Nvidia Eases China Concerns With Upbeat Forecast
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Daybreak Asia podcast. I'm Doug Krisner. Let's begin with tariffs. Late in the day in the States, we had the U.S. Trade Corps dealing a major blow to the Trump administration. It found the president's global tariffs illegal, and as a result, the court has blocked these levies. Now, this ruling, to be fair, can be appealed by the Trump administration in federal court.

Today, a panel of three judges at the U.S. Court of International Trade in Manhattan sided with Democratic-led states and a group of small businesses. They successfully argued that the Trump administration had wrongfully invoked an emergency law

to justify these levies. We'll see where we go from here. Let's move on to the most important earnings report of the week. After the bell, we heard from Nvidia, and the company reported data center revenue for the latest quarter close to estimates. Perhaps more importantly, the chipmaker gave a solid forecast for revenue in the current quarter despite a slowdown in China.

NVIDIA is now expecting sales overall of about $45 billion. That's after subtracting $8 billion in lost Chinese sales because of those export controls. We heard earlier from NVIDIA CEO Jensen Huang speaking on the impact of those export controls. The limitations are quite stringent, quite limited, if you will. H20 is...

you know, as far down as we could take a hopper. We don't know how to make it even less.

And so that's really the limit. But, but so there aren't, there aren't main, you know, the limitations are quite stringent. So we have, we have to really think through it. Whatever we make ultimately has to add value to the market. Jensen Huang there, the CEO of Nvidia. By the way, you can watch the full conversation with Huang on the Bloomberg podcast channel. It's on YouTube. Shares in Nvidia were up nearly 5% in late New York trading.

Let's take a closer look at the story on NVIDIA with Daniel Newman. He is the CEO of Futurum Group. Daniel, thank you for making time to chat with me on this. What did we really see today that kind of can move the market in one way or another when it comes to NVIDIA? The overall reaction to the NVIDIA print was very positive.

Having said that, the China woes are still not solved. And in fact, if anything, Wang gave further doubt and uncertainty to whether or not the company can really even participate in that market. But having said that, even with the multiple billions they couldn't ship this quarter, the write-down, which ended up being just a little bit less, Doug, than what was expected, and the future sales,

The guide and the result this quarter showed that there is a lot of positive momentum that must be taking place outside of the region. And one other really important point is over the last several quarters, you've heard Huang pivot his conversations towards new markets like physical AI, robotics. But also he's returned to talking about some of the core business markets and segments like gaming and technology.

And those segments really outperformed, showing some really strong results, which I think is important at this particular time, as I think there's a little bit of fatigue on the data center conversation. And despite we're so early in AI, after eight or nine continuous quarters of big NVIDIA results and this sort of NVIDIA event,

Each quarter, people want to know how NVIDIA is going to keep their growth. And he showed it's not just data center and China alone can't stop its momentum. Yes, the China market is no doubt very important for NVIDIA. I found it interesting today that the Trump administration said it will restrict the sale of chip design software to China. This comes to the issue of whether or not

A company like Huawei, for example, can develop AI chips that could someday compete with those of NVIDIA. Do you think that's a big stretch? So we did hear about new rulings that could limit the EDA software, some of the design tools, as you suggested. And companies like Synopsys, which actually reported same day here as NVIDIA, took a big hit here. I think there is a major chip being played here.

pun intended, when it comes to Nvidia and its ability to access the Chinese market. And I think there is a bit of give and take. Now, Wang is doing all the right things of the statesman, of the representative of his shareholders in Nvidia, wanting to access this market that is a TAM of $50 billion plus and holds half the world's AI researchers in it. The US is playing a slightly different game.

We heard today about the possible blockade of certain terrorists, but the Trump administration does understand that winning the AI race, diffusing the Western and US-based technology to everywhere in the world is to its advantage. But the question is, does

enabling China, does giving China access to any of NVIDIA's leading data center chips, or even some of the older ones, like the Hopper chips they had specially designed for China, does that actually slow China down? And this is where I don't entirely agree with Wong saying, if we don't give them these chips,

China will go faster and build. I think Xi Jinping and the Chinese party understands the importance of leading in AI. It understands that it wants to win because there are multiple decades of global economic leadership at stake here. I think China's going as fast as it can anyways. I think it's behind, but given its ability to build energy,

And given its ability to brute force through processes like they've done with Huawei Ascend, I think it's a big mistake to rule them out. So it puts a very tough juxtaposition for the Trump administration, but it's also tough for NVIDIA shareholders to lose out on that market. So what about the adoption of AI technology by an American company? And I'm going to use Salesforce as an example because after the bell, Salesforce raised its guidance for revenue on the full year. And that's probably a good indication that...

that the company's latest AI product known as AgentForce is on a path to contribute significantly to increased sales.

Is this something we should see more of companies like Salesforce adopting AI and beginning to realize the return on investment? This is what we want to see as we've watched this massive infrastructure build out and the arms race that is building data centers everywhere in the world, empowering them with these most advanced chips. The second part and where the sort of bubble crowd when it comes to AI comes into play, they're like, yeah,

All these hyperscalers are putting billions and billions of dollars into CapEx to build, but who's using this stuff? So companies like Salesforce, like ServiceNow, like Workday, these applications company, the ones that are powering businesses, Oracle and SAP,

seeing their AI offerings, which aren't brand new per se, but have not necessarily contributed to earnings numbers as materially as investors would like to see. So if Microsoft's spending 80 billion or Google's spending 70 billion on CapEx, and then they're saying, hey, we've got a couple billion dollars of revenue from all of this investment, investors, while they're still optimistic because you've seen it in the stock price, they're still kind of taking pause. Now, these applications companies,

rolling out these agents these are the consumption layer and this is the utilization of all this compute processing that's being built these tokens these agents these applications so

Seeing Salesforce's result today, seeing it mention about 60% of its deals have meaningful AI, seeing it say it wants to hire 2,000 sales reps to sell more of it, a bit ironic, but yet interesting, because you'd think maybe the agents could do the work. But I think that's all part of the process of getting us to this larger, more meaningful consumption that will prove to the market that this isn't a bubble, which I don't think it is.

So it comes down to winners and losers. I can throw out names like Alphabet, like Microsoft, like Amazon even. Are you placing bets on companies that you think have a competitive advantage as the result of adopting AI right now? Well, first of all, the operating leverage of those hyperscaler and cloud companies, and there are so much more, right? The Amazon, Microsoft, and Google does provide them a huge advantage. Really, the only companies that are outside of those areas

scale of the scale of those companies are the likes of an open AI, which has so much funding behind it that it's able to go make six and a half billion dollar acquisitions of Joni Ives company. And it's able to kind of lose billions of dollars a quarter to build out something that people will buy, consume and utilize.

I think the metric to watch is look, we're going to build this infrastructure future out. It's a race with China. We are going to try to advance power, which by the way, that power is a huge advantage to China and the US trying to deregulate some of what it's doing in nuclear, for instance, is going to be important, but it could take years to build up any sort of nuclear infrastructure.

But in the end, it is going to be those applications, the ones that unlock the mass amounts of data. IBM CEO told me last time I spoke to him, 99% of enterprise data has not yet touched AI. So while we've seen the entire internet be scraped over the last couple of years to be utilized for these large language models like ChatGPT, the enterprise has actually moved quite slow, is in the earliest phase of adoption. And until businesses are really putting that AI to work,

at scale, we aren't necessarily going to completely provide confidence to the market that this AI transformation from infrastructure build out, that basically the roads and the pathways turns into businesses making money and making more efficient business decisions because of it. But that is where we are heading. Last question before I let you go, Daniel. You mentioned Johnny Ive and the deal he has with OpenAI now.

Now, we know I've to be the designer for many of Apple's devices, the iPhone being one. Do you think the fact that I've is now partnering with OpenAI Sam Altman to come up with some hardware device that will essentially be designed for artificial intelligence? Does that represent a wake up call for Apple? Apple has been shocking with its implementation of AI.

I gave them the grace of several quarters with Apple Intelligence to say, Apple can get there. And here's the crazy thing, Doug, is that Apple has such a

committed and dedicated user base that I think it can actually continue to fumble and still be successful. Having said that, there does seem to be an inroads right now. You see what Google did at its recent IO event in terms of some of the next generation technology that it's launching. Google, of course, has Android. They're building technologies right into devices and into the cloud. We've seen what Microsoft is developing.

Apple seems for whatever reason to be so focused on supply chain. And of course the Trump administration has put a lot of pressure there, but this isn't a new symptom for the company. This has been several quarters in a row underperforming, doesn't have an answer for large language models, hasn't had an answer for really the on-device opportunity. I think that Apple is a little bit at risk

I also think Sam Altman's ambitions sometimes scale far beyond. He was going to build $7 trillion worth of infrastructure. He's going to replace social media networks, and he's also going to take out Google. I think he's got big ideas. So far, he's executed one of them, which is the generative AI movement becoming, and ChatGPT becoming the Kleenex of large language models. But I also think trying to get into hardware at scale is going to prove to be a very different challenge.

I'm very conflicted as to whether that was a good use of six and a half billion dollars when the company's already burning cash. Daniel, we'll leave it there. It's always a pleasure. Thank you so much. Daniel Newman there. He is the CEO at the Futurum Group joining us here on the Daybreak Asia podcast.

Thank you.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. The equity market in the U.S. drifted lower in front of the results from NVIDIA. We had the S&P down about six-tenths of one percent that after that two percent rally on Tuesday. Joining me now for a closer look at market action is Tim Pagliara. He is the chairman, also the chief investment officer at CapWealth.com.

Tim is on the line from Franklin, Tennessee. Tim, it's always a pleasure to chat with you. There are so many things that we could talk about. We could begin with a story on the NVIDIA earnings. We could talk about U.S. fiscal policy and what we're hearing from the Fed. I'm curious as to where you are focused right now.

I think Fed policy is a wait-and-see approach right now. And the most significant thing for all of us to watch in the markets is whether the bond market is going to impose the discipline that Congress cannot impose through spending cuts,

and getting the budget under control. So as the final details of this budget emerge and it's reconciled with the Senate, then you're going to see whether or not rates go higher or they go lower. If the perception is that we've made significant progress, for example,

debt annual GDP spending goes from 7% maybe to 5%. And the market thinks that that's significant given the fact that we have

made permanent tax cuts and we've increased a number of worthy things for working class people and everything from tax credits for seniors to increase child tax credits for families increase in the standard deduction if that whole package

satisfies the financial market, specifically the bond market, then I think the Trump administration has had a big victory so far this year. So we're looking at a 10-year that's under 450 right now in the New York session on Wednesday. Are you prepared to say that rates are going to get closer to 4% than they are 5% on the 10-year? No, my belief is, again, the victory is if they stabilize where they are right now.

It just all depends on the perception and the details that come from the reconciliation of what the House has proposed and what the Senate will do.

how it will be adjusted. So, you could see the 10-year go to 5%. I don't think you see it going much below, say, 4.25%. Okay. We had the NVIDIA earnings after the bell, and guidance, I think, was critical for the markets. A solid forecast from what we can tell. Revenue for the current quarter will be around $45 billion.

And amazingly, that's after subtracting $8 billion in lost Chinese sales because of those export controls. Have you been a buyer of the AI trade, particularly through names in the chip space like NVIDIA? We've got a more expansive view of the AI trade. For example...

We believe it's the applications that come from NVIDIA chips in AI. So we've been long-term holders of Palantir. Two years ago, we made the decision to buy Palantir instead of NVIDIA. We've also really beefed up our holdings in electric utilities. You know, the AI revolution is gonna cause the country to have to double electricity output.

over the next 10 years. And so we picked up Constellation Energy back during that real chaotic period in April at $185 a share. Now it's over $305. So these things, they kind of flash, the markets settle down and you have to be very nimble and you have to have a buy list of things that you find attractive

that really make up the whole AI trade. So it's electricity, it's data centers. Another big one is Lumen. There's a cover story in Fortune this week about Kate Johnson and how she's leading the AI revolution through the technology infrastructure that has to be created between data centers.

Oracle, for example, has entered into a partnership with Lumen. They have 100 data centers right now, either under construction or operational. And the infrastructure of transferring data between those centers has to increase dramatically. And Lumen's right in the middle of that. They also have agreements with IBM and Google and a big agreement that they entered into with Microsoft. So, you know, it's not the chip.

The chip's important, but it's the applications of that chip in commerce and how it's going to change everybody's lives. I'm just wondering whether or not some of the tension between the U.S. and China has the potential to pretty dramatically hold back revenue growth for some big American tech players. Tonight, we learned that the Trump administration will restrict sales of chip design software to China. We're told the Commerce Department has been sending letters to some leading providers saying

of electronic design automation. And when you look at this tension, we talked about the Nvidia story and the export controls and the degree to which even Jensen Wang, the CEO of Nvidia, was saying this is going to be a hindrance to our growth, the fact that we have these export controls where the Chinese market is concerned. Broadly speaking, do you think that some of this trade policy has the potential to restrain growth for American tech firms?

Yes, but I think in the near term, it's a national security issue. That's why you saw Trump, I believe, in the Middle East, and Jensen Wong was shoulder to shoulder with the president. And they're attempting to give them additional outlets through kind of a most favored nation status that they imparted into the Middle East for AI development. And anything that decentralizes AI

the Chinese influence in artificial intelligence and moves it towards our partners, for example, in India and, like I said, the Middle East, should benefit companies like NVIDIA, and they'll be able to pick up the slack. You know, it's not a good place for them to be doing business in the first place. They'll, you know, they're notorious for stealing their

proprietary technology, all of that. And so, I think in the long run, it'll have no impact. Short run, yes. So, technology is obviously one part of the trade story. It's kind of interesting today that Wilbur Ross, who, of course, as we know, was Commerce Secretary during the first Trump administration,

was saying that he expects the equity market in the U.S. to sour by the end of late June if there is not progress on trade talks. That's a pretty tight timeline. If we don't get agreements by the end of June, do you think that there is a real risk of some sort of upheaval in U.S. equities? I think, you know, I would fall short of calling it upheaval. I think it will go back.

a more heightened focus on valuation and there's still issues relative to the valuations of companies and what they can reasonably deliver in terms of growth. So

I think they're going to make a lot of progress by the end of June, or they wouldn't be advertising that as one of their objectives. Tim, we'll leave it there. Thank you so much. It's always a pleasure. Tim Pagliaro there. He is the chairman, also the chief investment officer at CapWealth, joining from Franklin, Tennessee, here on the Daybreak Asia podcast.

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.

Learn more about the technology, insights, and support available at AmazonBusiness.com.

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