Bracing for Nvidia's Q4 Earnings
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Tomorrow, after the bell, NVIDIA will deliver its highly anticipated fourth quarter results. This is the world's most valuable company. And without a doubt, it's been the biggest beneficiary of that big surge that we have seen in spending on artificial intelligence over the past two years.

Still, there are questions about whether data center operators will ease their expenditures on artificial intelligence. Joining me now for a closer look is Daniel Newman. He is the CEO of Futurum Group. Daniel, it's always a pleasure. Thank you for joining us. You have called NVIDIA's earnings kind of a national holiday in its own way. Make that case for me.

Well, we've seen over the last eight quarters, it's become the pivotal moment in the markets. And over the last two or three quarters, you basically see the entire reflection of what's happened with the other MagSix companies kind of culminate with this last report that comes out of NVIDIA.

And unlike a lot of the other big earnings, Doug, you will see media, folks like us, analysts talking about this, not just for days leading up, it's weeks of talk about what is going to happen and is NVIDIA the bellwether of the future of AI in trade. So the stock was down today about 2.8%. Over

Over the last five trading days, I think we're off about 9%. And today, NVIDIA broke below that 200-day moving average. I know you're not a technician, but is that a troubling sign? I think this is the most pessimistic view I've seen from the broader community.

equities, markets, communities. It's not just Nvidia though. It is every tech company. If you were a fast growth, the flyer, like Palantir, you didn't see 9% pullback, you saw 30% pullback.

Nvidia has accelerated and pulled back. And of course, it's felt like almost every Sunday, there's some piece of news that's out to take down the markets. It's taken down crypto. It's deep seek. And so all these things are happening right now. And it's kind of left Nvidia just right around where it was six months ago. It's kind of just bouncing around.

But I'm not worried. I think the trade's very much intact. It's very early for AI. So you mentioned DeepSeek there. I'm curious to get your take as to whether or not the development of that R1 chatbot really kind of forces the market to recalibrate this notion of how much spend is necessary to get some of the most advanced AI without committing a great deal to some of these advanced chips. I actually think it did the opposite. I think upon...

initial reflection of what we read and what we saw come out of that team and out of China, it did look that way. But what we've found is that through all of these sort of, we've found the cheaper, dirtier way to do AI moments, it actually turns out that we need more compute. And it's going to happen for a couple of different reasons.

We will certainly see techniques put into place that will enable more efficient compute out of existing LLMs that will develop and create more utilization. But in the end, that additional utilization is going to scale exponentially. And so you've heard Satya Nadella and others talk about Jevons paradox. But we are aggressively building out the infrastructure of the future. But in terms of consumption, and this is why a lot of people call AI a bubble,

we are very early in consumption. Microsoft spending 85 billion on infrastructure build out of data centers, and they are able to show around 13 billion in revenue. That model doesn't work over a long period of time.

So when does that turn a corner where that $85 billion is going to return more than $85 billion in a short period of time, like the period of time in which this technology stays relevant? So I'm glad you're mentioning Microsoft there, because on Monday, we had a report from TD Cowan indicating that Microsoft has canceled some leases for U.S. data center capacity. And with this news, a lot of concern over whether or not this company is securing more AI compute in

in terms of capacity than it needs in the long term. I mean, that seems to be a real question. Yeah, this is another one that I think got a little overblown. And let me tell you why. The channel checks aren't wrong. There is some cancellations going on in the market. But what was not appropriately calculated in that report was Microsoft's overbuying.

And so a number of analysts out there, and I've read some of these reports that looked at these channel checks, actually determined that if Microsoft had not pulled back a little bit on some of its build-out, it would have been well above the CapEx commitments that analysts have. So the CapEx is very much intact, and actually Microsoft came out and said that. Now,

Now, these are decade-plus long buildouts that are taking place. And while I do expect some ebb and flow, and I do expect at some point these returns have to come from all of this infrastructure investment, I think the trade's still intact. And one other thing that's worth noting about Microsoft is there is a little bit of this movement with Stargate.

and the role of OpenAI. And then of course, Microsoft's relationship with OpenAI is pivoting as OpenAI is looking at its own chips, it's looking at more of its own infrastructure. And so these kinds of projects that are going on in tandem are also going to impact Microsoft's build a little bit because Microsoft was such a provider to OpenAI in its early era.

I'd like to get your view on what we heard yesterday in terms of Apple's commitment to invest over $500 billion for new AI projects, particularly in Texas. A lot of this is focused on the construction of data center technology. Is this a bet that you would want to be behind in terms of what Apple is doing?

Right now, it's really in vogue to build in the U.S. And President Trump, that's a big focus of his. Tim Cook and President Trump have been meeting. Clearly, they've made progress. I think there's a lot to be excited about the investment. I'm a Texan. I love seeing companies come and build in Texas. Having said that,

I have a lot of questions about Apple, its AI strategy, its ability to execute. It has made commitments in the past to build large factories and production facilities in Wisconsin and other places that haven't quite come to fruition. It's great when they announce, it's better when they build, and it's even better when they start to produce higher and create economic value through these commitments. But it's a positive in its sentiment.

We had news here in the U.S. late in the day Monday on the Trump administration sketching out tougher versions of those export curbs for semiconductors to China. This was something that was initiated by the Biden administration. It seems like the Trump administration wants to get tougher.

When you look at U.S.-China and this war that may exist in terms of the development and the adoption of certain AI platforms, is this something that the U.S. is going to win hands down? Or is there a real risk in terms of what China is doing that we have to be, from the Western perspective, on guard?

I would characterize any underestimation of China and its resolve to lead the world in anything it does as a mistake. I believe that China will push the boundaries, including obtaining GPUs potentially through gray markets. And we know there's some question around that with DeepSeek. Having said that, I think the West has...

found a largely an agreement, whether that's, you know, the Dutch with ASML, whether that's Japan and Korea, whether that's Taiwan, the U.S., to have limited access to the most advanced semiconductors, as well as the machinery and some of the materials required to build them. I mean,

Economic prosperity for the next multiple decades is going to be based on the parts of the world that are leading in AI. And that's not to say other parts of the world can't succeed, but I genuinely believe that President Trump understands that winning in AI is critical to his presidency. It's critical to the national security of the United States and the West. And I do think that him and his team are going to be steadfast to make sure that the U.S. does not lose its AI advantage under his watch.

So we were talking about the AI startup Anthropic finalizing a funding round worth about $3.5 billion. And we were told when we discovered that news that it would give Anthropic, this is the company behind the chatbot Claude, a valuation of around $61.5 billion. Does that seem about right to you? Are these numbers a little inflated, do you think?

In some ways, it's hard to believe when you do the comps of the well-established companies that do not have $60 billion. I mean, you know that Intel is floating around $100 billion, and yes, it has its problems, but it has a $50-plus billion products business and fabs all over the world. And these companies like OpenAI and Anthropic do it, you know, sub $5 billion of revenue, and they lose money.

So it is difficult at times to understand, but I think any of us, yourself, myself included, who have been around long enough, know there's a difference between kind of disruptive secular trendsetters and how those companies are evaluated in sort of long-established enterprises, right?

But having said all that, I think the LLMs are rapidly being commoditized. I think open AI has real threats in some of the big incumbents, including Google and open source, like Meta. And I do think these valuations are quite frothy. And without a large IPO or a real current to take it out to these valuations in terms of revenue and profitability, I do think it's risky for investors that are coming in these late rounds.

Dan, we'll leave it there. Thank you so much for joining us and helping us look ahead to the earnings Wednesday after the bell from NVIDIA. Daniel Newman is the CEO of Futurum Group. Joining us here on the Daybreak Asia podcast. OK, business leaders, are you playing defense or are you on the offense? Are you just excuse me? Hey, I'm trying to talk business here.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. Stocks in Asia are moving lower. This is after a disappointing print on U.S. consumer confidence. And this, in turn, is fueling concern about the health of the American economy, the world's largest. We heard from Daniel Lamb. He is head of equity strategy at Standard Chartered Wealth Solutions.

He spoke earlier with Bloomberg's Sherry Onn and Heidi Stroud-Watts. We're seeing Nvidia sort of at the cheapest levels going into earnings in about a year. Given the importance of this stock for the broader market, could it really salvage this equity rally that we've seen in the US, especially after the Magnificent Seven fell into correction territory now? Well, there are new factors at play nowadays in the markets. So the deep seek is a big factor.

If you look at the gap between Chinese equities and the MSCI all-country world equities, the Chinese equities are still trading at 45% discount, which is more than one standard deviation away from the 10-year average. So basically what we're seeing is that there has been rotation of funds from U.S. equities into Chinese ones.

So that's what's been happening in terms of the, you know, variation that I highlighted and also the possibilities that China tech had to offer. So before, people were seeing that the U.S. tech is the only game in town. Now things are a little bit different.

This is what the broader markets think. But Daniel, when I look at your notes, you're actually pretty neutral on Chinese equities and you still prefer the US. Why? Okay, so there are a few things. So Chinese equities overall, we're neutral. But within Chinese equities, we are favorable on the technology stocks. So it is a story of high end versus lower end.

So previously, US technology, the only game in town. But now things need to be differentiated because the Chinese deep sea shows that they're capable of entering that tech space applied at a lower end level. And

Basically, people have to take account of that. In the longer term, what we see is that the U.S. is still going to be dominating in the high end of the tech space. They're going to take that. They're going to keep that. But then the Chinese, they do have a share of that.

Okay, so right now because of the expensive valuation in the US tech, you probably will see a little bit more rotation to come in the near term. But in the long term, we're favourable. I wanted to ask a bit more about what you see as sort of opportunistic moments in China, right? What are you looking for at this point? Well, at this moment in time, we've seen a big rally in the Hang Seng Index, right? From just below 19,000 to above 23,000. So that's

pretty fast and furious. So in the near term, there could be some correction, especially with the chip restriction news coming to the US. But then our point is that if they can make something like DeepSeq, then the box has been opened, right? There are other possibilities available for different Chinese technology sectors.

So that's what will be keeping the market going about China Tech. Probably there will be some correction, but then Hang Seng to about $21,600 to $22,000 is a good level of entry for the longer term investors. For a longer term investor, taking a look at Indian stocks, the Nifty 50 is trading near the lowest level since about June. How's the sort of sentiment there? Do you think that now kind of presents a good value point to re-enter?

Well, in terms of valuations, back to five-year average for Indian equities. Right now, I believe that the longer-term opportunities still exist. The government's budget has been stimulatory in various areas, so that's encouraging. The earnings are still reasonable. But then at this moment in time, I think people are just more focused on the China story right now because it's been very quiet for a long, long time in China.

So people are focusing on that. But Indian equities, we do believe that on the 12th on the horizon, there is upside from here. On the other hand, it's been pretty noisy when it comes to Japanese equity markets just because of the interest that we've seen from global investors. What will a stronger Japanese yen mean for the equity markets here in that rally that we saw last year? Can it continue into 2025? I think Japanese equities, you've got to be more differentiative, right? So we have a neutral overall equity.

But in terms of the sectors, areas that we like will be the financials because we do see that the Bank of Japan is going to be pretty much the only central bank that will be tightening this year. And stronger yen, steeper yield curve is favorable for the financials. Daniel Lam, head of equity strategy at Standard Chartered Wealth Solutions there.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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