What’s News in Earnings: How AI Agents Are Boosting Nvidia–and Opening the Door to Challengers

SPEAKER_1 (0:00)

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Dan Gallagher (0:34)

Hey, listeners, it's Friday, May 22nd. I'm Dan Gallagher for The Wall Street Journal, and this is What's News in the Marines, a look at some of the biggest themes standing out in the streaming season.

Chip companies make up about a fifth of the market cap of the S&P 500, and the industry's dominance is only growing. A rise in what's known as artificial intelligence agents is fueling even more demand for those chips. Nvidia is the largest player in AI chips by far, and its latest quarter showed blistering growth in sales and profits, and those results beat Wall Street's expectations. But other companies are now coming for a piece of Nvidia's business. That includes the newly public Serebris, whose hot IPOs set the stage for other AI debuts expected later this year. And it includes tech giants like Google and Amazon, who are now making their own AI chips and starting to consider how to sell those two other companies.

Joining me to break down Nvidia's results and what they mean for the AI industry is tech reporter Robbie Whelan. So Robbie, Nvidia's numbers were predictably huge. CEO Jensen Wong said on the company's earnings call the demand has gone, quote, parabolic.

SPEAKER_3 (1:42)

Agenetic AI has arrived. AI can now do productive and valuable work. Tokens are now profitable, so model makers are in a race to produce more.

In the AI era, compute capacity is revenue and profits. Nvidia is a platform for this era.

Dan Gallagher (2:01)

But Nvidia's stock fell afterwards. Robbie, why is that so predictable? And what was the biggest surprise in the report?

Robbie Whelan (2:08)

Yeah, we had another blowout quarter for Nvidia. And you would think that when we see results like that, that the stock would really just go through the roof. But it's very hard to budge Nvidia's stock. What we've noticed in the last couple quarters is that the beat, that is, the margin by which Nvidia's results beat Analyst's expectations is almost taken for granted at this point. It takes a really big beat for Nvidia's stock to really see any kind of significant movement. The other thing is that the market is really rapidly changing for AI chips. We're no longer just training the ChatGPT type models that began the AI revolution a couple of years ago. We're in this new phase where we're trying to monetize everything. And what that means is the companies that are developing AI tools need AI to be affordable.

What you're seeing is a ton of new entrants into the market of AI chips. That's not necessarily a problem for Nvidia, but it does change the situation for them a little bit.

Dan Gallagher (3:07)

For the financial guy that I am, I also look at like Nvidia's huge profit margins that have gone up in this AI world. And there's assault saying that your margin is my opportunity. There's a lot of these competitors that are saying, oh, you know, I could get some of that and undersell Nvidia. And that's also a risk for them, right? There seems to be a lot of concern among investors about, can they maintain the margins that they've been maintaining? You know, like 70 plus percent gross profit margins.

Robbie Whelan (3:31)

Yeah, Dan, I've been thinking about margins a lot too. You know, with training in this old era that we were in, where Nvidia was the undisputed top dog and selling these really fancy GPUs, which really kind of like the Ferraris of computing, they could charge whatever they wanted. There was almost no competition. But now that we're in this new world where training is less emphasized and there are suddenly dozens and dozens of competitors who can provide solutions that are sufficient or that are comparable to what Nvidia has, I don't see how they can maintain their margins forever.

Dan Gallagher (4:02)

I noticed on the call, they actually gave an interesting number. They said they have visibility to $20 billion in revenue for CPU chips, which are different from the GPU chips that Nvidia is well known for. So they've been selling these CPUs now, and they say they're selling well. But clearly, this is one of the areas where all the competitors are really targeting against them.