Instant Reaction: Nvidia Gives Strong Forecast, Countering Fears of AI Bubble

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. Let's bring in Bloomberg Tech, BTEC co-host Ed Ludlow, who will be speaking exclusively with NVIDIA CEO Jetson Wong. That's coming your way at 6.30 p.m. Wall Street time right here on Bloomberg TV and radio. Hey, Ed, investors seem to be pretty happy. It's up about 2 % here. What's your immediate takeaway from these results? Yeah, in the fiscal third quarter that they just reported, you know, it's a beat and a good one.

1:46And this was a high bar going into it. And in the outlook for the fourth quarter, you know, it's a good$3 billion above consensus,$65 billion plus or minus 2%. Remember, this is always the case. There were some very bullish forecasts on the street. I think some analysts were saying that NVIDIA could even surprise us with a$75 billion figure for that fourth quarter. But the great unknown is the numbers that they've just posted, how do they relate to the$500 billion or half a trillion dollar figure that Jensen Huang outlined at GTC in the last week of October. He basically said over the next six fiscal quarters, just for Blackwell-Rubin systems, they see$500 billion of demand.

2:34But NVIDIA doesn't give formal guidance like that. It was just a slide over his shoulder on stage. So there is going to be some mapping based on what he says on the call, and hopefully in the conversation that we have, to explain how, in aggregate, their forecast has changed for the longer term. Okay, so Jensen, if you're watching, just a little preview of the line of questioning that you may get from Ed Ludlow at 6.30 Wall Street time, Bloomberg Television and Radio for that exclusive conversation. And NVIDIA shares off about, as of today's close, roughly 10 % from those all-time highs back at the end of October.

3:05That was just around the GTC event in Washington, D.C., where I know you spoke with Jensen and Justin Hotard of Nokia as well. I'm wondering really about the narrative that's emerged since then about cracks starting to form or punctures in the quote-unquote AI bubble and the decline in some of the high-flying stocks that we've seen of late. Does this assuage investor concerns that not all is okay when it comes to the infrastructure spend? Yeah, you know, NVIDIA is down sharply since the all-time high it hit four weeks ago. But it's also a stock that, as of today's close, was up almost 40 % year-to-date, double the performance that we see of the NASDAQ 100 or the S &P 500.

3:54This, again, was a very high expectations quarter, where there is also high scepticism to meet it. And two of the data points that we will inevitably hear asked of Jensen is the circular financing issue, because a lot of the news flow in that period of time has been about NVIDIA investing in some form in the frontier model labs or end users of their chips. Yeah, look at the Anthropic news yesterday. This week, right. And in that specific case, it's very hard to argue it is not circular financing. Because historically, what Jensen Wang's argument has been is when they put an investment into an AI company, they don't require the AI company to use that capital or financing to buy NVIDIA chips.

4:43They can go away and use NVIDIA's money to buy someone else's chips. But in the mechanics of that Anthropic deal, it is a flow of capital from NVIDIA into Anthropic, and then Anthropic buying capacity that does use NVIDIA chips. The other data point is depreciation, which is a real fixation of this market at the moment. So, you know, one of the things we were talking about with Jay Goldberg, and we're going to get back to him in just a moment. We're letting him read the press release, and we're letting him actually look at the numbers right now. But he talked about China remaining effectively online.

5:17How much of that is a problem? And I think we also heard from, was it this being kind of the first clean numbers that we're kind of getting? Was that Kunzhan? I think we talked about, you know, without kind of, I guess, China impact or China concerns. But Ed, how important is China going forward to the NVIDIA story? So, you know, China is potentially the biggest end market in the world for data center. And right now, NVIDIA assumes zero China. You know, that$500 billion or half a trillion dollar figure that I mentioned a moment ago that was given on October 28th excluded China completely. I've just put in the blog and I'm just making an observation that if you go back to August, when NVIDIA gave their forecast for the third quarter that they've just released, they were very clear in explaining that this did not assume any H20 sales to China.

6:16It's interesting, but there is no mention of the word China at all in today's press release. And so now it's kind of all stripped out. But as Jensen Wong has said repeatedly, it's a really critical market. A lot of activity is there. And, you know, NVIDIA would like to be able to sell its technology into that market. Jay, I want to just bring you back in. And we do see NVIDIA shares climbing once again, back up near that 4 % mark that we saw in the aftermarket. It's up about 3.6%, 3.7%. Jay, as you are going through the press release, anything that's jumping out that you think the Bloomberg audience needs to know about?

6:57So far, nothing. I came to the same conclusion. There's no mention of China in here at all, which is good for now, but also concerning. It looks like their networking business, the networking side of their data center business, did a little better than expected, which is great because it's a high-margin business. They have a really solid position there. I mean, overall, it's a pretty clean quarter. I haven't gotten all the way through it. But I am curious to hear what Jensen's going to say about circular financing and those sorts of questions. Jensen is probably the most persuasive, charismatic CEO in semiconductors right now.

7:36And so listening to him on the quarter is always going to be interesting. I want to see how much energy he brings and how he's going to address some of those sort of stickier questions. hey ed uh come on in on this as you listen to jay love to bring you into the conversation with jay yeah i i think you know the circular financing question is one that i've received in advance you know of speaking to jensen in a couple of hours time the other one for me is the depreciation issue right you know nvidia commits to this annual cadence of a new generation of of GPU. And I think there are a lot of people out there who would really appreciate Jensen explaining the useful life cycle of any generation of GPU and how they manage that, how they convince the big spenders in the CapEx context to upgrade.

8:27Is that a concern for you? Is it something that you feel is unanswered? Well, I think there is this dynamic taking place where NVIDIA is trying very hard to prop up the NeoClouds as alternatives to the traditional hyperscalers. You'd much rather have 100 small customers than three large ones. The problem is that will eventually conflict with that annual cadence, right? This whole issue about depreciation of how long a server lasts, I think people look a lot at sort of the physical life of the server, but the more important question is the economic life of the server. And if you have a new GPU coming out every year, the old ones become less valuable.

9:04And so that leads to some pretty punishing price curves for the NeoClouds. And so Jensen and NVIDIA want to constantly be coming out with new products to stay competitive and push their own sales up. But that makes it hard for these customers, the small ones, who have to also stay on that treadmill. And at some point, it can't go on forever. The NeoClouds will eventually run out of money. And so that's sort of this big long-term picture outlook. And I mean, it's one of these things that keeps me, would keep me up at night if I didn't have a cell rating on it. Well, okay. So, Ed, I want you to kind of go back to Jay on this because I know you've talked to CoreWeave CEO quite a bit in recent months.

9:50We said that CoreWeave was higher in sympathy after these NVIDIA results, in addition to another NeoCloud company that's out there. Right now, the demand is there for these neocloud companies. I mean, even CoreWeave said just very recently it's been able to diversify away from its biggest customers. Yeah, in the conversations that we've had with Michael and Trader, there is demand for the older generation technology. one sort of data point or statistic that those who are more calm about the depreciation issue would point to is utilization so they would say right now the hopper generation of accelerators or gpus is running at 100 utilization in terms of workloads it can't be used any more than it already is as a very bullish signal that there are these these kind of obsolete sounds a funny thing to say, but these older generation GPUs are not idle.

10:52Compare and contrast with some of the secondary market data, which we have limited visibility into, we don't know how strong that is. And nor do we know how close attention NVIDIA plays to the secondary market for older generations of chip. But 40 % of revenue is the hyperscalers. And depreciation is an accounting issue that they need to mark against their balance sheets. And we haven't seen it yet. So it's kind of interesting because at some point, and I ain't an accountant, but basic financial journalism, it will come up. Ed, hold on for a second. Jay, last question. Final thoughts on this. I mean, I'm looking at the Philadelphia Semiconductor Index up almost 2 % in the aftermarket.

11:40A name like Broadcom is also up about 2%. And again, NVIDIA is still up about 3.2 % here after its earnings. Final thoughts, Jay, from you when it comes to NVIDIA. So I want to respond. I want to close in responding to Ed's comment about utilization. I've certainly heard data points that utilization are high in the neoclouds, at least some of them, anecdotally. But if utilization is so high, why do AMD and NVIDIA make it a practice to backstop capacity at the NeoClouds as part of these deals. If you look across the sales process for GPUs right now, you'll see a lot of these big NeoClouds have contractual terms, which allow them, which basically put AMD and NVIDIA in the position of backstopping or buying up excess capacity.

12:26And it seems like a little bit of disconnect to me that you would need those backstops if utilization were so high. So I think there is definitely signs of froth in the neocloud sector. Not necessarily CoreWeave or Nebius. I don't want to pick on them. But there are growing signs of friction in that corner of the AI trade. It makes me cautious about the broader spectrum of things. Ed, to be fair, I just want to bring you in on that if you have any thoughts for Jay. Only that those that share some skepticism and want to ask difficult questions of Jensen would also point out that CoreWeave is one of NVIDIA's biggest equity positions or equity investments.

13:05It's also one of its biggest customers, technically. And they are in a position where CoreWeave's under pressure from its customers to have access to the latest technology. There is a disconnect there at some point. They can't be running both the old GPUs. But again, I think asking the basic question of depreciation and how Jensen Wang sees it, that's something that we'll put to him for sure. Yeah, it definitely has to be addressed. Jay Goldberg, thank you as always. You give us so much time. We so appreciate it. Senior analyst, semiconductors in electronics over at Seaport Research Partners, as we've said, currently has a sell rating on NVIDIA, the only such rating for the stock listed in the terminal.

13:44Sticking to his conviction, shares of NVIDIA, by the way, still up about 3.6%. But Ed's still with us. Ed's still with us. And once again, Jay, not just the only sell rating, but that price target at 140 in shares, you know, close today, what, at 160 something today? Or 180? Yeah. Oh, 186. 186. Thank you. Um, go ahead. No, Ed, as you think about, you know, your conversation, Jensen, you've had many conversations with him at, you know, different venues, different events. Um, I don't know, what are you, what is really, you think the most important thing to hear from him? We talked about depreciation and some other things, but I'm just curious what's top of mind for you here and what you really want to hear from him.

14:24Electricity. Um, I've, I, it's fair to say I've had more terminal client IBs, more messages on social media more people in the newsroom come up to me and say like you know we we should probably talk about electricity and energy because you know we don't really have a good line of sight to whether if they can build all these data centers and jensen one does have a good line of sight on that when the data center is built finished ready to turn the lights on is the electricity there this you know and and the answer is no there's loads of deals out there right you guys would have done the red headline on the show today about the US or the DOE taking government ownership of nuclear reactors.

15:05But these are all deals on paper. They don't exist in the real world. I think that's really critical. The other thing is the press release says they're sold out of GPUs. I just ask him, what do you mean by sold out? Because they're ramping output. You know, they're supply constrained. The demand is greater at any given moment than their ability to supply, but to say that something is sold out is a bit confusing, to be honest. And so, you know, ask for some clarity on that. Hey, Ed, before we let you go, last question. Ian King writing that inventory took a jump in the quarter, normally at Chipmakers.

15:37And just to remind everybody, Ian King has covered Chipmakers for more than 20 years. That's a worrying sign, meaning the amount of unused product is going up. The company said it's to, quote, ordering to secure long lead time components, meet the demand for Blackwell and support future architecture roadmaps is a little different than what it's traditionally done. I thought they don't, can't meet demand. Yeah. Inventory is typically bad depending on the type of chip, because it signals that you, you know, no one's building up there. The customers aren't building inventory. By the way, Ian's covered semiconductors since 1998 at Bloomberg.

16:10So, so longer than 20 years, but I, you know, NVIDIA's argument has always been, we keep telling our customers, our suppliers and our partners what we're doing for the next five years. That includes the memory chip makers and telematics, data center, server design builders, so that everyone can keep pace. And the argument that they're making is that when they want to ship Blackwell accelerated computer systems at scale, the GPU, it can't just be the GPU that's ready to go. You need all the other components to go with it. And, you know, with the stock up, whatever it is now and after hours, 4%.

16:48So I don't think anyone's worried about that inventory number. Yep. Inventory days. All right. All right. Good stuff. Hey, listen, kiddo, we will be watching, all of us will be watching a co-host of BTEC, Ed Ludlow, as you know, catch him at 11 a.m. Wall Street time every Monday through Friday, but he will be speaking exclusively this evening with NVIDIA CEO Jensen Wong. That's at 6.30 p.m. Wall Street time. And you can catch that on both Bloomberg television and Bloomberg Radio. So be sure to check that one out. It is an exclusive, so he's got the conversation.

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18:39Bureau. So going into this, Sarah, there was this narrative emerging that there was concern that the AI bubble, you know, if we're calling it that, maybe losing a little bit of air, if we're going to stay with that metaphor. Concern about the hyperscalers, CapEx. We saw what happened with meta platforms a few weeks ago. Is that concern gone after reports such as this? Is everything all fine and dandy now? I don't think the concern is gone because I do think there are still some trends that are, you know, as noted in my colleague Ian King's stories, somewhat worrisome, right? The fact that NVIDIA is investing in a lot of the entities that are buying its chips, right?

19:19So is there a way that they are indirectly sending demand for their product? There is the concern about China sales. We still don't have any forecast of sales to China, despite some of the loosening of the most restrictive policies from the Trump administration. And then there's also the question of everyone trying to come up with NVIDIA alternatives for their chips and some of the rivals starting to gain a little bit of traction. We saw a little bit from AMD. And then furthermore, just the idea that so much of the spending on chips, on data centers, depends on having the physical infrastructure to really put them to work, and especially the energy, making sure that there is power to make all these data centers come to life with NVIDIA's chips.

20:19So I think that, you know, although this is a company on a tear, we are in the NVIDIA economy. It is really propping up the stock market right now. It has altered the financial future of a lot of the companies my team covers. But, you know, can it last longer? Probably. And that's what this report is showing. but is it inevitable that it will, you know, are all the fears in our past and we're not thinking about that anymore? Certainly not. We're going to keep looking at all those trends and making sure that we can explain to people what is putting pressure on the future. The one thing I want to bring out, Saren, you're, you know, there on the West Coast, San Francisco, you know, the tech community front and center.

21:08So you hear things in and around, not just in the newsroom, but just in the area. And I'm looking at the concerns about, like you said, maybe this doesn't put concerns to rest, but I'm looking at, you know, NVIDIA is certainly up in the aftermarket. I'm looking at NASDAQ 100 E-mini futures. They're up about one and a half percent. S &P 500 futures are up about nine tenths of a percent. NVIDIA is big. It's big. I look at the SOX. That's a big effect. The SOX is up almost 2%. There's a bunch of other names in the space. So it's, I think there was just so much fear that what if they missed those numbers and they, you know, met on the data center revenue number for the third quarter and fourth quarter revenue was upbeat in the outlook.

21:47Right. So I think does it feel like I mean, I don't know, you know, this community, just a little bit of a sigh of relief that, OK, they hit these numbers. They actually did better than what the street was expecting. And maybe that puts some some of the concerns, I don't know, under wraps for a little bit. I think here, you know, you're asking about the perspective here in the Valley. Here in the Valley, AI doesn't sound like anything. There's a sense that we're just at the beginning of this grand movement that will change the world, right? Maybe it's not even the LLM that will be the model that secures the future with AI.

22:26And so we're just now starting to see the applications of AI, the payback, really, for all of this investment. We haven't quite solved that. You know, where is all this revenue, the actual sales to companies that are going to pay for all of the chips that NVIDIA makes? We haven't really solved that problem to the tune of the billions that have been spent. But I think that here in the Valley, it is very much all systems go on AI. There is not as much of a concern about whether this is a bubble. People are seeing these big numbers, and they're thinking the world is about to change even further. How so?

23:12People are thinking about how their jobs are going to change. They're using AI very much in their jobs and in their personal lives, relying on AI to help them make decisions for themselves and their families. And I think people are eager to create products that are going to take advantage of this as a new resource. Whether that is going to dramatically lead to efficiency, more profits for the companies, given all the investment so far, it's sort of yet to be seen. Yeah, it's just kind of interesting, right? I mean, here we are, what, almost three years in to this AI story. And most people say it's just early innings on all of this.

23:58But it's hard for, right, all of us who've covered, you know, booms and busts and crises. And I'm not saying that this is any of that. But it's hard not to be a little bit skeptical when you see, you know, sour the spend over and over. And, again, the conversations around the circular financing. And, you know, it's hard. The logical side of your brain says, well, wait a minute. Does this ultimately make sense? Two things can be true, right? It's not necessarily either or. There can be a dramatic revolution in technology that will change our lives. And there can be irresponsible spending at the same time, right?

24:34We saw in the dot-com boom, for instance, that there were a lot of companies that had very dire circumstances at the end when that bubble burst and they had to shut down. But, hey, we still use the Internet. The Internet is still a thing. It's a huge thing. The what? The what? The Internet? Pets.com, not so much. Sorry, Sarah, go ahead. Yeah, no, we're not necessarily talking about, you know, a bubble burst. And that means that AI wasn't a thing and we shouldn't have thought that it was going to be so big. It could be that, you know, there is still potential for a large financial correction down the road.

25:15But AI remains a force that changes how we do business and how we live our lives. So I think to put it in that stock of a either or is missing the larger trend. This is why we come to you. Because it's really... She sees the big picture. Yeah. And it's very balanced and thoughtful. Sarah, thanks so much. I really appreciate it. Bloomberg News Big Tech Team Leader, Sarah Fryer. She's also the author of No Filter, the inside story of Instagram. And she is, of course, there from our Bloomberg San Francisco Bureau.

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