Closing Bell - Closing Bell Overtime: Is Nvidia Uninvestable? One Guest Makes The Case; VMware CEO On Recent Partnerships 8/22/23

Episode Date: August 22, 2023

Vital Knowledge’s Adam Crisafulli and Macquarie’s Thierry Wizman break down the market action. Earnings from Urban Outfitters and Toll Brothers. VMware CEO Raghu Raghuram on his company’s recent partnerships, including with Nvidia. Wedbush’s Scott Devitt on naming Amazon to the best ideas list. 3Fourteen Research’s Fernando Vidal calls Nvidia “uninvestable.” Will he convince you?

It looks like the NASDAQ hung on by its fingernails. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort. Morgan Brennan is off today. Two key reads on sensitive parts of the market are coming your way this hour. We will get numbers from Urban Outfitters following brutal sessions for Macy's and Dick's, along with Toll Brothers as homebuilders deal with rising mortgage rates.

Plus, the CEO of VMware is going to join us exclusively to discuss the company's newest multi-cloud software tools and expanded AI partnership with NVIDIA. Speaking of NVIDIA, we're going to talk to an expert who says the company is uninvestable at current levels, all as Wall Street awaits tomorrow's earnings report. But first, let's get to our market panel. Joining us now is Vital Knowledge founder Adam Crisafulli and Macquarie Group strategist Terry Wiseman. Welcome, guys. Adam, if you're going to change anything in your portfolio, your plan at home ahead of NVIDIA, I guess this is your last chance, right? Like tonight, tomorrow. So you've got to make your plan. You're going to get NVIDIA and then Jackson Hole. So who what kind of investor should consider changing something, do you think, depending, I guess, on how aggressively one has been positioned? Yeah, I mean, obviously, both are going to be critical catalysts, you know, in terms of

how the market reacts to both. You know, I think for NVIDIA, obviously, expectations are enormously elevated. That doesn't mean necessarily that the results are going to look bad. I think, you know, all signs suggest that NVIDIA owns this market and demand is off the charts. I think there are certainly questions about whether or not there's a lot of demand getting pulled forward. And there certainly will be a lot of competition that starts to hit around Q4 and into next year. But for now, they own this market and, you market and demand is extremely high. I would just note that before we get NVIDIA tomorrow night, you're going to get analog devices and semiconductors before the open. So that's going to give you a little bit of insight

into kind of the broader world. Obviously, not really much to do with AI, but just a look at semiconductors. And then there's an important labor update revision to the past year for the jobs market that could factor into the tone of Powell on Friday. So I think that 10 a.m. labor update is going to be very interesting to watch. The expectation is you'll get a cut in the amount of jobs that were created over the last 12 months. And if that does happen, you know, that could play into, again, the message that Powell conveys on Friday at Jackson Hole. Maybe a little less presser. Sure. Terry, it sounds like you expect the Jackson Hole commentary out of Powell to put maybe a bit of a floor under yields, which I guess would make it potentially tougher for equities to run higher from here. Is that right? Yeah, that's right.

Because if you look at what the theme of that symposium or conference is, the theme is going to be talking about structural changes in the global economy. Now, when you're talking about structural changes in the economy, you know, and you think about what those major themes are, those major narratives are, you've got deglobalization, you have changes in demographics, you have climate change, you have high debt in many of these emerging markets. All of those themes sound as if they should be inflationary. Some of them are, in fact, negative supply shocks. So if Powell were not to speak about the next few months and instead took a more medium term or longer term view about the inflation of the inflation outlook, you would tend to think that he's going to sound a little bit more hawkish. And that would not necessarily

put a floor under yields in the next six months or policy rates in the next six months, but it may put a floor under policy rates in 2024 and 2025. Okay. So, Terry, if you think that's going to happen as an investor, what should you do? Well, you don't necessarily want to sell bonds. The reason is because the yields have already gone up quite a bit. And technical positioning in the bond is actually quite short right now. So I wouldn't be surprised if you got some negative activity data in the U.S. and maybe some more signs of disinflation over the next few weeks and months. All of a sudden, yields come down.

But that's a short-term view. That should be somewhat separated and made distinct from Powell's more medium-term and long-term view that he's going to offer at Jackson Hole. Okay, so Adam, speaking of rates, if we look back down at the company level and even at the consumer, something that caught my eye out of Macy's was the rise in delinquencies on the credit cards there. And I can only imagine, you know, as they saw that spike pretty quickly, if rates stay high, people who stretch themselves buying stuff at Macy's and other places are going to see those bills harder to pay off and probably more difficult to take on more debt. And that's before we even start thinking about what's happening with student loans. What do

you think that means? No, 100 percent. You know, I agree with what your other guests talked about with rates having, you know, I think treasuries are very compelling right now on a risk reward basis in terms of buying in the short term. I do think you're going to see more growth headwinds emerge, especially as a consumer. So the Macy's credit card commentary was very notable, definitely contributed to the sell off you saw on financial stocks today, including the monoline card companies. You know, the consumer excess savings are just about exhausted. They'll be exhausted depending on what estimate you look at by the end of this quarter, the end of this year.

Student loans are going to be another headwind. And there is a slowdown in the labor market. We've been very, very resilient on the employment front. And that's still the case. But you're still seeing a slowdown in job creation. You're seeing a softening in total take-home compensation, which is a function of wages and the work week length, which is important to look at. So all those factors, I think, are going to certainly become consumer headwinds going forward. And Macy's was definitely a huge red flag for the broader credit quality for these credit card portfolios. I do want to mention Urban Outfitters is out. We are going through it. The stock, at least initially, is popping. And Adam, to follow up with you on that, what do you make of all of the signals that we've gotten from retail thus far? I

mean, Walmart was pretty strong. Some of that you could attribute to grocery, certainly Home Depot, a bit stronger than expected, but a lot of that was bottom line related, not necessarily just raw, broad consumer strength. Yeah, it's been a mixed bag. I'd say the first week of earnings for the July end companies from last week were relatively healthy, like you said. There definitely are some indications from Target and Walmart in particular, They noted a shift in the pendulum for consumer spending back to discretionary hard goods. You know, spending has been very weighted towards services, travel, leisure were the better part of a year. So there's been a modest shift back towards hard goods. And you saw that a little bit in Walmart. But, you know, Target lowered

its guidance for the year. Macy's kept guidance unchanged despite a big beat in q2 suggesting you know a reduction to the second half the the home the home people and Lowe's both had decent numbers up guidance unchanged it's probably conservative given the upside so definitely a mixed bag on the consumer you know there's some benefit from cooling food inflation, just freeing up a little bit of wallet space and just a little bit of a shift towards some of some hard goods like I talked about. But, you know, other categories are still suffering enormously right now. Terry finishes out here. What would constitute a surprise out of Jackson Hole the end of this week?

I guess it would have to come from either something that they talk about that a lot of people don't expect them to talk about or the way that Powell addresses the economic situation. Look, the Fed's in a good position right now because inflation has come down and we had seen signs of disinflation starting in the U.S. economy as way back as February, March of this year. So the trajectory on inflation has been the right one from the Fed's perspective. He can he can you know, that's a victory for the Fed, at least so far. Also, the economy has not really slowed down. Q2 growth was strong. We're getting indications,

at least so far, that retail sales have been strong. Well, I don't believe that's going to continue. So from the perspective of the Fed, not only is inflation lower, but that's managed to happen without the economy slowing down dramatically. Now, some people may say that he could run a victory lap on the back of that more Goldilocks-ish situation that we've got. I don't think so, though. There are quite a lot of hawks still on the FOMC panel. There is no conviction yet that inflation is down permanently. And I think as a result of that, he's going to be very cautious with signaling any victory, any victory lap for the Fed. That's going to also make it sound somewhat hawkish for the short term.

So the surprise would be if he pulls a white dove, a dove out of that hat. And that's his trick. Not what you expect. Terry, Adam. No, it's unlike. Thank you. As I mentioned earlier, Urban Outfitters earnings are out. Courtney Reagan has the numbers.

Court. Hi, John. Yes, so the stock had been under pressure in the session today before their numbers are out. But they're beating estimates here, reporting $1.10. The street was looking for $0.89 on stronger than expected revenues, $1.27 billion, better than the $1.25 billion that was expected. Same store sales in total for all of the brands up 4.9%, also better than expected. Free people comps, double expectations. The Urban Outfitters brand, the namesake brand, those comparable sales were worse than expected.

Looking through some of the comments, there was higher merchandise markups and also lower merchandise markdowns at all three of the retail segment brands here. You can see that shares are higher by about 3% digesting this report here in the early going. So we will see how this continues to trade when we get more details from the call. But right now, it looks like a beat for the top and bottom lines for Urban Outfitters and also stronger than expected comparable store sales. John? And Court, is that a signal that they're looking to protect margins, even as the consumer is weakening, the lack of markdowns, relatively speaking,

and wanting to mark up? Does that perhaps suggest what at least this retailer is thinking as we head to the important Q4? Yeah, absolutely. I think it's not alone in trying to do that. Some of the more premium brands also have been working really, really hard to increase and at least hold their average unit retail, that AUR number, because they're trying to protect this brand integrity and sort of wean consumers away from discounts. When we saw a willingness to buy more at full price, There have been some weakening of the consumer at some segments, which I think has sort of tested some retailers. Will they start issuing in those discounts again? And so many people say it's just inevitable that will come. But it looks like at least from first blush that

Urban Outfitters brands, the parent company and the brands within are trying to hold tight there when it comes to those markdowns and hold steady when it comes to the margins as well then as a result. Interesting, given how well TJX did. I guess they're trying to keep the hot side hot and the cool side cool. Courtney, thank you. Thanks. We turn now to the dynamic playing out between stocks and bonds. Yesterday we saw tech stocks and the 10-year yield both move higher,

a somewhat counterintuitive occurrence to some, but not to senior markets commentator Michael Santoli. He joins us now from the New York Stock Exchange to explain why. Mike? Yeah, John, it's not necessarily a lockstep linear relationship between what bond yields do and what stocks, and specifically the big growth stocks that dominate the Nasdaq. This goes back to the end of 2021. So essentially the beginning of last year's bear market. And last year, all you needed to know was what were long term treasuries doing? Because this year that tracks the price of long term treasury securities, which means it's going opposite yield. So as this line goes down,

yields are going up. And what you see is very well matched with the Nasdaq 100 through last year, right around the fourth quarter lows in the stock market. And here you see massive separation this year. Now, part of that is what else was going on last year? A huge inflationary shock. Earnings estimates for those big growth stocks were going down hard. Things like Meta, Alphabet, all the rest of them were also seen as being overvalued relative to where earnings were headed. We did see a bottoming in earnings

estimates, but also over longer periods of time. It's not just about the yield and the math of how valuations play into that and whether we're discounting back cash. So that's been the textbook version of why yields matter so much to growth stocks. Because here's the five year look. And what you see is, look, the price of Treasuries was going down through most of 20 into 2021 when we essentially were coming off of record low yields. And you see what was going on here with stocks. I also always point out, you know, the late 90s tech bubble took place with long-term treasuries, 5 and 6 percent. We're basically at the same valuation in terms of earnings on the Nasdaq 100 as we were when the 10-year yield was about a percent and a half. So it matters. It's not all that matters.

Okay. So does it matter more often than it doesn't matter? Because it seems like on that first chart, there was a period clearly where the correlation broke down. But then it seems like at the end, they were starting to move more in tandem more again. I mean, I suppose you could say that maybe it gets to a certain threshold of yields and the stock market has to kind of come to terms with that. Arguably, maybe that's the case. I'll just say last year ago, the 10 year yield was at 3 percent. Right now it's at 4.25 or so. And the Nasdaq 100 is up 16 percent point to point. So, you know, whatever gets the market's attention at a given moment is going to change.

But I don't think that you want to just anchor to one variable, which would be Treasury yields, as determining everything else that goes on in the market. Correlation does not equal causation all the time. Got it. Mike, thank you. Okay. After the break, we will talk exclusively with VMware's CEO about the company's expanded partnership with NVIDIA, just announced today, and about the update this week on Broadcom's deal to buy the firm. And we are still awaiting earnings results from Toll Brothers due out this hour.

That stock has had a strong run this year, even in the face of surging mortgage rates. Overtime's back in two. Welcome back. VMware and, yes, NVIDIA expanding their partnership, bringing generative AI to business customers with data privacy front and center. NVIDIA CEO Jensen Huang making an appearance today at VMware's annual event in Las Vegas discussing the announcement. And this news comes after UK regulators this week approved Broadcom's deal to buy VMware. Executives hope the deal will close in October. They expect it. Joining us now is an exclusive with VMware CEO Raghu Raghuram. Raghu, great to have you. So question first about the Broadcom deal. Why shouldn't investors worry about China, which still hasn't approved this and just scuttled Intel's deal with Tower Semi?

Yeah, firstly, great to be here with you, John. And secondly, like you just pointed out, we are very happy with the result in the UK. And we are very happy with the progress that we are making in China and other geographies that are yet to complete their regulatory process. And we are very confident that given the progress we have made in those regions, we are very confident that we will get the process completed within the timeline that we have always talked about, which is end of October. Any little bit that you can share about what makes us different from Intel? It's two totally different spaces, and the theories of competition, et cetera, et cetera, are very different. And VMware, as you well know, is very committed to an open hardware ecosystem with whom we work,

and this deal is not going to change any of that. And there is very little overlap between our software and Broadcom's core IP. So we are very confident of the deal getting done. Sounds good. All right. Now, let's talk about AI. You talked a lot about that today at your event and this expanded partnership with NVIDIA. Lots of companies partnering with NVIDIA, lots of companies partnering with NVIDIA. And my question tends to be in this AI era, how much more IP spend is VMware going to be able to capture in overall

IT spend? Because it's one thing to say people are going to continue to spend on VMware, but are they going to need to spend more on your unique technology? Yeah, so that definitely is our belief and that is why we built this product. But more importantly, if you look at it from a customer perspective, right, they're all dying to do, realize the promise of generative AI. In my conference, I talked about McKinsey's estimate of 4.4 trillion dollars of annual economic value being unlocked right and then the question becomes what is stopping them there are two things that are stopping them one is their complexity of the infrastructure that's needed and the number of moving parts that are needed and the second is the legal and concerns around privacy minim minimization of IP risk,

and secure control of your IP, et cetera, et cetera. This solution that we announced with NVIDIA addresses both. The combination of our technology, NVIDIA's hardware and NVIDIA's software, plus our technology simplifies the infrastructure problem, and the controls we have built in to enable what we call private AI solves the second problem. So that's why we are super optimistic that this is going to be very valuable to customers to help them accelerate their AI journey. Give me your theory on why VMware in particular is positioned well to capture that,

because from so many of the companies that already have customer data, whether I'm talking to Amazon and AWS or Informatica or Nutanix or others, IBM, they're saying, oh, well, security is the thing. Customers want to keep their data where it is and we'll be able to secure that versus sending it out somewhere to deal on some public service. What's going to distinguish between those existing stewards of data who actually gets to benefit the most? Yeah, so I would point to a couple of reasons. First is, if you look at all of the important applications

running in an enterprise today on a corporate data center, they are running on top of a VMware platform. So VMware is the home for where their applications and their data is today. That's point number one. And point number two, unlike the other approaches, what we are doing is bringing the computation and the AI models to where the data is, as opposed to saying, hey, take all of that data,

take the next few years to go put it in the cloud, and then you can go do AI. So these are two very important distinctions that we have that nobody else in the industry can claim. The fact that these applications are running today and generating data today on top of

the second fact is that whether they got the data on-premise, whether they got the data on the cloud, whether they got the data at the edge of the network, we can bring the computer models there and of course, in combination with the NVIDIA's technology. Ragu, finally, one of the things that some of VMware's technology does is enable workers to work from anywhere. And I wonder what customers are demanding from you now. We've seen

enterprise PC sales drop off, but what about when it comes to investing in remote technology usage into access in security? How is that trending? Yeah, so that is still continuing. Not at the pace that it was during the pandemic days, but even post-pandemic, even though many companies have instituted part-time return to work policies, what we have seen with companies is employees, they're traveling around, they're at home part of the week, they're at their office part of the week, they're with their customers part of the week. And so these areas that you talked about, managing and securing and delivering a great experience to employees

wherever they happen to be, continues to be a very important consideration for CIOs and those responsible for the end user computing infrastructure. All right. Look forward to seeing how that unfolds and what happens at the end of October with you in Broadcom. Ragu Raghuram, CEO of NVIDIA. Appreciate it.

Thank you. Always great to talk to you, John. Great to see you. Wedbush now just naming Amazon to its best ideas list, and it's not because of AWS. We will talk to the analyst behind that call about the one part of the business he says is underappreciated on Wall Street and some news just crossing on UPS. The Teamsters Union says it has ratified the collective bargaining agreement it reached with the company by a huge margin, 86% of members voting in favor. The five-year deal

impacts more than 300,000 employees. They're getting a lot more money. We'll be right back. Welcome back to Overtime. Well, this chart just blew it. Today was the ninth straight negative session for Nike. The longest losing streak ever, down over 7% in that time. Oppenheimer analyst Brian Nagel says the company is in the crosshairs of several market concerns at once. Discretionary demand and student loan payment resumption domestically, plus Chinese consumer weakness. Meanwhile, top technician Chris Verone over at Strategas has been watching this stock all summer.

He says it remains a broken chart in a vulnerable position. Good things don't happen below the 200-day moving average, and he would still be fading short-term bounces. Two silver linings here, though. Nike hasn't been the worst Dow stock in the past 10 days. That's Walgreens. And Nike was actually down more over a two-week stretch back in May. Just wasn't nine days in a row. Now, elsewhere in retail, Amazon shares lower today, but up more than 60% so far this year.

Our next guest has added it to his best ideas list, saying Amazon's core retail business is underappreciated by the street. Joining us now is Scott Devitt of Wedbush. He has a $180 price target on Amazon. That's 34% upside from here. Scott, when we had Andy Jassy on overtime a couple months ago, I was struck by the idea that as they deliver faster, their economics get better. What does that mean for retail? Well, it's great for Amazon, probably less good for overall retail. And John, thanks for having me. What I think is happening, the pandemic, as you knew, caused Amazon to significantly expand its fulfillment capacity, doubling it over two years. And as they've been growing into it in the U.S., it's gone from a national network to eight regional hubs. And now 75% of shipments are

showing up in one day or same day, if you're a prime member in the United States, in the largest 60 metro markets. So that's a significant enhancement in customer experience. And as you mentioned, it's coming at a lower cost because products are closer to the customer at the starting point. And that's going to be significantly positive for Amazon from an operating leverage standpoint, especially on the back of headcount reductions that were done over the past 12 and 18 months. Now, Scott, what about transportation costs? We were just talking about this UPS Teamsters deal that got ratified. I mean, great for the workers. It's going to raise labor costs, though.

Amazon's been embarking over the past several years on its own contractor strategy to go its own way on this. Are their economics going to be better than others, even in e-commerce, who are trying to deliver because of its approach? Well, Amazon historically had relied on third-party vendors for shipping, but has now created its own last-mile network. And the vast majority of packages that go through Amazon's system go from fulfillment center to an Amazon truck to the home now. So Amazon, so long as it has the ability to control costs from a labor standpoint in terms of the individuals that are driving those trucks, has an advantage relative to these third-party systems and slowly but

surely is also taking volume out of the system and so is in many ways competing indirectly with UPS and FedEx by taking parcels out of their network and into the Amazon ecosystem. So should I be more worried about grocery, Whole Foods, and Amazon's relative lack of progress there, or excited about these efficiencies and how it sets up Amazon for Q4? I would be more excited. I'll put it this way. So you have the efficiencies. You have an improvement in retail growth. You have strength in the advertising business,

you have AWS stabilizing and margin expansion. What's interesting is even as Amazon struggles in grocery, when you look at their business on a gross merchandise value basis, it's the largest retailer in the world outside of China. So even with the deficiencies in grocery, which is the largest category, it's still the largest retailer. They're working on things to adjust the retail strategy that we think over time

may work and may improve that business as well. But I think there's a lot more going well here than the grocery business not doing well. And that is why we're so excited about the stock at the current levels. Yeah. I mean, 34% upside would be nice. Scott Devitt, we appreciate it. Thank you. From Wedbush. All right. Time now for a CNBC News update with Bertha Coombs. Bertha. Hey, John, here's what's happening at this hour. Bipartisan legislation was introduced today that would protect U.S. Coast Guard Academy cadets who report sexual abuse from being disciplined for what it's called minor collateral misconduct, such as underage drinking. The change puts the Coast Guard in line with other service academies. The legislation calms after revelations the service kept a six-year investigation into

sexual assault largely out of public view. All eight people in that stranded cable car in Pakistan have been rescued. The Pakistan Armed Forces rescued one child by helicopter and the others by rope. The group had been stuck over a canyon since 7 a.m. local time after the cable line snapped. And a giraffe without spots was born at a zoo in Tennessee. This plain brown baby is a rarity. Researchers say another giraffe in Tokyo was born without spots way back in 1972, and there were only two known others before that. Zoo owners say they posted the giraffe on social media to help with conservation efforts, and they're asking the public to help pick a name. I mean, Brownie, right?

I don't know. That might be kind of offensive, Bertha. Oh, my dog growing up was called brownie. You wouldn't want the other giraffes calling. Anyway, great for the uniqueness of that giraffe. Thank you, Bertha. Up next, the August slump for stocks has some retail investors questioning the staying power of this year's rally.

But what's the so-called smart money doing? Mike Santoli brings us a look at hedge fund positioning next. And don't forget, you can catch us on the go by following the Closing Belt Overtime podcast on your favorite podcast app. We'll be right back. Welcome back. Toll Brothers earnings are out. The stock chopping around a little bit. Diana Olick has the numbers. Diana. Yeah, John, a seriously strong beat for the luxury home builders.

EPS came in at $3.73 a share versus estimates of $2.83 a share. That's on revenue of $2.67 billion versus estimates of $2.4 billion. And here's the big headline. Signed contracts were up 77 percent year over year. CEO Doug Yearley said in the release demand remains solid as we start our fiscal fourth quarter. Based on these results and our expectations for the fourth quarter, we are raising our full year guidance for deliveries, adjusted gross margins and SG&A leverage and now expect our return on beginning equity for fiscal 2023 to be approximately 22 percent. Now, remember, during this quarter, mortgage rates went from around six and a half percent to well over seven percent. But again, the luxury market appears to be doing well.

We saw the average price for toll in that quarter of $1.06 million. And the realtors told us this morning that while sales in July dropped in all price ranges, they dropped the very least in the $1 million plus range. So again, higher mortgage rates not hitting high-end buyers, a big beat for toll. John? Diana, what's going to happen when eventually existing homes come back on the market and there's more than just this thinnest of available supply. How long is it going to take the likes of Toll Brothers to stop down the projects they have to prevent an oversupply situation? Well, I don't think toll is in that undersupply situation that you're talking about. That's more for builders like D.R. Horton and Pulte and Lenar.

Toll is on the high end where there is much more supply on the existing home market. That's what the realtors were saying. That's why their sales were doing better, because there's simply more supply on the existing home market. That's what the realtors were saying. That's why their sales were doing better because there's simply more supply on the high end. But Toll is still benefiting even from lower supply in general. They're benefiting because mortgage rates aren't impacting that higher end buyer as much as they are the entry level and the mid-level buyer. Yeah, I guess it's nice to be rich. Diana, thank you. Let's turn once again to Mike Santoli at the New York Stock Exchange, this time taking a look at hedge fund positioning.

Speaking of rich, Mike. Yeah, exactly, John. You know what? It's been relatively cautious. This is Goldman Sachs' gauge of hedge fund exposures, both gross exposure, which is all the bets they have collectively, including leverage, and net exposure, which essentially subtracts the short bets from their long portfolios. And what you see here is now gross exposure is way up there.

That's on the left-hand scale, close to 290 percent. So obviously lots of leverage exposure of various types, but they are isolating their bets and trying to separate long and short, and they're keeping relatively hedged, true to their name, around 60 percent net exposure to the market, which is low, as you can see, for the last couple of years and essentially means that, yes, there have been these short covering rallies, but hedge funds in general have reshorted as the market has gone higher. That's what happened in the last few weeks.

And I would just sort of as a basic takeaway suggest that it doesn't mean that this is a swing factor for an immediate catalyst for the market direction. But it shows you that the big money is not tactically kind of over its skis and positioned very long and implicitly betting on the market to race ahead from here. John, is this different, Mike, from what happened at the end of last year, which turned out to be not the positioning you wanted? It is basically, well, it was the position you wanted if you were long, right? I mean, you essentially had a lot of folks betting that the market was going to stay weak. That's what you saw right around in there. So I would suggest it's sort of more of the same where you're not seeing full buy-in by hedge funds to this rally,

which, you know, the market still is up some 15 percent on a year-to-date basis. So they're more in wait-and-see mode. I think the bigger takeaway, too, is that they're less focused on broad market bets, much more on we like the stocks we like. We'd rather hedge the market exposure against that. I see. Mike Santoli, thank you. Yep. Coming up next, is it too late to jump into NVIDIA?

The company's getting ready to report earnings tomorrow after a huge run this year. Our next guest says the stock is uninvestable at current levels. We will hear that bear case when overtime returns. In less than 24 hours, we'll get NVIDIA earnings. Stocks more than tripled this year, drastically outperforming other tech stocks. And we've seen plenty of enthusiasm from the street leading up to this report. But our next guest isn't part of that excited chorus. Joining us now is Fernando Vidal, co-founder and chief data scientist at 314 Research.

Fernando, why isn't NVIDIA investable here, you think? Hi, John. Thanks for having me on. So yeah, NVIDIA really is overvalued from our perspective, and that overvaluation is not really about what's going to happen in the next 12 months, but what happens after. NVIDIA today is priced for a good decade, not just a good year. And what we wanted to look at was analyst estimates for revenue over the next four years is, if you believe those estimates, are for NVIDIA to ship about $200 billion worth of enterprise AI hardware. And what we wanted to do is frame that and figure out just how much capacity is that and what kind of ramp for AI adoption does that imply? So in our thought experiment, in our calculation, we came out to being able to support today's latest AI language models running for about two and a half billion hours a week.

And to put that number in perspective, there's about five billion hours of knowledge work being done in the U.S. economy. So if you think ChatGPT is equivalent to a typical U.S. knowledge. So if you think chat GPT is equivalent to a typical U.S. knowledge worker, you know, there's going to be enough hardware floating around in four years to automate half of all knowledge workers in the U.S. OK, Fernando. So here's my pushback to that. And it goes back, I don't know, probably about 15 years now. More than that, people were arguing that Apple was overvalued back then based on how many iPods and maybe Macs people would have to justify, to buy to justify the valuation. They weren't thinking about the platform potential that the whole company had built based on the iTunes

success, the loyalty of the customer. Couldn't NVIDIA be similar? NVIDIA could be similar, but remember that there are definitely huge established players with enormous platforms specifically that can leverage AI today. Their biggest customers are their biggest competitors, if that's the narrative that you want to go with for an AI bull story. Today, all their customers basically hate the position they're in that they're going to have to spend huge portions of their CapEx budget with NVIDIA. And they have this window right now where it's inevitable. Everybody wants capacity today, but all their customers are desperate to replace NVIDIA with their own custom design chips. Google's already made a bunch of progress on that. Amazon's working on their own. Basically, Nvidia's at odds with their customers today,

and it's going to lead to trouble down the line if you expect Nvidia to just dominate the market share for AI chips going forward. So in a way, the fact that customers are doing exactly what you said, developing their own custom AI chips. And of course, you've got, you know, AMD, Intel and others working to compete. Doesn't that open up the possibility, the excuse for NVIDIA to develop its own services, its own models within AI by industry and sell those adding to their margin potential through software? Definitely. That's got to be the bull story. But to do that, you have to believe that they're going to invent a new revenue segment that they don't currently have and compete with the established players.

So most of the revenue growth right now, if you want to go with what they're actually doing, is shipping enterprise-grade AI hardware. So you really need to go towards a new segment that they don't have an existing platform on, that all these other companies have a huge lead on. They already have huge installed bases of enterprise customers to sell to, and NVIDIA is going to have to work their way into market share there. So what does it tell you, if anything, that NVIDIA is spending so much time with partners, like we saw them today with VMware.

They were just in Taipei with partners a few weeks ago talking about AI investing in other players there. Are they trying to build out a justification platform strategy, allies to counter the bear case you're laying out? They're going to have to do that. Like the next 12 months is going to arm them with a huge amount of cash that they'll very like I would be unsurprised if they didn't do a bunch of M&A. They're already kind of working, funding a bunch of startups, building service cloud providers. So it wouldn't surprise me at all if they use some of the cash from this kind of windfall to try to get a strategic play into

the cloud services area. But again, it's a risky move. You kind of have to believe that they're going to be extremely successful doing this and out-compete all the existing enormous platforms that exist in this space. All right. We'll see if they can outrun the bear case. Fernando Vidal, thank you. Thanks. Up next, we'll tell you about the under-the-radar EV stock that doubled today and has seen extreme volatility every session for the last week. We'll be right back. Welcome back to Overtime. Check out shares of VinFast, not SlimFast, VinFast, doubling in today's session. The Vietnam-headquartered automaker has seen huge moves since it began trading just a few sessions ago. Our Phil LeBeau joins us with more on this volatile stock. Phil. John, one reason it's volatile is because it has a thin float. So when there's any piece

of positive news, it is due for a pop. And there were a couple of pieces today. One, a report out of Vietnam that a key supplier is setting up operations in Vietnam, a key supplier within the EV market. And also there's a report that the VinFast seven-seat SUV will have greater than expected range here in the United States when it comes to market. You put that together, you have a stock that has gone up considerably since its IPO last week. But what is VinFast? I've had a number of people ask me about this since we interviewed the CEO last week. Here in the U.S., they've already imported about 1,800 EVs so far. So there's not a whole lot of them out there. Mainly, you're going to find them in California. They are, however,

building a plant in North Carolina with the first models expected in 2025. They are hoping to ride the wave of expected demand for EVs continuing to climb through 2030. Right now, the EV market in the United States, it's just 8.2% of all sales. But if you look at this chart here, you can see how the acceleration is expected to pick up over the next several years, leading up to 2030 when we're at more than 6.5 million expected EVs to be sold that year. In terms of market cap, believe it or not, VinFast has a higher market cap than GM, Ford, Stellantis. Not surprising. We've seen this with a number of EV startups, John, that when they first start trading after an IPO, there is a frenzy of activity. And that's when these stocks often pop. I'm not sure we're going

to see this last for long, but that's what we're seeing with VinFast, at least today. So just to ask the obvious question, what's happened to the others that have followed this trajectory of spiking initially? And then when's the last time we saw a Vietnamese automaker? I mean, a lot of people are talking about moving manufacturing to Vietnam. But this is a Vietnamese automaker making this global play. Well, a couple of things to keep in mind. This is a young company. And by young, I mean they only started making vehicles, I think, four, six years ago.

Not very long ago. And they were making internal combustion engine vehicles. Now they're making electric vehicles. It's an incredibly difficult business to start from scratch and to ramp up from there, let alone try to make it in the United States. And in regards to your first question, John, look at what we saw, whether it was with Lucid, whether it was Fisker, Rivian, all of them had huge pops at one point after their IPO. But then the market started digesting the fact that they were not making money and that it was a long road to a path to profitability. So I wouldn't be surprised if we see VinFast come back to earth at some point. All right. Be careful out there, folks. Philip Bo, thank you. Meanwhile, NVIDIA is not the only name gearing up for results tomorrow. Up next, we will look ahead to the other key reports that should be on your radar. Plus, we'll ask an analyst for his first take on Toll Brothers results and what those numbers tell

more broadly about the state of home building overtime returns welcome back nvidia is the headliner on tomorrow's calendar but a number of other companies will share results as well in the morning we'll get numbers from peloton advanced auto parts footlocker and kohls and after the bell, we'll get NVIDIA, Autodesk, and Snowflake. I'll be sitting down with Snowflake CEO Frank Slootman. We'll bring you the highlights here on overtime later in the week. Meantime, homebuilder Toll Brothers' stock moving higher after strong results. The company's earnings call is scheduled for tomorrow morning. Joining us now, Kenneth Ziener, Seaport Senior Analyst.

Kenneth, what's the lesson here from this? The CEO saying that rising rates are actually, you know, restricting supply, and that's helping toll. Right. It's kind of counterintuitive that higher rates are locking people in. That's a narrative that I think you've heard more than once here. I think the most important thing is operationally, it's folded very well. They're learning how to deliver more homes per quarter out of their inventory.

Cycle times are improving. They are pre-starting homes. Gross margins are going up. That's consistent with, you know, most of the other builders. And I think the big question for investors is how the macro conditions are going to impact those operations and valuation. And we look to pre-1982, our thesis, housing may not repeat, but arrives, really to give us guidance on that. And I wonder, how long does this keep working? I mean, at a certain point, either demand slackens off or supply opens up. And then there's the need for some sort of adjustment, I imagine.

Does that hit Toll or does that hit somebody else most likely in the space? Well, sticking with Toll and then making the comments more broadly, I think actually builders, while we do believe in pre-sale or spec units to improve turnover, what we're seeing with toll, I think, and we'll have to wait for the call tomorrow, but where they have options, meaning you want a nicer kitchen, you want a better land position, because they're selling to buyers that are themselves selling in a tight market, good pricing, as long as they're not greedy. That's actually helping the margins. There's another company, Pulte, that has options tailwinds as well. But what I think that, you know, we looked

at earlier this week, we looked at Saturday night special when Volcker raised rates aggressively, along with big tightening in October 79. And we did see stock weakness for a month or two. It's not surprising when the market resets that it's going to be higher for longer. We can look to the late 60s for that as well in our analysis. But what it means for the stocks and why we're positive is we actually think it's a mid-cycle outlook. Low inventory is a secular outcome of higher rates. We saw that in our analysis beginning in 1965 through the late 70s. So we are positive, not kumbaya, but it is mid-cycle, and we do think the builders are well-positioned.

So, Kenneth, which happens first, you think? Rates stay high and people have to move anyway, and so this changes, or rates stay high and the consumer and the home-buying consumer cracks? Well, I don't think a crack is, I think, obviously more more on one extreme what we saw in the 70s uh and the late 60s is that persistent inflation was persistent you know look at all the labor issues we're having contracts being negotiated so with low unemployment yes it can go higher but a lot of homeowners and we think this is why inventory stayed low 65 to late 70s. They're locked into rates. We don't have this overhang of supply coming.

The builders, public, are rebuilding their inventory. The privates are still running down their inventory. So I don't think it needs to be an 08-06 type event or the late 80s like the S&L. Well, Tenth, we'll have to leave it there. Great insight on the housing market. And that'll do it for overtime. Fast Money starts now.