Nvidia's end goal is to 'create software on the fly', says Melius' Ben Reitzes

Summary

NVIDIA's stock has faced a 4% decline, yet the company is poised for growth as it transitions towards software, aiming to create AI factories that produce software applications on the fly. Ben Ritsus, Head of Technology Research, raises his price target for NVIDIA for the fifth time this year, from $125 to $160, and highlights the potential for NVIDIA to generate over $270 billion in cash in the next three years. This cash could be returned to shareholders, maintaining a high market multiple. The discussion also touches on the impact of NVIDIA's strategy on other software companies and the potential for new mega caps in the AI revolution.

Takeaways

• 📉 Nvidia's shares are under pressure, ending the week lower by 4%.
• 📈 A guest has raised the price target on Nvidia's stock for the fifth time this year, from $125 to $160.
• 🧑‍💼 Ben Ritsus, Head of Technology Research, is optimistic about Nvidia's potential despite the current market situation.
• 🔧 Nvidia is compared to past industry leaders like Microsoft and Apple, suggesting a significant transition is necessary for continued growth.
• 🤖 The company is praised for being close to 'nailing AI' by creating an ecosystem that developers love and rely on.
• 🔄 Nvidia is undergoing a paradigm shift, positioning itself as a combined force of past tech giants like Microsoft and Apple.
• 💼 There is an expectation that Nvidia will transition more towards software, which is a significant part of their future strategy.
• 💰 The company could generate over $270 billion in cash over the next three years, which could be beneficial for shareholders and maintain a high market multiple.
• 🌐 The discussion highlights the potential for Nvidia to create 'AI factories,' essentially software factories that produce applications on the fly.
• 🚀 If successful, Nvidia's end goal of creating software dynamically could open up a trillion-dollar market opportunity.
• 🏁 Broadcom and AMD are mentioned as competitors in the tech industry, with Broadcom in a good position due to custom silicon CapEx.
• 📉 The script also touches on the challenges faced by traditional software companies that may be disrupted by Nvidia's on-the-fly software creation.

Q & A

Why are shares of NVIDIA under pressure?

The script does not specify the exact reasons for NVIDIA's shares being under pressure, but it mentions that the stock ended the week lower by 4%.

Outlines

00:00

📉 NVIDIA's Stock Pressure & Future Growth

The video script discusses the current pressure on NVIDIA's stock, which has fallen by 4%, despite an optimistic price target increase by a guest from $125 to $160. Ben Ritsus, the Head of Technology Research, is introduced and discusses the potential transition NVIDIA must undertake to grow its market cap from $3 trillion to $4 trillion. He emphasizes NVIDIA's position as a leader in AI by creating a developer-friendly ecosystem and hints at a paradigm shift similar to past industry leaders like Microsoft and Apple. Ritsus suggests that NVIDIA's future lies in transitioning more towards software and highlights the potential for generating over $270 billion in cash over the next three years, which could benefit shareholders and maintain a high market multiple.

🚀 NVIDIA's AI Potential and Market Impact

This paragraph delves into NVIDIA's role in the AI revolution, comparing it to the impact of mobile and cloud revolutions on companies like Apple, Google, Amazon, and Microsoft. The speaker speculates on the number of mega-cap companies that might emerge from the AI revolution and highlights NVIDIA's innovative approach to creating 'AI factories,' essentially software factories that produce applications and software on demand. The potential for NVIDIA to create software dynamically is seen as a significant value driver, with the possibility of capturing a much larger market share than currently estimated. The conversation also touches on other companies like Broadcom and AMD, which could be potential competitors in this space.

💼 Impact on Software Companies and NVIDIA's Strategy

The final paragraph of the script considers the implications of NVIDIA's strategy on existing software companies. It humorously notes that some software companies may no longer be in communication with the speaker, suggesting a competitive threat. The speaker reflects on the success of software companies in the cloud era and their transition to SaaS, but also acknowledges that they cannot indefinitely raise prices, especially in the face of AI advancements. The discussion points out that while companies like Microsoft, Salesforce, and Adobe are strong, the AI revolution could enable new startups and create new competitors, making it challenging to predict clear winners in the software industry.

Keywords

💡NVIDIA

NVIDIA is a leading technology company known for its graphics processing units (GPUs) and is central to the video's discussion on market performance and future growth. The company is under pressure as its shares fell by 4%, but the guest has raised the price target on the stock for the fifth time this year, indicating a positive outlook despite the current dip.

💡Price Target

A price target is an analyst's projection of the future price of a company's stock. In the script, the price target for NVIDIA's stock has been raised from $125 to $160, reflecting the analyst's belief in the company's potential for growth and recovery, despite the current market pressures.

💡Market Cap

Market capitalization, or market cap, is the total market value of a company's outstanding shares. The video discusses NVIDIA's potential to grow from a $3 trillion market cap to four, indicating the company's significant size and potential for further expansion in the market.

💡AI (Artificial Intelligence)

Artificial Intelligence refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. The script highlights NVIDIA's close association with AI, creating an ecosystem that developers find appealing, which is crucial for the company's growth in the technology sector.

💡Ecosystem

In the context of technology, an ecosystem refers to a community of interacting hardware and software components that work together to provide a comprehensive solution. NVIDIA is praised for creating an AI ecosystem that developers love and rely on, which is a key factor in the company's success.

💡Paradigm Shift

A paradigm shift refers to a fundamental change in approach or underlying assumptions. The script suggests that NVIDIA is leading a paradigm shift in the technology industry by combining the strengths of past industry leaders like Microsoft and Apple into one company.

💡Software Transition

The term refers to the process of moving from a primarily hardware-focused company to one that emphasizes software development and services. The script indicates that NVIDIA needs to transition more to software to maintain and grow its market cap, which is a strategic move in the evolving tech landscape.

💡Cash Generation

This refers to the ability of a company to generate cash flow. The script mentions that NVIDIA could generate over $270 billion in cash over the next three years, which is a significant amount that can be returned to shareholders and used to maintain a high market valuation.

💡Mega Caps

Mega caps are companies with a market capitalization of over $200 billion. The script discusses the historical context of mega cap companies emerging from the mobile and cloud revolutions, and it questions how many will emerge or be sustained from the AI revolution.

💡AI Factories

AI factories, as mentioned in the script, refer to NVIDIA's initiative to create software factories that produce applications and software on demand. This concept is a key part of NVIDIA's strategy to generate value and stay ahead in the AI-driven market.

💡SaaS (Software as a Service)

SaaS is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. The script touches on how software companies, which have benefited from the cloud and transitioned to SaaS, are now facing challenges as they try to adapt to the AI revolution.

Highlights

NVIDIA shares under pressure, ending the week lower by 4%.

Guest raised his price target on NVIDIA stock for the fifth time this year, from $125 to $160.

NVIDIA is closest to 'nailing' AI by creating an ecosystem that developers love and rely on to grow.

We are in a paradigm shift, with NVIDIA combining the strengths of past regime leaders Microsoft and Apple.

NVIDIA may have the best run rate of all the big companies.

NVIDIA needs to transition more to software, which is expected to happen.

NVIDIA could generate over $270 billion in cash over the next three years, a figure not widely discussed.

The massive cash pile NVIDIA could generate can benefit shareholders and maintain a high market multiple.

Only two companies became mega caps out of the mobile revolution (Apple and Google) and two out of the cloud revolution (Amazon and Microsoft).

NVIDIA is creating 'AI factories' which are essentially software factories, producing applications and software on the fly.

If NVIDIA succeeds in creating software on the fly, there is a potential trillion-dollar total addressable market for them.

Broadcom is in a good position with custom silicon CapEx, and AMD is considered a dark horse in the industry.

Dell has been pushed hard as a software company that could be impacted by NVIDIA's on-the-fly software creation.

Software companies that have been raising prices may face challenges as AI allows more startups to enter the market.

Companies like Salesforce and Adobe are good, but the AI revolution makes it difficult to pick clear winners among software companies.

Transcripts

SHARES OF NVIDIA UNDER PRESSURE

AGAIN TODAY, ENDING THE WEEK

LOWER BY 4%.

OUR NEXT GUEST JUST RAISED HIS

PRICE TARGET ON THE STOCK FOR

THE FIFTH TIME THIS YEAR, THIS

TIME FROM 125 TO 160.

LET'S BRING IN HEAD OF

TECHNOLOGY RESEARCH BEN RITSUS.

HAPPY FRIDAY.

THE OTHER TWO $3 TRILLION STOCKS

IN THE MARKET RIGHT NOW HAD TO

GO THROUGH THESE TRANSITION

PERIODS, MOST RECENTLY FOR

APPLE, FROM iPOD TO iPHONE, FROM

MICROSOFT FROM WINDOWS TO BEING

A PRODUCTIVITY COMPANY OVERALL.

WHAT'S THE TRANSITION THAT YOU

THINK NVIDIA HAS TO AND CAN MAKE

TO MAINTAIN AND GROW THIS $3

TRILLION MARKET CAP TO FOUR?

>> WELL, I THINK THAT THEY'VE --

THEY'RE THE CLOSEST THING TO

NAILING AN AI SO FAR OBVIOUSLY

BY CREATING AN ECOSYSTEM THAT

DEVELOPERS LOVE, AND THEY KNOW

THEY CAN BE RELIED UPON TO GROW.

AND THAT'S A REALLY BIG THING.

WE ARE IN A PARADIGM SHIFT.

AND THIS IS THE MICROSOFT AND

APPLE OF THOSE PAST REGIMES ALL

COMBINED INTO ONE IN NVIDIA.

AND THAT'S WHAT YOU HAVE TO

THINK ABOUT AND REALLY STARTING.

SO THEY MAY HAVE THE BEST RUN

RATE OF ALL THE BIG ONES.

WHAT THEY NEED DO IS TRANSITION

MORE TO SOFTWARE WHICH WE'RE

GOING TO SEE.

AND ALSO I THINK WHAT'S REALLY

COOL AND WE WROTE ABOUT THIS

TODAY IS THEY COULD GENERATE

OVER $270 BILLION IN CASH OVER

THE NEXT THREE YEARS.

AND NOBODY TALKS ABOUT THAT.

THAT'S SOMETHING THAT CAN COME

BACK TO SHAREHOLDERS AND REALLY

KEEP THE MULTIPLE PRETTY HIGH

FOR A LONG TIME.

SO WE -- WE LIKE WHAT WE'RE

SEEING, BUT EVENTUALLY PEOPLE

ARE GOING TO BE TALKING ABOUT

THIS MASSIVE CASH PILE.

>> ARGUABLY THEN ONLY TWO

COMPANIES BECAME MEGA CAPS OUT

OF THE MOBILE REVOLUTION, RIGHT?

APPLE AND GOOGLE.

AND THEN ONLY TWO BECAME MEGA

CAPS OUT OF THE CLOUD

REVOLUTION, AMAZON AND

MICROSOFT.

HOW MANY MEGA CAPS ARE WE GOING

TO GET OR MAINTAIN OUT OF THE AI

REVOLUTION?

>> WELL, WE'RE NOT SURE -- I

MEAN RIGHT NOW, WE STILL THINK

-- OBVIOUSLY SOFTWARE HAS HAD A

FEW GOOD DAYS, BUT NVIDIA IS

DOING SOMETHING AMAZING HERE.

THEY ARE CREATING AI FACTORIES

WHICH IS REALLY CODE FOR

SOFTWARE FACTORIES.

AND THEIR OUTPUT IS SOFTWARE.

IT'S APPLICATIONS, STUFF THAT WE

TAKE FOR GRANTED TODAY IN A

DIFFERENT FORM.

AND NVIDIA'S END GOAL IS TO

CREATE SOFTWARE ON THE FLY.

THAT'S THEIR PRODUCT THAT

THEY'RE GOING TO CREATE WITH

THESE AI FACTORIES.

AND THAT'S JUST A TON OF VALUE,

JON.

IF THEY GET THIS RIGHT, THERE

ARE TRILLIONS OF TAM THAT SHOULD

GO TO THEM, NOT JUST THE

TRILLION THAT JENSEN TALKS

ABOUT.

IF YOU'RE CREATING SOFTWARE ON

THE FLY EVENTUALLY THAT'S VERY

VALUABLE.

OBVIOUSLY NVIDIA, WE'VE BEEN

TALKING A LOT ABOUT

BROADCOMLATELY, YOU PROBABLY --

BROADCOM LATELY, YOU PROBABLY

SAW THAT.

BROADCOM'S IN A GOOD SPOT WITH

THE CapEx FOR THE CUSTOM

SILICON.

YOU KNOW, THEY'RE PROBABLY THE

CLOSEST ONE IN TERMS OF THINKING

ABOUT WHO CAN BE NEXT AND THEN

AMD'S THE DARK HORSE HERE.

>> OKAY.

>> ON THE SIDE WE'VE BEEN

PUSHING DELL REALLY HARD.

YOU KNOW THAT.

>> YEAH.

WHAT KIND OF SOFTWARE COMPANIES

GET DESTROYED WHEN YOU'RE

CREATING SOFTWARE ON THE FLY

LIKE THAT?

>> WELL, THE KIND THAT DON'T

TALK TO ME ANYMORE.

SO YOU KNOW, THAT'S REALLY A

JOKE THAT SOME OF MY CLIENTS

WILL LIKE.

BUT YOU KNOW, I THINK THAT THE

SOFTWARE COMPANIES HAD IT REALLY

GOOD FOR MANY YEARS.

THEY NAILED IT, AND THEY WERE

THE BIG BENEFICIARIES OF THE

CLOUD.

AND THEN THEY TRANSITIONED TO

SAS.

AND SORT OF RIGHT NOW ARE IN THE

EARLY INNINGS OF SEEING THEY

JUST CAN'T, YOU KNOW, PRICE

FOREVER.

THEY'VE BEEN RAISING PRICES ON

EVERYBODY SINCE COVID AND

BEYOND.

NOW THEY WANT TO CHARGE EXTRA

FOR AI.

LET'S SEE HOW THAT GOES FOR

THESE GUYS.

YOU KNOW, OTHER THAN MICROSOFT,

IT'S REALLY HARD TO PICK A

WINNER.

OF COURSE YOU COULD HAVE SOME

TRADING DAYS.

YOU KNOW, SALESFORCE A GOOD

COMPANY.

ADOBE A GOOD COMPANY.

WE THINK IT'S PRETTY TOUGH -- AI

ALLOWS A LOT OF STARTUPS TO GET

GOING THAT MAYBE WOULDN'T HAVE

OTHERWISE.

AND THEN A LOT OF COMPETITORS

GET STOOD UP.

IN GENERAL, WH