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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Chrisner, and today it's all

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Speaker 1: about Nvidia. After the close in New York, the company

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Speaker 1: delivered a bullish forecast for revenue in the current quarter.

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Speaker 1: This seemed to reassure the market that spending on artificial

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Speaker 1: intelligence computing remains strong now. Heading into this report, analyst

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Speaker 1: questioned whether supply constraints as well as a shift to

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Speaker 1: the latest GPU design, Blackwell, with slow growth for Nvidia. Blackwell,

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Speaker 1: you see, is a more sophisticated GPU, It's had some

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Speaker 1: manufacturing challenges. And then on the earnings call, CEO Jensen

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Speaker 1: Wong gave an upbeat view on Blackwell.

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Speaker 2: Blackwell is going to be incredible across the board. And

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Speaker 2: when you have a data center that allows you to

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Speaker 2: configure and use your data center based on are you

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Speaker 2: doing more pre training now, post training now, or scaling

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Speaker 2: out your inference. Our architecture is pungible and easy to

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Speaker 2: use in all of those different ways.

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Speaker 1: Jensen Wong there the CEO of Nvidia. For a little

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Speaker 1: more on the Nvidia story, we turned to Angelo Zeno.

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Speaker 1: Angelo is the vice president of Equity Research at CFRA Angelo.

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Speaker 1: It's always a pleasure to have a chance to visit

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Speaker 1: with you on Nvidia earnings day. What did you make

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Speaker 1: of the latest results.

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Speaker 3: We were actually pretty optimistic about the results, So, you know, overall,

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Speaker 3: when we kind of think about the actual numbers that

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Speaker 3: were posted, numbers implied or we sort of top line

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Speaker 3: growth of about seventy eight percent, and that was slightly

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Speaker 3: better than expected. The implied kind of April quarter number

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Speaker 3: of revenue figure of forty three billion, which is kind

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Speaker 3: of what everybody was eyeing was that April quarter guidance

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Speaker 3: consensus was looking at forty two billions, so they got

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Speaker 3: it about a billion above the street again applies a

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Speaker 3: fairly kind of robust growth piece of north of sixty

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Speaker 3: percent on a year of a year basis, And you know,

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Speaker 3: at the end of the day, I think kind of

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Speaker 3: going into the numbers, there was some concern about the

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Speaker 3: Blackwell ramp out there, and when you kind of look

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Speaker 3: at maybe what the most important data point out there

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Speaker 3: was that in Vidia provided it was the eleven billion

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Speaker 3: in Blackwell revenue in.

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Speaker 4: The January quarter.

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Speaker 3: We were looking for something closer to seven to nine billion,

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Speaker 3: and that number is going to accelerate here over the

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Speaker 3: next couple of quarters, and that improved visibility. The lack

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Speaker 3: of the easing of some of the supply constraints out there,

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Speaker 3: I think east some of the concerns that may have

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Speaker 3: been out there for some in Vidia investors.

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Speaker 1: I think it's fair to say that one concern for

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Speaker 1: the current quarter may have been gross margin. In Vidia

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Speaker 1: is predicting non gap gross margin of around seventy one percent.

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Speaker 1: That seems pretty high, but it was less than forecast.

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Speaker 1: Are you concerned at all about that figure?

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Speaker 3: Yeah, I mean the gross margin number was probably the

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Speaker 3: one black eye as far as where we kind of

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Speaker 3: were looking at the guidance side of things. It was

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Speaker 3: definitely a disappointment. I think when you kind of especially

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Speaker 3: look at the trajectory of gross margins over the last

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Speaker 3: couple of quarters, it kind of hit a peak run

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Speaker 3: rate of about seventy eight percent in the first half

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Speaker 3: of calendar twenty twenty four. So the margins continue to

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Speaker 3: compress here going into the April quarter. The good news

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Speaker 3: is we do expect that to essentially be the trough

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Speaker 3: of the cycle here in the April quarter, and then

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Speaker 3: what we do expect is an improvement on the margin

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Speaker 3: side of things. The company a couple of months ago

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Speaker 3: did guide to the fact that as Blackwell ramps, you

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Speaker 3: are going to see margin pressures. That's what you're seeing now.

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Speaker 3: The company reiterated the fact that they expect mid seventies

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Speaker 3: margins as we kind of go into second half of

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Speaker 3: calendar twenty twenty five. And the fact that they did

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Speaker 3: reiterate that, I think kind of is allowing some investors

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Speaker 3: out there to at least look past some of the

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Speaker 3: disappointment on the margin side of things.

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Speaker 1: Nvidia stock is still below the pre Deep Seek level,

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Speaker 1: and I'm wondering whether or not this has changed the

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Speaker 1: deep Seek story I'm referring to, has changed anything on

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Speaker 1: the story with Nvidia.

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Speaker 4: Well, you know, I think that's a good question.

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Speaker 3: I think it's something that all investors kind of have

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Speaker 3: a close eye on and we're kind of debating as

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Speaker 3: we were kind of going into the print here and

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Speaker 3: as we expect it. Actually, Jensen was very bullish about

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Speaker 3: the demand landscape in a post deep Seek environment and

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Speaker 3: essentially kind of talked about the belief for a lot

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Speaker 3: of these kind of next generation reasoning models out there

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Speaker 3: to require a lot more compute out there, as much

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Speaker 3: as one hundred times the amount of compute that you're

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Speaker 3: seeing now from these kind of reasoning models. And essentially

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Speaker 3: kind of his belief is this is concept known as

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Speaker 3: model distillation out there, which is what Deep Seek is

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Speaker 3: essentially leveraging, and that's kind of basically taking a lot

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Speaker 3: of the learnings from some of these larger language models

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Speaker 3: out there and leveraging it in their own models. And

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Speaker 3: that requires again on in videos lot of things to

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Speaker 3: tell they've said it requires a lot more compute than

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Speaker 3: just pre training alone. So they again talked up kind

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Speaker 3: of a very positive story post Deep Seek. It remains

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Speaker 3: to be seen exactly how this all plays out. I

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Speaker 3: will say this as far as these large language models

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Speaker 3: are concerned, who essentially have this kind of race to

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Speaker 3: the bottom at this point in times in terms of

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Speaker 3: you know, pricing a lot of China new competitors out there,

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Speaker 3: China competitors coming out there, and that's going to kind

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Speaker 3: of commoditize the larger language model side of things. So

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Speaker 3: that is going to have an impact in terms of

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Speaker 3: AI monetization as far as large language models are concerned.

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Speaker 3: And as a result of that, we think it's going

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Speaker 3: to be more relevant for investors to start looking at

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Speaker 3: the monetization from these AI agents out there, and eventually

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Speaker 3: as you move to a physical AI world. So I

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Speaker 3: think this is an evolving landscape out there. I think

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Speaker 3: stay tuned, But as far as Jensen is concerned, post

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Speaker 3: deep seek looks better at least long term for the

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Speaker 3: compute the evolution of compute.

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Speaker 1: And there's the geopolitics. I think we have to talk

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Speaker 1: a little bit about what the Trump administration is intending

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Speaker 1: to do. Recently we learned that the administration is sketching

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Speaker 1: out tougher versions of US semiconductor curbs for China. Do

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Speaker 1: you think that that necessarily will negatively impact nvidio and

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Speaker 1: that narrative in a significant way.

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Speaker 3: If the Trump administration goes ahead and actually kind of

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Speaker 3: implements let's call its more harsh stance on some of

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Speaker 3: these kind of export restrictions, especially tied to GPUs, and

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Speaker 3: I think kind of the fear out there is a

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Speaker 3: potential all out beIN of these GPUs and that would

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Speaker 3: include I guess their most popular seller, which would be

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Speaker 3: the Age twenty out in China.

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Speaker 4: And if that were to happen, I mean that potentially.

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Speaker 3: Puts at risk as much as as much as ten

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Speaker 3: to fifteen percent of their revenue, which is tied in

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Speaker 3: China at least tied to kind of the data center

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Speaker 3: side of things. So yeah, I mean, I think when

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Speaker 3: you kind of think about the negative tilt or kind

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Speaker 3: of the barecase burned video right now, the biggest near

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Speaker 3: term risk out there has to be the geopolitical landscape.

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Speaker 3: So hopefully we get some kind of clarity on that

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Speaker 3: here over the next couple of months, and hopefully the

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Speaker 3: administration doesn't take that harsher stance out there. To be

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Speaker 3: honest with you, if you know, if the administration was

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Speaker 3: really kind of looking to take a harsh stance on

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Speaker 3: China as far as Chips is concerned, we would we

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Speaker 3: would say, hey, listen, do an all out ban on

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Speaker 3: the semi equip side of things, which would kind of

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Speaker 3: be more of kind of a table pounder out there

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Speaker 3: than kind.

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Speaker 4: Of banning some of these GPUs.

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Speaker 3: But it is very possible that we kind of get

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Speaker 3: an all out ban on these GPUs, and that would

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Speaker 3: be the risk out there for investors of Nvidia.

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Speaker 1: These are early days for the adoption of artificial intelligence,

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Speaker 1: but can you give me a sense and maybe it's

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Speaker 1: too soon to call it a super cycle. Where are

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Speaker 1: we right now in terms of the cycle for AI,

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Speaker 1: and give me your assessment on how valuations kind of

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Speaker 1: factor into that at the moment.

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Speaker 4: Yeah, I mean, I think you're right.

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Speaker 3: I think this is early days and there's going to

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Speaker 3: be a lot of volatility.

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Speaker 4: I think, you know, there were hopeful, you know, there was.

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Speaker 3: Some help out there from some investors that this is

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Speaker 3: going to be kind of up into the right and

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Speaker 3: that's not going to be how this all plays out,

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Speaker 3: right in terms of the CAPEX spend, in terms of

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Speaker 3: the AI monetization of all of this, in terms of

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Speaker 3: the cap X cycle is concerned, as far as in

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Speaker 3: nvidios GPUs are concerned. We're entering kind of year three

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Speaker 3: of this upcycle that really kind of started with the

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Speaker 3: Open AI Microsoft partnership in early calendar twenty twenty three.

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Speaker 3: So you know, comparisons are obviously going to get a

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Speaker 3: lot more difficult as the years go by. The question is,

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Speaker 3: you know, how far is the current kind of CAPEX

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Speaker 3: cycle going to go. Potentially could go five six years.

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Speaker 3: Historically kind of capex cycles on the data center side

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Speaker 3: of things last longer than I would say on the

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Speaker 3: consumer side of things when we're talking about you know,

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Speaker 3: kind of you know, cycles tied to PCs or smartphones

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Speaker 3: or something like that.

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Speaker 4: But it's important.

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Speaker 3: It's impossible to really kind of tell how this all

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Speaker 3: plays out. Macro obviously has a big role in all

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Speaker 3: of this as well, but the AI monetization is really

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Speaker 3: kind of where all eyes should be for investors at

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Speaker 3: this point in times. It's take a look at Microsoft,

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Speaker 3: take a look at what a company like Salesforce is

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Speaker 3: going to do, what they have to say over the

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Speaker 3: next couple of quarters in years as far as AI

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Speaker 3: monetization is, tie is concerned, tied to AI agents out there.

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Speaker 4: If we see kind.

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Speaker 3: Of a strong ramp here going into the second half

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Speaker 3: of calendar twenty five into twenty six, that bodes well

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Speaker 3: in terms of kind of the sentiment and enthusiasm in

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Speaker 3: terms of some of the spend net we're seeing. If

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Speaker 3: you don't see that AI monetization really kind of ramp

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Speaker 3: up the way you know some out there are hoping for,

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Speaker 3: there's a very good possibility that some of these these

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Speaker 3: hyperscalers maybe kind of level off some of the spend

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Speaker 3: as we go into twenty twenty six, as far as

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Speaker 3: valuations are concerned across the AI ecosystem, they've definitely kind

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Speaker 3: of compressed here over the last kind of nine to

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Speaker 3: twelve months. Is kind of tech has kind of really

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Speaker 3: been in this kind of you know, flat line situation

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Speaker 3: since the summer of last year. In fact, if you

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Speaker 3: kind of look at a Nvidia's valuation trading about twenty

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Speaker 3: five times on our calendar twenty six estimate, it's come

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Speaker 3: down significantly over the last couple of quarters. You can

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Speaker 3: also see that, you know, across other type of mag

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Speaker 3: seven type names out there, whether it be a name

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Speaker 3: like Microsoft trading about twenty six times our calendar twenty

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Speaker 3: six estimate and others out there, they're actually trading at

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Speaker 3: discounts to historical levels. So it kind of tells you

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Speaker 3: that there are investors out there that are kind of

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Speaker 3: getting a little bit skittish about kind of this AI

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Speaker 3: trade at the moment.

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Speaker 1: Yeah, Angelo, thank you so much for the analysis. Great stuff.

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Speaker 1: Angelo Zeno there, he is vice president of Equity Research

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Speaker 1: at CFR. Joining us here on the Daybreak Asia podcast.

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Speaker 1: Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner.

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Speaker 1: So we were talking about in Nvidia a moment ago.

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Speaker 1: You know, this stock has been down this year on

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Speaker 1: concern about the slow down and spending potentially from data

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Speaker 1: center operators. Also, we have to bring into the story

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Speaker 1: the breakthrough from that Chinese startup, Deep Seek. The company's

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Speaker 1: chatbot show that llm's can be developed on the cheap

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Speaker 1: and that could reduce the need for Nvidia's powerful AI chips.

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Speaker 1: But for the moment, let's turn our attention to Chinese

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Speaker 1: tech stocks. They've been on a tear lately. Joining us

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Speaker 1: now is Shuly Rent, Bloomberg opinion columnist truly joins from

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Speaker 1: our studios in Hong Kong. Suly, it's always a pleasure.

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Speaker 1: Thank you so much. How would you describe what's been

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Speaker 1: happening with Chinese tech right now?

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Speaker 5: Well, Deep Seek really has changed the perception of Chinese investors.

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Speaker 5: They do feel, I mean going back, like we know

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Speaker 5: that the Hong Kong list issues mostly Chinese companies, right

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Speaker 5: they are deep value traps after the Beijing's regular to

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Speaker 5: crack down some big tech and the whole property bubble bust,

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Speaker 5: Like the Chinese shares are very cheap, but Deep Sea

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Speaker 5: basically said that, you know, China is not just a

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Speaker 5: manufacturing powerhouse. It's also good with the software and digital stuff,

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Speaker 5: right like Deep Sea does a generative AI. And the

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Speaker 5: people didn't really expect that China, a small unknown startup

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Speaker 5: even to the Chinese until a month ago, could do

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Speaker 5: so well despite all the export controls, and that really

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Speaker 5: fired up. And then what we are seeing is that

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Speaker 5: you know, the tex doogs, the software companies, they're doing very,

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Speaker 5: very well, and there is a sense that the China

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Speaker 5: can be a growth market. Again.

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Speaker 1: In the latest column that you authored for Bloomberg Opinion,

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Speaker 1: you write that a Chinese alternative to the Magnificent Seven arrives.

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Speaker 1: And I'm wondering whether you're really focused on a lot

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Speaker 1: of these e commerce names that we hear so much about,

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Speaker 1: like Ali Baba ten Cent.

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Speaker 5: Yes. One thing though, is like a lot of it

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Speaker 5: is about the positioning, like global asset managers positioning. Coming

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Speaker 5: into this year, everyone is overweight on basically the big

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Speaker 5: seven tax stocks, right, the so called the notion of

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Speaker 5: a US exceptionalism. And everyone agrees that the US store

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Speaker 5: market is overvalued because just simply because so much money

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Speaker 5: has been coming in and there is this genuine need

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Speaker 5: to diversify, and now the question is where do you

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Speaker 5: diversify to. Right Like China, tex stock is one story.

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Speaker 5: Another story is European stocks. They have been doing quite

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Speaker 5: well as well, and there is expectation that the Donald Trump,

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Speaker 5: however you like it politically or not, could propel peace

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Speaker 5: over Ukraine, which means that it could be good for

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Speaker 5: European economies, especially Germany.

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Speaker 1: You know, Beijin seems to have kind of changed its

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Speaker 1: attitude where some of the big tech stories in China

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Speaker 1: are concerned. I'm thinking back to the meeting a few

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Speaker 1: weeks ago that Chi Jinping had with some of the

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Speaker 1: leaders of these big companies that I'm thinking of Jack

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Speaker 1: Ma in particular, as Shi Jinping changed his attitude when

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Speaker 1: it comes to big tech.

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Speaker 5: He has to because, believe it or not, just because

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Speaker 5: China's economic out look it's not so good. Right like

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Speaker 5: the big tech, the big e commerce platforms political fortunes

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Speaker 5: actually are improving because they actually soak up a lot

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Speaker 5: of employment. Right like young people. The unemployment rate for

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Speaker 5: young people in China is very high, and if young

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Speaker 5: people have no jobs, they could become delivery workers unfortunately,

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Speaker 5: or like they could be uber drivers in China that

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Speaker 5: would be d D. Or they could set up a

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Speaker 5: small e commercer shops selling stuff, or they could be influencers.

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Speaker 5: And I think Beijing does recognize that these big platforms

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Speaker 5: they are job creators and they need to be nice

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Speaker 5: to them.

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Speaker 1: When you look at valuation, you're a financial analyst by training.

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Speaker 1: You see when you look at some of these companies,

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Speaker 1: Chinese firms that trade in Hong.

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Speaker 5: Kong, everything is relative. I mean Tesla trades at the

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Speaker 5: over one hundred times forward earnings shell me and the

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Speaker 5: bid they both do evs, they trade at the roughly

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Speaker 5: forty to forty and twenty five times, and relatively speaking,

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Speaker 5: everyone everyone else is cheap compared to Tesla, right, And

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Speaker 5: it's not just that a lot of Chinese feel that

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Speaker 5: the Ela musk has been very distracted lately and then

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Speaker 5: that he's not paying attention to Tesla's business, and that

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Speaker 5: opens a window for Chinese EV makers. And in fact,

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Speaker 5: like a lot of EV makers, they are adding like

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Speaker 5: a lot of like advanced technology, for instance, auto driving,

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Speaker 5: greeting the drivers with their favorite songs, et cetera for free,

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Speaker 5: Like basically you are getting the same heart with technolological

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Speaker 5: add ons, but you're not paying anymore. And they do

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Speaker 5: feel that the Shelby and b White have a lot

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Speaker 5: of space in Europe or even in the US.

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Speaker 1: So I talked a moment ago about the rally that

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Speaker 1: we have seen recently and a lot of these text

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Speaker 1: shares in Hong Kong. Do you know whether or not

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Speaker 1: most of this buying is on the part of institutions

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Speaker 1: or is it the retail crowd that is really stepping

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Speaker 1: up and taking smaller positions.

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Speaker 5: I think it's both, but the most of it is

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Speaker 5: still Chinese money. You can actually see. So basically mainland

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Speaker 5: China and Hong Kong has a stock connect. Mainland investors

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Speaker 5: can through the stock connect by Hong Kong list issues,

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Speaker 5: and you do see that, you know, whenever the Hong

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Speaker 5: Kong stock market is wobbling, like you actually see the

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Speaker 5: self bound money coming into Hong Kong. So I do

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Speaker 5: think like there is retail money, there is institution money,

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Speaker 5: but most of it is still Chinese money. I mean,

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Speaker 5: after all, like China has been a big career risk

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Speaker 5: for a lot of the global asset managers. They're interest

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Speaker 5: but they are still sitting on the sidelines. Although you know,

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Speaker 5: if you see like macro funds or hatch funds, they

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Speaker 5: are in and out, they do trade.

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Speaker 1: So how would you evaluate the conviction? Is there a

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Speaker 1: feeling here that this is something more than a one off,

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Speaker 1: that there is really something more durable underneath the surface.

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Speaker 5: The last week or so, I have checked with a

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Speaker 5: lot of asset managers. They feel quite boolish, and I

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Speaker 5: do think deep Seak is changing the game, right, Like

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Speaker 5: going back to the whole thing. People have a lot

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Speaker 5: of confidence in China's manufacturing power, but they don't really

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Speaker 5: have that much confidence in China's software power. And the

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Speaker 5: deep sea shows otherwise. And that's why, Like if you

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Speaker 5: see the Hong Kong listed tech stocks, they wobble a

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Speaker 5: little bit when the news flow comes that the trumpet

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Speaker 5: is going to increase export chip controls out of China,

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Speaker 5: But very quickly you should see people buy on the

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Speaker 5: dip because they just think export controls are not working.

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Speaker 1: Truly, thank you so much for joining us. It's always

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Speaker 1: a pleasure, truly. Ranch He is Bloomberg opinion columnist joining

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Speaker 1: us here on the Daybreak Asia podcast. Thanks for listening

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Speaker 1: to today's episode of the Bloomberg Daybreak Asia edition podcast.

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Speaker 1: Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 1: else you listen. Join us again tomorrow for insight on

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Speaker 1: the market moves from Hong Kong to Singapore and Australia.

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Speaker 1: I'm Doug Chrisner, and this is Bloomberg