Nvidia’s Magic Fades | Bloomberg Technology

Nvidia's Performance and Market Reaction

• Nvidia's new chips are on track, but the rush to get the lineup out the door is more costly than expected, with the company's profitability coming down slightly towards a 73-74% margin (34s).
• Nvidia's revenue increased by 94% in the third quarter, but the company's high expectations have led to concerns about its ability to maintain its high margin, which is unusually high for a semiconductor company (1m50s).
• The company's dependence on a few big companies, such as Microsoft and Amazon, has increased, with 50% of its revenue coming from these companies, which is a concern for investors (2m57s).
• Nvidia's CEO, Jensen, has managed to calm investors' nerves to some extent, but concerns about the company's supply-side headaches and its ability to diversify its demand base remain (1m22s).
• There is currently no real competition for Nvidia, with the company experiencing incredible demand that it cannot meet, but concerns about losing market share may become relevant in the future (3m38s).
• The market has reacted relatively calmly to Nvidia's report, with a 2.5% sell-off, despite some red flags, including pressure on productivity levels due to manufacturing challenges and the company's dependence on big technology companies (4m51s).
• Nvidia's full production is expected to come at the back end of its fiscal 2025 year, but the company still needs to address the issue of diversifying its demand base and managing its relationships with big companies (2m35s).
• Nvidia's shares have not seen the expected level of selling despite a disappointing earnings report, with the market showing resilience (4m54s).
• Nvidia managed to slightly beat its own internal guidance and market expectations, but the market had been anticipating a question around valuation (5m15s).
• Nvidia's stock has seen an extraordinary run-up of 200% over the course of the year, leading to questions about whether this can be sustained (5m29s).
• The company's valuation levels are being questioned, especially if demand starts to slow, which is expected to happen at some point as demand from big technology companies will start slowing (5m41s).
• Nvidia currently has a competitive advantage due to its premium chips, but if demand slows, the company may need to find other customers who may not be looking for premium solutions (6m2s).
• These new customers may be looking for more cost-efficient or affordable chip solutions, which could be a major issue for Nvidia (6m29s).
• Nvidia's run-up has contributed significantly to the S&P 500's performance, with 20% of the index's run-up attributed to the company (6m51s).
• Nvidia's earnings-per-share increase has been 25%, and the company's performance is seen as a major risk factor in the market (6m54s).
• Any lack of appetite from Nvidia will have a negative impact on market sentiment, and the company's loss of momentum will be negative for the S&P 500 (7m18s).

Investment Considerations and Competition

• The US is still seen as a dominant player in the technology sector, and investors looking to diversify geographically may consider Japan, which is seen as a potential solution (8m23s).
• Clients are skeptical about entering into Nvidia shares at current levels and are waiting for a price pullback before buying (9m13s).
• Nvidia's shares are still at high valuations, but some investors are looking for entry-level points, considering the company's current position (9m29s).
• AMD is seen as a potential rival to Nvidia, offering good margins, although not as high as Nvidia's, and its share price has come down significantly, making it an interesting entry point (9m45s).
• AMD is about to launch two powerful chips, one by the end of this year and one for next year, which may not be as premium as Nvidia's chips but will be more cost-efficient (10m2s).
• These cost-efficient chips could fulfill the gap in the market for companies looking for more affordable solutions (10m27s).
• AMD is currently trading at 41 times earnings (10m31s).

Trump Administration's Crypto Policy

• The Trump team is considering creating a new crypto role that would oversee cryptocurrency policymaking, signaling Donald Trump's seriousness about his crypto-related promises on the campaign trail (11m10s).
• The role would be the first crypto-specific position in the White House, and it's unclear what form it would take or what power it would have (11m17s).
• The crypto role might involve advising, liaising, and coordinating with different parts of the government involved in overseeing crypto, including Congress and agencies like the CFTC (12m17s).
• The success of the crypto role would depend on the support of a strong Secretary of the Treasury and SEC Chair, positions that have not been filled by the President-elect yet (12m47s).
• Donald Trump's campaign promises included making the US the crypto capital of the world, focusing on mining in the US, and having a reserve of Bitcoin, which would require both executive orders and congressional moves (13m0s).
• Some of Trump's promises can be achieved through executive orders, such as appointing crypto-friendly chairs, but others would require congressional action (13m22s).
• Congress will play a crucial role in shaping the crypto industry, as they have the lawmaking power to delineate jurisdiction between agencies (13m57s).
• The 119th Congress is expected to bring changes, with Patrick McHenry leaving the House and a three-way battle for the chairmanship of the House Financial Services Committee between Andy Barr of Kentucky, Bill Huizenga of Michigan, and French Hill of Arkansas, who leads the subcommittee on digital assets (14m7s).
• The crypto industry has been lobbying and investing in backing crypto-friendly congresspeople, which has shown to be effective in the past, including the ousting of the current chair of the Senate Banking Committee by crypto entrepreneur Bernie Moreno (14m44s).
• The incoming Senate designate, Tim Scott, will be taking over as the Senate Banking Chair, while Elizabeth Warren, who faces a crypto opponent, may have a role in pulling back efforts to advance the industry's interests (15m26s).
• The crypto industry's lobbying efforts are expected to continue, with no signs of slowing down, and their impact on outcomes will be closely watched in the midterms and the next cycle in 2028 (15m51s).

AI and Technological Advancements

• SoftBank CEO predicts that artificial super intelligence will become a reality by 2035, while former Google CEO Eric Schmidt believes it might be coming sooner than expected (16m12s).
• Eric Schmidt states that it's probable to build systems that are super intelligent, with a single system that can perform at the 90th percentile of physics, math, chemistry, and arts, and that these systems will be broadly available for all of society within the next five years (16m31s).
• The Evident AI Symposium in New York brought together senior leaders in banking and artificial intelligence to discuss the reality of AI adoption, based on the latest data from the AI Index, a global standard benchmark for AI maturity in banking (17m2s).
• According to Teresa, the efficiencies from AI are difficult to quantify, but the next generation of AI will focus on putting technology into knowledge bases and linking together steps in workflows to achieve greater efficiency (17m30s).

Google Antitrust Concerns

• The US Justice Department and a group of states suggest that Google will have to divest its Chrome web browser to address antitrust concerns (19m2s).
• The Justice Department has said they want Google to sell off Chrome, with potential buyers including Microsoft, Apple, OpenAI, or other AI startups (19m31s).
• The Justice Department also wants Google to license a lot of its data, which would give other companies access to the data without having to scrape the web themselves (20m0s).
• Alphabet, Google's parent company, is worried about the potential divestment and has called it a "radical turn of events" (20m22s).
• Google has until next month to respond to the proposal, and the Trump administration will have another reply in March (20m41s).
• A decision from the court is not expected until August 2025, and Google has said it will appeal, with the earliest possible divestment in 2026 (20m58s).
• Chrome is crucial to Google's business, as it provides an avenue for people to access Google's search engine and allows the company to collect data on user behavior (21m15s).

Tech Company Updates (Alibaba, Baidu, Nvidia)

• Alibaba has appointed a new executive to oversee its e-commerce operation, consolidating its shopping assets and making the executive the most powerful person in the company after the CEO (22m13s).
• Baidu reported its biggest revenue drop in more than two years, with its core business losing ground to newer social platforms (22m22s).
• NVIDIA's earnings have had an impact on the chip sector, with the company's stock down 1.2% (22m49s).

Nvidia's Margin and Growth Drivers

• Some analysts have expressed concerns that investors are expecting too much from NVIDIA, while others see the company's quarter as remarkable and good (23m21s).
• NVIDIA has doubled its operating margin, which is a significant achievement, and some analysts argue that nitpicking the company's margins is missing the bigger picture (23m48s).
• Nvidia's high margin of 75% is considered largely behind the company, with the focus shifting to scaling and inference, which are expected to drive growth in the medium and long term (24m21s).
• The company has noted that data centers are becoming electricity-constrained, leading to a need for new chips every year that are better in terms of electricity usage, which is a positive trend for Nvidia (25m1s).
• The scaling laws for computer power are expected to continue, with more data and compute leading to more sophisticated large language models, despite some stuttering in the latest iteration of large language models (25m26s).
• Confidence in the scaling laws is based on the fact that current information is based on smaller clusters, and new, larger clusters, such as the 200,000 GPU cluster owned by Elon Musk, will provide more insight into what can be achieved (25m47s).
• The density of customers is a concern, but the focus is shifting to spending more compute on inference, which is expected to be a tipping point, with companies like ServiceNow, Workday, and Microsoft starting to use this technology (26m55s).
• Autonomous AI that can do things within an enterprise and help with workflows is expected to be a key area of growth, with companies like ServiceNow and Salesforce already making progress in this area (27m18s).
• Nvidia is expected to continue to be a leader in the market, with a potential market capitalization of $10 trillion, and the company's alignment with the trends in AI and compute is expected to drive growth (27m50s).
• While Nvidia is a top holding in the fund, the trends in AI and compute are expected to be prolific, with software companies like ServiceNow benefiting, as well as companies with significant competitive advantages, such as Axon, which is using AI to transcribe police interactions (28m13s).

Sam Anova: A Competitor to Nvidia

• Nvidia's stock has been priced as an AI winner, but there are limitations to the energy efficiency that the company can achieve with its GPUs (28m45s).
• Sam Anova, an AI construction company, is a competitor to Nvidia and focuses on efficient computing, particularly in the area of AI inference (29m7s).
• The company's CEO, Rodrigo, believes that there is a limit to the energy efficiency that Nvidia can achieve with its GPUs, and that his company's technology can drive performance at 1/10 of the power (30m16s).
• Nvidia's GPUs require a lot of power, with a single unit consuming over 100 kilowatts, while Sam Anova's technology can achieve similar performance at a much lower power consumption (30m21s).
• The reason for this difference is the architecture of the two companies' technologies, with Nvidia's GPUs being based on a graphics processing architecture that is not optimized for AI inference (30m36s).
• Sam Anova's technology, on the other hand, uses a dataflow architecture that is specifically designed for AI inference and allows for much lower power consumption (31m31s).
• This architecture allows the company to map the hardware to the neural net in a way that is more efficient and requires less power (31m38s).
• The company's technology also allows for the deployment of AI models in existing data centers without the need for upgrades, which can be a major cost savings for enterprises (32m12s).
• Sam Anova is selling its narrative to corporate and federal government clients by highlighting the benefits of its technology, including its energy efficiency and security features (32m34s).
• The company has already gained traction with clients such as Saudi Aramco, which is using its technology to power its internal GPT model (32m56s).
• To gain more market share, the company plans to focus on access and is considering raising funds to support its growth (33m38s).
• To democratize AI, it needs to be made available to everyone, which requires making it easily accessible, lowering costs, and reducing power requirements, allowing for deployment in tight spaces without the need for large data centers (33m46s).
• The goal is to restructure the power requirements of AI infrastructure to enable deployment at higher performance levels than Nvidia, not lower, and with more power (34m21s).

Palo Alto Networks' Cybersecurity Strategy

• Palo Alto Networks is focusing on platformization, bundling, and integration to provide a more comprehensive cybersecurity solution, as customers are looking for products that work together seamlessly (35m49s).
• The company is seeing a shift in the cybersecurity industry, with customers seeking a common language and data integration, which points towards platformization (36m11s).
• Palo Alto Networks has achieved over 1100 platformizations, but some investors are concerned about potential discounting within the bundling strategy (36m21s).
• The company aims to stay "evergreen" by constantly transforming and embedding its platform as part of the security solution, making it a long-term choice for customers (36m58s).
• The new administration may bring changes to the cyber landscape, with potential cost-cutting measures, but this could also lead to increased investment in technology and security (37m38s).
• The US government has flagged some flaws in Palo Alto products that could have been exploited by hackers, but the company has made patches to address these issues (38m30s).

Market Performance and Company Updates (Nvidia, Snowflake, Alphabet)

• Nvidia's stock is experiencing a decline, with the company's value being affected by a potential antitrust issue, specifically the possibility of being forced to sell off its Chrome business, which is a significant contributor to its value (38m51s).
• Snowflake has announced a strong sales outlook, resulting in a significant jump in its stock price, with the company successfully making the case for its platform as a central hub for data analysis and decision-making in the era of generative AI (39m56s).
• Snowflake's success can be attributed to its ability to organize and analyze data, as well as its efforts to improve its handling of unstructured data, a area where it was previously seen as weaker compared to its rival Databricks (40m47s).
• The company is also working to integrate large language models (LLMs) into its platform, allowing users to create dashboards and visualizations without having to leave the platform, further solidifying its position as a central hub for data analysis (42m6s).
• The broader market is experiencing a relatively stable day, with the S&P 500 down by only 0.2%, despite Nvidia's decline, and other major tech companies such as Alphabet (the parent company of Google) experiencing significant gains, with Alphabet's stock up by 6.8% (43m8s).
• Nvidia's earnings showed a 94% increase in revenue, with a 70% increase in revenue guidance, and strong margins, but the company's stock is still being dragged down by the antitrust concerns (43m38s).
• The chip sector is up by 0.7%, with other major tech companies experiencing gains, despite the overall market being relatively stable (43m50s).
• Alphabet's stock is up by 6.8%, despite the company facing antitrust concerns and potentially being forced to split off some of its businesses (43m55s).
• Snowflake's 2-for-1 stock split is seen as a move to give more access to investors and the retail community, with the company's stock price increasing significantly after the announcement (39m18s).