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In Nvidia just reported earnings for the third quarter, than to say they were highly anticipated would be an understatement.
Nvidia earnings was said to be the most important day of the year for Wall Street.
Any speculating that these companies' valuations are over inflated, that the numbers have just got Wall Street has been worried about an AI bubble, and Nvidia, which is now the world's largest company by market cap, is seen as a bell weather for the entire industry. The biggest names in AI run on Nvidia's powerful chips, its graphics processing units or GPUs, including its Blackwell model.
There's been a lot of talk about an AI bubble. From our vantage point, we see something very different.
That's Nvidia CEO Jensen Wong on a call with Wall Street analysts after the company reported earnings that roundly beat Wall Street's expectations, and the relief among investors was palpable. Shares of Nvidia jumped by about five percent in late trading.
There was a lot more anxiety going into it.
Ed Ludlow is the co host of Bloomberg Tech.
If you look on social media, which can be precarious thing to do. There were lots of people saying, you know, either in Vidia is going to save or crash the global economy overnight. The stakes weren't as high as that, but it was serious and they certainly delivered.
In Video says it expects to generate roughly sixty five billion dollars in revenue in the coming quarter, and when Ed sat down with Jensen Huang on Wednesday, the CEO said, in Vidia is well positioned.
Sales are after charts for Blackwell and in Vidio GPUs in the cloud are sold out. We got plenty of Blackwells to sell you.
Things seem to have even more momentum than the most bullish people on the street thought that Nvidia had, and there is no evidence that at least the most important customs that Invidia has are reneging on or pulling back on their spending commitment.
So in Nvidia has allaid some fear AI is a bubble, but there are still concern about the circular nature of AI megadeals, how quickly high end chips to depreciate, and about the stratospheric valuations of many AI companies, which is reminding some investors of the late nineteen nineties and says he's asked executives if there's a parallel.
I asked the CEOs, and here's their answer, that the balance sheets now are different to what they were in the dot com bubble, that they see actually useful software being sold generating actual revenues. This is existential for many American companies. They are investing wholeheartedly in AI because they believe it will define what those companies do going forward. The idea that there's a bubble is secondary. It is not true. If these companies need to become AI companies,
you know, it's an absolutely necessary investment. The difference this time around they have the cash to support that.
I'm David Gera and this is the big take from Bloomberg News today on the show Relief after in Nvidia's latest earnings exceed expectations. How it's eye popping revenue forecast has quieted some of the concerns about the potential AI bubble, but the company and its backers still face some big challenges, as in video races to keep up with global demand
for GPUs. It's not slowing down ed. You've interviewed Jensen Huang a handful of times now, and I'm curious what your impressions of him are, what's he like as a leader, what's his personality like.
He's incredibly busy, obviously, you know when we spoke to him in that interview, he'd spent the entire day in Washington, DC at the US Saudi Investment Forum and then spent time with the president and managed to pull off an earning school and then an earnings interview in the same day, which I'm sure took a lot, but that kind of speaks to what he's like, as in videos, kind of ballooned and grown and become so big. He's taken that
in his stride quite a lot. You know, he is the focus of attention, but I think the first and foremost, you know, he would tell you that without speaking on his behalf, that he's an engineer, and so he is involved deeply in what's going on in the company.
So ed In Video released its latest quarterly earnings report after the close on Wednesday. I'm curious what stood out to you.
You know, in Vidia beat on the most important segment, which is data center revenues and compute, but what they said for the fiscal fourth quarter was really interesting, which is the quarter ahead the period that we're currently in.
Yes, I should say, yeah.
Yeah, sales will be sixty five billion dollars plus or minus two percent, and that's pretty significantly beyond consensus.
In Vidia is poised to start shipping a new GPU model next year. It's called the Reubens CPX, and it's designed to handle even more demanding tasks like generating video.
Nvidia does not give guidance. It doesn't give year ahead forecasts or very long term forecasts except it did you know on stage in Washington, DC? Curiously, you and I
were both in the city at the same time. Jensen was doing his PowerPoint presentation with the clicky thing, and this slide appears behind him, and the slide says, over the next six fiscal quarters, just from Blackwell Rubin products excluding China and Video says it will do five hundred billion dollars of sales half a trillion dollars of sales over six fiscal quarters. And the street was a bit like, huh, that's way beyond what we've modeled.
For This is a basic question. But why isn't video viewed as a bell weather for AI? Why is it such an important company for Wall Street to track.
Really simply, GPUs graphics processing units are chips that can handle multiple processes at the same time. They're very good for training AI models, and they're very good for running the AI models what we call inference. There are many more options now today than they were at say a year ago or two or three years ago, but Nvidia still has a monopoly, a technical monopoly for that market. And the vast majority of workloads, be they training workloads
or inference workloads, are done using in video gear. So Nvidia is a bellwether simply because if it's telling us this thing is happening, it has the best lens into
it happening. The slightly different answer than Nvidia would give you is that they are, in their mind the only technology company in history, in fact, the only company in history, irrespective of what field they're in, that will say to everyone, their customers, their competitors, their suppliers, the analysts, here's what we're doing for the next five years from a technology perspective.
And to their credit, they've done that. And so their argument is that the world that's around them, into apply chain and their customers and everything that's being built around data center has had a really good heads up of what's coming to market, and that's one reason why Wall Street at least believes what they have to say.
And what are the indicators that are leading some investors and analysts to say that if we're not in a bubble, we're in bubble territory.
There are two depreciation basically the idea that any generation of GPU or AI accelerator has a limited shelf life and therefore, because of the depreciation and its value, those big customers will have to mark down that value on their balance sheet at some point, noting that upfront they made massive commitments to spend on this technology. And the other is the circular financing thing, which isn't going away.
The idea that Nvidia is the biggest player in the technology and it gives billions of dollars to an AI company, a software company, and that software company takes that money spends it on VideA technology, and thus the circular financing argument. There's a concern that that is not a strong and long term underpinning of a market that will keep growing.
In Vidia says software updates extend the life of its GPUs, but those circular deals are giving some investors pause. In September, the company announced a one hundred billion dollar investment in open Ai to support new data centers and AI infrastructure, which will be equipped with in Vidia's advanced chips. Since the start of the year, in Vidia also inc deals with dozens of other companies, including Microsoft and Nthropic. You asked him about the circular nature of these deals as well.
You had a wonderful way of putting the question to him. You asked about all that open ai is committed to buying, and you said, effectively, are they good for it? How do you know they're good for it? And what was his response to that question?
Yeah? No, I literally said, how do you know that they're good for it? The way that Jensen described it in the interview is that their partnership with open ai is what he called disciplined.
Well, we're thought, along with open ai, thoughtful in aligning on and taking into consideration visibility of demand and their financing capabilities. All of that has to be in accordance, has to be aligned, has to be coherent before we start to build out. And so I think the ambitions large, but the execution is disciplined.
Previously in countenance to the circular financing discussion or debate, Jensen has said that nothing is a quid pro quo when they make an investment in open Ai, for example, there is no mandatory requirement that open Ai takes that money and uses it on Nvidia GPUs. They could use it to buy someone else's But there are plenty of
case studies where that just simply isn't true. Right this week alone, you saw the Nvidia investment in Anthropic, a big rival of open Ai, which also included one of the other cloud provider, And in that case, in Vidia makes an investment in Fropic, and Fropic gets money, and it does use that money to invest back into capacity that relies on Nvidia chips. He didn't really answer the question as it comes as it relates to open Ai. He just said that they're not concerned about it.
In the run up to the release of these earnings, these in video earnings, you saw some big shareholders offload a sizeable amount of stock. You saw a SoftBank do that, Peter Thiel's hedge funded it. You've seen bets against this company as well in the options market. What does that tell us those kind of sizeable moves we've seen from some pretty key investors.
What it speaks to probably is where people think the next opportunity is in video. Does face increase in competition. There are other players that are working on GPU specifically for use in AI data center, but we also have A six and custom chips like Google's TPU. There are more options now, and part of the argument that Jensen Wang and the other video executives make is like this is broadening out. They love to see it, but it also reflects the anxiety that we had going into this Earnings.
After the break. More from Bloomberg's interview with Nvidia CEO Jensen Huang. Now, the company is navigating the ongoing trade tensions between the US and China at the two big global competitors in the SAI race, or the US and China, and Nvidia plays a central role in that competition. In Nvidia is now allowed by the US government to sell some of its chips to China, but interestingly, China doesn't
seem to be buying those chips from Nvidia. Here's what the CEO of in Vidia, Jensen Huang, told you about that.
We would love the opportunity to be able to re engage the Chinese market with excellent products that we deliver and to be able to compete globally. The Chinese market is very large this year, my guess is probably about fifty billion dollar. It's great for the American people that we're able to compete in the Chinese market. It's great for the China market that we're able to provide and
Video's technology to them. It's great for the rest of the world, as Chinese software companies and Chinese open source models lead China and are used all over the world. And so I think it's fantastic that we're able. It would be fantastic if we're able to participate in the China market, but for now we should just assume and Video's forecasts for China market is zero.
Jensen Huang very focused on the way China is growing its AI capacity and capabilities. What is China's approach to the buildout and adoption of AI in complement or contrast to what's happening in the US.
China wants to win the AI race as well. That much is clear. Let's start with the basics of what Jensen reiterating the interview, which is base case scenario right now is Nvidia does not derive any revenues from China. Was interesting part of your question on the earnings call the CFO collect Cress had to address the China issue, right because you know, everyone knows that it's going to
be asked by the analyst anyway. And your interpretation of and I mean that with respect the word interpretation of what she said was they were allowed to sell H twenty in the quarter, but there wasn't any demand for it. What they're not allowed to do is sell blackwell the kind of current generation architecture, even a deprecated version into China.
So those distinctions are important. And where we left it with Jensen in the interview was they want to be able to do that in China and they will work with both the United States government and Chinese government to find a solution. But base case of zero, there is a wider political discussion. Jensen Huang is in very close proximity to this administration, right.
He was interesting when you talked to him, and he was in DC when you talked him the time before that.
And in both of those occasions, the President of the United States was part of the newsflow commenting very positive about Jensen Wang and what in video is doing, and in the context of the day of the interview in the US Saudi Investment Forum, the President asked Jensen to stand up to a standing ovation. But the reality from video is that they right now have no access to a market that one time was twenty five percent of
revenues and is the world's biggest end market for data centers. Probably, but more academically speaking, Jensen Wang has been very consistent that more than half of the world's AI engineers are either in China or they're Chinese national citizens, and so Americas should want its leading technology to be the gold standard, the default that those engineers use to develop artificial intelligence, noting fully that there is of course geopolitical and national
security considerations that come with that.
Ed if you talk to our colleagues who cover tech in China, do they say that there is as much of a fear of there being an AI bubble there or the circumstances just entirely different.
The circumstances are different in so far as there is less red tape in China and more direct government support or action in favor of something. It's not the same level of anxiety in China because they have a different system of government input or support. Their domestic industry on the infrastructure side is nascent.
What if Jensen Huang is wrong and we are in a bubble and that bubble bursts, are we likely to see a crash? Are we likely to see consolidation? As you talk to your sources, how do they think about the way in which that might play out? Given the rapid breakneck growth we've seen the size of these valuations, the money that's been poured into this and taken from one pocket to another, what would a bubble bursting look like when it comes to AI.
Well, in order to look at what a bubble bursting looks like, I guess you have to set the state of play and the state of players that you know in twenty twenty five and videos up about forty percent, and of course in video accounts for eight percent of the S and P five hundred anyway, so in equity markets there's a lot at stake. The leverage side of
this is really fascinating as well. Debt Oracle, for example, is very, very involved in the AI infrastructure build out in the United States, and it has been able to raise massive amounts of debt and also get investors to raise debt for some of its projects. Where Oracle doesn't hold the debt on its balance sheet, it's just able to get someone to do it on its behalf. But the worrying indicator there is that Oracle swung to negative free cash flow for the first time since nineteen ninety
two this year. And so the confidence that investors had was that this is early innings. The AI infrastructure build out is early. The figure that is common between say Gens and Water and other chip CEOs is there's a four trillion dollar addressable market for AI data centers in the next say, three to five years, and that is all built on capital expenditures of the big hyperscalers, cloud computing companies and also like Meta Elon Musk's Xai, et cetera.
And everyone is working in good faith that those capital expenditure commitments that are forecast they go through with them. If they don't, you can kind of see the trickle down effect that I'm painting here. That's why going into this Innverdia earnings print, the anxiety was high. You know, if you look at the options market or wherever your indicator is, there was potential for this to go either way, and at the time you and I are speaking, it went positively in the market.
This is the Big Take from Bloomberg News. I'm David Gerret. To get more from The Big Take and unlimited access to all of Bloomberg dot com, subscribe today at Bloomberg dot com slash podcast to offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.