Nvidia's growth trajectory, AI broadening out: Asking for a Trend

On today's episode of Asking for a Trend, Yahoo Finance's Julie Hyman and Josh Lipton focus on Nvidia (NVDA).

Host Julie Hyman dissects the heightened anticipation surrounding Nvidia's earnings release. She discusses investor expectations and the potential market implications of the company's financial performance.

Discussing Nvidia's growth trajectory is Niles Investment Management Founder and Portfolio Manager Dan Niles. Niles sheds light on the various drivers behind the company's success, beyond its core chip offerings.

Yahoo Finance's Josh Schafer previews Nvidia's earnings, examining the broader implications of the company's performance within the evolving artificial intelligence landscape.

This post was written by Angel Smith

Video transcript

Hello and welcome to Yahoo Finance is brand new show.

Asking for a trend.

I'm Josh Lift in live from our NYC headquarters for the next half hour.

We're going to break down the trends of today that will move stocks tomorrow.

Now there's a lot to keep track of.

So we're focusing on what you need to know to get ahead of the curve.

Here are some of the trends we're going be diving into the consumer showing some signs of cracking here.

Macy's is the latest retailer to call out financial pressure weighing on shoppers as they being more thoughtful about discretionary purchases plus close for business.

Red Lobster files for chapter 11 bankruptcy as a number of companies seeking protection trends above average year to date.

So which names are next?

We will be taking a closer look and of course, it's Invidia earnings eve, the chip maker closing today at a new record high and expected to get a, get a blow past expectations and its results tomorrow after the bell.

But how much for further will the stock climb?

We're gonna check that out?

Yes.

Expectations for Nvidia's latest report, they are sky high and the tech giant even closed at an all time record.

But what does it all mean for the S and P 500?

Let's take a look at our chart of the day bloom, bird anticipating.

The tech giant is gonna add nearly 2.5% of eps growth to the first quarter of the year.

And Yahoo Finance's Julie, he is standing by with a deeper dive ahead of Nvidia's highly to the earnings report.

We can't stop talking about it.

But this chart helps explain why Josh, why is NVIDIA so important, not just for itself but for the broader market.

And indeed these, this is an estimates gathered by Bloomberg.

So we're looking at averages here for the first quarter.

The estimate is that in video alone added 2.4% points to earnings per share growth for the S and P 500.

If you look at the out quarters in the as well, you're looking at it alone, accounting for at least a percentage point of earnings per share growth for the S and P 500 even as far as in the fourth quarter when it's looking like, you know, well, a little bit smaller at that point as the growth gets a little bit smaller.

But nonetheless, as we know, there is an incredible ripple effect here because of the demand for generative A I, the chips to power that Invidia makes the chips and software, by the way.

And then the sort of eco system that has grown up around NVIDIA as we talked about in the last hour, then you also have utility companies that are powering the data centers that suck up a lot of energy.

So there is this big ripple effect, but this chart illustrates that even NVIDIA alone accounts for a lot of the earnings growth that we are going to see in the S and P 500 this year.

So here's the question Julie, he and what is ahead?

I mean, do analysts expect the growth to continue here?

Well, continue perhaps some diminishing returns.

That's what's interesting.

So if you look at the earnings per share growth that the company has seen over the past several years, here's a chart here going back five years of the company's earnings per share.

And you can see there has been an explosion last year around this time when there was really this ramp up in demand for generative A I and for the GP U that in video makes to power the training of all of these large language models.

So that's what's been going on here.

Two sort of lighter color bars, you see there are the estimates for the next two quarters or this current quarter that's about to report and the following quarter.

Well, what's interesting is the sort of diminishing returns?

In other words, as the numbers have gotten bigger, the it's harder this year over year comparisons, let me, show you what I mean here on the next graphic because while analysts are looking for 418% in earnings per share growth in the quarter that we're going to get tomorrow after the close the first quarter of fiscal 2026 looks like only 29% growth.

And then actually a drop in the year after that couple of things happening here by that time, perhaps we'll have seen more of these large language models actually be completed.

Yes, then they'll be working, they'll be doing the inference.

So there's some questions about how much demand there will be for GP U.

But also it's presumed that there will be more competition in this market that both the other chip companies will have developed their alternatives, but also the so called hyper scaler, the companies that control the cloud or that run the cloud, the Amazons of the world will also have developed their own chips.

So a little bit more uncertainty, the farther out we get as is natural.

But it will be interesting to see if they do even manage to keep up a triple or double digit pace of growth going out to the next few years.

All right, Julie Hyman charting it all for us.

Thank you, Julie.

Appreciate it more than 200%.

That's how much NVIDIA shares have climbed since May of last year.

And if history is any indication those games are just getting started let's discuss with Dan Niles, founder and portfolio manager at Niles investment manager, Dan.

It is great to see you on the show because you are Dan, perfect guy to talk about this.

So NVIDIA Dan, I'm hard pressed to think of a name that's more loved on the street.

90% of financial analyst Dan who covered the video, tell me I should be buying the stock, the stock's gone up about 90% already this year.

These are some sky high expectations heading into this print, Dan, what are we gonna hear tomorrow after the bell?

What do you think the response is gonna be?

Well, I think you have two things going on, as you said, expectations are sky high and that's the biggest problem.

Everybody knows it's a beat and raise.

Everybody is expecting upside to the numbers that are gonna be reported relative to analyst expectations are expecting for numbers to go up a lot.

That's the negative.

The positive is valuation in the sense that Nvidia's ford 12 month pe is 15% below its five year average.

And so that's the other side of this equation.

And if you think about the prior quarter, expectations were sky high going into that as well and the stock still rallied about 16% after the print today was interesting in that you got a headline that I would have thought would have knocked the stock down, which was Amazon Web services um confirming through a spokesperson that they were taking some of the orders they had for the current generation of chips and moving those to the next generation of chips coming out called Blackwell, which comes out later this year, I would have guessed that would have knocked the stock down, but the stock actually closed at an all time record high.

The intraday high is back in March um earlier this year, but it closed at an all time record high.

So that's a good sign that hopefully people are expecting a slowing in terms of sequential growth in the near term.

And they're expecting some of this order movement as the New York chips come out.

So we'll have to wait and see what happens tomorrow.

My, my assumption is that given how it reacted to the Amazon web services news today, the stock will rally a little bit off of this.

Given it's at an all time record high and expectations are high being bounced by the low valuation.

So, so that's interesting.

I just want to pull on that for a second because I've heard that from, from some analysts at least and these are fans of NVIDIA, but they're talking about just the point you brought up that listen, NVIDIA does have this new GP U platform, Blackwell, it's coming in the fall.

The question has been to your point.

Do NVIDIA customers delay or cancel?

Because hey, they're waiting for the latest and greatest to come your point is maybe you do expect to hear about that tomorrow.

Well, it, it's more nuanced than that.

What I would say is that I expect some period of digestion.

My belief is that customers in general and maybe Amazon's big enough to get away with this.

But customers in general want to get the new Blackwell chips so they don't want to cancel the current chips orders that they have because that's gonna kick them to the back of the bus for the new chips coming out that are gonna be 2.5 times more powerful, but only cost you 20 to 30% more.

So my belief is that you really have a problem with digestion when Blackwell ships later this year and then the quarter after that is when you run into a problem and if you go back to Cisco and we haven't kind of gotten to that.

But if you go back to the analogies of the internet bubble build out that ramp over five years wasn't linear Cisco had several corrections that were pretty uh ferocious during that period of time.

The stock was down 26% in late 1995.

It was down 38% um uh within 1997 at one point and it was down 34% within 1998 for a period of time.

It didn't stop the stop from going up 4000% from the end of 94 which is when Netscape Navigator came out, which was the first internet browser to its ultimate peak for Cisco stock when it was the most valuable company in the world in March of uh 2000.

So that's the analogy I would draw with NVIDIA is expect a lot more volatility.

But we're only five quarters into this A I build out the internet build out, took over five years.

And I think we have a lot more room to run in the A I.

Let me get you out of here on this, Dan when you talk to your clients and they say Dan, what worries you about NVIDIA?

What are the big risks?

What do you tell them?

Well, I mean, the big risk is the ones that people know the largest hyper scalar.

They're all trying to design their own chips, so they're all trying to devi design their own silicon.

In addition, Nvidia's real secret sauce, if you will is not the chips, it's the software called C A and they've been working on that for, I want to say at least a decade and that's really locked people into their silicon which makes it very hard to get off.

But everybody's trying to develop an alternative to CU A that's open source.

But that's gonna take an awful lot of long time to get people to want to go figure that out when the volume is on the NVIDIA chips.

So those are the risks and you know, the big one is what we talked about with Cisco where I mentioned about Cisco just a minute ago, which is you're gonna go through these ferocious declines.

Everybody's gonna say, oh my God, it's over and then the stock will take off again and you're not gonna know until you get through it.

And so that's the, that's the balancing act you're gonna have to go through.

But the good news is unlike Cisco, you know, we talked about NVIDIA trading 15% below its five year average and it's multiple for this calendar year, you know, 40 times, which will go down as soon as they report tomorrow because the numbers are gonna go up so much Cisco's pe compared to that 40 times for NVIDIA peaked out at 100 and 35 times for 60% growth.

NVIDIA is growing 100%.

So this stock is not overvalued by any stretch of the imagination.

And in fact, you could say it's undervalued by a lot relative to its growth rate.

And so that's something to keep in mind.

All right, valuation still looks supportive, Dan.

Thank you for joining us today.

Got a big earnings print after the bell tomorrow we're gonna be watching.

I know you will too.

Thanks Dan.

Thank you, Josh, corporate bankruptcies are happening at a higher than usual levels.

This year, Red Lobster is the latest chain of file, but it has problems beyond bottomless shrimp.

We're gonna be taking a closer look at what's behind the trend.

Let's come up next.

Us, bankruptcy filing is happening at a higher than usual clips so far this year, factors behind the trend extend far beyond Red Lobster and unlimited shrimp rapid ratings helps assess and analyze the financial stability of companies.

Chairman and Ceo James Geller joins now, James.

Great to see you.

Good to see you, Josh.

So maybe we'll start right there.

You, your point, James is you look at the data and you say, listen, there is some increasing risk to companies.

We need to think about more bankruptcies potentially on the way.

What, what are the reasons for that James?

Well, at rapid ratings, we're looking at public and private companies around the world.

So we're seeing the trends in which companies are doing better or relative to each other.

But we perform ratings on all of these companies and do that for institutional investors, but also do it for companies managing the businesses that they work with their suppliers, their customers and so forth.

So our lens is looking at a whole variety of different kinds of companies and absolutely trend right now is towards more bankruptcies.

In 2023 we had 72% more chapter 11 filings than we had in the prior year.

In Q one of 24 we had 43% more chapter 11 filings than we had in Q one of 23 and April uh in Q 2 April uh has been the highest incidence of chapter 11 filings in a year.

So the trend is for more of them and there are a whole variety of reasons for this, not the least of which is that we're coming off of an extended period of time where capital was incredibly cheap, very easy to get for companies of all credit qualities, low interest rates until rates started to rise in the last couple of years.

And then with the pandemic, we had PPP funding and other means of injecting liquidity into the system that really build a lot of companies.

So companies like Red Lobster were deteriorating from an operational perspective but had a longer lifeline or a fuse life because they still had capital and liquidity left as that burns down if operations don't improve, they can't continue.

Uh Is, is there, is there kind of profile James of a company at it's most at risk?

Well, you know, companies that have leveraged up over the past five years are the ones that are more at risk because they ultimately have to either repay or refinance companies that have borrowed principally from banks or have been living off of investment from private credit are in a different bucket than companies that have access to the bond market.

And uh that's because they are borrowing at floating rates and with floating rates from banks and, and a lot of private credit, they're paying a lot more for that debt than when they put it on.

So, for a lot of companies, they didn't anticipate pay rates this high for this long and they're paying for it.

Now, are you James in most of the bankruptcies you're seeing?

Is it smaller to medium sized companies?

Well, it's, it's a range.

You certainly get the ones like the Red Lobsters or the bed bath and beyond these sort of higher profile names and that I think is good in the sense that it has the it has members of the broad market, recognizing that this is happening, but there are many more happening beneath the surface that people that people really aren't as familiar with companies are not as familiar with companies that don't get the same kind of coverage, private companies, middle market companies.

The chapter 11 filings last year happened at a nine times greater likelihood, nine times greater incidence for private companies than public companies.

Are, are there certain industry James where you're seeing a higher rate than others?

Well, I mean, we're seeing uh retail uh certainly uh the entertainment industries, uh we see um you know, problems in autos, problems in aerospace and defense.

And when you think about the smaller private companies or the smaller public companies in the middle market, these are ones that are upstream from the large fortune 500 companies.

So the upstream meaning they are the supply buyers to them or they are the suppliers to the suppliers.

And as you go up that stream, you get smaller companies, you get more private companies, you get companies that have less access to capital companies that have had operational deterioration but have been surviving on this liquidity.

And again, as that liquidity begins to dry up, uh it's harder and harder for those companies to continue to exist.

And any place you've seen disruption in the broader markets for industries like entertainment, like um food and beverage, like autos, things that got very impacted by uh COVID have been impacted by consumer spending changes over the last few years have been interrupted by uh various supply chain problems.

Those that require more international shipping.

All of these have been under more stress and what we see in our ratings is our core health score which looks out longer term, 2 to 3 years at the fundamental strength of a company, we see that deteriorating more and more while the financial health rating which looks at one year both on 100 point scales.

We're seeing the financial health ratings of companies beginning to come down at a faster pace and when both of those are coming down, the companies are going to have a harder time refinancing.

Interesting James.

Thanks so much for being on the show today.

Appreciate it.

Absolutely, Josh, thanks.

Moving on a record day for the S and P 500 the NASDAQ and N video just ahead of earnings.

Josh Schafer is here with the trading takeaways.

Joshua Josh, it's all about A I this week we can't talk anything without talking A I and specifically today, looking at some of the movers in the market with utilities leading, we've been talking a lot about how A I and utilities have been linked recently, also A I and energy.

So when you take a look at the top performing sectors in the S and P 500 this year, two of those are utilities and energy.

They've been outperforming the S and P 500.

And one thing that's been interesting to look at when you take a look at that, Josh is sort of how companies are starting to talk about A I more.

So when you look at earnings calls here, this was interesting highlighted by Goldman Sachs Energy Companies mentioning A I, this is a little A I on everything.

This is the fourth quarter, less than 20% of companies are talking about A I fast forward to the first quarter of earnings, which is the quarter we just went through.

Over two thirds of companies talking about A I.

So people have been talking about A I sort of being an energy trade, right?

How are you gonna power these GP us?

They take a lot of power.

Well, companies are saying yes, that's gonna benefit us also, people believe it's gonna benefit companies in the utility sector.

So this is something I'm watching headed into tomorrow's NVIDIA Irving's report when you sort of think about, OK, NVIDIA, it's gonna talk a lot about A I demand demand for their A I chips, right?

But when they talk about that demand, what does that mean for sort of the broader rally that we've seen in other sectors?

And I guess in some ways or other sectors also gonna move the same way that chips usually move with NVIDIA and Tech moves with NVIDIA.

After these earnings, are we gonna start to see other pockets in the market that have been a hot A I trade?

Also kind of trade off that trend a little bit after your point, Josh is, let's say in video reports on the conference call tomorrow.

Co Jensen Wong sounds very bullish about the quarters head.

Does that have kind of a a positive ripple effect for some energy names?

Utilities?

Right.

Yeah, at some point if they're gonna sell, if they think they're gonna keep selling more and more GP US, right?

Well, that means more and more power.

I mean, I don't know what specific companies and we could have strategies on that can debate that with us, right?

What companies are gonna be powering that?

But at some point, the power has to come from somewhere.

Morgan Stanley was out saying that these GP US take 50 X, the amount of power that other GP US used to take.

So a massive amount of power being taken in for these new GP us.

Let's go to the next Shafer take away.

Our other takeaway is just simply Nvidia's make or break moment.

And I think when you look at markets today, we're sort of wondering where the catalyst was for the markets.

It was a little bit of just kind of a drift find, trying to find some direction.

It feels like it's like AC P I week, right?

Like we're gonna have an inflation print tomorrow or jobs Friday labor report on Friday, but it's Nvidia's earnings like that is the moment this week you take a look at options, volatility headed into this and sort of what they're pricing in.

It's pricing in an 8% move for NVIDIA after earnings.

Most interesting to me out of that was how inaccurate that has been over the last couple of quarters pricing in a pretty sizable move.

We haven't always seen that with video.

You're not a great predictor, it's not a great predictor.

And I think that gets to sort of this A I trade of, it's hard to understand kind of where it's gonna go next.

And also when investors have, have had enough and video closed at a record high to that, it wouldn't be abnormal for a stock to close at a record high, have very solid earnings, maybe even raise guidance.

But still the stock doesn't go up because again, it's already at its highest level ever, 90% already this year.

It doesn't go up automatically, right.

And then we take a look at our third takeaway something a little different.

Ethereum, Ethereum ETF optimism, Josh.

So this is optimism around potential sec approval.

And I found this chart interesting.

So Bitcoin, obviously ETF S were approved earlier this year when you take a look at January Bitcoin actually went down a little bit at first on this news, but it's had a very solid rally Bitcoins in purple here since then.

And you've heard a lot of positives about the inflows these ETF S have seen.

And I think it was interesting to me to sort of take in crypto essentially moving on real news today.

So when you look at the light blue line, that's right next to me here.

Look at this massive jump.

Ethereum was lagging Bitcoin on the year by 20% going into today and it just rallied by 20% in the day.

So a massive move for Ethereum and if you're wondering what the, basically, what's it worth to have ETF.

S approve market says it's worth about this much.

Not a bad S ECs Gary against.

He didn't want that spot Bitcoin ETF.

It took a lawsuit right now.

So, is it gonna take a lawsuit to get your spot of theory in ETF?

And if it does, it would take quite a long time, right.

So the market kind of aggressively pricing something in off one day and a little bit of Rs Joshua, thank you coming up.

We're checking in on some of the top trending tickers that are moving after hours, stay tuned.

More.

Asking for a trend on either side.

Take a look at some t that are trending after hours.

Your shares of urban Outfitters is soaring after beating earnings estimates on the top and bottom lines that sales for the first quarter grew nearly 8% year over year hitting a record of $1.2 billion beating the $1.18 billion.

Consensus looking ahead to the next quarter, Co Richard Hanes says customer demand remains robust for our spring and summer fashion which bodes well for continued sales growth in Q two and in housing shares of Toll Brothers rising on earnings.

The home builder raising deliveries guidance for the full year.

Now expecting between 420,800 deliveries this year.

Toll Brothers fiscal second core results also beating estimates on the top and bottom lines.

That's a wrap on today's asking for a trend.

Be sure to come back tomorrow at 4:30 p.m. Eastern for all of the latest market.

Moving stories affecting your wallet.

Have a great night.