Housing trends, HPE CEO on Nvidia partnership: Market Domination

There's never enough time in the day to trade, as Market Domination Hosts Julie Hyman and Josh Lipton walk investors through the final trading hour of Thursday, June 20. They cover the top trending stocks and market movements ahead of the closing bell.

Hewlett Packard Enterprise (HPE) CEO Antonio Neri discusses HPE's new partnership with Nvidia (NVDA) on its line of "Nvidia AI Computing by HPE" product offerings.

National Association of Home Builders (NAHB) CEO Jim Tobin stops into the studio to tackle some of the biggest challenges the US housing market is currently facing.

Yahoo Finance's top trending stock tickers this hour include Gilead Sciences (GILD), commercial-grade EV maker Nikola (NKLA), and Advanced Micro Devices (AMD).

This post was written by Luke Carberry Mogan.

Video transcript

Hello and welcome to market domination.

I'm Julie Hyman.

That's Josh Lift in live from our New York City headquarters.

We are giving you the ultimate investing playbook to help tune out the noise and make the right moves for your money.

And here's your headline blitz.

Get you up to speed one hour before the closing bell rings on Wall Street.

The fact of the matter is the global rate cutting cycle is already well underway.

We track 37 central banks, 20 of them are already cutting rates.

The fed is going to join the party.

Probably at some point this year, we're 90 days away from the September fed meeting.

Traders are pricing in a 67% chance that that's the first cut.

I think that's what investors need to focus on buyers of.

They've pretty much um, become acclimated to these um, new mortgage rates.

I mean, obviously 2 3% was at a historic low, but even at 7% historically, um those numbers are low from a historic level.

Um And again, even though they've risen over the last couple of years, um they are low by historic standards.

D is the the best bellwether for full service restaurant stocks in, in the space that we cover.

Um, they, they've continued to see, um, a little bit of pressure on the low end consumer.

But one of the things that I thought was really interesting from the earnings call this morning was that, uh, they're actually seeing a little bit less check management on the business as a whole.

We've got one hour to go until the market close.

So let's take a look at the major averages here.

We've got a mixed picture with the dow, the winner of the day switch from lately here up almost a 1% about 356 points.

Right now.

We've got the S and P 500 down about 1/5 of 1%.

And the NASDAQ down even more about 9/10 of 1%.

Not a lot of fundamental news driving marks.

Today, we did get jobless more or less in line this morning.

Um, and we also got housing starts out this morning.

That doesn't seem to be having a huge effect here as we see, also yields climb a little bit.

If you looked at what was going on in the bond market earlier, uh, we were seeing on a price basis, it coming to sort of even year to date.

What's also interesting today, um, is what we're seeing in some of the large cap tech stocks which earlier had been climbing.

Now, we are seeing more pain, NVIDIA, Apple Microsoft are all in the red today.

In fact, seeing some selling elsewhere in chips Broadcom, for example, also pulling back after we had been seeing a gain recently um in some of those large cap tech stocks.

And if you look at the XL K is the tech index, that is the worst performer.

Today, we've got energy is the big winner along with oil prices, climbing utilities also doing pretty well.

And tomorrow, Josh, we have witching the expiration of futures and options contracts.

It's gonna be a big one so there could be some volatility going into that.

All right, we'll be waiting and watching.

Thank you Julie for more on the markets.

Joining us now is Dan Skelly Morgan Stanley Wealth Management, managing director, head of market research and strategy team, Dan.

It is good to see you um on the fed, Dan.

I thought you made an interesting point here.

You say the longer the fed keeps rates restrictive and allows lag effects to impact the economy, the more the haves and have nots may diverge.

What did you mean by that, Dan, walk us through it?

Sure, Josh.

And thanks for having me uh back on the show today.

So, you know, simply put, we have seen uh certainly a set of mixed data across the economy across the consumer uh environment.

But I think more and more we're getting clarity that like I said, the longer rates stay higher the more you're gonna see this divergence between certain corporate and consumer cohorts who are more rate in sensitive and those who are less rate sensitive.

Uh And frankly, you know, you can intuitively think about all the different applications of that concept.

But on the consumer front, it's playing out in terms of high income versus low income, homeowners who have fixed mortgages versus those who are, uh maybe trying to buy.

And then of course, renters on the course side, look, it's the reality that there's a certain cohort of large companies that have net cash balance sheets.

Uh and they're actually seeing their interest income out uh exceed interest expenses given the rate environment on the short end as well.

And then there are companies frankly more down the cap curve and small cap land who have more leverage, who are frankly seeing the pain from high rates.

Dan, it's Julie here.

So as you look at that have and have nots then scenario, what are the implications then for the economy in the markets?

Because, you know, we've heard a lot of economists come on the show and talk about how the upper echelons of income account for the bulk of consumer spending anyway.

So, you know, talk us through sort of the implications of what you're saying, Julie, it's great to be with you as well and you, you make a really astute point which is, you know, mathematically if the top income uh cohorts account for the majority and the lion share of spending if that second track starts to degrade or slow down, can that actually move the overall averages?

And and our view is likely not.

So Morgan Stanley, from a firm perspective is still in the soft landing camp, right?

So we still see albeit two track divergence amid these different groups, we still see the overall picture as fairly positive, but it puts the fed in a really tricky place because frankly just keeping rates higher isn't necessarily changing the behavior of the one track that isn't rate sensitive, right?

And, and in some instances as well, if you're cash rich and you're now seeing 5% yield on cash, you're then taking that income perhaps and going out and spending more which, you know, you can make the case, it's a bit counterintuitive, but you can make the case that rate staying at these levels perhaps is supporting high inflation in certain services.

So, Dan, I, if that's what your views on the fed, the economy where we're at and where we're headed, what are the investment implications, Dan, for, for equity investors listing right now?

Absolutely, Josh.

So I'll say two things first in the near term, it's just more of the same, right?

It's not trying to get too creative uh by fighting the momentum in some of the larger cap uh cash rich type business models who are not only seeing um the benefit from uh you know, essentially being insulated from high rates, but also benefiting from these idiosyncratic spending trends, whether you, whether it be in the tech sector or semis or in some of the internet and software uh areas, whether it be in the industrial sectors where you're seeing massive fiscal spending on certain priorities.

Um You essentially don't want to fight uh some of the earnings power, some of the momentum in these areas.

Having said that though Josh, the second thing I would say is um you want to start thinking about a world like 6 to 12 months from now where frankly some rotation may start to finally occur.

And what would we be thinking about in terms of those themes?

Well, look, our base case again is a soft landing scenario where the fed is cutting later this year, Ellen Zetor, our economist who I think has had this call as close to spot on as anyone is still looking at potential for three cuts this year.

And so at a certain point, Josh, the puck is going to start going to more value oriented parts of the market, more frankly, cyclical parts of the market.

And that is something we are thinking about coming into the end of this year.

I was gonna ask about timing there, Dan, because that is a call that you know, has been, that's out there and that hasn't yet come to fruition is the signal for that gonna be when the fed starts cutting.

And by the way, as we're talking about cutting, I think the last time we talked to you, you were still looking for three cuts this year and I wonder if you're still there, stick, sticking with three.

So I'll answer the second part first, which is, you know, we had thought the path of, uh, disinflation would be lumpy in the first half of this year.

And that played out to a t the first quarter had some seasonal factors.

Uh It had some issues that uh certainly we thought were more one off and look as per the last two months of data.

It does look like that glide path towards the Fed's goals are, are more in scope, right?

And so we do think the path of resuming uh disinflation uh is getting there and look importantly, as you know, the Fed has explicitly said we're not going to wait to kind of stick the 2% landing exactly before we start cutting.

And, and frankly, I think that's pretty wise because as you know, there are structural issues that have frankly built up since the post 08 environment in terms of housing supply, in terms of labor shortages that frankly, I don't think we're going to really solve with any type of monetary policy policy in above itself.

And so I think if the FED sticks to that guidance in terms of not waiting to the 2% landing, um I think you can start to think about positioning in some of those value parts of the market coming into this fall.

Now, as you said, a lot of people have tried to make that call so far.

It's been difficult because frankly, a lot of the fundamental earnings revision like I talked about and momentum has been in uh some of the other growth sectors.

All right, Dan, thanks a lot.

Good to see you, Dan Skelly.

Great to talk with you again.

Super microcomputer and Dell will provide server racks for the super supercomputer from Elon Musk's start up Xa I. Um the shares were higher earlier.

Now, they are not, which maybe says less about the news itself and more about where we are in this market and the sort of waning enthusiasm, at least for today for some of these stocks because we started to see NVIDIA roll over.

Then we're seeing Dell and Super Micro uh roll over as well.

All three of these stocks, by the way involved in this, uh Michael Dell announced all of this on X saying we're building a Dell A I factory with NVIDIA to power Grok for Xa I.

And then Elon Musk weighed in and talked about the super micro role as well.

So must launch Xiixa I is, is um is answer to open A I and it's chatbot uh chat G BT and must then we in to your point.

Julie said, yeah, it's actually both Dell and super micro.

And of course, you know, investors have been looking at ways to play that sort of A I mega trend and these are two ways they have piled into Dell.

Recently reported said, hey, revenue from its A I servers growing strongly super micro as we talked about this week, uh recently announcing plans to expand facilities to, to bolster uh it's A I business, everybody isn't on the party today.

You you could, you know, we did see a pop and then now kind of fading out.

A bit.

Of course, these, these two names have also had just historic runs as well.

Yeah.

So is it, you know, any kind of bigger change or just a little bit of a waning of enthusiasm on the day?

You maybe the latter.

Well, coming up next, a conversation with Hewlett Packard Enterprise, Ceo Antonio Neri about the company's new partnership with NVIDIA and at 330 it's the latest edition of our series.

Goodbye or goodbye.

We'll take a deeper dive into two stocks to help you make the best moves for your portfolio.

Stay tuned, more market domination.

On the other side.

H pe Discovery is underway this week in Las Vegas, Ceo Antonio N gave us, you know, at the sphere where he announced a new partnership with and video.

Antonio.

Thank you so much for joining us here on Yahoo Finance.

Let's get started with this new partnership with video who seem to be a the gold standard of A I right now.

Talk about that relationship and what you both hope to accomplish with this announcement.

Well, good morning and thank you for having me.

I hope uh you don't hear a lot of noise, but we have 15,000 people behind me at the show floor.

This is a seven acres of innovation that we are displaying here in Las Vegas.

But as you said, uh Jasmine, uh we hosted the keynote of the sphere.

It was a remarkable combination of a story and A I and the Jensen joined me to announce the NVIDIA computing initiative by HP.

At the core of that, we really focus on the enterprise segment of the market.

Because when you think about A I that is the model builders and the hyper scalars, you have the sovereign clouds and the enterprise, obviously, we already seen a tremendous traction on the model builder side and the hypersal, but we focus on enterprise.

And now the core of that is how we deliver a simple A I solution to consume on premises.

And we actually for the first time in the history of the A I, we announced a Turkey full cog engineer solution that the core is a simple experience to deploy its three clicks and 24 seconds to have an A I model deployed in your enterprise.

And that offer comes with NVIDIA Silicon NVIDIA uh software A I enterprise names and others plus H pe infrastructure of servers and storage plus HP software that complements that software from NVIDIA and also security built at the core.

So very excited and Jensen and I believe this is going to accelerate the adoption in enterprise to drive the generative A I industrial revolutions.

Antonio, you know, on this partnership with NVIDIA, I think a lot of investors want to know.

When do you think Antonio this is gonna have a positive meaningful impact on your financials?

I I know it's early days and of Antonio.

But what, what can you tell investors?

How, how are you thinking about that?

Well, Josh, it's already having an impact because in my last earning reports, I reported that more than 15% of our orders are already related to enterprise and this announcement is going to accelerate the adoption in a much easier to consume as a part of our HP green cloud offering.

So we expect this to accelerate that adoption and we hope over the next 2 to 3 quarters, we start seeing the benefit of this.

But remember we already see enterprises adopting it and we already see 15% plus already in our box.

Antonio.

In your keynote, you emphasize that A I is hard and full of risks.

We've seen plenty of that on the consumer and content side specifically with accuracy.

I'm curious, what kind of challenges are you facing in enterprise and hardware?

Well, actually, I at the beginning of my keynote, I talked about the key ethical principles, we need to guide ourselves and be the steward of those that are simply as human focused safety, security, which means I plan security and, and others.

And we build those principles jasmine in this offer.

In fact, in this offer, you know, the provenance of the model, the governance around the data that we put together.

In fact, we built a data lake uh say security model in the offer itself.

And then also we put the guard rails.

So the guardrails associated with the large language models come with this offer.

Uh I actually my team and I worked on a fun thing to engage customers to the shop floor is called Antonio Nely.

But as an avatar of myself and you can go ask questions to them about anything.

But what was amazing to me was the guard rail so that Antonio doesn't hallucinate.

And so the point, the point is that we build all of those uh guard rails into the offer itself and we believe this is gonna help customers feel more comfortable around this.

But ultimately, it is the data first approach and we need to make sure that we protect our data.

Antonio, I wanna dig a little bit more into your A I servers and two questions for you.

One is the competitive landscape.

Antonio I'm interested in what you think makes your A I servers different and better than what Michael Dell is selling right now and two Antonio broadly, it does look like investors have questions about the margins of A I servers.

It doesn't seem like everybody is necessarily increasing profits by selling them.

Is that your situation?

Well, thank you for the question, Josh here behind me is one of the reasons why we differentiated.

Uh There are people probably looking at the racks right now and that's the direct liquid cooling capability.

As you know, as we transition the road map from uh the current generation, which is the H 100 to Grace Hope and eventually Black Blackwell, Ruben and Beta Blackwell would require 100% directly to cool.

And H pe has hundreds of patents in that specific space and we have been doing directly cooling for more than two decades, more than two decades.

In fact, that system behind me is a super computing system, but ultimately, you also need to manufacture this.

And so we have one of the largest water cool facilities here in the US and another one in Europe.

So as we make that transition HP will be uniquely positioned to adopt this new technology with a higher power density.

And that's why it's a huge differentiation.

Second is the services capabilities.

It's not about just selling servers, it's about deploying a generative A I solution and ultimately making sure that runs sustainably and consistently.

And that's the other reason why our profitability is solid.

If you go back to our our Q two results, we, we said we grew revenues in our A I servers by 18% year over year.

And at the same time, we deliver a solid operating profit performance of 11%.

And that's because it's not just the margins of servers, it's the margin associated with the software.

And I private cloud includes all the software.

And also the fact that obviously we do all the services.

And when you with this to Green Lake, actually, we manage all that infrastructure on behalf of the customers.

And therefore there is even more margins which are defer over time.

And that's why we are, I think a very unique position for what comes next and be able to deliver solid operating profit performance.

And Antonio yesterday, a UK regulatory watchdog opened a probe into your potential $14 billion acquisition of Juniper networks.

Curious where that deal stands adjustment.

I love the headlines, the probe actually, it is the standard regulatory process.

Basically, we work with the regulator in the UK and basically we work with them to file our approval for the transaction standard process in the UK.

You have 60 days to go through that process and the last day for the regulators to come back to us, we are very well engaged is August 14th.

So this is standard regulatory process and we are very excited because that means we are in the timelines we announced at the transaction on January 9 and in that case, we said that we are going to close this transaction end of this calendar year or beginning of calendar 2025.

So very excited.

This is good.

This is actually really good Antonio I I'm just curious how confident are you that Juniper really is gonna create this meaningful tailwind for that networking business that that you can really replicate Antonio the success success you had with other acquisitions like Aruba.

Yeah, I mean, first of all, from a shareholder perspective, this is going to provide a twice the size of the current networking business, which obviously the flagship is HP Aruba networking.

So think about it, we're going to have a business that's $11 billion which will represent 35% of the company's revenue and more than 55% of the company's profit.

So from an investor perspective, this is good because we are operating in margins are structurally are very different from a customer relevant standpoint.

This is super exciting because it will allow us to provide a true edge to X scale networking fabric.

So as we go through this massive inflection point, which is basically the A I, the customers need a modern network architecture because today, even when you deploy A I, you have to manage two different networks, the one in the rack or in the A I server or in the I uh you know uh system itself and then you need to connect it to the data center and therefore there are two different level of management and that's complicated.

So with Juniper and our networking um IB, we'll be able to collapse that.

And we're going to work with Jensen to integrate the two through the HP Green Lake um solution.

And ultimately do it in an A I driven way because we already integrated generator A I in all our solutions, whether it's the networking management, whether it's the server deployment or whether it's the storage management as well and the capacity that we deploy for them.

So, super excited about that, Antonio Neri H pe CEO.

Thank you so much.

Thank you.

Now, let's get to some trending tickers.

First of Gilead Sciences, the shares of 8% after announcing that it's experimental twice yearly medicine to prevent HIV demonstrate demonstrated 100% efficacy for the investigation use in Cisgender, women in Africa, women and adolescent girls.

So the company has some um medications on the market already.

Um But they either are daily oral or you have to do them as shots every two months.

So this is less frequent.

So the hope is is that this will be there will be more uptake of something like this and it was shown to be quite effective here.

So, interesting development and obviously the shares are reacting.

Yeah, I I reached out to Brian Abrams over to R BC because he covers the name.

Here's what he told his clients.

He said this was in his opinion, a much needed pipeline when he said uh more likely though still needs to break right for the company, particularly on the on college side and elsewhere beyond HIV.

To enable a stock to more materially rerate.

Said today's uh data though could be a solid start though.

He, he remains neutral for now.

Target 74.

Yeah, he, I saw another estimate that he, that this drug could bring in $1.7 billion or more in annual sales.

It's interesting because it's not a vaccine per se, but it is still preventative.

So a little bit of interesting how they sort of term this.

Um And when you say a much needed pipeline here, the stock is down even with today's bump, it's down like 16% year to date.

That's been rough.

All right.

Moving on.

Uh Here's another one, Nicola shares are tanking today after announcing a one for 30 reverse stock split that is set to go into effect after markets close on June 24th.

This has been the theme Julie feel like we've been hitting a few of these.

I mean, you know, the broader view, this is industry, obviously, as we've talked about, it's not growing like it used to and stocks associated, they have taken a hit.

Nicola is no exception.

I mean, I manufactures those commercial s that stock is down more than 50% this year.

It's down about 70% over the past 12 months.

Yeah, I mean, this is one that has not really gotten off the ground.

You recently had the news that Fisker had filed for bankruptcy and Nicola has said in the past that there was doubt about its ability to consider to continue being in business.

Um So we'll see how much time this buys it.

All right.

Still to come.

It is the latest edition of our series.

Goodbye or goodbye.

Stay tuned.

More market domination.

On the other side, it's a big noisy universe of stocks out there.

Welcome to, goodbye or goodbye.

Our goal to help cut through that noise to navigate the best moves for your portfolio.

And today we're looking at the most valuable public companies as they battle it out for the top market cap spot.

I'm here with theory ventures founder Tomas and interesting here, you're looking at these mega cap tech stocks and let's get to your buy stock.

That is Microsoft.

Now, Microsoft obviously has already had a big run, right?

It's helped by all of this optimism about A I.

But you think it's still a good buy.

So let's get to why?

First of all, you think that the potential in A I is even bigger.

It's enormous Microsoft, if you look at it is basically the leader in A I, they've developed a 5 billion run rate business in about 18 months.

And uh because of their relationship with open A I, at least initially and their significant investments in data centers spending about 15 billion a quarter on Capex uh just in the data center alone.

And since we're just in the early days, really, I think the stock has a meaningful way to run.

If you look at their relative share compared to Amazon and Google, they're actually winning share away from the other clouds.

And then the last dynamic is five years ago, most start ups really wanted when they started to build their companies, they wanted to build on Amazon.

And today most companies are actually building on top of Microsoft because they want access to those A I features early on top of Azure specifically.

Yeah, interesting.

So um and A I is really then where they sit and where the strength is for a Microsoft, right?

I mean, and obviously they have all those other relationships outside of Azure with all the other software that they provide as well.

That's right.

I mean, you look at Microsoft, I mean, by far the largest software company in the world, the major motion that they're now pursuing is the ability to cross sell.

So if you're a software engineer and you want A I Microsoft will sell it to you.

If you want a laptop with A I Microsoft will sell it to you.

The other dynamic is they support many different A I families of models.

So there's the open A I models, there's the Facebook meta models like the llama models, they support all of them, they're developing their own models.

And as a result of that broad penetration within enterprise, they have access to lots of data that other people just don't have.

And so they can train and they can infer and build new products.

And that cross I think will really lead them to build a pretty significant A I business, I mean, 5 billion in 18 months, growing 700% year over year.

It's pretty amazing ability to create market cap.

And even with that growth, you say there's still a lot of room to grow because the A I stuff that they are now providing, not all customers are using it yet or they're not using the full scope of the capabilities.

That's exactly right.

So large numbers of customers, I think it's something like 80% of the Fortune 500 are now using A I.

But the penetration is still really quite small.

If you look at all the different products, Nadel Satya Nadella, just a phenomenal job of prioritizing within each of the product lines A I being the most important feature that they sell and it's starting to gain significant penetration.

But we're still really in early days, the impact of some of these businesses in terms of efficiency is absolutely massive.

So Microsoft themselves are seeing a 50% improvement in developer productivity through their A I service.

Now 75% you saw Klarna announced A quarter ago that they cut two thirds of their customer support team as a result of A I.

So there's a lot of efficiency that Microsoft's A I in particular and their systems will bring to these very large companies and they'll be able to read disproportionate share.

So we always like to point out potential risks when we're talking about one of these goodbye, goodbye cases.

And in this case, it's maybe that, as you mentioned, the open A I partnership is now a strength, but maybe it won't last forever, it won't last forever.

You look at what open A I announced two weeks ago with the integration into Apple, you can see that open is looking to broaden out its distribution and that's really important.

Open A and Microsoft had a strategic relationship.

Microsoft invested about 13 billion and uh Open A was using a lot of the Azure chips in order to train and run the Inference.

Microsoft then decided to start to sell directly to their enterprises, competing a little bit with open A I and then open A I is now pushing more in a consumer search direction.

So I think you'll see open A and Microsoft start to compete more and more which will challenge that pretty key relationship.

And there may be some headwinds there.

I think that risk is mitigated by the fact that there's so many model families, so many different kinds of A I that Facebook and others are creating that Microsoft should be able to differ certify, but this is an important risk for sure.

Yeah, interested and keep an eye on.

All right, let's get to the stock that you're avoiding right now.

And this is, I gotta say you might be in the minority on this one we're talking about in because, you know, most of the folks we talk to are big fans of NVIDIA and they think it's gonna continue to grow.

Obviously, the stock performance has been incredible.

I mean, when it gained as much as it did last year, we said there's no way that can keep going and it has so, but you, you talk about the competition, which is something that is out there.

Certainly a lot of folks have brought up this issue, right?

So NVIDIA unbelievable performance, right?

You've seen revenue increase five X.

You've seen profitability go from profits go from about 4 billion to 4 40 billion, 46 billion, four years, really incredible business.

It's really driven by A I and the inference when you have those profit margins like 60% you're going to face a lot of competition.

And it's not like, I mean, Google has been developing their own TPU chips.

Amazon has both training and inference chips.

A MD just announced the chip that is 30% more powerful than the current NVIDIA H 100 which is the dominant inference chip.

And so there will be significantly more competition here And if you look at Nvidia's profitability growth, it's basically just a doubling or tripling in prices in terms of the GP US.

And as more competition comes in, as the Capex spend increases pretty materially on the development of these chips, I think those profit margins ultimately shrink.

Interesting.

OK. And let's also talk about valuation because that's a part of the story.

Um So if you look at the pe that we've seen and this is the forward pe, this is going back um uh five years, I believe on this forward pe and you have seen sort of spikes in the pe and then it's come back down, right?

So what is that?

I mean, we're not quite at the spike yet here.

And in fact, a lot of the people we talked to say, actually the, the valuation hasn't gone up that much, but how are you thinking about the waves that we have seen?

So NVIDIA, if you look at this do over a 15 year basis has seen three major waves.

The first wave was around gaming in the 2010, 2012 time frame.

The second wave was driven by crypto uh in sort of the 2018, 2020 wave.

Yeah.

And now we're sort of in the A I wave and at each point in those waves, the pe has gone above 50 then 68 quarters later has fallen to 25.

So the counter argument would be, well, this wave will run a lot longer because, uh the, and the, the NVIDIA team has said at least through the end of next year, there's plenty of demand for GP US that outstrip supply.

But over time, the reality is like this is a company that's selling chips and these kinds of multiples are, I think really difficult to sustain over the long term.

Right.

It's quite unusual.

So they need to look into software and they already have, right?

They, they're selling sort of the sweet including the chips, including the whole um the rack as part of the whole selling point and the software.

But you think they need to get more, I think they absolutely need to get more into software.

I mean, you think about um the multiples that software companies have, they typically trade as a function of revenue, particularly the high growth ones.

And I put in VD, if you were to think about it as a software company would probably trade it somewhere between 12 to 18 times top quartile, maybe even a little higher just because of the dynamics around A I and how special they are.

But the reality is the fraction of revenue today it's in software is, is not disclosed and it's probably still quite small.

So as the demand for GP us attenuates with time, they will need software to meaningfully boost up their multiple, particularly because the growth rates of the data center business will plateau today, you're seeing uh Microsoft and Google and um and Amazon spend about 12 to $15 billion in data center a quarter over time, that will sort of, that will sort of decrease.

And so the growth rate in the data center part of the business, which today is about 60% of the revenue.

And by far the fastest growing compared to gaming and automotive will slow.

And so software will absolutely be the key.

Very interesting.

Ok.

So let's get to what though could go right for NVIDIA.

And that's just that, you know, there is this promise of competition but it may not come for a while.

That's right.

So I I'm a long term investor.

So I'm thinking about 3 to 5 years in terms of how people actually compete with NVIDIA, you need to produce chips, right?

And within the US, our ability to fabricate chips is pretty limited because we've outsourced that through the whole Fabulous wave in the eighties and nineties.

And it's, it will take a long time to get these fabs fabrication, manufacturing facilities up and running and the time to ship some of these chips is a lot longer.

It's just in software, right?

There's tape out, you have to actually produce it, there's yield management, there are all kinds of supply chains and so it may take longer than and particularly, I mean, you look at Facebook will spend alone $20 billion this year buying GP US Amazon and Google who are building their own chips, they may not be able to ramp production that quickly or even uh satisfy any of that demand.

In fact, Microsoft right in the last quarterly uh release said that um they're unable to satisfy the demand.

So, yeah, so.

Ok. Well, we'll see what happens with NVIDIA real quickly before we let you go.

What are your positions in each of these stocks?

So I hold uh Microsoft is my single largest public position.

Uh NVIDIA is a very, very small position.

Got you.

Ok. Tomas.

Thanks so much.

Really appreciate it, interesting stuff and a little bit of contrarian take on NVIDIA.

Appreciate it.

Thank you so much for watching.

Goodbye or goodbye.

We'll bring you new episodes at 3:30 p.m. Eastern.

All right, let's get to our call of the day.

Now, Piper Sandler naming a MD, it's top pick in a large cap space.

So this is Piper's harsh Kumar uh decides Lisa Sue's company is a top pick in the large cap space heading into the second half of the year.

Apparently, Julie, he met with the management team says he walked away, extremely impressed with the strategy as well as the competitive positioning.

We feel there are additional tail winds.

He says set to come for both the server and PC business says A MD looks to have bright prospects moving to the back half.

Yeah, so bright that he boosted that price target to 175 although it's not that far from 175.

Now, especially after this gain that we're seeing on the back of this uh of this analyst call, a couple of things that he talks about.

He says that the company in the first half of this year had been constrained with the delivery of its accelerators, its A I accelerators um because of supply issues.

But he thinks that will alleviate, He also expects them to take share from Intel in the server market, which is quite interesting.

He says A MD will take 5 to 6% of share from Intel this year.

Um So, and their share of the server market is already about 33%.

So those are a couple of the reasons behind uh that call for harsh and for in valuation.

No surprise thing to let's retract here says we like A and D's valuation here relative to peers in the compute space.

So continues with an overweight.

All right, moving on Wedbush Securities initiating coverage of the trade desk with an outperform rating from highlighting top line growth potential in digital advertising span is expected to rise in 2024.

And here discuss that call with Scott Divitt Wedbush Securities Managing director, Scott.

It is always good to see you on the program.

So let's get to this call, Scott.

So you're a fan of the trade desk, you initiate coverage for the now perform your target.

Uh 110.

How come Scott wa walk us through the argument?

Well, the drivers for trade desk really are this transition that's happening in the advertising industry where um connected TV is is shifting from linear um to uh streaming TV.

And the advertising is following.

And the trade desk is a big beneficiary almost half of the business.

This video today.

Our expectation is over the next 3 to 5 years.

You're going to see an acceleration in the decline of linear TV, which will be a significant tailwind for the business.

In addition to that retail media is becoming an increasing portion of the online advertising industry.

And trade desk has a quite innovative model where they're pulling in first party data from retailers to further inform their demand side platform for advertisers, both of those drivers, the two most significant drivers for the ad industry, which is what is so interesting about trade desk, Scott, it's zoom out a little bit because as we talk about the continuing transition from cable TV, transition, uh traditional TV, the way that advertising works there and then connected TV, and how ads are sold on to those platforms.

Um What's the biggest way that that has shifted?

And are any of those sort of older players playing a role in this new ecosystem or is it sort of trade desks you know, market to take?

Well, trade desk is the leading independent demand side platform.

The largest competitors actually are probably Google Yahoo still in that business, Microsoft and Amazon has a growing DS P business as well.

But what's happened over the past, you know, 10 to 15 years has been this transition from guessing with advertising to increasingly having a real time programmatic advertising where advertisers are bidding and content owners are pricing inventory properly and meeting in an online exchange.

And that to us is going to increase as a proportion of the overall industry going forward.

And trade desk is the leading provider of that.

In addition, these companies that, that trade desk is competing with are companies that are under regulatory scrutiny.

So you always have the possibility as well that there could be Augusti issues that are for say with an alphabet where the government forces the company to unbundle its adtech platform, which would be a significant positive for trade desk if that ever happened.

And Scott, you know, you look at trade desk, stocks, enjoyed a nice run.

I mean, it's up about 35% already this year, but you, you must think valuation still attractive here, Scott, it's high, it's, it's um it's, you know, similar to history, but I wouldn't call it a bargain at current prices.

The company that I think is probably the most comparable to trade desk.

Interestingly, many don't think of it this way.

Shopify, which provides a similar service on the ecommerce side.

And when you look at trade desk relative to a Shopify it's faster growth.

It's a significantly higher margin business and it trades um Shopify trades about a 30% premium.

So on a relative basis, relative to the company that we think is probably the closest comparable, it trades at a meaningful discount on an absolute basis.

You can see our target price is only about 12% above the stock.

I wouldn't call it a bargain, but this is an emerging blue chip company that you want to own.

And Scott, we're just coming off of Can and you know, a lot of advertising and marketing people gathering.

There was there anything you heard coming out of that conference that also, you know, informs how you're viewing trade desk and some of its competitors in terms of how ad dollars are going to be flowing.

A lot of conversations and relationships announced using retail media data and that there was, there was an announcement with, with Amazon, there was something with Instacart.

And uh and so what you're finding is these data repositories of media content are now being brought to life and that's going to continue to enhance the advertising models as these retail companies, some of which do it directly like Amazon providing their own demand site platform for their retail media inventory to third party advertisers and many retailers that don't have the capacity to do that like Walmart that are actually partnering with companies like trade desk to provide that service for them, Scott, you know, I, I know you cover and you like Amazon alphabet and meta.

You got outperforms, I think on, on all three.

If I, if I asked you Scott though to pick one, WW would you give one name there that you think, you know, you, you'd be most bullish on right here at these levels.

Amazon Amazon stands out retail, you know, business is going through this renaissance period, post COVID where revenue growth is accelerated again and beginning to stabilize at traditional levels margins.

Expanding the online advertising business is approaching 60 billion and growing twice the rate of overall ad industry online.

And the web services business is making a recovery where you're comping some of the reduction in activity from last year and say aws throughout the remainder of this year will accelerate as well.

So among those four, we like them all, but I would rank Amazon number one, Scott Devitt.

Always good to see you.

Thanks a lot for taking the time to chat with us.

Thank you.

Silicon mortgage rates falling for the third straight week will speak to the CEO of the National Association of Home Builders.

On the other side about the latest housing hurdles, new mortgage rate data coming out today showing a decline for the third consecutive week to 6.87%.

This as we also got numbers on housing starts and building permits.

Both of them slumping unexpectedly in particular starts uh falling to the slowest paced in four years.

Our next guest says those mortgage rates are one thing holding back both housing supply and demand.

We're bringing in Jim Tobin Ceo of the National Association of Home Builders.

Thanks so much for being here.

So obviously, there's a lot of interconnectedness when we're talking about what's going on with rates, what's going on with builders and the activity that they're doing based on the demand that they're seeing.

Um So when you see that number, the slowest pace in four years, do you lay the blame squarely at the foot of, of mortgage rates?

Yeah, I, I think it's two factors.

One is mortgage rates.

People see that, you know, early in this year we saw mortgage rates fall, people start to get optimistic, especially ahead of the, the spring and summer buying season.

Uh and then rates start to creep back up and now we're, you know, kind of, we're at seven a month ago or a little bit lower.

Now, it's great to see that they're starting to fall a little bit, but that's mortgage rates really suppressing the demand in the buyer market.

The other side is capital to build more homes.

You know, our members use something called ad and C financing acquisition, development and construction loans.

Uh We're seeing that those interest rates are about running between 10 and 13%.

So that's really suppressing that capital that the, that the, the private builders need to start planning for that new, that new construction and the 30 year fix.

I'm just looking at mortgage news daily.

We're sitting here at 7.02%.

I mean, you, you've got smart economists on staff and as they try to gauge where that's going six months from now, 12 months from now.

What, what do they see?

We're optimistic.

We think by the end of the year we're, we're, we're fully in this, in the 6% range for mortgage rates.

Uh, it's really going to take more signals from the fed that they are, in fact going to cut rates.

We think that's going to happen.

Maybe, certainly once at the end of the year, maybe we get a second one.

Uh, but we're, we're looking to be, you know, in the high sixes by the end of this year.

And then when we get into 2025 we can further retreat into the, into the Sixes.

But it's not until 2026 where we're, we're really into the 5%.

High sixes.

Does that spur traffic?

I don't think high sixes does.

I think, I think low six does.

And then really when we flip over into the five, I think that's where you're going to see demand, especially in the existing market where that's going to really open back up and that's what we need, Jim, why aren't people getting used to rates at these levels?

I mean, we've had the discussion before.

I mean, historically, these rates are not that high, right?

Um And so why isn't there a process by which buyers are just saying?

Ok, this is what it is.

I gotta move anyway and that, that process start to begin.

It doesn't seem to be happening if, if you have to move, whether it's for a life changing event or a job that you can't pass up.

Sure you're gonna, you're gonna take on a seven percent mortgage rate.

But if you don't have to, you're not going to move, which means you're more likely to probably remodel your existing home in the short term.

I think we have a whole generation of buyers.

I think three and 4% are normal and it's going to take, you know, a little bit of time before they recognize that rates are gonna settle into that six or 5.5%.

And until then they're always gonna feel like they're gonna fall backwards.

So why jump in now?

Because maybe a six months from now or maybe a year from now, they're gonna be better.

You know, it's the old adage of you, you, you date the rate and you marry the home, uh, whether people are willing to refi in a couple of years remains to be seen.

So, just to go back to what you said, then you think 5.5 6% is sort of the steady state here.

I do.

I do.

I think that's where we are again, it's probably in 2026 when we finally realize that, but that's where we think the new normal sets in and Jim, you have your incentive and index.

I mean, how, how are builders feeling, builders are feeling pessimistic?

Uh We had gains all the way through the first half of this year.

We've, we've lost all of them.

We're now below the 50 the 50 point mark, which is our barometer.

Anything higher than that is positive.

Interestingly, uh We had 1000 builders in Washington DC last week for our spring conference and legislative conference.

Uh They're actually in a really good mood, surprisingly because they're the only game in town, you know, month to month, new homes usually make up about 10 to 12% of the market.

We're now about 30 to 35% of the market.

We're the only game in town because that existing stock is so locked down.

So they're, they're sure they're building fewer than they did, you know, a couple of years ago, but they're in a steady pace, they're selling homes, but they're working harder to get people into home ownership, meaning they're lowering rolling prices or they're looking for incentives like buying rates down to keep people moving into homes.

I'm also curious about the supply side of the equation in terms of their supply chain, not just with stuff, but with labor, right?

What's going on with costs on that end?

Labor is still constricted month after month.

For better part of a decade, there's 400,000 open in the in the construction labor market that continues to keep it tight.

That's why we invest so much time and effort into training the next generation of skilled contractors out there.

Why we need immigration reform?

You, when you go to Capitol Hill, Jim, you talk to lawmakers about immigration policy.

That was our number one issue this year was about workforce development and immigration, which is so politicized right now.

Uh And, and it won't be until we ever find out who the next president is where we can really tackle the issue.

But we have got to solve the immigration problem from the border security all the way to what do we do with the, the, the undocumented?

So what's your priority then?

What would you, I mean, what would an ideal forget about what's going on in Washington, on the political side?

But what would an ideal situation look like for you guys, immigration reform wise so secure the border.

We want people who want to come into this country legally to come through in an orderly fashion.

We want people who want to work in the construction industry to have a, a visa that allows them to work in our industry just like they can work in the seasonal market or they can work in agriculture.

And then we've got to figure out how we can have as employers, how we can be responsible as well to make sure that people that are working on our job sites are work eligible that is critical to the functioning.

This then of course, we have to figure out what we're gonna do with the undocumented and what's the realistic goal there about bringing them out of the shadows and putting those people in, into the economy.

I'm sorry.

Just what percentage of the construction workforce do you think is, is undocumented?

I don't know about undocumented, but I can tell you from the immigration perspective, about 23% of construction industry at large, not just home building is immigrant labor.

So it's a critical component of our workforce.

When you talk to those builders, Jim, I'm just curious and they sort of um business models evolved.

Can they build more quickly than they, than they used to?

No, they're building slower.

In fact, the average size that it's land entitlement processes.

Number one, number two, the permitting processes, the fees that go along with it, construction uh construction material do red tape and regulation have actually gotten worse.

It's absolutely worse.

In fact regulation at all three levels of government at about 20 almost 24% to the cost of a home, $93,000 in total multifamily.

It's even worse.

Almost 43% of a multifamily unit is, is tied up in regulatory burdens and costs.

Um What about innovation though when it comes to building.

Well, I think you're starting to see panel panelization kind of building those wall structures and trusses off site and bringing them in.

That helps with our labor force as well.

If you're not doing complete stick building, then you can have fewer people on the job site.

You need people to put those walls together.

So that's an innovation that ha it's taken off a little bit, but we haven't fully realized that yet.

It's a chicken and egg issue.

People need to invest in those factories, but we need uptake in the, in the marketplace as well.

Uh But that's really where, where I think A I is starting to play a role in managing your supply chain, things like that.

So we're still evolving.

Uh You know, we still tend to build our homes uh stick built and that's the way people that, that's the way people like it, Jim.

Great to see you.

Thanks for coming on the sets.

R I appreciate it.

Thanks.

All right.

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