Transcript:

CAROLINE WOODS: Joining me now is Shay Boloor, Chief Market Strategist at Futurum. Shay great to have you on. 

SHAY BOLOOR: Thanks for having me. 

CAROLINE WOODS: So Shay NVIDIA is out with earnings on Wednesday afternoon. What do you expect. Is this the quarter we find out whether Nvidia’s dominance is peaking?

SHAY BOLOOR: I mean, let’s first get to what’s happened in the market ahead of Nvidia’s earnings, because what’s happening in the past few weeks in the market is the anxiety around the Super Bowl of earnings. Can they keep delivering. Is this the possible end of the AI bubble. Is this the performance the past two years. They’re now asking the question can they keep doing this Nvidia because Michael Barry’s recent resurfacing on the spotlight on his put options against NVIDIA and Palantir has caused a lot of investors to treat this upcoming earnings report from NVIDIA, as, is this the end of the AI boom? From what we’re hearing at Futurum with all the CEOs we talked to that the demand is still insatiable. It is. The timing of Michael Burry’s trade was more on the disbelief of the grid, energy shortages and the specific pockets of bubble in the AI economy. Not really that the AI trade is over completely and AI is a dud. Completely disagree with that notion. But now Nvidia’s earnings this week is kind of more. It’s over indexed because of all the attention that Michael Burry caused the past couple of weeks.

CAROLINE WOODS: OK so a lot to break down there. I should note that Nvidia shares are off about, what, 9% 8% this month heading into this report, but still only, what, like 12% away from all time highs. Nvidia has been beating expectations quarter after quarter. Are we reaching the point where even a beat, though won’t be good enough anymore?

SHAY BOLOOR: I mean, heading into earnings, expectations are high, but we do find it realistic. I think the Street already knows that NVIDIA’s results will be strong. I think the question is whether or not this quarter will show new sustained demand or simply some revenue timing ahead of a Blackwell ramp. So all eyes will still be on the data center segment, because that remains the NVIDIA engine. So if that number beats guidance, and analysts will be asking how much of it came from that little early deliveries versus actual new hyperscaler demand. The other metric is going to be margins. I think NVIDIA is guiding for 74% margins, and if it can hold or expand that level while shipping more systems, it does confirm that pricing and product mix are going to be strong. And that would be enough to communicate the shareholders that the stock will maintain its current value, which I think right now is at one 8190. So it’s all about the massive forward demand visibility. And I think that NVIDIA will deliver that.

CAROLINE WOODS: If Nvidia stumbles though even slightly this quarter. What’s the first place investors will run?

SHAY BOLOOR: I think you’re going to. Yeah I mean I think you’re kind of seeing some glimpses of that recently. A lot of the defense and health sectors have been predominantly dominantly strong. I think the biotech sector is kind of undiscussed right now. It’s SBI is entering a brand new bull market after years of just kind of huddled down in the cave, just like seeing everyone else catch a rerating, all the other industries getting the spotlight. But they’ve been consolidating for quite a bit now they’re breaking out. So potentially there might be a rotation. But again, I think that the recent negative tone around AI spending and NVIDIA’s growth has just been way overstated. I think that’s some people call it a slowdown. What we really anticipate is maybe the market’s just catching its breath after an intense build out phase. I mean, Nvidia has pulled the entire industry forward so quickly that the rest of the ecosystem is just trying to adjust and keep up. So I think the important point will just be on this earnings report that supply remains limited. The real limitation and the demand is still way above the supply. And that is going to prolong this AI rally. It’s just going to take a breather potentially if it does disappoint.

CAROLINE WOODS: Does Nvidia still deserve to be the face of the AI boom, though. And do you think it’s closer to the beginning of its dominance or the end of it?

SHAY BOLOOR: It’s a great question. I think what’s being missed in the market is that NVIDIA is just it’s no longer a data center story. So a lot of the beers just highlight that data center, data center. Their margins are going to start eroding. There’s a lot more competitors with the hype. The custom silicon chip AMD is becoming getting a seat at the table now. But I think what’s underdiscussed is that autonomy and robotics opportunity that NVIDIA has through its drive, Jetson and Isaac platform. Nvidia is just going to be moving intelligence from the AI cloud, which they’re doing right now into the real world machines. So the company is building the hardware and software that will power all the autonomous cars, the industrial robots, all these intelligent systems at the edge. So whenever you hear about optimism, whenever you hear about Tesla’s FSD, Waymo’s like Nvidia will maintain being the picks and shovels for those secular growth themes. So we believe that alone is going to be a multi-trillion opportunity that extends Nvidia’s AI infrastructure mode from digital to physical and AI. We strongly believe this will still maintain the biggest company in the world label, and probably will be the first company to $10 trillion when the AI cycle is over with.

CAROLINE WOODS: So in that case, you would say it’s closer to the beginning of its dominance than the end?

SHAY BOLOOR: I’d say it’s Yeah, if I had to pick an inning, fourth inning of a nine inning. Ball game, I think it’s very close to the middle. I think, again, AI is an S curve. We might be in the middle of that’s curve and the digestion phase.

CAROLINE WOODS: Who is Nvidia’s biggest competitor at this point?

SHAY BOLOOR: I have to say China. I think China remains the one unpredictable variable in Nvidia’s story. I mean, it’s important to shrinking I will give it credit. Jensen has done a great job with deleveraging themselves from that whole market. And everything Nvidia produces outside of China is still being absorbed by all the hyperscalers of sovereign AI projects and the cloud infrastructures across the US, Europe, and Middle East. But if that part of their business opens up again, it would be substantial. And I think that a lot of the narrative on China becoming an Nvidia product will start diminishing, because we do think that’s nonsense. It’s a lot more noise and it’s not a real competition. But the market thinks that at times.

CAROLINE WOODS: OK you know, you mentioned at the top of the interview about the potential for an AI bubble bursting. It doesn’t sound like you’re in the bubble camp, but if this is a bubble, what would bursting look like?

SHAY BOLOOR: It would be drastic because there is a lot of intertwining that’s happening. There’s less competition. I think you’re seeing everything that’s happening in the AI utility deals. I’m talking the ions, I’m talking the core weaves. I’m talking the nebulas with the hyperscalers. OpenAI has brute forced their way into becoming the middle of all these, the trillion spending that’s happening across so many different hyperscalers. I think that they’re just all becoming so cozy with one another that one major player feels like an open eye, for example. Like they still aren’t profitable. They still want to spend dollar trillion. I think there’s a lot of demand on selling their debt in order to get there. I think that’s going to be totally fine. And when they do, they could probably flip a switch to become profitable. They might be the world’s first trillion IPO. And I do believe that it’s going to be a hyperscaler one day. But if there is one pocket where the AI bubble will burst and it’s going to hit the hardest, it’s going to be in the NIO clouds. It’s going to be in these the OpenAI, financial engineering that’s been being had. But again, I do think that when you talk about bubble, it’s always referenced towards the internet bubble naturally. And I think that period was driven by a lot of speculation and companies with low or no revenue, where this AI build out is being led by some of the most profitable companies in history. And as of right now, the constraint constraint is physical. It’s not psychological. And I think that limiting factor is going to help the bubble conversation, because we just cannot hit our AI demand man capacity until we fit the computational need that the world is not ready for yet.

CAROLINE WOODS: Your team actually flagged 10 small and mid cap names that could surprise to the upside or be surprise winners of the AI build out. Fill us in on some of those names. And really, what’s kind of the common thread among them?

SHAY BOLOOR: Yeah, so the new economics of this AI utility trend is cost of power. Whoever can deliver the most cost affordable for the actual power that the data centers need. And that’s why iron limited. They have the best economics for that. I think it’s 3 and 1/2 a kilowatt. Like it’s the best pricing for that. Then you also have Cypher or Cypher is another favorite of ours. It is. We like to treat them as like the rights for the data AI utility name, because they hire a law of the land that’s required. And also, I think nebulous is kind of that new age cloud, like a lot of people call them the neo cloud, but they are the AI cloud built for this era. So I think that a lot of times that people think about the space in a poor light, because two years ago, there were a lot of miners like the they were just Bitcoin miners, but fortunate enough for them, they got all the land, they got all the power because they had that crypto lens to them. But that crypto lens can be correlated with the AI lens now via data centers. And I think that they’re turning that capital into computation faster than any company can, which results in these hyperscalers wanting to do these deals with them, because they just need the power, they need the land as quickly as possible, and they can probably do it themselves. But the amount of AI demand there is out there right now, they just don’t have the luxury to wait to do themselves. They have to go external, and these companies are benefiting from that right now, for this moment.CAROLINE WOODS: All right. We’ll leave it there. We appreciate your picks and your insights. Shay Boloor. Thanks so much. Futurum Group.