Bull v. Bear: NVDA AI Moat Expands & Valuation Shrinks

[00:00:02]Welcome back to Fast Market. I'm Nicole Petallides. It is 12:19 p.m. Eastern time. We are live on the floor of the New York Stock Exchange and so glad you are with us. Let's bring in our co-hosts once again, Tom White and Kevin Hanks with us taking a look at Nvidia. Nvidia shares, even though the S&P is down for the week, Nvidia shares are up 3.9% this week. So, let's talk about it and we're looking at these shares which right now are down about No, they're up 0.9% at 210 at this moment. So, let's thought get your thoughts here. Uh Tom and Kevin, go ahead. I think Kevin, you're starting on this one to tell us a little bit about your thoughts. One year up 23%.

[00:00:44]>> Yeah, Nvidia's had a rough go of it. A good week, but a a fairly ugly-looking chart before the last, you know, five or seven, eight days. It's made a nice recovery, but, you know, this stock is traded $236 and it got down to, you know, below 200 at one point. This is a company that everyone fears there's a couple things happening. That China is going to make cheaper chips than than than they're making. Although, I don't think China's ever going to be allowed to enter our market. And other hyperscalers are making chips and competing with uh with Nvidia. And that could be realistic. Nvidia's also going to make CPUs and compete with some of them. So, Jensen Huang continues to grow his company by doing two things. He's creating tools like GPUs and CPUs, foundational tools for companies. Then, what's he doing? Then, he's taking that money, which you've seen for the last, you know, 12, 18, 24 months, and he's taking equity stakes in all these other emerging companies. And at some point, that's going to be a massive pile.

[00:01:57]There's going to be winners and losers. But, eventually these equity stakes that that he's taking are going to be substantial. And so, that's the bet he's making. He's not buying a stock. He's not giving out a dividend. He's investing in some of these companies in the in this sector that are so, you know, have such promising futures. So, it's tricky. You know, it's widely widely held. And so, it seems to sell off, you know, be not as strong as it should be. But, they are still as dominant as ever, Tom and Nicole.

[00:02:33]>> Yeah, and you know what I thought was interesting, too, is that Jensen Huang made a post on X for the very first time. I was reading that today. I hadn't seen it. And it said that open models strengthen safety and cybersecurity, accelerate innovation and diffusion, and enable sovereignty. So, he said, "For my first post, I'm sharing a letter that Nvidia signed on why open models matter."

[00:02:56]Interesting that so many of the other leaders are on X or get out there with some of the comments, but this was his first post that he found he felt really was important. Let's talk a little more about Nvidia before we get to some of the example trades, Tom.

[00:03:12]>> Yeah, you look at the the growth rate last quarter, 85% growth rate. They continue to expand. The valuation on this company, what on a forward 12-month basis, 24 times. You know, Nvidia is above 70 times.

[00:03:26]Intel going into those earnings was 100 times. So, you got the growth rate. I think some of the concerns here going forward are the fact that other companies are trying to develop their own chips, whether it's TPUs, relying more on the CPUs. So, trying to diversify their supply chains where they're not reliant on Nvidia. So, I think investors are a little bit frightened there. But, think about this, guys. Over the last 3 years in Nvidia, I mean, this stock was in the $30 range 3 years ago, right? Uh you saw gains uh in 39% in 2025, 171% in 2024, and 239% in 2023. So, there's been massive gains for this stock, but on a valuation basis, it's relatively inexpensive to its peers. It's just above the forward PE of the S&P 500. And those companies in the S&P 500 don't have a growth rate of 85% at this point. So, yeah, this has been a head-scratcher trade for a lot of investors, but at the same time, it's had massive gains over the last 3 years.

[00:04:26]>> Yeah, it's come down from that top of $236, now trading at 210 today. And to your point, Tom, many of these hyperscalers are more affordable now as you look at those PE ratios, they're cheaper than they were in January, um for lack of a better word. Let's take a look at some of the example trades, and Kevin, I think you're starting us off. How would you go about trading Nvidia?

[00:04:49]>> Now, Nvidia has earnings August 26th, but that's but there's an important date ahead of that, which is August 4th, when AMD comes out with earnings. This will probably, no doubt, move on that earnings report as well. Uh Broadcom is September 3rd. So, what I looked at, uh remember, August 26th is their earnings.

[00:05:11]I went to the August 21st. I had I stayed ahead of the earnings event. I looked at the expected move about $19.50.

[00:05:20]Let's uh round that up to an even $20, and I looked at just an unbalanced butterfly, something to give you duration and movement on the upside for uh it it buying the two tech call I remember, August 21st is my is my date. Buying the 210 call, selling two of the 230 calls. There's that $20 expected move during that period, and then buying one of the 235 call. So, Tom, an unbalanced call butterfly in line with the expected move out to August 21st uh ahead of that August 26th earnings event. But, August 4th might be an important day for Nvidia as well when uh AMD comes out with their earnings, Tom.

[00:06:04]>> Yep. Uh let's break this one down.

[00:06:05]Bullish given Kevin Kevin's given duration on this example trade to the upside. Gives you upside exposure.

[00:06:11]August 21st monthly options. So, 28 days to expiration. Buy one of the 210 strike call. That's at the money. Sell two of the 230 calls. As Kevin mentioned, it's about that one standard deviation the option market's pricing in. And then buy one of the 235 calls. Unbalanced or broken wing call butterfly to the upside paying roughly about a $6 debit. It might be a little bit higher than that.

[00:06:32]The stock has moved higher. But, the debit you pay is going to be risk. $600 per spread uh on this. And it takes your break even up to 216. So, you're going to need a move to the upside to get above that break even. You can see here from the risk profile of this type of a strategy.

[00:06:48]The apex of profitability at or near that 230 strike where you're short two options. But, even if this stock does continue to move higher above the 235 level or the outside of this uh call butterfly, it's still going to be more than a double in profitability on this.

[00:07:05]That apex of profitability tops out at about $1,400 if you pin that 230 strike. But, this gives you upside exposure while reducing some of the risk on this trade. Uh the debit that you pay because you're doing the unbalanced call butterfly as opposed to maybe just buying the 210 230 call vertical. Uh you sell that $5 wide call vertical at the top end of this. And that reduces the initial risk price on this trade. But, it gives you a exposure, avoids earnings, uh and gives you a little bit of duration 4 weeks in that trade. So, there's Kevin's bullish example. Kev, I'm going to switch it up here a little bit. Mine's not a bearish trade. It's It can be bearish, but it could be bullish also.

[00:07:46]Um with um earnings next week and uh you know, AMD doesn't report, as you mentioned, until early August. But next week, we get a bunch of big tech companies reporting. Microsoft, Meta, Apple, Amazon. Those might be catalysts for some movement uh in the stock. So, I looked at a strategy that needs to move.

[00:08:04]I don't care if it goes higher, I don't care if it goes lower. I just want it to move over the next week. I went out to the July 31st weekly cycle that expires in 7 days, and I'm buying an out-of-the-money call vertical, and buying an out-of-the-money put vertical.

[00:08:18]On the put put side, buying the 205 put and selling the 200 put. On the call side, I'm buying the 215 call, selling the 220 call. So, uh a long iron condor, $5 wide. I'm paying roughly about a $2.50 debit for it. Um that's going to be your risk, $250 per spread with the potential to make 250.

[00:08:40]Uh and that's below 200 on the downside or above 220 on the upside on this one.

[00:08:46]So, you're risking one to make one on this type of position. Kev, when you look at a trade like this, hey, I want it below either 202.50 or I want it above 217.50.

[00:08:58]And there's a bunch of catalysts next week, Kevin, that could move this stock.

[00:09:01]What I don't want to happen is a stock to just kind of consolidate right here around 210, Kev.

[00:09:08]>> You know, when when you look at a trade like this, and skeptics might say, "Well, you're spending $2.50 to make $2.50."

[00:09:18]But you have an opportunity to be profitable in either direction. You're not doing just one way or the other. So, is this a bearish trade? Yes, it is. Is it a bullish trade? Yes, it is. You want movement, and you don't care which way, Tom. You want one of these $5 spreads to go as close to $5 as possible. And so, you're not betting on direction, you're betting on movement and velocity. And that's the That's the trade that you you you've put on. You don't know where the stock is going, but you think it might go somewhere big. That's the trade you have on, Tom.

[00:09:54]>> Yep. Need a move type of strategy, long iron condor, where time decay works against you on this one.

[00:10:01]But if implied volatility rises, maybe this expands also. But you need to move on this type of strategy.

[00:10:08]And there you go, Nicole bull bear debate and on my trade, and then Kevin's is bullish.

[00:10:14]>> Okay. Well, a great explanation from both of you, great example trades.