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Nvidia's long-term growth is uncertain: Analyst

Nvidia (NVDA) will post its first quarter earnings for the 2024 fiscal year next week, with many on Wall Street watching closely as the tech giant led recent rallies in the tech sector. One of the chip giant's competitors, AMD (AMD), has just partnered with Microsoft (MSFT) to offer its products to Microsoft's cloud computing customers.

Wedbush Equity Research SVP Matt Bryson and Truist Securities Managing Director William Stein join Market Domination to give insight into what investors should expect from Nvidia's earnings, how AMD stands in the sector, and how investors should navigate the chip sectors.

Stein argues that Nvidia's short-term future is most likely successful, but uncertainty mounts down the line: "I think certainly they're going to beat this quarter. And I think they're going to beat in the out quarter guide as well. But I think the real question is what happens through this year and into next year's numbers. Does the company give us an indication that we're going to continue to see growth and very strong demand, both for units and for integrated systems, where the company is getting the growth from?"

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.


This post was written by Nicholas Jacobino

Video transcript

The pressure is on in video will report its first quarter results next week, expectations are high and in video stock reaction post earnings could make or break fellow chip makers and the broader market for that matter.

So can the semiconductor giant deliver to discuss?

We're joined by, we were senior vice president of Equity Research and William Stein Truest Securities senior analyst guys.

Thanks so much for being here, Matt.

I'm going to start with you most of the research that I've been seeing out there things well, even if they beat the stock might not go up.

Yeah, II I mean, that's what we've seen in, in a few of the recent quarters, right?

It it's not in NVIDIA beating that moves the stock um stock.

It is flat down a little bit.

But having said that then what you see is momentum one week, two week, three weeks later, as people digest the news and realize that there's been absolutely no slowdown in A I spend or demand for NVIDIA uh data center GP US, William, let's bring you in here as well because like, like Matt, you are uh an NVIDIA believer, you gotta buy on, on the name William when you're talking to clients and they ask you, you know, what's kind of all in your, uh, wall of worry for Jensen Wong's company?

What are the downside risks are?

What do you tell them, William?

Well, sure, I, I think it's pretty clear if you look at the, um, stock and the valuation at, you know, trading in the low thirties times calendar 25 earnings, it tells you that, you know, relative to the very fast growth that we've seen for this company over the last few quarters, it suggests that there's a downturn coming and when you see lead times go from a year plus to less than half a year in a couple of quarters, that's usually an indication that a, you know, customers have double and triple ordered.

Now, perhaps we're going through a period where they get delivered and then suddenly, you know, hey, I don't need any more for the next few quarters and let's, you know, let's back off, we're gonna cancel orders and then you see a downturn.

I don't think that's what's gonna happen, uh, in the next year.

Plus, I actually don't think it's gonna happen through 24 or 25.

I argue, you know, very strongly against this view.

But I think that's the worry, it's much less for this stock around.

Do they beat the quarter?

I think certainly they're gonna beat this quarter and I think they're gonna beat in the out quarter guide as well.

But I think the real question is what happens through this year and into next year's numbers.

Does the company give us an indication that we're gonna continue to see growth and very strong demand, both for units and for integrated systems where the company is getting the growth from?

Um will do you think there's any indication they won't uh continue to see that kind of growth?

Well, sure, the indication is there, right.

And it's in the lead times having uh having uh gone the other way, having shrunk in the last um couple quarters.

Uh I, when I visited the company in September, they were telling us lead times were over a year.

Uh I hosted meetings with them at CE S and they were saying they're down to less than half a year that sends signals to investors that look, you know, we're, we're heading for a period of cancels and push outs and, you know, potentially negative revenue growth.

We've seen that in this end, market in this data center and market twice in the last five or six years, it is certainly going to happen again.

I just don't think it's going to happen this year or next year for that matter.

That's absolutely a concern.

A and let's talk to guys too about A MD because here we have a disagreement on the panel about that name which makes things interesting.

Uh Matt start with you because you're bullish on a MD.

How come Matt, if you were to bullet point that thesis, what would it be?

Uh It, it, it's simply a MD is the only alternative right now to, to NVIDIA.

So, uh I, I'm basically at, at a little over 4 billion in data center GP U sales going towards uh 10 billion next year.

Um That's enough.

I I in my mind to support a $200 dollar valuation for the stock.

Um And, and you look at kind of the other indicators out there, like I, I see supercomputing um A as an early indicator of what trends are gonna be in the general business environment.

Um And, and there, you know, a MD is the only other choice uh other than NVIDIA.

Um So III I think they do well in A I if not as well as NVIDIA.

Um But then I also think we're starting to see a pick up in uh standard server builds.

Um I, I think they're gaining share there.

Uh I, I think that's a tailwind uh that will benefit them through 2024 to 2025 as well.

Um Will as, as uh Josh alluded to, you've got a hold rating on A MD.

Why are you not looking that as another big, you know, beneficiary of what's going on with A I demand.

Oh, This company is certainly going to generate revenue from A I uh with this M I 300 product that they're uh ramping today.

I think that's no doubt.

But when I consider the longer term prospects for this company, we've got two problems.

One is that uh in my view, X 86 the traditional core uh Intel compatible CPU market is sort of a shrinking iceberg.

And this is because of what NVIDIA is doing in the data center, they are getting customers to buy entire NVIDIA systems that are displacing this X 86 standard that's been in place for many, many years.

And the other issue is that in A I world, what NVIDIA has its advantage, ha really has something to do with this chips but not as much as one would uh would perceive the reality is that in Nvidia's position, its advantage in A I is really owing to three different things.

It's uh a culture of innovation, it's an ecosystem of incumbency and it's a massive investment in software uh services and pre trained models now it's, it's especially that services and pre and, and software bit that's super important.

There's a massive 4 million person, large community of trained C A developers.

These are developers that develop NVIDIA systems.

If A MD has 400,000, 1/10 of what NVIDIA has, I would be gobsmacked.

That is the advantage NVIDIA has.

It's very, very difficult for A MD to build against that.

In my opinion.