WEBVTT - Instant Reaction: Nvidia Gives Solid Forecast, Despite China Concerns

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>This is a breaking news update from Bloomberg, instant reaction

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<v Speaker 2>and analysis from our three thousand journalists and analysts around

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<v Speaker 2>the world and.

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<v Speaker 3>Videos app folks, let's get to it right now. We've

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<v Speaker 3>got in studio our Mandi seeing Bloomberg Intelligence senior tech

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<v Speaker 3>industry analysts. Mande, tell us what you like what's interesting

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<v Speaker 3>in this report?

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<v Speaker 4>I mean, had it not been for the China right down,

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<v Speaker 4>this company would have posted revenue which was five percent

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<v Speaker 4>higher than the forty four billion dollar number, and the

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<v Speaker 4>guide would have been almost fifteen to twenty percent higher.

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<v Speaker 4>So we're talking about eight billion in lost revenue. So clearly,

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<v Speaker 4>whatever they're doing, they are able to make up that

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<v Speaker 4>revenue lost in China with some other customers because it's

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<v Speaker 4>in line.

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<v Speaker 1>With consensus where they making up for it.

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<v Speaker 5>Well, I mean there are other customers.

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<v Speaker 4>We saw the deals in I think there's demand from

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<v Speaker 4>other enterprise customers. And the one anecdote they provided was

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<v Speaker 4>token generation was up ten times.

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<v Speaker 5>To explain what that is.

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<v Speaker 4>Yeah, So the way these AI models work is if

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<v Speaker 4>you type in a query on chat GPT, it's going

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<v Speaker 4>to generate you know, hundreds of tokens from that it's

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<v Speaker 4>going to be passed with the model and the output

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<v Speaker 4>is also you know, hundreds of tokens. So Google said

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<v Speaker 4>at their io event their token generation was up almost

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<v Speaker 4>fifty x.

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<v Speaker 5>Same thing from Microsoft.

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<v Speaker 4>Yes, and so we are getting those type of numbers

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<v Speaker 4>from pretty much anyone who's exposed to demand for large

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<v Speaker 4>anngreage models, and in this case, Nvidia is exposed through

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<v Speaker 4>chat GPT because all the weekly active users that are

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<v Speaker 4>going on chat gpt and using the product for let's

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<v Speaker 4>say twenty minutes, that's what's resulting in the tenex increase

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<v Speaker 4>in tokens. And I'm not surprised that everyone needs additional

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<v Speaker 4>compute because if chatgpt needs to serve more users, they

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<v Speaker 4>need additional compute. The traditional CPU compute is just not

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<v Speaker 4>good enough. And that's where I think they are finding

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<v Speaker 4>that additional demand.

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<v Speaker 3>Ian King our live blog says how many companies could

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<v Speaker 3>frontload their earnings released with details of what they're missing

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<v Speaker 3>out on and still get a positive reaction from investors.

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<v Speaker 3>So it's pretty impressive. Okay, you know, we just had

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<v Speaker 3>a guest on, Jay Goldberg over at Seaport.

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<v Speaker 5>He's got the.

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<v Speaker 3>Only sell on the company, and he's got some questions

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<v Speaker 3>about kind of like maybe all the good stuff is

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<v Speaker 3>already factored in, I think questions about the AI and

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<v Speaker 3>the build going to take longer. What do you say

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<v Speaker 3>to some of that.

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<v Speaker 4>I mean, look, everyone acknowledges that, you know, semiconductors is cyclical.

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<v Speaker 5>You will see.

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<v Speaker 4>An air pocket or some sort of digestion and these

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<v Speaker 4>kind of these kind of growth growth rates are too

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<v Speaker 4>hard to sustain, you know, so you are not going

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<v Speaker 4>to see sixty seventy percent growth when your revenue base

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<v Speaker 4>is two hundred billion dollars run rate annually. I mean,

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<v Speaker 4>from that perspective, there will be a tapering of growth.

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<v Speaker 4>But look at all the hyperscalers. Nvidia is still growing

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<v Speaker 4>top line way above everyone else, including Microsoft and you

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<v Speaker 4>know Meta that are growing at a very healthy high

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<v Speaker 4>teen strate. So from that perspective, there is still a

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<v Speaker 4>lot of runway when it comes to Nvidia's growth.

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<v Speaker 1>China and the China specific story here the age twenty,

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<v Speaker 1>the restrictions, what do you see as the long term

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<v Speaker 1>effect of what the Trump administration has recently said, but

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<v Speaker 1>also export restrictions on some of Nvidia's products, specifically with

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<v Speaker 1>regard to China, I.

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<v Speaker 4>Mean, that is the most plausible bare case against Nvidia

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<v Speaker 4>because look, right now, China used to be about twenty

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<v Speaker 4>percent of Invidio's revenue. It's very hard to fill that

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<v Speaker 4>hole with all the additional demand. Even though Chat, GPT

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<v Speaker 4>and other llms need more compute and they can take

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<v Speaker 4>whatever Nvidia is making. But in the long term, if

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<v Speaker 4>you're looking five years out without China, I mean, that's

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<v Speaker 4>where all the secondary LLLM companies are besides you know, Chat, GPT,

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<v Speaker 4>Anthropic and Google, and so you are missing out on

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<v Speaker 4>a lot of potential customers that would have used your chips.

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<v Speaker 3>What did we say about DeepC before that they had

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<v Speaker 3>an update and like we're trying to understand, So if

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<v Speaker 3>this is all real with what they upgraded.

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<v Speaker 1>The R one AI model that helped propel it to

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<v Speaker 1>global prominence earlier this year, now we don't.

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<v Speaker 3>Still know exactly how they're doing all of this, but

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<v Speaker 3>if they are doing it with less advanced chips, I mean,

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<v Speaker 3>does that make the Nvidia story not as exciting?

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<v Speaker 4>No, because in videos to get this is all speculations. Yeah, yeah,

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<v Speaker 4>and look there could be some pull forward in China.

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<v Speaker 4>You know with Deep Seek using in videos chips because

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<v Speaker 4>they anticipated these kind of restrictions, right, But in other

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<v Speaker 4>regions everyone realizes and Vidia has the best ship. The

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<v Speaker 4>only reason why you are going to look for an

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<v Speaker 4>alternative is a hyperscaler looking to really kind of reduce

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<v Speaker 4>their dependency. So Google doesn't use in video chips because

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<v Speaker 4>they have their in house chip and they serve traffic

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<v Speaker 4>that's pretty much the seven most frequently used apps on

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<v Speaker 4>the Internet.

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<v Speaker 5>So if they were to rely.

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<v Speaker 4>On in video, I mean, in Video's revenue could actually

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<v Speaker 4>grow fifty percent just by serving Google.

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<v Speaker 1>But does Google then create those send those chips. Would

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<v Speaker 1>Google sell those chips outside?

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<v Speaker 4>They don't, so they don't use the chips outside of

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<v Speaker 4>their family of apps. They just use it for Google Search, YouTube,

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<v Speaker 4>and their family of apps.

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<v Speaker 1>Why wouldn't they sell it because.

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<v Speaker 4>It's not a chip that is generic in nature that

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<v Speaker 4>it can serve everyone else's traffic. It's customized for their data.

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<v Speaker 1>Do we see Amazon then doing that too?

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<v Speaker 4>I think that's the bare case that everyone is thinking,

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<v Speaker 4>But so far it hasn't happened, and everyone is trying.

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<v Speaker 1>Would you disagree with j Goldberg who just told us

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<v Speaker 1>that he thinks that Broadcom is the closest competitor right now,

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<v Speaker 1>or not necessarily closest competitor. Excuse me, And I know

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<v Speaker 1>you can't make calls Andy, but he's the only one

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<v Speaker 1>who has a cell rating on Nvidia, and he argues

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<v Speaker 1>right now that investors should be putting their money toward Broadcom.

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<v Speaker 4>I mean, look, we are in an AI infrastructure super cycle,

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<v Speaker 4>and this is a tie that will lift all the boats.

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<v Speaker 4>Broadcom Wild benefit other chip makers for benefits. So it's

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<v Speaker 4>very hard to say only Broadcom wild benefit with AI

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<v Speaker 4>infrastructure demand. And I think that's where you're too early

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<v Speaker 4>to put a cell rating on a stock like Nvidia.

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<v Speaker 3>All right, so stock is at four percent and certainly

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<v Speaker 3>investors buying in the aftermarket. There is a you know,

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<v Speaker 3>a headline that crossed about ten minutes ago that in

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<v Speaker 3>video saying maybe unable to create a competitive product for China,

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<v Speaker 3>would have to foreclose from competing in China market. China

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<v Speaker 3>market foreclosure would materially hit the business. Export controls Apple

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<v Speaker 3>to China are complex. Help me make some sense out

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<v Speaker 3>of these headlines.

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<v Speaker 4>I mean, look, if you want to see multiple expansion

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<v Speaker 4>in a stock like Nvidia, you got to convince the

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<v Speaker 4>investors that you can keep growing twenty twenty five percent.

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<v Speaker 4>And the way you do that is by showing pockets

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<v Speaker 4>of demand, you know, geographic diversification. If you lose out

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<v Speaker 4>China revenue, suddenly everything is like, okay, you're two dependent

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<v Speaker 4>on hyperscalers. What if Amazon actually develops a chip and

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<v Speaker 4>reduces their dependency altogether on in media and so that

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<v Speaker 4>is the big bear case, the concentration of customers, and

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<v Speaker 4>that's at losing China revenue is a rep.

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<v Speaker 3>So Mandy Business is saying, here, we're laying it out

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<v Speaker 3>for you just to understand.

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<v Speaker 5>Yeah, in terms of the China, is.

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<v Speaker 3>That pressure on the Trump administration?

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<v Speaker 4>Not really because they keep eating their numbers like this,

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<v Speaker 4>I mean really administration. You see the numbers and you're like,

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<v Speaker 4>that's these guys get managed without China revenue.

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<v Speaker 5>But if they're.

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<v Speaker 3>Warning of that impact in terms of China, is that

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<v Speaker 3>kind of a little bit of a subtle considering he

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<v Speaker 3>just traveled with him to the Middle East, you know

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<v Speaker 3>a little bit of a like settle message reminder.

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<v Speaker 5>That's a fair characterization. I would agree with that.

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<v Speaker 1>Okay, I want to bring in Joe Kaiser CEO and

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<v Speaker 1>managing director at Mercado Partners. It's a grow stage investment firm.

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<v Speaker 1>It's got over a billion dollars in assets under management

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<v Speaker 1>Mercado Partners. He joins us from Salt Lake City. Joe,

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<v Speaker 1>You've had a chance to sit back and look at

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<v Speaker 1>some of these results over the last thirty minutes or so.

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<v Speaker 1>First quarter data, revenue coming in close to estimates, second

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<v Speaker 1>quarter forecast solid despite an eight billion dollar eight billion

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<v Speaker 1>dollars in expected lost China sales. The company stock up

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<v Speaker 1>about four percent in the after hours. What's your view.

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<v Speaker 6>I think this growth and the profitable growth that we're

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<v Speaker 6>seeing is really unprecedented in the venture community. We still

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<v Speaker 6>use the term called rule of forty, so it's combining

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<v Speaker 6>the top line growth rate coupled with EBITDAM margin. And

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<v Speaker 6>I haven't seen the EBITDN number, but if we use

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<v Speaker 6>the prior quarters EBITDN number, like they're approaching two hundred

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<v Speaker 6>from a rule of forty standpoint. And to give you

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<v Speaker 6>some historic precedent, when Micro sorry, when Microsoft and Apple

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<v Speaker 6>were at the same stages from a revenue size standpoint,

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<v Speaker 6>those companies were at ninety and sixty, respect respect respectively.

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<v Speaker 6>So This is truly unprecedented performance and at the end

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<v Speaker 6>of the day, like what we're seeing is probably the

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<v Speaker 6>greatest invention in the history of mankind and the company

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<v Speaker 6>that singularly powers that and that's the performance that we're

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<v Speaker 6>seeing before us.

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<v Speaker 1>Now, are you bullish that there is more upside, Joe

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<v Speaker 1>to this company? Jake Goldberg is not.

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<v Speaker 5>Well.

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<v Speaker 6>I think it pays to be provocative at some occasions,

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<v Speaker 6>but yes, I think there is a lot of upside.

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<v Speaker 6>I think, you know, when we think about the deployment

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<v Speaker 6>of AI, particularly in enterprise applications, both in the United

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<v Speaker 6>States and abroad, we are very early innings and that

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<v Speaker 6>and that and that deployment. You know, they've talked about

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<v Speaker 6>the data iner deployment around the world across the GCC

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<v Speaker 6>countries as well as domestically. Lots and lots of runway

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<v Speaker 6>in that regard. So there is a long road ahead

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<v Speaker 6>for Nvidia.

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<v Speaker 3>Joe, I know you're well versed on the power side

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<v Speaker 3>of AI, but I want to bring man deep in

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<v Speaker 3>on that. Man Deep, is there a point you know,

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<v Speaker 3>I think about you know, doing like basic charts anywhere,

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<v Speaker 3>like the ramp up and AI and the power demands

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<v Speaker 3>we talk about it all the time. Is there a

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<v Speaker 3>point where AI deployment and usage might be limited because

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<v Speaker 3>we just don't have the power?

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<v Speaker 4>Yeah, and that's where actually in Vidia's architecture excels because

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<v Speaker 4>they give you performance per power what that your likes

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<v Speaker 4>of AMD and Intel aren't able to give. It's not

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<v Speaker 4>as if AMD doesn't have an offering GPU that can

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<v Speaker 4>compete with Nvidia, But in Vidio's GPUs just give you

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<v Speaker 4>better performance per power what And that is the constraint

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<v Speaker 4>right now, everyone acknowledges yea the power constraints.

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<v Speaker 5>So from that perspective, also in Vidia does have an advantage.

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<v Speaker 1>See you nodding. This is certainly your wheelhouse given the

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<v Speaker 1>history of what you've done and at the firm and

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<v Speaker 1>outside of the firm too, How is in Vidia doing

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<v Speaker 1>this and how solid and how big is their mode well?

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<v Speaker 6>That is one of the big developments with the Blackwell

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<v Speaker 6>chip is the reduction and power consumption from black from

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<v Speaker 6>Hopper to Blackwell, and and that that is one of

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<v Speaker 6>the key breakthroughs. You know, I A lot of people,

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<v Speaker 6>including in Vidia, including the hyperscalers, talk about the lack

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<v Speaker 6>of power as the headwind here. The reality is we

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<v Speaker 6>as a nation. We have the resources, we have the technologies.

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<v Speaker 6>You know, I invested in a company called Taurus, which

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<v Speaker 6>has solved the storage challenge we have from a long

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<v Speaker 6>term standpoint, I think a guest earlier today talked about

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<v Speaker 6>small modular reactors and the technology of foot a small

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<v Speaker 6>footprint nuclear. That technology exists, right.

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<v Speaker 3>But SMRs are taken a while. Yeah, we're still talking

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<v Speaker 3>quite everybody talks about it and SMRs are the way

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<v Speaker 3>to go, but it's going to be several years before

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<v Speaker 3>we really see that build up.

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<v Speaker 6>Very true, Carol, But I think the challenges we have

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<v Speaker 6>plenty of natural gas as a country as well. And

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<v Speaker 6>the talk is, well, it takes a decade to build

0:12:15.480 --> 0:12:17.880
<v Speaker 6>a power plant, but the reality is the long pole

0:12:17.920 --> 0:12:20.240
<v Speaker 6>in the tent from building a power plant is the

0:12:20.280 --> 0:12:24.760
<v Speaker 6>permitting process and the process of getting the right to

0:12:24.880 --> 0:12:27.959
<v Speaker 6>turn on and use the power out of that power plant.

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<v Speaker 6>So if we streamline that process, and I know both

0:12:31.679 --> 0:12:34.440
<v Speaker 6>the federal government as well as states like Utah are

0:12:34.440 --> 0:12:37.800
<v Speaker 6>in the early inning right streamlining, but that is the

0:12:37.800 --> 0:12:38.680
<v Speaker 6>long pole in the tent.

0:12:38.960 --> 0:12:39.240
<v Speaker 4>All right.

0:12:39.280 --> 0:12:42.840
<v Speaker 3>We're talking with two guests. We've got Joe Keiser, he's

0:12:42.840 --> 0:12:46.480
<v Speaker 3>CEO of managing director at Mercado Partners out there in Utah.

0:12:46.559 --> 0:12:49.480
<v Speaker 3>Mandy Singh, Senior Tech Industry Alice Bloomberg Intelligence right here

0:12:49.480 --> 0:12:53.280
<v Speaker 3>in our Bloomberg Interactive Broker studio and Vidia out tim

0:12:53.320 --> 0:12:55.319
<v Speaker 3>stock is now up about four and a half percent

0:12:55.360 --> 0:12:56.160
<v Speaker 3>here in the aftermark.

0:12:56.280 --> 0:12:58.800
<v Speaker 1>Yeah, first quarter data center revenue coming in close to estimate.

0:12:58.840 --> 0:13:01.840
<v Speaker 1>Second quarter forecast solid despite that eight billion dollars an

0:13:01.840 --> 0:13:04.960
<v Speaker 1>expected loss to China sales. In Vidia shares rising and

0:13:05.000 --> 0:13:07.640
<v Speaker 1>extended trading. It's providing a boost to other chip stocks

0:13:07.640 --> 0:13:10.240
<v Speaker 1>as well. We're seeing shares of Micron also higher in

0:13:10.240 --> 0:13:12.880
<v Speaker 1>the after hours by about one point four percent. Mandy,

0:13:13.120 --> 0:13:16.080
<v Speaker 1>you've been glued to the terminal looking through these numbers.

0:13:16.679 --> 0:13:18.360
<v Speaker 1>You got to go in a minute, what's the last

0:13:18.360 --> 0:13:20.040
<v Speaker 1>thought you want to leave us with ahead of this call?

0:13:20.280 --> 0:13:24.319
<v Speaker 4>I mean, sovereign AI is a big opportunity. Sovereign Sovereign AI,

0:13:24.720 --> 0:13:27.040
<v Speaker 4>which is where you would put you know, revenue from

0:13:27.160 --> 0:13:30.760
<v Speaker 4>the likes of UAE, Saudi Arabia, the deals they just signed.

0:13:31.280 --> 0:13:33.680
<v Speaker 4>I just want to get a sense of how big

0:13:33.760 --> 0:13:36.520
<v Speaker 4>this could get, because so far this was like low

0:13:36.640 --> 0:13:40.720
<v Speaker 4>double digit revenue in terms of the revenue exposure that

0:13:40.840 --> 0:13:44.839
<v Speaker 4>Nvidia had and look they are losing China revenue. So

0:13:44.920 --> 0:13:49.720
<v Speaker 4>what makes up how many types of entity? Sovereign entities

0:13:50.080 --> 0:13:53.600
<v Speaker 4>want to build their own large anguid model infrastructure like

0:13:53.640 --> 0:13:57.400
<v Speaker 4>the UAE and the Saudi Arabia, And that would determine,

0:13:57.480 --> 0:13:59.360
<v Speaker 4>you know, the pace of growth when it comes to

0:13:59.440 --> 0:14:02.559
<v Speaker 4>the non hyper scale piece of and Video's growth.

0:14:02.559 --> 0:14:05.080
<v Speaker 3>The Middle East trip like makes so much more sense, right.

0:14:05.040 --> 0:14:07.720
<v Speaker 5>Maybe they should be doing more trips the administration?

0:14:07.800 --> 0:14:08.720
<v Speaker 4>Well where else can they go?

0:14:08.760 --> 0:14:09.200
<v Speaker 3>Anywhere?

0:14:09.280 --> 0:14:09.439
<v Speaker 4>Right?

0:14:09.880 --> 0:14:10.360
<v Speaker 5>Anywhere?

0:14:10.360 --> 0:14:13.760
<v Speaker 4>I mean, look, you you've got so many pockets where

0:14:13.480 --> 0:14:18.360
<v Speaker 4>there's so much sensitivity around AI in terms of you know,

0:14:18.440 --> 0:14:21.840
<v Speaker 4>developing your own AI, serving it with your own infrastructure.

0:14:21.880 --> 0:14:24.040
<v Speaker 5>That that's the real bull case when it comes to

0:14:24.080 --> 0:14:26.240
<v Speaker 5>sovereign AI. What can I ask one last question?

0:14:26.440 --> 0:14:30.640
<v Speaker 3>Cash, cash equivalents, marketable securities fifty three point seven billion,

0:14:30.760 --> 0:14:33.440
<v Speaker 3>up from thirty one point four billion a year ago

0:14:34.040 --> 0:14:37.120
<v Speaker 3>and forty three point two billion a quarter ago. What

0:14:37.120 --> 0:14:39.160
<v Speaker 3>do they need to do? They tried to buy armed,

0:14:39.160 --> 0:14:42.920
<v Speaker 3>couldn't do it right? Do they need to do bigger dividends?

0:14:42.960 --> 0:14:44.920
<v Speaker 3>Do they need to do buybacks or what do you think?

0:14:45.000 --> 0:14:46.080
<v Speaker 5>I mean stock buybacks?

0:14:46.160 --> 0:14:49.200
<v Speaker 4>This company is generating as much free cash flow as Apple.

0:14:49.280 --> 0:14:51.920
<v Speaker 4>Now you're close to one hundred billion dollars in free

0:14:51.920 --> 0:14:54.960
<v Speaker 4>cash flow. So Apple does have a playbook when it

0:14:54.960 --> 0:14:58.640
<v Speaker 4>comes to returning cash to shareholders. I think N Video

0:14:58.720 --> 0:15:00.640
<v Speaker 4>should probably follow them. H