Yahoo Finance

Nvidia results do out Wednesday, they're going to offer some of the latest read on demand for semiconductors and the AI trade on Wall Street. But is Nvidia the only name in the game or is competition heating up? Joining us now, we've got Paul Meeks, CIO for Harvest Portfolio Management and John Vinh, Equity Research analyst for Key Bank Capital Markets, who has an overweight rating on Nvidia and a $190 price target. Great to have both of you here with us. John, I just want to start with you. Can Nvidia maintain its lead against rival chip makers?

Yes, um, in the near to medium term, absolutely. They are ramping a new architecture called Blackwell, GB200, NVL 72. Um, you know, obviously there's some supply constraints related to the ramp, but it's a hardware plus GPU chip based solution that also integrates the the GPU into the CPU, which gives them a significant performance advantage over the competition. You know, the competition does have a roadmap that is expected to follow suit, but they're at least a year behind at this point.

And Paul, I want to get you to weigh in on this too. Do you think that Nvidia retains its dominance, and if so, for for what period of time?

I think that they will, and I agree that the manufacturing lead is at least a year, maybe longer. But as I think about what this company is going to say on Wednesday, I must say, particularly with the rebound that the stock has had all the way back to 134 with the all-time high being 150-ish, I'm a little bit worried that although they will most likely not just meet but beat slightly, will that be enough to appease Wall Street? And remember, part of the thesis here was their revenues were going to rapidly reaccelerate in the second half of this year. With all the geopolitical turbulence, I don't know if that's the case. And so what I do is I hold my stock, it's still my biggest position, but I am a little bit anxious going into this report.

Just to follow on that, Paul, what would you what would you need to see from a chip that actually appeals and appeases some of the requirements now in place, especially as Nvidia is planning for this China specific AI chip that might be a little cheaper?

So I'm glad that they have that chip because if it is allowed to pass through the sensors, I.e. the regulators, then that's a good thing. It's better to have some revenue at whatever gross margin versus none. But I need to see the company guide to revenue acceleration and also, are we at the trough of the gross margin hit? They took a gross margin hit due to ramping up manufacturing. All semiconductor companies do that. But I'm now thinking that the hit to gross margins might be pushed another quarter out. These are all transitory issues. They are not long-term or secular issues. So I still like it long-term, but those are some of my near-term concerns, Brett.

And John, I want to get you to weigh in as well on this idea that Nvidia is developing some kind of alternative that it will be able to sell in China. Um, do you think we'll get news about that more specifically tomorrow? And if so, how much revenue do you think they can recoup?

Yeah, I think we'll get some color on the call. Obviously, it's going to be a key focus on the call in terms of, you know, what's happening within China. Uh, so we do think that they are working on another China compliant chip. This uh, this new chip does not use high bandwidth memory, so there should not be any sort of regulatory issues with it. I mean, this chip is effectively similar to a workstation chip. Um, the issue is it's not going to fully make them whole and backfill. If you look at the $5.5 billion write off, it roughly translates into a $12 billion headwind. We think with the lower ASPs on this new chip, they can probably backfill 8 of that 12 billion at this point.

And so as you're thinking going forward here, the most investible AI play is, is it still Nvidia or and I ask that specifically, John, thinking about how far we've run thus far? Or is there another semiconductor play that has larger upside potential at this point, even though Nvidia has been the poster child?

Yeah, I don't think it's an either or decision at this point, but our favorite AI plays right now are going to be Nvidia and Broadcom. Right. Thematically, if you think about Nvidia, they're clearly the leader on the merchant AI chip side. Um, Broadcom is the leader on the custom AI silicon side, right? Obviously, their big customer there is Google with the TPU franchise and you know, at this point, you know, you're seeing both uh, both types of chips get significant amount of capex spend devoted behind them in terms of spending. So, and they're clearly the two leaders in the space at this point.

Um, Paul, I think John brings up an interesting point, which is that it's not necessarily zero sum, right? Even though Nvidia has been very dominant, you know, how much room is there for other players to also do very well? And more to the point, to be a good buy right now?

Well, I think there's a lot of room for players to be great, but the problem is, can you execute to close that what I think is about a year and a half of manufacturing gap. And so the demand will be there, the demand will be voracious, and I do think AMD will ramp up and be a strong number two player, but as I start to winnow down my AI hardware and semiconductor bets, I still come to, as John said, Broadcom, Nvidia, then I would add for my big three Taiwan Semiconductor.

John, Paul, thank you so much. I know that you guys will be watching those numbers very closely tomorrow afternoon, as will we. Really appreciate it.

Thank you.

Great, thanks for having us.