Nvidia Just Silenced the AI Bubble Narrative

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zayd Admani and today is Thursday, August 27th. In today's episode, we'll break down NVIDIA's monster earnings report that should quiet some of the AI haters. We'll also tell you why Salesforce is ripping higher while HP is getting hammered after earnings. Then stick around to the end of the show to find out why young Americans are suddenly becoming some of the biggest AI skeptics in the country. We got a great show for you today, let's go. Stocks basically went nowhere on Wednesday. The S&P 500 finished flat for the day while the NASDAQ slipped 0.1%. Yesterday was actually the second lowest volume day of the year. Everyone was sitting on their hands waiting for NVIDIA earnings, which we got after the bell last night. And yeah, it was huge. We'll break down the numbers in a second. But tech stocks are getting a boost this morning from NVIDIA. While other sectors are in the red, I think investors are rotating back into tech after hearing what NVIDIA had to say on their earnings call last night. So we'll see if this leads to a long-term tech rally. The other big macro story we're watching is the Fed gathering at Jackson Hole this weekend. Fed Chair Kevin Walsh will give a speech tomorrow, so we'll keep an eye on what he has to say, especially with all the chaos happening in the bond market. So definitely get subscribed to the podcast if you haven't already and tune in every day to stay in the loop. Let's run through some headlines. And we're talking NVIDIA. NVIDIA reported earnings last night, and man, they absolutely crushed it across the board. Revenues more than doubled from a year ago to $96.2 billion, and adjusted earnings came in at $2.22 a share, both those numbers comfortably beating estimates. NVIDIA's data center business alone generated $89 billion and now accounts for more than 92% of the company's total revenues. So yeah, the Q2 numbers were solid, but what really stood out was the guidance that blew everyone away. On the earnings call, NVIDIA CFO Colette Kress says the company expects revenues to grow about 70% next fiscal year. Wall Street was expecting a 45% growth, so that guidance blew expectations out of the water. What's crazy is that the 70% growth forecast is actually supply constrained, meaning that NVIDIA still can't make enough chips fast enough to meet all their customer demands. So all the concerns about Google and OpenAI and Amazon building their own chips have basically had zero impact on NVIDIA. In fact, the hyperscalers are still buying a ton of NVIDIA GPUs. Amazon alone plans to deploy another 2 million NVIDIA GPUs starting this quarter through fiscal 2029, and NVIDIA said that every major hyperscaler has already placed orders for their new Vera Rubin system, which started shipping earlier this month. And what's key here is that NVIDIA said the demand is also broadening beyond just the hyperscalers. You have AI labs wanting their chips, neoclouds, startups, enterprises, robotics companies. Basically, everybody wants compute. So I think it was that monster outlook from NVIDIA that has the stock ripping higher this morning. Shares are up around 7% in pre-market trading at the time of this recording, and that's notable because for one, NVIDIA is the biggest company in the world with a $5 trillion market cap, so a 7% move is massive. And also because NVIDIA stock had actually fallen the day after reporting earnings in the last four quarters. So that trend might finally break today. On a side note, NVIDIA has beaten earnings for 15 straight quarters now, pretty much since ChatGPT came out in November of 2022. Now there were a couple notable things from this earnings call. The first was NVIDIA's margins. The company expects their gross margins to dip from 75% in Q2 down to around 71% by the fourth quarter because the cost of memory from suppliers like Micron and SK Hynix have skyrocketed. This is affecting everyone in the tech industry. We've talked about it a lot. Now NVIDIA is absorbing a lot of those costs right now, but they're also rolling out price hikes to get margins back to near 73% by next year. Another major topic on the earnings call was circular financing. Now we've talked a lot about that on this show. NVIDIA is investing billions of dollars into AI companies. They're also providing financial guarantees and co-signing data center buildouts because those data centers will ultimately be filled with NVIDIA chips. NVIDIA's management went on the defensive against the criticism of circular financing. CFO Colette Kress said they don't see it as circular financing because they aren't handing out loans to their customers. Their argument is that they're just trying to help these AI companies scale. And they also said that if something does go wrong with some of these companies, well then NVIDIA's AI chips can be redeployed somewhere else because the demand for their chips is so high. Now, I don't know if that's a satisfying answer, but honestly, I don't think anyone cared last night because of how strong the earnings report was. Here's another interesting detail from the report. NVIDIA did finally sell a small number of H200 chips into China last quarter, but those sales represented less than 1% of their data center revenue. So China is basically not contributing to NVIDIA's AI business right now. But if NVIDIA eventually gets meaningful access to the Chinese market again, that could become another source of demand on top of everything else we just talked about. So all in all, this was a massive quarter from NVIDIA. And this should quiet some of the AI concerns for a bit because there seems to be no signs of an AI slowdown. By the way, hours after the earnings report, we got another big NVIDIA story. According to the information, NVIDIA has agreed to buy Hugging Face for $12.9 billion. Hugging Face is basically a hub where developers share and download open source AI models. And NVIDIA has been pushing for more open source models because those models usually run on NVIDIA's hardware. So this acquisition could be a way for NVIDIA to boost the open source ecosystem. So yeah, NVIDIA keeps crushing earnings and they keep making moves. And I wonder if we're going to now see a big rally in AI stocks in the second half of the year after this monster report. Let's talk about some stocks making moves today. Salesforce shares are soaring this morning after the company beat earnings expectations and raised their full year guidance. Revenue was up 11% last quarter to $11.35 billion, which was slightly ahead of estimates. Adjusted earnings came in at $5.90 a share, which was way ahead of the $3.27 that was expected. Now that profit number needs a little bit of context because Salesforce saw a $2.6 billion gain on its investment in Anthropic. So the underlying earnings beat wasn't quite as impressive as the $5.90 number makes it look. But the more important story here is that the SaaSpocalypse narrative that everyone keeps warning about, it's not actually happening. You know, the fear all year from Wall Street has been that these advanced AI models from ChatGPT and Claude would allow businesses to replace using software services. Because you know, if an AI agent can do the work for you, why keep paying for a bunch of different software subscriptions, right? Well, Salesforce CEO Mark Benioff used this earnings report to dunk on all the haters and said the SaaSpocalypse narrative has been nonsense. He's making the case that AI is fueling their business, not destroying it. And he actually has the numbers to back it up. Salesforce said that nine of the 10 leading AI companies use Salesforce and Slack and that their spending on those platforms is up 435% from a year ago. So if these AI companies are using Salesforce and Slack, it's a good chance that Salesforce and Slack are not going to get replaced. In fact, Salesforce is now expanding their partnership with Anthropic. They announced something called ClaudeForce. Basically, companies will be able to connect Claude directly to their Salesforce data. So a salesperson in a company could ask Claude to pull information on a customer or draft an email or update the CRM and perform other tasks without bouncing between a bunch of different apps. Coming into the earnings report, Salesforce stock was down more than 20% this year, but shares are bouncing back big today, up more than 10% in pre-market trading. So maybe investors will finally start buying into the narrative that AI will end up helping these existing software companies. Longtime listeners know that's pretty much how I've felt all year. Moving on, let's talk about HP. Their shares are tanking, even though the company topped earnings expectations and raised their full year guidance. The PC maker reported earnings per share of $0.83 on revenues of $15.7 billion. Both those metrics were higher than expected, but the stock is still down this morning because the overall volume of their sales is down. PC shipments dropped 16% last quarter, with the consumer unit down 19%. But the reason the revenue was still up on the quarter was because of price hikes. HP is having to raise prices because of memory shortages to offset the higher costs. HP generates around 70% of its revenues from PCs and laptop sales, so while the higher prices might juice up the total revenue, HP is selling less units. The other wrinkle from this earnings report is that part of HP's earnings beat came from tariff refunds. The refunds added about 11 cents per share to their earnings last quarter. So on the surface, this report looks a lot better at first glance than when it does when you start digging through it, and that's why the stock is down nearly 13% at the time of this recording. Let's wrap the show with a fun fact. Young Americans are becoming some of the biggest AI haters in the country. According to a new survey by Pew Research, 55% of Americans under the age of 30 now say that they're more concerned than excited about AI. That is the first time a majority of young adults have felt that way since Pew started asking the question back in 2021. And a lot of the hate these days has to do with jobs. 73% of Americans under the age of 30 think that AI will lead to fewer jobs over the next two decades. So you can see why young people wouldn't be a fan of AI despite them being some of the heaviest users of AI. They're using chat GPT and Claude for school and work and coding, writing and probably therapy and companionship too, if we're being honest. Now the optimistic side of me thinks that AI will lead to more jobs in the future because that's what new technology always does. But there is no doubt that today in the workforce, AI is definitely more helpful to someone with 10 years of experience than someone starting their career. You know, a lot of the work that an entry-level worker does is the stuff that AI is good at. So it is interesting that on the same day that Nvidia tells us that AI demand is doubling, the people who grew up with this stuff are increasingly becoming nervous about it. Let me know in the comments on what you guys think. Are you more excited or concerned about AI? And I'm not just talking about as an investment opportunity, just in general. How do you feel about it? Drop your thoughts on Spotify and YouTube. Well, all right, guys, that's the rundown for today. Hope you guys enjoyed today's episode. Thank you guys so much for listening, watching and commenting. Shout out to Mike and V for all the work behind the scenes. And we'll see you guys back here tomorrow.