Gene Munster: Nvidia Earnings Key Takeaways
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All right, welcome to the Risk Reversal Pod. I'm Dan Nathan, joined by Gene Munster. He is the founding partner of Deepwater Asset Management. Gene, welcome back to the pod. Great to be back. We really appreciate it. This is the second time in a week we are recording this right after the open on Thursday. Last night was NVIDIA's results. They guided. The stock was doing nothing.

So here we are to talk about that a little bit. I want to get your kind of the puts and takes of what you heard on the call. I know that Jensen Wong was also on CNBC, a special interview at 7 o'clock last night. You know, listen, Jensen's doing Jensen. And, you know, I think investors at this point have come to expect

everything that they heard out of him, the positivity about the long-term story. So we want to get all that. I want to hit Apple's price action this week. Pretty interesting. Shareholder meeting. You were on Fast Money, I want to say, Tuesday night, the day of that. I did not expect the stock to be down 2.5% based on some news that I just didn't think was news as it relates to DEI and I think the Trump administration, what they had to say there. And then Microsoft pushing back a little bit to the Trump administration on the sort of export policy

curbs for high-end GPUs and what that might mean. So let's hit those three things. Obviously, let's start with NVIDIA. What was your take? Dan, I think there's the near term this next quarter, and I think the guidance really wasn't that good. To say that it's good when you talked about the margin of 71% for the April quarter, the street was at 72%. I was not expecting them to guide to 71%. I went back and looked at the preview notes. I didn't hear any context in any

expectations that they're going to guide to 71%. The revenue guide was a billion higher than where the street was at. I think that the expectations were for a billion and a half or two billion. And so when you put this into the context of a company that has extremely high bar, I was largely mixed to disappointed in what the guidance looked like. That guidance obviously comes with the one year outlook.

which was heavy on this ramp towards the back half of the year, especially on margins going back to the mid 70%, which it's a pretty aggressive ramp. It's going to happen in the October and the January quarter, but that's kind of pushing out that improvement in profitability. And so, and then the last piece is they went radio silent on what I thought was the most important point, which was how long is Blackwell going to be sold out?

And in that interview with John Fort and Jensen on CNBC after, the last question that John asked was, how do you feel about Blackwell today versus three months ago? He's essentially getting to that question. And Jensen said supply is a lot better and demand's at all-time highs, which it should be because you're growing the business. So, of course, it's going to be at all-time highs.

My point is, they're really, as far as the quarter, before we get into why is the stock doing what it's doing, if you're going to put this in a vacuum, and again, I'm very positive on NVIDIA longer term, I would have expected the stock to be down 5% today. Yeah, and again, it's down 2%, right, as we speak, and the market's only been open for 15 minutes. Last night, I think during the call, maybe it was

kind of going back and forth between up 1% down 2% at one point this morning, some of the headlines when I woke up at 530 in the morning was that, you know, Nvidia is up. And again, I mean, looking at the pre market that early in the morning, you know, up two and a half percent, I was surprised, I clearly I was surprised, too. But I mean, listen, you know, we've seen this again and again, in, you know, the last couple quarters, the stock hasn't moved a whole heck of a lot. And strength has been sold, you know, and the other point, and we made this again, and again, also is that

the stock has made no progress since June of last year. So when you think about investors digesting this longer term thesis, which you have been articulating on CNBC, on your own podcast, on this podcast for the better part of a year, that you are extremely bullish for a whole host of reasons. It doesn't have to be centered only on NVIDIA. There's lots of other ways to kind of express the views in this trade. But

I guess my point is that once the big upside is done, and it is done, the way that they guide the magnitude of the beats, the potential for back half of the year, resurgence of margins, I wouldn't bet on that either. You know what I mean? And so I'm just curious. So how do you think if investors have basically found this sort of equilibrium, they seem excited about

the opportunity that they have. This is NVIDIA. They have an inference, and we can talk about that a little bit because that is what you've been targeting as the next phase of this sort of story. But you're seeing just growth now that is going to decelerate from 100% last year earnings and sales, 50% this year, probably looks at 20-something percent, again, off of massive base, you know what I mean?

But still decelerating. It's if you were on the sell side and I know you own the stock and you're thinking about this, you know, holistically and thematically and how it works within your portfolio. If you were on the sell side, how would you be thinking about this? Because really clearly or, you know, there's not a single bulge bracket firm that doesn't rate this stock a buy. But this has to be the first quarter in eight where those firms are not raising their assets.

outlook meaningfully or they're not raising their estimates meaningfully. If I was on the sell side, my note would read something the effect that this was largely a disappointment for the April guide and that there's building, there's a show me story in the back half of the year, but it would probably be

bring together that the bigger picture, if you take what Jensen is saying and overlay it with what I'm hearing about the long-term and you divide what he's saying by 10, you can build a case where this upside story can return. And it's starting to rhyme a little bit like the Tesla narrative where you have this

push out in the near term, 2025, and this hope that things are going to accelerate. And when you use, when I use the word hope, and it has this sense of like, uh,

cross your fingers, wishful thinking. It's more of just like maybe an expectation of things to accelerate again. And I think what it comes down to, again, on the sell side, I would flag this as a disappointment, but also note that the language around the long-term potential, how much compute they can sell has stepped up. And I just want to quickly put a finer point on that because I think if not for Jensen's comments about this 100X

or need for greater compute, the stock probably would be down 10% today. And just a little bit on that, they call it shot inference, which is just basically a prompt when you ask a quick question, you get an immediate answer, basically how people have been using generative AI for the past year. And then this inference or reasoning AI where it thinks more, for those of you who've been playing around with it, you know what it's talking about. It takes five minutes to kind of go through. He's saying that initially, he said that that is 100x more

increase in hardware compute to deliver that reasoning feature. And then quickly after that, he said maybe a thousand times or hundreds thousand times. And I double checked the transcript. He said a million times more compute.

So it kind of got a little crazy in the Q&A. And you got to, just like Elon, you got to put it through the converter. But to answer your question just overall, I think that this really comes down to 2025 is largely a throwaway. And it comes down to what do you think the number is? The street's looking for 23% growth in 2026.

If you think it's going to be 30, the stock's probably going to be higher. And if you think it's going to be 20, it's going to be meaningfully lower. Yeah. I mean, listen, I have the, you know, the sense that the stock remains in this range between 150 and let's call it 105. And the idea that this stock can't sell off, you know, 30% or so it did that last year at one point. And the fact that it can't rally right back to,

to those levels i i guess the point i would make is that if the story or at least the kind of earnings and sales trajectory if it is a throwaway for 2025 there's really no reason why the stock should material rally and make a new range above those prior highs only reason why rally i agree that we're likely not going to see any

in terms of their reporting this year of any big direction change and some big upside, for example, in Q3 or something like that. But I think that the opportunity or maybe the one thing that could get the stock to move higher this year or lower is just how...

investors thinking about calendar 26 evolves. And if there's data points that come out as we go through the year from the hyperscalers or through other third party data that suggest less compute needed or more compute needed, I think you're going to start to see investors get more aggressive in owning Nvidia ahead of 26. And so this is the year we're just we're going to be gathering data points around

Jensen's comment about this 100x increase in compute. That's the central question around AI is how much more compute you need for reasoning. And I think that's like essentially the battleground. And unfortunately, it's not going to be about results. It's going to be just about anticipation.

Well, by the way, you just said like Elon. So when I think about like Elon, he throws out big numbers. He throws out targets as far as delivering product, and he rarely hits them. So when I hear Jensen on the first quarter in eight where there's not going to be a meaningfully –

you know, revision on estimates by the street. And that's what he's speaking to. He's speaking to investors, right? He's speaking to the buy side, but he's also speaking to the sell side. You know, like Elon, if he's throwing out a hundred X sort of thing, I want to discount that a little bit. You know what I'm saying? Because again, and you should, but even, I guess my point is even if you discount it,

it's still a bullish comment, even discounted. Right. But, but the idea of where it starts realizing that is, is the other thing. But listen, we'll let all the analysts, we'll let, you know, on the sell side, we'll let the folks on the buy side who are actually the ones pulling the trigger based on what their estimates are. And they're using the sell side as a bit of a barometer. So I get it. Listen, I,

think that there's probably um if there was a big sell-off in the nasdaq and this stock was at you know 110 you know had this sort of sell-off like we had in july into august i think it gets bought for all those reasons i think investors want to see some froth taken out of the trade and i think broadly out of the trade and we're seeing that in the mag 7. we're seeing microsoft down considerably from its highs last year one of the early beneficiaries of this

It might be interesting if we see the trajectory in the private markets of some of these rounds that have been skipping up 10 billion at a time. You know what I mean? If we see a slower pace of that. So again, I believe that this is one of the stories that makes the most sense if you're looking for a pure play. But I also don't think that we're going to see a meaningful acceleration in CapEx over the major hyperscalers over this year. They already put out some big numbers. And so that's my take here.

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Let's switch gears really quickly. I want to hit Apple. Earlier in the week, there was a downgrade. There haven't been too many downgrades of Apple. It came from Jeffries. They're talking about weak iPhone demand. I think people were pretty unimpressed with what just came out with this iPhone SE. I know that was like a little bit. That was the lower end iPhone first refresh in, I think, a couple of years or so. And then obviously, again, Apple intelligence. So not a lot of uptake right there. It's not driving an up.

super cycle that sort of thing there was also um an analyst who kind of uh i think lowered some estimates lowered um the target there you know the stock yesterday on wednesday was down i think two and a half percent it was really kind of you know one of the few red names that i saw in mega cap tech there was also the shareholder meeting i think on tuesday um the shareholders voted not to scrap dei we've seen that all over the tech industry we've seen it in finance we've seen a lot of different

and a lot of folks are trying to curry favor with the new administration. But the fact that Trump specifically came out and was trying to, I don't know, push Tim Cook into kind of doing away with it after the shareholder vote, is that...

Is that what was going on here? Because our shareholders selling the stock because they think that the administration is going to try to put their thumb on the scales and maybe it's about trade and tariffs. We know that Tim Cook had carved out exclusions for iPhones and other products being made in China for Trump first administration with the tariffs. I'm just curious your quick take on this because this thing has kind of gotten stuck in the mud here a little bit. I think you described it

I would think about it. What happened in this trade-off yesterday was related to reading between the lines in terms of what's the health of the relationship between the Trump administration and Apple. And Cook was clear on their shareholder policy.

Q&A that they had to vote on it. The vote got rejected. This was to reverse their diversification strategy. And he said, we're going to stick to that. And he added that the laws may change and we'll abide by those laws. But the point is, is that he is, Cook is making it clear they're not going to change.

Trump is saying, we want to see a change. And I think that investors read between that and somehow eject out of that a belief that there may be some risk on the tariffs front. Now, I think that what Apple did for the Trump administration on this $500 billion announcement more than offsets any sort of friction related to the diversity piece. But I think that's what's going on is that these are becoming so geopolitical around tariffs and

around export controls with Nvidia, around what's going on on compliance and regulation. I mean, all this stuff is kind of like the new frontier of how you fundamentally look at these companies. And so I do think that had an impact, at least a one day impact on the stock. - I'd love to see investors in the sell side get really negative about iPhone and about

Apple Intelligence, because I think it probably, and I know you're going to agree with this, it probably sets up as a great long if you had the stock, let's say 210 or something like that, into the fall with new releases of iPhones and then obviously upgraded iterations of Apple Intelligence. I mean, to me, that would be the sort of trade because this is a stock that, yeah, there was some...

early excitement about Apple intelligence. I think that faded, but the stock has been really outperforming. It was underperforming the S&P for a very long time. And I think if you look at some of the ways that some of these other names, NVIDIA in particular, relative to the S&P, has acted very poorly over the last six months. So you agree with that? Like it could be a great setup if we get this thing weak in Q2, Q3? Yeah.

The numbers are just low. iPhone numbers are looking for 1% growth and for fiscal 25, which basically is the iPhone 16 cycle going up to 10 or 8% for next year. So a huge step up, but at least in the near term, the numbers are just low, very different story than what's happened with Tesla and the delivery numbers, the street numbers still need to come down on those, which is,

I just mentioned that because they're both flagship products that there's concern about what demand is going to be like for this year. But in the case of Apple, I think that this negative commentary from the sell side is largely negative.

known for investors. And I still think even with that negative commentary, they probably exceed that 1%. And then hope springs eternal. They have the opportunity for next year that we see this acceleration based on some of those features. And I would just point out, I've been disappointed on Apple intelligence. I'm a fan of the products. I'm disappointed, but I'm

if history repeats itself, they're going to figure it out and people are going to want the product. All right. Let's talk about Tesla for one second here because you just mentioned it. And again, you know, I'm a seller of robots. I'm a seller of robo taxi. If that's one of the reasons why you own the stock right here, right now, I mean, you better have a longterm, uh,

view, you know, our long-term time horizon. The stock is now down 40% from its highs that were made late December. The stock had doubled since the election. We know why. There was really nothing fundamental, in my opinion. It had more to do with Elon's proximity to the president, what that might mean for regulation, full self-driving, the road to robo-taxis. Maybe they get some sort of carve-out as it relates to EV credits or trade, that sort of thing. Well, the stock now is down 40%.

And it really feels like it's going to round trip that entire move from the election, which is extraordinary if you think about it, because the stock went from a $750 billion market cap to one and a half trillion. And now it's on its way back down. It was nearly 110% over its 200 day moving average. I don't know if you care about stuff like that. And it's about ready to kiss it right now on the way down. Curious, you know,

the fundamentals are horrible here, Gene. I mean, they literally are in a three-year price war. Think about what's going on in China. Think about what's going on in Europe. Think about the tariffs that are coming. Think about the margins that this company is selling their cars at. I just, I don't see it, man. I think this thing could go much lower right here. I don't think it's a great press on the short side, but I just think it has the ability to go much lower based on fundamentals. A couple of days ago, I posted about the numbers need to come down before the stock starts to go up again. And

Roughly the imprint numbers as of two days ago, we're still looking for 12% growth in deliveries. The whisper number based on Troy Tesla, which does a great job as like 1.7, just above 1.7, which would be down 5% year over year.

So as an investor, you want to see the imprint numbers get closer or below where the whisper numbers are. We're not there yet. I think that's where the stock bottoms is when you start to see analysts actually revise down their numbers. And I think the stock can go up on those downward revisions. But this is playing out on the report of their quarter. I'm a big believer in where this company, I think it's a great, one of the best plays around AI is.

A few weeks ago, we talked about after the quarter, this was the stock didn't make a lot of sense relative to what they said that pushing everything out of 25 into 26 and beyond. And the stock, I think, was up. We're starting to see the market just kind of come back to grips around that. And like you said, with NVIDIA, the psychology on these can change so fast. You get the numbers down, they get some positive data points around RoboTaxi, maybe RoboTaxi

some implementation of optimists in a Tesla factory and all of a sudden the mojo changes in a different direction. I think what's most important is forgetting about the mojo. Do you think they're going to sell? Do you think electric cars are part of the future? Do you think robotics are part of the future? And do you think Tesla's in a good position? That's to me the central question. Microsoft, the underperformance is just noteworthy here. And we could talk about, you know, they're making some noise about export markets.

bands and chips and really their access to, you know, our allies being able to access those chips and obviously Microsoft to sell their AI services. And why is the stock act so poorly right now? I think it's just in part because the numbers haven't delivered what investors want. It's still kind of this 12, 13% growth. They've been getting a little bit disconnected from really the substance of their AI strategy, which is open-eyed. There seems to be a little bit more friction there.

And I think just some of the sizzle that you need around AI, I think is just co-pilot. It kind of lacks that. And so I think a combination of all of those, I think has left investors just looking for other places. And I think that that's impacted Microsoft stock. Gene, I really appreciate you being here on a very busy morning. You know, by the way, Nvidia now is down four and a half percent. So that 2%,

you know, gain on the opening is now reversed pretty hard. So again, and it's taken the whole NASDAQ with it. I think that's notable. Makes sense. All right, my man. Thank you so much. All right. Talk to you soon. Bye.