Scott Devitt (3:36)

Thank you for having me, Ed.

Ed Elson (3:40)

So I'd love to start with. Meta beat on expectations, record revenue for Q3, but the stock still fell more than 8%. Kind of a dramatic drop at least in after hours apparently because of this one time tax charge. Give us your top line thoughts and what you make of the stock dropping this much.

Scott Devitt (4:05)

The one time tax charge, you know, is possibly in effect but probably would be normalized fairly quickly. I think the more lasting, you know, issue is just that Meta's spending a lot and it's becoming more apparent as we get closer to 26. I mean, what's interesting is Meta said something very similar last quarter. Didn't get a lot of attention paid to it. They're reiterating it again, which is that Capex is going to grow at a faster absolute dollar pace in 26 versus 25 in operating expenses will go faster than revenue. And so with that it deleverages the income statement a little bit and it caused a little hesitation with investors in terms of questioning the pace of investment. But I got to say, like Meta in terms of revenue, they just grow revenue 26%. It's the fastest growing ad platform. It's outgrowing Google by over 10 percentage points. So there's a lot good here.

Ed Elson (4:57)

Yeah, incredible numbers. $51 billion in revenue up 26% year over year. Instagram reels, the amount of time spent up 30%. I mean, I'm addicted to Instagram reels. Most of my friends are. Everyone I know pretty much. It feels like the business is doing quite well. Yet we've seen this reaction and you mentioned that a lot of it might be the increase in spending, which is interesting to me because there's a way to see that positively too, which is they're trying to get ahead in terms of AI and they're trying to lead in AI. So I'd be Interested to get your reaction. What do you think of those Capex numbers? And are you surprised at all by this negative reaction?

Scott Devitt (5:42)

The negative reaction doesn't shock me. It's the way the market tends to respond with ramps and spending like this. But the market's also a bit schizophrenic. I mean if you recall when we spoke last quarter, Google was just exiting being an AI loser and now it's an unstoppable force again. And so the markets just kind of questioning the pace of, of the spend. With Meta there's a, there's a new, you know, golden child, you know, and so dollars can flow into things like Alphabet for the time being as, as, as the market gets more comfortable with where Meta is. I mean Meta is fine and, and I think you're right, this is a front footed type of spend and it will take care of itself over time. But Meta will go through, you know, probably a 12 month period where income doesn't grow as fast as revenue and that's going to be 2026.

Ed Elson (6:33)

Just on AI, what do you make of Meta's AI strategy right now? They came out with Vibes AI, this sort of AI inspired Instagram, ish social feed. They've obviously been talking a lot about the superintelligence labs and hiring all these people. Did we learn anything new when it comes to their AI strategy?

Scott Devitt (6:56)

Well, I think there's still quite a bit to learn about AI and use cases in general. I think what's been incredible with Meta so far, I think is that as a consumer facing company, it's the one company where you can actually see tangible results in revenue growth related to the integration of AI. Because you talked about addiction to reels. Well, they're using AI LLM capabilities to actually better understand all of us, which leads you to spend more time on the platform, which gives them more space to advertise against it. So it's actually happening right now with Meta. The thing is that they're spending a lot of different areas in terms of the possibility of changing the form factor of how consumers interact with the technology with glasses and things like that. So some of these things are more long dated in terms of the investment cycle, but it's a bet on Zuckerberg and the approach this company is taking in terms of building into this AI future. And if you're going to bet on one company, I think to lead that transition, it's a pretty smart bet to bet on this company.

Ed Elson (8:01)

Shifting over to Alphabet, Google beat on expectations. $100 billion in revenue the stock's up 7% in all four hours. Your reactions to Google's earnings.

Scott Devitt (8:14)

So as you mentioned a few minutes ago, I mean it wasn't more than three months ago that this company was, you know, was, was in the past and traded a material discount to its peers in the market. And now with the moves after hours, Alphabet actually trades at a premium to Meta. So outstanding execution, not being credited for it at times over the past one to two years. And now I think they're getting more full credit. So strengthened search. Search was up over 14%. The overall business grew 15. Cloud business grew 34%. There's lot good here. I think the measuring stick sometimes is valuation and how you think of valuation relative to what's happening in the business. And I think the market's more properly valuing what's happening with Alphabet right now. So for me, with the move in stock, I like the stock a little bit less but still think they're doing great things.

Ed Elson (9:05)

Just that search number you mentioned, search revenue up around 15%, which just is a little bit wild to me because we all kind of assumed that search had reached critical mass in some capacity. Also concerns about ChatGPT and this idea that AI and specifically OpenAI would eat into that business. So I'll get your reactions to that number. Up 15% year over year, the search business.

Scott Devitt (9:32)

So not yet the risk is still there, but I think. And Google search volumes are considerably slower than the growth rate because they're driving pricing and other factors in terms of ad coverage that get them to that higher level of growth. But I think the search business is in a good place. It's a healthy business. And as we've been saying for some time, if this entity can grow low double digits and grow operating profits faster over a three to five year period, then you're probably going to get an equity return that's around 15% and that's what you're doing. You're getting. Is there still risk that AI is going to have a broader impact on search? It's still there. Market just doesn't care right now.

Ed Elson (10:17)

And final thing, I want to get your reaction to YouTube still crushing it. YouTube revenues up 16% year over year. What do you make of the performance that we saw in the YouTube business?

Scott Devitt (10:29)

YouTube is an underappreciated media platform in terms of its time spent. It's the most competitive company with Netflix. When you think about YouTube TV in addition to that and kind of the carnage it's leaving in the cable industry in the United states. I mean YouTube is very impressive. The growth rate that it's being able to extract from that business, given its size and scale is very impressive. You know, and if you were to look at Alphabet on some of the parts basis, I think that that YouTube business is still very undervalued.

Ed Elson (11:01)

All right, Scott Devitt, managing director of equity research at Wedbush Securities. Scott, we really appreciate your time. Thank you for joining us again.

Scott Devitt (11:08)

Thank you.

Ed Elson (11:10)

After the break, Nvidia hits another milestone. If you're enjoying the show, give Profg Markets a follow.

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If it seems like AI is touching just about every part of your life these days, you aren't imagining things. It's all up in your streaming services. It's all up in your job search, and now it's even in your doctor's office.

Ed Elson (11:36)

It can perform exceptionally well, kind of almost in a superhuman way on these.

Co-host or Producer (11:41)

Specific, very challenging, complex clinical cases. This week on Explain it to Me When AI Meets medicine.

Ed Elson (11:48)

And I think it can be potentially revolutionary and transformative for people if they.

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Use it in the right way and when it doesn't compute. One in five around 20% of Americans said that they had turned to a chatbot for advice that later turned out to be incorrect. New episodes Sundays, Wherever you get your podcasts.

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Scott, we're hitting the road, bringing.

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Seven cities. Toronto, Boston, New York, D.C. chicago, San Francisco and LA.

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This week on Net Worth and Chill, we're joined by Marina Larude, the powerhouse founder and CCO of LaRude, the luxury footwear brand that's redefining accessible luxury. From conceiving the idea during an RV road trip with her husband to winning the FNAA 2024 Brand of the Year award. Marina's journey from Teen Vogue fashion director to building her own empire is nothing short of inspiring. Marina gets candid about the money mindset shift from to entrepreneur, how she's scaling internationally while maintaining her values, and what it really takes to compete with footwear giants. When you're bootstrapping your way to the top. Get ready for an unfiltered conversation about wealth building, taking calculated risks, and turning your corporate expertise into entrepreneurial gold. Listen wherever you get your podcasts or watch on YouTube.com YourRichBFF.

Ed Elson (13:50)

We'Re back with property markets. Nvidia is officially the world's first $5 trillion company. Jensen Huang had to wait nearly a quarter of a century for Nvidia to reach a market cap of $1 trillion, but only about three months to go from 4 trillion to 5 trillion. Nvidia's market cap is now equal to about 16% of America's GDP. It is also larger than the main stock indices of Germany, France, and Italy combined. Shares of Nvidia were up more than 4% yesterday. This surge came shortly after a flurry of announcements from the chip maker, including a total of $500 billion in new AI chip orders through 2026, new plans to build new supercomputers for the US government, a partnership with Nokia that involves a $1 billion investment, and an autonomous driving partnership with Uber. And on top of all of that news yesterday, President Trump said he plans to discuss Nvidia export restrictions with President Xi Jinping in their meeting in South Korea. Okay. For more on what this milestone means for the world's most valuable company, we're speaking with Gil Luria, head of technology research at DA Davidson. Gil, good to see you.

Co-host or Producer (15:03)

Thanks for having me.

Ed Elson (15:06)

So Nvidia hit 5 trillion. I think we've had you on a lot on the program. I think we also had you on when they hit 4 trillion recently this year. Let's just get your initial reactions. The very first $5 trillion company. The most valuable company in history.

Co-host or Producer (15:23)

Yeah. And that was only a couple of months ago.

Scott Devitt (15:25)

Yeah.

Co-host or Producer (15:26)

This is happening fast. And part of it is we just all have to recalibrate what we think is a big number. It wasn't that long ago that we were excited about trillion dollar companies and then two and $3 trillion companies. The market for AI, if it succeeds in the way that many people think it will, is in the trillions of dollars. And if the market's in the trillions of dollars, we will need trillions of dollars of equipment. And if we need to keep buying that level of hundreds of billions of dollars a year of equipment, Nvidia is still going to sell most of it, at least for the foreseeable future, which is why they have captured most of the value. Most of the profits since ChatGPT was introduced have been captured by Nvidia and the market is expecting them to continue to get to capture much of the profits going forward as well, which is why it's very comfortable. It's getting comfortable in large numbers, including $5 trillion.

Ed Elson (16:27)

A lot of ifs in your statement there. If we see AI explode in the way that people expect, if the market and the demand rem at the levels that people expect, what would you say about people who are maybe concerned about the number of ifs in your statement.

Co-host or Producer (16:44)

That we should be, because nothing should be taken for granted. Let's start with the baseline. The baseline is, let's say the technology is as good as it's going to get. ChatGPT is as good as it's going to get. Gemini, Cloud, Anthropic, they're all as good as they're going to get. Even if we just use those tools and deploy them broadly across our companies and we as consumers start using them broadly, they will make us more productive. There will be continued demand, but the demand won't grow exponentially. So we will need more chips, more data centers, but we won't need exponentially more. We don't believe that's the case. We think the models are still getting better. There's less hallucination, they have bigger attention span, they can work for longer without interruption, they can remember more. And if that trend continues, we will need more compute every year. And then there's the super rosy scenario, the maximalist scenario, which is we're approaching artificial general intelligence, superintelligence, whatever you want to call the notion that an AI tool will be able to do anything a human does at least as well as any human. If we get to that, we will need exponentially more compute. So those are the three scenarios. We have to do a weighted average of all those outcomes to determine where we're headed to. And what the market is saying is it's at least the least optimistic scenario. It's probably closer to the more optimistic scenario. And there's a chance of the maximalist scenario.

Ed Elson (18:20)

A lot of the excitement, I mean, there are many reasons why we hit 5 trillion. One of them, I'm sure you would agree, is this GTC conference. Jensen Huang announced a lot of new plans for Nvidia. And I think the big number is he said, we've got half a trillion dollars in revenue in the pipeline. I just wanted to get your reaction to that number. He said, that's what we're gonna get on the Blackwell chips, half a trillion. Do we know any more about that number? Do we know who's spending that half a trillion dollars. Is it confirmed? What do we know about that number?

Co-host or Producer (19:02)

Well, it's Jensen Mast, so we don't know exactly what it means. We know that it's gonna be more than we were expecting. And there' Nvidia has been very careful in the past not to provide us long term guidance. So the fact that Jensen was willing to do that means he had something in mind. What I think he had in mind is he's competitive, he's seeing all these other companies get all this credit for the growth of AI. And Nvidia, of all those companies, is trading at the lowest earnings multiple. They're trading at the lowest earnings multiple of all these other companies because these other companies are putting out press releases and huge promises from OpenAI and these massive backlogs that they're talking about. And they're willing to go out into the future and say Oracle was willing to go five years into the future and say that they're going to have a much bigger business then. And here we are with Nvidia guiding one quarter at a time, not getting credit for that ramp. And I think Jensen's competitive and he said, hold on a second. For all these good things to happen to everybody else, we're going to do half a trillion dollars of these chips in the next few quarters. So we don't know exact exactly how much that means for next quarter and for next year. We do know that it's more than we were expecting. So what we should expect is that the Wall street estimates, our estimates for the revenue and earnings next year are likely to go up by the time they report on November 19th.

Ed Elson (20:33)

So Jensen Huang was also asked about the. He was asked the big question that everyone is asking, which is, is AI a bubble? Are we in a bubble? I'm going to play his response. I'd like to get your reaction.

Co-host or Producer (20:46)

I don't believe we're in the AI bubble. And the reason for that is we're going through a natural transition from an old computing model based on general purpose computing to accelerated computing. We also know that AI has now become good enough because of reasoning capability, research capabilities, its ability to think. It's now generating tokens and now generating intelligence that's worth paying for to the point where I'm paying lots of it.

Ed Elson (21:12)

So we know where he stands. AI is not a bubble. It flies in the face of what I believe is kind of conventional wisdom at this point. Everyone that I'm talking to and the media and even people who work in AI say, yeah, it's probably a bubble. He says it isn't your reactions.

Co-host or Producer (21:30)

So we're in the middle. Let me explain how we think there's a lot of really good, healthy behavior and investment by the biggest companies. Microsoft, Amazon, Google, Meta and Elon are investing in a thoughtful way. They have all the customers. They're already using AI to make money. Their customers are already making money. And so that investment based on cash on hand and cash flow is healthy. That part is not a bubble. There are bubblicious type of behaviors happening, though. We see Companies like Oracle, Coreweave, Crusoe, Lambda, Stargate, SoftBank borrowing at very high cost to build data center capacity without customers. Their only customers are overflow from those real customers that we talked about at the beginning. That is unhealthy related party transactions. Nvidia investing in Core Weave. That's buying from Nvidia. So Nvidia is buying from Core Weave. So it's backstopping Core Weave's capacity. That is unhealthy behavior. That's Nvidia creating demand that's not there, inflating demand. So there are bubble like aspects and that's what people are recognizing and seeing and pointing to. But we have to put that side by side with the real behavior that's happening. The good investment, the thoughtful investment by large companies that have customers and have the capital on hand to do that. And finally on Jensen. He's been talking about the transition to accelerated computing for several years. And we've all been thinking, yeah, he's pitching his own book. And then three years ago he was proven right to an extent that nobody ever imagined. And So I give Mr. Wag the benefit of the doubt on these matters.

Ed Elson (23:23)

Yeah, I mean, just as we wrap up here, he's almost become the CEO of a generation. I mean, many incredible images, him signing people's items and signing people's cause in some cases signing people's chests.

Co-host or Producer (23:42)

There you go.

Ed Elson (23:45)

I'd love to just get your reactions to how Jensen Huang did this. I mean, the guy who was working at Denny's, now the CEO of the first $5 trillion company. What does it say about Jensen Huang.

Co-host or Producer (23:58)

As a CEO that he's a visionary leader. He saw what we're experiencing now well ahead of anybody else. At some point Google caught on and then OpenAI caught on and then Microsoft caught on. And those are the companies that have a head start. He saw that ahead of everybody. He understood that instead of a cpu, if you build a chip that has parallel processing embedded in it, you can do accelerated Compute, which allows you to build neural networks on the transformer model. He has a great grasp of the engineering and he's been a tremendous leader. Let's not forget he's made thousands, tens of thousands of millionaires and multimillionaires in his company by motivating them to build something. And they're not resting on their laurels. They've gone from a two year development cycle to a one year development cycle because they know competition is coming. So they're in a race to keep building a product that's better and better now, won't last forever. There will be competitors. Google is catching up to a certain extent. Broadcom's catching up. AMD has a shot, but he still has a lead. He's worked very hard on it for a very long time, since those days of Denny's to develop that lead. And that's why Nvidia deserved this milestone of getting to be a $5 trillion company.

Ed Elson (25:16)

All right, Gil Laria, head of technology research at DA Davidson, we always really appreciate your time. Thanks, Gil. Thank you. So Nvidia is now a $5 trillion company. Yet another record from Nvidia. Many people are celebrating this, and rightly so, because many people own it. If you are invested in the S and P, well, the good news is Nvidia makes up a tenth of your portfolio. At the same time, though, many people are also concerned, concerned about the bubble and concerned that Nvidia might be overvalued. Remember, it was less than three years ago that ChatGPT was first released. At the time, Nvidia was worth $400 billion. Now it's worth $5 trillion. The numbers are crazy and the concerns are understandable. However, if you look at the multiples as we just discussed, actually the valuation isn't that crazy. Nvidia is trading at 30 times forward earnings. That's less than Tesla, it's less than Apple, it's less than Microsoft. And the reason Nvidia rallied again this week, it's quite simple. Jensen Huang told us that earnings are going to increase even more. $500 billion. That's how much companies are expected to spend on these Blackwell and Ruben chips through 2026. So when you see that number, well, suddenly $5 trillion doesn't sound so crazy. Now, the real problem here with the valuation, it isn't exuberance, it isn't speculation. The real problem here is certainty. Specifically a certainty among Wall street investors that those $500 billion that Jensen Huang promised, that those $500 billion are actually going to. Yes, $5 trillion for a company that's about to generate half a trillion dollars is reasonable, but it's only reasonable if you believe that those half a trillion dollars are guaranteed. And as we've discussed on the show before, and as Gil highlighted, none of this is actually guaranteed. In fact, there is good reason to believe that those $500 billion won't materialize. We know, for example, that one of Nvidia's largest customers is OpenAI. And we also know that OpenAI doesn't have the money to spend as much money as they say they will over the next few years. That has been a big concern with the company. Another big client is Oracle. Meanwhile, credit default swaps for Oracle are skyrocketing because investors are very concerned about Oracle's ability to actually make good on its payments, to spend as much as they say they will spend. And, and at the same time, as we've discussed, many of those dollars were actually investment dollars that came from Nvidia. So even if it does materialize well, then the question is, how long will it actually last? These are the $5 trillion questions, and to be clear, we don't have the answers. If we did well, we'd be trillionaires. But the point here is to emphasize that it, it is a question that half a trillion dollars is not guaranteed. Those forward earnings are not guaranteed. Behind every numerical projection, there lies an invisible question mark. A question mark that is actually more significant than Jensen Huang would like for us to believe. So, in sum, $5 trillion is fair game if all goes to plaque. And the most important word in that sentence is if. Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Patterson and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalon, Isabella Kinsel, Kristin o' Donoghue, and Mia Silverio. And our technical director is Drew Burrows. Thanks for listening to Profg Markets from Prof. G Media. If you like. If you liked what you heard, give us a follow. I'm Ed Elson. Tune in tomorrow for our conversation with Andrew Ross Sorkin.