To The Moon

$NVIDIA(NVDA)$  

$NVDA Doubled Its Earnings. The Stock Went Sideways. Bargain, or Cheap for a Reason?

Yesterday I wrote about AMD: a great chart I can't sell puts on, because one contract ties up more cash than I allow any single name. Today it's the other side of the same trade.

NVIDIA closed at $230.86 on Oct 1. That's up about 24% over twelve months. Sounds fine until you put it next to earnings, which more than doubled over the same stretch. When profits double and the price barely moves, the multiple gets cut roughly in half. That's what happened here.

The numbers side by side

NVDA: about 29x trailing earnings

AMD: about 156x trailing earnings

NVDA gross margin ~75%, AMD ~54-56%

NVDA revenue up 106% last quarter, AMD up 50%

The bigger company, with the fatter margins and the faster growth, is now the cheaper stock on earnings by a wide margin. I didn't expect to write that sentence this year.

What NVIDIA actually reported (Q2 FY2027, Aug 26)

Revenue $96.2B, up 106% year on year and 18% quarter on quarter

Data Center $89.0B, up 117%

Gross margin 75.0%

About $26B returned to shareholders through buybacks and dividends in one quarter

Q3 guided to $108B, plus or minus 2%, with gross margin guided down to about 74%

The guide assumes zero Data Center compute revenue from China

There's no other company running this scale at these margins.

So why hasn't the stock re-rated?

Here's the part I think most people skim past. In Q2, NVIDIA reported $59.7B of net income but only $24.1B of operating cash flow. That's a $35.6B gap in a single quarter.

Two things explain it. Part of the GAAP profit came from gains on equity investments, which don't produce cash. That's why GAAP EPS was $2.46 but non-GAAP EPS was $2.22. The rest is working capital: a big build in receivables and inventory. Reports say NVIDIA gave large customers longer payment terms, with receivable days rising from roughly 45 to 60.

The kind reading is simple. A company growing revenue at this pace has to build product and wait to get paid, so cash lags. The harder reading is that NVIDIA holds stakes in some of the same AI companies that buy its chips, and now it's giving them more time to pay too.

That ties straight into this week's headline. NVIDIA's $500B chip-backed financing plan, set up in August with Blackstone, Apollo, KKR and others, is getting pushback from lenders. NVIDIA argues its chips can earn for up to a decade. Banks usually write GPUs down over three to four years and want stronger guarantees before they lend against them. If NVIDIA ends up guaranteeing more of that debt, more of the risk sits on its own balance sheet.

None of this says anything is wrong. It does explain why the market won't pay 50x for these earnings anymore. On free cash flow, NVDA isn't a screaming bargain. It's fairly priced for a high-quality compounder.

Operating cash flow divided by net income. If it climbs back toward 70-80%, Q2 was a growth hiccup. If it sits near 40% again, it's becoming a pattern, and I'll treat the "cheap" multiple as a trap.

Price sits above the 20, 50, 100 and 200-day averages, and the whole band is only about 4% wide. The 200-day is around $221, so price is about 4% above my hard floor. This isn't a stock that just went parabolic like AMD or META did last month. It's been grinding sideways while earnings caught up.

Can I sell a put? Sizing says yes. The calendar says not yet.

This is where NVDA beats AMD. A 10% OTM put at the $205 strike ties up $20,500 of cash. That fits inside my per-name limit with room to spare. AMD at the same distance needed $55,000.

Timing is the problem. NVIDIA reports Q3 in mid-to-late November, and the date isn't confirmed. My sources disagree by about a week. I keep a 7-day earnings blackout and sell 30-45 days out.

Oct 16 monthly: 14 days out, too short

Nov 20 monthly: 49 days out, and expires right around earnings

Dec 18 monthly: entering in its window means holding through earnings

Jan 15, 2027 monthly: the 30-45 day window runs Dec 1-16, after both possible earnings dates

So my plan is to sell puts in December, not October. If the chart and implied volatility still pass then, my strike rule puts it somewhere around $185-205, depending on IV. I'll re-run every gate with live numbers before I touch it.

Bottom line

NVIDIA is the rare case where the best business on my list also looks reasonably priced, as long as the earnings turn into cash. I'd rather wait six weeks for a clean put window than force a trade around an earnings print on a stock with a beta above 2.

Are you holding NVDA through earnings, or waiting like me? And does the cash flow gap bother you?

$NVDA $AMD $SMH

Not financial advice. This is how I run my own book.