Morning Brew Daily - AI Fuels Nvidia to Nearly $2T Valuation & IRS Coming for Private Jets

Episode Date: February 22, 2024

Episode 264: Neal and Toby discuss Nvidia's historic earnings report where it is clear that the AI boom is alive and well. Plus, what a court ruling in Alabama means for the IVF industry and the government is coming after private jets. Neal shares his favorite numbers and why is Beyond Meat hoping avocado oil can save their burgers. And finally, MLB rolled out new uniforms and the players are not fans. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

Consider this comparison. PWC data found the percentage of CEOs who report revenue gains or cost reductions from AI is almost equal to the percentage who say they're still stuck. What separates these two groups? PWC points to a clarity issue. Even for CEOs, it's hard to tell what's AI hype, what's reality, and where this tech can make a tangible difference. Learn where AI can actually make an impact and what successful adoption looks like at

pwc.com slash US slash brew AI. That's pwc.com slash us slash brewAI. Good morning brew daily show. I'm Neil Freyman. And I'm Toby Hal. Today, Wall Street's hopes and dreams rested on Nvidia's earnings. Did it deliver the goods? Then can beyond meat get its plant-based groove back with a redesigned healthier recipe?

It's Thursday, February 22nd. Let's ride. Okay, let's start the show by debunking some phone myths because I'm in my Geek Squad era. This week, Apple released a post saying that if your phone gets wet, do not put it in rice. Instead, tap your iPhone against her hand with the connector facing down to let the liquid drip out and then leave it in a dry area. Apple said that small particles of rice can damage your phone. Second tip, closing your phone's background apps does nothing to conserve battery life. And in fact, closing them may use even more battery than leaving them open.

Apple recommends you only close an app if it's unresponsive. Toby, did any of these surprise you? Neil, I'm not going to lie. I'm going to ignore both of these things. One, because it's so satisfying putting a phone in rice because you feel like the rice is doing something, is drawing liquid out. And then two, the app thing, there is also nothing more satisfying

than just going through and swiping all those apps away. You're Google Pixel guy. I don't even know if you have that feature. Of course we still. Okay, okay, okay. But yes, I'm going to exercise my right of free will and decide to ignore Apple's guide. After I read this about closing the apps, I just did not realize how much I did it subconsciously.

Well, for me, it's also a trip down memory lane. Sometimes you go through and you're like, oh, wow, I haven't seen that app in probably six months or something. So I'm going to keep them open. Before we jump into the show, let's hear a quick word from today's sponsor, Vime. It was really funny. We got a YouTube comment this past week from someone asking if they could buy the VEM mug that we keep on our desk. Honestly, that is a question for VEM. But I will say this mug is huge, like two times the size of a normal mug.

But hey, that is what you get from VIM, outsized protection for your data and outsized recovery too. So I guess what Neal is saying is, unfortunately, the VIME mug is not for sale. But the services VIM provides are. So head to VIM.com today to learn more. That's VEEAM.com. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179, like the next grill three-burner gas grill. Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard.

Then set the scene with Hampton Bay string lights that bring it all together. Shop spring backyard days for seven days at the Home Depot. Now through May 6th, Exclusion supplies to homedipo.com slash price match for details. Toby, I don't remember an earnings report as hyped as NVIDIA's yesterday. I mean, it was approaching Linsanity levels. CNBC had a countdown ticker like the ball was going to drop on New Year's Eve. Jim Kramer was shotgunning monster energy. But the hype maybe was justified.

Invidia was called the most important stock on planet Earth by Golden Sachs this week because its chips underpin the entire AI ecosystem. And for the past year, as it goes, so goes the stock market. So with this report, an anxious Wall Street wanted to find out, was the AI revolution real? or was it just another bubble waiting to be burst? Well, according to Nvidia, it is real and it is spectacular. The tech giant crushed expectations with quarterly sales reaching 22.1 billion, a 265% increase from the same period a year ago.

Its net profit also surged to 12.3 billion from $1.4 billion in the same period last year. The Wall Street Journal said this quarter capped off one of the quickest rises in corporate history. CEO Jensen Huang says he believes the AI moment has arrived that the technology has hit a tipping point with demand surging worldwide across companies, industries, and nations. I mean, I just generally don't feel like this company is real. Right now, I'm going to rehash some of those numbers that you said because I just can't wrap my head around them. Quarterly sales increasing 265% from a year ago. That does just not happen on a company of this scale. Net profit jumping by $11 billion from a year ago.

and then also just the market cap. It's added more than $1.2 trillion to its market cap in the last 12 month. And again, they are just lapping the competition right now. InVIDIA controls around 80% of the high-end AI chip market. There's just no one who can really knock it from its perch right now, or so it seems. Not at all. So what does it sell exactly? Because this is all very techy.

They sell the chips, the GPUs, graphics processing units, that power chat, GPT, and all these other large language. models that have become so popular in recent years, and every tech company wants to produce something like that. So they sell these chips. The benchmark chip is H-100 chip. It goes for $30,000 to $40,000 per unit. Okay, so that's a very expensive thing. That's buying a car. How many of these things does it sell? Well, in the third quarter, it's sold 150,000 H-100s to Meta and Microsoft each. Again, you told that stat to me this morning, and I just got lost in all the zeros there. You need a calculator.

You need a calculator. There's a lot of zeros there. And then if this is not a sign of the Times, if you just look at the activity around the stock itself, it is now the most traded stock by value. It surpassed Tesla, which, again, is a sign of the Times. And I actually want to tell you about this other company called Super Microcomputer. It sounds like a made-up company, but what it does, it sells AI-related server components to NVIDIA, And it has seen its value nearly triple-43 billion so far in 2024. So, again, even the halo effect of this company is lifting up companies that super microcomputer,

that sound made up, but are really real. Let's talk about if anything can slow its roll. What are the potential roadblocks that could not have it crow 265% year-over-year? One of them is geopolitical tensions. Nvidia used to get 25% of its total revenue from China. the U.S. has placed export curbs on high-end chips like NVIDIA sells to China, and its CFO said that sales had declined significantly to China. Basically, what has to do is, like, lower the quality of its chips that it can sell to China because the U.S. won't let them sell the most advanced ones. So that's one potential roadblock.

It seems like NVIDIA's working its way around that, but, you know, that could be a potential headwind. And then the other headwind is, eventually there will be competition. I mean, I said no one can knock it off its perch. But again, when you're at an industry that is selling umbrellas to people when it's raining right now, of course, other people are going to want to get involved. So you got Sam Altman. Sam Altman is the big elephant in the room in his chip development ambition. So those are potentially the two things that could slow this company down.

I think we just went through that whole story without saying Navidia. Well, you just blew it right there. Now, let's move on. the Alabama Supreme Court passed down a ruling last week that could change fertility treatments forever. A couple brought a wrongful death suit against a fertility clinic after an accident destroyed frozen embryos in their care. Now previously, that clump of cells that make up an embryo were considered property, not an actual person, so a wrongful death suit wouldn't apply. But the Alabama court turned that on its head, interpreting an 1872 law in such a way that

classifies all unborn children, regardless of their location, as people. The reason why this ruling is such a big deal is because it opens up so many different questions around both medical professionals and for patients. Are you allowed to freeze embryos created during IVF? Can someone donate or destroy unused embryos? Will research on fertility treatments be allowed to continue? With one ruling, this entire industry has been thrown into limbo. Yeah, and the dominoes began to fall yesterday. The Uniport. University of Alabama, Birmingham, which is the largest hospital in the state and the eighth largest hospital in the U.S., said it's going to pause all parts of the process through egg retrieval. Advocates of reproductive rights and women's rights said that this is going to have a chilling effect across the fertility industry, and you're already seeing it with UAB, sort of stopping it because they do not want to be held liable for wrongful death for anything that happens to a frozen embryo, so they do not want to keep these.

Yeah, it's just too legally tenuous, too perilous for them to continue these, to perform this treatment. But also, I just want to zoom out a little bit. Infertility is a very big issue that affects a lot of people. One in six people in the U.S. have experienced some form of infertility. And also 2% of babies born last year were born via IVF. If you just want to look at the monetary impact of this industry as well, expected to be an $84 billion business by 2028. And again, if you just look at the sheer number of people undergoing this treatment, there was 413,000 of these IVF treatments or reproductive technology procedures in 2021. That was up 78% from 2015.

So, again, this is going to affect a lot of people. Yeah, it is super expensive. It is $20,000 a cycle can get up to that. A lot of insurance does not cover it. So it's been interesting to see companies start to offer infertility treatments as a perk. for in this tight labor market. Now, four in 10 large employers do offer this as a way of getting more employees to come join them as competition for workers heats up. So this is becoming a huge industry. Private equity is getting into it. VC is getting into it. So you're starting to

see, this is sort of putting the brakes on a growing, growing healthcare market. Yeah, and this ruling also probably is going to bump those prices up even more, make it more expensive because, again, if you cannot do as much research, we probably will see that price tag grow even bigger. So right now, this just applies to Alabama. Reproductive rights advocates are warned that it could spread to other more conservative states. Let's move on. Everyone with a private jet, listen up, because I've got bad news for you. Now it's just you and me, Taylor Swift. I want to tell you that the IRS has pledged to crack down on using corporate planes for personal travel and then riding those flights off as business expenses. The agency is developing new technology to track down

execs at large companies, as well as other wealthy taxpayers to see if they're really using their private wheels like they say they are. And even though, yes, this will likely lead to more responsible jet usage and extra money for the IRS. Perhaps the real reason behind this crackdown is that the IRS wants to show that it's putting the funds lawmakers sent its way to good use. Remember, Congress granted the IRS $80 billion two years ago to clean up its act and help recoup some of the estimated $700 billion in tax revenue that goes uncollected each year. But lawmakers have already agreed to take back $20 billion of that initial 80. So the IRS is maybe peacocking a little bit here to show that they can, in fact, get some results.

That's a good term. I think that's true. Yeah, there are more than 10,000 corporate jets flying around the United States right now. And you can write off a lot of those expenses if they're used for business ventures. if they're used for personal recreation, which sometimes they are, or actually many times they are, you're supposed to just take that as income, taxable income and not write it off. And the IRS wants to actually dive into the details here and do some audits, see how that breakdown actually plays out. They think there's like tens of millions of dollars left on the table here. No, absolutely.

And one thing in the post-COVID era, private jet usage kind of exploded at the highest level of execs. at Fortune 500 companies. I mean, if you just look at Mark Zuckerberg, recent guests on this show, META spent almost $7 million, fairing him around to various different places. And so, again, distinguished between business and personal travel,

not very simple, and the IRS could kind of engage in these lengthy litigation battles and have to do a lot of research to really pin this down. So when I say that they're peacocking a little bit, I do think that saying, like, oh, we're going to go after the elite of elite for private jet.

usage. It might not drive meaningful revenue in the grand scheme of things, but it is showing that, hey, we are actively working to try to step our game up here. All right, that's enough private jet talk. We're coming back with Neal's numbers, though, right after this quick word from our sponsors. When the job gets tough, you need equipment that's built to handle it. The Cabota Construction lineup featuring the versatility to do more, durability to keep going, and increased comfort for long days on the job. With skid steers, track loaders, wheel loaders, utility vehicles, and the world's number one selling compact excavator for 20 years, our expanding lineup is built to deliver. Visit cabotaUSA.com or your local cabota dealer today to learn more. Go to cabotaUSA.com

flash disclaimers for full disclaimers. We're the Hartford, with decades of experience ensuring millions of unique small businesses when it comes to your small business insurance. Thank you. One size, absolutely, does not fit all. Get a quote or find an agent today at thehart.com slash small business. What are the odds that satellite debris will fall on your head? I'll let you know in Neal's numbers, the segment where I share three stats from the week's news that may cause dizziness and a burning sensation, doctor say. First up, it may seem like Saudi Arabia has unlimited money to spend on a $500 billion megacity, owning entire sports like golf,

bringing in superstar soccer players, a brand new airline, and a ski resort in the desert. But it turns out all of that is quite expensive. Saudi Arabia's sovereign wealth fund, which is behind these huge projects, said its cash levels had fallen by three quarters to just $15 billion as of September, the lowest level on record. So it needs to raise money to make sure these construction projects don't stall out, and it's going to do that in two ways, issuing debt and selling 1% of the state-owned oil giant Aramco.

Toby, I thought standard economics did not apply to Saudi Arabia and you can offer messy $400 million per year to play in your league. Apparently, the whole push to modernize is catching up to it. Yeah, this was honestly a very big surprise to me because you're so right. So many of us are just used to them spending money like it's monopoly money. Like money isn't real. We just assume they had this unlimited supply, but you really don't. And part of the reason is oil prices haven't really been cooperating for them.

The oil would need to be above $86 a burial in 2023 and $80 a barrel this year to kind of balance. the Saudi's budget, and prices have hovered around that $81 a barrel price point. So, again, the budget isn't balanced. The money is running out, so they're looking for alternative funding sources. Yeah, just to zoom out. So MBS, Mohamed bin Salman, the de facto ruler of this country, launched this plan called Vision 2030 to turn Saudi Arabia from this oil-dependent kingdom into a modern paradise that has tech and sports and video games.

You know, a Hollywood rival and a self-driving car rival, and what he was going to do is use all the oil money and funnel that into these projects. That has been going on for a couple of years now. But like you said, oil prices have kind of stagnated, so they do need to look for alternative ways to raise money because I'm just getting nightmares of seeing huge skylines unfinished with cranes on them. We've seen that in China. We've seen that in other places. So Saudi Arabia wants to make sure that it can actually finish these super expensive projects. My next number is four, and that's how many films about the Beatles we're going to get in 2027. Director Sam Mendez announced on Monday that he's going to make movies about the four individual Beatles,

John Lennon, Paul McCartney, Ringo Start, and George Harrison, in a music biopic event that will dwarf all the others. It is the first time that the Beatles, who rarely grant rights to projects, have pledged their full support for a scripted film. And what's especially interesting to me is the release strategy, because apparently these movies are going to get released in theater. around the same time and intersecting creative ways. So it's not going to be the classic. First you get one movie, then the next, and so on. Yeah, I mean, music biopics extremely hot right now. Bohemian Rhapsody, Rocket Man, Elvis,

Bob Marley won just recently came out. It's the number one movie in theaters over President's Day weekend. There's a Michael Jackson biopic in production. So definitely a lot of energy around the space. I personally love them. I think they're very entertaining. I want to handicap this, though. Should we place bets on which movie?

because they're each centering on one member of the Beatles. Like what the order? No, no, we'll gross the most. Who do you think will be the most popular? Oh, that's tough. I mean, Lennon has the most mystique about him. Paul McCartney is alive right now. I kind of can promote it himself.

So maybe I'll give the edge to McCarthy. That's smart. I think he's on favorite, and I think he's the best one. He's my personal favorite. Can you imagine if Ringo comes out of nowhere, though, and everyone just rallies around. I could see TikTok like rallying around Ringo. True, true.

I think you're right. Maybe TikTok will, determine the winner. For my final number, the chances of satellite debris falling on your head is one and one billion. So I'd love to hear from the eight people who woke up with a wealth this morning when a satellite called ERS2 hurtled back to Earth yesterday. Just kidding. No one was hurt when a dead satellite, which weighed as much as an adult male rhino, made an uncontrolled return to Earth yesterday 13 years after ending its mission. It mostly burnt up in the atmosphere, but could have spread some remaining pieces in the Pacific Ocean,

which is where it reentered the planet. Experts say we should start incinerating more defunct satellites in the atmosphere so they don't contribute to the growing problem of space junk. There are now about 500,000 marble-sized objects orbiting Earth and more than 25,000 objects bigger than 10 centimeters. Many are worried that space is just becoming one big scrapyard. Yeah, I was reading that, though, and saying, like, what about Earth junk? I mean, again, the satellite does end up burning up and kind of harmlessly falling in the Pacific.

But when you see the headlines at $1 in a billion, you never want to be that one person. And there was some estimates that one piece or the largest piece that could reach the ground would be 115 pounds. So that's more than a wealth. So I'm concerned with space junk, but I'm also concerned with earth junk. All right, Beyond Meat is trying to get its plant-based groove back by making their fake burgers even more healthy. The company is launching a new version of its famous plant-based burger recipe that uses avocado oil instead of the old canola and coconut oils that cuts its saturated fat by 60% and takes sodium down by 20%. Now the question is, will it lure consumers back? Because Beyond Meat has been going through it.

Retail sales of alternative meats have fallen 34% in just the last year, while sales of Beyond Meat in particular have dropped 29% over the last two years. And its stock, well, it ain't pretty. It's trading at just $463 million down from a high of over $14 billion just four years ago. Neil, can a newer, healthier version rescue Beyond from the Great Beyond? We are going to find out, but the point here from CEO Ethan Brown is saying he wants to make this product fully unassailable from a health perspective. The Beyond Meats of the world, the Impossible burgers have come under fire from some people saying that they are super processed. They're high in sodium. They're not as, you know, they don't bring the health benefits that they claim.

So he wants to put his flag in the ground here and make an absolute health claim saying, these are healthy. You cannot, whatever you want to say about Beyond Meat, you can say anything you want, but you have to cede that they are healthier than their beef counterparts. Yeah, that's always, there's always been ammunition from critics saying like, hey, listen, there's more saturated fat here than in just a normal burger. There's higher sodium content. So stripping away those last vestiges of criticism.

To me, though, this screams as kind of a last-ditch marketing effort because, again, cutting it at 60%, you're taking it from 5 grams to 2 grams. It's not life-changing, and 20% less sodium is not life-changing either. So, I mean, if you compare it to a normal burger, single patty has 230 calories versus 290 for a normal burger. It actually has less saturated fat, but around the same amount of sodium. So I don't know if there's that big of a health difference to kind of rescue this industry that started with so much praise, but it's kind of wilted a little bit. No, this is an industry in decline right now. I mean, the size of the plant-based meat market actually fell 3.6% year over year for the entirety of 2023. This whole market in general is just $1.5 billion, which is not big. You know, when Beyond Meat IPOed four and a half years ago, this was seen as a huge disruptor.

People were predicting it was going to grab 10% market share of the entire massive meat market. And it is just floundered for whatever reasons. I still don't fully understand the full reasons. Like, is it a health thing? Is it a taste thing? Is it a public perception thing? I think it's all of the above. They should get into AI.

But the one bright spot, though, is, like, in Europe where it sells burgers and nuggets at McDonald's. Sales rose, international revenue rose 17%. So maybe the Europeans have a more refined palette than we do in our... Refined. Yeah, are more on board with it. But, yeah, in the U.S., it's still kind of suffering those losses. Very interesting. I think we might go, we might skip the plant-based meat and just go straight to the lab growing meat.

I'm bullish on that. Yeah, absolutely. Okay, MLB spring training kicks off in Arizona. today. But instead of talking about X's and O's, we're talking about S's, M's, and L's. And that's because the new jerseys Nike rolled out for this season are causing loads of

controversy. Players and fans say they look like cheap, T.J. Max knockoffs, and don't give off that classic, stitched vibe of a traditional baseball jersey. And these jerseys are supposed to be different. They're designed by Nike, manufactured by fanatics, and are intended to be

more performance wear than fashion statement. Nike says they provide 25% more stretch and will also dry 28% faster. The lettering emblems and numbering are all less bulky to make the jerseys more breathable and comfortable because after all, the point is to wear these when you're running and sliding and batting and fielding and diving. Toby, I think any jersey change is going to be met with pushback because jerseys are so loaded with history, meaning passion, but it seems like they really drop the ball with

this one. Yeah, absolutely. First of all, that was bars, S's, M's and L's right there, not X's and O. So just want to give you props for that. But yeah, these things look so, so bad. There is a person on Twitter who posted a picture of an actual MLB player wearing one of the jerseys. And someone contacted Fanatic Support who manufactured them. And Fanatic Support says, oh, we're so sorry.

That doesn't look right. It's literally the actual jersey on a professional baseball player. So, yeah, there's something definitely admiss with that. And we were discussing before the show, there's definitely this inherent tension between what the athletes. athletes want in a jersey and what the fans sitting on their couch at home want. The fans sitting on their couch want embroidery. They want history. They want some heft to it because they're spending a lot of money on this. Whereas, yeah, again, what serves an athlete on a field is lighter, stricier, thinner material. So I think there's always going to be a little bit of a

disconnect between those two, especially when you're shelling out so much money for these jerseys. Yeah. And the problem is the fan wants to look exactly like the player. Right. But even the players don't like this. Yeah, I know. Because I think one of the big issues is they started screen printing, which, again, saves weight. And when you start screen printing stuff, it just inherently feels cheaper. And anything thinner feels cheaper as well. So I think, yeah, the players are unhappy.

There's discoloration, too. So I don't know if it will be a full redesign. Maybe once they start playing in it, they're like, all right, Nike was onto something here. But, yeah, definitely not a good look for it. Yeah. And another angle to all this is Fanatics. So Fanatics is a $31 billion behemoth that over the past few years has just, railroaded the rest of the industry in terms of merch and memorabilia.

And so a lot of fans have directed their ire at Fanatics, which they've done over the past few years for monopolizing the market. And so maybe even Nike should be to blame here because they designed the jerseys. Fanatics is just manufacturing them, but they're such an easy target for sports fans these days. Yeah, let's go back to the olden days when teams used to contract their own jersey manufacturer. So it was kind of like you had this personal flair to it. I don't think we ever actually will go back.

But it was cool to see, like, Adidas making some, Nike making some. I don't know, Madel's making some. So let's go back to the old days. All right, we have to wrap it up there. But before I take us to the end of the show, I'm going to bring in my main man, Toby, for an announcement. I've been here the whole time. But yes, Morningbrew Daily hoodies have been getting delivered across the country. So please take a pick if you've got yours. It's so cool to see you guys wearing the merch. You can tag us on social at MB Daily Show. And also, we restock. So if you still want to snag one, head to shop that Morningbreu, to get yours today. You can do that, shop.

Morningbrew.com or email us with any feedback on the show or any just hilarious stories to Morningbrewdaily at Morningbrew.com. Let's roll the credits. Emily Milliganer is our editor and producer. Raymond Lou is our associate producer. Yuchenoa Ogu is the technical director. Billy Minino is on audio, hair and makeup would never have signed off on those MLB jerseys. Devin Emery is our chief content officer and our show is a production of Morning Brew.

Great show you day, Neil. Let's run it back tomorrow. All. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly Big Board Buckslot machine by Aristocrat Gaming, Yamava Resort and Casino at San Manuel is giving one person a $1.6 million dream package. The biggest prize in Yamava's history.

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