Nvidia’s Blockbuster Earnings Sends Stock Soaring, Salesforce Silences Software Bears

Zaid Admani (0:00)

Public.com presents The Rundown. Your daily market update in 10 minutes. My name is Zaid Admani, and today is Thursday, August 27th. In today's episode, we'll break down Nvidia's monster earnings report that should quiet some of the AI haters. We'll also tell you why Salesforce is ripping higher, while HP is getting hammered after earnings. Then stick around to the end of the show to find out why young Americans are suddenly becoming some of the biggest AI skeptics in the country. We got a great show for you today.

Let's go.

Stocks basically went nowhere on Wednesday. The S&P 500 finished flat for the day while the NASDAQ slipped 0.1%.

Yesterday was actually the second lowest volume day of the year. Everyone was sitting on their hands waiting for Nvidia earnings, which we got after the bell last night. And yeah, it was huge. We'll break down the numbers in a second, but tech stocks are getting a boost this morning from Nvidia, while other sectors are in the red. I think investors are rotating back into tech after hearing what Nvidia had to say on their earnings call last night. So we'll see if this leads to a long-term tech rally. The other big macro story we're watching is the Fed gathering at Jackson Hole this weekend. Fed Chair Kevin Warsh will give a speech tomorrow, so we'll keep an eye on what he has to say, especially with all the chaos happening in the bond market. So definitely get subscribed to the podcast if you haven't already, and tune in every day to stay in the loop.

Let's run through some headlines. And we're talking Nvidia. Nvidia reported earnings last night, and man, they absolutely crushed it across the board. Revenues more than doubled from a year ago to $96.2 billion, and adjusted earnings came in at $2.22 a share, both those numbers comfortably beating estimates. Nvidia's data center business alone generated $89 billion, and now accounts for more than 92% of the company's total revenues. So yeah, the Q2 numbers were solid, but what really stood out was the guidance. That blew everyone away. On the earnings call, Nvidia CFO Collette Cress says the company expects revenues to grow about 70% next fiscal year. Wall Street was expecting a 45% growth, so that guidance blew expectations out of the water. What's crazy is that the 70% growth forecast is actually supply constraint, meaning that Nvidia still can't make enough chips fast enough to meet all their customer demand. So all the concerns about Google and Open AI and Amazon building their own chips have basically had zero impact on Nvidia. In fact, the hyperscalers are still buying a ton of Nvidia GPUs. Amazon alone plans to deploy another 2 million Nvidia GPUs starting this quarter through fiscal 2029 And Nvidia said that every major hyperscaler already placed orders for their new Vera Rubin system, which started shipping earlier this month. And what's key here is that Nvidia said the demand is also broadening beyond just the hyperscalers. You have AI labs wanting their chips, Neo clouds, startups, enterprises, robotics companies, basically everybody wants compute. So I think it was that monster outlook from Nvidia that has the stock ripping higher this morning. Shares are up around 7% in pre-market trading at the time of this recording. And that's notable because for one, Nvidia is the biggest company in the world with a $5 trillion market cap. So a 7% move is massive. And also because Nvidia's stock had actually fallen the day after reporting earnings in the last four quarters. So that trend might finally break today. On a side note, Nvidia has beaten earnings for 15 straight quarters now, pretty much since ChatGPT came out in November of 2022 Now there were a couple notable things from this earnings call. The first was Nvidia's margins. The company expects their gross margins to dip from 75% in Q2, down to around 71% by the fourth quarter, because the cost of memory from suppliers like Micron and SK Hynix have skyrocketed. This is affecting everyone in the tech industry. We've talked about it a lot. Now Nvidia is absorbing a lot of those costs right now, but they're also rolling out price hikes to get margins back to near 73% by next year. Another major topic on the earnings call was circular financing. Now we've talked a lot about that on this show. Nvidia is investing billions of dollars into AI companies. They're also providing financial guarantees and co-signing data center build outs because those data centers will ultimately be filled with Nvidia chips. Nvidia's management went on the defensive against the criticism of circular financing. CFO Collette Crest said they don't see it as circular financing because they aren't handing out loans to their customers. Their argument is that they're just trying to help these AI companies scale. And they also said that if something does go wrong with some of these companies, well then Nvidia's AI chips can be redeployed somewhere else because the demand for their chips is so high. Now, I don't know if that's a satisfying answer, but honestly, I don't think anyone cared last night because of how strong the earnings report was. Here's another interesting detail from the report. Nvidia did finally sell a small number of H200 chips in the China last quarter, but those sales represented less than 1% of their data center revenue. So China is basically not contributing to Nvidia's AI business right now, but if Nvidia eventually gets meaningful access to the Chinese market again, that could become another source of demand on top of everything else we just talked about. So all in all, this was a massive quarter from Nvidia, and this should quiet some of the AI concerns for a bit, because there seems to be no signs of an AI slowdown. By the way, hours after the earnings report, we got another big Nvidia story. According to the information, Nvidia has agreed to buy Hugging Face for $12.9 billion. Hugging Face is basically a hub where developers share and download open source AI models, and Nvidia has been pushing for more open source models because those models usually run on Nvidia's hardware. So this acquisition could be a way for Nvidia to boost the open source ecosystem. So yeah, Nvidia keeps crushing earnings and they keep making moves. And I wonder if we're gonna now see a big rally in AI stocks in the second half of the year after this monster report.