Jensen Huang's AI Capex Pulse Check

**Jon Quast** (0:02)
Nvidia's CEO just started with investors. Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm your host today, Jon Quast, and I'm joined by guests Jason Hall and Matt Frankel, all subbing in for the regulars today. But we want to go ahead and quickly get to the biggest news of the week, and that was Nvidia, a more than $5 trillion company reporting its financial results on Wednesday afternoon. And for me, this was as much as a macroeconomic pulse check of as much as anything. Nvidia CEO Jensen Huang coming out and saying that CapEx spending for AI is expected to continue to go up. If you look at 2025, then the top five hyperscalers, so these are big businesses such as Google and Metup. These companies spending roughly $500 billion in CapEx in 2025
For this year, looking at around $800 billion, and some of these companies are starting to go free cash flow negative. And so you start to think maybe we're reaching a peak with AI CapEx. But Jensen Huang saying $1.3 trillion is what he expects to be spent next year just by the top five. That's a 60% year over year jump if we take these assumptions. Matt, you're kind of pointing out here that Nvidia, if anyone has a pulse on what is happening, it's really kind of coordinating everything.

**Matt Frankel** (1:36)
Yeah, Jensen Huang, one of my favorite things about him as a CEO is he's not trying to deliver the best quarterly results. They are delivering the best quarterly results, but that's not his primary focus. He really wants to shepherd the AI build out. What I mean by that is, think of all... We've talked on other shows about the circular deals and things like that going on in AI. Nvidia is really at the center of it all. They're investing in all the frontier AI labs.
They have financing partnerships with Apollo, BlackRock, Blackstone, Brookfield, Goldman, KKR, to raise over $500 billion of third-party capital to really just invest in all of the little bits and pieces of what's going on. So, there is some circular financing. And I have an issue with how that's being reported as sales growth.
If I pay Jason $100 to teach me something, and he gives me the $100 to teach him something, did we each really make $100? No.

**Jason Hall** (2:38)
And according to Gap Accounting, that would be $200 in revenue by those combined entities, even though it was just $100 getting passed back and forth.

**Matt Frankel** (2:47)
And that's what we're seeing in the AI space right now. But at the same time, that does help both of us establish our business, do the research we need, and there is some tangible benefit to that. So, Nvidia is really leading all that, and it's a really interesting dynamic, but it's not just about this quarter. They're really driving that $1.3 trillion buildout all by them... not all by themselves, but they're helping to drive that.

**Jason Hall** (3:13)
I think it's important to note that even somebody like Jensen Huang probably doesn't really know exactly how this cycle is going to play out. They're going to get information sooner. They know what their sales rates are. They know what the orders looking like are coming in. They know how quickly their partners like Taiwan Semi can actually do the manufacturing.
But I think Huang is really leaning into the optimism, and the numbers back it up, even if there is a certain degree of hype. But the part of the story that may not be getting enough attention isn't that Alphabet and Meta recently in Oracle before that have flipped over to generating negative free cash. It's that they're doing it even as their core businesses just continue to pump out gobs and gobs of positive operating cash. Here's a crazy number. Over the past four quarters, Meta, Alphabet, Amazon, Microsoft and Oracle, those are the top five hyperscalers, they've generated almost $700 billion in operating cash flow. Maybe with that context, that big capex number we're talking about, isn't really as scary as it seems.

**Jon Quast** (4:22)
Of course, the difference between the operating cash flow and the free cash flow, the operating cash flow is what the business is producing, and the free cash flow reflects what it is investing in infrastructure, what we're talking about right here. That's really the delta that we're highlighting. But I just want to talk a little bit here. It seems like investors have kind of lowered expectations here, because you look at a business of Nvidia's scale, growing 100% year over year, trading at only 24 times its forward earnings.