NVDA

NVDA reported its latest quarter after the close yesterday. A lot of the financial press commentary was about the lack of operating margin expansion, which apparently came as a surprise to many.

Myself, I was much more interested in whether the stock price would go up or down when the company released the financials. I’d switched the bulk of my NVDA holding into Broadcom (AVGO) after the prior quarterly results announcement made it very likely, I thought, that the period of margin expansion was over for NVDA–because the company’s research and admin costs had become so small as a percentage of sales.

I thought there was a non-zero chance that, because public commentators on NVDA seemed unaware of this, the stock would go down when NVDA made the latest financials public. As I’m writing this, however, the stock is up a little in the pre-market–although it remains about 10% below its early January high. Good news for the overall AI sector, I think.

an aside about margins

Contrary to popular belief, even in the analyst community, high margins aren’t a clearly good thing. If anything, they’re a bad thing.

Two reasons:

–high margins attract competition, in this case from the in-house chip-designing operations of NVDA’s customers. My guess is that this is not a today issue for NVDA, but it has to be a worry down the road. This possibility is most likely the major influence in the company’s decision on how high to mark up its chip offerings over the price it pays TSMC to make them

–high margins can also be a sign of weakness. For example, a generation ago tons of furniture stores dotted the sides of secondary roads in the suburbs. The vast majority of these are long since dead, despite the fact that they had huge operating margins–well in excess of the 50% markup Tiffany charges for its jewelry. …the problem? These stores turned their inventories only once a year, so they had huge carrying costs.

rare earths

Canada, Greenland, Ukraine. The current administration appears to covet the mineral resources of all three, especially rare earths. I’d been scratching my head to figure out why, until I read a report that in retaliation for Trump tariffs placed on China during his first term, that country had cut the flow of rare earths to the US.