Earnings Special: Nvidia's Sales Forecast Fails to Impress Wall Street

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1:51Learn more at thehartford.com slash risk mitigation. Bloomberg 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. We are getting NVIDIA crossing the Bloomberg terminal. NVIDIA sees third quarter revenue$108 billion plus or minus 2%. That's pretty massive. Second quarter data center revenue coming in at$89 billion. That beat estimates of$85.86 billion. That's the red headline right there. Shares of NVIDIA just at first blush down about 0.6 % in the after hours. Investors still making sense of these numbers as they cross.

2:44Jensen Wong says, quote, AI has reached its inflection point. The company also says that Verrubin now is in full production. The company, too, NVIDIA, that is, will pay its next quarterly cash dividend of$0.25 per share. That's on October 1st. NVIDIA's second quarter adjusted earnings per share coming in at$2.22. NVIDIA's second quarter adjusted operating margin is 75%. The company's second quarter revenue overall,$96.2 billion. The estimate was for$92.38 billion. Heading on over to our NVIDIA live blog, make sure you're following there as well. If you are on the Bloomberg terminal, TLIV Go on the Bloomberg terminal.

3:27NVIDIA shares down in the after hours by about 1.9%. Again, investors waiting to hear more commentary, but some initial headlines here. Second quarter data center revenue coming in above estimates at$89 billion. Vera Rubin now in full production. NVIDIA will pay its next quarterly cash dividend of 25 cents a share on October 1st. The company sees third quarter revenue of$108 billion plus or minus 2 % NVIDIA's second quarter data center revenue coming in above estimates. We're excited to have with us here Rami Sarafra. He is CEO at Cordoba Partners. Thank you for coming here, Rami. Thank you for having me.

4:01Two things stick out to me, Rami. One is that$108 billion plus or minus 2 % for the third quarter revenue. That is just a massive, massive figure. That is fantastic. Why are we seeing shares not react accordingly, given you describe it as fantastic? I mean, that's a$100 billion quarter right there, no matter which way you slice it. Yeah. I mean, I think that one of the issues is that NVIDIA has become so big that people trade it for other reasons other than NVIDIA. And this happens to any sort of bellwether stock within a specific economy. So my sense is we have to get all of the commentary for the stock to settle.

4:40I would be very surprised if the stock doesn't recover some of this based on those headline numbers. But we have to dive deep into it. One of the issues is that so many, you know, it's the options market, right? So a lot of people in the options market, they buy calls going into this. You know, I don't know if you remember 2023, but that was sort of like a shock trauma for NVIDIA, right? I think it beat, you know, forecast by something like 25 % or something. This is like when people were starting to play with chat GPT. Correct. And I think that that was such a shock to the system that people who are now sort of, you know, owners of NVIDIA and whatnot, they, you know, retail investors don't want to miss another quarter like that.

5:23So a lot of them overpay for calls. They buy call options going into the session. I think the other thing is that a lot of people are, you know, hedging massive amounts of gains. Right. Remember, in the U.S., we don't just dump our stocks after they have huge accumulated gains or we get hit with taxes. So I think the options market, so I think you see a little bit of retrenchment in the wake of the announcement. But with those types of headline numbers, I'd be very surprised if it doesn't turn green. So it's just getting harder to impress investors? I mean, that's basically just it because you have NVIDIA.

5:52They forecast$105.84 billion to$110.16 billion of revenue for the quarter ending in November. The bar is set high? The bar is set very high. The bar is set very high. I think rather than saying the bar is set high, the bar was set early. Early. Good. And I think that that's the case with many chip and AI names. And the reason why there's so much volatility in these chip names is because the bar is set early and because these have such duration sensitivity, these stocks react very, very abruptly to any news whatsoever. Well, some of that news continues to cross. I want to bring Ed Ludlow back in.

6:27He's the host of Bloomberg Tech on Bloomberg Television. NVIDIA forecasting, as Lisa just said, at$105.84 billion to$110.16 billion. There it is. It's a$100 billion quarter outlook. Same question to you that I just asked Rami Sarafa over at Cordoba. Why don't we see shares reacting accordingly in the after hours? It's very likely that shares were going to drop. I go back to what I said when I was with you before the print hit, that on the buy side, at least like the expectations of what Nvidia would guide to for the fiscal third were very high. And so 110 plus or minus 2%, you know, it's not so far off the more bullish positions in the market.

7:09I'm also looking at margins. Like it's really interesting, the timing of this. We won't hear more about that until the call, but the quarter gone adjusted gross margin, 75 % bang in line. For this current fiscal third period, the guide is 74 % plus or minus 50 basis points. The street up nearer to 75. And so one very quick point I'd make is that Bloomberg had reported that the server makers were telling customers that NVIDIA-based platform prices would go up up to 15 % or more starting in 2027. People misunderstand that NVIDIA doesn't go out to the world and sell directly really or historically.

7:47They use the OEMs who make the servers to go and sell that gear. So right now, there's no tangible impact or discussed impact of higher costs for memory or for the fab capacity issue reflected in their statement or the margins. But it might be a thing that they need to discuss on the call. So we're getting more headlines. NVIDIA says commitments increased to$279 billion from$119 billion quarter over quarter. Rami, you're only with us for a couple more minutes, so I want to get a little more with you. That's a pretty big increase in commitments. That is a huge increase in commitments. That's substantial.

8:23That tells us, is that story telling us that the AI narrative of growth is still alive and well? It is alive and well. I think the difference in this narrative, like many other sort of narratives in the past, is that there's a lot of cash that's being generated from this activity. Yes, the hyperscalers are spending an egregious amount of money, but we're seeing real potential for productivity increases in earnings growth because of that spend. That's something which is not typical in other sort of sector booms, and it's also not typical of late cyclicality. In other words, we believe that the AI trade is well.

9:02We do not think that we are in the last innings of the economy yet. But we do think that there will be wider dispersions within the AI and sort of chip ecosystem. That sort of last time I was here a few months ago, I think the semis index was up between 70 % to 80 % already in like five, six months. That's not going to happen again, right? That trade is done. But do I think that, for instance, NVIDIA will continue to deliver value for its shareholders 100 %? And I think the numbers today prove that. Well, what about hyperscaler spending? I mean, are they accelerating? Are they becoming a little bit more disciplined?

9:36You've been talking about cost. They have not become more disciplined. I think that's part of the problem. But they have a lot of cash to spend. I think that there is, you know, I think that's why they're starting to message to their shareholders that they're going to start cutting costs a little bit. Because shareholders have started to hit their stocks. You see someone like Amazon that's spending more than their entire operating cash flow on CapEx. That's very significant. Amazon makes a lot of money. Right. But that being said, the question is, is that, you know, will this reap rewards? So far, we're seeing, you know, signs that that it will, you know, of all the names that we, you know, we like in terms of sort of balancing the discipline with the spending.

10:24I would say, you know, we would prefer names like sort of Microsoft and also Google to a certain extent, you know, over some of the others. We're speaking with Rami Sarafa, the CEO over at Cordoba Partners. He oversees$3 billion in assets under management. So are you buying more NVIDIA on this? I know you said you're always buying NVIDIA, but on this print specifically, look, shares down in the after hours. We've got to wait for the call. We've got to wait for tomorrow. But would you buy on this print? I would hold on this print. I would need to go deeper into sort of the numbers and the financials.

10:58And, you know, what my CIO would tell me and what we would sort of sit and do tomorrow morning is we would look at the options market. You can learn a great deal about sort of positioning from, you know, the options market. If we see sort of a pickup in volatility on NVIDIA's name, 100 percent, we would get active in the name. Rami Sarrafa, CEO at Cordoba Partners, joining us here in the Bloomberg Interactive Brokers Studio. You've been so generous with your time this afternoon sticking with us. We do appreciate your time. We'll see you next time. Rami Sarafa, CEO over at Cordoba Partners. Shares of NVIDIA down 1.3 % in the after hours.

11:34We're just taking a look at some headlines that continue to cross. A couple important ones here. The company sees third quarter revenue$108.0 billion, plus or minus 2%. If we dive into that calculation a little bit, the company's forecasting$105.84 billion, $210.16 billion in revenue for the quarter ending in November, compared to analyst estimates of about$105 billion. The higher end consensus estimates were as high as$138.7 billion. As Maggie Eastland writes, our tech policy reporter on our live log, quote, it's getting harder to impress investors. Indeed, we're seeing that right now with shares of Nvidia down 1.3%.

12:14I want to bring back Ed Ludlow, the host of Bloomberg Tech on Bloomberg Television. Ed, we continue to get some great questions from around the world from our listeners and viewers. This one coming from Annika in Switzerland. It's about NVIDIA's order book. And she wrote this before we got the headline of NVIDIA saying commitments increased to$279 billion from$119 billion quarter over quarter. Annika asks, when NVIDIA reports its order book, are these legally binding orders? Okay, Annika, thank you for the question. No, NVIDIA doesn't report an order book. But there's a really important distinction to make here.

12:52What they're saying with that commitment is something completely different. So the$279 billion figure, which is up from$119 billion, is future supply commitments. What that is, is NVIDIA saying it's increasing primarily because of memory costs, but commitments to suppliers to lock in the components and the capacity that it needs to get its systems in place to meet demand. So that is not an order that's placed with NVIDIA. That's NVIDIA saying, here's our commitment with our supply chain to make sure all the pieces are in place so that we can ship the server designs that go into the data center.

13:34That's quite simple. What NVIDIA announced in March earlier this year at GTC was a$1 trillion figure, which runs through to the end of 2027. And that is the demand they foresee from now on a calendar basis till the end of next year across Blackwell and Vera Rubin systems. And what's interesting about that is your guest talked about it earlier, I think, right? And we just talked about it on the close of Mandeep, is if you look at the Wall Street estimates on FAGo on the terminal from now until the end of calendar 27, not fiscal, the street still doesn't catch up with NVIDIA saying they're going to book a trillion dollars of revenue over that period.

14:11So, you know, there's a lot to wash out. That answers Anika's question. I'll take my word for it. But in simple terms, there isn't sort of an order book that they disclose. And I got to ask you, because, you know, you're best buds with Jensen Wong. So I know you've spoken with him a number of times. Just wanted to point out, what do you think he's going to be saying about capital spending, future demand? Because that's what people want to know about those new financing deals that involve NVIDIA. What's your take on it? So in the press release, they talk about the deal that was announced in the quarter with those six U.S.

14:43investment firms and sort of Wall Street institutions. And the thing to understand about that is that NVIDIA would say there is a degree of separation between NVIDIA and the$500 billion. Because those six Wall Street firms are going to go out largely through credit, right, debt investors, and tap third-party money. It's not NVIDIA's money. But the street is still concerned about that, NVIDIA's role in capital markets. NVIDIA would argue they're just greasing the wheels. they're making the build out of data centers happen that would not otherwise happen because the money's not there to finance it in the same way that like airlines cannot pay in full for aeroplanes from boeing or airbus that's not how the system works they get financing partners wall street helps them nvidia is trying to argue that this model will work but it's not circular financing nevertheless there are likely to be some circular financing questions on on the call Thank you.

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