Why Microsoft has a 'meaningful ways to run,' analyst discusses

Summary

In this episode of 'Goodbye or Goodbuy', host Tomas Tungo from Fury Ventures discusses the market potential of tech giants like Microsoft and Nvidia. Microsoft's AI capabilities and enterprise AI leadership are highlighted, with a focus on its rapid growth and strategic investments in data centers. Meanwhile, Nvidia's impressive performance is contrasted with the looming threat of increased competition in the AI chip market. The conversation also touches on the importance of software for Nvidia's future valuation and growth, offering a contrarian perspective on the company's stock.

Takeaways

• 📈 Microsoft is seen as a strong buy due to its leadership in AI, with a rapidly growing business in this sector.
• 💡 Microsoft's investment in data centers, to the tune of $15 billion a quarter, positions it well for the AI era.
• 🚀 Microsoft is gaining market share in cloud services, particularly against Amazon and Google.
• 🔄 There's a shift in startup preferences from Amazon to Microsoft for cloud services, due to AI capabilities.
• 🌐 Enterprise AI is a significant strength for Microsoft, with cross-selling opportunities across various products.
• 📊 Microsoft supports a wide range of AI models, giving it access to diverse data for training and product development.
• 📉 Despite impressive growth, there are concerns about the sustainability of Nvidia's high profit margins due to increasing competition.
• 💼 Nvidia's success is challenged by competitors like Google, Amazon, and AMD developing their own AI chips.
• 📊 Nvidia's forward PE has historically spiked and then declined, suggesting that current valuations may not be sustainable long-term.
• 🛠️ Nvidia needs to diversify into software to maintain growth and justify its valuation as demand for GPUs potentially slows.
• ⏳ The time and complexity involved in producing competitive AI chips could delay the entry of new competitors to the market.

Q & A

What is the primary focus of the 'Goodbye or Hello' show?

The primary focus of the 'Goodbye or Hello' show is to help investors cut through the noise of the stock market and make informed decisions regarding their portfolio, with a particular focus on the most valuable public companies and their battle for the top market cap spot.

Why is Microsoft considered a good buy according to Tomas Tunguz?

Microsoft is considered a good buy due to its leadership in AI, having developed a five billion dollar run rate business in about 18 months, significant investments in data centers, and its ability to win market share from other cloud providers like Amazon and Google.

What is the significance of Microsoft's relationship with Open AI for its AI business?

Microsoft's relationship with Open AI is significant because it initially helped Microsoft to be at the forefront of AI development. This partnership, along with substantial investments in data centers, has allowed Microsoft to create a substantial AI business.

How does Microsoft's AI business growth compare to its competitors?

Microsoft's AI business has grown at an impressive rate, with a 700% year-over-year increase. It has been gaining market share in the cloud market, particularly from Amazon and Google.

What is the current trend among startups when it comes to choosing a platform for building their companies?

The current trend among startups is to build their companies on top of Microsoft because they want early access to AI features offered by Microsoft, particularly those on Azure.

What is the potential risk for Microsoft's partnership with Open AI according to the discussion?

The potential risk is that the partnership with Open AI might not last forever. Open AI is broadening its distribution and pushing more into a consumer search direction, which could lead to increased competition with Microsoft and challenge their key relationship.

Why is Tomas Tunguz avoiding Nvidia stock despite its impressive performance?

Tomas Tunguz is avoiding Nvidia stock due to the increasing competition in the AI and inference chip market, with companies like Google, Amazon, and AMD developing their own chips that could challenge Nvidia's dominance and potentially shrink its profit margins.

What is Nvidia's strategy to maintain its growth and profitability in the face of increasing competition?

Nvidia needs to diversify and get more into software to sustain its growth and profitability. The company is already selling a suite including chips and software, but it needs to increase the software component of its revenue to boost its valuation.

How does the historical PE ratio of Nvidia reflect its growth phases?

Nvidia's historical PE ratio has seen spikes above 50 during its major growth phases, such as gaming, crypto, and AI waves. After each peak, the PE ratio has fallen to around 25, indicating a potential pattern of high valuation followed by correction.

What is the potential long-term challenge for Nvidia's competitors in the chip manufacturing industry?

The long-term challenge for Nvidia's competitors is the time and resources required to establish and ramp up fabrication facilities for chip manufacturing. The U.S. has limited ability to fabricate chips, and it will take a significant investment and time to catch up.

What is Tomas Tunguz's current position in Microsoft and Nvidia stocks?

Tomas Tunguz holds Microsoft as his single largest public position, while he has a very small position in Nvidia.