The stock market is an interesting place to invest because most stock investors do not care about the true value of the companies underlying their stocks. Due to the dominance of index funds, traders, gamblers, and people who think they're investing but they're actually gambling, the pursuit of truth in the stock market is in decline. If a company's stock price is going up, investors believe the investment is good, and no price is too high for that company. I believe everything has a price that is too high. We might not know what that price is, but it's out there, and it's the savvy investors' job to find it.
I remember when Howard Marks wrote about Yahoo's stock price in 2000 and 2001. He said in 2000, Yahoo's stock price was $237, and in 2001, it dropped to $11. Yahoo losing 95% of its value in one year shows the tendency of stocks to deviate from their true value in the stock market. I'm sure that after seeing Yahoo's stock go vertical day after day, investors stopped trying to figure out what price was too high for the company, and they hopped on the dance floor with everyone else.
I believe we can reduce the risk of losing Yahoo-type money by seeing ourselves as buying the entire company and not just a share.
Take NVIDIA for example. As of June 21, 2024, the stock sells for $126.57 per share. $126.57 is only piece of the story though, because the value of the entire company, or its Enterprise Value, is $3.094 trillion, not $126.57.
Enterprise Value = Total Market Value of Stock + Short Term Debt + Long Term Debt - Cash - Marketable Securities.
Stock Price | $126.57 |
Total Shares | 24.62 Billion |
Total Market Value of Stock | $3.116 Trillion |
Cash | $7.587 Billion |
Marketable Securities | $23.851 Billion |
Short & Long Debt | $9.71 Billion |
NVIDIA's Enterprise Value | $3.094 Trillion |
Would someone capable of amassing trillions of dollars buy NVIDIA for $3.094 trillion? Would their optimism about the company's future remain high if they had to write a check for trillions of dollars instead of buying a few shares for $126.57 a piece?
I think investors who're able to buy entire companies would quadruple check everything and try to understand what they're getting for their $3.094 trillion. According to NVIDIA's last financial report, which reported the 1st quarter of their 2025 fiscal year, they had $26.044 billion in Revenues, and $16.909 billion in Operating Income.
*Revenue and Operating Income are in billions.
Q1 24 | Q2 24 | Q3 24 | Q4 24 | Q1 25 | |
Revenue | $7.192 | $13.507 | $18.120 | $22.103 | $26.044 |
Revenue Growth | 88% | 34% | 22% | 18% | |
Operating Income | $2.140 | $6.800 | $10.417 | $13.615 | $16.909 |
Operating Income Growth | 218% | 53% | 31% | 24% |
No doubt about it, NVIDIA's income is growing at a phenomenal rate each quarter. If Intel was growing at even half of NVIDIA's rate, I would be on the Soul Train line, popping every lock, and singing "Working at the carwash."
At the same time, it's interesting to see that the growth rate of NVIDIA's income is declining each quarter. This should be expected though, since it's hard to increase 88 - 218% every quarter.
Although NVIDIA's income is growing at a slower rate, let's be optimistic and assume their Operating Income will continue growing by 24% each of the next four quarters, and at the end of the year, their annual Operating Income will be $119.181 billion.
Numbers in billions | Q2 25 | Q3 25 | Q4 25 | Q1 26 | Total |
Operating Income | $20.967 | $25.999 | $32.239 | $39.976 | $119.181 |
Operating Income Growth | 24% | 24% | 24% | 24% |
The person who buys NVIDIA for $3.094 trillion will receive a before-tax income of $119.181 billion during their first year of owning the company. This is a 3.9% before-tax return on their investment.
Calculation of Return:
$119.181 billion Operating Income ÷ $3.094 trillion Enterprise Value = 0.039 or 3.9%.
Would an experienced investor write a check for $3.094 trillion and be satisfied with an initial return of 3.9%? Only if they expect NVIDIA's income to continue growing at a high rate or if they believe someone else will buy the company from them at a much higher price. If they're right, $3.094 trillion will be a steal. If they're wrong, it will be a family catastrophe.
Question:
What first year return would you need to receive in order to feel comfortable buying a company like NVIDIA? The company has irreplaceable assets, one of the best CEOs in modern history, and room to grow internationally. Email me and let me know what return you would need and why.
ov@myinvestmentdreams.com
Stay strong, stay blessed, and God willing, I will see you next week.
But test all things carefully [so you can recognize what is good]. Hold firmly to that which is good.
1 Thessalonians 5:21 AMP
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