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KeyBanc's John Vinh on Nvidia Q1 results: There's meaningful upside from here going forward

Nvidia reported strong fiscal first-quarter earnings on Wednesday.

Wall Street was pleased with Nvidia’s continued sales growth, which hit 69% during the quarter. The company’s data center division continues to surge as companies, countries, and cloud providers snap up Nvidia graphics processors, or GPUs, for artificial intelligence software.

“The team continues to maintain a 1- 2 step lead ahead of competitors with its silicon/hardware/software platforms and a strong ecosystem, and the team is further distancing itself with its aggressive cadence of new product launches and more product segmentation over time,” wrote JPMorgan analyst Harlan Sur.

Here are three big takeaways from the company’s earnings:

China could be a $50 billion market for Nvidia, but U.S. export controls are getting in the way

Nvidia expects to sell about $45 billion in chips during the July quarter, it revealed on Wednesday, but that’s missing about $8 billion in sales that the company would have recorded if not for the U.S. restricting exports of its H20 chip without a license.

Nvidia also said that it missed out on $2.5 billion in sales during the April quarter thanks to the export restrictions on H20.

In prepared remarks, Nvidia CEO Jensen Huang said that China represented a $50 billion market that had effectively been closed to Nvidia.

He also said that the export controls were misguided, and would merely encourage Chinese AI developers to use homegrown chips, instead of making an American platform the world’s choice for AI software.

“The U.S. has based its policy on the assumption that China cannot make AI chips. That assumption was always questionable, and now it’s clearly wrong,” Huang said.

He said that export controls were driving AI talent to use chips from homegrown Chinese rivals, such as Huawei.

“We want every developer in the world to prefer the American technology stacks,” Huang told CNBC’s Jim Cramer Wednesday night.

Nvidia said it didn’t have a replacement chip for China ready, but that it was considering options for “interesting products” that could be sold in the market.

Strength in the company’s Blackwell business balanced out some concerns over the China impact.

“NVIDIA is putting digestion fears fully to rest, showing acceleration of the business other than the China headwinds around growth drivers that seem durable. Everything should get better from here,” said Morgan Stanley analyst Joseph Moore.

Cloud providers are still Nvidia’s most important customers

Nvidia says that it has many customers ranging from sovereign nations to universities to enterprises that want to research AI.

But it confirmed again on Wednesday that cloud providers — companies like Microsoft Azure, Google Cloud, Oracle Cloud Infrastructure, and Amazon Web Services — still make up about half of its data center revenue, which reported $39.1 billion in sales during the quarter.

These companies tend to buy the fastest and latest Nvidia chips, including Blackwell, which comprised 70% of Nvidia’s data center sales during the quarter, CFO Colette Kress said.

Microsoft, for example, had already deployed “tens of thousands” of Blackwell GPUs, the company said, processing “100 trillion tokens” in the first quarter. Tokens are a measure of AI output.

And they’ll be first in line to get Blackwell Ultra, an updated version of the chip with additional memory and performance. Nvidia said shipments of those systems will start during the current quarter.

Bernstein’s Stacy Rason said the ” general outlook and environment overall seems very encouraging” as the company ramps up its Blackwell rollout and compute requirements grow.

“Amid a messy quarter, NVIDIA is comporting themselves extremely well,” he said.

Looking forward: Blackwell and AI inference

For the past few years, many Nvidia GPUs were used for a resource-intensive process called training, where data is processed through an AI model until it gains new abilities.

Now, Huang is talking up the potential for Nvidia’s GPUs to serve the AI models to millions of customers, a process called inference in the industry. He said that is where new surging demand is coming from.

“Overall, we believe NVDA’s technology leadership remains strong, with growth in Blackwell shipments benefitting from exponential growth in reasoning AI and the achievement of economies of scale,” said Deutsche Bank’s Ross Seymore.

Huang says that the latest AI models need to generate more tokens — or create more output — in order to do “reasoning,” which improves AI answers. Of course, Nvidia’s latest Blackwell chips are designed for this, Huang said.

“We are witnessing a sharp jump in inference demand,” Huang said. “OpenAI, Microsoft, and Google are seeing a step-function leap in token generation.”

Huang compared modern AI models to the “one-shot” approach that ChatGPT used when it first debuted in 2022, and said that the new models need “a hundred, a thousand times more” computing.

“It’s essentially thinking to itself, breaking down a problem step by step,” Huang said. “It might be planning multiple paths to an answer. It could be using tools, reading PDFs, reading web pages, watching videos, and then producing a result.”

Bonus: Jensen’s concerns

Huang struck a notably more somber tone during the earnings call, focusing heavily on the impact of export controls rather than his usual evangelizing about AI’s world-changing potential.

He spoke at length on the earnings call about U.S. chip restrictions and clearly stated how much of an impact the limits have on current and future business.

“The AI race is not just about chips,” he said. “It’s about which stack the world runs on. As that stack grows to include 6G and quantum, U.S. global infrastructure leadership is at stake.”

CNBC’s Kristina Partsinevelos contributed to this article.

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Why current AI models won’t make scientific breakthroughs, according to a top tech exec

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Why current AI models won't make scientific breakthroughs, according to a top tech exec

Co-founder and Chief Science Officer at Hugging Face, Thomas Wolf, speaks at the opening ceremony of the Web Summit, in Lisbon, Portugal, November 11, 2024. 

Pedro Nunes | Reuters

Current artificial intelligence models from labs like OpenAI are unlikely to lead to major scientific breakthroughs, a tech co-founder said, pouring cold water on some of the hype around the technology and claims by major figures in the field.

The comments by Thomas Wolf, co-founder of $4.5 billion AI startup Hugging Face, are in stake contrast to those by major names in AI including OpenAI boss Sam Altman and Anthropic CEO Dario Amodei.

When Wolf talks about scientific breakthroughs, he means novel ideas like those at a Nobel Prize level. Examples including Nicolaus Copernicus who theorized the sun was at the center of the universe and other planets move round it.

Wolf explained a couple of issues with chatbots right now. The first is that these products like ChatGPT and others often agree or align with the person prompting it. Think back to if you’ve asked a chatbot a prompt and it will tell you how interesting or great that question is.

The second is that the models underpinning these chatbots are designed to “predict the most likely next token” or “word” in a sentence.

However, he noted two key traits of scientists. The first is that scientists who make major breakthroughs are often contrarian and question what others are saying.

“The scientist is not trying to predict the most likely next word. He’s trying to predict this very novel thing that’s actually surprisingly unlikely, but actually is true,” Wolf said.

The Hugging Face co-founder has been thinking about this topic for the last few months. His interest was sparked after he read an essay penned by Anthropic’s Amodei, who posited that “AI-enabled biology and medicine will allow us to compress the progress that human biologists would have achieved over the next 50-100 years into 5-10 years.”

That got Wolf thinking about the state of AI and how this won’t be possible, in his view, with the current crop of models.

Wolf said that these chatbots and tools will likely be used as a sort of “co-pilot for a scientist” where they are used for research to help the human generate new ideas.

To some extent, this has been happening already. Google DeepMind’s AlphaFold product has helped to analyze protein structures which the company has promised could aid scientists in discovering new drugs.

But there are some new startups that are hoping to take AI one step further into being able to make scientific breakthroughs, including Lila Sciences and FutureHouse.

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Taiwan rejects U.S. proposal for ’50-50′ chip production, says trade talks focused on tariffs

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Taiwan rejects U.S. proposal for '50-50' chip production, says trade talks focused on tariffs

Taiwan Semiconductor Manufacturing Company, Limited at Hsinchu Science Park.

Annabelle Chih | Getty Images News | Getty Images

Taiwan will not accept Washington’s proposal to locally manufacture half the chips it currently supplies to the U.S., the island’s top trade negotiator said.

Speaking to reporters, Cheng Li-chiun, also the country’s vice premier, said on Wednesday that the proposal for a “50-50” split in semiconductor production was not even discussed, as she returned from trade talks in the U.S., according to Taiwan’s Central News Agency.

Cheng said the talks were focused on lowering tariff rates, securing exemptions from tariff stacking — additional duties — and reducing levies on Taiwanese exports. Taiwan currently faces a “reciprocal” tariff rate of 20%.

Washington has held discussions with Taipei about the “50-50” split in semiconductor production, which would cut American reliance on Taiwan, Commerce Secretary Howard Lutnick said last weekend in an interview to NewsNation, adding that currently 95% of the U.S. demand was met via chips produced within Taiwan.  

“My objective, and this administration’s objective, is to get chip manufacturing significantly onshored — we need to make our own chips,” Lutnick said. “The idea that I pitched [Taiwan] was, let’s get to 50-50. We’re producing half, and you’re producing half.” 

U.S. President Donald Trump had also taken aim at the island’s dominance in chips earlier this year, accusing it of “stealing” the U.S.’ chip business.

The Office of the U.S. Trade Representative and Taiwan’s Ministry of Economic Affairs did not immediately respond to CNBC’s request for comments.

Lutnick’s proposal has been condemned by Taiwan’s politicians, with Eric Chu, chairman of the island’s principal opposition party Kuomintang, calling it “an act of exploitation and plunder,” according to the Central News Agency report.

“No one can sell out Taiwan or TSMC, and no one can undermine Taiwan’s silicon shield,” Chu said, referring to Taiwan Semiconductor Manufacturing Company, the world’s leader in advanced chip manufacturing.

Taiwan’s critical position in global chips production is believed to have assured the island nation’s defense against direct military action from China, often referred to as the “Silicon Shield” theory.

In his NewsNation interview, Lutnick downplayed the “Silicon Shield,” arguing that Taiwan would be safer with more balanced chip production between Washington and Taipei. Beijing views the democratically governed island of Taiwan as its own territory and has vowed to reclaim it by force if necessary, while Taipei rejects those claims

Taiwan People’s Party Chairman Huang Kuo-chang reportedly called Lutnick’s proposal an attempt to “hollow out the foundations of Taiwan’s technology sector.”

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SK Hynix shares hit 25-year high, Samsung also surges as chipmakers partner with OpenAI

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SK Hynix shares hit 25-year high, Samsung also surges as chipmakers partner with OpenAI

Headquarters of Samsung in Mountain View, California, on October 28, 2018.

Smith Collection/gado | Archive Photos | Getty Images

Shares of South Korean chip heavyweights Samsung Electronics and SK Hynix surged Thursday, a day after the two companies partnered with artificial-intelligence major OpenAI as part of the U.S. firm’s Stargate initiative.

Samsung shares hit their highest since January 2021, rising over 4%, while SK Hynix stock surged more than 9% — highest since 2000.

OpenAI said in a statement that this partnership will “focus on increasing the supply of advanced memory chips essential for next-generation AI and expanding data center capacity in Korea.”

The ChatGPT-maker said the two South Korean firms plan to scale up production of advanced memory chips, which are critical to power its AI models.

The announcement came as OpenAI CEO Sam Altman met with South Korean President Lee Jae Myung in Seoul, and the top leaders at Samsung and SK Hynix.

OpenAI has also signed a series of agreements to explore developing next-generation AI data centers in South Korea, including with the Korean Ministry of Science and ICT, telecommunications operator SK Telecom, as well as with Samsung subsidiaries.

Earlier this month, SK Hynix announced that it was ready to mass-produce its next-generation high-bandwidth memory chips, cementing its leading position in the AI value chain. HBM is a type of memory that is used in chipsets for artificial-intelligence computing, including in chips from global AI giant Nvidia — a major client of SK Hynix. 

HBM4 chips are expected to be the main AI memory chip needed for Nvidia’s next-generation Rubin architecture — a more powerful AI chip for global data centers.

SK Hynix has been a main chip supplier to Nvidia, while rival Samsung has reportedly been working to get its HBM4 chips certified by Nvidia. 

Samsung has traditionally been the market leader in memory, but its position has been threatened by SK Hynix that has taken a lead in the HBM space. A report from Counterpoint Research in July found that SK Hynix had caught up with Samsung’s memory revenues in the second quarter, with both now vying for the top position in the global memory market. 

Samsung’s second-quarter earnings missed expectations, as profits from its chip business declined almost 94% year on year, although its Chief Financial Officer Soon-cheol Park said that the company expects a rebound in the second half of the year.

— CNBC’s Dylan Butts contributed to this report.

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