Nvidia has become world’s ‘most important stock,’ adding pressure to upcoming earnings report
Nvidia CEO Jensen Huang makes a speech at an event at COMPUTEX forum in Taipei, Taiwan June 4, 2024.
Ann Wang | Reuters
For Nvidia investors, the past two years have been a joyride. But recently they’ve been on more of a roller coaster.
As the primary beneficiary of the artificial intelligence boom, Nvidia has seen its market cap expand by about nine-fold since the end of 2022. But after reaching a record in June and briefly becoming the world’s most valuable public company, Nvidia proceeded to lose almost 30% of its value over the next seven weeks, shedding roughly $800 billion in market cap.
Now, it’s in the midst of a rally that’s pushed the stock within about 7% of its all-time high.
With the chipmaker set to report quarterly results on Wednesday, the stock’s volatility is top of mind for Wall Street. Any indication that AI demand is waning or that a leading cloud customer is modestly tightening its belt potentially translates into significant revenue slippage.
“It’s the most important stock in the world right now,” EMJ Capital’s Eric Jackson told CNBC‘s “Closing Bell” last week. “If they lay an egg, it would be a major problem for the whole market. I think they’re going to surprise to the upside.”
Nvidia’s report comes weeks after its mega-cap tech peers got through earnings. The company’s name was sprinkled throughout those analyst calls, as Microsoft, Alphabet, Meta, Amazon and Tesla all spend heavily on Nvidia’s graphics processing units (GPUs) to train AI models and run massive workloads.
In Nvidia’s past three quarters, revenue has more than tripled on an annual basis, with the vast majority of growth coming from the data center business.
Analysts expect a fourth straight quarter of triple-digit growth, but at a reduced pace of 112% to $28.7 billion, according to LSEG. From here, year-over-year comparisons get much tougher, and growth is expected to slow in each of the next six quarters.
Investors will be paying particularly close attention to Nvidia’s forecast for the October quarter. The company is expected to show growth of about 75% to $31.7 billion. Optimistic guidance will suggest that Nvidia’s deep-pocketed clients are signaling an ongoing willingness to open their wallets for the AI buildout, while a disappointing forecast could raise concern that infrastructure spending has gotten frothy.
“Given the steep increase in hyperscale capex over the past 18 months and the strong near-term outlook, investors frequently question the sustainability of the current capex trajectory,” analysts at Goldman Sachs, who recommend buying the stock, wrote in a note last month.
Much of the optimism heading into the report — the stock is up 8% in August — is due to comments from top customers about how much they’re continuing to shell out for data centers and Nvidia-based infrastructure.
Last month, the CEOs of Google and Meta enthusiastically endorsed the pace of their buildouts and said underinvesting was a greater risk than overspending. Former Google CEO Eric Schmidt recently told students at Stanford, in a video that was later removed, that he was hearing from top tech companies “they need $20 billion, $50 billion, $100 billion” worth of processors.
But while Nvidia’s profit margin has been expanding of late, the company still faces questions about the long-term return on investment that clients will see from their purchases of devices that cost tens of thousands of dollars each and are being ordered in bulk.
During Nvidia’s last earnings call in May, CFO Collette Kress provided data points suggesting that cloud providers, which account for over 40% of Nvidia’s revenue, would generate $5 in revenue for every $1 spent on Nvidia chips over four years.
More such stats are likely on the way. Last month, Goldman analysts wrote, following a meeting with Kress, that the company would share further ROI metrics this quarter “to instill confidence in investors.”
Blackwell timing
Jensen Huang, co-founder and chief executive officer of Nvidia Corp., displays the new Blackwell GPU chip during the Nvidia GPU Technology Conference on March 18, 2024.
David Paul Morris/Bloomberg via Getty Images
The other major question facing Nvidia is the timeline for its next-generation AI chips, dubbed Blackwell. The Information reported earlier this month that the company is facing production issues, which will likely push big shipments back into the first quarter of 2025. Nvidia said at the time that production was on track to ramp in the second half of the year.
The report came after Nvidia CEO Jensen Huang surprised investors and analysts in May by saying the company will see “a lot” of Blackwell revenue this fiscal year.
While Nvidia’s current generation of chips, called Hopper, remain the premium option for deploying AI applications like ChatGPT, competition is popping up from Advanced Micro Devices, Google and a smattering of startups, which is pressuring Nvidia to maintain its performance lead through a smooth upgrade cycle.
Even with a potential Blackwell delay, that revenue could just get pushed back into a future quarter while boosting current Hopper sales, especially the newer H200 chip. The first Hopper chips were in full production in September 2022.
“That shift in timing doesn’t matter very much, as supply and customer demand has rapidly pivoted to H200,” Morgan Stanley analysts wrote in a note this week.
Many of Nvidia’s leading customers say they need the additional processing power of Blackwell chips in order to train more advanced next-generation AI models. But they’ll take what they can get.
“We expect Nvidia to deemphasize its Blackwell B100/B200 GPU allocation in favor of ramping up its Hopper H200s in” the second half of the year, HSBC analyst Frank Lee wrote in a August note. He has a buy rating on the stock.
Technology
Amazon was questioned by House China committee over ‘dangerous and unwise’ TikTok partnership
Amazon logo on a brick building exterior, San Francisco, California, August 20, 2024.
Smith Collection | Gado | Archive Photos | Getty Images
Amazon representatives met with the House China committee in recent months to discuss lawmaker concerns over the company’s partnership with TikTok, CNBC confirmed.
A spokesperson for the House Select Committee on the Chinese Communist Party confirmed the meeting, which centered on a shopping deal between Amazon and TikTok announced in August. The agreement allows users of TikTok, owned by China’s ByteDance, to link their account with Amazon and make purchases from the site without leaving TikTok.
“The Select Committee conveyed to Amazon that it is dangerous and unwise for Amazon to partner with TikTok given the grave national security threat the app poses,” the spokesperson said. The parties met in September, according to Bloomberg, which first reported the news.
Representatives from Amazon and TikTok did not immediately respond to CNBC’s request for comment.
TikTok’s future viability in the U.S. is uncertain. In April, President Joe Biden signed a law that requires ByteDance to sell TikTok by Jan. 19. If TikTok fails to cut ties with its parent company, app stores and internet hosting services would be prohibited from offering the app.
President-elect Donald Trump could rescue TikTok from a potential U.S. ban. He promised on the campaign trail that he would “save” TikTok, and said in a March interview with CNBC’s “Squawk Box” that “there’s a lot of good and there’s a lot of bad” with the app.
In his first administration, Trump had tried to implement a TikTok ban. He changed his stance around the time he met with billionaire Jeff Yass. The Republican megadonor’s trading firm, Susquehanna International Group, owns a 15% stake in ByteDance, while Yass has a 7% stake in the company, NBC and CNBC reported in March.
— CNBC’s Jonathan Vanian contributed to this report.
Technology
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Former U.S. Army intelligence analyst Chelsea Manning says censorship is still “a dominant threat,” advocating for a more decentralized internet to help better protect individuals online.
Her comments come amid ongoing tension linked to online safety rules, with some tech executives recently seeking to push back over content moderation concerns.
Speaking to CNBC’s Karen Tso at the Web Summit tech conference in Lisbon, Portugal, on Wednesday, Manning said that one way to ensure online privacy could be “decentralized identification,” which gives individuals the ability to control their own data.
“Censorship is a dominant threat. I think that it is a question of who’s doing the censoring, and what the purpose is — and also censorship in the 21st century is more about whether or not you’re boosted through like an algorithm, and how the fine-tuning of that seems to work,” Manning said.
“I think that social media and the monopolies of social media have sort of gotten us used to the fact that certain things that drive engagement will be attractive,” she added.
“One of the ways that we can sort of countervail that is to go back to the more decentralized and distribute the internet of the early ’90s, but make that available to more people.”
Nym Technologies Chief Security Officer Chelsea Manning at a press conference held with Nym Technologies CEO Harry Halpin in the Media Village to present NymVPN during the second day of Web Summit on November 13, 2024 in Lisbon, Portugal.
Horacio Villalobos | Getty Images News | Getty Images
Asked how tech companies could make money in such a scenario, Manning said there would have to be “a better social contract” put in place to determine how information is shared and accessed.
“One of the things about distributed or decentralized identification is that through encryption you’re able to sort of check the box yourself, instead of having to depend on the company to provide you with a check box or an accept here, you’re making that decision from a technical perspective,” Manning said.
‘No longer secrecy versus transparency’
Manning, who works as a security consultant at Nym Technologies, a company that specializes in online privacy and security, was convicted of espionage and other charges at a court-martial in 2013 for leaking a trove of secret military files to online media publisher WikiLeaks.
She was sentenced to 35 years in prison, but was later released in 2017, when former U.S. President Barack Obama commuted her sentence.
Asked to what extent the environment has changed for whistleblowers today, Manning said, “We’re at an interesting time because information is everywhere. We have more information than ever.”
She added, “Countries and governments no longer seem to invest the same amount of time and effort in hiding information and keeping secrets. What countries seem to be doing now is they seem to be spending more time and energy spreading misinformation and disinformation.”
Manning said the challenge for whistleblowers now is to sort through the information to understand what is verifiable and authentic.
“It’s no longer secrecy versus transparency,” she added.
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