, don't forget to hit us with a five-star rating

and vote in today's Spotify poll. All that engagement really does help us out, and it helps other people find the show. Thank you guys so much for listening, watching, and commenting. Shout out to Mike and Connor for all the work behind the scenes. And we'll see you guys back here tomorrow. Medium Power 15 minutes. Sounds like Ojo time.

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