Welcome back to "Tech Tune Up with Paul Meeks"! In this episode, recorded on September 4, 2024, Paul dives into the latest tech news with a focus on Nvidia. He'll also discuss AMD's recent $5 billion acquisition of ZT Systems, a server vendor, highlighting the industry's race to catch up with Nvidia in the AI accelerator chip market. Don't miss Paul's insights and answers to viewer questions throughout the show!
Transcription:
Paul Meeks
Welcome back, everybody, to tech tune up with Paul Meeks. I'm your host, Paul Meeks. Of course, it is September 4, 2024, and now that we're on the every other week schedule, I miss you guys. I haven't seen you for a while, but I have a lot of interesting stuff to share. And before you get too ruffled in the feathers, I will tell you, I am going to spend a good chunk of this broadcast on Nvidia.
No surprise. Spoiler alert. So one thing I would also say is I like to keep this interactive. So right now, send me your questions. And as I see them passed along by our director here, I'm going to answer them.
Might get to most of them at the end of the half hour. But anyway, I'm going to try to get to all your questions because I'm sure you have a few. So first of all, let's get to the stock news. And remember, I'm looking for tells that go broader than the companies themselves. So first of all, let's talk about advanced micro devices, AMD.
They announced recently that they're going to spend about $5 billion, which is a pretty big hunk of change, even for a pretty big company like AMD, on a server vendor called ZT Systems. What does this tell us? Well, the takeaway message is AMD in particular, but everybody else is trying to chase Nvidia and AI accelerator chips. And one of the nice things about Nvidia is they have really locked up the entire ecosystem. They have the chips, they have software, they have services, they have servers.
So I will tell you that as we go forward. Think of this as what made Apple such a valuable company. They used to call it the walled garden, the ecosystem of all those products, and you had to use them all in sync. Nvidia is developing this in AI infrastructure build, and of course, AMD is trying to chase the next. We have kind of a good scenario, bad scenario with Alphabet.
Let's start with the negative news. There is a private company called Perplexity AI, and they are a AI search provider. And their technology is mature enough that they are now selling ads. So if they can sell ads, that means there must be some success with AI driven search results. And who does that negatively impact?
Alphabet, of course. And they got a lot of market share to lose because they have about 90% of the share as it stands today. So stay on top of, like I will, perplexity AI. The other thing that's probably more on the good side ledger for Alphabet is when Apple built out its own large language models which will have some AI features when they announce their next iPhones before too long. They're actually having a big reveal in about a week or so.
They used alphabets, custom chips and not GPU's from the likes of Nvidia or AMD. So maybe Alphabet will have some game in that market. Nobody ever really thought of that company as a semiconductor vendor and it probably won't be a big part of their business. But if Apple is going to use the product, I guess it lends it some credibility. The next every time I see you, unfortunately we have some kind of cybersecurity data breach.
The next comes from snow ticker symbol snow. And this is a stock that was all the rage not too long ago, Snowflake. And unfortunately here is a company that's whole business is to consolidate cloud data and they're not protecting your cloud data. They had a data breach that's a real black eye to a former Wall street darling, Snowflake. Next, I mentioned Dapa, but let's get back to it.
This is very interesting because it's walled garden, the walls of which are starting to crumble. And here is why. Because based on new eurozone regulations, remember, I've always been bothered by the fact that the Internet and now AI afterwards is all driven by eurozone regulations because our congress can't get their act together and develop our own. But based on these new eurozone regulations, iPhone users are going to be able to go in and delete the Safari browser and all the other native apps on that phone. One of the reasons that Apple's done so well for so long is that was an impossibility.
And now that looks like it'll be something that a lot of iPhone users will do in Europe. Stay tuned because that could be a real ding to Apple's progress. In the meantime, the stock seems to be getting close to breaking new highs every single day. I think it's one of the overvalued stocks in the Mac seven. I threw in the towel on my next name, super micro SMCI.
Remember, I was a big believer, still am, of the AI infrastructure building trade, and that included a couple of data server companies like SMCI, like Dell and like Hewlett Packard Enterprises. And so I was given SMCI some slack even though their quarter was a little messy that they announced a few weeks ago. But what was the straw for me that broke the camel's back is they made an announcement that because of likely financial accounting irregularities, they're going to delay the issuance to the securities and Exchange Commission of their ten k. That can never be good. Whenever I read an announcement like that, it is shoot first and aim later.
So that's exactly what I did with SMCI on the other side of the ledger. I would stay top in the class. Now from my data server trade is Dell. They had a pretty good quarter. They did about $3.2 billion of AI server revs in the quarter just announced, and that was up 23% sequentially.
Sequentially means from quarter to quarter. That is not a annual comparison. So they're starting to take some market share. They're starting to identify themselves in this space. One thing I would warn you about, I'm a little bit more cautious these days on the entire AI data server market because the four big spenders on these servers, we are calling them the large scale hyperscalers, together this year they're going to spend over $200 billion on this infrastructure.
Now the nice thing is to have a customer like beta that is going to spend tens of billions of dollars on your product. The bad thing is because they're such a concentrated and powerful customer, they are going to dictate pricing to you and not the other way around. So the deal is there's going to be lots of AI servers sold, but unfortunately they might be at pretty skimpy, below corporate gross margins because the power goes to the customer. Next. This is interesting.
There's always something wacky to say about our buddy Elon Musk. Now he's going after Brazil. What? So everybody expects, you know, unusual behavior, but here we go. We have X, formerly known as Twitter, banned in Brazil over content and because they're so pissed off at him.
And it's probably a pretty important region because the most important country in South America, it doesn't have as many folks as the US. We have a population of about 340 million. They're probably somewhere between 200 and 300 million. But a marquee country, an important country in South America. And not only will this Ding X's prospects there, but other Elon Musk related companies like Starlink.
Next. This is very interesting. I followed intel since the 1980s. That's how old I am. And at this company, at one point in its life was the marquee tech company in these United States.
It's very sad to see how far they have fallen. And now they have investment bankers in there looking at how they're going to rescue this company, including probably spinning off some things, breaking up the company wholesale cost cutting. Anyway, this is very, very, very bad for intel. And I would tell you never buy that stock, no matter how cheap it looks, no matter what its reputation was in the eighties and nineties. It is a value trap as we go from old tech to new tech.
OpenAI. Now remember, OpenAI is the privately held company that first announced chat GPT in November of 2022. This company is so smoking hot that even as a privately held company, it is financing another round right now with a $100 billion valuation. To put this in perspective, if OpenAI was in the s and P 500 index, of course there's 500 stocks in that index. It would be by size, even as a private company number 75 on that list.
So I tell you, when you see that kind of excitement by the venture capitalists and the private equity firms and the rest of the entourage, it is pretty exciting. It is pretty exciting. Next since we last spoke, a semiconductor company that I follow called Marvell actually had a pretty good quarter. But I must tell you, I was unimpressed and discouraged you from buying it because sometimes you're better than the street because the street had set a low expectation bar. And this, I think, is what happened at Marvell.
So be very cautious. As I've said before, in the semiconductor industry within the tech sector, with these Internet of things companies, these industrial applications, particularly automobiles. Next. I'm still sticking with Micron. Micron does not announce their results in civil September 25, and so it is very difficult to buy a stock ahead of a quarterly announcement, particularly these days where sometimes companies have good results on their quarterly calls.
They guide to better results and their stock still goes down. It's just a really dicey time these days as people start to rethink. What can I do to take profits in tech to move into other areas? My bottom line is, don't take profits in tech. I actually think there's some buy opportunities creeping up.
But I like Micron. You guys remember why they are a triopoly in memory chips, and particularly the greatest these days, high bandwidth memory that is integral for AI infrastructure. They are booked solid for the next two fiscal years now. In the meantime, their traditional business, where they sell memory chips into consumer electronics like smartphones and laptops and desktops, isn't doing very well. But don't let that cloud the fact that when you take a look at their AI oriented business, this thing is going to explode in the next year.
And I still think that this stock is a double from here at least. I'm very intrigued about tomorrow night. Tomorrow night, Broadcom is going to announce a result sticker symbol Abgo, of course, please do not buy it with only 24 hours left before the announcement. But this will be another tell on the AI infrastructure building trade. And Broadcom is particularly interesting because it's part semiconductor company and it's part software company.
It's a very weird hybrid. Okay, guys, before we go any further, this is the grand part of the show. Let's delve deeply into Nvidia. So, first of all, Nvidia, as you know, announced their quarter last week, specifically on August 28. And I think the only real sin that they committed is, is that they didn't beat the Wall street estimates either with what they reported or guided to for the next quarter by enough.
So in the quarter just announced, they beat the Wall street earnings estimate by 6%. Now, a year ago, four quarters ago, they beat the Wall street estimate by 19%. And so are we seeing a gross slowdown? Not necessarily, but we are seeing smaller and smaller beats versus Wall street expectations. I don't think a stock should be punished this much on that.
The other thing that I think is interesting is the average company in America, or the average company in the S and P 500 has a gross margin of about 40%. The gross margin at Nvidia will start to shrink a little bit as the company continues to expand. But the guidance from the company is for a gross margin of still to be 75% this year, you guys, 75% versus 40% for the average company. That is more like a software company margin than a semiconductor company margin. But remember, this is not just a semiconductor play.
They have that ecosystem in AI infrastructure building. Just like years ago, Apple had that ecosystem with all their interrelated products in the nineties and the early part of two thousands when it rose to be the world's number one market cap stock. Now, their next generation of chips at Nvidia is called Blackwell. And they did, as was reported in some periodicals a couple weeks before they reported they actually started the slide in the stock. They did have manufacturing glitch, but I don't think it's that big of a deal because it's about a 90 day delay.
Who cares? That's just one quarter. And they're so far ahead in all other aspects of their business that this is not going to be lost revenues to AMD or anybody else. It's just going to be deferred. And if it's just deferred for 90 days, who cares?
Don't overreact. And it looks like they have already started to implement a new photo mask. And a photo mask is a part of the etching process for semiconductors. So they have the new photo mask. That should solve some manufacturing issues.
The new products are sampling, and they're going to be just fine with the Blackwell chip. Don't stress. But one of the reasons for, at least in the near term, for their gross margin to follow a little bit is extra cost of goods sold or extra manufacturing cost for this fix. Again, don't stress too much today. And this is probably something that we have to worry a little bit more about.
Whatever happens is when you are on a pedestal like this company has been for a couple of years, all your competitors want to knock you off. And so all of Nvidia's competitors have ratted on the company, and now the Department of Justice here in the United States has issued a subpoena to the company for an antitrust inquiry. So whatever happens in these situations, maybe they have to change their business practices with how they sell products a little bit. I think it would just be a tweak. And then also, when you have these legal issues, they are not solved in months or quarters, sometimes as years.
So I don't see this having a material impact for Nvidia anytime soon, and maybe never. And the valuation, I get some pushback from people and they say, Paul, how can you like this stock? How can you think it's not overvalued when it tripled last year and it's working on a double this year? But here's the rub. Its earnings, sales, cash flow have grown even faster.
So this is not a situation where the valuation expanded on this company. It's still at the same price ratios, things like price to earnings, price to cash flow, price to sales. But all those metrics have just popped so much. So consider this next year. So this is the fiscal year ended January 31, 2026.
Nvidia is supposed to grow its earnings per share by over 40%. Its P E ratio today is 29 times earnings. So look to the P E to growth ratio. In the numerator is 29 times earnings. In the denominator is the growth rate, 42%.
So this is a stock that is trading at a PEG ratio of 70%, or only 0.7 of one. When you look for stocks that are cheap, you're looking for pegs that are less than one. And here is one, 0.7. So it's not expensive. I can make the cases cheap.
And if you want to do the ultimate compare and contrast, take a look at Apple. Apple today trading at 33 times next year's earnings. Remember, Nvidia is 29 times, but Apple's earnings per share growth is only supposed to grow 11% next year. So it has a peg ratio of three times. Its pe ratio is three times its earnings growth rate, where Nvidia's P e ratio is only 70% of its earnings growth rate.
Which stock is more expensive? Apple, I say. So next, let's get into my tech picks because there have been some changes to keep it tight. Green means fresh money buy, yellow is investigating little squirrelly about it, and red means bolted out of your portfolio. So first of all, on the green side, my buys I mentioned micronous t mobile.
Still on the list. Meta probably my favorite ex Nvidia in the mag seven synopsis I spoke at length about Nvidia. I hope you're satisfied. If you have any questions, please ask them now. Dell, Taiwan semiconductor, Netflix and Arista networks.
Those are my fresh money buys. I've turned a bit cautious on Microsoft, Amazon. I'm cautious on broadcom going into the print tomorrow night. But in about 24 hours I'll know what I need to know and I may change my tune. I'm also a little bit worried about Alphabet.
I told you about some of the threats there, particularly with their search monopoly from perplexity AI, and because of this lack of profitability in AI servers, almost no matter how many they sell, I've kind of turned cautious on Hewlett Packard as well. A couple of other ideas that I've been looking at. Sentinel one, this is new on my list, ticker symbol simply s. This is a cybersecurity play, and I've been hunting for cybersecurity plays ever since I pulled the plug on crowdstrike when it had that data breach. This one might fit the bill.
So I'm doing my homework now on Sentinel one, but stay tuned. That is ticker symbol s. And then I brought up this stock before. It's the Chinese Internet of things company called Tuya, which is also its ticker symbol on the New York Stock Exchange. I spoke to management from China just a few hours ago, and I got kind of a mixed feeling on the stock.
So what I would tell you is I would continue to buy this name. Right now it's trading at about 150 or so. In recent weeks, it got down to $1.38 per share. Let's try to stay closer to that buy limit, but I do think over time that this stock could go to two, two and a half, $3 per share. So that is Tuya, and you heard that one only here because it is a unrecognized small cap chinese tech company.
So now let's finish up with some tech trends.
It's finally here. The Fed will lower interest rates on September 18 with a 100% probability. Now the thing that has changed here, based on further weakening in inflation and labor data, is that there's now a 69% chance on September 18 that the Fed drops the Fed fund's benchmark rate by a quarter percentage point. And there's a growing now 31% probability that they're going to get more aggressive because they're now more fearful about a impending recession here in the states, that they might take the rate down and one fell swoop by half a percent, 0.5%. So we'll see what happens.
I imagine it's going to be only a quarter point, but after all this waiting and watching, it looks like we will trigger the other side of monetary policy. We'll go from tight monetary policy, featuring high rates of which are poor for the valuation of aggressive growth stocks and tech stocks, to beginning September 18, probably a year, year and a half, maybe even two years of a loose accommodative monetary policy where rates will start to fall, should give a nice kick in the ass to evaluation of the summary companies that we discussed here on the program. So stay into, stay tuned. You know, September 18, very big day. I think it's going to be a quarter point reduction.
It may be as much as a 50 basis point reduction. But either way, guys, we are embarking on a new monetary policy regime. A lot of people have been asking me, particularly after we had this scare in tech stocks that essentially went from late July to early August. Then we had a rebound, and then we had some scary shit going on in the last couple of days. Nvidia is about neutral today, but yesterday on no new news, it dropped 9% in a single session.
You guys, here's what I plan to do. I love the fundamentals of my select companies, those that are green on my buy list that I share with you. But right now I'm being more of a technical analyst looking at price charts than I am a fundamentals analyst. The next time that Micron and Nvidia in particular, my two favorites over the next year or so, retest those early August lows. And as long as they stabilize there and don't break out to a new low, I am going to commit to buying both of those names even more aggressively.
And of course, in my portfolio, I already have a shitload of Nvidia and I already have quite a big stake in Micron. So that comes data centers people are looking for derivative ways to play the AI infrastructure build. Somebody even asked me on this program the last time I was on about data centers. Obviously the biggest data center REIT real estate investment trust here in the States is equinix ticker symbol EQIX. But I thought that this was a big tell.
Just announced today, Blackstone, which is the big private equity company, is spending 16 billion precious dollars to buy an australian AI data center. And why are they doing this all around the world? They just happen to pick one up in Australia. This time is because that firm and the firm's respected Blackstone believes that in the next five years globally we are going to spend 2 trillion with a t dollars on building AI centric data centers. That sounds like pie in the sky, but that is.
If that's even a whiff of being true, then I love my AI infrastructure build out trade for more upside. This is kind of interesting. We're going to start to see a number of very aggressive legal maneuvers when it comes to digital copyright infringement on AI because AI is developed by building large language models and these large language models scour the Internet for information, including copyrighted textbooks. So this will be very interesting in the age of AI to see where we stand on important digital copyright infringement cases. I imagine it goes all the way up to the US Supreme Court before it's ultimately resolved.
Despite all the great action in AI, there are some areas of tech that are hurting. They're actually firing people. Mastercard, right? The ultimate fintech company fires 3% of its workforce. General Motors fires over 1000 software developers.
These software developers weren't in the factories in Detroit, Michigan slapping together cars. These are guys that were working on electric vehicle projects. So that bodes very poorly for that industry. So I'm going to continue. No surprise to you guys with my AI infrastructure 1.0 plays which include the semiconductors, the data server companies and the data networking companies.
Though my listen is being refined in data servers particularly. I go from SMCI to Dell. On the semiconductor side I still very much like Nvidia and Micron. I told you exactly when I'm going to buy them. Nvidia if it ever breaches below $100 a share.
As we get more successful AI use cases, then I'll start to think about what I call AI 2.0. But I'm not there yet. And so what I'm doing is I'm highlighting my favorite names. I share those with you. I'm now more of a technical analyst because I am very firm on the fundamentals.
I am more squirrely about the technicals. So I put the fundamentals aside. I know I want to buy Nvidia now. It comes down to simply timing and pacing the trade. And so there I look at the stock charts, including Benzinga Pro tools, and I'm looking for a stabilization of the stock on less than average trading volume, which is an indication to me technically, that the selling has been exhausted.
So if you have any. Let me get to some questions.
Where do you think Tesla is going? You know, I'm not a Bolan Tesla. I think right now it's overvalued. So I think over the longer term it's going to go down. And here is why.
There is a lot of excitement about their coming autonomous driving event, which I believe is going to be held on October 10. Now remember, it cannot be going so well over there because they postponed it from the original August date. And so what they have going on is, okay, some excitement in, you know, self driving taxis and some excitement over potential humanoid robots. But Elon Musk is the master showman and he's emphasizing these areas that are totally speculative and totally on the come because the near term core business is weak, the electricity vehicle business is weak. And so I think that they're distracting with all these promises from a very weak core business.
So I don't buy Tesla here. If Tesla continues to run, I'm probably a better seller than I am a buyer. Though truth be told, I haven't been in that stock in a number of years and I would never touch it within the mag seven almost regardless. Next, how do you feel about ETF's been running with Nvidia and AMD and their levered ETF's? Okay.
So, you know, I like Nvidia very much. I like AMD less. So. And the reason why is last quarter, 85% of Nvidia's revenues were AI related. AMD still sells a lot of cpu's to shitty markets like PC and cell phones.
So it doesn't have the pure AI mixed. So it's not going to have the pure AI profitability and growth. I would tell you that these stocks are already so volatile that I would just buy the common shares. I wouldn't buy these levered ETF's. I think it's just too risky.
And it's a, why would you take a risky investment and if it does well, you'll make a lot of money regardless, and you'll lever it up two or three times. So I just like the common shares specifically at the buy limit prices that I share with you.
Next question. Is there a chance the government takes a stake in X similar to General Motors back during the financial crisis 2008 2009? I don't think so. The problem is X is now a privately held company. And I think that Musk bought the company for 44 billion.
And I understand it's now being valued by its private shareholders at only about a quarter of that rate. So it has been a monstrous blow up, a huge and at least in my opinion, Elon Musk failure. It is controversial. The guy that runs the place is an absolute nut job and can say some really nasty things. In the meantime, the us government has no incentive to come in and support a privately held company.
Question for Paul. Don't you remember when the semi names were cyclical? Isn't that why Nvidia is not getting a premium multiple? Well, I'll tell you, I was around when the Internet bubble popped. At that time, I was running the world's largest technology mutual funds franchise for Merrill lynch investment managers, which is now Blackrock.
They are cyclical. And I will be the first to exit stage left when Nvidia. But I actually think that their strong growth and high profitability are going to last longer and rise higher than the consensus view. So I fully expect at some point when we get enough really good AI use cases that I will shift from my AI infrastructure building 1.0 bets to those 2.0 bets. But in the meantime, I actually am very bullish on Nvidia.
And when you have Blackstone saying that in the next five years globally, true trillion dollars is going to be spent on building out AI data centers, I think we have an opportunity. But I'm always very, very honest and I've learned so many lessons from mistakes I've made in my long career that I will be the first to tell you when I lose face in Nvidia because I will get out as fast as I got in, but just not yet.
What's your thoughts on the hydrogen company called Bloom energy? If you contact me again, I can look into it. But you know what? I don't want to bullshit you. I don't know.
I know the company, but not well enough to come in.
Any thoughts on BTC? So I imagine you're talking about bitcoin. Well, you know, I've never been as much of an adherent on bitcoin as others are when you watch Benzinga's programs here on YouTube or elsewhere. So we'll see what happens. But remember, years ago, one of the hottest trades in technology was the whole fintech trade.
Now, things are going pretty poorly there now, because remember, at one time, PayPal was the cat's Meowden, one of the most exciting stocks and some of these other names. And so the way I look at it is I'm worried about that group. Now, here's another reason why. I mentioned earlier in the broadcast that Mastercard, the ultimate fintech play with Visa, is firing 3% of its employees, probably for good reason, but specifically to the digital currency. Here's my problem, and I've shared this before, maybe I'm a Luddite, but years ago, when we first had bitcoin and blockchain technology, and the potential democratization and decentralization of the financial markets, not just here in the states, but abroad, we all thought that in just a moment's time, we are going to be freely using ethereum and bitcoin as a medium of exchange.
Well, here we are, years later, that never happened. And I don't know if it will. Because if crypto is going to really become mainstream, it's going to have to be blessed by the central banks of the countries in which it trades. And in the United States, the US central bank. Since 1913, the Federal Reserve Board does not want to give up its control of monetary policy, and so it wants to centralize its authority, not decentralize its authority.
And if the Federal Reserve Board in the United States has that view of things, I think it's going to be hard for crypto to gain that kind of foothold that people thought was inevitable years ago. So right now, it continues to be not a medium of exchange, which was its original intent, but kind of a speculative trading vehicle. And with any speculative trading vehicle, you can make some money, you can lose some money. Think about buying the Nasdaq 100 index with all of that risk reward and then putting it on a five or ten fold steroid. And that's crypto.
So I stay away from it. Just because I'm not comfortable as to where it's going to land, it is impossible for me to model it, predict it, forecast it, so I can't invest in it.
All right, guys, that looks like our questions are some good ones. Hey, if you have more questions, I am so easily found in social media, just reach out. But in the meantime, we're going to see you in two weeks with a lot more stuff to share. I hope you really enjoyed the program. Pretty impactful today.
Stay tuned. I'm Paul Meeks. This is tech tuneup from my friends at Benzinga and my tech model portfolio management firm here in Charleston, South Carolina, called Harvest portfolio Management. Please be well.