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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Today

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Speaker 2: it's all about in Nvidia. After the New York closed,

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Speaker 2: the company reported data center revenue for the latest quarter

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Speaker 2: slightly below expectations, and in Vidia said there were no

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Speaker 2: sales of the H twenty chip to customers in China.

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Speaker 2: On top of that, in Vidia is now removing China

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Speaker 2: data center revenue from forward projections. So the outlook for

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Speaker 2: the current quarter fifty four billion plus or minus two percent.

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Speaker 2: But some analysts found that guidance underwhelming. Here is Bloomberg

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Speaker 2: analyst Mandeep Singh.

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Speaker 3: I mean just a guide. I had the three cube

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Speaker 3: expectations were fifty four to fifty five billion, and to

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Speaker 3: my mind, this print is not something to be excited about.

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Speaker 2: Man Deep sing there from Bloomberg Intelligence. Now, you'll remember

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Speaker 2: recently the tr administration did ease restrictions on exports of

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Speaker 2: some AI chips for the Chinese market, that being the

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Speaker 2: H twenty principally, and remember the administration also recently agreed

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Speaker 2: to a fifteen percent revenue cut from sales in the

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Speaker 2: Chinese market. Well, today, in a filing in Vidia says

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Speaker 2: that could be the subject to litigation in a moment

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Speaker 2: or two. We'll have reaction from the Asia Pacific perspective,

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Speaker 2: but we begin here in the States. With me now

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Speaker 2: is David Waddell. He is the CEO also the chief

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Speaker 2: investment strategist at Waddell and Associates. David, thank you for

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Speaker 2: making time to chat with me. Can we just pick

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Speaker 2: up on the Nvidia story. I'd like your reaction.

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Speaker 4: So they beat on the top and the bottom lines,

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Speaker 4: and their gross margins at seventy three and a half

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Speaker 4: were higher than expected. But if you read some of

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Speaker 4: the subtexts, there are reasons to I guess take in

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Speaker 4: Nvidia off boil. So overall it's a superlative quarter. They're

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Speaker 4: putting up amazing numbers. But the unfortunate thing is that

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Speaker 4: investment return and are really just the difference between reality

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Speaker 4: and expectations, and when expectations get too high, it's it's

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Speaker 4: sometimes hard for reality to meet them, even when reality

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Speaker 4: is as superlative as what we saw in this report.

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Speaker 2: Where does it leave you an understanding where we are

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Speaker 2: right now in this artificial intelligence cycle?

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Speaker 4: Well, I mean at the analog to the late nineties

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Speaker 4: I think is very correct. You know, So if we

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Speaker 4: go back to the speculative fervor between call it ninety

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Speaker 4: seven and ninety nine, we're probably somewhere in that zone.

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Speaker 4: Doesn't mean it's over, but it does mean it's pretty stretch.

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Speaker 4: So if you look at the SMP, we're trading at

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Speaker 4: what twenty two point five times earnings, and in nineteen

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Speaker 4: ninety nine we got up to early two thousand, we

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Speaker 4: got up to twenty five, so we're pretty close to

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Speaker 4: where we've seen previous tops. We saw a top, you know,

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Speaker 4: around this level also in twenty twenty one. I'm not

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Speaker 4: really calling for any outright decline here, but I think

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Speaker 4: investors just have to be mindful of the fact that,

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Speaker 4: you know, this trade has gone on for quite a

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Speaker 4: while and in videos at four point four trillion, and

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Speaker 4: the AI build out will be great, but at some

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Speaker 4: point there is going to be a slowdown in CAPEX somewhere.

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Speaker 4: Somebody will you know, dial back their forecast and then

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Speaker 4: all of these things start to look a little bit vulnerable.

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Speaker 4: So we've seen, you know, spurts of downside volatility from

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Speaker 4: the stock. I'm not predicting that, but I think if

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Speaker 4: you're buying it. You just have to be eyes wide

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Speaker 4: open to the fact that you know it could be

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Speaker 4: a bumpier ride here as growth rates decline.

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Speaker 2: So there's also the interest rate component to all of this.

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Speaker 2: In the bond market today, those shorter data treasuries continue

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Speaker 2: to outperform. We had the two year in New York

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Speaker 2: trading down about seven basis points to three sixty. The

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Speaker 2: market's convinced we're going to get a rate cut next month.

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Speaker 2: Whether it's twenty five, some are saying it could be

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Speaker 2: as much as fifty. Weigh in on that. For me,

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Speaker 2: how do you think that policy is going to unfold

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Speaker 2: in the near term here?

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Speaker 4: Well, then don't cut rates. Trump's going to fire everybody.

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Speaker 4: I mean, there's there's a lot of political pressure, unprecedented

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Speaker 4: amount of political pressure from the White House here. It's

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Speaker 4: clear that the desires for lower rates. What's amazing about

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Speaker 4: this is that you are seeing the yeal curve steep in,

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Speaker 4: but you're not really seeing longer term rates. You talked

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Speaker 4: about the ten year really run away here. I mean,

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Speaker 4: the Fed is restrictive, right, so the real Fed funds

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Speaker 4: rates about one point six. It needs to be about

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Speaker 4: point six or at least that's kind of long term average.

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Speaker 4: So Trump's wrong about a three percent cut, but you know,

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Speaker 4: the market's right about a one percent cut over the

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Speaker 4: next twelve months, and that does have implications for the market,

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Speaker 4: specifically for small caps where you know reality has been

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Speaker 4: much higher, probably than expectations, but could go even higher,

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Speaker 4: and that that could lead to a rally there. So

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Speaker 4: I think the story of the first half was ai.

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Speaker 4: The story of the second half is the rate cut.

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Speaker 4: The benefit in the first half obviously to Nvidia and friends,

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Speaker 4: the benefit in the second half and rolling into twenty

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Speaker 4: twenty six, I think goes into small caps, and the

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Speaker 4: markets figured that out.

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Speaker 2: So if the right now the focus is on weakness

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Speaker 2: in the labor market as a justification for easing, I'm

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Speaker 2: wondering if there is the risk and maybe that's what

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Speaker 2: we're seeing a little bit of in the long end,

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Speaker 2: that inflation could remain stubborn and sticky. Is that a possibility.

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Speaker 4: I think that not only is a possibility, it's a probability.

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Speaker 4: If you look out over the next two years or so,

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Speaker 4: the amount of stimulus we've gotten the pipeline is significant, right,

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Speaker 4: it's fiscal stimulus now we're talking about monetary stimulus. We've

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Speaker 4: got dollar depreciation stimulus. We've got all sorts of stimulus

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Speaker 4: in the pipeline that far outweighs the tariff drag, and

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Speaker 4: all of that pulls through and peaks really midyear next year.

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Speaker 4: So it's kind of unprecedented to be cutting rates in

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Speaker 4: an environment like this. I understand the desire for it,

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Speaker 4: but I imagine a few years hence that turns out to

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Speaker 4: be a mistake. The speculative fervor will lead to increasing debt,

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Speaker 4: specifically among the corporations and the consumer sector, and then

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Speaker 4: you know, the Fed will have to raise rates again

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Speaker 4: and that'll create exposure. And that's how you get to

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Speaker 4: the end of a cycle, because because even though the

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Speaker 4: federal government has bulked up their debtloads, consumers and financials

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Speaker 4: and corporations really haven't yet in this cycle. And that's

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Speaker 4: the last stage of the cycle that needs to occur.

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Speaker 4: In my guess is you take rates down, those debt

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Speaker 4: loads go up amidst you know, good economic growth, good

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Speaker 4: earnings growth, and that's what creates sort of the kindling

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Speaker 4: for the fire to come.

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Speaker 2: One of the things that the market had been looking

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Speaker 2: for was the M and A activity in the early

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Speaker 2: part of the Trump administration that seemed to take a

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Speaker 2: back seat initially because of the tariff story. But I

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Speaker 2: was looking at some Bloomberg data earlier. In the month

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Speaker 2: of August alone, We've got deals worth a total of

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Speaker 2: nearly three hundred billion combined. Now, deal making, as you

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Speaker 2: well know, typically slows in the summer months. What does

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Speaker 2: this burst of M and A activity tell you about

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Speaker 2: the economy overall?

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Speaker 4: Well, it also is in conjunction with IPOs up thirty

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Speaker 4: percent year over year, with spac issuance up three hundred percent,

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Speaker 4: with buybacks up a trillion. I mean, you know, the

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Speaker 4: music is playing and everybody's dancing, right, the windows are open.

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Speaker 4: There shouldn't be regulatory restraint at lower rates are also

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Speaker 4: going to stoke M and A activity. I mean, even

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Speaker 4: anecdotally among our clients, I'm seeing a lot of lois

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Speaker 4: on businesses. I'm seeing financing open up again. I think

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Speaker 4: there's just a lot of momentum and velocity twirling underneath

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Speaker 4: in this economy, and I think people underestimate it because

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Speaker 4: they get distracted by like Trump versus Cook. But in reality,

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Speaker 4: I think on the ground level, things are better than

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Speaker 4: people think.

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Speaker 2: So where are you finding opportunity these days?

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Speaker 4: I mean, we've moved steadily from the top right corner

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Speaker 4: of the style box down to the bottom left corner.

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Speaker 4: That's on absolute move. But I think investors should be

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Speaker 4: doing that, you know, when we get into this late

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Speaker 4: stage of the rally. To me, the way you insulate

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Speaker 4: yourself a little bit is get your pe down relative

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Speaker 4: to the market. Trump's policies really support financials, they really

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Speaker 4: support industrials, they really support materials, they really support smaller

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Speaker 4: cap stocks. And you're starting to see that rotation occur.

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Speaker 4: And my guess is with the Nvidia news today, it

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Speaker 4: just sort of reinforces that. Like I said, I don't

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Speaker 4: think the AI trade is over, but I think there

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Speaker 4: are opportunities elsewhere, and investors would be better served migrating

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Speaker 4: towards those.

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Speaker 2: What about the industrial policy that we've had come out

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Speaker 2: of the administration. I'm thinking about the US steel deal

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Speaker 2: also the Intel deal recently. Is there something that you

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Speaker 2: want to be alert to for potential opportunity?

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Speaker 4: Well, I don't even know if that's constitutional. Like I

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Speaker 4: said in our preamble, is Trump going to buy in

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Speaker 4: video because it's sold off three percent. I mean, it's

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Speaker 4: we're off the map on some of this, and it

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Speaker 4: is industrial policy. But if you know Trump is going

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Speaker 4: to flex his industrial policy agenda, then that's going to

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Speaker 4: benefit the hard asset industrial companies. It benefits Boeing, which

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Speaker 4: you've seen. So if you know he's going to do that,

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Speaker 4: you can take issue with the methodology, but you know

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Speaker 4: what his intentions are and the socks that he's pointed

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Speaker 4: towards have performed. So whether whether it's right or wrong,

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Speaker 4: I don't know, but you can profit from it.

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Speaker 2: David, we'll leave it there. Great stuff, Thank you so

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Speaker 2: very much. David Waldell is the CEO also the chief

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Speaker 2: investment strategist at Waddell and Associates. Joining us here on

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Speaker 2: the Daybreak Asia podcast. Welcome back to the Daybreak Asia

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Speaker 2: podcast time. Doug Krisner in Nvidia issued a lackluster forecast

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Speaker 2: after the New York close on Wednesday, and this excluded

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Speaker 2: data center revenue from China. This is a market where

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Speaker 2: in Vidia has struggled. We have the US export restrictions

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Speaker 2: as well as pressure from the Chinese government. Earlier this month,

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Speaker 2: Bloomberg reported that Beijing had urged local companies to avoid

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Speaker 2: using in Vidia's H twenty processors, particularly for government related purposes.

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Speaker 2: Even so, in Vidia CEO Jensen Huang struck an optimistic

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Speaker 2: tone visa VI the Chinese market on the earnings call.

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Speaker 5: So, I think the opportunity for us to bring Blackwell

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Speaker 5: to the China market is a real possibility, and so

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Speaker 5: we just have to keep advocating the sensibility of and

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Speaker 5: the importance of American tech companies to be able to

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Speaker 5: lead and win the AI race.

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Speaker 2: That is in Vida CEO Jensen Wang. Meantime, Bloomberg opinion

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Speaker 2: columnist juley Ren says a new China by China narrative

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Speaker 2: is taking shape as the US China tech rivalry heats up.

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Speaker 2: Truly spoke earlier to our TV colleagues sharing on in

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Speaker 2: April hon on the Asia trade.

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Speaker 1: So, Suly, what do we know about this potential for

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Speaker 1: China when it comes to its own homegrown tech.

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Speaker 6: It's interesting because the AI industry is evolving, No doubt,

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Speaker 6: Navidia has much better chips, but its chips are very

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Speaker 6: expensive and they are more suitable for those big large

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Speaker 6: language model training programs. Nowadays, people moving into AI applications

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Speaker 6: and the influence stage, basically telling a prechained model to

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Speaker 6: turn out the responses, to use the queries. It is

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Speaker 6: becoming a little bit more important. And the chips for

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Speaker 6: those influence stage, for the infant stage, they don't need

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Speaker 6: to be as advanced. They can be a little bit

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Speaker 6: cheaper and the technological aspects can be a little bit lower.

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Speaker 6: And that's where the Chinese company are seeing in the opening.

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Speaker 6: They probably still cannot compete with the in Vidia on

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Speaker 6: the training aspect, but on the influenced aspect they can.

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Speaker 7: Is this why cambricn is doing as well as it is.

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Speaker 7: It can do things at a much lower price point

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Speaker 7: than in video.

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Speaker 6: Yes. Absolutely. Earlier in the year, one government affiliated the

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Speaker 6: Academic Research Institution said that the campbri CON's so called

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Speaker 6: the application specific integrated circuits that they are quite compatible

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Speaker 6: with deep siks big training models. And the people think

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Speaker 6: that now that the it's clear in the video can

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Speaker 6: shift the age twenty chips to China, that the cambricann

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Speaker 6: can actually come in and the take market share away.

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Speaker 1: But surely China of course is known for fostering national champions,

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Speaker 1: but some of those bets end up badly with that

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Speaker 1: build up scandals as well. Is Beijing rethinking and strategy? Now,

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Speaker 1: what are we expecting?

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Speaker 6: Absolutely if you recall, like in July present, Chimping actually

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Speaker 6: said that they're not every provinces need to have their

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Speaker 6: own AI chip factories. And what you are seeing is

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Speaker 6: that China is trying to rain over investment in chip

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Speaker 6: sector and also the government that doesn't want to spend

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Speaker 6: tens of billions a dollar on those big investments. They

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Speaker 6: want to do venture capital like early stage investments on

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Speaker 6: chip design companies. And what you see is that in

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Speaker 6: the future software and design are going to be the focus.

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Speaker 7: Truly great to have your opinion truly run is Bloomberg

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Speaker 7: opinion calmness. And as we've been seeing authorities in China

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Speaker 7: urging local tech firms to use homegrown chips, we've been

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Speaker 7: seeing chip stocks in China also climbing in recent days.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisner, and this is Bloomberg