1 00:00:02,440 --> 00:00:08,960 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,240 --> 00:00:11,799 Speaker 2: I'm Stephen Carol and this is Here's Why, where we 3 00:00:11,840 --> 00:00:14,080 Speaker 2: take one news story and explain it in just a 4 00:00:14,080 --> 00:00:14,880 Speaker 2: few minutes. 5 00:00:14,640 --> 00:00:16,360 Speaker 1: With our experts here at Bloomberg. 6 00:00:19,640 --> 00:00:22,520 Speaker 2: The artificial intelligence wave has boosted the value of tech 7 00:00:22,560 --> 00:00:25,680 Speaker 2: companies around the world this year, but one firm has 8 00:00:25,760 --> 00:00:26,840 Speaker 2: surpassed them all. 9 00:00:27,240 --> 00:00:28,920 Speaker 1: Video video. 10 00:00:29,120 --> 00:00:31,720 Speaker 2: The surge in demand for in videos highly sought after 11 00:00:31,840 --> 00:00:34,240 Speaker 2: chips is made at the hottest stock on Wall Street, 12 00:00:34,640 --> 00:00:37,159 Speaker 2: and on the eighteenth of June, the rally propelled it 13 00:00:37,200 --> 00:00:40,120 Speaker 2: to the title of the world's most valuable company. 14 00:00:40,240 --> 00:00:42,760 Speaker 3: When Vidia has more than double, more than triple the 15 00:00:42,840 --> 00:00:45,599 Speaker 3: year to date, it's astounding right now, three point three 16 00:00:45,640 --> 00:00:48,400 Speaker 3: to five trillion dollar market value. It's added two point 17 00:00:48,479 --> 00:00:51,400 Speaker 3: one trillion dollars in market value this year. That's more 18 00:00:51,400 --> 00:00:54,520 Speaker 3: than Amazon, that's more than Meta, that's more than Berkshire Hathaway. 19 00:00:54,680 --> 00:00:57,200 Speaker 1: But just days later, the stock price plunged. 20 00:00:57,680 --> 00:01:00,800 Speaker 2: The only thing that everyone is talking about is in video. 21 00:01:00,880 --> 00:01:02,480 Speaker 1: It follows three straight days. 22 00:01:02,200 --> 00:01:05,480 Speaker 2: Of declines which total more than ten percent, So therefore 23 00:01:05,600 --> 00:01:08,880 Speaker 2: technical correction in just three days of trading, four hundred 24 00:01:08,880 --> 00:01:12,039 Speaker 2: and thirty billion dollars was wiped off the AI chip 25 00:01:12,080 --> 00:01:15,759 Speaker 2: giants market cap. It was the biggest value loss over 26 00:01:15,800 --> 00:01:18,840 Speaker 2: that period for any company in history, and the whole 27 00:01:18,880 --> 00:01:21,759 Speaker 2: episode has left analysts scratching their heads as to. 28 00:01:21,800 --> 00:01:24,440 Speaker 1: How much the tech giant should really be worth. 29 00:01:24,880 --> 00:01:29,560 Speaker 2: I think it's really difficult to really ascertain what the 30 00:01:29,600 --> 00:01:34,040 Speaker 2: total addressable market really is for artificial intelligence. 31 00:01:34,319 --> 00:01:37,480 Speaker 1: So here's why in Vidia is so hard to price 32 00:01:37,720 --> 00:01:38,119 Speaker 1: right now. 33 00:01:38,240 --> 00:01:40,520 Speaker 2: Joining u STAT to discuss is Matt Turner, who leads 34 00:01:40,520 --> 00:01:44,080 Speaker 2: Bloomberg's US equities coverage. Matt, great to have you with us. 35 00:01:44,400 --> 00:01:46,959 Speaker 2: So the standard way that we think about valuing firms 36 00:01:47,000 --> 00:01:50,600 Speaker 2: is on price to earnings share prices versus earnings per share. 37 00:01:50,360 --> 00:01:52,120 Speaker 1: But that's tricky for in Vidio. 38 00:01:52,280 --> 00:01:55,680 Speaker 4: Why Yeah, it's very difficult for Nvidia in the sense 39 00:01:55,760 --> 00:01:58,400 Speaker 4: that the company itself has really transformed itself in the 40 00:01:58,440 --> 00:02:00,000 Speaker 4: last couple of years. So if we want to take 41 00:02:00,040 --> 00:02:03,640 Speaker 4: a step back, was primarily selling these GPUs to power 42 00:02:03,880 --> 00:02:06,559 Speaker 4: computer graphics sort of was used in the crypto space 43 00:02:06,600 --> 00:02:09,040 Speaker 4: back in the twenty twenty one twenty twenty two days, 44 00:02:09,080 --> 00:02:11,480 Speaker 4: and now it's obviously it's been flipped into the generative 45 00:02:11,520 --> 00:02:14,480 Speaker 4: AI name that everybody's looking at, and that has really 46 00:02:14,520 --> 00:02:17,639 Speaker 4: led to explosive growth in the company's sales, and that 47 00:02:17,720 --> 00:02:20,440 Speaker 4: creates a headache for analysts and for the company itself 48 00:02:20,480 --> 00:02:22,679 Speaker 4: in terms of projecting what they're going to make on 49 00:02:22,720 --> 00:02:24,919 Speaker 4: a quarter by quarter basis, And so you have to 50 00:02:24,960 --> 00:02:26,840 Speaker 4: look at the company now and you also have to 51 00:02:26,880 --> 00:02:28,200 Speaker 4: look at where it's going to be in a year 52 00:02:28,280 --> 00:02:30,720 Speaker 4: and two years and three years, and that's very difficult 53 00:02:30,760 --> 00:02:34,320 Speaker 4: to do for a market like the AI industry, which 54 00:02:34,520 --> 00:02:36,120 Speaker 4: I don't know if we want to say that it's new, 55 00:02:36,200 --> 00:02:38,760 Speaker 4: but it's definitely become the hottest thing right now, and 56 00:02:38,840 --> 00:02:41,000 Speaker 4: so it creates a headache for how big it's going 57 00:02:41,080 --> 00:02:43,080 Speaker 4: to be, how fast it's going to grow, and analysts 58 00:02:43,120 --> 00:02:46,239 Speaker 4: are sort of grappling with how to create those projections. 59 00:02:46,240 --> 00:02:48,760 Speaker 4: Sometimes they look at historical growth for the company, and 60 00:02:48,800 --> 00:02:51,280 Speaker 4: for Nvidia that has a thirty year history, this is 61 00:02:51,400 --> 00:02:54,000 Speaker 4: completely different than any think it's ever really seen outside 62 00:02:54,000 --> 00:02:56,120 Speaker 4: of its early days of growth. So it's just like 63 00:02:56,160 --> 00:02:58,560 Speaker 4: a very difficult time to see is this going to 64 00:02:58,600 --> 00:03:00,760 Speaker 4: continue or is it going to flat now, or even 65 00:03:00,840 --> 00:03:02,800 Speaker 4: you know, is it going to taper off and start 66 00:03:02,800 --> 00:03:03,399 Speaker 4: to decline? 67 00:03:03,760 --> 00:03:05,280 Speaker 2: Yeah, I mean, certainly, even if you think about the 68 00:03:05,320 --> 00:03:08,240 Speaker 2: conversations we are having about AI just six months ago, 69 00:03:08,320 --> 00:03:13,000 Speaker 2: even that seems completely transformed. How are analysts putting a 70 00:03:13,040 --> 00:03:15,040 Speaker 2: price range on Nvidia at the moment. 71 00:03:15,680 --> 00:03:17,280 Speaker 4: Some of the ones that we've talked to have said 72 00:03:17,280 --> 00:03:19,040 Speaker 4: that there's, for lack of a better word, they're ballparking 73 00:03:19,080 --> 00:03:21,520 Speaker 4: it right. They're looking at the company's own guidance, where 74 00:03:21,520 --> 00:03:23,840 Speaker 4: the company will give projections for their revenue and they'll 75 00:03:23,840 --> 00:03:26,040 Speaker 4: say we're going to make twenty four billion dollars next 76 00:03:26,120 --> 00:03:28,440 Speaker 4: quarter roughly, and analysts will take that and they'll say, 77 00:03:28,760 --> 00:03:30,760 Speaker 4: we think that they will make around that, but based 78 00:03:30,800 --> 00:03:33,480 Speaker 4: off of their last few quarters, they're adding two three 79 00:03:33,600 --> 00:03:35,640 Speaker 4: four billion dollars on top of that because they're not 80 00:03:35,680 --> 00:03:39,440 Speaker 4: even sure the supply and demand for the chips themselves 81 00:03:39,560 --> 00:03:42,120 Speaker 4: is as I said, it's explosive at this point, and 82 00:03:42,200 --> 00:03:44,839 Speaker 4: so they're basically looking at that and they're trying to guess, 83 00:03:44,920 --> 00:03:46,840 Speaker 4: are we going to be fifteen percent above what the 84 00:03:46,880 --> 00:03:48,640 Speaker 4: company thinks? Are we going to be in line with 85 00:03:48,680 --> 00:03:50,400 Speaker 4: what the company thinks? And if you look at the 86 00:03:50,480 --> 00:03:54,040 Speaker 4: last five quarters, the company itself has undershot its own 87 00:03:54,160 --> 00:03:57,040 Speaker 4: sort of sales that it's reported by about thirteen percent, 88 00:03:57,120 --> 00:03:59,040 Speaker 4: which is big You look at a company like Apple 89 00:03:59,120 --> 00:04:01,640 Speaker 4: or Meta and Fai Book and they typically beat or 90 00:04:01,680 --> 00:04:04,240 Speaker 4: miss their own guidance by about two percent. So compare 91 00:04:04,280 --> 00:04:06,920 Speaker 4: that to a thirteen percent beat or miss rate, it's 92 00:04:06,960 --> 00:04:10,040 Speaker 4: a pretty massive gap, especially for a company the size 93 00:04:10,040 --> 00:04:10,560 Speaker 4: of Nvidio. 94 00:04:10,600 --> 00:04:12,880 Speaker 2: At this point, Yeah, I mean, it sounds like a 95 00:04:12,920 --> 00:04:15,040 Speaker 2: gasing game, an educated gasing game, but a bit of 96 00:04:15,040 --> 00:04:17,800 Speaker 2: a gas Nonetheless, we're a couple of days out from 97 00:04:18,000 --> 00:04:19,880 Speaker 2: that massive share price drop. 98 00:04:20,520 --> 00:04:23,280 Speaker 1: Was that linked to the difficulty of valuing in video? 99 00:04:24,279 --> 00:04:25,160 Speaker 1: It's difficult to say. 100 00:04:25,200 --> 00:04:28,279 Speaker 4: I mean, I would say yes, analysts and investors and 101 00:04:28,320 --> 00:04:31,480 Speaker 4: fund managers are all questioning how to value the stock 102 00:04:31,520 --> 00:04:33,480 Speaker 4: and has it gotten too big? But you look back 103 00:04:33,480 --> 00:04:35,719 Speaker 4: a couple of years in Video was a five hundred 104 00:04:35,720 --> 00:04:37,760 Speaker 4: billion dollar stock, which, don't get me wrong, that's a 105 00:04:37,839 --> 00:04:41,400 Speaker 4: very large company relatively speaking, but becoming from five hundred 106 00:04:41,400 --> 00:04:44,240 Speaker 4: billion to the world's largest company at over three trillion, 107 00:04:44,400 --> 00:04:47,520 Speaker 4: and people are questioning whether it's worth that the price decline. 108 00:04:47,560 --> 00:04:49,280 Speaker 4: A lot of it from people that we've talked to, 109 00:04:49,560 --> 00:04:51,520 Speaker 4: is because of that. People were getting worried whether it's 110 00:04:51,560 --> 00:04:53,640 Speaker 4: gotten ahead of itself in terms of the run up, 111 00:04:54,000 --> 00:04:56,599 Speaker 4: whether it can when the future make enough money and 112 00:04:56,640 --> 00:04:58,880 Speaker 4: sell enough of these chips to back up the three 113 00:04:58,920 --> 00:05:01,640 Speaker 4: trillion valuation it was at. In the last few days, 114 00:05:01,800 --> 00:05:03,840 Speaker 4: investors got nervous as to whether or not they were 115 00:05:03,839 --> 00:05:05,160 Speaker 4: going to be able to live up to that sort 116 00:05:05,160 --> 00:05:07,360 Speaker 4: of hype. So that's sort of why we saw the 117 00:05:07,760 --> 00:05:08,880 Speaker 4: pullback in recent days. 118 00:05:09,080 --> 00:05:11,240 Speaker 2: So to make an ai and onogy, then how are 119 00:05:11,480 --> 00:05:16,880 Speaker 2: analysts learning and projecting about how in Video's stock price 120 00:05:16,920 --> 00:05:19,359 Speaker 2: will look in the future. What sort of clues the 121 00:05:19,480 --> 00:05:22,320 Speaker 2: forward price to earnings ri cio give us as to 122 00:05:22,360 --> 00:05:24,080 Speaker 2: what might be the future direction of the stock. 123 00:05:24,760 --> 00:05:26,880 Speaker 4: Yeah, I mean they will use it to try and 124 00:05:26,880 --> 00:05:29,720 Speaker 4: project out Right now it's trading around it's a forty 125 00:05:29,760 --> 00:05:32,440 Speaker 4: times multiples. That's something that analysts will use to compare 126 00:05:32,440 --> 00:05:35,880 Speaker 4: it to itself versus history. They'll compare it to other companies, 127 00:05:35,960 --> 00:05:37,320 Speaker 4: and one of the things that we hear from a 128 00:05:37,360 --> 00:05:40,240 Speaker 4: lot of people is that's expensive relative to most companies 129 00:05:40,360 --> 00:05:42,760 Speaker 4: on the S and P five hundred. They will essentially 130 00:05:42,839 --> 00:05:44,760 Speaker 4: look at that and say, can it trade at a 131 00:05:44,800 --> 00:05:46,360 Speaker 4: higher level than this? Can it trade it at eighty 132 00:05:46,360 --> 00:05:48,440 Speaker 4: times earnings? Can it trade it one hundred times earnings? 133 00:05:48,440 --> 00:05:49,960 Speaker 4: And then they'll look at the price and they will 134 00:05:50,000 --> 00:05:52,560 Speaker 4: sort of extrapolate that out. They will essentially put their 135 00:05:52,560 --> 00:05:54,480 Speaker 4: price targets on it and say, we think that this 136 00:05:54,520 --> 00:05:57,520 Speaker 4: could trade it sixty times earnings, which equals a, for example, 137 00:05:57,560 --> 00:06:00,400 Speaker 4: a two hundred dollars price target, which an analyst recently 138 00:06:00,400 --> 00:06:02,160 Speaker 4: came out in the last few weeks with that exact 139 00:06:02,200 --> 00:06:04,279 Speaker 4: price target, which would put the company at close to 140 00:06:04,320 --> 00:06:06,640 Speaker 4: five trillion in the next year, which is massive. 141 00:06:07,360 --> 00:06:09,240 Speaker 2: It's not that often that we get to reference middle 142 00:06:09,279 --> 00:06:12,880 Speaker 2: age middle age mathematicians maybe, but not mathematicians in the 143 00:06:12,880 --> 00:06:16,760 Speaker 2: middle ages. But I'm talking about Fibonacci, a word that 144 00:06:16,839 --> 00:06:18,960 Speaker 2: some of our listeners may only have heard the Devinci code. 145 00:06:18,960 --> 00:06:23,280 Speaker 2: But I'm wondering how much the Fibonacci retracement level plays 146 00:06:23,279 --> 00:06:25,400 Speaker 2: into this, And if you can explain it for those 147 00:06:25,400 --> 00:06:26,000 Speaker 2: that don't know. 148 00:06:26,279 --> 00:06:30,760 Speaker 4: Sure, Yeah, it is a very complicated math formula that 149 00:06:30,800 --> 00:06:32,760 Speaker 4: I will not try to explain, but at its core, 150 00:06:32,880 --> 00:06:35,880 Speaker 4: it's something that traders and analysts use to sort of 151 00:06:36,040 --> 00:06:38,839 Speaker 4: analyze price moves. They look at it and they tend 152 00:06:38,880 --> 00:06:42,279 Speaker 4: to say these levels correspond with what they would consider support. 153 00:06:42,320 --> 00:06:44,039 Speaker 4: So if the stock is falling, they will look at 154 00:06:44,080 --> 00:06:46,560 Speaker 4: one of these so called retracement levels, and they will say, 155 00:06:46,560 --> 00:06:48,400 Speaker 4: you know, we think that the stock is going to 156 00:06:48,720 --> 00:06:51,719 Speaker 4: reach this level, and then investors will, based off of history, 157 00:06:51,760 --> 00:06:54,680 Speaker 4: based off of other technical analysts viewpoints, they will say 158 00:06:54,680 --> 00:06:57,000 Speaker 4: that the stock is going to bounce off of that level. 159 00:06:57,240 --> 00:07:00,440 Speaker 4: And that's actually something that we've seen within video stock itself. 160 00:07:00,440 --> 00:07:02,360 Speaker 4: You see it with a lot of other stocks. Again, 161 00:07:02,400 --> 00:07:06,120 Speaker 4: technical analysis is a hot topic among traders and investors. 162 00:07:06,120 --> 00:07:08,400 Speaker 4: Some people believe that it's really an art form. Some 163 00:07:08,440 --> 00:07:10,880 Speaker 4: people believe that it's just like magic and is not 164 00:07:11,080 --> 00:07:14,640 Speaker 4: very real. It's very divisive among traders, depends on who 165 00:07:14,640 --> 00:07:16,400 Speaker 4: you ask. But if you look at the charts, especially 166 00:07:16,440 --> 00:07:19,920 Speaker 4: within video recently, those retracement levels have acted as support 167 00:07:20,000 --> 00:07:23,440 Speaker 4: levels for the stock, which has lend some credence to 168 00:07:23,640 --> 00:07:25,760 Speaker 4: the validity of using them to project where the stock 169 00:07:25,840 --> 00:07:26,680 Speaker 4: is going to go from here. 170 00:07:26,800 --> 00:07:28,960 Speaker 2: And once again, I realize the Italians can teach us 171 00:07:28,960 --> 00:07:31,320 Speaker 2: so much. Matt Turner, thank you so much for joining us. 172 00:07:31,320 --> 00:07:34,760 Speaker 2: Matt leads our coverage of US equities. For more explanations 173 00:07:34,800 --> 00:07:37,000 Speaker 2: like this from our team of twenty seven hundred journalists 174 00:07:37,000 --> 00:07:39,280 Speaker 2: and analysts around the world, search for Quick Take on 175 00:07:39,280 --> 00:07:43,600 Speaker 2: the Bloomberg website. Or Bloomberg Business App. I'm Stephen Caroll. 176 00:07:43,720 --> 00:07:46,640 Speaker 2: This is here's why. I'll be back with more next week. 177 00:07:46,840 --> 00:07:47,640 Speaker 2: Thanks for listening.