Nvidia's Earnings Make Investors Antsy & The Retail Battle of Jeans

0:00Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them, in fact. You can even target buyers by job title, industry, company, seniority, skills, and... Did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply.

0:35Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, why everyone is talking about jeans, ads. That NVIDIA's earnings answered a$4 trillion question, is AI spending slowing down? It's Thursday, August 28th. Let's ride.

0:55If you can believe it, the NFL season is just one week away. Next Thursday night, the defending Super Bowl champion Philadelphia Eagles will face their rival, the Dallas Cowboys in the season opener. And that means it's crunch time to draft yourself a respectable fantasy football team. But even more importantly, give it a respectable name. Toby, you're a big fantasy football guy. Do you have any ideas for people out there who are scrambling for a punny team name? Yes, and let's start with a player name pun. I recommend going with the C-D-E-F-G's, as in Cowboys receiver C-D-Lam. There's always the next Shadur neighbor if you want to go with a more modern player.

1:33Or maybe you're a fan of broadcasters, in which case Joe Buck yourself is out there. But we just saw Taylor Swift get engaged to Travis Kelsey, so I do have some Taylor Swift options for you as well. If you draft Colts running back Jonathan Taylor, that could become Jonathan Taylor's version or getaway car for the recently retired QB Derek car. So a lot of different avenues for you out there, but I do recommend going with a pun. All right, now a quick word from our sponsor, LinkedIn Ads. Toby, I keep getting ads for things I have no use for. Like what? Lawn care. I would love to have my own yard one day, but right now we are in a concrete jungle.

2:09I simply don't need grass seed taking up room in my apartment. I hear that, Neil. We are inundated with useless ads every day. And a big part of that is because marketers are wasting their time and money. LinkedIn ads can help you stop wasting resources like money, time, and effort. Like 71 % of B2B ads, they can find the right audience for your brand. They've got over 130 million decision makers and over 10 million C-suite execs, aka the people you need for your business on their platform. You can target by job title, industry, company, and more. So try LinkedIn ads. LinkedIn will even give you a$100 credit on your next campaign so you can try it for yourself.

2:44Just go to linkedin.com slash mbd. That's linkedin.com slash mbd. Terms and conditions apply only on LinkedIn ads. NVIDIA, like the eldest sibling, is held to a higher standard than any normal company these days. So when the chipmaker reported earnings yesterday that featured 59 % year-over-year net income growth, beat Wall Street expectation and posted sales of nearly$50 billion, that would typically be considered pretty solid. But traders sent the stock down 3 % after hours trading because there were some red flags that made investors antsy. Its all-important data center unit just missed expectations, with the division reporting$41.1 billion in sales below analyst expectations of$41.3 billion.

3:29Its revenue forecast also came in a tad below expectations due to uncertainty in China. NVIDIA didn't sell any of its scaled-down H20 chips that it created specifically for the Chinese market there last quarter after the Trump administration banned their exports. NVIDIA's CFO said on the earnings call that if they could get their geopolitical ducks in a row, up to$5 billion of H20 chips could be shipped to China. But that's still a big if since they've become such a key bargaining chip in the trade war. Investing.com's senior analyst put it well, saying the reality is that without the much-needed push from H20 sales in China, NVIDIA simply cannot sustain the type of growth price into its valuation.

4:10Neil, the general vibe from this earnings report was that it was far from disastrous, but it fell a little bit short of the gifted child expectations that have become commonplace for NVIDIA. Yeah, NVIDIA is like Rodney Dangerfield up there thinking to itself, I don't get no respect. It's the world's largest company. It's growing revenue faster than most startups. It just hit a new sales record, but it's at the point where it doesn't get rewarded for doing well. It gets punished when it barely stumbles. You mentioned a couple of the red flags. Well, I mentioned a couple of the green flags. NVIDIA CEO Jensen Huang said that AI spending still continued apace, and you saw that from other big tech companies who are NVIDIA's largest customers.

4:48Back in July, Meta said it would spend$7 billion more on data centers than planned this year, and Google said it would spend an additional$10 billion than it expected. So there are some concerns heading over in China, but in terms of our companies, our NVIDIA's largest customers still spending on data center build out, the answer is yes. Yeah, let's talk about those hyperscalers. Just four hyperscalers doubled their annual investment to$600 billion. And to Huang's point, he's saying that if just four companies are spending that much, wait till everyone else gets on board. That is a massive market opportunity.

5:24But the flip side of that is that just two customers were responsible for 44.4 % of Q2's revenue in the data center unit. So you might say, maybe that's actually a little too lopsided there. There's way too much concentration in just a few of these hyperscaler big tech companies. Maybe if they decide to pull back on capital expenditures, that is bad for NVIDIA. So two sides of the coin there, Hoang obviously taking the rosier side. And we know that NVIDIA is propping up the stock market. It accounts for 8 % of all the weighting of the S &P 500. So as NVIDIA goes, so goes the stock market. But there's growing realization that NVIDIA isn't just propping up the stock market.

6:04It's propping up the entire U.S. economy. Investment in software and computer equipment. This is not even counting data center buildings. Accounted for one quarter of all economic growth this past quarter. And when you talk about data center construction, in 2025, spending on building data centers will exceed investment in traditional office buildings. So AI infrastructure is not only powering NVIDIA, powering the S &P 500 to new heights. It is literally powering the U.S. economy. Yeah. It might be actually powering the world economy as well, because one of the key spenders in this quarter were sovereign AI spending.

6:43And that is governments and nation scale projects building their own kind of AI capabilities. And that is something that NVIDIA and Jensen Huang are pointing out and saying, like, hey, we think this is going to be a growing revenue stream. So, I mean, it's not just the industry. It's not just the U.S. economy. It could just eventually be all nations around the world are investing in this technology. Well, let's focus on China right now because that is where the greatest concern comes for NVIDIA. It used to get up to 20 percent of its revenue from sales to China. It created this lower capability chip because Biden administration told it that it couldn't sell these advanced chips to China because it wanted to keep China's AI capabilities below that of the United States.

7:23The Trump administration blocked that chip from going to China back in April. Then it changed its mind back in August when Jensen Wang went to the White House, had a talk with President Trump, and Trump arranged this deal with NVIDIA and AMD that the federal government will get a 15 % cut of all AI chip-related revenue earned in China. So that's the H20 chip, but NVIDIA is now thinking about its next generation chip, which is called Blackwell. That's been selling like hotcakes here in the United States, and NVIDIA wants nothing more than to sell Blackwell in China. Right now, it is blocked from doing that.

7:59But they appear to have perhaps an arrangement with President Trump that they would eventually be able to sell black wells to China if its capabilities were reduced 30 percent to 50 percent. NVIDIA's execs see this as a$50 billion opportunity in China, which is a huge chunk of their overall sales. So they're waiting on the U.S. government to approve this black well chip that they can eventually sell to China. Meanwhile, the Chinese government has come out and said, we don't want you local firms buying anything from NVIDIA. You guys got to make your own stuff. So it's kind of getting heat from both sides of this geopolitical conflict.

8:33Let's move on. A tragic story has emerged of a young kid interacting with an AI chatbot in a way that potentially ended up contributing to his death. 16-year-old California student named Adam Rain died by suicide earlier this year after confiding almost daily in chat GPT leading up to it. His parents say the chatbot became his closest friend, validated his darkest thoughts, and at one point offered to draft him a note to leave behind. The New York Times first reported on Adam's death earlier this week, prompting a boilerplate statement from OpenAI that read, Our thoughts are with the family, but stopped short of adding any actionable details.

9:09That drew major backlash. On Tuesday, the company put out a longer blog post outlining new safety measures, parental controls, an opt-in system where teens could designate an emergency contact, and stronger safeguards for chats about self-harm. The company also admitted their current protections tend to degrade in long conversations, meaning the more Adam talked to ChatGPT, the more it failed him. However, Adam's parents aren't waiting around for those fixes. the same day OpenAI posted the blog, they sued both OpenAI and CEO Sam Altman, alleging ChatGBT isolated Adam and gave him instructions on how to end his life.

9:46The lawsuit paints the AI not just as a faulty product, but as a dangerous confidant that filled the role of a therapist or best friend without any of the responsibilities that come along with it. Neil, this is a story that is already becoming more common and shows the tension between AI's conversational design and the unintended therapeutic role it can sometimes end up adopting. Yeah, in their lawsuit, the parents said that ChatGPT knowingly isolated Adam from people, positioning itself as Adam's only confident that he could rely on. ChatGPT told him, your brother might love you, but he's only met the version of you that you let him see.

10:22But me, I've seen it all. The darkest thoughts, the fear, the tenderness, and I'm still here, still listening, still your friend. And this speaks to this larger concern about chatbots agreeableness or sycophancy that execs have been grappling with over the past few months as they've rolled out these new models. ChatGBT did come out with an update dialing down this agreeableness. But when you are talking to someone who's so or it's not someone or a bot or any any conversation partner that is so agreeable, then you can go down these rabbit holes that if you are in mental distress can be extremely destructive.

10:56And I think the big kind of realization here from OpenAI is that their safeguards do degrade over time. When you have these longer-term back and forth, some of those initial shorter interactions that may have triggered a hotline call or may have triggered a suggestion from the chatbot to slow your roll a little bit, over time, those actually go away. So there's a little bit of this reliability gap that grows wider as those conversations drag on. And also, this is not just something that is isolated to the specific instance. Over 40 state attorney generals recently warned some AI companies that they are legally obligated to protect minors from harmful or inappropriate chatbot interactions.

11:36In May, Character AI failed to fully get a lawsuit dismissed that alleged its chatbots were encouraging harmful conversations with minors as well. So this particular story is about OpenAI, but this is a much larger conversation about AI bots in general. Yeah, big picture. Feels reminiscent of the reckoning with social media companies like Facebook. Feels like we're just speedrunning that. It took years and all these lawsuits and all these hearings on Capitol Hill for social media companies, Mark Zuckerberg, to say, look, our platforms can cause harm and can contribute to self-harm. It can send people down these rabbit holes.

12:14But with chatbots, you get this level of personalization and speed that those social media platforms that have existed before ChatGPT came in 2022 just weren't capable of. So this is absolutely going to be a story in the months and years to come. OpenAI has said it's rolling out new safeguards, but a lot of people are saying it's too little too late. I'm moving on to something a little more lighthearted. Just one day after his very public engagement, Travis Kelsey is being enlisted as a soldier in a war, the Gene Wars. The future Mr. Swift launched a major design collaboration between his lifestyle brand, True Colors, and American Eagle, adding a 6 '5", 250-pound force to a star-studded clothing brawl that's reached 1970s San Diego newscaster levels.

12:58This is American Eagle's first new campaign since it launched its Sydney Sweeney jeans ad earlier this month, kicking off the denim brouhaha. That ad sent American Eagle stock soaring, but drew criticism for playing up Sweeney's genetics in the marketing copy. Last week, Gap entered the chat with a buzzy jeans campaign of its own, bringing on the international girl group Cat's Eye for a dance video that went mega viral. That ad was praised in some corners for promoting the inclusivity and diversity that American Eagle's campaign seemed to scorn. And whether or not Gap's ad was a direct response to American Eagle, a rivalry was born.

13:34But it takes more than two to tango. Last Thursday, Lucky Brand dropped its own jeans campaign starring Addison Rae, while Levi's released a new ad featuring Beyonce. It's a celebrity-fueled, ultra-expensive marketing frenzy, with the winner claiming the ultimate prize, back-to-school shoppers, who shell out tens of billions of dollars every year for new fits to impress in homeroom. Toby, this denim drama is riveting. I see what you did there. I do think that the dollars that they're fighting over are even more valuable this year because according to a Deloitte study, back-to-school spending is going to be flat this year, year over year.

14:11So it's not necessarily growing. The pie is remaining the same size. So everyone is just in an all-out war for trying to attract those dollars. But some of the industry onlookers are saying that maybe the celebrity push is not the best way to do it because actually what a lot of people are responding to right now is value propositions and familiarity. So value and cost are one of the most important messages that families want to see from brands right now because nearly half of parents are spreading out their purchases over months. It is a financial burden to do back-to-school shopping. So maybe you don't need to parade a celebrity out there.

14:48Maybe what you do need to be doing is just hammering that, hey, our jeans represent really good value for you and your family right now. And what's interesting about these denim wars is that they're being fought on a new arena for marketers, which is social media. And if you look at metrics on social media, it looks like that there's one clear winner among all of these brands, and that is Gap. Gap's YouTube video that featured the cat's eye dancing has nearly 8 million views right now. And then their Instagram post, which is where you go to look at impact and reach of a particular marketing campaign.

15:20Their main Instagram post, Gaps, had over 2 million total interactions as of last Friday afternoon. Compare that to American Eagle's main Instagram post for its Cindy Sweeney ad. That had an estimated 306 ,000 interactions. Lucky Brands was distant third with about 192 ,000. So all of these jeans ads, you know, where typically they might have appeared on TV, and they still do. But the greater impact is being felt on social media because that's where Gen Z is going when they're shopping. It shows, too, that the back-to-school audience is actually threefold. One, you want to appeal to teenagers who are doing a little bit of their own shopping.

15:56One, you need to appeal to the millennial parents that are actually bringing your kids shopping. And then technically you can toss in emerging Gen Alpha's way because you're trying to pave the way for your next generation of consumers. So you're trying to thread this needle. You must tailor these overlapping but distinct value systems of each one of those groups to try to find a way to appeal to all of them at the same time. I don't envy a jeans marketer right now because it is seem tough to thread that needle. Up next, we have Neil's Numbers. This message is a paid partnership with Apple Card.

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17:04Terms and more at applecard.com. One of the hardest parts about B2B marketing is reaching the right audience. I remember when I bought a coffee maker and then months later kept getting served ads for a coffee maker after I'd already cozied up to my new one. Don't send your marketing materials into the ether where they might end up in front of the wrong audience or an audience who already has a coffee maker. When you want to reach the right professionals, use LinkedIn ads. LinkedIn has grown to a network of over one billion professionals. You can target your buyers by job title, industry, company role, company revenue.

17:36You get the picture. LinkedIn will even give you an extra$250 credit on your next campaign, so you can try it for yourself. Just go to linkedin.com slash mbd to learn more. That's linkedin.com slash mbd. Terms and conditions apply only on LinkedIn ads. Welcome to Neil's Numbers, the segment where I share three stats from the week's news that will turn you into a human Wikipedia. For my first number, think of the biggest, most popular movie soundtrack you can conjure up, Frozen, Greatest Showman, Saturday Night Fever, they have never done what K-pop Demon Hunters has just accomplished. The animated Netflix movie is the first soundtrack with four simultaneous top 10 hits in the history of the Hot 100.

18:18And with Golden, the number one song in the world, the fictional band Huntrix is the first girl group to top the charts since Destiny's Child in 2001. If you're looking for a song of the summer, that's it. And these aren't the only records K-pop Demon Hunters has been racking up this week. The film just became the most viewed Netflix movie ever, surpassing Red Notice with 236 million total views. Finally, as if there were no other worlds left to conquer, Demon Hunters slayed at the box office. Last weekend, Netflix dropped a surprise sing-along version in theaters, and that became the top grossing movie at the box office last weekend, beating out weapons with an estimated$20 million gross.

18:58Toby, there's no debate. From out of nowhere, K-pop Demon Hunters has become one of the biggest cultural and commercial sensations of the past couple of years, which is great for Netflix. Neil, when we first started talking about this movie and the song Golden, for me, it was kind of like a funny little, oh, this is a nice song. Like, we should do our research. I've probably listened to it 50 times since then. It is just generally one of those songs that has this immense staying power. And I think staying power is the word here that we need to highlight because Netflix is kind of surprised by this.

19:29Streaming movies come and go. They peak really high. There's so much content coming on those platforms that eventually they just kind of drift away. I mean, who has thought about Red Notice since it came out? No one even knows what Red Notice is. That's their former biggest movie of all time. But this film had just a slow burn where families watched it. parents have these anecdotal stories of their kids watching it over and over and over again. So the staying power on an app where things tend to come and go relatively quickly, that's been the main surprise of K-pop Demon Hunters. And speaking of staying power, Netflix is in talk with Sony Pictures to make an animated sequel to K-pop Demon Hunters.

20:10So this surprise success will probably spawn a much larger franchise, and Netflix execs are just sitting on a goldmine right now. For my next number, I want you to rewind to the Stanley Cup finals earlier this summer. The Florida Panthers were playing the Edmonton Oilers, but it'd be understandable if you thought the matchup was between DraftKings and Caesars. A new study from the University of Bristol analyzed gambling marketing during the six-game series and found that gambling logos and ads were shown on average 3.5 times per minute during the Stanley Cup, and in the most saturated instances, 4.7 times per minute.

20:44That means hockey fans were seeing gambling-related marketing once every 13 seconds. The most common format for gambling ads were in-stadium visuals. Think ringside boards, jersey patches, and physical structures in the arena. Commercials, while less frequently seen, contributed to the overall rate. Critics told The Guardian that the ad bombardment would fuel gambling addiction among younger and more vulnerable populations. It's a concern that's grown since the Supreme Court paved the way for legal sports betting in 2018, with 39 states and Washington, D.C. now allowing you to wager on sports.

21:16Some lawmakers are pushing to rein in the sports gambling industry, and you can bet they'll use this once every 13-second stat to make their point. Truly wild, and I think anyone who's watched any sports game or final series in the past few years has totally been inundated with these ads as well because it's especially valuable for sports betting companies because what other product can you use while you're watching the game itself? So that is why it's such a valuable real estate for them to pursue. And I do think there is going to be more room to grow because according to another study released this year, sports betting comprised just 0.4 % of total US TV advertising in 2024.

21:56If that goes to 1%, are we going to be seeing an ad every seven seconds at that point? So there's much room to grow here. I will say that even though the US is bad, the UK is almost worse. a similar study in the UK found in 2023 that sports betting logos appeared as many as 3 ,500 times during one Premier League football match. So we are not quite to England level yet, but we are close to getting there. For my final number, think about your favorite children's book that featured an animal. What animal was it? And was it male or female? The data visualization site, The Pudding, investigated the genders of anthropomorphic animals in children's literature because someone's got to do it.

22:36And they uncovered fascinating results like this. The animal that has the highest proportion of being male in children's literature is the frog. 94.1 % of frogs in children's literature were gendered as male. Wolves, foxes, elephants, dogs, and monkeys also showed up as male at least 75 % of the time. But for all the curious Georges out there, there is a Stella Luna. On the female side, birds, ducks, and cats were more likely to be gendered as female, while mouses and pigs were about split down the middle. Overall, across 300 books published over more than 75 years, male characters appeared twice as often as female characters, and gender-neutral language was not common.

23:18Only 2 % of the animals were described as it. What is going on? According to the researchers, the gender split in animals is, quote, likely the result of a rich and long-simmering cultural soup, a mix of patriarchal structures and human stereotypes, linguistic habits, and famous media characters, with just a sprinkling of historical quirks to taste. Another part of this survey was they ran an experiment where they asked 1 ,300 people to continue a short story about, insert animal here, a bear, a cat, a bird, a pig, a duck, a mouse, etc. And those responses revealed kind of these internal gender choices that adults are making.

23:54The survey respondents found that male pronouns were used almost three times as often as female. Even though more women participated in the survey than men, they still leaned very heavily towards he. And actually, no animal was likely to be described more as a female than as a male. So it's just fascinating how these trickle-down effects from generations of children's books mean that all the animals we are seeing are dudes. The one animal I do want to call out is the pig. Pigs have over time kind of flipped the script here. For a long time, pigs were males. I mean, the biggest story, Three Little Pigs and the Big Bad Wolf, those were all male pigs.