00:00Joining us now for an interview to talk all about NVIDIA's second quarter earnings results.
00:05What happened with the stock and where investors go from here is Ray Wong. He is the founder and
00:09chairman of Constellation Research. Ray, welcome back. Nice to have you. Thanks for being here.
00:15Yeah, thanks for having me. Amazing results, but markets looking really sluggish. What's going on?
00:21Well, that's my exact question. What did we learn and why do you think, what is your best
00:25sense as to why the stock is down despite nine consecutive quarters of beats and overall a lot
00:31of consistency from the company? I think the simple answer is we're in the summer. We're about to hit
00:37Labor Day. The market, people are taking money off the top. When we come back, people are going to buy
00:42the dip. And I think that's really what's happening right now. Things are sitting flat. Volumes are
00:46pretty low. It's not a high volume day. People are relieved that the NVIDIA numbers look good.
00:51They're not happy with the forecast, but the $60 billion in stock buyback is something to be happy
00:57about. But there's a lot more in the future. Yeah. To the point of that buyback, you think
01:02more goes into research and development? Is it just a smart capital return? What did you make of
01:07the announcement and your expectation for really what you think it means for the moment right now?
01:12Well, for the moment, I think NVIDIA is basically saying, look, we've made a lot of money. We're going
01:17to return some to the shareholders. Thank you for your help. But there's also $32 to $40 billion
01:23of sales to China that they're hoping is going to happen in future quarters. And this is kind of the
01:28way to kind of buy the trend, kind of patch the time before we get to that point. They're hoping
01:33the trade deals continue. You might have seen breaking today that, you know, NVIDIA is trying
01:37to get Blackwell chips sold in China. Is it going to be the single-die chips, not the multi-die chips?
01:42We'll get to the China factor in just a second. With regards to the price, I mean,
01:47the stock is, I say, only down, you know, nine-tenths of a percent relative to some of
01:51these six, seven percent swings up or down. We tend to see NVIDIA stock go through after
01:56earnings. Is this, you know, maybe a bit disappointment on guidance, but you get the
02:01sense that it could be much worse in terms of stock reaction?
02:05Well, it could have been worse if people thought that the guidance wasn't good enough. I think
02:09what's happening is people are taking money off the top and other people are coming in
02:12on the dip. What is the most interesting thing is NVIDIA is the least, least held by institutional
02:19investors of the MAG-7. And so you might see some folks coming in hoping there was a dip.
02:24They didn't see the dip that they wanted to see. And in fact, they're wondering if they should just
02:28still get in or not get in. And I think they're going to wait it out until after Labor Day.
02:32That's a really interesting note that I know you've made before about NVIDIA being least
02:37owned by institutions among the MAG-7. Is this more of a, do you see this more of a retail driven
02:43play right now or institutions sort of just slow to adapt given how volatile and how skyrocketing
02:49the stock has been over the last couple of years?
02:52It's definitely a retail play and it's been a retail play for a while. Part of it is because
02:55everyone's like, it can't keep going any higher. It can't keep going any higher. And next thing you
02:59know, you missed it. I mean, this stock has been up 1300% tough in the last five years. So if you're
03:05trying to catch the wave, you really missed it. And you're still wondering, should I still try to
03:08catch the wave? Do I double down? And that's why people are having second thoughts, especially
03:12institutional investors.
03:15Yeah. Do you get the sense that there was something in this report for both the bulls
03:19and the bears? Or is there one of those two camps that can walk away a bit more emboldened today
03:25after what we heard from NVIDIA on the call?
03:28I think the bulls should be super excited. They made these numbers without China chips.
03:32So if you're betting on the fact that we're going to get a trade deal with these chips,
03:35then you know there's a 30 to $40 billion upside on the other end. You should be really excited.
03:41But you should also be looking at a couple of factors, right? We're predicting 1.67 trillion by
03:462031. Constellation Research has a market sizing of 1.67 trillion for the AI market. We're not even
03:53close, right? We're also predicting that intelligence is doubling every seven months. So AI intelligence
03:59means we're going to need more capacity, more data centers, more energy, of course, more chips.
04:04The company also agreed to give 15% of its China sales to the US government, but it's not a deal
04:10that's been finalized. I feel like you and I could do an entire hour-long conversation on the
04:15relationship between the Trump White House and a lot of these companies, the Intels of the world.
04:19But how do you think investors should view the relationship between NVIDIA specifically
04:24and the federal government in light of some high-profile conversations between Wang and
04:30the president?
04:31You know, I am a libertarian in that regard. I don't think we should have these kind of trade
04:36deals. I understand what we're trying to do is set industrial policy. We're trying to bring
04:40manufacturing back to the US. Chips is one of the levers that's going on here. If you think about
04:45what's really happening is a lot of AI is going to take out white-collar jobs and we're going to need
04:50manufacturing jobs in the US. And that's what's driving this. So I think this is one piece of the
04:55story in the overall trade negotiations that's going on between US and China and the reset that's
05:00going on with the US economy.
05:02Stock is still almost 8% of the entire S&P 500. Consolidation risk as you see it?
05:09If you look at the entire MAG-7, right, you've got seven stocks outperforming 493. It's not even funny.
05:16Everyone's growing like single digits and these guys are growing double digits. It's part of the
05:20theory we had a long time ago about digital giants that we're going to rule the world. And that's
05:25really what's happening is they've been able to continue to build revenue streams at the same time
05:30as they're getting into the world of AI. So everyone's doing digital ads, getting in. Everyone's
05:33doing networks, they're getting in. It's been quite amazing to watch that transformation.
05:38You mentioned there were some China-related headlines even today and the stock is pretty notably off its
05:44session lows. So it's rebounded a bit even in just the last few hours. You get the sense China-related
05:49headwinds are already factored in, already priced into the stock? And if so, why?
05:54They've been priced in. People think the tariff situation is not going to be three months. It's
05:58going to be six months. So they priced that in earlier. They took out the billions in chips that
06:02was in the China numbers earlier as well. And so for NVIDIA to hit their numbers without China,
06:07I think was really the big piece of the story. The question is, what will happen when they hit
06:14the numbers with China? That's the upside that everyone's looking at. The tailwinds is a little
06:19bit different. The tailwind comes when other alternatives come into place. Are we using TPUs?
06:25Are we using smaller language models? Is everybody not having to use general artificial intelligence?
06:31If we move everything to the edges and get to decentralized AI, if we get to that piece,
06:37then it's going to be interesting to see where the chip market goes and where NVIDIA's role is going to
06:41be. Think of a risk, if at all, Ray. Do you see the fact that so many of the other, ironically,
06:47magnificent seven, the big tech companies, they are very closely related to this company in terms of
06:55revenue, right? The revenue of NVIDIA is largely contingent on the CapEx AI semiconductor spend of the
07:01other giants. Excuse me, what does that pretend with regards to the path moving forward?
07:07Yeah, if you see any kind of faltering on the MAG-7 and the six out of the MAG-7,
07:13that's where we're going to see some trouble. That means they're going to have shareholders that
07:17say, stop spending so much on AI, don't spend 80 to $100 billion a year here. Maybe you're going to
07:22spend 70 instead of 100. That's when we're going to see some faltering on the NVIDIA side,
07:26given the dependency on the MAG-7 and the hyperscalers. But the question is, can they
07:31get sovereign AI up and running fast enough? Will countries be investing in data centers the way
07:36that private enterprises in the MAG-7 are? And the short answer is some are, right? You look at
07:41Saudi Arabia, you look at the Middle East in general with UAE and Qatar, they're all investing
07:46in this level in terms of to be able to have that competitive edge.
07:49All right. Ray Wong is the founder and chairman at Constellation Research. Thanks a lot for being
07:55here. It was a big earnings call. And I know we'll talk again as the year continues for the
08:00largest company in the S&P. Ray, thank you.
08:02Thank you very much.
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