Could Jensen's Exit Actually Be Good for Nvidia?

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Friday, November 13th. In today's episode, we'll break down this morning's inflation report and why a December rate hike now looks like a done deal. We'll also break down what NVIDIA could look like without Jensen Huang and why his departure could be a good thing for NVIDIA stock. But maybe not so much for other AI stocks. Then stick around to the end of the show to find out the reason why toy sales are booming in the U.S. We got a great show for you today. Let's go. Wall Street kind of shrugged off one of the biggest corporate bombshells in history yesterday. The S&P 500 and NASDAQ each fell about 0.4%. And given the news, I'm surprised it wasn't more. Obviously, NVIDIA is the center of the action here after Jensen Huang resigned as CEO. NVIDIA stock opened down around 13% yesterday, but recovered a big chunk of those losses throughout the day. And close down just 4.3%. It looks like a ton of people came in and bought the dip, especially retail investors. According to Vanda Research, in the first 30 minutes of trading on Thursday, $111 million of Nvidia shares were bought, which is the largest opening half hour ever. In fact, it's 40 times the normal volume for NVIDIA's stock at the open. So despite Jensen stepping down, investors seem to be confident in the company. We'll actually talk more about why that is in a bit. Now, this morning, the big macro story is the October wholesale inflation report. The producer price index, or PPI, rose 0.3% in October. Now, that was a little better than the 0.4% increase that economists were expecting. But if you look at core PPI, which strips out food and energy, that rose 0.3%, which was right in line with expectations. But if you compare October's wholesale prices to October of last year, wholesale prices were up 6.5%, which is the fastest pace. In nearly four years. So yeah, inflation is still very much a problem and the market seems to be freaked out about it. Both the S&P and Nasdaq are down around 1% at the time of this recording. You know, at this point, a December Fed rate hike seems inevitable. I think the question now is how big of a rate hike are we going to get and how many rate hikes will we get next year? You know, we still have a few more weeks until the Fed meeting. A lot can change between now and then. We'll continue to stay on top of it all. And we're still tracking earnings as well. Next week, we're going to be hearing from NVIDIA. That's going to be crazy. We're also going to be hearing from Disney, Target, and Walmart. So a lot to talk about as we get closer to Thanksgiving. 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 once again. Now that the initial shock of the Jensen Huang resignation has settled in, Wall Street is trying to figure out what this means for NVIDIA and the AI boom at large. You know, as I just mentioned, retail investors still seem to be bullish. The dip buying yesterday was massive. But if you zoom out, though, NVIDIA's stock has dropped 30% from its peak back on on October 6th. And right now, Wall Street analysts are split on whether losing Jensen is a disaster for the stock or maybe even a blessing in disguise. You know, Jensen was a classic key man risk for NVIDIA. He was the face of the company. He was the face of the AI boom for that matter. And at the company, he kind of ran it like a startup. You know, he had 60 direct reports, which is absolutely crazy. There was no succession planning at all. From what I've read, Jensen was still running NVIDIA like a gaming company. And not like the most important company in the world. So this could be a chance for NVIDIA to kind of reset all of that and become more professional. And you know, NVIDIA still has a dominant position with their technology and a long list of customers, not to mention their CUDA software platform gives them a massive moat as well. Plus there's not gonna be an impact to their innovation in the short term because NVIDIA plans their chip and system developments years in advance. The products that are already in development aren't gonna disappear because Jensen is gone now. If you just look at the numbers for the company, I mean, over the next four quarters alone, NVIDIA is projected to generate over $260 billion in free cash flow. That's on top of the nearly $100 billion in cash the company already has in the bank. So NVIDIA still has a dominant position today when it comes to their AI chips, and they'll likely keep that position in the short to medium term. The harder question to answer, though, is whether they can keep that dominant position Over the next several years with. Without Jensen's vision guiding the strategy. You know, he was the guy who pivoted NVIDIA to be an AI company a decade ago before anyone knew what ChatGPT was. So there's going to be a lot of pressure on whoever the next CEO is to keep that vision and innovation going. And look, we have a great example of a tech company doing just fine after replacing a visionary CEO. You know, when Steve Jobs stepped down as CEO of Apple in 2011 for health reasons, there was a huge question. On whether Apple could thrive without him. Obviously, Apple struggled in the 90s without Steve Jobs. But when Tim Cook took over, he did a fantastic job. He scaled up Apple's operations. And Apple went on to become one of the most valuable companies in the world. In fact, they're back to being number one again. Now, this doesn't mean that NVIDIA will follow in the same path. I mean, Apple had a succession plan in place. NVIDIA is kind of scrambling right now. But it does show that losing a visionary founder doesn't automatically mean that the company is cooked. No pun intended. So, you know, I think NVIDIA is going to be fine. I think the bigger question, though, is what's going to happen to the AI industry at large? You know, NVIDIA played a crucial role as the AI industry's financier. Now, Jensen was making all these deals and investing in all these companies across the AI ecosystem. In fact, a lot of people accused NVIDIA of doing circular financing deals. And I imagine the next CEO. Won't have the same level of influence that Jensen had. And they probably don't want the spotlight on NVIDIA that came with all these circular financing deals. So I wouldn't be surprised if NVIDIA scaled back some of those investments and deals, which could slow down the AI ecosystem as a whole. Like what's going to happen to the data center build out if NVIDIA isn't backstopping some of the deals like they have been over the last couple of years. So I think that's going to be a key question. And it's only going to add more pressure to some of the companies that have been dependent on NVIDIA, On the flip side, though, NVIDIA isn't investing in all these AI companies. They could invest more in their R&D and also have more cash left over to do more share buybacks and pay out dividends. Again, it's possible that NVIDIA shareholders could be winners here, at least in the short to medium term. I think the last big question here is what's going to happen With China, you know, Jensen lobbied hard in Washington, D.C., to push back against U.S. chip export restrictions. And with him gone, I mean, lawmakers could pass stricter export rules that could impact NVIDIA's sales overseas. So I think that could be the biggest impact on NVIDIA's business in the short to medium term. We might learn more about NVIDIA's future next week. The company does report earnings on Tuesday after the close. I'm sure interim CEO Colette Kress is going to get asked a ton of questions about NVIDIA's future. So I'll definitely be tuning into that earnings call. I mean, that might be the most tuned in earnings call in history. I might have to live stream or throw a watch party for that one because there is going to be so much buildup leading into that earnings call. Let's talk about some stocks making moves today. Good day. Shares of the AI chip maker Cerebras are up this morning after they crushed earnings last night. Now, a quick refresher on Cerebras. They make AI chips that specialize in inference workloads. Their chips are these giant dinner plate size things. And the company IPO'd earlier this year, and they just put up a monster quarter. Adjusted revenues came in at $230 million. That's up 70% from last year and way ahead of the $214 million that Wall Street was expecting. On top of that, the company reported a profit of $0.12 a share on an adjusted basis. Analysts were expecting the company to report a loss of $0.14, so they beat easily on that as well. And I think the guidance was even better. Cerebras expects to make $310 to $330 million in revenue this quarter. Analysts were expecting somewhere around $270 million. So their numbers... crushed it across the board. And then the cherry on top was that Cerebras announced that they landed a large deal with Microsoft. Not to mention the company announced recent deals with Amazon. And the reason that's big is because back in the June quarter, OpenAI alone made up 32% of Cerebras' revenue, so they're starting to diversify that now. The market, like what they heard, Cerebras' stock is up around 10% this morning in reaction to the report. Now, Cerebras is down almost half from their IPO price of $185 a share, but they could be one of the big winners moving forward with Nvidia dealing with the leadership crisis right now. Now, speaking of Microsoft, if your work email. The company announced that the outage affected Outlook. Teams and Copilot. I doubt many people noticed the Copilot was down. And the scale of this outage is massive. Over 430 million Microsoft 365 users were impacted in more than 70 countries. You know, this outage has been impacting hospitals. It even forced companies to delay their earnings report. Now, thankfully, Microsoft says this wasn't a cyber attack. Apparently, some servers went down and the rest of the servers couldn't handle the load, which caused the outage. Microsoft says they're still restoring things, but it's not fully fixed yet. It might be a chill Friday at work for a lot of people. Microsoft stock was down as much as 3% in the pre-market, but it has recovered some of that at the time of this recording. Let's wrap the show with a fun fact. The toy business is booming this year, and it's not because kids are buying more toys. It's because teenagers and adults are buying more toys for themselves. According to the research firm, Circona, U.S. toy sales jumped 20% from January through the end of September this year compared to the same period last year. And it's not because of inflation making toys more expensive. The number of toys actually sold was up 18% as well. What's interesting is that the majority of the growth is coming from shoppers ages 12 and older, especially adults. Adults are now treating toys like lifestyle products and collectibles. Collectible toy sales were up. 56% this year. This includes things like sports cards, Pokemon cards, action figures, and Lego sets. I think it's a separate conversation if sports cards and Pokemon cards should be considered toys, but according to this research, they are. A few more interesting stats from this report, sales of sensory toys like squishies and stress balls hit $671 million this year through the end of September. That is up 6x from a year ago. And I can personally confirm that. That squishies are super popular with seven-year-old girls, my daughter and her friends. Can't stop talking about these things. I also found it interesting that key chain sales were up more than 200%. But I think the most interesting stat from this report was that toy sales on TikTok shop are up nearly triple this year to $1.6 billion. And TikTok shop now accounts for 5% of all toy sales in America, making them the fourth largest toy retailer in the US. I mean, that was a pretty wild stat for me. It does make me a bit nostalgic for the Toys R Us days. That was, what an era that was. The millennial listeners know what I'm talking about. Going to Toys R Us back in the day, I mean, that was just an incredible experience as a kid. Well, all right, guys, that's the rundown for today. That's the rundown for this week. And oh my God, what a week it was. The news cycle has been absolutely crazy for the last few weeks. And I think we got one more big week ahead of us. Thank you to everyone tuning into the show this week and taking the time to comment as well. You know, all that engagement really does help us out and it helps other people find the show. Thank you guys again for listening, watching and commenting. Shout out to Mike and V for all of the work behind the scenes. And we'll see you guys here in the next one.