Nvidia’s Big Earnings Report, And A Deep Dive Into Some Recent Insider Selling 2/21/24

0:01And happy anniversary from us to you live 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. All eyes on NVIDIA. Shares of the chip giant erasing early losses now up strongly about 10%. Revenue and profit coming in better than expected. And data center sales more than quintupled from a year ago. Did the company just silence all the skeptics? We'll debate that one. Plus, Bezos' billions, the Amazon founder, selling around 50 million shares of the e-commerce giant in just the last two weeks. Zuckerberg, Gates also selling lately.

0:38Now, while these sales have been planned, could they trigger other insider moves? We'll break it down. What are the signals here? And later, our big short trader is set to tell us where he's actually long in this market. What's behind his bullish bets right now? We'll find out. I'm Tyler Matheson. In tonight for Melissa Lee, coming to you live from Studio B here at the NASDAQ. On the desk tonight, Dan Nathan, Guy Adami, and Danny Moses, founder of Moses Ventures. Welcome one and all. And we start with that massive move in NVIDIA. You're going to hear that name a few times here. Bet the over on this one.

1:13Shares are surging after the chipmaker posted record revenue, a whopping 265 % increase from last year on the strength of its AI business. Now, the news sending shares of other chipmakers like Supermicro and AMD much higher in after hours as well. The conference call for NVIDIA just started, and CNBC's Christina Parts and Evelis has the numbers and has been monitoring the call. Christina. Well, the call just started, so I'm going to get on it as soon as we finish this. But NVIDIA is surpassing expectations yet again. A lot of it, though, is driven by data center revenue. It's bread and butter, which grew 38 percent quarter over quarter to$18.4 billion.

1:53Large cloud providers represent now more than 50 percent of that data center revenue, with NVIDIA saying in their report that demand is growing among other verticals, including auto, financials, as well as health care services. All sectors, though, for NVIDIA, revenue did beat. Auto was the only one declining year over year. But what's so impressive is gross margins coming in at 77 % for the fourth quarter, which speaks to its pricing power. What's interesting, though, is NVIDIA was still able to grow data center revenue, even though the CFO commented in her statement stating that, quote, Quote, data center sales to China declined significantly in the fourth quarter due to U.S.

2:31government licensing requirements. She's never used the word significantly before. China contributes about 20 % of total data center revenue. So it declined quite a bit. And NVIDIA was still able to post a 38 % quarter over quarter growth, speaking to the strength and demand from other markets. So once that news came, that's when you started to see the stock really switch gears. In the press release, Jensen Wong also saying that generative AI is at the tipping point, implying increased demand still lies ahead and pretty much reassures confidence in this AI trade, which is exactly what investors were looking for heading into this report.

3:06But we knew the options market was pricing an 11-point swing. What are we at, 10 % now? Yeah, there you go, 10 % right on it. The company clearly hitting on all cylinders in the most recent quarter and looking for bright skies ahead. Christina, you'll keep us updated on any highlights from the call. We'll be back to you, I'm sure, several times. Let's kick this one around a little bit, shall we, Guy? Well, the gross margin stuck out to me, I think, 76%. 77%. 77%, so good for them. I mean, listen, great quarter. There's nothing not to like in terms of the quarter. Here's what I'll say, and people are going to at me on Twitter all night long, but the magnitude of the guides higher, which they continue to do, become less and less.

3:44At a certain point, one has to wonder, you know, what's the right price to revenue? Right now, if this company is trading at$1.8 trillion, which is probably where it is at$740, you're talking about a company that's trading either side of 18 times revenue, which in this world is expensive. Now, people will say at this growth rate, they will grow into this valuation at some point. Maybe. We'll see. But, you know, it is an expensive stock on that metric alone. Danny? If you traded this valuation, you better beat and guide higher, which they did. Which they did. But at some point, this secular trade becomes cyclical.

4:18And I distinctly remember in 1989 and 2000 when fiber optic was the big craze. And yes, there was a need for it, right? We were growing lasers and everything. But at some point, the secular trade becomes cyclical. And you can't maintain these margins over time. But for the stock to trade down like it did in the aftermarket quickly and trade back up, 1.6, 1.8 trillion, I don't think it matters what the market cap is. Can you, we were talking earlier, can the law of large numbers make the future harder for this company? For sure. At some point, the margins. It gets so heavy. Sure. It's a great company.

4:50They're in a great space. I would never short the stock at these levels. But let's see what happens. It's getting ready to be a pretty decent short. I tried doing it a couple times last year, and that did not work out particularly well. I'm just, you know, and again, I never thought we'd see this sort of magnitude or the consecutive magnitudes of the beats and raises that we did. And so a quarter like this is clearly a great quarter. When I look at really what was expectations for the guide right here, you know, consensus is what for the current quarter that we're in about twenty two billion dollars in revenue.

5:16OK, and about a little less than five dollars in earnings. And they got it to 24. So that's up nine percent. OK, in the court. But some of the whisper estimates were that were the by side. This was in print. These were like brokerage houses that I talked to a lot of these by side accounts. They were expecting maybe 24 to 25 billion. So the guide came in below the whisper. So when you look at this sort of price action in the aftermarket, and this is obviously a massive stock, big pools of capital are not trading right now. OK, so we had this swing. So do you depart from what Guy said a moment ago?

5:48There's nothing not to like in this report? No, there's nothing not to like other than expectations. Right. So we talked about this a little bit last night. So if you're a hedge fund, right, and you were expecting maybe a guide to 24 or 25 billion and they guided to, you know, maybe just about 24 billion, you're going to expect them to beat that if everything continues to go. But are you buying the stock here right now? And I think not. So let's see how this stock trades, where it opens. It's going to open up 10 percent most likely tomorrow. OK, shorts are probably covering in the aftermarket right now.

6:19Let's see if big money is going to come in and buy this stock. I think big money probably sells a little bit because of what guys started out by saying. The magnitudes of the beat are getting smaller and smaller. It's amazing to me that the stock price creates the narrative. To Dan's point, if the stock was down 10 % right now, it would be, oh, they beat and got it up, but it wasn't enough. You didn't get enough. But because it's up. So the difference in a$1.5 or$6 trillion and$1.7 or$8 trillion market cap here to me is meaningless. I know it's a lot of$300 or$400 billion. It's a lot. But to me, it's just the narrative.

6:46So are we talking about that law of large numbers when you said the magnitude of the gains is slowing a little bit? Well, that's just factually true. I mean, the magnitudes of the gains are slowing. I mean, it was three quarters ago now, I think they went from a$7.8 billion to an$11 and change billion guide. I mean, you can do the math. So, yes, in percentage terms, the magnitudes are slowing. The question, I guess you have to ask yourself, in this sector, which is a highly cyclical, at least historically, historically, you know, at 19 times ish revenue, 18, let's just call it 18. That's historically an extraordinarily rich valuation.

7:23Now, the people out there will say, you know what, guy, what you're missing is they're going to grow into this. The TAM, the total addressable market is such that they can grow into this very easily. That might be true. But you know what else is coming down the pike? Competition as well. So you see 77 percent gross margins. A year from now, we're talking about the same gross margins or we're talking about competition coming in the space. and those margins contracting. Those are the questions you have to ask yourself instead of just, I would say, just blindly saying this is a secular story that's going to last forever off to the moon.

7:53Remind me where this stock was a week ago. Was it in the high 7? 7.25, 7.30. I think in the after hours today it traded down to 6.40. I think if we open here, I don't know what here is right now, but we're effectively at an all-time high. So, yeah, I mean, we've done a bit of a round trip here. Yeah, you've come back, recouped what was lost from last week. And the all-time high was 746 just the other day, you know, on Friday afternoon. And listen, I'll just say this. Guy just mentioned competition. We know that it's coming. That's one of the reasons why AMD has doubled over the last kind of four or five months or so.

8:23This is a company that has 53 % gross margins compared to the 77 that just printed. If they have a product that's almost as good, okay, as these high-end GPUs that, you know, basically NVIDIA has 90 % market share right now, how do they compete? They compete on price, right? And we know that a lot of their customers, NVIDIA's customers, okay, it's Microsoft, it's Google, it's Amazon, and it's Meta make up 40 % of their sales. At some point, you know, we talked about this last night, every day we see a new story, how Microsoft wants to diversify away, right, from this reliance that they have on NVIDIA.

8:55AMD is going to start competing on price, and then NVIDIA is going to start lowering their price. Then the supply-demand dynamics, okay, like the supply constraints that they keep talking about are going to ease up a little bit. They may end up having a glut, okay? And then this becomes a bit more cyclical. And then the margins come down and people will start anticipating this before it's confirmed in a quarterly report, that sort of thing. So I don't mean to like rain on this parade. It's a great story. I know a lot of folks believe that this is going to be a thing that goes on for years and years and years.

9:23And I'll just tell you, at every near, you know what I mean, secular top, as these companies or these kind of things are shifting a little bit, that's exactly what people are saying. Does this stock, before we go to Chris Roland, does this stock remind you of any other stock performance that you've seen in your career or in history? Yes, there was one stock, JDS Uniphase, back in 99-2000. I remember their name, yeah. Yes, and it was good company growth. And eventually what happened was people realized that you could take all the fiber that was going to be used. It'll wrap around the world 100 times.

9:56That the TAM was too big. It didn't work. The math didn't work. I don't think we're at that point yet here. But I remember distinctly that was the stock that stopped going up on a beat in a guide higher, I think, because of the incremental buyer. There was no incremental buyer left of the stock, maybe not of the product, but of the stock. So that one always sticks in my head from that time. Very, very interesting. I remember that name well. Let's bring in Susquehanna senior equity strategist, Chris Roland. Chris, welcome. Good to have you with us. Thanks, Tyler. Are you in the Adami camp that says there's nothing not to like in this report?

10:26It was solid. It was right down the middle. I think somebody referenced some buy side surveys. We were in the exact same place. We were thinking they needed 24, 24 and a half on the guide. And so they were right there, dialed in. Right on the button there. Is there any rain, to pick up on Dan's metaphor there, is there any rain on this parade that you can see? I mean, if you really want to nitpick, you can get into OpEx being a little higher than we had thought. But, you know, this is AI. I'd rather they overspend than underspend. And they are doing so. Your price target is now what on this stock?

11:10I think we're at$850. At$850. And it's a lot closer to$850 now than it was three hours ago, right? True. But again, but again, Tyler, this is right down the middle. We would expect it a little bit more of a flat stock here. Maybe give them a little bit for gross margin. But but but that's probably it. So we think it could be muted from here. A little bit muted from here. What does that mean in practice? A muted reaction from here. I see. I see. Yeah. Overall. Any questions? Yeah. So, Chris, let's talk about those buy side expectations and whisper numbers. And I think some of our viewers who are probably not as in tune with this.

11:48Right. So you have the consensus estimates that, you know, is basically compiling all the analysts like yourself and what their estimates are for a quarter or for whatever metric. Right. And then you have the buy side, the people who are the holders of the stocks or sometimes, you know, on the hedge fund side of things who might be short of the stock. And they have their own expectations. Right. Which are usually different from that of the consensus estimates. Where do you think consensus for the whisper were like like you just mentioned the revenue? It was about twenty four to twenty five. I kept on seeing that from different brokerage houses.

12:18So that's why I'm in your camp. I'm surprised to see the stock up nine, ten percent in the aftermarket, given the fact that they just came in in line with what the whisper was. There was some commentary around continued supply constraints that Collect Cress, the CFO, just mentioned on the call. It's unclear whether that's over their existing hopper generation or the next upcoming B100. But if that is true, even though demand supply is improving, if there are still constraints, that means we may still have some upside until we reach cruising altitude. And it's really the cruising altitude of these revenues versus buy side expectations, which I still think are probably one to two billion a quarter above sell side expectations that matter.

13:14Let's talk a little bit about the thing that Dan mentioned and Guy as well, and that is competition. What is the competitive risk that this company faces if it does? Yeah, I do not think this is a commodity product. I know, as mentioned, they may be fighting on price. I do not think they are going to be fighting on price. This is a highly tuned piece of hardware married with a software ecosystem for AI that's been built over the past 20 years since CUDA was born. And that's not something, you know, that's a commodity. So the hardware, you know, AMD has a really nice piece of hardware coming. They don't yet have that software ecosystem.

14:00They don't have the heritage and it's going to take, you know, as long as half a decade to put a real, real dent into what is pretty much an Nvidia monopoly here. Walk me through the China issue that this company faces with export controls and so on and so forth. Yeah, it's pretty simple. You can't ship leading edge technologies to China. You can't chip technologies that surpass a certain computing threshold. And almost all of NVIDIA's products that aren't gaming products do exactly that. So they're cut off. So they're cut off from that. What if that were to change in some material way? What could that mean on the upside for NVIDIA?

14:50They've previously talked about China being 20 to even 25 percent of data center revenue for them. So this is an adder on top. Again, they continue to be supply constrained, so they don't need that right now. But if they had that supply available, they could potentially upside revenue. Chris, thank you so much for being with us. Appreciate your insights. Thanks, guys. Chris Roland of Susquehanna. Any trades we want to get off our chest? Well, huge moat, right? Totally get it. But look at Supermicro. So that stock's probably got back everything it lost today. With that said, and our crack staff and EC can probably pull this up, I think they just talked about a billion and a half dollar convertible note due in 29 that they just issued.

15:32So, you know, it's interesting to see what's going on out there. You know, you take all this and I get it. It's a secular growth story. Everybody loves it. Everybody's gotten rich on the back of it. At a certain point, though, certain valuations absolutely matter. As much as we'd like to think it's different this time, as Danny said earlier, it's probably not as different as people think. All right. Any final thought here? It's really smart for companies in the sector, any sector, when their stock prices are elevated, to raise capital. I think that's a smart move. But I want to say one thing for people out there that they understand how sell-side research works.

16:00You have two choices. You can raise your price target if you're a sell-side analyst, or you can downgrade the stock, right? And so nobody wants to downgrade the stock on the sell-side right now on NVIDIA because it's too great. You have tons of momentum around it. But what is the validation for continuing to raise your target on a metric potentially? Is it multiple revenue? Is it future earnings discounted back? That's what I'm going to be looking for. All right, let's leave it there, but not for the last time this hour. We'll come back to NVIDIA as Christina monitors the conference call there.

16:29Meantime, stocks were staging a late-day rally today with the S &P and Dow, managing to end the day in the green and eke out small gains, as you see there. Then the NASDAQ did post a third straight day of losses, but finished well off its lows of the session, down just a third of a percent. Meanwhile, Treasury yields were higher after this afternoon's 20-year bond auction saw weaker demand than hoped for. The 30-year touching 4.5 percent at its highs, while the 10-year rose back above 4.3 percent, as you see right there. Rates maintain their gains after minutes from the latest Federal Reserve meeting showed central bank officials have expressed caution about lowering rates too quickly.

17:10Let's get to Steve Leisman to wrap it all up for us. Hi, Steve. Hey, Tyler. Yeah, minutes to that Fed January meeting show most officials still highly concerned about inflation, worried about cutting rates too quickly. And this was weeks before that upside inflation surprise in the January CPI data. The minute showed officials emphasizing the risks of cutting rates too quickly and concerned that inflation progress could stall. And also seeing an upside inflation risk around every corner in strong demand, in loosening financial conditions, and even in geopolitical risk. Only a handful of committee members, if that, showed much concern at all with the recession.

17:45And that brought some criticism from Wall Street. Oxford Economics writing, the odds of a policy error appear higher following the minutes. There is significant disinflation in the pipeline. If the central bank waits for clear signs that the labor market or the broader economy is deteriorating, it will be behind the curve. The chance of a May rate cut now trading at the lowest probability of the year, just 30 percent, with more confident bets now centered on June and July for that first rate cut. But if the Fed was this hawkish before that poor January inflation data, there's little doubt their positions have hardened from here.

18:19While many Fed speakers note considerable inflation progress, doesn't seem to motivate them to take any action in response. It would seem, Steve, that the higher for longer narrative is well entrenched at the Fed and and maybe increasingly in the in the eyes of economists and market watchers. Yeah, Tyler, there is a weird thing going on right now where more and more I read people saying that the data we got in January was anomalous, that it was just one-time price increases that weren't picked up by seasonal adjustments. And yet they're changing their outlook for the Fed based on data that they don't think should change the Fed's outlook.

18:58Yeah. Steve, the 20-year auction today wasn't particularly good. But I think the bid to cover, the dealers got stuck with the most since May of 21. Three basis points high. I mean, not a lot to like here. My question to you, I guess, is how closely, if at all, does the Fed watch bond auctions like this? I think they're watching them. I think they watch them in the first instance for systemic risk. In other words, is there going to be a bond market failure? I think 20s are always a little difficult because, you know, it's sort of an odd man out kind of tenor right there. It's not the favorite tenor.

19:30It's not a 10. it's not a 30. You can't really draw too many conclusions. And also, it's worth pointing out that when these things have done poorly, rates have declined afterwards. And so it hasn't really been that big a loss for those who are caught holding the bag, so to speak, on these bad auctions. If that does not happen to be the case in the future, that's when you might have more risk in these longer term bonds. But one bad auction when the government seems to have done done a pretty good job placing the paper so far, I don't think is going to ring too many alarm bells at the Fed. Hey, Steve, you know, I know you're more of a Fed watcher than a market watcher or stock market watcher.

20:10But, you know, the last time the 10 year was at 431. It was the first days of December and it was on its way to 3.8. OK. And I just think about this from the stock market perspective. A lot of the juice that the stock market got after that period really came from this notion that the Fed was going to be pretty much lowering interest rates maybe five or six times in 2024. Are you surprised that the S &P just below or in and around 5 ,000 right now is not reacting a bit more negatively to the fact that rates seem to have an upward bend to them? Dan, you stole my only meaningful comment at the end of your remark right there, which is that I have been surprised at how strong the market has remained.

20:51I think that's ultimately a good sign underlying the stock market. You're right. I have almost no expertise at all other than watching it for what the economic impact is of what's going on on the stock market and what people think about the earnings ahead. It's interesting to me economically. But I do watch the fixed income market every day. I watch how the bond market reacts to or how the stock market reacts to it. They have traded together and they've traded apart over this last several months. And I have been really surprised. And I don't hear I don't know, Dan, if you want to kick it back to me.

21:23But I don't hear people talking about that, that the market has withstood this run up in rates. And to me, that's a sign of underlying strength. Yeah, I think your point is a really good one. I mean, it really is coming into the year. It was your point. Well, yeah, but I mean, I can't tell myself what a great point I made. Thank you, though. But, you know, the expectation that we were going to have, let's say, 10 percent earnings growth in the S &P 500, everything that you just laid out right in the beginning of this is basically saying, well, maybe the economy is that much stronger than a lot of people expected going into the second year in a row.

21:56And that is the thing that's caused upward pressure to stop. I think one thing that we're watching here, and you guys know this better than I am, this is something I'm watching economically, which is how well do companies maintain margin in what looks to be a disinflationary period? To me, the story inside the earnings is that inflation has come down, but margins have not been the big player in that declining inflation. It looks to me like generally those higher margins that companies achieved in the inflationary period, a big chunk of it looks to be remaining right there. We'll see if it gets competed away.

22:33But right now, that does not seem to be the case. Steve, you made a great point. Dan, you made an even better point. Thank you, guys. We appreciate it. Thanks very much, Steve. Danny, any final thoughts here on the Fed minutes and rates? What's the market telling what the bond market's telling us? Yeah, so this higher for longer narrative self-fulfils wider credit spreads over time, and that does the Fed's job for it. So to think there's going to be a rate hike, I don't think that's going to happen. And I do believe if and when the Fed does start begin cutting, it will be aggressive, because of the reason they're going to start cutting, things are really slowing down potentially.

23:04Does the Fed have to do its cutting, what cutting it does in 2024, before the election? I don't really believe him to his word on 60 Minutes that that's not what he's thinking about. So I'm going to stand with that. But no, I don't think that should be a factor at all in it. Maybe I'm cynical not thinking that way, but I really believe that he's just going to follow the course here. All right, coming up, it's not just NVIDIA on the move. Plenty of other after-hours action to bring you in shares of Marathon Oil and APA Corp on the move as EV makers stall out. Rivian getting hit hard, down more than 13%.