The Rundown - Nvidia Earnings Fail to Impress, OpenAI Seeks New Funding at $100B Valuation

Episode Date: August 29, 2024

Stock market update for August 29, 2024.

Public.com presents the rundown, your daily market update in five minutes. My name is Zaid Admani, and today is Thursday, August 29th. In today's episode, we recap Nvidia earnings. The numbers were good, but the reaction was not. We also tell you about Open AI's plans to raise more money. Then stick around to the end of the show to find out the latest company to enter the trillion dollar club. And for once, it's not a tech company. All right, let's go.

The stock market was in the red for pretty much the entire day yesterday. The S&P dropped 0.6%, and the NASDAQ was down more than 1%. I think the markets and investors were on edge about Nvidia's earnings, which came out after the market closed. Now, we've been previewing Nvidia's earnings all week. Some people calling it the most important earnings report of the year. I mean, the anticipation going into Nvidia's earnings was insane. Like there was an Nvidia earnings watch party happening in New York.

I don't think I've ever seen that for an earnings report. report before. Like, this truly felt like the Super Bowl for finance nerds like me. Well, the earnings came out, so let's talk about them. So how did Nvidia do? Well, guys, they crushed it. All right, they did it again. Their numbers were solid and they beat Wall Street estimates across the board. But yet, the stock still dropped in reaction to the report. Let's talk about the numbers first. Revenues more than doubled to $30 billion last quarter, topping estimates of $28.7 billion. That's a hundred and 22% jump from a year ago. And Invidia, His profits also more than doubled from last year to $16.6 billion.

The Data Center Division, which includes the AI chips, accounted for $26.3 billion in revenue. That's up 16% from Q1 and up 154% from a year ago. And Invidius management isn't expecting a slowdown anytime soon. The company's revenues forecast for the current quarter is $32.5 billion, which is more than the $31.8 billion that Wall Street expected. CEO Jensen Huang said the highly anticipated Blackwell AI chip samples, are shipping to partners and customers, and the CFO, Colette Crest, said that the production for Blackwell chips is scheduled to ramp up at the beginning of Q4. So again, Nvidia beat on revenue, beat on earnings, they projected strong guidance, and

they got their new Blackwell chips shipping soon. And then the cherry-on-topper investors, Nvidia announced $50 billion in share buybacks. So you would think all this news would have investors hype, right? But no, the stock actually dropped 7% percent. in after hours trading in reaction to these earnings. Now, it's recovered a bit. It's now down around 3% at the time of this recording. But still, the fact that the stock dropped,

even though Nvidia reported that solid numbers, really shows you how much vibes are changing around AI stocks these days. Like, it's not 2023 anymore. And investors are just more cautious about the AI boom. I guess the $16 billion in profit that Nvidia made last quarter wasn't enough for investors to overcome the anxiety around a potential AI bubble. Maybe the markets didn't like the fact that Nvidia only doubled their revenues instead of tripling it like they had been doing the last three or four

quarters. Investors are legitimately concerned that companies like meta, Microsoft, Google, Amazon, they're going to stop buying AI chips from Nvidia because these big tech companies aren't able to make a profit from AI. But again, Nvidia isn't expecting a slowdown in their business, at least not in the next couple quarters. I'm going to miss the good old days of a stock going up just because the company said the word AI 18 times in their earnings report. Actually, this is a great transition to talk about Open AI. There are reports that Open. Open AI is looking to raise a new round of funding, which would value the company at $100 billion. That's up from the $86 billion valuation from late last year.

I guess VC firms and private market investors don't seem to be nervous about an AI bubble. They're willing to write big checks. The lead investor is VC firm Thrive Capital, which will invest about a billion dollars, according to the Wall Street Journal. And then Microsoft is investing more money. They've already invested about $13 billion to Open AI since 2019 in exchange for 49% of their profits, but they're expected to also invest more money in this new round. Now, the reason Open AI needs the money is because they have a lot more competition these days than when they first started the

whole AI hype back in 2022 when they launched ChatGPT. Now, these days, you have competition from Anthropic, perplexity. Even Elon Musk has an AI company called XAI, which raised around $6 billion back in late May, valuing that company at $24 billion. And not to mention, you have big tech giants like Google, Meta, Microsoft. They're building their own AI tools. So Open AI needs billions of dollars to continue developing their own AI products to beat the competition. I guess the prize for winning the AI wars is probably so big that private market investors and VC firms are willing to throw gobs of money at it in hopes that Open AI ends up the winner. Personally speaking, I'm not as bullish on Open AI. Like chat GPT is still a great tool, but I find myself using perplexity and

Anthropics clawed a lot more. But if this means that we're going to get more cool AI tools, I mean, I'm all for it. Bring on GPT 5.0. Let's talk about some stuff. Stocks making moves today. Shares of a firm are booming this morning after the company reported better than expected earnings and a strong guidance. The Buy Now Pay Later company saw revenues jump 48% from a year ago and losses narrowed to $45 million down from the $206 million in Q2 of last year. People are using a firm to buy more stuff.

The gross merchandise value was up 31% to $7.2 billion. I guess by now pay later continues to be a popular option for. for consumers and now a firm is looking to launch in the UK by the end of this year. A firm stock is up more than 20% in reaction to these earnings. Best Buy also seeing their stock rally 10% this morning after the retailer bumped its earnings guidance for the year and showed sign that its turnaround plan is working. Best Buy has been stuck in a two-year sales slump because many consumers were holding off on buying new electronics and other discretionary items.

Comparable sales in the most recent quarter were down 2.3%. But that's an improvement from the 6.2% drop from a year earlier. I mean, Best Buy was one of the beneficiaries of consumers going on a shopping spree during the pandemic, but over the last couple years, because of inflation and a lack of innovative tech products, many consumers just haven't visited a Best Buy. Now, a stock not doing so great today is Dollar General. The stock is down more than 20% after cutting its sales and profit guidance for the year. The discount retailer trimmed its same store sales forecast to a range of 1 to 1.6%.

Dollar General's management said that softer sales were due to core customers being financially constrained. What's interesting is that shares of Dollar Tree are also falling in reaction to this news. All right, let's wrap the show with a fun fact. Warren Buffett's Berkshire Hathaway briefly reached a $1 trillion valuation on Wednesday. It became the eighth U.S. company ever to hit that mark and only the first company outside of the tech sector. So shout out to the goat, Warren Buffett, hitting another milestone. And by the way, just so you guys know, Berkshire Hathaway owns and controls a ton of companies, like they own GEICO, but they all also hold stakes in companies like Apple, American Express, and Bank of America.

All that added together crossed a one trillion dollar valuation. Well, all right, guys, that's the rundown for today. Hope you guys enjoyed today's episode. We still got one more show tomorrow to wrap up the week. Then we'll be off on Monday for Labor Day because the markets will be closed, but we'll be back here on Tuesday. If you guys enjoyed the show, don't forget to hit us with a five-star rating on Apple and Spotify.

That engagement really does help us out. Thank you guys so much for listening. Shout out to Connor and Mike for all the help behind the scenes. And we'll see you guys back here tomorrow. This is the rundown, your real-time resource for news events and trends in the markets. All views presented in the show reflect the opinions of the guests. You should not take any mention of a publicly traded security as recommendation to buy, sell or hold that security. Rundown guests are not financial advisors and are not affiliated with public holdings or its subsidiaries.

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