Investors Are Confused

Key Concepts

• Earnings Reports: Analysis of recent financial performance of Nvidia, Salesforce, Mercado Libre, Intuit, and Duolingo.
• AI Disruption: Concerns surrounding the impact of Artificial Intelligence and Large Language Models (LLMs) on software and tech companies.
• Data Center Revenue: The significant contribution of data center operations to Nvidia’s revenue growth.
• Agentic Technology: The potential for AI “agents” to automate tasks and impact existing software solutions.
• Free Cash Flow (FCF): A measure of a company’s financial performance, indicating cash available after operating expenses and capital expenditures.
• Valuation Metrics: Use of Price-to-Earnings (P/E) ratio and Free Cash Flow Yield to assess company value.
• Daily/Monthly Active Users (DAU/MAU): Key metrics for assessing user engagement, particularly for Duolingo.
• Stock-Based Compensation: The use of company stock as payment to employees, impacting FCF.
• Enterprise Agentic Layer: Salesforce’s strategy to become the platform for building AI agents within businesses.

Portfolio Update & Market Overview

The speaker began with a transparency update on his personal investment portfolio, noting a significant downturn of approximately $100,000 year-to-date, partially recovered to around $80,000 loss in the past week. This volatility highlights the unpredictable nature of the stock market. He observed a recent resurgence in financial sector stocks like Mastercard, S&P Global, Moody’s, and Intuit, contrasting with the relative stability of ASML and Google. Meta remains a new position with continued bullish sentiment. Texas Roadhouse was a successful trade where gains were fully realized, and the speaker is now “playing with the house’s money” in that position. The story fund mirrored the overall portfolio trend, with recent gains across holdings like Amazon, Netflix, and Duolingo.

Nvidia Earnings Analysis

Nvidia reported record Q4 FY2026 revenue of $68.1 billion (up 73% year-over-year) and non-GAAP EPS of $16.2, exceeding consensus estimates. This growth was primarily driven by $62.3 billion in data center revenue (75% year-over-year, representing 91% of total sales). Guidance for Q1 2027 revenue is $78 billion, projecting continued rapid growth even excluding potential revenue from China. Full-year 2026 revenue is projected at $215.9 billion (up 65%). Despite these impressive results, the stock was down approximately 4.5% on the day of the report, attributed to market confusion. Nvidia’s free cash flow is currently at $96 billion (trailing 12 months), with $34.9 billion reported in the most recent quarter. Stock-based compensation remains relatively low. The speaker believes the market is mispricing Nvidia, and the company’s performance is unprecedented.

Market Confusion & AI Concerns

The speaker emphasized a pervasive sense of confusion in the market, fueled by fears of AI disruption, articles like the “Citrony” memo (a fictional dystopian view of AI’s impact), and the circular financing dynamics. He noted that investors are reacting to fiction and that this confusion is impacting stock valuations. The Wall Street Journal highlighted the paradox of investors fearing AI’s impact on software while simultaneously driving demand for companies building the infrastructure for AI (like Nvidia). Companies like Microsoft and Amazon are experiencing declines in free cash flow as capital is redirected towards Nvidia.

Salesforce Earnings Review

Salesforce reported a mixed bag, with faster revenue growth this past quarter but underwhelming guidance. Revenue growth is slowing, moving from the 30s to the mid-20s, and currently guiding for 10-12% growth. However, operating margins have significantly improved, rising from near zero in 2022 to over 20%. Mark Benioff is positioning Salesforce as the “enterprise agentic layer” for AI, but investors remain skeptical. The speaker believes Salesforce is undervalued but favors Meta as a better value proposition due to its higher growth rate.

Mercado Libre Analysis

Mercado Libre experienced a 9-14% stock drop despite impressive topline growth (44%, 43%, 45%, 47% over 1, 2, 5, and 10-year periods respectively). The decline was attributed to missing consensus EPS estimates due to increased investments in AI, logistics, and Marcato Pago. While the P/E ratio is relatively high (31), the reported free cash flow yield (11%) is misleading due to the significant amount of customer float held by the fintech portion of the business. Adjusting for this float, the FCF yield is closer to 1-1.6%. The speaker views the EPS miss as a potential opportunity, as Mercado Libre is prioritizing long-term growth over short-term profitability, similar to Amazon and Netflix.

Intuit & Duolingo Pre-Earnings Assessment

Intuit is trading at its lowest valuation in a decade across multiple metrics (P/E, free cash flow yield, price-to-sales). Concerns include tough comparables from a strong 2025 and fears of AI disruption. However, the speaker believes Intuit is well-positioned to navigate the AI landscape and is a strong company. Duolingo, also reporting earnings, has seen a 34% year-to-date decline, largely due to AI concerns. The speaker argues that Duolingo’s growth has been unaffected by the release of major AI models like ChatGPT, unlike Chegg, which experienced a significant decline after ChatGPT’s launch. Key metrics to watch for Duolingo include daily active users (DAU) – aiming for over 52 million – and continued growth in subscription revenue and paid subscribers.

Jensen Huang’s Perspective on AI & Software

Nvidia CEO Jensen Huang has repeatedly emphasized that AI will augment software, not replace it. He used the analogy of robots using existing tools (microwaves, screwdrivers) rather than reinventing them. He believes companies like ServiceNow and Salesforce will remain essential as “systems of record” and for providing a human-understandable interface for AI-driven processes. He stated, “The idea that AI will replace software is the most illogical thing in the world.” He further explained that AI agents will utilize existing software tools, not render them obsolete.

Conclusion

The speaker concluded by emphasizing the current market confusion surrounding AI and its potential impact on various sectors. While acknowledging the risks, he highlighted the strong fundamentals of companies like Nvidia, Intuit, and Duolingo, and expressed optimism about their long-term prospects. He stressed the importance of focusing on underlying business performance rather than succumbing to market hysteria driven by fictional narratives. He will provide further analysis after the earnings reports of Intuit and Duolingo are released.