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Chapter 1: What is Nvidia's new Vera CPU and why is it significant?
What is Nvidia's next big growth lever? You're listening to Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. My name is John Quast and I'm joined today by Foolish contributors, Rachel Warren and Matt Frankel. We have a couple of things to talk about on the show today.
We're going to talk about passive investing, we're going to talk about a deal in the homebuilder market, but first, we're going to talk about the bell of the ball and that is Nvidia. NVIDIA over the weekend in Taipei, having a conference event where they announced many things as they are want to do. But one of the big announcements coming out from NVIDIA over the weekend was its new Vera CPU.
Now I know full well that NVIDIA is not a hidden company. It's the largest publicly traded company in the world.
Chapter 2: How does Nvidia's Vera CPU compare to Intel and AMD?
But the business has boomed with GPUs or these graphic processing units. This is an announcement for a CPU, a central processing unit, and that's not an area that NVIDIA dominates. Actually, that space is dominated by AMD and Intel, and we'll get to that side of the story here in just a moment. But first, I mean, let's talk about this, Matt.
What is NVIDIA's pitch to its customers here on why it should potentially switch to its own CPUs instead of that of competitors?
Yeah, so at a high level, this new chip combines one of NVIDIA's Blackwell GPUs, which you could find in PCs today, with an ARM architecture-based CPU designed by a company called MediaTek, which NVIDIA is partnering on to make this. It's clearly designed to handle AI workloads better than the processors that you see from Intel and AMD, which own over 90% of the market today.
NVIDIA claims, for example, it's going to deliver RTX-class gaming, which is the high-end gaming PCs that you've probably seen at Best Buy and things like that, in very thin Windows laptops. It's part of NVIDIA's collaboration with Microsoft.
Chapter 3: What is Nvidia's strategy for attracting customers to its CPUs?
I know it's really tough to keep track of all of NVIDIA's various collaborations going on right now, but it made one with Microsoft to essentially reinvent the PC, and this is part of that. It's designed to be a high-end processor. That's the key word. This isn't the $400 laptops. Designed for avid gamers and professionals who really need the ability to multitask and do complex workloads.
Yeah, I think those are really good points that Matt makes. But I think as well, to follow up on that, you know, NVIDIA is making this pitch with the Vera CPU, really kind of trying to fundamentally change what a CPU is supposed to do in this increasingly agentic era of AI.
I mean, one of the things here as well to note is NVIDIA is essentially telling data center clients that their old architecture has become a massive bottleneck. So you think of how powerful GPUs handle the core thinking of AI. Autonomous agents also need to execute code, search databases, and really manage these multi-step loops.
Chapter 4: What impact could Nvidia's CPU have on the CPU market?
And we're in a time where Legacy CPUs, they crumble under that heavy coordination workload, and it leaves these very expensive GPUs waiting around idly. So NVIDIA is pitching what is essentially a specialized traffic controller that runs these agentic environments almost two times faster than traditional alternatives.
So I think that's something else that's really important to take away from this announcement.
Yeah, and I want to go a little bit more hidden gems-y here beneath the surface as we talk about this. And so both Matt and Rachel alluding to this, not all CPUs are created equal. Intel and AMD, as Matt pointed out, 90% of the market essentially, maybe even a little bit higher than that. It's built on a certain kind of architecture that many of us, including myself, don't normally think about.
It's not something that is right there on the surface, but it's using that x86 architecture. And basically, it's completely different the way that NVIDIA is approaching it, approaching it with the ARM architecture.
architecture and so that does create some i think that in the past investors have always viewed amd and intel as kind of this defensible moat here because its customers would have to change the architecture they can't just plug in nvidia cpus and it's apples for apples switch no you're also changing the architecture that goes behind that
But kind of these, as you pointed out, Rachel, these more agentic workflows. So this is the big trend in AI. The third wave, as Jensen Wong called it. These AI agents, it's creating an exponential increase in need for the CPUs. And so that's really what it's trying to address here. I don't know. Guys, what do you think? Is this something that is actually going to cause...
customers to switch from AMD Intel to a more ARM-based architecture?
Matt, what do you think? Yes and no. At least initially, this is going to be a very high-end product. And it's really important to point out what we don't know yet. One thing we don't know yet is pricing. We don't know how much this is going to cost. If laptops with this chip cost $2,500, they're only going to capture a very small part of the market.
It's also worth pointing out we don't have any real-world performance data from these chips yet, only what NVIDIA says. There's no third-party data or anything like that like we have for Intels and AMDs. For the time being, I really see this chip fulfilling a niche, not capturing a big share of the PC market.
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Chapter 5: What is Berkshire Hathaway's latest acquisition and its significance?
I still see AMD and Intel as having a pretty defensible moat, essentially a duopoly in the CPU space for PCs. I mean, Qualcomm already has an ARM architecture processor in the PC market. It's available in dozens of laptop and PC models. Few people even realize that. I didn't realize it until I went to shop for a new laptop a couple of weeks ago.
Qualcomm says it has a 10% share of the $800 plus US Windows laptop market. That's not the lion's share of the laptop market. Most people who buy laptops spend less than $800. So in reality, they have a low single digit share of this market. NVIDIA has its name.
Chapter 6: How does Berkshire Hathaway's acquisition relate to current market trends?
It does have that going for it, but it's going to be a very high end product at first. And I could see a single digit share at least in the next few years.
Yeah, I don't think this is a winner-takes-all scenario. And I also think it's becoming increasingly clear that NVIDIA is really carving out its own path within this market. That being said, I think investors in the market for a long time have viewed Intel and AMD's architecture as sort of this unbreachable mode, right?
Because rewriting legacy enterprise software to run on ARM chips was a multimillion-dollar endeavor, if not more. But NVIDIA is essentially bypassing this barrier They're targeting what is the increasingly multi-billion dollar infrastructure built exclusively for AI factories, which I alluded to earlier, you know, rather than fighting to replace legacy enterprise databases.
NVIDIA is essentially carving their own path forward. And a lot of this is being made inevitable by the way they're leveraging their AI ecosystem monopoly. So the ARM-based Vera CPU, it comes really tightly integrated into the hyper-advanced Vera Rubin platforms via proprietary connections.
So if you're a cloud provider for Titan, like OpenAI, like Anthropic, trying to force a traditional processor into this unified system could drastically destroy computing speed. And so by integrating Vera flawlessly with their new Vera Rubin superchips, NVIDIA is essentially offering a completely unified ecosystem.
And that could create a really durable advantage for them in this space looking ahead over the next several years.
All right, so let's just get to the bottom line here as we close out this topic. After NVIDIA's announcement here for the Vera CPU, are you worried for Intel and or AMD? Matt, you go first.
For AMD, not really. And for two big reasons. For number one, AMD CPUs are meant for the masses, not just hardcore gamers and multitaskers, creative professionals. You can get a great AMD processor on a laptop for about five or $600 right now. Second, CPUs are becoming much less of the bull case for AMD. It has tremendous momentum in the data center space right now.
So for PCs and laptops, it's still a big part of the business, more so than Nvidia, but it's not a big part of the growth thesis anymore, especially like it was. With Intel, the jury's still out. That stock has run up so much. But it's really based on future potential, not any sales that it's generating so far. For the time being, Intel's revenue is heavily reliant on its CPU business.
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Chapter 7: What are the implications of passive investing on market dynamics?
But will the market care stock price wise? Probably not because of all of that future potential bacon.
Rachel, how about you?
Yeah, I think at least in the near term, that's true in terms of how share prices will respond. I think it's also important to note, you know, NVIDIA, they're projecting $20 billion in CPU revenue this fiscal year. So they are aiming to capture a significant portion of the server CPU market.
And we already have independent benchmarks that are showing that their custom design outperforms Intel's flagship design by over 55%. It edges out AMD's top chip by 11% in raw enterprise workloads.
And the idea here is that by eliminating some of the latency delays caused by AMD and Intel's multi-chiplet setups, that Nvidia can really challenge that historic performance monopoly that their chips have held for decades. What that looks like in the long run, I think still remains to be seen, but I think investors have also learned that it's a mistake to bet against the success of Nvidia.
So the competitive landscape is very much shifting And NVIDIA is really leveraging importantly, and I think this is one of the biggest takeaways, they're leveraging the Vera CPU to really push for full vertical integration. So if a data center wants the hyper advanced Vera Rubin platform, they have to buy a complete proprietary package, the Rubin GPUs and the Vera CPUs bundled together.
And I think that's going to also create a lot of growth tailwinds.
Well, after the break, we're going to be talking about one of the world's largest bank accounts. It's actually finally spending some money.
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Chapter 8: How does passive investing affect stock market behavior during downturns?
It's something of a counter cyclical bet right now in the current macro environment. But I think what I take away from this is Berkshire is capitalizing on what is still a very long term goal.
structural reality America is facing a massive multi-year backlog of housing demand obviously that has been suppressed by high interest rates but in the you know lifespan of the market it's a temporary blip on the radar so what's interesting you know taking Taylor Morrison private in this purchase you know they're not just buying a builder across 350 communities which is notable but they're also absorbing a very lucrative internal Financial Services arm that arm provides in-house mortgages
Titles insurance, it plugs really well into their existing housing giant, Clayton Homes. And, you know, as you noted, John, very much leveraging this unmatched cash hoard that they have on their balance sheet. They're buying a top tier builder to discount. I think that they are trying to position themselves to dominate that inevitable construction upcycle when it comes.
It's a contrarian play for sure, but it's one that I love. I've discussed many times on these shows, I'm a big fan of the home building space from a long-term perspective. Even with the premium Berkshires paying for Taylor Morrison, I think it was like almost 30% above the share price, it's still getting it at something like eight times EBITDA.
To be clear, the home building industry is terrible right now. I can't really stress that enough. There are more than 500,000 unsold homes being held by builders right now. That is the most that we've seen since the financial crisis era. Sales are slow, mortgage rates are high, builders are having to heavily incentivize buyers to move houses. But the long-term bull case is compelling.
There's a shortage of about 4 million homes in the United States right now. About a million of those would be single-family homes, single-family units like Taylor Morrison produces. There's pent-up demand from buyers and sellers who essentially feel stuck in place by high mortgage rates. or sidelined just priced out due to high mortgage rates.
And there are excellent profitability economics in home building right now, even after all those incentives I mentioned, due to all that home price appreciation we've seen since 2019, 2020. So I really like this bet long-term.
Yeah, I think that Berkshire Hathaway, I think this is fair to say, is anything but a momentum trader, right? If Berkshire was going with momentum, it might be buying a CPU stock right now, but definitely the homebuilders are down, it's looking for value, and it's taking that contrarian bet here. Warren Buffett, of course, he's no longer in charge of the decision making.
But Warren Buffett once said, we are willing to look foolish as long as we don't feel we have acted foolishly. And I think that's an interesting thing here. Many investors look to Berkshire Hathaway. What is it doing? Berkshire Hathaway might look foolish for a little while here. But do you think that it's acted foolishly in acquiring a home builder, Rachel?
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