Frank Lee
Appearances
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
If you look at the China market, that body language seems to have become a lot more positive since DeepSeat came out. And in fact, it's creating some short-term upside to Nvidia as well because DeepSeat You've seen a very strong pickup in the H20 chip that goes into China for NVIDIA.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
I think if you've seen the share price reaction, it's been a little underwhelming. It looks like the numbers are strong. They're solid. The fundamentals are there. Demand has not softened. But I think the key issue is that it was such a big earning surprise for most a year and a half.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
And that was because the constant changes in their roadmap gave people confidence to take their numbers up again, including analysts like myself. The last two quarters, they haven't really been able to do that. And I think part of that reason is pricing power. The first year and a half of this AI, the roadmap, they were seeing significant increases in their pricing power almost every six months.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
The last peak was mid last year. Since then, we haven't really seen anything new come through.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
Yeah, so I think this is a great question. The Blackwell revenue that came out today with a report in the fourth quarter, $11 billion was significantly higher than our estimate. And I think most analysts were somewhere around $5 to $6 billion.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
But I think what the confusion or at least the head scratching is that when you look at their current April quarter guidance of $43 billion, that's a net addition of about $4 billion. So I think that begs the question that some of their existing line, especially the hopper, is going to start to come off. Frank, are those older chip lineups being retired or just falling out of favor?
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
It's a product transition, right? And so while there is going to benefit from Blackwell, the hopper is going to drop off. So your net addition isn't maybe quite as much as people had hoped. The other issue is that one of the big reasons people were quite excited last year was that they had pushed this new change or this new model of doing the entire downstream rack.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
So you would bundle something like 72 GPUs together. And that increased a lot of content growth. But the progress of this rack architecture has generally been a little bit slow and unexpected. And so I think that is still something that we need to continue to see over the next couple of months.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
The spending on the hyperscaler has always been something that the market has been somewhat worried about since the very beginning of the AI story. The first year for NVIDIA, there was constant questions like, Can the hyperscalers keep this up? And so far, the answer is yes.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
When DeepSeek first came out about a month ago, one of the biggest worries was that this is going to change the AI CapEx trajectory, especially for the hyperscalers. Well, within a couple of weeks, the answer was clear. It was that it was not going to change spending in the near term. In fact, most of the hyperscalers raised their CapEx budgets for this year quite a bit.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
Now, there still is a longer term question of does it change the long term trajectory? We need to continue to see that. But DeepSeek has also created something interesting is that it's boosted the confidence, especially in the China market. So if you look at the Chinese internet players for the last couple of years, whenever you ask them about What's their AI strategy to get around the chip bans?
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
There was always this little bit of hesitation, but that body language seems to have become a lot more positive since DeepSeq came out with a sense that they don't need to use the most high-end chips now to have an AI model.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
And in fact, it's creating some short-term upside to NVIDIA as well, because along with the DeepSeq introduction, you've seen a very strong pickup in the H20 chip that goes into China for NVIDIA. One of the other trends that have emerged in the last six months has been the impact of the ASIC.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
Actually, Frank, just explain that business for us because I don't think we've talked about it here on the podcast. So basically, besides the GPU chip that everybody's using today from NVIDIA, a lot of the hyperscalers like a Google or an Amazon, they have their own chip. It's called an ASIC, an application-specific IC. It's their own IP or they have control of that.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
And they work with other chip companies such as Broadcom or Marvell to develop that chip. So there's this concern that over time, are they going to be looking to ramp their own chip? So far this year, that has not impacted NVIDIA's trajectory or growth. But it is another one of those variables that I think people look at that could be a long term competition.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
Yeah, that's a great question. I think if you look at NVIDIA itself, they feel very comfortable with a near-term demand. But if you see what Jensen Huang has been talking about since beginning this year, he's already starting to talk about other narratives, such as the auto business that needs AI, such as the robotic side where there's going to be AI demand.
WSJ What’s News
Microsoft Urges Trump to Loosen Export Rules on AI Chips
The question, though, is that while those are potentially very interesting narratives and TAMs, how significant is that going to be in the near term for to compensate if the spending on hyperscaler comes off. So I think that's the bigger question that investors are trying to figure out.