NVIDIA’S Explosive Growth Can’t Hide the Market’s AI Panic | The Weekly Wrap

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Copilot sees what you see. Let Copilot talk you through step-by-step guidance so you can master new apps, games, and skills faster. Try now at windows.com slash Copilot. The message for the week is the nervousness around AI continues despite the excellent numbers posted by NVIDIA Wednesday night. The existing home market is locked so sellers can't sell and buyers can't buy. And that has made... major implications for Home Depot and

the entire building supply chain. Oracle needs debt to fund at least some of its CapEx, and it recently raised $18 billion, thereby increasing its overall debt load to $100 billion. And that has made the market. NVIDIA's stock rallied hard, and the market rallied hard Thursday morning as well, and then reversed and reversed hard. And so we are going to spend some time on what happened and why.

Hi, this is Steve Eisman and welcome to another edition of The Weekly Wrap. This is for the week ending November 21, 2025. And I think the message for the week is that the nervousness around AI continues. despite the excellent numbers posted by NVIDIA Wednesday night. And so we are going to spend some time on what happened and why. The week started out with pure nervousness. NVIDIA did not report until Wednesday night.

And Wednesday night seemed like an eternity. So the week began with a correction on Monday that continued on Tuesday. But then the market rallied a bit on Wednesday. All very emotional trading. So Nvidia finally reported Wednesday night, and Nvidia sang an operatic aria whose music the market at first seemed to really enjoy. Earnings per share was $1.30. versus $1.25 estimated and up over 65% versus last year. More importantly, revenue.

was $57 billion versus $55 billion expected and showed 62% growth versus last year and up 22% sequentially. It's beyond amazing that a company worth $4.4 trillion the biggest company by market cap in the world, can grow revenue by 62%. What's perhaps even more amazing is that in the June quarter, revenue grew 56%. So revenue growth in this quarter accelerated, and all this without any sales to China. And China's sales are off-limits until negotiations between the U.S. and China are completed.

And none of that, with respect to China, is factored into estimates at this time. The company also raised guidance for the December quarter. Again. The largest company in the world grew revenue 62% versus last year, and that growth was higher than the prior quarter. The AI arms race continues, although that should have not been that much of a surprise since all the hyperscalers increased their CapEx budgets when they reported their own quarters weeks ago.

After hours, Wednesday night, NVIDIA's stock rallied hard and took the entire space up with it. And the market rallied hard Thursday morning as well. And then reversed and reversed hard. NVIDIA started the day up 5%, but ended the day down 3%. The S&P 500 index and NASDAQ opened up very strong Thursday morning, with NASDAQ up over 2% and the S&P not far behind.

rally petered out and the S&P closed down on day by one and a half percent and Nasdaq closed down on day by slightly more than two percent. A complete reversal. Why? Now, it's always extremely difficult to explain one day of trading. Some might point out that the Fed minutes released Wednesday indicate that the Fed might not cut rates in December.

I don't think the Fed minutes released Wednesday afternoon explain the market reversal on Thursday. But I do think I understand what the market is really worrying about and grappling with. So let me put the AI debate into a broader perspective by flagging a very interesting article by the historian Niall Ferguson in the Free Press earlier this week.

Professor Ferguson asked a very relevant question. When was the last time in American history that there was so much CapEx by an American industry that transformed the U.S. economy? He bypasses the dot-com boom. and looks back to the railroad era of the post-Civil War period until around 1895. The capex amounts were exorbitant, and as hoped, the railroads did successfully transform the U.S. economy.

From a regional agrarian economy to a national industrial one. But there was intense competition. Some railroads went bankrupt. And there were two market crashes. 1873. and 1893 when railroad investors realized that their returns on CapEx wouldn't be quite as rapid or as good as they hoped. There were often overlapping railroads that ran literally side by side. Competition was intense and several railroads failed. By analogy, Professor Ferguson points out a few potential AI pitfalls. First.

Perhaps people will conclude that AI is more of an upgrade of Google than a productivity-raising miracle. Second, AI competition intensifies and as a result, returns are lower than expected. There are already many overlapping AILM models out there, perhaps just like they were once overlapping railroads. And it is very unclear we need them all or that they will all thrive. And third.

Chinese AI models might become just as good or nearly as good, but much cheaper. I think what Professor Ferguson is getting at is that right now, it is very, very early in the AI story. The big growth stories like NVIDIA, AMD, or CoreWeave are selling the tools to create AI, like Andrew Carnegie produced the steel which made the railroads. But we don't yet have much proof, at least not yet.

about how transformative this technology will be or how profitable. Until then, anyone can spin any narrative. Yes, the tools of AI are selling like crazy, but how profitable? or transformative the end products will be is the open question. Hopefully, sometime next year, we will get some real clarity. And I'd just like to point out that the AI stock that has corrected the most

during this AI correction is Oracle. Oracle had a big spike when it reported its third quarter, but since then has corrected over 30% and has given back all its post third quarter earnings gains plus some. Why? Because despite strong revenue and earnings growth and a huge increase in backlog, Oracle cannot fund its huge AI expenditures from cash flow.

like Microsoft and Google can so easily do. Oracle needs debt to fund at least some of its CapEx, and it recently raised $18 billion, thereby increasing its overall debt load to $100 billion. And that has made the market nervous. And now for the rest of earnings for this week. First up is Home Depot, which reported Tuesday morning, and the results were not good. because the entire housing ecosystem remains moribund. The company reported EPS of 374 versus the consensus of 384. So amiss.

Same store sales for the quarter were a measly 0.2 percent or 20 basis points, which was 100 basis points lower than consensus. And the company lowered. its fiscal 2025 same-store sale guidance to only slightly positive from a prior 1%. Nothing good to report here. Home Depot is a great company, but it is not immune.

to what is going on in housing. And what is going on is that during COVID, every homeowner refinanced into a 3% mortgage. Today, mortgage rates are above 6%. So sellers can't sell. and buyers can't buy. The existing home market is locked, and that has major implications for Home Depot and the entire building supply chain. Needless to say, Home Depot went down on this earnings report.

And the stock is down 14% this year. Now, while I am sure there are some good markets in the U.S., like Dallas-Forthward, that is completely insufficient to overcome a measly 20 basis point.

same store sales growth. Again, the overall housing market is moribund. Lows reported two, and the numbers were also not so good. The company reported 306 versus 289 last year and versus 297 expected. So, an EPS beat. But revenue missed by a touch. More importantly... Same store sales growth was only 40 basis points, which was 50 basis points below forecast. And it expects only flat same store sales growth for the year versus 1%.

previously expected. But it did say on the call that the quarter got off to a good start. But I wouldn't put too much into that. Housing and housing related stuff remains very weak. Low stock is down 7% this year.

On an even worse note, Target reported EPS was $1.78 versus $1.85 last year, so down 4%. It also posted a drop in quarterly sales and reduce its full year guidance again. On the earnings call, the new CEO refused to say when he thinks target sales will turn up again, but he thinks the company is making progress. Good luck. The stock is down 39% this year. Target is an example of a once iconic retail company that has failed to navigate the pitfalls facing all traditional retailers.

and the continuing absorption of retail by Amazon and Walmart. Target has no easy solutions. But not all is bad in retail. Walmart reported very good numbers Thursday morning. Walmart beat earnings per share. And revenue expectations? Both. Revenue increased 6% and earnings per share increased by 7%. And same-store sales growth was a nice 4.5%. Not exactly NVIDIA-style numbers.

But in large consumer retail, that is as good as it gets. Just think about the weak numbers I just described at Home Depot, Lowe's and Target. But the strength in Walmart is not necessarily an indication. of a strong consumer. Walmart seems to be taking market share across all income segments, even the higher end. One could interpret that as meaning that all consumers are showing stress and are looking for good deals at Walmart.

Hence, weakness at Target and strength at Walmart. Running a business comes with a lot of what-ifs. But luckily, there's a simple answer to them. Shopify. It's the commerce platform behind millions of businesses, including Thrive Cosmetics and Momofuku. And it'll help you with everything you need, from website design and marketing to boosting sales and expanding operations.

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And it culminates with the final night of Emirates NBA Cup group play with Bucks-Knicks at 7 p.m. and Mavs-Lakers at 10 p.m. Black Friday game day, only on Prime. And another sign that all is not completely well in private credit, Blue Owl, the direct lending asset management firm, rescinded a planned offer. Blue Owl has a market cap of $21 billion.

And the stock is down over 40% this year. It was seeking to merge two of its private credit funds. It was trying to merge its smaller $1.7 billion non-traded credit fund. into its larger $17.1 billion publicly traded fund. So what was the problem? Quite a lot, actually. During the merger, investors in the smaller non-traded fund could no longer retain.

In the past, Blue Owl allowed a limited amount of redemptions per quarter for its non-publicly traded fund. And when an investor redeemed from the fund, they received stated net asset value, or NAV. But the larger fund is a closed-end fund, and it's publicly traded, and its price values the fund at a 20% discount to stated NAV. So if the merger went through...

private investors would immediately be haircut by 20%. Not so nice. Investors complained and the merger offer has been rescinded. I am quite sure we will hear more negative news about private credit. It seems to come out. bit by bit. First tricolor, then first brands, and now Blue Owl. And now for the mailbag. Our first question is from Mark, who it turns out was a high school classmate of mine. Mark asks, quote,

Please discuss if you believe the 2% and 20% or any variation thereof is fair or sustainable. If a money manager makes 20% on the upside of an investment and has zero risk when the investment goes south. does that incentivize him to take risks with other people's money that he would not otherwise have taken? Great question. Now, what Mark is getting at is that hedge funds, private equity and venture capital firms charge a management fee.

and a share of the profits. The management fee is a flat percentage, and the profit share is generally 20% of the profits. These come in different variations, but the concept is the same. Even the management fee comes in variations. For example, hedge funds and private equity charge a management fee that is a percentage of equity or what clients have invested.

But business development corporations, or BDCs, many of which are public companies, charge one and a half to two percent of gross assets. What's the difference, you ask? Well, a BDC can be levered as much as two to one. So let's imagine investors put in $1 billion in a hedge fund and $1 billion into a BDC and both charge a 1.5% management fee. The hedge fund management fee will be 1.5% of $1 billion.

But since a BDC is levered two to one, the BDC management fee will be one and a half percent of two billion. That's one aspect of BDCs I don't like because it incentivizes the maximum amount of leverage allowed. And as Mark points out, the money managers here participate in the upside in terms of profits and not the downside. In other words, they share in the profits but not the losses. So doesn't that incentivize the manager to take inordinate risks?

My answer here is that I'm sure that this is the case sometimes. Yes, the incentives can mean the manager takes inordinate risks, but most managers, I believe, realize that if they take crazy risks and fail, they will be out of business very quickly. Most people tried to build these businesses for the long term. The next question is from Krishna, who asks...

How can a long-term investor identify when a stock has reached fair value versus being in bubble territory? For example, he asks, I hesitated on NVIDIA due to bubble concerns, but now that I've invested... Those fears have resurfaced. If a correction happens, how can I assess whether the company's fundamentals are strong enough for the stock to eventually recover or whether I should be avoiding tech altogether right now?

This is a very, very difficult question to answer. Let me tell you how some people would answer it and then how I answer it. Some professional investors will tell you that they employ a rigorous valuation methodology. And that methodology could be the PE or the enterprise value divided by EBITDA or a discounted cash flow model. And they would argue that when a stock reaches those valuation parameters, you should at least take some profits.

I'm not such a stickler for these valuation tests. It's been my experience that in a bull market, when a strong story is intact, the stock will trend higher over time. But... If the fundamental story changes for the worst, all bets are off. That's why the internet bubble did not break because of crazy valuations. What broke it? was the recession of 2000-2001, which caused the fundamentals of tech companies to deteriorate. And as we just found out Wednesday night, the NVIDIA story is intact.

even though the market did not react so well to the numbers. The next question comes from Kush, who asks, quote, I want to know about what your side of the world thinks about investing in the Indian stock market and derivatives. I see lots of foreign capital coming in and going into Indian markets on a daily basis. And we are seeing a five-year bull run due to lower interest rates.

For the last two to three years, we are also seeing massive tech IPOs at insane valuations and multiples, which will unsettle your imagination, unquote. Here's my answer. When I ran my hedge fund at Frontpoint from 2004 to 2011, we did invest in Indian banks and some Indian real estate firms. There were years we made money and there were years we lost.

But what I learned from the experience is that markets can be very idiosyncratic. What people care about in India can be very specific to just India. And unless you are close to the market... By actually being immersed in it, it can be very difficult to make money over time. So I'm sure investing in India is very exciting, but I stick to the U.S. There are just plenty of opportunities here. The next question is from Joe.

who asks, quote, curious if you saw the article in Barron's about Progressive. With the stock pulling back and it being a great fundamental name, brand on sale, curious is to your thoughts, unquote. Now, full disclosure, I own Progressive and I have owned it for a number of years. Progressive has a business model that is shared by a few great companies in mature industries. And I'm thinking of Walmart and T-Mobile.

as examples. What all these companies share is that they are just more efficient than their competitors and can deliver a better and less expensive product to customers. And so they keep taking market share slowly. but inexorably. That's why if you own Progressive, you will make money over time. However, Progressive is not immune to market forces. Sometimes it is raising prices and growing revenues quickly. And sometimes, like now, competition heats up.

and revenue growth slows. The PE on Progressive is pretty inexpensive right now, at around 13.5 times the current 2026 consensus estimate. So if you are patient, I think now is a good time to buy it. But because of the current levels of competition, momentum players are not playing in this space. And that's The Wrap. One of the many themes we have explored over multiple interviews is how varied industries have changed from the impact of technology and social media and AI.

We continued that exploration this last Monday when we posted an interview about the book industry. I interviewed two literary agents and a book publisher, and we explored... how much the book industry has changed because of Amazon and social media, and how much it is already changing from the impact of AI. Hope you will check it out. And this coming Monday, I will post an interview with Amy Butte.

the CFO of a new public company called Navon, a business travel company. Amy was also the CFO of the New York Stock Exchange when it went public in the early 2000s. We explore... what it means, and how difficult it is to take a private company public. So hope you will tune in. And if you haven't already, please consider subscribing to our YouTube channel.

So you can receive these weekly wraps along with our podcast and the financial literacy masterclasses. Subscribing is the best way to help the channel. And we greatly appreciate your support. Also. be sure to check out our website, realeismanplaybook.com. There you can easily access all our episodes, as well as the financial literacy masterclasses, a new weekly blog, and some other goodies as well.

Check it out. See you soon. This podcast is for informational purposes only and does not constitute investment advice. The hosts and guests may hold positions in stocks discussed. Opinions expressed on their own and not recommendations. Please do your own due diligence and consult a licensed financial advisor before making any investment decisions.

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