KeyBanc Capital Markets Equity Research Analyst John Vinh joins Yahoo Finance Live to discuss Nvidia's $1 trillion market value and it stacks up against competitors in the chip space.
Video Transcript
- Nvidia extends its rally. How much more room is there to run? Let's talk about that with John Vinh, KeyBanc Capital Markets equity research analyst. John, it's good to see you here.
So certainly a massive milestone here for NVIDIA, something that no other chip company has been able to reach just yet. What do you make of this milestone? And how much more room is Nvidia has to run?
JOHN VINH: Yeah, it's certainly impressive. I think it's something that they have earned. Obviously, what we've seen with their most recent earnings result is probably one of the biggest beats in the tech industry seen in probably over a decade, right. I mean, expectations were that they were going to guide for 7 plus billion in revenues, they came in at over $11 billion in revenues, which is absolutely phenomenal. Our price target for NVIDIA is $500. We see, certainly, more upside from these levels, at this point.
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- John, we heard Brad talk about where the bullishness has come through from. He talked about the conversation being driven by NVIDIA on the issue of AI, the partnerships in place, but at its core, it is about the technology. Help us understand how far ahead Nvidia is compared to some of their competitors when it comes to GPUs, particularly at the center of AI?
JOHN VINH: Yeah, I actually think that they are differentiation. And why they're so much further ahead really has to do with their software, right? They've got kind of a [INAUDIBLE] software platform, and then they are also involved with all the researchers who develop all these different AI models.
And if you think back to just the background of how Nvidia got started in gaming, I mean, they've got millions of, basically, AI developers that are focused on the NVIDIA ecosystem. And it's really the software ecosystem that's going to give them a sustainable advantage for quite some time.
- John, what does that timeline look like, just in terms of the advantage that they have now? Is this something that, maybe, they'd be worried about competitors catching up on in 5 years, 10 years? Just give us a better sense of how big of that first mover advantage they have.
JOHN VINH: Yeah, I would say that they've got at least kind of a five year kind of gap with them and their next nearest competitor, which is probably going to be an AMD. But I would also say that this is a situation where this is a rising tide, it's going to lift all chips and there are going to be multiple beneficiaries here, related to generative AI. But certainly, Nvidia is going to be the outsized beneficiary here, given its whole position.
- And there's certainly a lot of people who are watching what's been playing out with NVIDIA saying, it's great, Nvidia, briefly hit that trillion mark and yet, did I miss the boat? What about the valuation, specifically, on NVIDIA? What are other names that you think investors should be watching, if it is about a rising tide lifting all boat?
JOHN VINH: Yeah, we think three other names come to mind. I would say AMD, Marvell, and and Broadcom. You look at AMD, obviously, they're kind of an emerging competitor in GPUs on the data center front. They've got their mi300 product coming out later this year.
They've got pretty de minimis market share in this market, and we actually think that they're actually going to put up some substantial design wins later this year. I think they're rolling out an mi300 AI training instance, at Microsoft in Q4, which I think is going to generate meaningful, incremental revenues for them.
Marvell has a really strong position with its semi-custom, cloud-optimized, silicon business. And they've also got kind of an optical interconnect business, that is really kind of a key enabler of these AI data centers.
And then lastly, Broadcom reports later this week, on Thursday, they are one of the primary manufacturers of Google's kind of TPU custom [INAUDIBLE] silicon, which is a key chipset that's used in kind of AI training and inference for Google.
- John, what about the potential risks of this when it comes to the bullish outlook here for NVIDIA, so many investors jumping on board? But on the flip side of it, some of those risks and geopolitics, how do you see that playing into some of the uncertainty that we could see within the sector?
JOHN VINH: Yeah, I think there's a couple risks here, right. One, on the geopolitical side, the US government is obviously involved with a geopolitical economic war with China. And they've already levied sanctions already related to AI chips and what NVIDIA can and cannot ship to the Chinese. And obviously, we only see these geopolitical tensions only escalate from there. So obviously if there are additional sanctions levied, that creates risk to NVIDIA because China's an important part of their data center market.
I think the second risk to Nvidia is, they is such a dominant player in this market that they're able to realize just outside the economic tier. They're probably getting 75, 80% gross margins on their data center business.
And if you look at the challenge of generative AI, the cost is probably the biggest challenge, right. The cost per query for generative AI query is $1 per query. You compare that to a Google search query, which is 1/100 of a penny. And there's really no business model in place right now, it's a very emerging market.
So every CSP enterprise business who is kind of focused on generative AI is trying to figure out ways to lower the cost. And one of the ways in which you could do that is look at alternative solutions, which are pretty limited in the marketplace right now.
- John, going back to the geopolitical risk you highlighted though, when you think about how important the Chinese market is to NVIDIA, and the semiconductor industry increasingly being squeezed between the West and China, is there enough demand-- you take out the Chinese market, is there enough demand to hit those revenue targets we're talking about, with NVIDIA, particularly around AI?
JOHN VINH: I think if there's a sanction where the Chinese market becomes heavily restricted in terms of these generative AI chips that NVIDIA can ship, I think it would be really hard for them to kind of hit some of the high expectations in data center that investors have. It's just too big of a market opportunity if you remove that for them.
- All right, John Vinh, great to have you here. We're looking at chart of NVIDIA, up just over 3% today. Hitting that $1 trillion market cap. Thanks so much for joining.