Yahoo Finance

Welcome to a new episode of the opening bid podcast. I'm Yahoo Fein's executive editor Brian Sazi. This is the podcast that will make you a better investor, period. Uh, let's throw a minute on the, uh, shot clock, so to speak, because I got a bunch of stocks the day I want to get into here, and they all have something in common.The weekly losses are starting to pile up in a very big way, and these are 3 stocks that you know and love or often love very much. Microsoft down for 8 straight weeks. 8 straight week it declines for Microsoft, Amazon, 7 straight weeks of declines, and then Tesla, the big whopper here, 9 straight weekly.Drops the longest on record and what these stocks are doing in March is even uglier. Tesla shares down 18%. Amazon shares down 8.5%. Microsoft doing reasonably OK. That stocks down about 3%. Why are these stocks having bad months? You're seeing a broader sell in tech as investors question.The demand for AI question tech valuations. You've seen a rotation into healthcare and other safe haven stocks as the market has gotten more uncertain that VIX has popped. People are confused about policy from the Trump administration. wrap all that up. That's why you're seeing pressure on the Mag 7 and Microsoft, Amazon, and Tesla, most notably out of time. All right, let's get to our featured interview of today. You asked for him. He is backed by popular demand.BFA semiconductor analyst for Vec Area Vec, good to see you. This is your 3rd time on this podcast, and there is a reason you have a very big following on the platform. They follow your Nvidia coverage. You're back from GTC, that big annual event for Nvidia. What's the state of play here because we've seen the stock down year to date. Um, it didn't get that pop post GTC. What is going on? Sure.

So, uh, thank you for having me, uh, again, Brand. I really appreciate it. So let's talk of fundamentals and then, then the stock. Um, what we heard at uh GTC were a few important updates. Uh, number one, for the first time, Nvidia actually outlined a path towards $1 trillion of data center spending over the next few years. And if we look at where they are today, it's only about 30% to 40% of that spending that continues to grow. There is nothing else on the planet that is as large or growing as fast, you know, point number one.Point number 2, they went out of their way to explain to people how important this new industry of reasoning models and of test time compute, that this is a new class of models which actually takes extra time to think, but it gives you a lot more accurate answer.But that extra time to think results in computational demand can be 10 to 100 times more than what it is in traditional large language models.

Crazy, right? How does that appear before we get into your third point, sure, how does that appear in our lives at some point? Sure.

So today, if you, you know, go and do a search, whether it's an OpenAI or other models, it's going to give you.Your best efforts, you know, answer. But as we start to use these models for applications that are a lot more mission critical, you know, think if you're a lawyer, if you're a doctor, right, self-driving cars, right? So these are a lot more mission critical applications than just tell me what movies are playing right down the road. So in order for the industry, right, people alltalk about what is the return on investment. The return on investment in large language models is going to come when this industry provides a lot more accuracy and reliability of answers, right? Think about, you know, the analog I have in mind is think about in the past when we used to have this simple cell phone service and then we had BlackBerry, right?

I still remember typing BlackBerry. I can do with my eyes closed. I stillremember the keys

that that was actually one of the first stocks I started to cover when I joined the industry. Yeah, so exactly, research in motion. So think about the power of that having a VPN in your pocket all the time.So that is the thing that as we start to make these applications a lot more accurate and reliable and to to make them more accurate and reliable, right, you have to go to this new class of reasoning models, right, where they are reasoning against each other, right, where they are getting data live as opposed to just looking at all the internet data that was just there until 2021.Because that was just the state of the art then. So that was the second thing that we heard, that the amount of computation required, right, is going up by a factor of 10 to 100 times. So when people freak out when they heard about a deep see, they should not be, right? And here's the interesting thing. Since Desek, have we heard anyone in China cut down their capex by 75%?

I haven't seen any of the hyper scalers exactly cut capEx.

Exactly. So CapEx has grown because they realized that the more compute you throw at a problem, the more accurate and reliable, and the more the ROI becomes over time. So that was the second thing. Third was a multi-year roadmap, right? Blackwell shipping now, Blackwell Ultra shipping in the back half, which takes up performance by a factor of 50% because of more memory.Ruben Shipping next year, Ruben Ultra thereafter, and then they launched a new product called Feynman that goes all the way to 2028. Why is this important? Because when you're Microsoft or Google and you're planning over multiple years to go and actually get uh power, right, generation nuclear facilities right, restarted, you have to have that multi-year roadmap.Only this company is able to provide that certainty of roadmap and supply chain. So I think we heard a number of these factors that tell us that in order to really take advantage of the AI industry, you have to partner with Nvidia in one way, shape, or form. So the next several years we think growth rate stays very strong. Now let's talk about the stock itself.I think what we are seeing right now is, you know, our BOA strategist Michael Hartnett always, you know, he has this 3P approach which I find very useful, right? Profits, you know, positioning and policy. We just discussed the profit side that Nvidia sales growth, profitability, exceptionally strong, right? Take all the S&P 500 stocks, look at which is growing the fastest this year, right? That's the profit side, exceptionally strong.The positioning side is where I think we were perhaps a little bit off sites, right? Uh, in the last few years, there was a lot of money chasing some of these large cap stocks, including Nvidia, both institutional and retail.Whereas a lot of money was taken out of international markets, so I think some of that positioning sentiment is getting de-risked, you know, at the start of the year, the stocks index was trading at a 30 times multiple. Now it's more like 21, 22 times. So some of that positioning, I think, you know, fluff has been taken out. That seems cheap. And now the policy thing to the points you made before about the uncertainty right because of the policy changes here that really impacts this.Sector, so I think as the policy starts to stabilize, I think the positioning will start to come back in these names, but the profitability and the fundamentals are exceptionallystrong.

When, when you talk to people that invested in video, why are they selling the stock to your point, I mean, what companies are talking about trillion dollar total addressable markets and powering robots and self-driving cars? What's in their heads at thismoment?

Sure.I think it's it's a matter of time frame, you know, with any popular stock, whether it's this one, whether it's, you know, several of the other large cap tech names, it's easier to draw fast money, right? But you know this is an industry that happens over a period of time, right? You don't just go from doing simple conventional neural networks to large language models, you know, to doing some of these reasoning models, right, all in the span of a week. It takes place over a period of time.The infrastructure part is still being built. I think that that is what is creating this level of angst that first the infrastructure has to be built, you know, that the tracks have to be laid, then the trains are going to come, and then you are going to optimize how much should I charge per passenger from this point to this point, right? We want to know how much should we charge passengers today. That is step 3 of the process, right? So some of it is, you know, just the difference in timeline of different investors.And the other thing in hindsight is that you know perhaps investors were underinvested overseas, right? And they were overinvested in the US. So some of this is a positioning statement and of course when you change these investments, the largest, the most liquid names, right, often tend to face the brunt right of that, uh, you know, in in the early days. I think what what will need to happen is that as investors start to get certainty about the US market.Just as quickly we have seen the money leave, I think we might see a reconsideration because remember the world outside is still not as safe. I'm not a portfolio strategist, but you know how fast is Europe growing, right? How much can you Chinese growth be dependent on for how long? How much of that depends on episodic government stimulus in.

I think that's I think that's that's not a stock recommendation. I'm just making a comparisonhere.

So I think that that's what needs to happen, that you know people have to go through looking at, um, you know, what's happening outside. Is that reliable or is it more reliable as to what things are done? What's the quality of earnings here, etc. So I think that these things are not, you know, uncommon since, you know, I've been covering Nvidia for a decade. I've seen the stock go down 40%.You know, 3 times and look at what it has done over long periods of time.

After GTC I got a note in my box. You're sticking with the bullish rating, uh, and price target. Given the concerns that you're talking about, why not downgrade?

Right? You know, first thing is, um, you know, we have to first look at fundamentals, right? That, um, you know, when, when we look at technology stocks, it's, it's interesting that people always talk about valuation. Valuation is always important, right? It's it's always there in the background.But when you cover technology stocks, you have to first consider is the size of the market growing? Is their competitive position growing, you know, what is their execution, you know, looking like? Are margins continuing to, you know, expand, and they check every one of those boxes, right? Uh, but what has perhaps changed is that this transition from Hopper to Blackwell, I think, created a little more of an execution delay.Uh, you know, it's interesting if you look at the stock, uh, it peaked last year. That was right around the time the gross margins peaked at 78, 79%. Now gross margins at 71%, right? Um, so when we, you know, speak with them, we not only talk about what's coming down the pike, we also try to get a sense for how do they see this path of gross margins going forward.So what from what they are describing gross margins can get back to mid 70s. So we have come down, and I think if in the second half we start to go back, we are going to see the opposite of what we have seen right with the stock. So that I think is a very important point that we need to see this execution come back with this Blackwell and the following class of products. So no, I think it checks all these boxes as we start to see the margin recovery. I think the stock should

follow. All right, hang with us. We'll be right back on opening bid. We're going to go off for a quick break.All right, welcome back, uh, to Opening Bid talking all things Nvidia, semiconductor space with BFA, uh, semiconductor analysis of Vec ARIA. Before we get into some other semiconductor topics, tie this in a bow for us. Nvidia is still one of the best fundamental companies out of all the companies that you cover in your coverage universe.

Uh, yes, and for the reason that again, largest markets, fastest growing markets.Best position to go after those markets, and oh by the way, it is now trading at probably half of its earnings growth. And just to put that in context, if you take the S&P 500, it's actually trading over 2 times earnings growth. If you look at the other so-called Mach 7, they're probably trading 2.5 times their earnings growth. So I think it is also now checking this valuation box very impressively.Uh, so as we see, uh, you know, some of this market volatility, uh, subside, I, I do think fundamentals are going to come back,

uh, in this talk. Another note saying in semi in semis, of course, that caught my attention you upgraded Intel, correct, um, new CEO there, Lithuan, he was a cadence, right?

That's right.

Why that call? So it seems like more of a call on this person as a leader, more so than a near term call on the business because the business is struggling, right.

Sure. Um, so we went from an underperformed to a neutral on on Intel, um, I think really to recognize that there is a change.You know, with with companies such as Intel, uh, there are very important, um, you know, assets inside the company, right? Sometimes what is often missing is that strategic leadership to focus the company on what is most important and to avoid all the distractions. So what I think the company has done and their board has done very impressively is to select somebody who is an outsider.Right, who in the past, you know, when he was at a cadence, it resulted, um, right, in those years, the stock going up, I think by a factor of anywhere between 32 to 50 times. He did a lot of restructuring, which is always painful, right? I don't want to, you know, diminish the impact of that restructuring, but he is not, uh, you know, wedded to a, a sim you know, a single strategy that, oh, we need to keep everything together and we are going to return to its prior glory, right?Because Intel in its current shape, which is focused on, on, you know, putting design and manufacturing together, we don't think that works, right? Yeah,

you'vetold me that

there is a reason why the best semiconductor companies on the planet, you know, the Nvidias of the world, the broadcoms of the world, the Taiwan semis of the world, they focus on either design or manufacturing.You know, design is a very, very different mindset than manufacturing. Manufacturing, you are essentially trying to, it's a services industry. You are trying to serve a large number of customers. You're leading edge customers, you're not very profitable, but you're lagging edge customers who you are putting on depreciated machines are extremely profitable. That requires a very different mindset than when you're always trying to be leading edge.All the time with your design and manufacturing,

but we didn't get the signal initially. I mean, I think that he's going to come in and hive off or hatched off that chip making business. Did you, did you get thatsense?

Uh no, I think so, to be fair, we have yet to hear about, you know, last week, I think was really his first few days, so we are yet to hear about what the strategy is going to be, which is the reason why we went to a neutral and didn't, you know, go all the way to a buy because we want to understand what the strategy is going to be.Um, you know, and ultimately what the earnings power is going to be in this company, um, you know, Intel is a national asset, you know, they have massive incumbency in enterprise PCs and enterprise servers, right? And, and what we have learned over time is that, you know, having incumbency in these markets can help you generate, you know, a lot, a very good stream of profits as long as you eliminate all the distractions.So what our hope is that he's able to eliminate a lot of the distractions, you know, put manufacturing in a place where it is viable on its own, where it's able to attract outside financial, you know, sponsors, strategic sponsors where it's able to go and attract business from other fabulous companies. It is not there today. So I think we still need.To hear about what his plans are going to be, but after a long time, for the first time, I think there is an outsider in the company, and I think having that fresh look of an outsider who comes from a design industry, I do think it can be very profitable for

Intel. So you think he saves Intel.

I think Intel has a much better shot of remaining viable in this industry. It's it's not going to be easy. Um, you know, competition is not sitting still. You know, their competition, remember, is Nvidia, it's AMD, it's ARM, um, you know, it's Taiwan Semiconductor, it's Broadcom, it's Marvel.They're not sitting still.

They seem, let's say he comes out with a road map. All new leaders that come in, they assess the operations, they lay people off. They put new leaders. Then a year from now he probably may lay out maybe sooner some grand plan or vision for Intel. But by the time he delivers on this vision 5 years from now, where is Nvidia? Where's AMD? Can Intel ever catch up to these companies,

right? So I think this is a case where remember with Nvidia, the stock is behind its fundamentals.I think in, in the case of Intel and any turnaround situation, you will always see the stock actually respond before the fundamentals have improved, right? So what the stock was saying is that, you know, it, it went to $19 or $20 a number of times andIt's sort of found a bottom because then we are close to its book value. At book value we are saying that there is zero value of Intel's intellectual property, which is obviously not right, right? There is tremendous value to their IP. There is tremendous value to their incumbency right in enterprise. I mean, remember, despite all the execution issues, Intel still makes 7 out of every 10 CPUs on the planet, and

you wouldn't think that you wouldn't think that this is Intel's trading your book value and.Book value is just basically a value of the company.

That's what commodity memory companies stayed at, right? So all we are saying is that the only value in Intel is just right, the bricks and mortar of its fabs, right, which is obviously not the case. Now, should it really be valued as uh uh one of these growth companies? Obviously not. So I think what what we were trying to say is that, you know, under his leadership, Intel has a better chance of adding right and getting recognized for its IP value because he comes from that background.You know, he was in an industry that doesn't make any hardware and the only value it has is in design software and IP.

Is, is it, is it better if the chips Act goes away and Intel could just focus on making chips, right?

Um, you know, at this point, a lot of that money has already been appropriated. um, Intel was awarded 8 billion of that they already have $2.2 billion right? Uh, a lot of these fabs, remember, are in Republican areas, right? Ohio, Arizona, uh, where they are generating, right, a lot of very, you know, good paying manufacturing jobs. Um, so I think we have to put all those factors into consideration that this is money that is already a.Appropriated by the Congress, right? So usually, you know, it's harder to go and, and, but will there be a chip sack 2 or 3? Probably not, right, time will tell, but I would agree with you. I, I think it has been a massive distraction. The semiconductor industry did not really need it. I think they could have there could have been other ways, right? But that's all hindsight, you know, where we are today is that they will get the money, um, right, uh, but again this IDM.Structure that they have with or without chips Act, I still think it is a distraction. And if they continue with this IDM structure, then I think the probability of them turning this thing around just gets much harder because in an IDM structure, what you're trying to tell, um, you know, an AMD or a broadcom or Marvel is don't worry about the competition from my design side still come and manufacture at me and those companies are, are not going to do it. And then secondly.They always know that the internal manufacturing team will always give a priority to the internal design team, right? But if these two things are separate, then I think there are independent, you know, now the design team can go like today the design team for Intel only uses Taiwan Semi for its PC products, not for its server products, and it is significantly behind in the server industry after AMD. What if it was a separate entity, it would have a lot more flexibility.In dealing with external foundries, maybe doing acquisitions in AI, right, but today it is handicapped, I think because of this IDM structure.

Uh,last couple of minutes, gotta get your hot take, uh, as always. So Jensen met with quantum computing executives at GTC, um, went a little under reported, but it was interesting nonetheless. Are you are you are you sold on the power of quantum computing and are you sold on quantum computing stocks trading where they are trading today?

So we don't cover quantum computing stocks, so I won't say anything about the stocks per se.But I think quantum is very important, you know, industry, um, you know what, what we have to look at though is that if I take all the quantum uh companies that are out today, right, based on industry data, this is not our data, uh, the entire industry is about $2 billion at most, right? Some of these public companies, you know, their annual sales might be $100 million right?So it's still in that stage and, and to put this $2 billion in context, the semiconductor industry, this year will be 700 billion. It's a big, big gap. OK. Uh, so that's why we are looking at something that is less than 1 or 2% of the industry.You know the way to know when a certain new industry is important is when Taiwan's semi is willing to make chips for it. They have said nothing about doing that. So it doesn't mean that this industry is not important, doesn't mean that it's not a very high growth industry, but in the relative context of where the semiconductor industry.It's still extremely, extremely small, right? I mean, Nvidia will do close to 200 billion in sales this year, and this entire industry will be 2 billion. That's how large it is. Oh,

it's good, it'sgood. We have so many people trading these quantum computing stocks, but I mean that's important context. Real quick before I let you go, what was it like being in that room with Jensen and GTC? Can you compare?This meeting to the first one you went to? Oh,

this is so much more exciting. No, I mean, yeah, so versus the GTC meetings, no, I think, you know, I've been going there for a number of years and, you know, what's clear is that every year there is one more layer to the equation. What started out, you know, in the early days, it used to be a gaming show, right? Just this is.My next chip. Then it became this is my next gaming board, right? Then it started going to these are workstations that I can put my gaming chips in. In 2012, you know, the whole field, you know, the Alexnet started because of gamers who were able to reprogram their chips for data science, right? So now we are talking about racks and complete AI factories.So that I think has been the progression of the company that every year it adds one more layer, one more layer software, hardware systems, factories, right, autonomous, that is what it, that is what makes it so hard to compete against them because you have to now go beat them in every stage of this, which is extremely hard to do. Well,

thanks for coming down here at the NASDAQ for us, uh, for the latest opening bid podcast. I always leave smarter listening to you and reading your.It's BFA semiconductor analyst for Vivek. Good to see you. Talk to you soon Brian. I appreciate it. All right. And that's it for the latest episode of Opening bid. Hit us with those 5 stars on all the podcast platforms. The thumbs up on YouTube. Really enjoying all of your comments. I try to answer them personally. Also continue to hit me up at uh on X at Briansai. I've been getting a lot of comments from you, uh, on these opening bid episodes. Keep them coming. I, I learned a lot from you as well. We'll talk to you soon.