I’ve had hard to please bosses before, but damn!

Last week, Nvidia Corp $NVDA ( ▲ 2.87% ) CEO Jensen Huang delivered in the clutch à la Michael Jordan. And it still wasn’t enough to satisfy the AI bubble babblers.

What’s The Big Skinny? As I told Stuart Varney on Fox Business last week, “It’s hard to go wrong buying a company trading at about 25 times forward earnings that’s growing sales more than 70% and earnings more than 80%.” Here’s why…

Leave it to the folks at Stocktwits to embody the melodramatic zeitgeist heading into Nvidia’s report.

Put simply, the bears wanted a miss. But they didn’t get it.

Nvidia put up nothing short of jaw-dropping results…

Why the roughly 10% stock sell-off afterwards then?

After panning the Stocktwits’ editorial team for the headline offense, I’ll at least give them credit for putting a finger on the overriding issue:

My take? Words won’t convince. But repeated results will do the trick. Speaking of which…

The Nvidia thesis couldn’t be more straightforward – AI isn’t a bubble, it’s an earnings machine. And Nvidia’s actual results did nothing but confirm it.

Case in point: The company’s earnings per share growth rate accelerated in the most recent quarter - from 67% to 98% year-over-year.

That’s the only financial metric that matters for the future direction of Nvidia’s stock price. Why? Because stock prices ultimately follow earnings. Period.

That being said, the rest of Nvidia’s financials results weren’t too shabby, either. Consider:

So when Huang peppered the conference call with multiple utterances of “off-the-charts” and “sold out” and “skyrocketing” - he’s not embellishing one bit.

Or As Bloomberg’s Ian King put it after interviewing analysts, “No analyst I spoke to could find anything wrong with NVIDIA’s numbers.” Not one.

Here’s the real kicker, though – Nvidia’s way better-than-expected guidance doesn’t include any data center revenue from China. That’s not a risk baked in – that’s pure optionality hiding in plain sight.

So what exactly is the bear case? That a company growing revenue at 73%, generating 75% gross margins, and guiding $6 billion above consensus is somehow overvalued?

As you can see in the chart above, from December 2022 through December 2024, Nvidia share prices and earnings estimates moved almost in lockstep – exactly as you’d expect.

But starting around early–2025, the lines diverged. Forward EPS kept climbing while the stock price pulled back.

That proved to be a textbook temporary dislocation. And I believe it’s happening again.

What’s makes this dislocation all the more absurd is the fact that Nvidia is growing sales 70%+ and earnings 90%+, yet it trades ~50% cheaper on a forward price-to-earnings basis than Walmart $WMT ( ▼ 0.66% ) – a company growing sales and earnings at less than 10%.

Let that sink in. The most dominant chipmaker on the planet – the one powering every major AI infrastructure buildout on Earth – is valued at a discount to a discount retailer.

How long do you think that lasts?

The Big Skinny: Stock prices ultimately follow earnings. Always have, always will. It’s not a theory – it’s a law of financial gravity. And right now, the gravitational pull for Nvidia is overwhelmingly in one direction – higher. Bet on it!

_{For entertainment/educational purposes only. Not financial, legal, or tax advice; not a recommendation or solicitation. Terms & Conditions: TheBigSkinny.com.}