Is Nvidia still a top AI investment?: Opening Bid

[Music] all right welcome to a new episode of Yahoo finance's opening bid um Yahoo finance executive editor Brian sazy now let's make some money and get a lot smarter and first we have to hit uh shares of Nike uh shout out to Jim Duffy over at steo coming out dropping the hammer on this Monday morning on all things Nike cutting his price Target and I couldn't help but to absolutely giggle is it laugh quietly uh in in a included room with no pads around it whatever it is uh I really like the points Jim's making here what I am deeming the most disappointing stock in the entire stock market of the past year that's Nike uh Duffy warning about a couple things off the Jump here first up rapidly waning relevance of core franchises when was the last time you heard Nike described that fashion that's awful uh he's also saying Nike is lacking indicators that newness is driving sales in the marketplace uh slowing or declining relevance of the Jordan brand which got me thinking I mean there are people alive today kids in high school have no really idea who Michael Jordan is maybe a YouTube player and they definitely know Derek Jeter uh they know Jeter but they don't necessarily remember him playing now suddenly my generation of Millennials is old I mean we were the ones driving that Jordan brand but anyway some losing relevance there what Duffy is seeing as popular is on uh new Bal sneakers a lot of these AKA AKA dad shoes Dad shoes taking share away from Nike so I guess I can't be I can't be too surprised about that one uh and they are pretty comfortable I got a pair of $40 sketches from Target I mean these shoes are comfy as hell they look like crap but they're really cool uh so all in all uh Jim Duffy over at steel looking for uh just uh I think some worse than expected earnings trajectory from Nike over the next year makes sense to me uh really quick shout out here you're going to Yahoo finance you see Nike Shar is still valued at a premium to the broader Market 27 Time 4 P multiple to me that looks absolutely ridiculous just given all the fundamental concerns surrounding Nike John Don CEO since 2020 I think he's in the hot seat he could be getting the axe within 18 to 24 months just not getting the job done former Tech executive over at service now and of course former Co of eBay always unsure why he's leading Nike nonetheless uh name to watch there all right let's uh sweep Nike away to the side over there I could talk about that one forever and let's really get into the nuts and bolts of this opening bit episode here with me now is Tech analyst Paul Meeks Paul always good to to see you uh talk all things Tech with you you've been doing this for a while you've seen many different Cycles and this is a really this is an interesting time I I I we were talking a little bit about um Tech before we we got on air here and just this Obsession I mean there's 493 other stocks in the S&P 500 and all people care about is tech stocks I why is that the case Paul I people just don't want to do their homework anymore well I think what happens is um and here's an example from my side of the house of course I run a tech model everybody uh knows that but but occasionally I have ultra high netw worth individuals that you know are are cool to have a tech base but they need more and what I do is I try to Brian look for other ideas and almost no matter how hard I look I just don't find anything as compelling and so uh part of it is you know by default you go to these names you know the economy is uh set to slow even if we don't have a recession and some people say okay here comes the FED they're going to lower rates that should give a jump start to Value names but the Topline growth particularly for these AI infrastructure Builders it overwhelms the rest of the market and I can make the case that I don't think they're particularly expensive you know they're essentially PE multiple trading in line with their growth rates so I do think it's very compelling if you're a tech analyst like me full-time or not all right let's give the people what they want usually uh I try to save the hottest top ICS towards the end of the podcast of people tune in to the end I tricks to the trade Paul I mean you have to do these things but I want to give the people what they want off the Jump and they want Nvidia analysis uh they can't get enough of Nvidia and this is just I think a company a lot of people never even heard of a year ago two years ago three four five whatever it is but they're invested in this momentum stock uh Nvidia earnings how will you know that this was the blowout quarter that the street and investors were looking for so what I expect them to do ran is upside what they have been upsid in to the tune of at least 20% but the key with this stock is uh not necessarily what they've uh reported but what they say going forward about it's never been uh publicized by the company the story was originally uh uh published by the information about the fact that they have a manufacturing glitch with the latest Blackwell chips may or may not be the case but the company is going to be asked about it on their conference call and they have a better have a pretty good answer that seems to be uh with the growth that they have and the confirmation in the hyperscalers AI infrastructure spending to continue that seems to be the only potential fly in the ointment when you open up that Nvidia earnings report Paul where do you go and and where do you start so I'm always looking for a confirmation of the thesis and I think we've already had it in the uh Preamble because the hyperscalers the four of them combined will be spending over $220 billion and that is confirmed unless they essentially turn around and go uh back on their publicized budgets and so we need to have a big total available market and I think even with the emergence of AMD and maybe some other players to be named later Nvidia is so far ahead that they'll continue to meet and beat and they'll continue to be you know not to have all the slices of the pie that they have now but the pie will be growing quickly and they will continue to be the dominant player they just have so much in their ecosystem Allah somebody like apple that goes well beyond the gpus that's going to cement their leadership why do you why is NVIDIA so far ahead I look at AMD and when I talk to Lisa sue the CEO over at AMD what they're working on what she tells me they work on sound well one it sounds complicated as hell I'm not a technologist uh and I'm not a chip analyst um but what they are doing sounds like it supports the AI buildout I mean how is NVIDIA able to just keep such a lead over an AMD and we're not even talking about Intel I mean Intel is still not even in this discussion despite uh started to pick up uh what they're doing on the AI front but I why so wide why is NVIDIA still the leader well they were so early to the market essentially you know Jensen wangan company um you know created uh these gpus for computer acceleration and so you think about it I like their software the Cuda Software System and all the ancillary software and service products and so they really have a very compelling ecosystem that makes it very difficult for their customers really to go anywhere else um over time again I think that they'll start to erod some market share because people want to have uh reliable second sources and AMD will likely be the one I don't have a lot of confidence in Intel Intel has been the gang that uh hasn't shot straight for a long time uh I'm almost giving up on that particular company but I do think it'll be a two horse race and Nvidia with all the stuff it offers with its ecosystem will be the dominant player if I always like to look at the other side of the coin let's say Nvidia comes out here and and the numbers are off the charts but not off the charts enough to satisfy the Bulls as an analyst and I was in the seat for for 10 years so I was trying to put myself back in that in that seat uh ahead of this episode how do you download or down not download how do you downgrade a rating on a company probably delivering triple digit growth rates is that just impossible and the Street's not going to do it well I think at some point Brian uh you know even my price Target stops going up but what's been so interesting about this story is people will say if they take a look on uh uh returns of this company you know they tripled last year they're working on a double or triple this year and so it must be expensive right because it came from a and it went up to a much higher be but on the other hand uh right now the stock is trading at about a mid-30s multiple of next year's earnings and they're going to get a growth of about 35% that that doesn't seem expensive I mean to me on paper that doesn't seem like an expensive multiple at all right yeah if you take a look at the PEG ratio right PE to growth uh we're trading at about uh one we're trading at about parody and when I actually run a tech stock candidate screen I'm looking for that valuation you know that's actually uh with some companies where I get in not where I sell so the key thing will be we're just going to have to have a lot of confidence that they'll continue to meet and beat and I think now with interest rates about ready to go down uh now that we had this uh te Tech meltdown about a month ago but it seems that we're back on the up and up I'm pretty confident I'm glad you mentioned the price to earnings multiple I'm going to I'm going to geek out a little bit I me mentioned on a prior episode and this uh this post is actually going around the Yahoo finance uh Twitter feed or X feed right now so uh the four pric earnings multi is one of my favorite multiples or or valuation metrics on a company it's easy to use it makes a lot of sense so I went to Yao Finance uh you go to the stats page 48 times forward earnings on on Nvidia uh it's below the fiveyear average actually well below why would a stock like Nvidia not be trading at 100 times earnings is that is that a lack of belief there's still a lack of Believers out there in the true earnings power of the company am I or am I just reading too much into this I think right now uh even the uh Bears uh cannot refute that the company in the near term will continue to post super growth but here's the thing you know right now they have an outrageous kind of monopolist profit margin maybe over time particularly as AMD becomes a credible Second Source Nvidia will sell all the chips that they can produce but maybe at a lesser profit and also at some point and this is why we had the uh meltdown in these names a couple of months ago as you know Brian everybody was uh saying well all these guys are spending not tens of billions hundreds of billions on AI infrastructure what happens at the other end of the pipe if there's no Roi on these projects and so I think some people were getting in the camp that uh obviously if the end players do not see adequate R Roi for all this spending they will stop that spending and then Nvidia goes from you know earning uh gobs per share to actually what they earned a couple years ago before the AI infrastructure boom started so that's where the U the Bears come in that's why the valuation isn't Allah uh Cisco back in the internet Bubble at 150 times earnings of course at the end of the day it should have never been that high but right now Nvidia is trading at about a one PEG ratio MH all right hang with us Paul we're going to go off for a quick break we'll be right back on opening [Music] bid all right welcome back to opening bid uh we're hanging out here with tech analyst Paul Meeks I would say can I say veteran Tech analyst you've been doing this for for a while right Paul oh yeah I've been covering the tech since 1992 almost exclusively is it you said you're a millennial dude I am very old school baby boomer oh that's good that's a that is a good thing that's what we like to call experience Paul experience let's let's channel that experience so when you've seen I guess booms and busts and Tech what you know what are some things people should be watching out for let's say Nvidia doesn't deliver and I don't want to turn this to a whole Nvidia podcast but I mean it may end up being that way whatever it is um what how do investors know when that top is in in Tech like I want to get people prepared if for if Nvidia disappoints I mean we're getting a market sell off I mean that's just the reality situation yeah yeah so what I would tell you is one of the uh things that I look for to at least try to get me out a little bit ahead of the uh rest when you know the theater catches on fire and we're all trying to you know get out that crowded door is all analysts and and even the media typically report on revenues that grow at a certain percentage year to year uh when you see these fast growth stories like uh Nvidia no longer have sequential Revenue growth oh such a good point oh love yeah so that's a pretty good sign right because you know the valuation is already in some cases ridiculous um you'll see a slow down in sequential growth well before you see the year-to-year comp and that's usually a pretty good sign to say okay you know maybe it continues growing but I got to start trimming my position shout out to yah finst uh Thomas he I know uh you know he he's an avid watcher of opening bid let's get that clip out there on X I mean one uh valuation tool you should be using to evaluate a tech stock from from Paul Meeks I mean that is that's awesome but look to to your to my point prior I didn't want to turn this into a whole Nvidia podcast because you are watching other tech stocks and why we're we've started to see it stocks sounds boring on paper not as sexy as Nvidia whatever uh but they have been lagging or or not doing much in the third quarter help us understand why that has been the case and are you seeing any opportunities in it and if not those screens that you're running what names are popping up as attractive yeah yeah so the it stocks you know I you know companies like Accenture and stuff you know they uh purport to be be AI beneficiaries right with their Consulting Services I'll kind of believe that when I see it I still don't see them as that attractive I continue even though it makes me sound like a very boring very lazy analyst with the AI infrastructure building trade and so in addition to Nvidia and perhaps AMD and perhaps uh broadcom I am very focused on the data server companies including super micro and Dell and Briant is interesting because that's another tell and AMD reports their results on Wednesday and Dell reports their results this Thursday and then of course another company probably in that realm is uh huet Packard Enterprises HP and then I look for some of the data networking plays uh particularly Arista networks because I think they're laser beam focused on AI uh data infrastructure versus the old school guys like Cisco and Juniper not so much so the way I think you play this trade is even though it sounds boring even though I'm telling you nothing new today maybe uh you got to stick with what I call the AI 1.0 stocks the guys building the infrastructure because the infrastructure spending has been confirmed by the four hyperscalers I am not going get with the AI 2.0 plays are the ones that are supposed to be the beneficiary now last week we did get one interesting AI 2.0 data point and that came from workday who didn't really quantify it but they claim that uh they're guiding higher in their operating margin not because they're selling AI stuff but they're eating their own cooking and it's making their operations uh less expensive to run and they said that their operating margin is going to go from 25% to 30% in a year if I get more more uh use cases like that Brian then I'll start to believe in the AI 2.0 plays but right now focused on those AI 1.0 play yeah you triggered some comments in me here uh Paul first I think Dell has been really underappreciated I know the stock has had a nice run what they're doing in AI that turn around that company has been uh mindblowing I encourage everyone to go read that 10K HP Antonio ner another stock trading below 10 times forward earnings guys cut a lot of costs out of the business making Acquisitions and then work day I Paul I just want workday to work better I can you just make the platform easier so I can I don't know look over uh fellow employees uh at the I mean just make the platform easier I mean intuitive I mean it's so hard um but you mentioned super micro this is one of the most uh trafficked or interested ticker pages on Yahoo finance what is this company doing uh that is so fascinating to you and and what is the earnings outlook for a super micro over the next two years yeah so you know super micro is not only one of the leaders in these AI uh servers that populate data centers is they have a particular skill uh particular one-upsmanship against those other two players in liquid cooled servers and we're going uh pretty rapidly from air cooled to liquid cooled so they should be able to at least keep their market share in the space uh and perhaps grow it now the stock went up to over $1,000 a share I've owned it for years but it came down quite a bit and it might be a buying opportunity because when they announced their results uh a week or two ago there is some controversy and the controversy is that these AI servers that they sell to the hyperscalers they're selling them in such big uh volumes with these orders that the hyperscalers can really push them on Price Right In this case the pricing power is with the customer not with the supplier and so they had only a 11.3% gross margin last quarter their target gross margin range is 14 to 17% they claim that they'll get back to it by the end of this fisal year which is June of 25 but in the meantime they're selling a hell of a lot of servers but unfortunately who they're selling to them can say I'm dictating on price not you so so smci has a wonderful volume opportunity you know this stock if everything goes right could ultimately earn $50 uh per share per year but we'll have to see if they can boost this gross margin 11.3 to 14% it's going to take a little work in the couple minutes we have left Paul I wrote down on my paper ask Paul about humanoid robots so we're making a little bit of a hard pivot there but I guess these things use AI chips so maybe it all works out so apple is reportedly interested in humanoid robots if that is the case that would put it I guess in direct competition to a robot from uh called Optimus over a Tesla you figure putting out slick videos on LinkedIn uh but again not really though I don't see their robots out in the wild is this the technology that we're all going to look at 10 years from now saying wow we should have invested this in some way or it's just a lot of hype and it's going to take a long time to be surrounded by robots even on a factory floor yeah Brian I think it's uh more of the ladder of course you know who got this conversation going with humanoid robots it's Elon Musk and one of the reasons he's done that is because Tesla's EV business is in a funk and so he's trying to distract you with other stuff like humanoid robots and auton autonomous uh driving so yeah uh of course on the factory floor it begins to proliferate but um this is not uh something that I see becoming really meaningful for much longer than the Bulls think and I think most of it is Elon m trying to distract you from the problems of the Tesla's EV business and uh so you don't you know it's not worth it per se to if you're an investor out there to rotate out Nvidia and look for humanoid robot play robot plays I mean we're not there no we're not we're not there and what I would tell you is not now because Nvidia you know had that hiccup about a month ago but it's come back and I never buy a stock uh right around a quarterly earnings report it's just uh too dicey CU sometimes even if a company has great news the stock still goes down but yeah what I would play is AI infrastructure 1.0 and uh worry about human humanoid robots down the road much down the road and and lastly Paul real quick before before we let you go I try to ask everyone um you I try to inspire a lot of investors here and upand cominging investors and even fellow analysts uh whatever whatever might be the case what is the biggest you know investing lesson that you've learned from covering tech stocks since 1992 well you got to be humble right I was one of the biggest uh Tech managers on the planet Earth when the internet bubble uh inflated and popped Brian I much preferred being very popular than being the guy that everybody wanted to shoot uh so you have to be uh humble I think what happens is you know behavioral Finance we all uh are entranced with our ideas and even if they're not working out we don't sell them uh fast enough so I would tell you everybody wants to talk about their wonderful buy ideas right the needle in the Hast stack that only they could find as an analyst they don't spend enough time on the cell side you know the cell side is sell at your price Target unless when the stock reaches your price Target you can make a case for greater earnings or cash flow and quite often the answer is no or when it's not working out limit your losses don't have huis because we all have a tendency to go in the casino and keep on doubling down going back to the ATM inside the casino until we're really screwed uh I will tie that in Bow and in a bow and just say uh stay humble and hungry uh Paul Meeks Tech analyst uh veteran Tech analyst uh in friend of yaho Finance good to see you as always uh we'll talk to you soon probably maybe when nvidia's double the price as it is now which may happen very soon Paul Meeks good to see you as always we appreciate it best wishes Brian love the program all right thank you so much all right before you go here uh I should remind you if you are infatuated with all things Nvidia go back to check out a prior episode where I talked to emj Capital founder Eric Jackson he is uh thinking that shares Nvidia could double double before year end you can of course watch that on Yahoo Finance on our platform or your podcast platform of choice that's it for the latest episode of opening bid