Nvidia earnings: What to expect from the AI darling

And last but obviously not the least to report, we've got NVIDIA. The AI chip giant with a market cap greater than three trillion dollars will close out the Magnificent Seven reporting towards the end of November. Joining us for more, we've got Toshia Hari. He is Goldman Sachs' head of U.S. semiconductor research and he holds a buy rating on NVIDIA. Toshia, it's always great to speak with you because you have such great insights into NVIDIA. I know that you recently met with Jensen Huang. You also had him speaking at the Goldman Tech Conference earlier this year. What is the biggest thing that you learned from those conversations that is going to impact your thinking heading into NVIDIA's print? Of course. Thank you so much for having me, Madison. You're right. We did have Jensen attend our conference in early September. We were also on the road with him and the rest of the team very recently. Look, there are a couple of things. First, in terms of the demand profile out there, the environment continues to be very robust. If there is a problem, it's a supply problem, not a demand problem. You've got the large hyperscalers, which we will hear from next week. From a couple of them, they're still in the early stages of the buildout. From an AI infrastructure perspective, the customer profile is broadening beyond the hyperscalers into enterprises and also sovereign states. There is demand across the board there. Secondly, I think there has been this perception historically that NVIDIA is very strong in training, yet their competitive position could potentially dilute as we transition to inference. As you look at the most recent models that have come out from OpenAI, the complexity from an inference workload perspective is going up, and as that proliferates to other models, we think that will only grow NVIDIA's growth opportunity set and potentially expand the competitive moat that they have. So again, demand very strong, competitive moat very sustainable as well. Yeah, so Tushita, it sounds like you're saying that any concern almost of the fact that NVIDIA could be slightly losing their dominance or the fact that some of these smaller players are gaining maybe more of a competitive edge or better able to compete with NVIDIA doesn't sound like that's worrying you at all. It's something to definitely keep in mind and be cognizant of. And there are a handful of startups that are making really good progress. There are other merchant companies as well that compete effectively with NVIDIA. But when you think about NVIDIA's ability to really innovate across multiple components, if you will, it's not just the GPU. They've got their internally designed CPU, the gray CPU. They've got NVLink, which is a switch that essentially connects multiple GPUs. They've got Ethernet connectivity. They have InfiniBand connectivity. And obviously, they have a very broad suite of software that augments their hardware capability. So when you think about their breadth and their ability to innovate at a 12, 18 month cadence, I think it's going to be very difficult, very challenging and expensive for others to compete head to head with NVIDIA. I want to get your response, Tushita, from two things that analysts we've spoken with have called out in a somewhat bearish case on NVIDIA, though you can't really be bearish on NVIDIA right now. But they've talked about the potential competitors, something like a Cerebris, for example. They've also talked about the potential slowdown in demand if we do have a macro challenge moving forward. Which of those two do you think is more likely, or do you think that neither one is actually going to be that big of a headwind for NVIDIA? Yeah, it's a great question. Between those two, Madison, I would say the latter probably comes up more and more in our conversations with investors. Again, I don't think the company is complacent in any way. They are very paranoid when it comes to competition. But again, the bigger debate is really how to think about sustainability of demand going forward. The majority of investors, we believe, are fairly comfortable with the outlook going into calendar 25. The big question mark is calendar 26. To the extent CapEx continues to go up at the hyperscalers, potentially negatively impacting their gross margins, their free cash flow, what does that mean for 26 and beyond? So between those two, Madison, I would be a little bit more concerned about the latter. But again, at this point, we remain pretty positive on the stock and on the trajectory going forward. Talk to me about what you've heard from those hyperscalers about their CapEx when it comes to NVIDIA. There's been this big question about whether or not we're going to see a return on that investment from hyperscalers. What are you hearing about that? As of now, Madison, I think, again, as a group, as a cohort, the hyperscalers are very much in build mode. Our colleagues, Capital Spending Estimates for calendar 25, the bottoms-up number is suggesting sort of mid-teens to high-teens growth. We do think based on what we're hearing from customers and partners and the supply chain in Asia, there's probably more upside risk to those numbers. So again, we'll find out as we progress through next week and a couple of the big customers report. We do think there's potential upside there. Again, the big debate is not so much calendar 25, it's really calendar 26. At this point, it's very difficult to prove or disprove where things are headed beyond 25. To the extent we're sitting here in 6-12 months and the monetization is not there, the ROI is underwhelming. Increasingly, we would potentially become a little bit more worried about not just NVIDIA, but the companies that really make up the ecosystem from an AI infrastructure perspective. But at this point, again, we remain very constructive. So Tashia, what does that tell us about where the stock's headed? I'm guessing it's headed higher, in your view, and you see new all-time highs on the horizon. That's right. We do expect upside from here. When we compare and contrast how we're thinking about the 25 earnings profile, the margin profile for the company relative to street consensus, we're modeling about $4.65, give or take, in EPS for calendar 25. As of this morning, I believe we're about 15 percent above street consensus. So again, we have about a month left until the company reports. But as we've progressed through earnings season, we hear from the hyperscalers, we hear from NVIDIA in a month's time, we would expect street numbers to move up and for that to drive the stock higher as well. All right. Tashia Hari, Goldman Sachs Managing Director. Thanks so much for taking the time to join us.