What Nvidia's Tiny Miss Says About the Entire Market

The 'high-class problem' with a $4 trillion stock... The Mag 7 vs. everyone else... Why the other 493 might be more concerning... An easy pass on this 'Old Timer'... The circle of fiat-currency life...

The world's most valuable company just reported its latest earnings...

After yesterday's market close, chipmaking giant Nvidia (NVDA) released its results for the second quarter. In the three months ending July 27, Nvidia's revenue surged 56% to $46.7 billion, while earnings per share jumped 54% to $1.05.

And looking forward to the third quarter, Nvidia sees revenue of $54 billion, which would represent a more than 50% jump from the same quarter a year ago. And that's better than the $53 billion Wall Street expects in that quarter.

That's an incredible growth rate for a company with a market cap of more than $4 trillion. And Nvidia is expecting growth to continue. As Chief Financial Officer Colette Kress explained on the company's earnings call yesterday...

Our full-stack AI solutions for cloud-service providers, neo clouds, enterprises, and sovereigns are all contributing to our growth. We are at the beginning of an industrial revolution that will transform every industry. We see $3 trillion to $4 trillion in AI infrastructure spend by the end of the decade.

On the surface, it looks like another blowout quarter for Nvidia...

Revenue is still surging higher (even if this quarter's growth was the slowest of the AI boom since 2023), and it's still delivering huge profits.

But investors still sent the stock lower by 3% in after-hours trading yesterday, and the stock closed about 0.8% lower today. Nvidia's data-center segment was the reason...

Data-center revenue, which serves as a read-through for AI demand and makes up nearly 90% of the company's total sales, came in at $41.1 billion. Even though that's up 56% year over year, it came in just below Wall Street's estimate of $41.2 billion.

That's a tiny miss. But Nvidia's shares are up 31% so far in 2025 and have nearly quadrupled over the past two years. Those gains are on the strength of high expectations. Any time Nvidia fails to meet them, even in small ways, sentiment about the company can cool.

A 'high-class problem'...

That said, Nvidia shares remain in a strong uptrend, and the business is the highest-valued company by market cap in the world. Most companies and investors would likely gladly take its place.

Perhaps the high valuation concerns you, though. After all, Nvidia's price-to-earnings (P/E) ratio is near 60, double that of the benchmark S&P 500 Index.

Well, as our Stansberry's Investment Advisory lead editor Whitney Tilson has put it in the past, anyone sitting on stock with a big return over the past several years like Nvidia has a "high-class problem."

With stocks like these, Whitney advises you to let your winners run. He says some of the biggest mistakes in his career involved selling too early. But you may want to consider trimming the position if it becomes an outsized portion of your portfolio, he said.

It's much like the way Nvidia now accounts for 7.5% of the market-cap-weighted S&P 500 Index...

Nvidia's $4.4 trillion market cap is now larger than the value of the entire U.K., French, or German stock markets... And this single company is valued at the equivalent of almost 4% of the entire world's GDP. This seems unsustainable.

Nvidia and the Mag 7 versus the rest...

In Friday's Digest, our colleague Dan Ferris highlighted legendary investor Howard Marks' latest memo. As Dan wrote, Marks' memo included something all investors should learn. From Dan...

It thoroughly explains the relationship between the value and the price of investments, then brings investors up to speed on the state of things right now. (Spoiler: Marks agrees with me that the markets are optimistic and expensive.)

But Marks has one area of the market he's more worried about. And it isn't the Magnificent Seven – Nvidia, Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), and Tesla (TSLA). As Marks wrote about those companies...

These are great companies – some are the best companies ever – and these seven stocks have grown to represent a startling one-third of the total market value of the 500-stock index.

There's a reason investors flock to the Mag 7... After the most recent quarter, these seven stocks continue to dominate the earnings growth of the S&P 500.

As LPL Financial shared in its August 18 weekly market commentary (when all but Nvidia had reported), the Mag 7 have grown their earnings per share by nearly 26% year over year in the second quarter.

That's more than 5 times the earnings growth of the other 493 companies in the index.

And because of their high growth rates and strong underlying businesses, Marks doesn't see their higher valuations as "unreasonable." More from the memo...

The fact is their p/e ratios average out to roughly 33. This is certainly an above average figure, but I don't find it unreasonable when viewed against what I believe to be the companies' exceptional products, significant market shares, high incremental profit margins, and strong competitive moats.

Instead, Marks thinks the expensive part of the market is the other 493 companies...

According to LPL Financial's estimates, these companies "only" grew earnings at a 4.6% rate in the second quarter.

That's well below the S&P 500's average growth rate of about 9%. But even though their earnings growth is lagging, these 493 companies are still expensive. More from Marks...

Rather, I think it's the average p/e ratio of 22 on the 493 non-Magnificent companies in the index – well above the mid-teens average historical p/e for the S&P 500 – that renders the index's overall valuation so high and possibly worrisome.

So yes, the Mag 7 are expensive, and markets are heavily concentrated in this handful of stocks. As we've written in previous Digests, that's all well and good until these stocks turn lower – then they'll lead to the downside.

But their strong financials and businesses mean they deserve to trade at a premium to the broader market.

The prices of the "rest" of the S&P 500 could be a bigger warning sign in the near term. These are companies that are growing less than average but are trading at a higher valuation.

As always, we aren't recommending selling everything and rushing to cash. But be picky about where you're putting new money to work – and hold shares of well-run, high-quality businesses that can grow earnings in any environment.

Old Timer's Day...

One stock we wouldn't be touching today is Cracker Barrel Old Country Store (CBRL), whose shares have traded wildly on high volume the past few days as the company became embroiled in a marketing controversy...

This company's restaurants and billboards dot the landscape near many interstate highways. Last week, it revealed a brand refresh that removed the "Old Timer/Uncle Herschel" man in overalls from its logo... And the move became a "culture war" flash point.

Fans of the business and the logo sent enough backlash Cracker Barrel's way that the company reversed course on the plans this week.

(Among the vocal critics was the actor James Woods, who said he would never step foot in a Cracker Barrel again if the company went ahead with the logo change. And in case that seems like an idle threat, we can vouch for spotting Woods in a Pennsylvania Cracker Barrel about 15 years ago.)

Anyway, the logo controversy also called broad attention to the company's financial challenges, which Whitney dove into in his free daily newsletter yesterday. As he began...

The stock was a big winner in the aftermath of the global financial crisis. After a big crash, it went on to soar over the next decade. It crashed again during the COVID-19 pandemic... and then rallied strongly. But since its pandemic-era recovery, the stock has lost roughly two-thirds of its value.   

You can see the long-term move in the 20-year chart below:

The issue is a good lesson in analyzing a business. As Whitney wrote...

I can see why Cracker Barrel pursued a brand refresh...

I wouldn't say the company is in trouble outright. But it has clearly struggled with stagnant revenues – as well as declining profits and [free cash flow].

Meanwhile, the stock doesn't appear especially cheap. At a recent price earlier this morning of around $60 per share, that gives the company a market cap of roughly $1.3 billion.

Analysts estimate that the company will earn $3.14 per share this year and $3.33 per share next year. So with a roughly $60 per share price, the stock is trading at about 19.1 times this year's estimates and 18.0 times next year's.

And I would argue that those estimates are at risk due to the latest negative publicity...

Shares jumped 15% across Tuesday and Wednesday after Cracker Barrel retreated from its branding change. But after looking at the company's financials, Whitney concluded the stock "looks like an easy pass."

He said it's trading at multiples that are roughly double what he'd be interested in paying for a now-controversial, mediocre business in decline. You can read his full "first look" analysis here.

One last thing...

The other day, we mentioned a new presentation from our friend Marc Chaikin, the founder of our corporate affiliate Chaikin Analytics. It will be going offline at midnight Eastern time tomorrow night. So, if you want to catch it, do so soon.

During the event, Marc – a 50-plus-year investing pro and nothing short of a Wall Street legend – explained in great detail why he's looking past the alarming headlines that are dominating the financial media... and what he's putting his trust in instead...

Marc discussed a recent market behavior that has historically pointed to 20% average gains over the following year... And he covered subjects like the U.S. dollar's dwindling value, tariffs, AI, and what's going on inside the Federal Reserve.

He also talked about a few strong bullish opportunities and ideal stocks that his terrific Power Gauge system has uncovered. You can watch right here, but not for much longer.

New 52-week highs (as of 8/27/25): Atour Lifestyle (ATAT), AutoZone (AZO), Alpha Architect 1-3 Month Box Fund (BOXX), Donaldson (DCI), FirstCash (FCFS), Hawaiian Electric Industries (HE), iRhythm Technologies (IRTC), Lincoln Electric (LECO), Lumentum (LITE), Mueller Industries (MLI), Omega Healthcare Investors (OHI), OR Royalties (OR), Ryder System (R), SSR Mining (SSRM), Veeva Systems (VEEV), Vanguard S&P 500 Fund (VOO), and Vanguard Short-Term Inflation-Protected Securities (VTIP).

In today's mailbag, feedback on yesterday's edition, which covered the record amount of cash sitting in money-market funds right now... and the U.S. government's deal to take a stake in Intel (with perhaps similar deals in other industries to come)... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Is it possible that the billions of dollars created by our government over the last 10 years has some effect on the amount of money in money market funds?" – Stansberry Alliance member Chuck G.

Corey McLaughlin comment: Oh yes. And it's trillions, not billions.

U.S. money supply (which includes money-market funds) has increased by $10 trillion in the past 10 years alone. Its growth tracks with the pace of the increase in money-market fund assets over the same time period, as we shared via our colleague Brett Eversole yesterday.

That's no coincidence. It's the cycle of fiat-currency life...

The crisis of the decade(s) emerges (like housing in the late 2000s... or the pandemic panic and shutdowns in 2020 to 2021). Then, to "fix" things, the government lends as many new dollars into existence (through the Fed and banks) as a few decision-makers see fit.

When that happens, existing dollars for hundreds of millions of Americans and the rest of the world become "cheaper." And, after our most recent glaring episode of this during the pandemic, a 40-year high in inflation ensued.

Then came interest rates that are now higher than they've been in the past 15 years. So people have found it appealing to park dollars in "safe" funds with a 5% yield.

The next part of the cycle? Well, there is always the next crisis, but in the very short term, the Fed appears to be getting closer to lowering interest rates. If that happens and continues, savers will be rewarded with less yield... and the pace of inflation could pick up again.

One of the effects of that tends to be that people buy risk assets to chase the returns they can no longer get from their cash. (And, later on in an extended bull run, folks get encouraged to take on even more risk in pursuit of the gains they're seeing others realize.)

That's why we shared Brett's analysis yesterday that a record $7 trillion sitting in money-market funds right now, perhaps counterintuitively, is actually a bullish signal. We also noted that, historically, peaks in money-market funds have been indicative of market bottoms (in 2002, 2009, and 2020) rather than being a signal of a major top.

Today, all this cash is not being invested in stocks, but the market environment ahead could encourage it.

"When the government gives money to private companies, taxpayers deserve something back for that. Also, defense contractors have been screwing over the government and taxpayers for decades." – Subscriber Dennis M.

"Corey, great response to Bruce H, who misread your commentary on Ms. Cook and her 'alleged mortgage fraud'. Appreciate you reiterating what you actually wrote..." – Subscriber Kathy D.

Corey comment: Thanks, Kathy. As I acknowledged, I could have been clearer in the original writing, but I do take professionalism seriously.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
August 28, 2025