Episode 593: Neal and Toby dive into Nvidia’s Q1 earnings which topped expectations but came with a warning from CEO Jensen Huang. Then, companies are looking to cash in on Bitcoin’s rising price as it looks to build crypto reserves. Also, consulting firms are experiencing a world of pain as cut backs on federal spending have led to mass layoffs. Meanwhile, Neal shares his favorite numbers on NYC’s congestion pricing, the New York’s Knicks, and the Birthday Effect. Finally, the US Court of International Trade just blocked Trump’s reciprocal tariffs. Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. LinkedIn will even give you a $100 credit on your next campaign so you can try it yourself. Go to LinkedIn.com/MBD Terms and conditions apply. Only on LinkedIn Ads. Check out more Maxinomics videos: https://www.youtube.com/@Maxinomics Listen to Morning Brew Daily Here: https://www.swap.fm/l/mbd-note Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Don’t get up too soon in Turkey 3:20 - Nvidia Q1 + Maxinomics 10:15- Consulting crashing 13:20 - Companies getting into crypto 19:00 - Congestion pricing doin’ its thing 22:00 - The Knicks’ MSG distraction 24:00 - Weird birthday fact 26:00 - Headlines Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the latest updates on Nvidia's earnings?
Aviation officials say it's a safety hazard when passengers unbuckle their seatbelts or stand up while the plane is still moving, and it can also delay the disembarking process. Toby, what's next? Finding people who clap when the plane lands?
Obviously could not be more in support of this rule. Nothing grinds my gears like people getting hot under the collar and jumping up to try to make up three rows. Where are you going? There is nowhere to go. It just drives me crazy. But you combine this with American Airlines' tech that triggers a sound if someone scans their boarding pass before their boarding group is called.
And we are finally getting to the point where we are bringing back shame in proper amounts in the airport, in the travel sector. And I love it. Bring shame back. It's a very potent and powerful societal force. So shame the people who get up too early. Shame the early boarders. Shame and financial repercussions. And financial, but mostly the shame. And now a word from our sponsor, LinkedIn.
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Feel free to go as high as you want. Well, if that's the case, I'm going big. Let's say 300 million. Wow. You nailed it. Really? No.
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Chapter 2: Why are consulting firms experiencing layoffs?
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NVIDIA reported earnings yesterday, and while the days of 200% revenue growth are over, things are still pretty hunky-dory for the company selling shovels during the AI gold rush. Demand for AI infrastructure shows no signs of cooling down, empowering NVIDIA to better than expected earnings and revenue. as its data center business recorded year-over-year growth of 73%.
Chapter 3: How are companies leveraging Bitcoin for reserves?
Not quite triple digits, but hey, C's get degrees. The other main focus ahead of its earnings was whether recent U.S. chip export controls were going to affect NVIDIA's international chip business in future revenue guidance, and the answer was yes. Yes, they are.
Nvidia forecasted $45 billion in sales for Q2, saying its guidance would have been $8 billion higher if not for the export restrictions on China-bound H20 chips. The restrictions also led to $4.5 billion in extra inventory charges, $2.5 billion in lost sales, and a 10-point hit to its gross margin.
Obviously, export restrictions are a hot topic in the chip industry, as successive administrations have tried to stop NVIDIA's most advanced tech from falling into Chinese hands. But Jensen Huang himself called those attempts a failure, arguing they've only accelerated China's domestic industry by galvanizing local talent and government support.
Neil, despite all this political tension, Nvidia is still chugging along, saying that global demand for their products is alive and well. But actually, Neil, I don't really care what you have to say here because we have our Morning Brew coworker, Phil, who runs the Maconomics YouTube channel in the studio this morning to chime in on Nvidia. Phil, first of all, thanks for being here this morning.
And secondly, give me your thoughts on how Nvidia is navigating this China situation.
thanks for having me on gentlemen the effect of export controls were in tight focus nvidia has had to shift things around to comply with the new administration's trade policy notably as toby said nvidia took a four and a half billion dollar hit for having too many h20s on hand after the april 9th deadline for shipping them to china
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Chapter 4: What is the impact of congestion pricing in NYC?
The H20s were an intentionally downgraded GPU model designed specifically to meet export controls set by the U.S. government for China. NVIDIA ended up making too many, took too many orders, and weren't able to ship them out in time. And that gets even worse next quarter. NVIDIA is saying they expect around $8 billion in losses on the H20.
You would think that perhaps you could just sell these to other companies, and perhaps in some cases that might be true, but these things were nerfed. pretty hard to comply with the U.S. government's desire to not ship cutting-edge chips to China.
So it's certainly been a hectic six months for Nvidia's compliance department, who, along with the CEO, have been fairly loud in making the case that perhaps limiting China to low-powered chips will provide the incentive for the country to finally push through and develop its own chips that can rival the highest performing ones that are coming out of the U.S.
Chapter 5: What distractions are affecting the New York Knicks?
As they say, necessity is the mother of all invention. And there have been some chirps that perhaps Huawei, the Chinese company that would be most likely to challenge Nvidia, has made more ground in this area than people assume. I mean, I have been there.
I just bought the wrong Uncrustables for my girlfriend. And she said, no, no, no, we don't want these old 820 Uncrustables. I want these ones. And she started making her own peanut butter and jelly sandwiches. So I've been there where you just overload on the wrong inventory.
Chapter 6: What is the Birthday Effect?
And it does look like investors, though, are kind of shrugging this off because looking at early morning trading right now, Nvidia's up 6% already. And then since the announcement of kind of these export controls, Nvidia's stock has actually risen 20%. So mainly just been this shrug off maneuver from a lot of global investors.
But Phil, you also read through the most recent earnings transcript and found another interesting tidbit about demand for tokens, which is the industry speak for data being processed by AI models. What did you notice there?
Chapter 7: What recent headlines should we be aware of?
On the call, Jensen Wang, the CEO, said Microsoft processed about 100 trillion tokens over the last year, which is a 500% increase year-over-year. A token is the base unit of LLM processing. It's slightly more nuanced than this, but for the sake of brevity, one word equals one token. Anytime a word is taken in from a query or output as a response, that's one process token.
So that means Microsoft is processing about 200 billion pages of single-spaced text per year. But as Nvidia noted on its blog, the exponential increase in token processing has come from generating tokens, output, essentially generating words. So while we're inputting more and more data to these things, they're spitting out from what Nvidia is saying a far larger asymmetric amount.
This jives with what David Solomon, the CEO of Goldman Sachs, said a few months ago, that an LLM can accurately generate 95% of an S-1 statement. An S-1 statement is about a 300- to 400-page document, a super dense financial and legal document that companies file when they're about to IPO. He said it used to take a six-person team two weeks to do that.
So a bit speculative here, but that exponential increase in token processing might signal that these things have actually started to see more adoption in business use cases, even if those cases aren't made formal within the company.
Yeah, it does signal like the demand is healthy, if that's kind of like the underlying point to the point you were making there. Because if you look at the list of domestic companies and their spend for this AI infrastructure, it is quite healthy. Big Tech still says that they plan to spend $345 billion on AI infrastructure this year. So homegrown demand is healthy as an OSC. Also, you look at
at the recent trip over to the Middle East that Trump just took. And it looks like there's a new Stargate project as there. So there's some international demand. So a lot of what we heard yesterday from Jensen Huang was kind of flexing on people saying like, hey, we are shut out of this $50 billion Chinese market.
But look at the amount of demand we have from other places around the world and just here in the US. So I think a lot of companies are having these hiccups dealing with these export controls or dealing with the trade war. But NVIDIA probably has the biggest moat of any of them. So they have the most resilience to any of this.
So it did look like yesterday Jensen Huang was basically saying like, hey, we are doing just fine. We're doing just hunky-dory here despite getting shut out of this pretty lucrative market. And on that note, it's time to move on. Phil, thanks so much for joining us. Where can our listeners find your stuff?
You can find me on all of the socials, primarily on YouTube at Maxonomics or on Instagram at MaxonomicsMB. It has been a privilege.
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