Yahoo Finance

Gil we are seeing some pressure on some of our competitors, other key AI plays here in after hours, you got AMD shares moving to the downside, just one of those names arm also under a bit of pressure. How should investors be evaluating the overall AI trade and will some of this weakness, do you think ultimately be a buying opportunity?

Well, so I would I would flip the narrative a little bit here and say these are very good results for Nvidia and they're very good results for the cottage industry that have has developed around data center construction and and supplying those data centers. What it's not that good of a news for is the rest of the technology complex. AI has taken the oxygen out of the room for a lot of software companies because their customers are so preoccupied with what they're doing in AI that they're not necessarily buying the other types of software that they usually do. So good news for Nvidia is good news for the Nvidia complex. It's not necessarily good news for the rest of the market. And again, Nvidia's margins have very

little to do with the rest of the market. The headline here is still that Nvidia is growing at spectacular rates in terms of being able to deliver uh data center GPUs. So Gil, you you call these very good results. You are on the sidelines here though, Gil, right? A neutral. Is that is that strictly a valuation call for you?

No, not at all. It goes back to the point I was making earlier, which is my expectation is that next year we're going to have the very least very decelerating growth and possibly at some point revenue declines where um if you look at consensus estimates, sell side estimates, they are for the growth to continue at very very high rates that are very hard to justify considering Nvidia's revenue is these other companies margins. Microsoft has guided to lower margins this year specifically and because of their spend on Nvidia GPUs and the fact that they have to depreciate those data center costs. That can't last forever and that means that the estimates for next year and the year after that are starting to get way way out of control.

Gil, uh Brian here. I love what you're mentioning about margins and the flow through from the top line to margins, very important point. To that end, going through some of these comments from CFO Colette Kress, noting uh gross margins decrease primarily driven by inventory provisions for low yielding blackware material, but importantly, and a higher mix of new products within data center. As you look some at some of these new chips hitting the market whether it's AMD and even an Intel, we have to mention Intel and Nvidia, do they just have lower margins relative to the stuff that they are replacing? And how will that influence margins and profits and cash flow looking out over the next 6 to 12 months for some of these AI plays?

So for for the the rest of the market has really barely made a dent. I mean the numbers that AMD talks about are still a fraction of what Nvidia does, but the fact that they're even participating in the market puts a cap on Nvidia's pricing. And and that's probably part of what we're seeing here on the margins is that AMD having any type of product in the market that these hyperscalers can diversify into means Nvidia is no longer a complete price maker. They can't charge anything for their chips. AMD has now created somewhat of an alternative, even if it is still a fraction of what Nvidia produces.

Long term, Gil, you know, who poses the competitive threat? You know, is it AMD? Is it is it Nvidia's own own cloud customers? Is it both?

Oh, it's the cloud customer. So Google is already has a competitive product. If they if Google wanted to sell this externally uh and decided to go that path, they would be very competitive with Nvidia. Their chips perform very well. They've been around for a long time. They use them internally. They use them for their customers, including for Apple. Uh Amazon has a lot of experience with chips. Meta and Microsoft are ramping up their own production. That's much more of a threat to Nvidia than any of the legacy chip companies or even the upstarts.

Gil, always great to have you on the show and helping us break down these results. Appreciate it.