Nvidia’s Forecast Lifts AI Trade

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1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech. Coming up, NVIDIA's strong revenue forecast soothes investor concerns about an AI bubble. our exclusive conversation with CEO Jensen Wang. Plus the CEO of Palo Alto Networks joins us to discuss its own results and the latest acquisition to boost its AI offerings. An AI pioneer, Yann LeCun, will depart Meta at the end of the year to start a new company. Details later this hour. Now we focus in on the broader markets. We said yesterday, so NVIDIA, so the market. So the market follows NVIDIA higher, but we're up 1.7 % than Nasdaq 100.

1:56a breath of relief when it comes to AI anxieties. Instead, those are quelled a bit, Ed, and not enough even to re-shaking off some of the anxiety that comes with the jobs report that maybe we could see a December rate cut. We built up a little bit the bond market pricing and now 35 % chance of a rate cut come December. But really, all eyes on this AI trade today. And all eyes on NVIDIA. The stock is up about 3%, had opened up about 5%, and has paired some of that gain in the last half hour or so. $65 billion of sales in the fiscal fourth quarter. Many see that as being healthfully above consensus.

2:35There was a lot of fighting talk on the demand side, on the supply side, and how good NVIDIA's technology is. We spoke with NVIDIA's CEO, Jensen Wang, in an exclusive interview post-earnings. Take a listen. Sales are off the charts for Blackwell. and NVIDIA GPUs in the cloud are sold out. We got plenty of Blackwells to sell you. We have lots of Blackwells coming. We're making a lot of Blackwells and we have a bunch of Vera Rubens coming. And so business is very, very strong, but we've planned our supply chain incredibly well. We have the largest supply chain in the world, but we've got a bunch of Blackwells to sell.

3:21Jensen, I tried to go through what the CFO Collect Crest said about China. In the quarter gone, it seemed like there was not meaningful H20 sales because the demand wasn't there, even if you were permitted to sell H20. And then in the current period and going forward, NVIDIA seems committed to working with both the United States and China to sell what Colette called more competitive compute. Where do we stand with that? And could you just clarify what Colette was talking about in the current state of play for China? The most important thing she said is that we've said for some time now, our forecast for China is zero.

4:04All of our forecast guidance that we showed, zero. We should start. That's the most important thing that she said. She also said that effectively China is a very important market to us. It's very important to the United States. It's very important to China. We would love the opportunity to be able to re-engage the Chinese market with excellent products that we deliver and to be able to compete globally. During the call, the U.S. Commerce Department issued a statement saying that you are now permitted to export up to 35 ,000 blackwell chips each to both Saudis, Humane and to the UAE through G42.

4:44But there are some requirements that the U.S. has of you, in particular around controls of preventing tech transfer to China through the Middle East. What can you tell us about your understanding of what the U.S. government is asking of you there? That element has been around for a long time, is to prevent diversion. Of course, over the years, people have speculated about diversion. We've chased down every single concern, and we've repeatedly tested and sampled data centers around the world and found no diversion. And so this is an area that will continue to be rigorous on. And there's a lot of different ways to comply.

5:33And one of them, of course, is to have it be run by American cloud. Another way is just to make sure that we have measures put in place, whether technology or processes, to ensure that no diversion happens. NVIDIA CEO Jensen Huang speaking to us exclusively last night. Let's dig in to that last bit from Jensen. And addressing concerns around selling to the Middle East, selling into China, Blue Book senior editor Mike Shepard can break down what is currently happening at the White House level. There's a pressure on Congress in particular to allow Jensen Huang and NVIDIA to have greater access to some of these so-called adversaries.

6:10What are you hearing? Well, what we're hearing is that the White House would like Congress to hold off on legislation that would force NVIDIA to put American customers first ahead of adversarial nations like China. And of course, NVIDIA is proscribed from selling to China right now by U.S. export controls and even by Beijing rejecting those H20 chips that we've talked about that have won American authorization to be sold inside China. NVIDIA has been looking for permission to do more, That includes selling a deprecated version of its market-leading Blackwell chip to China. Jensen Wang sees being able to compete in China as key to being able to compete around the world.

6:54But this measure is seen as really putting the handcuffs on NVIDIA and on AMD as well. And both companies have moved against this. The bill is called the GAIN Act. It would be attached to a piece of legislation that's must-pass. It governs defense policy and it has bipartisan support. But now the White House is weighing in and seeking to get it pulled from the legislation. And it's unclear what would emerge in its place, because right now, Carol, there really is no uniform code governing export controls, especially as applied to China. And that's because if we go back all the way to the beginning of the year, and it seems so long ago, the Biden administration had tried to impose this AI diffusion rule, this framework that would prevent tech from leaking from allies like Saudi Arabia, like the UAE to China.

7:47And we don't really have anything here yet in place in Washington. So you see the China Hawks on Capitol Hill and even inside the administration grasping for an alternative. And this bill, which the White House is now trying to head off, is at least an attempt at that. Shep, last night was a little bit an issue of timing and chronology. So during the call, the analyst call, the Commerce Department put out a statement confirming that NVIDIA is now allowed to export black well to the Gulf states. Is that just kind of rubber stamping something we knew was coming? we have widely expected this approval to come through but it does take some time to work its way through the guts of the bureaucracy but there is also a hurdle to overcome and that is the concerns as we just discussed that the technology does risk leaking to adversarial nations especially china and that is because both the saudis and the emiratis have had long-standing business ties with China.

8:47And China's Huawei technologies has a footprint in each of those two nations. And the concern is that the proximity of Huawei to American technology in a data center creates a risk of some sort of leakage, either through software or something else. And that is something that the U.S. government was really trying to seek assurances on. We don't have details on what was required of the Emiratis and include also of the companies. And you did your best in asking Jensen for specifics on that. But he really dug in on the whole broader question of diversion. And that is something that the company has been sensitive about.

9:27They have insisted that their know your customer programs have done enough to prevent diversion. And yet that hasn't assuaged all the concerns of China Hawks here in Washington, that advanced American technology could eventually leak back to China and somehow support its military and intelligence bureaucracies. Bloomberg's Mike Shepard. Thank you very much. Let's get back to the NVIDIA and the earnings story. Ayaka Yoshioca's Portfolio Consulting Director at Wealth Enhancement Group,$124.5 billion in assets under management and a pretty healthy chunk of NVIDIA shares as well. I feel like Jensen Wang was trying to give the trifecta a positive picture on demand, positive picture on supply and even had the opportunity to kind of throw a bit of shade at ASICs or Google TPUs saying that customers looked at alternatives and they came back to NVIDIA.

10:19There was a lot there. What is the most important data point to you? Hi, Ed. Good to see you. Perhaps maybe the most important one was that Jensen wasn't wearing his signature leather jacket. But for the most part, you know, for us, when you look at the financials and when you look at the growth rate that NVIDIA has posted and really delivering beyond expectations for where consensus estimates were, that was the most important metrics for us as we listened to the call. What I tried to do at the beginning of the conversation was get a sense of how supply constrained they are and how conservative that$500 billion forecast through the end of next year is.

11:00Let's start there. Listen to this. Sales are off the charts for Blackwell. and NVIDIA GPUs in the cloud are sold out. We got plenty of Blackwells to sell you. We have lots of Blackwells coming. We're making a lot of Blackwells and we have a bunch of Vera Rubens coming. And so business is very, very strong. Is that$500 billion figure, which excludes China and is Blackwell Ruben through the end of calendar 26, a bit conservative? Well, we heard analysts ask that question, right? And they have visibility into that$500 billion number. And so that doesn't include sort of the demand that will be coming forward in the next, you know, 14 to 18 months.

11:53And so it perhaps is conservative. And I think that's the part that's so difficult for all of us to really wrap our heads around. These numbers are so large and they're growing at such a rate that we haven't seen before that it really becomes, you know, for most of us, we're all skeptical that this is going to happen at the rate that it continues to happen at. What was interesting was the depreciation question was tackled. This is what's got Michael Burry in a tizzy. It's got what many have been seeing as a little bit of anxiety that ultimately the consumers of NVIDIA chips have been saying that these last longer than some had anticipated.

12:30But really, it was made clear that the A100s, the older type of chips, are still working six years on Ioka. Did that put that anxiety to bed? Yeah, I think it was a great way for Colette to sort of clap back at that depreciation argument. You know, we are still using these older chips. They are still getting consumed simply because the demand is so great. So I do think there was a little bit of that that was put to rest and a relief, I think, from investors to a certain extent that they were still being utilized to that extent. There's a relief today, and we are up two percentage points, Ioko.

13:08But I feel as though the entire market is a bit of an anxious boyfriend at the moment, trying to have soothing words currently given to it from whomever they can class as their AI girlfriend in many ways. But what are you thinking of in terms of that this will soothe for the longer term? Are we going to need weekly updates that we're not in some sort of bubble? You know, it is really difficult to sort of wrap our heads around. I think on one hand, we do see all of the demand continuing to grow at these exponential rates. But on the other hand, you see all this circularity and financing that I think concerns all of us.

13:43And then all of us who kind of grew up during the sort of tech bubble era, we've kind of seen this movie before, and we don't want it to end the way that it ended back in 2000. And so there's a lot of push and pull and a lot of monitoring on a daily, weekly, quarterly basis. And I think that's why NVIDIA's earnings calls continue to be sort of the Super Bowl of equity investors' calendars. What about NVIDIA's valuation specifically? Do you feel comfortable with that? You know, it's trading at 28 times next year's numbers. It's growing revenue at 60 percent. It's growing earnings at 50 plus percent.

14:26You know, it's their reasonable valuations. They are not astronomical like we saw during the tech bubble. However, you know, it's still relatively expensive and it all hinges upon the duration of this growth rate. You know, does this continue at these levels for three, five years? Or is it just this sort of near term 12 month growth rate that we're seeing? And I think that's this anxious investor base that's sort of watching this. When does the growth rate start to deteriorate? Well, according to Bloomberg analysis, if you're looking at what the general consensus is, by 2028, revenue growth is going to have slowed to 26 percent.

15:09Just in 2027, it will have slowed to 45 percent. But is that just the law of ever greater numbers? I mean, we're already almost a five trillion dollar company. How can we expect it to keep growing at 60 percent out into 2028 and above? And I think that's the thing. That's the skepticism that really sort of creeps into the investor mindset is that how large can this get? And the numbers when you start to just grow at 60 percent plus year after year, it's just astronomical. And yet, you know, Jensen's talking about three to four trillion dollars of annual spend for data center and AI infrastructure.

15:47And if all of that or a good portion of that goes to NVIDIA, the numbers continue to grow. And then the hyperscalers will grow as well because that benefits their cloud revenue. So it's just something that we continue to keep monitoring. And we'll have to see each quarter, not just from NVIDIA, but from all of the tech ecosystem in terms of how large this AI platform is going to become. Aoka Yoshiocha, it's always great to get your analysis from Wealthy Enhancement Group. We thank you. Now coming up, AI pioneer Jan Lukun. He's leaving Meta to launch his own startup. What's next for him and what it says about Meta's own AI plans?

16:29That's next. This is Bloomberg Tech.

16:43Jan LeCun, one of the so-called godfathers of AI, is leaving his role at Meta to launch his own startup. Rumors of his departure have been swirling for more than a week, and it comes as the social media giant makes big changes to its AI efforts, including forming a new AI lab earlier this summer and spending billions to hire new talent. Boomer's Kurt Wagner broke the story. Actually, after we published our report, Jan LeCun posted on LinkedIn referring to rumors and clarified a few things. But I guess let's start with why he's leaving, what he's doing, where he's going. Yeah. So Jan LeCun is an AI researcher in sort of every sense of the term.

17:24He is looking at things on a very long time horizon. And as Meta has come into this sort of AI fight that we're seeing right now with OpenAI and Google and Anthropic, they have really started to focus their AI efforts on the here and now, right, on the chatbots, on the LLMs, the things that consumers are using today. And so Lacoon's work is years, if not decades, sort of down the line. And what we had heard in our reporting is that because of Meta's focus, he was starting to have trouble getting the resources that he felt he needed in order to do his research. The focus was certainly on things that were not what he was paying attention to.

18:05And ultimately, Meta was going in a bit of a different direction, I think, on AI than what he envisioned. And so, as you mentioned, Ed, this was something that had been discussed and sort of talked about really since this summer when they started pivoting towards a super intelligence effort. And, you know, they did try to leave on good terms. Meta is going to be sort of involved in some capacity in his new startup, but it was time for him to move on and do his research elsewhere. Yeah, he describes it as advanced machine intelligence, more sensory information, more physical AI. In many ways, your story articulates how the tide moved against him and certainly executives moved against him because Alexander Wang came in and sort of superseded him.

18:48Yeah, well, Lacoon is a legend in the AI industry. He's considered a, quote, godfather of this entire field. And yet when Meta decided to build this new lab, the summer TBD lab, and go out and acquire essentially Alexander Wang from Scale AI, he became Yann LeCun's boss, right? I think he's more than 30 years younger, obviously very different type of expert in terms of AI. And so there was a feeling sort of in that moment where, OK, if they have this legendary AI researcher in the building and yet they're still going outside the company to bring in people to run their new AI effort, what is that signal for Jan's future here?

19:31And I think, again, this was something that in some ways was a long time coming because of the fact that he is so forward and future looking with what he does. And Meta is fighting sort of for its AI life right here and now. But I think that layering of executives over the summer was probably another big reason that he's leaving today. And a big supporter of open sourcing that perhaps Meta's shifted slightly away from as well. Blumez, Kurt Wagner, great breakdown. Thank you very much indeed. Meanwhile, coming up, we'll talk about the Chinese university shaping the country's AI sector and its future startup leaders.

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21:35China's Tsinghua University, while it's having an outsized impact on the country's AI industry and the school's professors and students, they've received more patents each year than MIT, Stanford, Princeton, Harvard combined. Let's go out to Bloomberg's executive tech editor, Peter Elstrom, for more on what this signifies about China's AI ambitions. They are wholly focused on making sure that they have many, many more experts and potential employees of the future. Yeah, Tsinghua is a very prestigious university. For many years, it's educated the best and the brightest, especially in science and engineering in China.

22:14But what's really changing now is you're seeing this momentum in AI in particular. A couple of things are feeding into that. First of all, DeepSeek. The success of DeepSeek and its breakthrough model earlier this year really gave a lot of confidence to these young students that they too could build businesses that would be very, very successful. In addition to that, Xi Jinping and the Communist Party have been calling on the tech sector in China to be able to build in a number of very key areas for them, strategically important areas for them, especially AI. So you can get government funding, you can get tax subsidies.

22:48There's a lot of momentum to be able to build businesses. So the students there feel like they have a lot more opportunities in front of them. Venture capitalists are coming, they're funding a lot of these businesses. We're seeing quite impressive AI startups coming out of Tsinghua and the rest of China. Peter, as part of this Bloomberg Big Take, you look at the alumni that have gone away, founded key startups, but also those that have quite senior jobs at China's biggest technology companies. What are the best examples we need to know about? Well, Tsinghua has put their graduates in a number of different places, including leading companies like Alibaba, which has done a lot of impressive work with the Gwen model in particular, ByteDance, the parent company of TikTok.

23:34And they've founded startups like Jipu, which is another cutting edge company there. And really what you're seeing is this mass of students. China graduates many more STEM graduates than the United States, and they have done that for many years. So you're seeing three and a half million students at last count compared to 80 ,000 in the United States. So it's a big magnitude difference for them in particular. And now they're able to get this kind of funding to be able to build up their tech sector. And you're seeing these impressive startups come out of the country's technology opportunities. And universities like Tsinghua are also starting up their own incubators where students can get funding.

24:19They run a Shark Tank-like competition to be able to give these kids a chance to pitch their stories and possibly get funding for them too. Bloomberg's Peter Elstrom, thank you very much on the latest Big Take. Actually, since we've come to air on Bloomberg Tech, you see NVIDIA kind of pairing some of its gains. We're up 1.7%, the way off session highs, and that's having an impact, of course, at the index level. Think about the NASDAQ 100 or the S &P 500, and from a weighting perspective, NVIDIA is the top dog. So, market's kind of losing a bit of steam. We're going to get back to that key NVIDIA earnings forecast and help understand why some of the enthusiasm around AI and some of the concern around a bubble is dissipating a little bit.

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25:17Welcome back to Bloomberg Tech. In markets, NVIDIA is really off its session highs now, actually in the last 30 minutes or so we've gone from a gain of around three percent we're now up 1.7 but part of the story when that nvidia print hit was some belief that the ai investment cycle has some staying power you saw neoclouds like core weave really jump in after hours last night still up three percent on core weave in the session but had been much higher at one point jensen wang name checked quite a lot of uh model labs and you know google was included on that continues to be at record high as Alphabet parent company of Google.