The stock market continues to show strong interest in Nvidia (NVDA), widely regarded as a leader in AI chips. However, investors may wonder if this makes Nvidia a wise investment, especially leading up to its upcoming earnings report as the company’s track record of success has set high expectations for its financial performance each quarter.
On today’s episode of Opening Bid, Yahoo Finance executive editor Brian Sozzi discusses Nvidia’s upcoming earnings report and future prospects with Harvest Portfolio Managemen CIO and partner Paul Meeks. Together they examine alternative tech investments to consider such as Super Micro Computer (SMCI) and question whether Elon Musk’s focus on humanoid robots is distracting investors from Tesla’s (TSLA) EV challenges.
Video Transcript
All right, welcome to a new episode of Yahoo Finance’s opening bid.
Um Yahoo Finance executive editor Brian Sazi.
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 Steel, 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 a, in a secluded room with no pads around it, whatever it is.
Uh I really like the points Jim’s making here and 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 of things off the jump here.
First up, rapidly waning relevance of core franchises.
When was the last time you heard Nike describe that fashion?
That’s awful.
Uh He’s also saying Nike is lacking indicators that Nunes is driving s 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, I have no 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, so I’m losing relevance there.
What Duffy is seeing is popular is on uh New Balance Sneakers.
A lot of these a kaak, a dad shoes, dad shoes, taking Cher away from Nike.
So I guess I can’t be, I can’t be too surprised about that one.
and they are pretty comfortable.
I got a pair of $40 schedules 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, so 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 shares still valued at a premium to the broader market 27 times four P multiple to me.
That looks absolutely ridiculous.
Just given all the fundamental concerns surrounding Nike, John Donahoe CEO since 2020.
I think he’s in the hot seat.
He could be getting the ax within 18 to 24 months, just not getting the job done.
Former tech executive over at service now and of course, former CEO of ebay, always unsure why he’s leading Nike nonetheless, uh named 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 bid 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.
II 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 and P 500 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 he, here’s an example from my side of the house.
Of course, I run a tech model.
Everybody uh knows that but occasionally I have uh ultra high net 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, ok, here comes the fed.
They’re gonna lower rates that should give a jumpstart to value names.
But the top line growth, particularly for these A I 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 topics towards the end of the podcast.
So people tune into the end.
It tricks the trade, Paul.
I mean, you have to do these things, but I wanna 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 company, a lot of people never even heard of a year ago, two years ago, 345, 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, Brian is upside what they have been upside to the tune of at least 20%.
But the key with this stock is not necessarily what they’ve uh reported but what they say going forward about, it’s never been 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 blackwall chips that 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 hyper scalers A I 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 preamble because the hyper scalars, the four of them combined will be spending over $220 billion and that is confirmed unless they essentially turn around and go back on their publicized budgets.
And so we need to have a big total available market.
And I think even with the emergence of A MD 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.
A LA, somebody like Apple that goes well beyond the GP US, that’s going to cement their leadership.
Why do you, why is NVIDIA so far ahead?
I, I look at a MD and when I talk to Lisa sue the CEO uh over at A MD, what they’re working on, what she tells me they’re working on so 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 A I build out.
I mean, how is NVIDIA able to just keep such a lead uh over in a MD?
And we’re not even talking about Intel, I mean, Intel is still not even in this discussion despite uh they have started to pick up uh what they’re doing on the A I front.
But I, why, so why, why is NVIDIA still the leader?
Well, they were so early to the market essentially, you know, Jensen Wang and company um you know, created uh these GP US for computer acceleration.
And so you think about it, I like their software, the C A 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 erode some market share because people want to have a reliable second sourcess and A and B 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 given up on that particular company, but I do think it will 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 a video comes out here and, and the numbers are off the charts but not off the charts enough to satisfy the Bulls uh 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.
Uh 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 b but on the other hand, uh, right now the stock is trading at about a mid thirties, multiple of next year’s earnings and they’re gonna get, uh, 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 about uh one, we’re trading at about parity.
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 gonna 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 t 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 and I’m gonna, I’m gonna geek out a little bit.
I 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 price 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 Yahoo Finance.
Uh, you go to the stats page 48 times forward earnings on, on NVIDIA.
Uh, it’s below the five year average actually.
Well, below why would a stock like NVIDIA not be trading at 100 times earnings?
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 a MD 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 saying, well, all these guys are spending not tens of billions, hundreds of billions on A I infrastructure.
What happens at the other end of the pipe if there’s no ro I 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 rroy 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 of years ago before the A I infrastructure boom started.
So that’s where the uh the bears come in.
That’s why the valuation isn’t allow uh Cisco back in the internet bubble at 100 and 50 times earnings.
Of course, at the end of the day, it should have never been that high.
But right now Nvidia’s trading at about a one peg ratio.
All right.
Hang with us, Paul.
We’re gonna go off for a quick break.
We’ll be right back on opening 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 a for a while, right?
Paul?
Oh yeah, I’ve been covering the tech since 1992 almost exclusively.
Is 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 into a hole in video 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 wanna get people prepared for if, if NVIDIA disappoints, I mean, we’re getting a market sell off.
I mean, that’s just the reality situation.
Yeah.
So what I would tell you is one of the 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 cr you know, get out that crowded door is all analysts 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.
So that’s a pretty good sign, right?
Because you know, the valuation is already in some cases ridiculous.
Um You’ll see a slowdown in sequential growth well, before you see the year to year comp and that’s usually a pretty good sign to say, ok, you know, maybe it continues growing, but I gotta start trimming my position.
Shout out to Yahoo finds uh Thomas Heben.
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 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 all in video podcast because you are watching other tech stocks and why we, we’ve started to see it.
Stocks.
Sounds boring on paper, not as sexy as in video or 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 A I beneficiaries, right?
With their consulting services.
I’ll kind of believe that when I see it, I still don’t see them as uh that attractive.
I continue even though it makes me sound like a very boring, very lazy analyst with the A I infrastructure building trade.
And so in addition to NVIDIA and perhaps a MD and perhaps uh Broadcom, I am very focused on the data server companies including Super Micro and Dell and Brian Dell is interesting because that’s another tell and A MD reports, the results on Wednesday and Dell reports their results this Thursday.
And then of course, another company probably in that realm is uh Hewlett Packard Enterprises H PE.
And then I look for some of the data networking plays uh particularly Arista networks because I think their laser beam focused on A I 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 gotta stick with what I call the A I 1.0 stops.
The guy is building the infrastructure because the infrastructure spending has been confirmed by the four hyper scalars.
I am not going yet with the A I 2.0 place are the ones that are supposed to be the beneficiaries.
Now, last week we did get one interesting A I 2.0 data point and that came from work day who didn’t really quantify it, but they claim that uh they’re guiding higher in their operating margin, not because they’re selling A I 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 gonna go from 25% to 30% in a year.
If I get more uh use cases like that, Brian, then I’ll start to believe in the A I 2.0 place.
But right now focused on those A I one.org play.
You triggered some comments in me here.
Uh Paul first, I think Dell has been really under appreciate.
I know the stock has had a nice run what they’re doing in A I that turn around.
That company has been uh mind blow.
I encourage everyone to go read that 10 khp Antonio OI and other stock trading below 10 times four earnings guys cut a lot of costs out of the business and making acquisitions and then work day.
I apply for work day to work better.
Uh Can you just make the platform easier?
So I can, I don’t know, look over uh fellow employees at the company, I mean, just make the platform easy.
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 finds.
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 A I 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 this space uh and perhaps grow it.
Now, the stock went up to over $1000 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 A I servers that they sell to the Hyper Scalars, they’re selling them in such big volumes with these orders that the hyper scalars 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 fiscal 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 S MC I has a wonderful uh volume opportunity.
You know, this stock, if everything goes right, could ultimately earn $50 per share per year.
But we’ll have to see if they can boost this gross margin.
11.3 to 14% is gonna take a little work in the couple of 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 A I chip.
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 have figure putting out slick videos on linkedin.
Uh But again, not really though, I don’t see the robots out in the wild.
Is this the technology that we’re all gonna 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 gonna take a long time to be surrounded by robots even on a factory floor.
Yeah, Brian, I think it’s uh more of the latter, of course, you know, who got this uh 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 autonomous, autonomous driving.
So, yeah, uh of course, on the factory floor, it begins to proliferate.
But um this is not something that I see becoming really meaningful for much longer than the bulls think.
And I think most of it is Elon Musk 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 at NVIDIA and look for humanoid robot play.
Robot plays.
I mean, we’re, 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 because sometimes even if a company has great news, the stock still goes down.
But, yeah, uh, what I would play is A I Infrastructure 1.0 and, uh, worry about human eye, humanoid robots down the road, down the road and, and lastly, Paul real quick before you, before we let you go, I try to ask everyone, um you know, I try to inspire a lot of investors here and up and coming 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 gotta be uh humble, right?
I was uh one of the biggest 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 or 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 haystack that only they could find as an analyst, they don’t spend enough time on the sell side.
You know, the sell 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 hubris 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 and friend of Yahoo 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 way to 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.
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