Nvidia in Focus, and Can the Yen Rally Gain Momentum? 11/21/23

0:01Live from the NASDAQ market site in the heart of New York City's Times Square this is fast money Here's what's on tap tonight. NVIDIA on the move. Shares volatile after the company posted a beat on the top and the bottom lines. What's behind the volatility and what is next to the AI chip darling? We're dialed into the call. We'll bring you all the headlines. And the yen. Breaking trend. The Japanese currency has been rallying against the dollar in recent weeks after flirting with multi-decade lows earlier this month. Can it keep up the strength? The chart master is diving into the FX trade to find out.

0:30Plus a Bezos billion. The Amazon founder expected to offload another big chunk of his stock. But that's just a rounding error for him. It's sending shares dropping for everybody else. What's behind his latest sale and what it means for Amazon? I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Guy Adami, and Julie Beal. We start off with NVIDIA's latest earnings. The stock volatile despite a profit and revenue beat. The chipmaker warning sales in the current quarter may take a hit from the China chip restrictions. The call just kicking off at the top of the hour.

1:01CNBC's Christina Parts Nevelis has got all the details here. We've seen the stock sort of just sort of waver around here. It dropped about three and a half percent. Yeah. And I think that had to do with the CFO commentary about China. The quote is, we expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions. They did. And they've said this before, that it's having no near term impact. But you can't discount the fact that 20 to 25 percent of data center revenue comes from China.

1:33They're admitting it in there. But nonetheless, like you mentioned, beat in the top and bottom line. I thought gross margins was a little bit interesting. It was a beat, 75 percent stronger than what we were anticipating. But for the Q4 gross margin guidance, it's actually coming down a little bit. That's what they're estimating, 74.5 to 75 and a half. So what does that mean about efficiency? And so for this call, I think a major factor is how can you keep growing 206 percent per year on revenue? So it's more, and I know we had Stacey Grasgon and others throughout the day talk about sustainability.

2:05How is this going to keep up this exponential growth beyond 2024 once China plays more of a role and once there's saturation with GPUs or once they switch on to their new GPU architecture? But in terms of guidance, the guidance on Q4 looked good. $20 billion. On the surface. There's a lot of pluses or minuses, though, in the numbers there. And so if you take the minus side of it, it's actually below estimates on the revenue side, right? Yeah, so for that guidance, I wonder even for data center revenue, the plus or minus, I didn't actually look at that particular number. And we don't get for the following year.

2:39But that is a very good point, too. Do we have an indication on mix A100 versus H100? Because that makes a big deal in terms of margins. So they didn't talk specifically about that in the report, but they did. There was one line that spoke about Ampere, the GPUs. They said the architecture-based data center products were significant but declined sequentially as we approach the tail end of this architecture. So we know that next year they're going to be launching a new GPU that's going to be on a completely different architecture. Historically with NVIDIA, what happens is when they launch a new product, which went from 24 months down to 18, down to 12, we know that buyers tend to pull back a little bit in anticipation for that new GPU, and we're seeing that happen already.

3:23What are some of the big questions that will be on the conference call? Oh, sustainability, of course. You know, what what site do they have into the near future when it comes to continuing to buy? We've seen it from some of the hyperscalers. But what about everyone else? And and supply constraints. We know that the CTO of Microsoft in September did already say that it's improving. The previous earnings call in video management did say they expect supply to keep growing every single quarter. So maybe more of that commentary. The data center of a new given it contributes so much. China, they're going to get asked so many questions about it just because they did admit that in Q4, fiscal 2024, it's going to be weaker.

3:59So what are they going to do to offset that with the workaround chips, anything else like that? Christina broke it down really well. Let's talk. I mean, it's a great quarter. OK, but they're being rewarded for these types of quarters in terms of the valuation. And when you talk about data center, for example, up 280 percent year over year. I mean, that's pretty extraordinary given the base they're working off of. Operating margins, better than expected. She mentioned gross margins, better than expected. But at what point do you say to yourself, you know what, now the valuation is starting to get a little bit stretched.

4:31We understand it can grow into it, but we're going to start taking profits in the name. And again, people that bought vol on the back of this earnings release are probably not particularly happy right now because the stock is effectively nowhere. But I think you're starting to see with potentially that guide, maybe this inflection point where things are remarkable but starting to go the other way now to the downside. Well, the guy, the fact that the minus part of the guide, when it's plus or minus 2 percent, is below estimates. I mean, that's just not what investors want to hear from NVIDIA. They don't want even that possibility of the low.

5:01That's not what you're paying for or something that is well over estimates. The bar to jump over is getting higher and higher expectations. The stock has rallied 25 percent into this print here. And to Guy's point on valuation here, again, and Christina just mentioned this, I mean, like they're expected to grow earnings and sales more than 50 percent next year. Now, if we're starting to see the acceleration of these kind of beats on a sequential basis that decline, right, sooner or later, that's going to go the other way. Right. And so when that consensus starts going the other way and she just mentioned gross margins, right, they're going to do 70, 71 percent gross margins for the current fiscal year.

5:38Next year, they're actually supposed to be up. But if you're talking about all this competition coming into the market, we're talking about increased supply. At some point, that likely is going to weigh on margins. And once you start seeing that dip back below 70 percent, if that is, in fact, the case as we start valuing it on the out year, then the stock probably doesn't have a ton more upside from these levels. Well, I think their ability to generate margins is a function of their ability to stay ahead of the competition. And based upon also the commitments they have from Microsoft for the 200 next year, it kind of gives them a six to 12 month lead over AMD.

6:11That's one of the reasons why the stock is rewarded. to the multiple. You know, if they're going to do 20 bucks or so in calendar year 24 in earnings, the stocks, you know, I mean, there are some analysts on the streets that say the stock screens is cheap because they see 30 bucks in 26, 27. We can all do that math. At 25 on 24, at 20 bucks on 24, it's a 25 times multiple for a company that's still way ahead of competition, pretty much can charge what they want. And this isn't an issue of demand. So I don't love the multiple here, But but let's be clear. I mean, people haven't loved this multiple for three reports in a row.

6:47And I think the stock is is I mean, the fact that the stock is doing nothing after hours to me is is I think a big plus. And the fact of the matter is some of those numbers, especially on the the the revenue side, I think, you know, the buy side was was higher than the sell side on that. And I actually think that they hit those numbers. It's still five lower than the five year average, the P.E. So bulls will say when or how often does a stock hit an all time high, but the P.E. comes down in the same term. The only other point to counter what you guys are saying is the bulls will also say, what about software?

7:17So all of these companies are buying the GPUs, the hardware for it. The strength for NVIDIA is they had the CUDA software and the InfiniBand, the cables that connect. So that could be a selling point for margins going forward in the subsequent years. But I'm not a holder or anything. Thank you, Christina. Just know a lot about the company. You'll keep us posted on the conference. Oh, yeah. Christina Parsonevelis. For more on NVIDIA's quarter, let's bring in Susquehanna's Christopher Roll and Chris. Great to have you with us. Hi, how are you? As Tim made this point, I think it was an excellent point.

7:49The fact that the stock is not doing much, given the guidance, it may actually be viewed as a very positive thing. Perhaps. I mean, we're getting used to these monster beats. We had basically for the guide 20 billion. They hit that on the nose. We were doing our best to do a buy side whisper number there. And so that is what we would expect, a flat stock with that 20 billion guide. How concerned are you about China? China is China. That's history. As a few weeks ago, they said that they will not be shipping there, but there is demand elsewhere in other geographies to make up for that full China gap.

8:37I suspect that they are going to have a re-spin of some of these parts. Whether they will be performant enough to the Chinese liking, I don't know. But they will probably be getting back into this market in some form over probably the next few months. Chris, Tim mentioned competition as well. And obviously, NVIDIA, huge head start without question. And they've done a remarkable job. But people are getting into this space very quickly. Is this a quarter or the next this and next quarter, potentially, where we start seeing margins peak and then start to decelerate? I mean, operating margins, I think it's almost 64 percent is pretty remarkable in this space.

9:20Yes. So they will not be able to capture NVIDIA's 20 year lead on the software side around AI. They will chip away at the edges. But CUDA is dominant and well beyond most of their competitors. The closest thing you're going to get is Google's TPU. AMD's MI300 is really interesting. One of the most interesting parts about it was the extra memory, the almost double that it had over NVIDIA. And then NVIDIA comes out with the H200, basically doubles up their memory and erodes some of that competitive advantage. So I would say all parts are moving here in this race. And NVIDIA is moving very fast and they're not conceding anything.

10:08How would you describe relations between NVIDIA and the rest of the hyperscalers who are trying to create their own kind of chips? Does it create bottlenecks for them where NVIDIA is going to hold back supply to them because they would like to continue to dominate as they have been? I think, you know, perhaps probably one of the most shining examples is OpenAI or Microsoft. And NVIDIA shipped a ton of H100s to them, particularly early in the cycle as well. And we just saw the Microsoft announcement about Maya, which will eventually be H100 or NVIDIA competitor here. And so I don't think that's the case.

10:54I think NVIDIA wants to ship as many of these as they can sell to whoever they'd like to sell in an unbiased way. You just mentioned you were trying to get a sense of the buy side whisper. When you talk to, let's say, hedge fund clients, for instance, and they're looking at this story and they're saying how unique this is and they maybe have missed it. Can you actually say to them, you know, with expected 50 percent earnings and sales growth next year, but then expected to kind of step down in 2026 and beyond that, that this is a good buy here at current valuation? Because a lot of folks are trying to figure out valuations and maybe they don't care so much about that.

11:28I'm just curious, like, how is the buy side thinking about this? The stock has obviously been really volatile in the last three months, trading between 400 and 500. it seems like, you know, every other month here. Yeah, I mean, we're now down to a very basic 25 PE on next year's numbers. You can make some adjustments to that, but that's a reasonable number. The real kind of issue at hand here is how sustainable are these data center numbers that they're putting out. I think you guys were talking earlier about those beats, the expected beats, the decremental beat as we move into next year. And we are in that camp.

12:13We are starting to take our numbers down. We're thinking we're hitting cruising altitude here. And there could even be a small reset into next year. So that 25 number could go down to 20, but then bounce up to 30 on some sort of a reset. But I think we're in the ballpark for a really good valuation here. If you look out a couple of years for NVIDIA, particularly given their growth rate and their dominance in this area. When you're taking down the growth rate for next year, Chris, I'm wondering, when does competition start factoring in? I mean, we know all of these competitors are out there with competing chips.

12:49When do those chips actually pose a threat to NVIDIA's 70 % AI chip market share at this point? I mean, when we hear Microsoft talking about its competing chip last week, when should we start factoring that into this valuation? Yeah, that's almost a science project at this point. I would not expect Microsoft to roll that out in mass. The closest thing is TPU 5. It is a meaningful performance chip. They've been working on this for five plus years. They're probably closest, but they're not perfect either. So this is still NVIDIA's game. They are dominant. I would not expect serious competition. AMD at best would be 5 % to 10 % of the market in two to three years from now.

13:36And they're probably the number two merchant supplier out there. So it's really not about competition right now. To me, it's about how big are these infrastructures going to eventually get? And that's the most meaningful driver for NVIDIA. Hey, Chris, just your reaction of the last, I guess, 72 hours on Microsoft OpenAI and just the sense of I look at new services, services that are now really demanding higher GPU and OpenAI and dynamics around the entire sector that we had this discussion yesterday, whether was the weekend's result and the soap opera highlighting a bigger dynamic or less of a dynamic?

14:19Was that the peak? Any thoughts from you? Well, I don't have enough information. I don't know if we all do exactly what happened there. But my takeaway is there could be an interesting opportunity for NVIDIA to double up on the infrastructure. So, for example, if OpenAI built all of this infrastructure themselves, Microsoft pulls all of these engineers away from OpenAI. They may have to rebuild that H100 NVIDIA infrastructure again. So, for the time being, I'm actually viewing it as a potential incremental adder for NVIDIA overall. But I don't think it says anything about, you know, the AI environment or the desire to build out these infrastructure products.

15:10Is there anything in your view that would slow down the spending on AI? Or is it just a foregone conclusion in your model that it's going to be full strength, full speed ahead? We are still struggling in some ways to find revenue generation from AI in general. And if that were to continue for a while, that could ultimately be a problem. And maybe it's not$20 billion a quarter for NVIDIA anymore. Maybe it's something like$10 or$15 more sustainably. I do think we need to see some really kind of robust on the consumer, on the enterprise, and even on the hyperscale side, real revenue generating use cases to drive these kind of numbers.

15:58like an 80 or 100 billion dollar data center number a year for Nvidia. Chris, great to speak with you. Always good to get your thoughts. Thank you. Chris Rollins. Julie, what's your take here? It seems like, you know, proving that it actually generates revenue. That seems like it should be, you know, something that you need to show to spend that kind of money. I think that's right. You know, the one thing that's really critical about Nvidia, It's not just in terms of the software that they sell, but the ecosystem that they've created in terms of this is what people are writing on this language that makes it very, very hard to break into that.

16:36So from a competitive standpoint, I think I feel very, very confident in this business. The real question mark is exactly what we ended the conversation with, which is what happens if demand doesn't really show up because the use cases at enterprise for consumer just aren't as robust as we're hoping. And I think for me, I think that they will happen, but I think they might not happen on the timeline that we're expecting and that the valuation is, you know, assuming. You could see the hyperscalers pull back very easily. And that's really the trick of this business is that there's actually a lot of customer concentration.

17:10So if, you know, the three big hyperscalers decide, you know what, let's just pull back on our spending, that's a big problem for NVIDIA because they do soak up a lot of that demand. Yeah. What has NVIDIA done since its last earnings report? It's up 3.7 percent. What has the Sox done since NVIDIA's last earnings report? It's up about 6 percent. Have we seen I mean, I know I understand record high in yesterday's session, but still, it hasn't really moved too much from the last earnings report. Have we seen sort of the peak in terms of how much we're moving because the expectations are so high? Well, we asked the question three quarters ago, was this going to trigger a CapEx spend within tech, especially in the chip sector?

17:54And that was the question. At this point, I don't think there's any question about what it spurred on. But that was an unknown at that point. And this was also at a point where markets were in a really, I think, a much more dangerous place. So it seemed, again, in terms of the outlook. No, fair question. I do think that from the market's perspective, the cynics can find a glass half empty about the leadership in semis and say at some point it's tapped out. Again, a 20 percent move in the last 17 sessions for a sector that was already up 60 percent before that. I mean, you know, this gets to be scary stuff.

18:27But if you've missed this move, it's been painful. Yeah. In terms of, you know, Dan talks about this metric price to sale. So it's probably trading, what, 23 times this year's number, probably 15 and a half, 16 times next year's number. So they're growing into that. But even with that, 16 is probably still twice what the historic norm should be. So the question is, are you going to see that continued? Now, listen, from 18 billion to 20 billion, that's obviously a much lower guy than we've seen over the last couple of quarters. So that's slowing. All this, it's not nitpicking. I mean, it's just the math.

19:03How much are you willing to pay for the stock on valuation? That's a question that I can't answer for folks. Yeah, well, the math into this quarter was the stock rallied 25%. That's$300 billion in market cap. And so it was going to take a huge beat and raise to get this stock to break out meaningfully to a new all-time high and keep those gains. And it was going to actually not take a whole heck of a lot to get the stock moving lower. And I just got to focus on that last bit that Chris just mentioned. It did seem to think like, you know, again, the days of these big beats and raises are behind us here until there's a new cycle, until there's a bit of a reset.

19:35So I just think about the buy side and the way that they buy stocks like this. And I think we're on the other side of this huge expansion phase. So to me, it just doesn't make a lot of sense to buy the stock at$500. Coming up, Amazon unloaded. Jeff Bezos cashing in on millions worth of shares. And there could be even more selling to come. We've got the details ahead. But first, we're watching Nordstrom after hours, adding to a busy day of retail earnings, how that space is faring ahead of the holidays when Fast Money returns. Back in tune.

20:11Welcome back to Fast Money. We've got another earnings alert on Nordstrom. The stock is down just slightly, but half a percent after an earnings beat and a revenue miss. That conference call is underway. Courtney Reagan joins us at the latest court. Hi, Melissa. Hi, team. Good to be with you tonight. So stock reaction a little more muted, actually, than I would have thought here, especially after Kohl's big sell off today in reaction to its quarter. Nordstrom revenues, as you mentioned, coming in light. The department store's net sales total down 9.4 percent. So that's the department store. The Nordstrom Rack sales, though, fell just 1.8 percent.

20:40And on the call, CEO Eric Nordstrom said the Rack stores continue to be great investments. The digital arm of that is now profitable. Rack stores, he thinks, are underpenetrated. Digital revenues total for Nordstrom down more than 11%. Now, lower markdowns did help gross margins expand. So this is another retailer with decent margins this third quarter report here. In the holiday quarter, though, the implied earnings forecast a little weaker than expected, especially considering this 12-cent beat here in the third quarter. CEO Eric Nordstrom joining the chorus of conservative retail CEOs, though, calling out, quote, continued uncertainty and softening consumer spend.

21:14Active, the strongest category by far, beauty and accessories, also stronger than other categories. That beauty just continues to take off. I guess everyone's just looking their best these days. Mel, back over to you. Certainly are on this test, Courtney. You know it. Thank you, Courtney Reagan. I'd be the St. Ives scrub guy, would that be? The apricot. The apricot scrub. When I go to Sephora, yes. That's a little pricier for you, though. They don't sell that there. Anywho, Nordstrom really encapsulates all the problems that the consumer faces. It has the worst merchandise in terms of what the consumer wants to buy.

21:51I was going to say, should you own it? Is there a reason to own it here? Thinking that the answer you're going to say is no. No. But I'll say this. Since the, I think it was March of 2021, this was, I think, a$40-something stock. A series of lower highs and lower lows. That pattern continues. Along the way, though, there have been bounces. 15 % to 30 % bounces seemingly out of nowhere. I don't think we're on the verge of that. As a matter of fact, you could probably test levels we saw, I want to say, like COVID-19, 12 and change, right? And that's what it looks like it's headed. I mean, at some point, you have to look in the mirror, if you're Nordstrom, and say this is not about the consumer.

22:32This is not about cyclicality in the economy. This is about your core business. And where were we coming out of the crisis? Macy's and Nordstrom's, and I think they're different businesses, and they have a slightly different customer, who, by the way, both are the ones that told us last quarter that they saw delinquencies starting to creep up. No one else is telling us that. But what the department stores were able to do, and again, more Macy's than JWM, renegotiate leases, downsize, accelerate a restructuring that people didn't think they could do beforehand, and they were rewarded. But is that a sustainable business model?

23:03So, again, I'm with Guy. I think you're selling this move. I think there's other retail out there today that didn't trade well you can buy. By the way, it wasn't the only retail report out today. Kohl's, Best Buy, Lowe's all dropping during the regular session after posting weaker than expected revenue before the bell. Dick's Sporting Goods managed to beat on the top and bottom line, saw shares rise. Julie, how are you feeling? Obviously, Dick's is a different kind of retailer in terms of what they sell, so maybe there's more demand for that, sporting goods and footwear and stuff like that. But the rest of it just shows that there's a whole swath of retail there that's just suffering because they're selling stuff that people don't want.

23:38Yeah, exactly. They're selling stuff that people don't want, but that also has really strong price transparency online. And it's not differentiated in any way, shape, or form. Dix is a little bit different in that way in that what you can find in their merchandise, a lot of them, they do their own private label and they do a lot of collaborations. So for them, there's a better reason to go shop at Dix than there is, say, a Nordstrom or a Kohl's. I think overall what we're hearing, though, is that the consumer is weakening. and what they care about is value. So knowing that the rack is doing so much better than the core flagship Nordstrom brand tells you that if you have to play in retail, and I'm not saying you do, and I'm not necessarily recommending you do, you want to look for places where customers are finding value.

24:23And so you're thinking about off price or Costco, those types of brands. Yeah, I guess from an investment standpoint too, and I know Tim, you like dicks here, but like if you look at Macy and Nordstrom. No, actually, I really don't. I've been a seller. If you look at the amount of debt that those two companies have relative to their market cap and relative to their cash positions and relative to the direction in which their businesses are going. It just doesn't seem like I don't know how it ends. You know what I mean? Well, for some of these. Well, I think it does come back to value. And I look at Best Buy, who I thought had better numbers.