SOTS 2nd Hour: Nvidia's High Bar, How To Play Tech Volatility, & LIVE: IMAX & Zoom CEOs 2/26/26

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Carl Quintanilla (0:56)

Good Thursday morning, welcome to Squawk on the Street. I'm Carl Quintanilla with Mike Santoli, David Faber here at Post 9 of the New York Stock Exchange. Sara has the morning off. Coming up this hour, tech expert Ben Reitz is from Melius will be with us, break down these earnings from Nvidia and maybe Salesforce as Nvidia now pulls back about 3% plus. Two big interviews you do not want to miss. Zoom's Chief Eric Yuan will join us as that stock pulls back hard after turning in a mixed quarter. And IMAX's Rich Gelfand is here as the theater company shares rise on some solid results. Meantime watching, I guess, the turnaround in Nvidia from pre-market levels, Mike.

Michael Santoli (1:32)

For sure. Actually, after the close, after the report touched $200 briefly and then did pull back. I mean, it seems as if people kind of got revved up ahead of this number. This is an amazingly transparent earnings model. And I think that we have to kind of recognize that. We know where all the money is coming from. We know the demand. We know they're going to raise guidance a little bit. I guess it was even better than anticipated. What it really did today is catalyze a sell semis to buy software trade. I mean, it's radical this morning. And it's almost as if people took to heart what Jensen Wong said about, hey, we're not out there to kill software. It's still going to be alive. That's the semiconductor ETF relative to the software ETF. Now that is a 10-year chart. So that shows you kind of like what atmospheric level we've gotten to relative to the history of this.

So we're pulling, that basically is reversing by like four or five percentage points today. So whether that's just kind of this reflection of we're still in this market where you got to sell something to buy something, we had two days where you had mega caps taking the lead again. S&P gets a little bit of ahead of steam yesterday, and it was actually not as strong a breath day. Today is the opposite. You got the laggards leading. You have equal weight outperforming the S&P again. So I think we're still in this mode. I do think there's a chance, you know, MAG-7 can reassert itself at some level. I think bulls in the indexes should probably hope for that. But for now, it still remains one of these, you know, kind of exactly how are we going to position for today's dispersion trade, you know, what's working and what's not.

David Faber (3:03)

Mike, you said it, but I mean, they put up a quarter that was better than expected. Their guidance was above all the analysts out there in terms of $78 billion in the current quarter. Their operating margins are running at 75%. There's nothing you could point to that argues with the fundamental reason for the strength of this business.

Michael Santoli (3:23)

Not at all.

David Faber (3:25)

So, and it trades at a multiple that's below that of, I don't know where it is now.

Carl Quintanilla (3:29)

Well, it's the lowest pre-earnings multiple in what, 10 years?

Michael Santoli (3:32)

24ish or something like that. I mean, it's like not that far above the market multiple. The analogy that I've gone back to repeatedly is what happened to Apple after the first iPhone cycle bonanza, which is nobody was willing to extrapolate these boom cycles repeating constantly. Now, I don't think Nvidia is going to 10 times earnings, which is where Apple went to in 2013

In retrospect, based on the actual earnings, they traded it 10 times, but it does show you that the market's going to take some convincing that these hardware demand trends have a lot of runway to them. I also just think that the dynamics of it being the largest market cap weight, kind of everybody owns it. And once again, I think there's not a lot of suspense in the individual numbers. And now that we get to a place where it's going to be exceeding $300 billion, it's $350 billion in the current fiscal year is the estimate. So you tell me, oh, but guidance was $2 billion ahead of expectations for the quarter. Well, yeah, that's not that big a percentage of $350 billion. I think that's part of why people take for granted how strong it is. Margins are holding, but can we continue to expect that? So I'm not... I think that this was totally plausible that Nvidia could have broken out today, that we could have taken yesterday, it was traction. By the way, it's outperformed the rest of the Max 7 by a lot. It still held its value better than the rest of these companies. Nobody really is comfortable with this dynamic, though, where they're swallowing everyone else's free cash flow.