The discussion also touches on potential competition and risks to Nvidia’s dominance, specifically mentioning Broadcom as a significant competitor. Broadcom is working with large customers to develop custom chips and offers full networking solutions, positioning itself as a potential alternative to Nvidia’s all-in-one platform. The team suggests investors watch the spending patterns of major cloud companies like Microsoft and Amazon, as any pullback in their orders could signal a shift in Nvidia’s market position.
Overall, while Nvidia remains a powerhouse in the AI space, the evolving competitive landscape and market dynamics suggest that investors should stay vigilant in tracking these developments.
Full Transcript Below
David: Nvidia is the number one stock in the market right now. People are joking like, well, if Nvidia beats earnings, the economy is great. If it doesn’t like we’re all jobless. So, Obviously, that’s hyperbole. I think we saw on earnings, there was a watch party somewhere in New York. So it’s really reaching a point of kind of fandom that we haven’t seen in quite some time. So let’s get into the Nvidia earnings. What did you see? We saw the market’s reaction was slightly negative, not a huge sell-off that maybe some people were expecting, but also not a huge bump. So let’s walk through the Nvidia earnings. What did we learn about the past quarter? But then looking forward, what does that say about the company, but also just the broader AI landscape?
Eric: Yeah, so we’re recording this the day after they report earnings. They’re down about 3% right now. I think the options market was pricing in like a 13% move, which for a $3 trillion company, if you’ve been investing for a while, you know how insane that is. Like $3 trillion companies never move 13% after earnings. But again, it’s Nvidia. It’s the story. There’s never a never with Nvidia anymore. There’s never a never. So I think the big point here is, A lot of people are probably looking at the headlines that Nvidia, you know, destroys earnings and they deliver a 30 billion revenue. Wall Street expectations are 20.7 billion. Normally that’s enough for a very outsized positive reaction. Now, the problem to that is Wall Street expects them to beat their own guidance because when Wall Street, when you hear Wall Street expects this, it’s researchers. The people actually buying the stocks on what you call the buy side, they actually have their own expectations, especially with Nvidia. They’re generally a little bit higher. So what I had heard was the buy side was looking in guidance for next quarter for 33 to $35 billion. They came in a little bit below that. So you see a little bit of a tepid reaction. The other factor you’re seeing right now is NVIDIA is just commanding a real lion’s share. revenue to AI, which is why they’ve taken off so much more than other stocks. And with that line share, they’re commanding about 50% profit margins, which is insane for a company of that size. You think about companies that have very few expenses related to their business, like a Google, and NVIDIA leaves them in the dust, and they’re actually selling real hardware. So we’ve never seen anything like this. So when you see a company with margins falling like nvidia often that’s a good thing for the industry in general because it means that they’re kind of commanding less of the profit share so if you’re looking out at post earnings with nvidia and saying wait nvidia’s down but every ai stocks up that’s why because they’re seeing the declining margins for nvidia and thinking this is providing more space for other companies Now, second, and I think this is probably more important, is what’s the big picture with NVIDIA? Because we always know there’s the quarter to quarter game with earnings. But does this change anything long term? And aside from that margin issue, which I think is worth watching, the big thing for NVIDIA is they’re about to have a new platform. And I say platform because people will say, oh, it’s their new chips. No, it’s a new platform. It’s named Blackwell. And it’s going to have, yes, new chips, but it’s going to have networking technology, processing technology. It has a lot of innovations packed into it. It sells the cutting edge, the high-end ones, they sell for north of $3 million each, and companies are gonna be buying thousands of these. And Blackwell’s really driving an unprecedented cycle because the stats that I’ve seen on it is relative to the prior generation. You’re looking at, for the best Blackwell systems, something like six times the performance. for three times the cost. So if you’re an invest, if you’re, I should say, if you’re a meta and trying to keep up with cutting edge models or you’re an open AI or any of these companies and you’re in this arms race, if you don’t upgrade to Blackwell, you’re essentially giving up on being in the leading edge. So if you’re at the cutting edge of this arms race, you cannot upgrade to Blackwell. And it shows the demand for it that Nvidia, they had to push out Blackwell to only gain a few million dollars before the end of this fiscal year, which ends in January, billion, I should say. They’re still beating expectations with our old chips, which shows how ravenous the demand is. So I don’t think anything in these earnings really impact the long-term picture. If you’re an investor out there investing in Nvidia, what you need to really be watching with all your attention is this Blackwell cycle, because this is going to be the first technology product ever that’s more profitable than the iPhone.
David: This is the most important technology in the world right now so when you when you talk about you know offering a product with those margins at that price point what is the we talked a little bit about margins you know slightly coming down for Nvidia who is out there that you know what is the biggest threat to that you know just totally dominating the market and gobbling up you know more and more dollars of these hyperscalers of people just buying more and more things is there any clear competition or is it pretty much just like yep if it’s good it’s going to sell like how how risky do you think is this rollout or is it pretty much just like nope it’s an 80% chance that this thing’s going to you know sell like crazy for many years to come here?
Eric: I think Blackwell the next year the chance that it’s going to um the demand constraint is near 100%. I mean, it’s the dynamics I was talking about earlier, the performance improvements relative to cost. Now, longer term, who’s maybe putting a little margin pressure on NVIDIA? The biggest company would be someone like a Broadcom. Broadcom, they’re now working with six large customers designing their own custom chips. Google’s been doing this through, I believe it’s six generations. When you hear about their TPU that’s done by Broadcom, And the other thing Broadcom does is has full networking solutions, which is where NVIDIA’s, they’re trying to bundle that into their platform and Broadcom. So if you’re thinking of an analogy to the last generation of computing, NVIDIA’s like Apple with their iPhone and everything into one seamless package and Broadcom’s a little bit more like Windows. So they’re good. If you want more control of your data center, if you’re Amazon or, well, I should say Google, you’re going to go with them. So, you know, this is where the battle is coming down to. And they’re kind of two largest customers right now. But where NVIDIA, they’re trying to defend on two different areas. There’s these training, these large models, really hard to dislodge them there. And then there’s actually running those large models. And there’s a little bit more headway in there. And that’s probably where they’re going to start losing some market share. And Marketer and also have to probably sacrifice some margins on there. So, you know, those are the two areas to watch. But as far as the next year is concerned, I really think even at the rates that NVIDIA is at, they’re going to start issuing some surprises next year once they’re fully ramped on Blackwell because it is such a compelling offer.
David: So we talk about the next year. We’ll have the quarterly check-ins with NVIDIA where we’ll get the numbers. Maybe that story, like you said, it’s going to take some time to play out to see what does Blackwell look like. In the meantime, what else are you watching maybe from other companies? Are there other companies that investors should be tuning in on the earnings call to see what are they saying about that? Is it meta? Obviously, they’re the ones just pouring money into the space, buying a lot of this equipment and chips from NVIDIA. Who are these other companies that we should kind of to triangulate a story, what are the companies that we should keep an eye on in that sense?
Eric: Yeah, it’s a good question because this is what makes investing so hard. Like NVIDIA is not going to fall when all of a sudden their revenue declines one quarter. They’ll have fallen beforehand because there will be messaging or leaks out of the supply chain that these major customers like a Microsoft, Amazon, they’re pulling back on orders, right? So you’re going to see the slide before you’d ever actually see that. So I think what you need to be watching, if you’re investing in NVIDIA and you want to know kind of the threats and areas to watch, you should be watching these hyperscalers and that’s the big cloud companies and their commentary on their capital expenditures. So you should be watching that. You should be watching Broadcom because that’s now kind of the primary alternative to Nvidia. So I think if you’re only, you know, you’ve got limited amounts of attention, those are the things that you should be watching.
