Nvidia Passes Microsoft Market Cap

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Bloomberg Aug 23 04:13 · 21.8k Views

Tony Wang, portfolio manager at T Rowe Price, joins Caroline Hyde to discuss Nvidia's back and forth rise to the top as the leader among tech in market cap. He speaks on "Bloomberg Technology."

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more

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00:00 Why remain bullish on NVIDIA?
00:04 Yeah, well, I think there's a lot of reasons to still like the company.
00:06 I mean, they've driven accelerate compute about 1000 X over the last 10 years, and they continue to be the leaders in the space
00:13 and AI right now just too important of a area to to let up the gas.
00:18 And so I think that the large companies will still spend.
00:21 I think there's a tension of like,
00:22 just, you know, what does spending more mean?
00:24 And does that mean expectations?
00:26 And that's what the market's really going to be focused on going forward.
00:29 And so
00:29 I think like, there's a lot of great reasons to like the stock long term.
00:33 I think that
00:34 at the same time, you have to remember that semiconductors are very cyclical and they're also secular.
00:39 So
00:39 I think that's part of our job to navigate,
00:42 navigate the environment.
00:44 So basically, brace yourself a potential short term volatility, but longer term, you're still bullish on
00:48 money coming into the likes of NVIDIA.
00:51 But does it broaden out?
00:52 At the moment, it's felt like NVIDIA is the only picks and shovels game in town.
00:56 You started seeing Broadcom doing relatively well on some AI wins.
00:59 What do you make of NVIDIA really reigning the main place to win on AI?
01:05 Yeah, well, I think that the reason why NVIDIA has been so good
01:09 in terms of it's because it's a platform, right?
01:11 It's not just a chip.
01:12 And so they have a big ecosystem with a lot of developers writing on their code and CUDA.
01:18 And so it's all built
01:19 like an ecosystem platform.
01:21 And so I think that's why it's such a defensible business.
01:24 And, you know, there, it's available everywhere.
01:26 It's
01:27 it's ubiquitous
01:28 on the cloud.
01:29 You can have it on Prem
01:31 and they got great support for their for their chips.
01:33 And so I think that's
01:35 largely the reason I know, I think it is it could be changing in terms of the complexion going forward is more concentrated
01:41 among the hyperscale players and they're very sophisticated buyers of chips.
01:44 They can do a lot of their own software.
01:45 And so I think there will always be a balance between the hyperscale make their own chips with like significant volumes like you've seen Google with their TPU that's very aimed at search.
01:55 And so I think that will continue, you know, in other ways.
01:58 And so I think they can coexist essentially.
02:00 I like that point that you've been making.
02:02 And we were just hearing how Datatrek is seeing the same thing, that
02:05 there is a willingness on a capital expenditure perspective coming from hyperscalers.
02:09 You were in a number of those hyperscalers, Microsoft, Meta, for example, Alphabet and Meta seemed to manage
02:15 to nuance
02:16 the argument of why they put money in there, whereas Alphabet people were worried about just spending CapEx at
02:22 all costs.
02:23 What do you make of the hyperscalers decision to keep on putting money in?
02:29 Yeah, I think that Mark did a nice job of kind of
02:33 illuminating why he's spending so much in AI, like with personalized chat bots and like how that can go through the platform.
02:40 You know, I think that you shouldn't count Google out at the same time.
02:43 And they have a lot of AI expertise.
02:45 They've been leaders in the field.
02:47 They have great chips as well.
02:49 And so, you know, I think that it's too early to call who's going to be the winner or loser.
02:53 They all have big platforms and user bases where they can scale their AI investments.
02:57 And so,
02:59 you know, it's it's I think it's an early call like who's going to win or lose?
03:02 But at the same and at the same time, they all have really great businesses.
03:05 Return on
03:07 AIROAI is this horrible acronym that's suddenly coming into the marketplace.
03:12 What do you make of though the returns that we need to start seeing?
03:15 You're a
03:16 key holder in Apple.
03:17 I think, again, T Rowe Price overall is about the seventh biggest holder of Apple stock out there.
03:22 That company again managing to tell us why they can be an AI bet.
03:27 Where does the money end up flowing in terms of return on AI investment?
03:32 Yeah, I think that we'll be looking for return on AI investment.
03:35 I think Apple specifically is in a great position because they're kind of the ecosystem owner, right?
03:41 So they can integrate great technologies into their phones, into their hardware,
03:47 you know, and just like they did with Google search.
03:49 And so they didn't have to develop Google search, but they definitely benefit
03:52 from users using Google search.
03:54 And so ChatGPT is the same thing
03:56 going forward.
03:56 They don't have to develop a frontier model.
03:58 They can integrate it with their phones.
04:00 Now, I think you can argue whether long term
04:03 a company should own the frontier model here, but right now Apple's strategy is really focused on what they're really good at, which I think is design and and integration with your life of their products and services.
04:13 And so
04:14 it's an interesting way to like be a capital light player in this
04:18 kind of AI
04:20 proliferation here.
04:22 It's interesting that you're in Salesforce and that's been a company that's trying to
04:25 show off its AI prowess, but make clear that they are going to be able to reap rewards from their investment.
04:30 Do you think it can?
04:33 You know, I think that Salesforce is really sticky software
04:36 company.
04:37 I don't think it's going anywhere.
04:38 It's kind of like they're kind of game to lose, I think at this point.
04:41 And so I think they have a good Moat.
04:44 They have
04:45 AI products that are coming out.
04:46 I think the question is like, how do they price them?
04:49 How do they drive ROI for their customers?
04:51 And I think the whole space is kind of going through this
04:54 seat versus consumption of AI.
04:56 And so like if AI works too well, you might not
04:58 have many seats.
05:00 That, that, that you need.
05:01 So I think there's a, there's that
05:02 business model that's being figured out.
05:04 But I do think that if you look at startups that are in the space, it can be hard for them to get into large enterprises where Salesforce sits
05:11 just because you need to let them into your, your whole system and, and that can be actually a pretty big mode.
05:17 Well said.
05:18 There has been other companies that we've been questioning
05:21 how much they can align themselves with the AI
05:24 tailwinds.
05:25 One of them, Cisco, for example, Dell, initially we thought, yes, really within this ecosystem, they're going to be there for the service, for the networking.
05:32 And then every now and then we get caught off guard and feel that perhaps they're not so well placed.
05:36 What do you make of like the bottoming out
05:38 story of a Cisco, for example?
05:42 Yeah.
05:42 Well, you know, I think that what we've seen is that kind of legacy tech has
05:46 in some ways reinvented itself like Dell and become an AI beneficiary.
05:50 I think here Cisco has been largely
05:53 kind of not on the
05:54 AI beneficiary list.
05:56 And I think in the recent quarter they have some
05:58 AI revenue coming through.
05:59 The business is bottoming.
06:01 It's a it's a value idea.
06:03 It's, you know, it's got a lot of
06:05 a good amount of cash flow and dividend yield.
06:07 And so
06:08 from that aspect, it adds a little bit to the portfolio that, you know, the rest of the tech stocks might not not offer.
06:14 And so,
06:14 you know, I think that
06:16 there there's a place for, you know, various stocks in, in portfolio construction and with bonding fundamentals and potentially like an attractive valuation it,
06:26 you know, it could be good.
06:27 You've been great at articulating why you believe
06:30 AI is such a winning story.
06:32 But
06:33 Jack, suppose that with
06:34 the overall macro picture here, we see the market get hit on the fact that whether or not we will have interest rate cuts.
06:41 How much do you factor that in in the here and now when you're looking at a portfolio allocation?
06:47 Yeah, I mean, it's definitely an area that you can't ignore.
06:51 The macro is super important that you have to be aware of like what's going on top down.
06:55 At the same time, I think that we kind of take it stock by stock and look at where expectations are, like the likelihood that they beat expectations, how well the company is positioned.
07:03 So no matter you're in like what direction the macro is going, like you should be able to like create alpha
07:09 either way just by relative selection of stocks.
07:12 And so
07:13 you know, what I think about kind of NVIDIA, like a lot of it, you know, is it's going to be a really big prank here.
07:18 Like we never had this amount of
07:20 debate.
07:20 I think in terms of,
07:22 you know, are we kind of near the cycle peak or is it going to continue?
07:25 And so,
07:26 you know, we do a lot of fundamental work to understand like kind of
07:29 where the products are positioned and, and how to think about the setup of the stock.
07:34 Look, what you're managing
07:36 the science and technology fund.
07:38 Does it
07:39 suddenly amaze you that the whole world now thinks NVIDIA is a macro
07:43 moment?
07:44 Its earnings might dictate the rest of the benchmarks?
07:49 Yeah, it's a phenomenal moment.
07:50 I mean, if you think about it,
07:52 the stock has, has just been amazing.
07:55 And I,
07:56 I remember I started covering it about 7-8 years ago and you would never have thought it would be 3 trillion.
08:02 So everybody has like underestimated the
08:05 the company,
08:06 you know, through like multiple cycles.
08:08 And so
08:09 it's been, you know, phenomenal because, you know, they offer so much value
08:13 and,
08:15 and like we've seen this like kind of AI vision of
08:18 seller and compute play out.
08:20 And so I think everyone now recognizes it.
08:22 And so,
08:24 you know, it is, it is pretty fun out.
08:25 And I think that part of the reason why NVIDIA is so important is because there are a lot of AI multipliers through the economy and there's a lot of market cap creation because NVIDIA is doing well and there is this like
08:36 an idea that long term value creation, productivity driving through the
08:40 economy.
08:40 So I, I think it's a big moment for the market for sure.
08:43 And so we're we're excited to see what happens next.
08:46 Political risk in any way affect that.
08:52 Sorry, can you say that again?
08:53 Political risk in any way affect that
08:58 The sorry, the, the, the macro risk.
08:59 Yeah.
09:00 The politics, the element that maybe we have a change
09:03 change in the White House.
09:04 Would that in any way change the innovation focus?
09:08 Yeah, You know, it's really hard to kind of call politics.
09:11 I think,
09:13 you know, I think there's a there's a tension of like how much you regulate AI and NVIDIA as such a dominant
09:19 player, perhaps,
09:21 you know, pushing computing versus like there we are in AAI space race
09:25 kind of with other countries.
09:27 And
09:27 at the same time we're trying to
09:29 kind of stymie China's
09:31 efforts to develop AI.
09:33 Like I, I think that we can also
09:35 it's hard to then also like kind of restrict our own companies.
09:38 So
09:39 my, my view is that like
09:41 the space is moving so fast, we're trying to push the envelope here.
09:45 I don't think,
09:46 you know, politics will really change that
09:49 given how important AI is to the economy in the future.

Nvidia Passes Microsoft Market Cap

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