A summary and discussion of NVIDIA’s income statements

A summary and discussion of NVIDIA’s income statements, based on the latest five quarters (April 2025 – April 2026) and the last five fiscal years (2022–2026).

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Over the latest five quarters, NVIDIA’s revenue has shown remarkable and accelerating momentum. Starting at $44.1 billion in April 2025, revenue rose to $46.7 billion in July 2025 (6.1% growth), then jumped to $57.0 billion in October 2025 (22.0% growth), $68.1 billion in January 2026 (19.5% growth), and finally $81.6 billion in April 2026 (19.8% growth). This sequence demonstrates that after a relatively subdued quarter in mid‑2025, growth re‑accelerated into the high teens. The company’s gross income expanded in lockstep, from $26.7 billion to $61.2 billion over the same period, with the gross profit margin holding exceptionally steady at 71.07% in the most recent quarter – a sign of stable pricing and limited cost pressures despite surging volumes. Operating leverage is evident in selling, general and administrative (SG&A) expenses, which grew at a much slower pace (12–16% sequentially) than revenue, allowing pretax income to climb from $21.9 billion to $69.9 billion. Consequently, the pretax margin reached 65.5% in April 2026, and net income (after tax) soared from $18.8 billion to $58.3 billion, translating into a net margin of 55.6%. Diluted earnings per share rose from $0.76 to $2.39, helped also by a modest reduction in share count. Notably, the company consistently recorded negative “unusual expense” (i.e., gains or reversals of provisions), which added to bottom‑line results, while interest expense remained negligible.

Looking at the annual picture for the five fiscal years ending in January 2026 (labelled 2022 through 2026), the transformation is even more dramatic. Revenue was essentially flat from 2022 ($26.9 billion) to 2023 ($27.0 billion), but then exploded: $60.9 billion in 2024 (+125.9%), $130.5 billion in 2025 (+114.2%), and $215.9 billion in 2026 (+65.5%). The slowdown in the growth rate (from over 100% to 65%) is natural as the base expands, but absolute dollar increases remain massive – nearly $85 billion more revenue in 2026 than in 2025. Gross profit margin improved sharply from about 57% in 2023 (a trough year) to over 71% in 2026, reflecting the shift toward high‑margin data center AI products and away from lower‑margin legacy segments. Operating expenses (SG&A), which include a rapidly growing R&D budget ($5.3 billion in 2022 to $18.5 billion in 2026), increased at a much slower rate than revenue, driving extraordinary operating leverage. As a result, EBITDA rose from $11.2 billion in 2022 to $133.2 billion in 2026, and net income surged from $9.75 billion to $120.07 billion. The net margin widened from 36% (2022) to a stunning 55.6% in both 2025 and 2026, despite a temporary dip in 2023 when margins fell to 16% due to inventory adjustments and weaker gaming demand. Diluted EPS followed the same trajectory – $0.38 (2022), $0.17 (2023), then $1.19, $2.94, and $4.90 in 2026. The company has also been reducing its share count through buybacks (basic shares outstanding fell from 24.96 million in 2022 to 24.36 million in 2026), further boosting per‑share metrics.

Several themes deserve discussion. 

1. First, NVIDIA’s financial performance is now structurally different from any traditional semiconductor company – its net income alone exceeds the total revenue of most large tech firms. 
2. Second, the combination of 71% gross margins and 55%+ net margins is typically found only in software or platform companies, underscoring the value of NVIDIA’s compute ecosystem and the pricing power of its AI accelerators. 
3. Third, the negative “unusual expense” in every recent period (ranging from –$63 million to –$2.6 billion quarterly) suggests recurring non‑operating gains, possibly from investments or legal settlements, which provide a small but consistent tailwind. 
4. Fourth, interest expense has remained flat at around $250 million annually despite higher cash balances, meaning NVIDIA carries almost no net debt. 
5. Finally, the sequential growth rate in the latest quarter (19.8%) is still extremely robust but has moderated from the 22% peak in October 2025. Investors will watch whether this deceleration continues as competitors (AMD, custom ASICs) gain traction and as large cloud customers digest massive AI chip purchases. 

Nevertheless, the income statements paint a picture of a company executing exceptionally well on a once‑in‑a‑generation technology shift, with profit growth far outpacing revenue growth and operational efficiency reaching levels few corporations ever achieve.

Trillion dollar Market Caps: Fairy Tale Pricing or Great Businesses? Aswath Damodaran

 

Investment Summary: How to Evaluate Trillion-Dollar Companies

As markets crown companies with multi-trillion-dollar valuations, investors are sharply divided between dismissing them as bubbles and embracing them as the future. This presentation provides a disciplined framework to cut through the noise and make your own informed judgment.

Core Insight: Reframe the Question

Instead of asking, "Is this stock cheap or expensive?" ask: "What future performance justifies its price today?" This shifts the debate from opinion to analyzing business fundamentals.

The Essential Tool: Break-Even Revenue

The key is to calculate the "Break-Even Revenue"—the sales a company must eventually achieve to justify its current market capitalization. This is derived from a standard intrinsic valuation (DCF) model, simplified for a stable-growth company.

The formula highlights the critical drivers:

1. Market Cap: The higher it is, the higher the required revenue.

2. Profitability (Net Margin & ROE): Companies with superior unit economics (like Nvidia's ~53% net margin) need far lower break-even revenue than low-margin firms (like a car manufacturer).

3. The Cost of Equity: Influenced by interest rates and risk; lower rates reduce the required revenue hurdle.

4. Time and Cash Yield: The longer you must wait for those revenues, the larger they must be. A company burning cash needs even higher future sales.

The 3P Test: From Math to Judgment

Once you have the break-even number, assess its credibility using a three-stage filter:

• Is it Possible? Does the total addressable market (TAM) even allow for that level of revenue? If not, it's a fantasy.

• Is it Plausible? Is there a coherent, though not guaranteed, business pathway to hit that revenue with the assumed margins?

• Is it Probable? Is this pathway one of the most likely outcomes? This is where you form your investment conviction.

Example Application: Nvidia might need ~$590B in revenue by 2030 to justify a ~$4.3T cap. This is possible (the AI chip market is vast) and plausible (a pathway exists), but maintaining its extreme profitability while getting there may not be probable.

Watch Out for the "Big Market Delusion"

A sector-wide risk emerges in hot, nascent markets like AI. While individual companies may pass the 3P test, the collective sum of all competitors' break-even revenues can far exceed the realistic size of the entire market. This is evident today in the Large Language Model (LLM) space, where the aggregated valuations of OpenAI, Anthropic, xAI, and others imply future revenues that the total market likely cannot support. Only a few winners will likely survive.

Critical Considerations for Investors

• Management Matters (When Growth is Needed): For companies whose value hinges on future growth (e.g., Tesla, Eli Lilly), management's execution is paramount. For mature, asset-heavy firms (e.g., Aramco), it is less so.

• Governance Risk: Be wary of "emperor" CEOs with unchecked power (via dual-class shares). Weak corporate governance can lead to value-destructive overreach, as shareholders have limited recourse.

• No Simple Rules: Avoid broad valuation multiples (e.g., "never buy above a 50x P/E"). The right price depends entirely on a company's specific fundamentals.

• Embrace Disagreement, Demand a Reality Check: Respect that other investors may see a different plausible pathway. However, you must constantly test your thesis against new data. If your assumed growth rate is 20% but the company consistently delivers 10%, update your model. More money is lost by clinging to a beloved story than by adapting to facts.

Bottom Line for the Investor

A sky-high market cap alone does not mean a stock is overvalued. By using the break-even revenue framework and the 3P test, you can move beyond gut reactions and anchor your investment decisions in a structured analysis of the underlying business. The goal is not to find a universal answer, but to equip yourself with the right questions.

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From 0:00 to 5:00, the speaker introduces the topic of companies reaching trillion-dollar market capitalizations, using Nvidia's recent $5 trillion valuation as a key example. He contrasts two common investor reactions: traditional value investors who view such high valuations as inherently overvalued, and AI optimists who justify them based on growth potential.

The speaker shares his personal experience as an early Nvidia investor (since 2018) who has held through its rise, acknowledging he currently finds Nvidia overpriced but has at times considered it undervalued. He aims to provide a tool—rather than a definitive judgment—for others to evaluate such companies themselves.

He then provides historical context on market cap milestones:

• 1901: U.S. Steel first to reach $1 billion.

• 1955: GM first to $10 billion.

• 1995: GE first to $100 billion.

• 1999: Microsoft first to $500 billion (dot-com peak).

• 2018: Apple first to $1 trillion.

• 2020: Apple first to $2 trillion.

• 2022: Apple first to $3 trillion.

• 2024: Nvidia first to $4 trillion, then $5 trillion in 2025.

A key observation is that in the 20th century, companies typically achieved these milestones after their high-growth phases, with substantial existing revenues and earnings. In the 21st century, companies like Apple and Nvidia are reaching these caps while still in growth stages, reflecting greater market expectations for future growth.

The speaker concludes that simply breaching a market cap threshold doesn't offer clear investment guidance—it's neither a reliable buy nor sell signal. He then transitions to introducing a valuation tool to assess whether a high market cap like Nvidia's is justified.

From 5:00 to 10:00, the speaker introduces a Discounted Cash Flow (DCF) framework to evaluate whether a company’s market capitalization is justified, focusing on break-even revenues.

Key Steps in the DCF Model:

1. Equity Valuation: Intrinsic value of equity is the present value of future cash flows to equity investors, discounted at the cost of equity.

2. Steady-State Simplification: For a mature, stable-growth company, the formula simplifies to:

   $$\text{Value of Equity}=\frac{\text{Net Income}\times (1-\text{Reinvestment Rate})}{\text{Cost of Equity}-\text{Growth Rate}}$$

   where:

   • Net Income = Revenues × Net Profit Margin

   • Reinvestment Rate = Growth Rate / Return on Equity (ROE)

   • Growth Rate must be ≤ economy’s growth rate (stable phase)

Break-Even Revenue Calculation:

• By rearranging the formula, you can solve for the revenue needed to justify a given market cap.

• For Nvidia at a $5 trillion market cap (Nov 2025 data):

  • Cost of equity: 9% (higher than S&P 500’s 8% due to risk)

  • Net profit margin: 53%

  • ROE: 64.4%

  • Stable growth rate: capped at the risk-free rate (~4%)

• Under these assumptions, Nvidia would need $483 billion in revenue to break even—a surprisingly modest figure given its high profitability.

Impact of Time and Cash Yield:

• If investors must wait for those revenues, break-even revenue increases.

• Example table shown:

  • With a 2% annual cash yield and a 5-year wait: $678 billion needed.

  • With a 10-year wait: $951 billion needed.

  • If the company is cash-burning (negative yield), the required revenue rises further.

Driver Summary:
Break-even revenue depends on:

1. Market cap (higher cap → higher required revenue)

2. Profitability (higher margins/ROE → lower required revenue)

3. Cost of equity (affected by interest rates and risk)

4. Growth patience (longer wait → higher required revenue)

This tool shifts the debate from subjective opinions (“overpriced” vs. “underpriced”) to analyzing business fundamentals—revenues, margins, and reinvestment.

From 10:00 to 15:00, the speaker applies the break-even revenue framework to the 12 largest companies (all with market caps over $1 trillion) and introduces the "3P Test" to evaluate the plausibility of those revenue targets.

Analysis of Top 12 Companies (5-Year Wait Scenario)

Using data from November 2025 and assuming a 5-year waiting period, the required break-even revenues and implied revenue growth rates are calculated:

• Nvidia ($4.3T market cap): Needs $589B in revenue by 2030. This implies a 25.8% annual growth rate from its current $187B.

• Apple ($3.9T): Needs $1.0T in revenue, implying ~20% growth from $416B.

• Amazon ($2.5T): Needs $1.9T in revenue. Its lower net margin (11%) significantly raises the bar.

• Tesla ($1.3T): Needs a massive $2.15T in revenue, implying 86% annual growth, due to its relatively low net margin (5.3%).

• Broadcom ($1.5T): Needs 39.8% revenue growth, reflecting its high valuation as an AI beneficiary.

Key Driver: A company's profitability (net margin) is crucial. Companies like Nvidia (53% margin) need far lower break-even revenues than companies like Tesla (5.3% margin) for similar market caps.

The "3P Test" for Investment Decisions

Once break-even revenue is calculated, an investor should assess its plausibility using three filters:

1. Possible? (Lowest bar): Could the total addressable market (TAM) ever support that revenue? If break-even revenue exceeds the total market, it's impossible—a "fairy tale."

2. Plausible? (Middle ground): Is there a credible, though not necessarily likely, pathway to reach that revenue with the assumed margins? It requires a believable story.

3. Probable? (Highest bar): Is the pathway to the break-even revenue one of the more likely outcomes? This is where investment convictions are formed.

Application to Nvidia & Tesla

• Nvidia: Needing $589B by 2030 is possible (the chip/AI market is large enough) and plausible (a pathway exists). However, the speaker believes maintaining 53% margins and 64% ROE while hitting that target is not probable. This is why he views Nvidia as overvalued.

• Tesla: Needing $2.15T seems to push the limits of possibility based on today's auto market. However, if an investor's thesis includes higher future margins from robotics and self-driving software, the required revenue would drop, making the story potentially plausible.

The "Big Market Delusion"

A collective problem can arise even if individual companies pass the 3P test.

• In a hot, emerging market (e.g., AI, dot-com, cannabis), many overconfident entrepreneurs and venture capitalists create numerous companies.

• Each company's valuation is based on aggressive forecasts, making their individual break-even revenues seem plausible.

• However, if you sum the break-even revenues of all companies chasing the same "big market," the total often far exceeds the realistic size of the entire market. This collective overvaluation is the "big market delusion."

The speaker suggests this delusion is particularly relevant in the AI Large Language Model (LLM) space, where numerous well-funded competitors (OpenAI, Anthropic, xAI, etc.) have valuations that, in aggregate, imply future revenues surpassing likely market capacity.

From 15:00 to 20:00, the speaker applies the big market delusion concept to the current AI landscape and discusses the role of management and corporate governance in high-growth, high-market-cap companies.

Big Market Delusion in the AI LLM Space

The speaker argues that the Large Language Model (LLM) market is a prime example of a collective overvaluation.

• Valuations vs. Revenues: Companies like OpenAI (~$500B valuation on ~$13B revenue), Anthropic (~$350B on ~$7B), and xAI (~$230B on ~$3B) command massive valuations despite modest current revenues.

• Collective Implied Revenue: If you sum the break-even revenues needed to justify the valuations of all major LLM players (including those owned by big tech like Google's Gemini and Meta's Llama), the total far exceeds any realistic projection for the total LLM market size.

• Probable Outcome: As with past delusions (dot-com), most companies will not meet their targets. A small number of winners will emerge (like Amazon did post-2000), but many investors will be disappointed.

The Role of Management & Governance

The importance of management increases with the gap between current and break-even revenue.

• Low-Gap Companies (e.g., Aramco): Companies like Aramco (requiring almost no revenue growth to justify its market cap) are more like mature assets. Management has less impact on value creation.

• High-Gap Companies (e.g., Eli Lilly, Nvidia, Tesla): Companies needing high future growth (like Eli Lilly's implied 26% growth) are heavily dependent on management's ability to execute without sacrificing profitability.

• Governance Risk: The speaker re-emphasizes a concern about concentrated founder power in many tech giants (dual-class shares, "emperor" CEOs like Sam Altman and Elon Musk). When traditional checks (boards, proxy fights) are weakened, unchecked power can lead to overreach and value-destructive decisions (citing Meta's metaverse investment as a past example).

In summary, the LLM sector shows signs of a collective valuation bubble, and for growth-dependent companies, strong and disciplined management is critical—yet governance structures often reduce investor ability to hold them accountable.

From 20:00 to 25:00, the speaker concludes with investing lessons and a reality-check principle.

Key Investing Takeaways

1. Reframe the Debate: Move away from simplistic labels like "overpriced" just because a market cap is large (e.g., $4-5 trillion). Instead, use the break-even revenue framework to have a substantive conversation about the business fundamentals—revenues, profitability, and reinvestment—required to justify the valuation.

2. Use the 3P Test: After calculating break-even revenue, rigorously assess if it is Possible, Plausible, and Probable. This moves the analysis from abstract math to a practical assessment of the company's potential.

3. Avoid Broad Rules of Thumb: Valuation multiples (like P/E or revenue multiples) are not reliable across all companies. The justified valuation depends entirely on each company's unique operating metrics (margins, ROE, growth).

4. Allow for Disagreement: Different investors can legitimately reach different conclusions using the same framework. The speaker states it's not his job to evangelize his view on Nvidia. If another investor sees a plausible and probable pathway to the required numbers, their bullish view deserves consideration.

The Critical "Reality Check" (The 4th 'P')

The speaker adds a crucial fourth step: Be willing to be proven wrong by new data.

• If your valuation is based on an assumption (e.g., 20% revenue growth), but the company consistently delivers significantly different results (e.g., 10% growth), you must revisit and revise your story.

• More money is lost by investors falling in love with their story and ignoring contradicting facts than by being flexible and updating their views.

Final Tools and Encouragement

The speaker encourages using the provided spreadsheet tool to compute break-even revenues for any company or even individual projects. The goal is to equip investors with a structured, fundamentals-driven method to cut through market noise and hype when evaluating highly valued companies.

20:00 to 25:00, contained the speaker's concluding remarks on investing lessons, the importance of a reality check, and a final encouragement to use the valuation tools discussed.

30 and 35 minutes to summarize.

To recap the complete video, here is a brief overview of all covered segments:

0-5 min: Introduction to trillion-dollar market caps using Nvidia as an example and historical context.
5-10 min: Introduction of the DCF-based "break-even revenue" valuation tool.
10-15 min: Application of the tool to the top 12 companies and the introduction of the "3P Test" (Possible, Plausible, Probable).
15-20 min: Discussion of the "Big Market Delusion" in AI (specifically LLMs) and the role of management/governance.
20-25 min: Concluding investing lessons, the importance of allowing for disagreement, and the critical "Reality Check."