Dan Niles on Investor Interest in Nvidia Following the Chipmaker's Results

we're turning to our top story in video's latest results the chipmakers revenue came in at $30 billion it's up 122% from a year ago earnings per share EPS 68 cents above expectations and the Outlook is more in line with what everybody was looking for 33 billion for the current quarter and the ramp up of its latest Blackwell chips in Q4 Dan Nils is the founder of Niles investment manager and is with me now um as you look at these numbers they're in line with what we what the market was looking for but are they good enough yeah I I don't think they are unfortunately because you have to remember this stock has been the name that's led the market higher and if you look at how much they beat their revenues by it was about 4% only a year ago they were beating they beat revenues by 22% and if you look at the PS it's about a 5% beat and a year ago they beat that number by about 31% and then the guidance the revenues are only going up about 2 and a half% from where the street already has it so you got to remember this is a stock that's up 750 per. from the end of 2022 and it has been the poster child as it should be for the AI trade and so now people have to think am I going to see a digestion period in demand much like I saw in the middle of 2022 before this thing called generative AI hit the scene so let that would taking what you've just said and splitting it into two in terms of the industry the AI going forward you're from what I gather from what you're saying these numbers say either a Slowdown it's not going to be as far or as fast never mind of Nvidia share price just as the industry that this is going to be tougher and slower going forward absolutely and that's what we've been saying now since we wrote about this back a couple of months ago that you spent a lot of money on AI infrastructure but if you think about it at a certain point companies want return on that and the Ford numbers from Microsoft Amazon and Google three of the biggest customers for NVIDIA all went down after they reported their June quarters even though their capex spending on AI went up and so at a certain point you're going to slow down your spending if you're not seeing a return on all that investment in AI now let's flip to the other side of the same coin which is nvidia's share price which is predicated on stronger and higher expectations I mean on an EPS a straightforward basis if the expectations are not that good can this share price be uh Justified so you have a shortterm and a long term and what I would say is if you go back to the buildout of the internet and you take the end of 94 when you had this thing called a web browser come out from Netscape from the end of 94 to its peak Cisco's revenues went up 15 and a half times their revenue their stock price went up 4,000% over that period for NVIDIA the same thing if you look at when we heard of this thing called chat GPT and open AI since the end of 2022 their revenues are up 5x not 15 a 12x and the stock is up about 750. so much like with Cisco where they saw drw Downs of 37% in their stock price and 38% in their stock price in 97 and 98 you're going to see similar volatility with Nvidia because these big companies like Microsoft Google Amazon they spend a lot then they take some time to digest it and they spend more I think we've got several more years of spending ahead of us but in the near term I fully expect them to digest what they've already spent but you raised Cisco and funny enough a couple of weeks ago I looked at Cisco you you you and I are old enough I suspect to remember do com booman bust and all of and all of that and I looked at Cisco yes if you take from Peak to trough of the boom and bust you do see that sharp fall but if you extrapolate out 5 10 15 years then you see back to gains as the maturity of the internet comes into play and one would expect surely to see that with AI longer term absolutely I mean I think from my perspective if you want to take a longterm view I fully expect nvidia's revenues to double from here over the next several years and I think the Stock's going to double from here over the next several years it's never a straight line up and I'm sure if we go through a digestion period and some of your viewers may remember this we had a massive buildout during covid because everybody had to get online and so all of these same customers Microsoft Amazon Google they're all buying a ton of chips from Nvidia and then in the first part of 2022 nvidia's revenues went down 28% sequentially over the course of six months as these same customers digested that bill so you're going to get these fits and starts going forward it's never a straight line my big picture is once you get through some of this digestion the Stock's going to March and double again and we'll watch and we're grateful sir thank you