Nvidia As the New Market Cap King, Fresh Record Highs, Musk Walks Back Comments 6/20/24

Jim Cramer (0:00)

It's Jim Cramer here. You're listening to the opening bell of CNBC's Squawk on the Street. Don't miss a minute of the action.

Carl Quintanilla (0:07)

Good Thursday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Melissa Lee, Mike Santoli here at Post 9 of the New York Stock Exchange. Cramer and Faber have the morning off. Stocks do look to resume their climb after Wednesday's holiday. Central banks continue to ease this morning. It's the Swiss Triple Qs closing in on a 20% total return for the year so far. Our roadmap begins with the number one and rising Nvidia, now the most valuable listed company. And shares set to climb again at the open.

Michael Santoli (0:33)

Plus shares of Accenture rallying following results. The company is saying generative AI new bookings have totaled $2 billion so far this year.

And watching the strength of the consumer, Kroger and Darden rallying as quarterly results come in better than expected.

Carl Quintanilla (0:48)

Let's kick things off this morning with Nvidia. It is the new market cap king, of course, topping Microsoft and Apple in terms of valuation. Not only that, Mike, but you can look at the entire UK market or various forces all around the world.

Michael Santoli (1:00)

Yes, $3 trillion is real money no matter how you slice it, three plus trillion.

And multiple things can be true at once. I think it can be mostly fundamentally based. It can be mostly following earnings momentum. It can be about this story that's, you know, obviously getting to the bottom line of Nvidia faster than anywhere else. And it could also be about pure momentum and an overshoot and a complete kind of blow off type action. So no way to know where one stops and the other begins. But the way it's piling on market cap, I think the big question is everyone's telling themselves, but you know, the multiple was higher a year ago, but you know it was higher. Not really, because back then earnings estimates were way too low based on what we know that they reported. So the fabulous profitability of this company definitely gives it a buffer and a reason for people to get excited. But you also probably have to start believing that subsequent, like looking out from here over the next two years, those estimates as published now are vastly too low to really get excited about it.

Michael Santoli (2:03)

And the growth, the pace of growth should continue. I mean, should meaning in order to sustain this sort of run. I mean, the argument has been, we've seen this before where there has been such excitement, such momentum behind one stock seen as the number one winner and a huge secular trend like the internet. We saw that with Cisco.

And what's happened with Cisco? It didn't see a quarter on quarter decline. It just saw the growth slowing.

And what happened? We saw significant drawdowns during Cisco's rain as sort of the backboard of the internet.

Michael Santoli (2:35)

You had a lost decade plus. But although I was looking back in terms of the actual profitability of Cisco, it was unremarkable actually. It was mostly about sales growth and how everyone assumed the internet was so far from getting fully built out and they had this head start.

So I was looking back in 2000, Cisco earns $2.6 billion on $19 billion in revenue. It's kind of per se in terms of margins. Whereas Nvidia, it's like 54% net margins on 160 billion expected revenue this year.

When Apple first got to the net income number that Nvidia is expected to get to this year, it was like four years ago, Apple had more than twice the revenue. So that's your question. Can they somehow sustain that outside share of AI related hardware profit?

Carl Quintanilla (3:26)

You're referring to this journal piece earlier in the week, looking at the similarities between Nvidia and Cisco. They actually talked to John Chambers about this very analog. He says, the speed of change is different, the size of the market is different, the stage when the most valuable company was reached is different.

Michael Santoli (3:43)

Says John Chambers, VC investor in AI projects.

Carl Quintanilla (3:46)

And the former chief of Cisco.

Michael Santoli (3:48)

Yes, yes, of course.

Michael Santoli (3:49)

No, that is true. I think, you know, I don't know enough to say, but people who do know enough to say, we'll tell you Nvidia's technological advantage.

It seems as if it's so distinct that they can continue to maintain this kind of lead. But again, who knows?

Michael Santoli (4:05)

I mean, even take a look at AMD, right? AMD was seen as the closest competitor to Nvidia for a long time. It's really fallen by the wayside. And right now, year to date, it's only up 4%. I mean, it's doing worse than the retailers at this point. So it's really fallen off a cliff as people are really seeing Nvidia as the beneficiary, the winner there.