Newscasts - Market Talk: Nvidia's revenue growth 'slowed considerably'
27/02/2025 22:17
Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_9mgp9iit&referenceId=tag:reuters.com,2025:newsml_RW491127022025RP1_930&pageId=Newscasts Source: 'Reuters - Business videos' Description: Ben McMillan, chief investment officer and co-founder of IDX Advisors, discussed why shares of Nvidia dropped Thursday, a day after the AI chip leader forecast upbeat quarterly revenue. Lisa Bernhard has more. Short Link: https://refini.tv/3D15S8W Video Transcript: NVIDIA stock gives up early gains despite a strong outlook. Is the AI chip leader a victim of its own success? Let's ask Ben McMillan of IDX Advisors. Ben, you and I spoke yesterday, and you said you would be listening very carefully to what NVIDIA's outlook would be. It was very strong. The stock is down today. What's going on? It's a very good question. So, the good news is they beat Wall Street estimates, fairly handily in fact. But it wasn't necessarily the blowout report that investors had been either hoping for or accustomed too. So, when we look at the good news, it's a little bit of a mixed bag. But the good news is the company record revenue in their Blackwell chips division which, remember, it's their top-tier chips, that exceeded expectations that also helped address investor concerns over DeepSeek slowing demand potentially. Now the bad news, however, was that the pace of its data center revenue growth, which accounts for most of its revenue, slowed considerably. Also, gross margin started showing some compression. So, the takeaway is the fundamentals are still very strong, but there's definitely some investor concern around slowing growth, shrinking margins, especially when you got valuations at these levels. Do you see AI as developing on two tracks, essentially, where you have the lower-priced DeepSeek and then you have the Meta's and the Microsoft's, who were spending all these billions of dollars, and that we proceed on both tracks and NVIDIA and others sell chips to both sides but kind of hope that they sell the more expensive chip? Is that one way to sum it up, or no? I think that's a great analogy. And for example, if you just look at kind of luxury carmakers, for example, a lot of them over the years have started with lower and lower priced models to kind of get the entry consumer into the brand and then they upsell them into the more expensive versions. I think AI chips is very much similar to that. And so, again, you look at what NVIDIA has done? I mean they developed a chip, the H20 chip, specifically for China as kind of a chip that was a little bit lower tier, also compliant with export regulations, while meanwhile pushing their more expensive top-tier Blackwell brand, and for different use cases. You know, one thing that we started seeing is AI is going to have multiple different use cases, many of which we don't even necessarily know about right now that are going to require different elements of different shifts, different powers for both calibration as well as post trade computational power. And so, broadly speaking though, the thing to keep in mind is that this competition ultimately is very good. I mean, it's not unlike what we saw in the early days of kind of the internet revolution where individual companies may benefit or not, depending on what their product is, but ultimately the consumer- and in this case, the economy and companies generally are really going to benefit from the democratization of access to AI as it integrates into their businesses and drives more cost efficiencies. Another concern for NVIDIA is this Administration limiting exports to China, and other places. And relatedly, there was a blog post today by the Microsoft president addressing the Trump Administration about this. What exactly does he want? What was interesting about that was Microsoft, specifically, actually referenced something that was done in the final days of the previous administration, which was designed to restrict AI chips and technology exports not just to China, but to allies more broadly. And that's what Microsoft referenced- India, Switzerland, Israel. And I thought what was interesting, there was a quote in there where they said, "Left unchanged, the Biden rule, will give China a strategic advantage in spreading over time its own AI technology, echoing its rapid ascent in 5G telecommunications a decade ago." So, I think this is really more broadly about US's competitive standing on a global basis as it relates to AI and not letting China gain too much of the market share at a crucial component or crucial time in the growth curve of AI, globally.