Semis and Housing and Retail, oh My!

0:04The biggest names in semiconductors, housing, and retail are all putting up numbers this week. This is Motley Fool Money.

0:20Welcome to Motley Fool Money. I'm Tyler Crowe, and today I'm joined by longtime Fool contributors, Matt Frankel and John Quass. We're going to talk about earnings and more earnings and more earnings because we had Walmart, we had Lowe's, we had Home Depot, we had Target, we had a whole bunch of other companies. We normally do stocks on our radar, but frankly, we just didn't even have time this week. But we're going to start with the biggest company in the world reporting earnings, and that's NVIDIA. It would almost be malpractice if we didn't talk about it. It's a$4.4 trillion company. It reported earnings yesterday and delivered another quarter of, frankly, in my opinion, hard-to-believe earnings.

1:00I'm still wrapping my head around the idea that a company of this size getting$185 billion in annualized earnings is still putting up 65 % year-over-year revenue growth. It's just blowing my mind at this point. Now, again, all of this surprising. I'm sure you guys had surprises as well. So, I want to go around the room here and see what were your biggest takeaways from this earnings report. Yeah, Tyler, these are big numbers. You look at the trailing 12-month revenue, it's up 65 % from the comparable trailing 12-month revenue. That's a huge growth rate. It expects 65 % revenue growth rate in the next quarter, so fiscal fourth quarter.

1:39At this scale, that's almost incomprehensible. But here's the quote from CFO Colette Kress. We currently have visibility to half a trillion in Blackwell and Rubin revenue from the start of this year through the end of calendar year 2026. So, basically, according to this quote, 11 months of that is already in the book. So, we're looking at the next 13 months. If this is correct, and this isn't orders, this isn't revenue in the bag, but this is visibility, it's implying roughly$300 billion in data center revenue in calendar 2026, so next year. That's an ongoing incredible growth rate. Astronomically large, incomprehensible growth rate at this scale.

2:22That's keeping its margins high right now at 63 % operating margin in Q3. I don't know if we've ever seen anything like this. Yeah. For me, and I'm glad John brought up a quote from their management, because for me also, the biggest takeaways might be qualitative, not quantitative. For example, Jensen Huang said that the cloud GPUs that NVIDIA makes, John mentioned a couple of the products, are essentially, quote, sold out. And that compute demand keeps accelerating and compounding across training and inference. To follow up on what John mentioned with profitability, it's worth noting that these margins, like you said, keep getting better somehow.

2:57It seems like they can't, and then they do, which means earnings are growing faster than revenue. Earnings in the third quarter grew 67 % year-over-year versus 62 % quarterly revenue growth. It's not only a story of growing revenue, it's growing profitability as well. This past week, I would say, the day that NVIDIA reported aside, there's been some, I would say, larger-than-usual drops in stock prices for some of the big tech companies and, by default, the broader market, because the top 10 companies make up such a large portion of the broader market these days that they are going to pretty much move the market where they see fit.

3:38We continue, we as investors, like the three of us, Motley Fool, we continue to believe that as long as the thesis of an investment is intact, investors are best off just buying the stock and sitting on their butts. Charlie Munger said something different, but I don't want to get in trouble with my producers. The thesis altering item. So if the thesis does change, it seems like it would be spending on NVIDIA chips and all the supporting infrastructure that we've seen over these past quarters and maybe year, two years, three years. You could say that if it's being done in this arms race to control the most chips and things like that, instead of being allocated as the best place to make a return, that would seem like it would be thesis-altering.

4:23And that is kind of the thesis to say that we're in a bubble. So, I'm going to bring it back up again, because we bring it up so many times, and it gets discussed so much in financial media these days, is the obligatory bubble question. To each of you, does this most recent NVIDIA earnings report ease your concerns about a potential bubble or exacerbate them? Chris Hillman I've said before that I feel like AI is in somewhat of a selective bubble right now. What I mean by that is some stocks out there, not NVIDIA, are very inflated because investors think AI is going to 10X the business quickly.

4:59Companies like Palantir come to mind when I say that. But when it comes to the big tech companies that are really building out the infrastructure for AI itself, I really don't see it as a bubble. For one thing, they're building real things with practical use cases like data centers. As these large language models and AI technology in general gets more capable, the need for more compute will grow almost exponentially, like Johnson Huang said. One number that stood out to me is the$65 billion in revenue that's expected in the fourth quarter, which would be an additional 14 % growth sequentially in NVIDIA's revenue.

5:35That has to be a direct impact of when you saw companies like Google, like Meta, Amazon investing more than anyone had expected in AI infrastructure. So, for the big ones, I don't really think it's a bubble. Yeah, this report from NVIDIA is easing my concerns when it comes to an investment bubble. I agree with Matt. There are companies out there that are overvalued, and I don't deny that. But that's kind of always the case. When it comes to this whole AI play, this AI trend, you start to look at some of these numbers and you're asking with a bubble, when does the spending peak? And personally, I still haven't seen the top of the mountain when it comes to the spending.

6:19we already had the NVIDIA quote, but all of these other players are continuing to say, look, as far out as we can project, we're sold out. You look at the memory players as well, the ones who are supplying the memories for these data centers, they're saying, look, we're already taking orders for 2027 because 2026 is already sold out. So that to me says, it puts me a little bit more at ease when it comes to this talk of a bubble. Now, why am I concerned about a bubble in the first place because these numbers are so stinking large. We're talking orders and hundreds of billions of dollars. We're talking about trillions of dollars in infrastructure spend as a whole annually.

6:57Those numbers are too big for my puny mind to comprehend. So I do get concerned about a bubble, but the NVIDIA report continues to put it at ease because there is real ongoing demand there. One sector that I think really wishes they could get some of that trillions of spending going on is the housing industry. So coming up, we're going to do some earnings reports from the home improvement sector. The Civil War and Reconstruction was a pivotal era in American history. When a war was fought to save the Union and to free the slaves. And when the work to rebuild the nation after that war was over turned into a struggle to guarantee liberty and justice for all Americans.

7:38I'm Tracy. And I'm Rich. And we want to invite you to join us as we take an in-depth look at this pivotal era in American history. Look for the Civil War and Reconstruction wherever you find your podcasts. Of all the retail companies out there, Home Depot's and Lowe's are, in my opinion, some of the most fascinating to follow. Not because they, you know, put up weird surprises from quarter to quarter, like, surprise, you didn't know this was coming. But more, in my view, it gives us a unique window into the housing market. They are the two largest home improvement retailers. And the third, I don't even know if I could name the third and who is the trailer behind these two companies because they are almost a duopoly.

8:25Both Home Depot and Lowe's reported earlier this week. And like the prior quarter, the thesis that we're still in a weak housing market still seems to be holding up with tepid housing sales, tepid issuance of second lines of home credit for home improvement, and things like that. It seems to be relatively consistent. I wanted to get your guys' takes on the companies a little bit more specifically, starting with Home Depot and Lowe's, giving a compare and contrast of the two. Did we see similar results from both of them? If not, what one did better in your view? Tyler, you're right about the duopoly.

9:03If I had to guess, My best guess would be that Ace Hardware is the No. 3, but I don't know that for a fact. Neither one of these companies, I wouldn't call either of them great in terms of earnings. Home Depot missed earnings for the third consecutive quarter. I remember when they used to beat quarter after quarter after quarter. They lowered their guidance. They now expect a 5 % year-over-year earnings decline for the full year of 2025. They blamed the weak housing market correctly for the lack of demand. And the relatively calmed natural disaster season we saw, it hurt expected sales of things like generators and roofing supplies.

9:36Although I think we would all agree that that's a good problem to have, better than just generally consumer headaches. Mortgage rates continue to stay very high. And keep in mind that a main way homeowners finance large projects is by tapping into home equity. Lowe's had many similarities to Home Depot, as you would expect, being a duopoly. It also lowered its full-year earnings guidance, for example. Lowe's grew comparable sales slightly in the third quarter. They beat expectations, which is the biggest contrast. Home Depot fell by about 6 % after earnings. Lowe's gained 4%. It's really just because one beat expectations and one didn't, although it's not as big of a gap as that makes it sound.

10:17Yeah. If I was forced to pick a winner between these two companies, I think I would choose Lowe's. I think its report was just a tad better than Home Depot. But really, there's no strong material difference between the two reports. They're both seeing pretty much the same thing. They both mentioned that lack of hurricanes was a headwind to the business in this quarter. And as a Floridian, I'm grateful for that. I agree with Matt, it's a good problem. But organic growth is hard to come by for these businesses right now because of the market that they are in. really the only material growth for either company came from acquisitions.

10:52So Home Depot acquired GMS, which distributes drywall and steel framing to job sites. Lowe's acquired a GMS competitor in FBM. Both of these businesses, as a duopoly, they're fiercely competitive. And so they're both going after these professional customers. And when one makes an acquisition, you know the other one's going to make a similar acquisition so that nobody takes market share from anybody else. They're going to try to preserve what they have, but not a lot going on for organic growth right now, but a couple of acquisitions boosting the top line. So now we're going to do my favorite part where we try to read through the tea leaves a little bit of the conference calls, the earnings reports, maybe some little tidbit in the press release.

11:32Was there any clues to you or worthwhile tidbits about the housing market writ large that you saw from either of these companies? Yeah. Yeah, I mean, if you look at the results, both of these companies are trying to service two customer bases. One would be the homeowner, and the other would be the professional. And you look at the homeowners, they seem like they're doing fairly well, they're in a good place, they're still spending, and homeowners will continue to spend regardless of economic conditions. They may not take on big purchases, but the little things, you know, we're going to replace the light bulbs, that sort of stuff.

12:08Homeowners are doing okay. The pros are the ones that are struggling a little bit more because the housing market is stuck in neutral. And Matt will speak more to that in a minute. So, that's really what's going on right now, is that there's not a whole lot going on in the professional market, but homeowners are doing just fine. Yeah. To John's point, Lowe's CEO, Marvin Ellison, he said that homeowners are healthy financially, but the uncertainty is making them pump the brakes on large projects. Home Depot, similarly, he said homeowners are in a, quote, deferral mindset when it comes to spending on projects.

12:38There's a reason that home equity in the United States is at its highest level ever right now. It's because people are largely on the sidelines. We need either for home prices to come down significantly, which I don't see as particularly likely, or for mortgage rates to trend significantly lower, which is more likely but could take a while. That's really what we're going to need to thaw the housing market and to return Home Depot and Lowe's to any type of growth. It's not really a question of demand. People want to do projects. People want to buy homes. It's just cost prohibitive right now. I want to toss one more kind of tidbit into that too.

13:13As you said, housing prices, mortgage rates, but also there's that sentiment thing. And I think there's a lot of consumer sentiment, especially around things like unemployment. We're seeing job cuts. We're seeing consumer sentiment surveys are way, way down. And even with lower mortgage rates, if people are in such a malaise in terms of their spending, That's going to make it that much harder. To take it one step further, it's not just that the rates have to come lower. People, I think, are going to have to actually get comfortable with those rates to really take on that big project. Coming up after the break, the marathon for earnings continues with America's largest retailer.

13:54Normally, we wrap up the Thursday show with stocks on our radar, but with so many intriguing earnings stories this week, we're going to do one more, and that's Walmart's earnings. This one stood out again this quarter because after Target reported earlier this week and kind of went into their bag of management excuses, Walmart once again put up great numbers and raised its sales outlook for the fiscal year. Now, John, you, Rachel, and Travis covered Target's earnings yesterday, so we're not going to get too deep into Target's numbers specifically. Matt, I want you to give the results of Walmart.

14:28And then, John, I want to ask, after seeing Walmart's results, if it changed your opinion on Target's at all? Yeah, you're right. Target had a rough quarter after four years of what I would call essentially flat revenue. And with an incoming CEO, I wouldn't say it was a big surprise that the quarter was rough. But Walmart, their earnings really just highlight how resilient the business is during uncertain times. There's a core customer base that's going to shop at Walmart no matter what. But during uncertain times, customers who typically shop at higher-end grocery stores and things like that, they often gravitate toward Walmart to stretch their budgets.

15:03During the 2008 Great Recession, for example, Walmart was the best-performing stock in the S &P 500. That's why their sales actually went up. Not only was Walmart's Q3 impressive, but they did raise their full-year sales guidance, which is especially interesting given the government's shutdown disruptions in the fourth quarter, including snap benefits not coming to some people. But it does make sense, considering the grocery inflation we're still seeing out there. Consumers want to make sure they're getting the best possible deals. And you're not going to get that at Publix or Kroger. You're going to get it at Walmart.

15:37Yeah. To your original question, Tyler, I think that Walmart's results confirm my beliefs that Target had a bad quarter. And I think there's a good lesson in here for investors. Because if you want to go deep in your research as an investor, I think listening to the conference calls is a good place to start. But then going even deeper still is evaluating that management commentary in light of the financial results of some of the competitors out there. If you were to listen to Target's earnings report, they mentioned a lot of things that competitors didn't seem as impacted by specifically Walmart.

16:15So Target said the consumer was cautious. Walmart didn't. Target said consumer sentiment is at three-year lows. And that's actually true. But Walmart wasn't affected by that. So Target mentioned that consumers are worried about jobs and tariffs, but Walmart didn't mention those things either. I will say that Target did mention that consumers want value. Walmart agrees. And herein lies what I think the real problem is here. This is a hot take. Like, Walmart has a reputation for value. Target doesn't as much. And so, Target is kind of in between worlds. It wants this elevated experience. That's how it talks about it.

16:52But it also wants it to be known for bargain prices. And I think it's struggling to be both things at the same time. Whereas, Walmart isn't trying to give consumers an elevated experience, in my opinion. And its customers just accept it. That's where you're going to go for the deals. I think that Bath & Body Works might be in the same kind of in-between worlds problem that Target has right now. Bath & Body Works stocked down big today. It's trying to provide this maybe higher experience, but also its consumers want value prices. It's tough to be both things at the same time. Walmart doesn't have to try to be both, and I think it's showing in its financial results just laying out a better quarter than Target.

17:30Yeah, at this point, I'm not sure how many more excuses Target can have, because this is becoming quite the quarterly tradition where management says something that outside of their control is wrong. And then Walmart kind of makes Target's management look silly less than 48 hours later, even with a change in CEO, because we got a new Walmart CEO this quarter. And it'll be interesting to see if Target's saying, you know, new guy on the job, thing like that. And I'm sure that Walmart's just going to put up great numbers again, even through a transition. We'd love to keep going, but that's going to be all the time we have for today.

18:03Matt, John, thanks for sharing your thoughts. A quick programming note, we won't be doing a show next Thursday for Thanksgiving. So this crew of rotating Motley Fool hosts and analysts will get to be the first people to wish everyone a happy Thanksgiving. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only.

18:37See our full advertising clip disclosure. Please check out our show notes. Thanks to our producer, Dan Boyd, and for the rest of the Motley Fool team. For Matt, John, and myself, thanks for listening, and we'll chat again soon.