00:00:00
if Nvidia invests in a company does that
00:00:02
mean you should too according to fin
00:00:05
Pi Pipers yes investors and I use
00:00:08
that term really Loosely here have been
00:00:10
going nuts every time Nvidia adds or
00:00:13
removes a stock from their portfolio
00:00:15
today we're going to look at a Chinese
00:00:17
stock that Nvidia recently disclosed
00:00:20
their holding and also examined some of
00:00:22
the recent changes to the Nvidia stock
00:00:24
portfolio let's start with the absolute
00:00:26
Basics the ground truth the Kess
00:00:30
nvidia's 13f disclosure so here's a
00:00:32
simple before and after and the first
00:00:35
thing you'll notice is that three names
00:00:37
here are stried out let's start talking
00:00:40
about the first one SoundHound so we
00:00:43
published this piece here titled
00:00:45
SoundHound stock is going to crash hard
00:00:47
here's why and we specifically talked
00:00:50
about how the Nvidia investment in
00:00:52
SoundHound meant nothing to quote from
00:00:55
that piece it's entirely meaningless
00:00:58
today which is why it sits there doing
00:01:00
nothing and that's precisely why Nvidia
00:01:03
sold those shares and after that 30%
00:01:06
drop investors can now focus on the
00:01:09
other points of contention we raised in
00:01:10
that piece that SoundHound shareholders
00:01:13
ought to be paying close attention to
00:01:15
now the other two names that Nvidia
00:01:17
exited were no surprise either so you
00:01:19
have Nano X Imaging that position held
00:01:22
by Nvidia was worth a whopping
00:01:24
$320,000 so lots of people have bigger
00:01:27
portfolios than that absolutely
00:01:29
meaningless that's why Nvidia got rid of
00:01:31
that then you have serve robotics we
00:01:33
covered that quite recently and pointed
00:01:36
to the fact that Nvidia was holding
00:01:38
shares only because of a convertible
00:01:40
note and that convertible note came due
00:01:43
Nvidia capitalized on it and exited
00:01:46
serve robotics again all of these
00:01:48
positions were to be taken with a grain
00:01:51
of salt as we pointed out numerous times
00:01:54
and then we get to arm Holdings so this
00:01:56
is the reason that Nvidia had to start
00:01:58
filing 13 Fs in in the first place
00:02:01
you'll see that they trimmed their arm
00:02:03
position a bit but since this is a
00:02:05
relatively large company you see the
00:02:08
impact on the share price was minimal
00:02:10
now some more interesting finat logic
00:02:13
appears to be celebrating every time
00:02:15
Nvidia publishes a 13f with companies
00:02:18
that we know they were already invested
00:02:20
in like recursion or apply digital and
00:02:23
the logic is that well if Nvidia didn't
00:02:26
exit these positions they must have
00:02:27
strong convictions in these businesses
00:02:30
no they just haven't exited the
00:02:31
positions that's all you should be
00:02:33
reading into this this article from
00:02:35
Reuters talks about Nvidia cutting its
00:02:37
stake and arm and disclosing a position
00:02:39
in China's wi ride they talk about how
00:02:43
investors closely monitor nvidia's stake
00:02:45
disclosures as they can influence the
00:02:48
price of companies and provide insights
00:02:51
into the growth strategy of the dominant
00:02:53
AI chip designer Well we'd argue it's
00:02:55
95% influencing stock prices 5% insights
00:02:59
if that into the growth strategy of a
00:03:02
massive trillion dollar company that's
00:03:05
dabbling in a $300 million collection of
00:03:08
shares they happen to be holding there
00:03:10
is no greater vote of confidence than
00:03:12
Nvidia taking a stake in your company
00:03:14
says d dick Trader at a firm I won't
00:03:16
name because that statement is just so
00:03:18
horrendous that's where you're wrong
00:03:20
dick and as we've looked at before for
00:03:23
each of these cases you need to put that
00:03:25
investment into context so we're going
00:03:26
to put the we rde investment into
00:03:28
context today as well you note here they
00:03:30
say shares of nebus were up 8% after
00:03:33
Nvidia reported they were holding 1.2
00:03:36
million shares we knew about this last
00:03:37
year we talked about it in a video in
00:03:40
December of last year titled Nvidia
00:03:42
bought this little known stock should
00:03:44
you so hardly a surprise again everybody
00:03:47
seems to act like it's the first time
00:03:49
they're seeing this stuff it just goes
00:03:50
to show you what a casino the market is
00:03:53
turning into so when we look at nvidia's
00:03:55
portfolio if you will of stocks
00:03:58
holistically we see arm with a 45%
00:04:00
waiting then we go down the list apply
00:04:02
digital recursion nebus and weide there
00:04:05
at the bottom total value of this
00:04:07
portfolio again just over $300 million
00:04:09
so when we go back and look at the weide
00:04:12
F1 so they only had an IPO quite
00:04:14
recently which was late last year that's
00:04:16
why it's cropping up on nvidia's 13f you
00:04:19
see here in the wide fun they talk about
00:04:22
how they've been working with Nvidia
00:04:24
since 2017 funny that's when Nvidia
00:04:27
started working with SoundHound as well
00:04:29
they say Nvidia was an early stage
00:04:32
investor they talk about using multiple
00:04:34
Nvidia products nvidia's drive nvidia's
00:04:37
drive Thor platform nvidia's latest
00:04:40
Blackwell architecture so just some
00:04:43
thoughts here startups may receive
00:04:45
funding from Nvidia which is then used
00:04:47
to purchase Nvidia Hardware is this
00:04:50
round tripping well I think if Nvidia
00:04:52
set up those companies and did that then
00:04:54
perhaps it would be gko kind of does
00:04:57
that right or did that in the past and
00:04:59
they of course correctly pointed to
00:05:01
those being related party revenues now
00:05:03
in this case it seems like Nvidia has
00:05:05
made a lot of investments in the past
00:05:07
before AI became this big talking point
00:05:09
And now when these firms go public
00:05:11
Nvidia happens to be holding shares and
00:05:13
needs to disclose those on their 13f
00:05:15
because the total value of their
00:05:17
portfolio exceeds $100 million now
00:05:20
anyone who has Nvidia on their cap table
00:05:22
is probably noticing what's happening
00:05:25
here so plenty of companies are going to
00:05:27
want to appear on that 13f and they'll
00:05:30
practically give Nvidia shares just so
00:05:33
they can be on there and get all that
00:05:34
attention from investors and that means
00:05:36
that the signal you're getting here is
00:05:38
even less meaningful so let's talk about
00:05:40
weide a bit of course you see this
00:05:43
diagram taken from their F1 so an F1 is
00:05:46
just an S1 equivalent for a foreign
00:05:48
company and we ride of course dabbling
00:05:51
in all these different areas of autonomy
00:05:53
they talk about having products in trial
00:05:56
or commercial operations in 30 cities in
00:05:59
seven countries and of course we know it
00:06:01
all comes down to revenues which we're
00:06:03
going to look at now when you examine
00:06:05
their corporate structure there's some
00:06:07
concerns here around the usual Cayman
00:06:09
Islands holding structure we rde made it
00:06:12
a point to say that they dissolved their
00:06:14
VI structure and then this is in its
00:06:17
place so uh frankly this just looks same
00:06:20
same but different as they say in
00:06:22
Southeast Asia so there are concerns
00:06:24
around these structures and when you
00:06:27
look at what they're claiming it's a lot
00:06:30
of first for everything they launched a
00:06:32
paid Robo taxi service in 2019 so that's
00:06:35
had five years of service commercial
00:06:38
production of their Robo bus 3 to four
00:06:40
years of service Robo van Robo sweeper
00:06:42
three to four years of service they
00:06:44
offer key Advanced Driver assistance
00:06:46
Technologies and they're doing this mass
00:06:48
production of their state-of-the-art ads
00:06:50
solution said to have happened last year
00:06:54
but when we look at these cool products
00:06:56
you you have to start asking some
00:06:58
questions they talk about 19 00 days of
00:07:00
public access to their Robo taxi
00:07:02
operations what does that even mean how
00:07:04
many of these Robo buses are in
00:07:06
operation how many Robo Vans are
00:07:08
delivering Goods how many Robo sweepers
00:07:10
are sweeping streets and who's licensed
00:07:12
their we pilot technology and of course
00:07:14
what do margins look like across all
00:07:16
these offerings now this is a global
00:07:19
company but they're mainly engaging in
00:07:21
China said to be the only firm with
00:07:23
testing permits in China us and
00:07:25
Singapore now when you look at their
00:07:26
investor relations page it's really
00:07:29
rough there's pretty much nothing there
00:07:31
so your first challenge is to start
00:07:33
digging into the regulatory filings
00:07:35
aggregating things in a currency that we
00:07:38
can all understand which is the US
00:07:41
dollar so here we've simply charted we
00:07:43
rides revenues and it's not looking good
00:07:45
so this year they're expecting to have
00:07:47
revenues decline from last year and last
00:07:50
year was a decline from the previous
00:07:51
year now financial data for Chinese
00:07:54
companies is not handled very well at
00:07:56
all by mainstream data vendors so you're
00:07:58
really going to have to do the math s
00:07:59
we've done that here so for the first
00:08:01
half of last year 2024 is where they're
00:08:04
at they had around $20 million in
00:08:05
revenues then the third quarter 10
00:08:08
million and then suddenly they expect
00:08:10
that to jump to 20 million in the fourth
00:08:12
quarter so they can hit their $51.1
00:08:14
million in Revenue guidance now when we
00:08:17
look at last quarter there's some
00:08:19
concerns here so here you see the US $10
00:08:22
million in revenues we see they're
00:08:23
breaking it down between product and
00:08:25
service so we're going to look closer at
00:08:27
that that's important but what raises
00:08:29
eyebrows here is the cost of goods sold
00:08:32
why is there Services revenues running a
00:08:35
gross margin of just 4% that's not going
00:08:37
to make for a very profitable business
00:08:39
so what we then want to do is take a
00:08:41
step back and pull this table out of
00:08:43
their F1 and I've simply highlighted the
00:08:45
US dollar components of this table so
00:08:48
it's easier for you to see the numbers
00:08:51
and we've simply broken down margins for
00:08:53
products and services so intuitively you
00:08:55
would expect services to have higher
00:08:58
margins and you see here how products
00:09:01
were increasing over time but then took
00:09:03
quite a dump and the thing that you may
00:09:05
really want to look into if you're
00:09:07
interested in investing in this firm or
00:09:09
certainly not but this product Revenue
00:09:11
dropped so that's quite curious why that
00:09:14
dropped so sharply when you look at
00:09:16
Services you see a fairly consistent
00:09:18
gross margin at least over the past
00:09:20
several years of around 45% so their
00:09:23
total gross margin you see is relatively
00:09:26
steady from the high 30s to the mid4
00:09:30
they're operating with huge losses but
00:09:32
that's to be expected their R&D spend is
00:09:35
absolutely massive when you look at
00:09:37
their staff what over 90% of their staff
00:09:39
are in R&D so we really need to start
00:09:42
seeing revenues pick back up again and
00:09:45
this statement made in their F1 is very
00:09:47
telling it says we generated an
00:09:49
insignificant amount of revenue from
00:09:51
offering Robo taxi rides what for the
00:09:53
past four or five years the revenue is
00:09:56
insignificant also they talk about Robo
00:09:58
Vans which they started in 2023 also
00:10:00
having insignificant revenues and these
00:10:03
would be found under services so that
00:10:05
doesn't appear to be working out too
00:10:07
good for them they talk about aiming to
00:10:09
begin commercial production of Robo
00:10:11
taxis and this Readiness for large scale
00:10:14
commercialization this year well let
00:10:15
certainly hope that happens in the F1
00:10:17
here you see this table where they show
00:10:19
units sold of Robo buses Robo sweepers
00:10:21
Robo taxis let's hope they keep
00:10:24
providing that in their filing documents
00:10:25
which you're going to have to go to for
00:10:27
information because there's nothing in
00:10:28
investor relations so that's something
00:10:30
you want to pay attention to now when it
00:10:32
comes to the stock you see that when
00:10:35
Nvidia filed that 13f shares of we rde
00:10:39
appreciated 83% on the day so let's
00:10:42
calculate our simple valuation ratio so
00:10:45
we start with 2024 estimate revenues of
00:10:48
51.5 million I didn't use annualized
00:10:51
quarterly because they're quarterly
00:10:52
revenues all over the place so we're
00:10:54
essentially saying this is what they're
00:10:56
expecting for this year we divide the
00:10:58
market cap of the company this is an
00:11:00
$8.6 billion company bu those revenues
00:11:03
we get 168 so extremely overvalued so
00:11:08
let's talk valuation what's a realistic
00:11:11
valuation premium for a company with
00:11:13
several years of declining revenues well
00:11:15
if we valued we ride the same as Nvidia
00:11:18
using that same method it should be
00:11:21
trading at about
00:11:22
$4.50 that would be with a simple
00:11:24
valuation Ratio or svr of 24 however if
00:11:28
it traded at twice our catalog average
00:11:31
of 6.5 so an svr of 13 then it would
00:11:35
trade at
00:11:36
$244 we'd argue it ought to trade at our
00:11:39
catalog average in other words there's
00:11:40
nothing special about a Chinese autonomy
00:11:43
company that's not growing revenues in
00:11:45
which case it would trade it about a122
00:11:47
a share so two things are going to
00:11:50
happen here as predictably as death and
00:11:53
taxes first is that fundamentals are
00:11:55
going to catch up that means some
00:11:57
massive Revenue growth which is what
00:11:58
we're being promised we're going to need
00:11:59
to see that now especially with this
00:12:01
recent bump this meaningless bump in
00:12:04
share price and when absolutely no
00:12:06
intrinsic value was created whatsoever
00:12:09
or the valuation is going to revert to
00:12:11
the mean if they don't improve those
00:12:14
fundamentals and start showing Revenue
00:12:16
growth so if you're interested in
00:12:18
investing in we rde I would suggest you
00:12:20
set some valuation targets and you stick
00:12:22
with them now on the topic of Nvidia
00:12:25
Jensen doesn't roll out of bed in the
00:12:27
morning and go check the finat space to
00:12:29
see what hot stocks are being talked
00:12:31
about that's not how nvidia's Investment
00:12:33
Portfolio works every position Nvidia
00:12:36
holds has context behind it but not much
00:12:39
meaning as we've shown you and here's
00:12:40
something else to consider so if
00:12:42
nvidia's portfolio drops below $100
00:12:45
million there's no need to file a 13f
00:12:48
and all the fun and games will be over
00:12:50
now frankly I think that's the best
00:12:51
thing that could happen right now but in
00:12:53
order for that to happen they would need
00:12:54
to sell what their arm position entirely
00:12:57
and perhaps the apply digital to get
00:12:59
that low enough when it comes to China
00:13:02
we wrote this piece what 7 years ago and
00:13:06
correctly identified a number of ways
00:13:08
that China's kicking America's ass in
00:13:10
Tech and that's of course now suddenly
00:13:12
coming to the Limelight in the states
00:13:14
with things like deep seek which is
00:13:17
showing that China actually has some
00:13:20
real technical capabilities and they may
00:13:22
be underestimated now China's a entirely
00:13:26
different animal I've spent a great deal
00:13:29
deal of time in Hong Kong I'm a Hong
00:13:30
Kong Citizen and I studied a master's
00:13:33
degree in finance in Hong Kong where I
00:13:35
did my thesis on Shadow banking in China
00:13:38
and I can tell you that is an
00:13:40
extraordinarily difficult environment to
00:13:42
navigate and you're not going to do that
00:13:45
successfully through a foreign lens
00:13:48
geopolitical risk right now is at a Peak
00:13:51
High so certainly something to consider
00:13:54
there I think funky Cayman Islands
00:13:56
corporate structures ought to be avoided
00:13:58
now yd is one example of a safer way to
00:14:02
play Chinese EVs and perhaps autonomy as
00:14:05
well we've covered that in numerous past
00:14:07
pieces whatever makes its way over to
00:14:10
the states in the form of an American
00:14:12
depository receipt or ADR ads isn't
00:14:16
necessarily going to be best of breed
00:14:18
and just because it's a good idea
00:14:20
doesn't mean it's investable so I think
00:14:22
the next steps here would be to evaluate
00:14:24
the other Chinese autonomy IPOs that
00:14:27
have happened or will happen I'd ask
00:14:30
premium subscribers to raise this on our
00:14:32
Discord if they find this topic
00:14:33
interesting we can move that to the
00:14:35
front of the queue we're going to wait
00:14:37
for weide to float back down to normal
00:14:39
levels I'd wonder what happens if Nvidia
00:14:42
exits we ride after that lockup expires
00:14:44
so that's something there to think about
00:14:46
is NVIDIA going to start using this
00:14:48
tactic as a currency so they can say to
00:14:50
potential clients well give us some
00:14:52
shares and we'll both benefit I don't
00:14:53
know but retail investors need to be
00:14:56
ignoring this noise don't be tempted to
00:14:58
join the casino you know of utter morons
00:15:00
that this Market's turning into just
00:15:02
like spaxs everything seemed so
00:15:04
predictable see Spa always go up
00:15:07
but spaxs absolutely destroyed retail
00:15:09
investors as we said they would so be
00:15:12
very wary of anything that you think
00:15:14
starts to become really predictable like
00:15:16
companies going up and down based on
00:15:18
what Nvidia does and for all the Sound
00:15:20
Town shareholders out there now that
00:15:23
you're licking your wounds after the
00:15:25
most recent crash I suggest you look at
00:15:27
some of the other potential problems
00:15:29
with this firm I've put up this piece
00:15:31
here on Sound Hound stock you should
00:15:32
give that a watch next thanks so much
00:15:34
for taking the time to watch this today
