Nvidia Says $1T Is Coming — The Market Isn’t Buying It

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Re-re-re-branding to HBO Max. If money is evil, then that building is hell. Welcome to Prophecy Markets. I'm Ed Nelson. It is March 18th. Let's check in on yesterday's market vitals. The major indices posted modest gains, the price of oil climbed higher as President Trump slammed allies for not helping him fight the company. The war in Iran and reopen the straight of Hormuz, and finally, Bond Yield's fell ahead of the federal reserves interest rate decision due later today.

Okay. What else is happening? Nvidia expects at least one trillion dollars in revenue from Blackwell and Ruben Chips through 2027. That is the headline news out of the company's GTC conference, also known as the Super Bowl of AI, which kicked off this week. In his keynote on Monday, CEO Jensen Huang pitched a future where Nvidia power is not just chatbots and data centers, but also robots, factories and autonomous machines in the physical world. Nvidia's stock is up nearly one and a half percent since his speech.

Lots more to unpack from this conference, so here to discuss all of it, was speaking with our friend Gil Luria, head of technology research at DA Davidson. Gil, good to have you on the show, I think we have to start with this one trillion dollar number that is making all the headlines, one trillion in chip sales through 2027.

“That's what Jensen Huang believes. Give us your reason that number. Is that a real number or is that just a headline?”

Well, it's a real number. What's really surprising is that investors frugged it off as unimpressive. It really added a half a trillion dollars of revenue in really in a year. And you and think investors would jump all over that considering it implies upside to next calendar years numbers for Nvidia and yet investors shrugged it off, which tells us something really interesting. Investors don't believe the great data center build that will continue into next year. The market is now telling us that it is expecting 2026 to be the peak year in the data center build out.

Now, that's indicating a little bit of split personality for the market because as you discussed and we've discussed, the market is also saying mass unemployment is coming software companies are worthless. So AI is going to happen. It's going to have a huge transformational effect. And yet at the same time, the market's not believing that the great data center build that will will continue into next year. So somewhere, somewhere along there, there's an inconsistency.

I think this is going to generate trillions of dollars worth of revenue. And it seems to sort of just say it on the fly. He said similar things about robot axes as well.

And then it never materialized or if it did, it materialized in a much more insignificant way than a lot of people expected.

“And I guess the question remains here for Jensen Wong too. I mean, why is this one real when it seems to be also a little bit of a projection out into the future? Why is it something that we should really be taking seriously?”

That's a fair question because these numbers are fantastical. So we do have to always be skeptical when people give us fantastical numbers like that. And be fair, two different people. Elon Musk has a long illustrious track record of over promising and compressing timelines, even when he knows it's going to take a lot longer. Even though he usually delivers on the promises eventually, the timeline gets extended a lot.

Jensen Wong has actually been pretty consistent. He's actually been cautious not to guide too far into the future up until just six months ago in video was only guiding one quarter at a time.

Six months ago he took a departure to say, you know, I think there's going to be half a trillion dollars of blackwell and rubin by the end of 26 or in the next 18 months, which is slightly past 26. And he pointed to that and said, look, here I am, five months later, I'm telling you that numbers too low, I need to take that to a trillion dollars if I extended to 2027. So he's being thoughtful and he, at least in the way he's communicated and clarified that statement, feels like he's under promising.

He clarified this doesn't include CPUs or the grock chips or the networking equipment or Rubin Ultra. So he actually said it's more than a trillion. So from his perspective, this is a number that he has high visibility into because he has these orders from his largest customers, Microsoft Amazon Google metadata, et cetera. So he feels like that's actually under promising, which is probably why he's a little surprised by the underreaction to such a high number.

“So I guess what then do we make of the fact that the market doesn't seem to be so hyped about the next couple of years in data center build out?”

Why do investors believe this? Why do they, it seems like you're saying think that we've kind of reached peak peak data center? Well, I don't think we've reached peak data center. I'm saying the evaluations for these stock imply that and it's not an unreasonable thing to say look. These big companies are investing hundreds of billions of dollars. They do not yet have the revenue and the returns to justify that until we see those returns come in. And we're going to be skeptical about these companies continuing to invest in these rates because these companies are using all their cash flow and then some to build that data center.

So they can't keep doing this forever. So we, the investors, the market as a collective is view is let's wait until we see the returns come in a little better. Then we'll be able to make that leap of faith than the data center construction is going to continue with these rates. It is our opinion. It is my opinion that we will get these returns that the growth rates were seeing it up on AI and anthropic and in usage of AI by consumers and enterprises is so significant and the technology is still developing that we will actually need a lot more data centers.

But the skepticism is always warranted. It just creates opportunities for investments.

Right. One of the big themes in his keynote was physical AI. So robots, factories, autonomous systems, etc.

“Does that play a big role in your view on how this AI build out will unfold? Are you thinking about physical AI? Was that story compelling to you?”

It's compelling, but the timeline is different. You pointed earlier to Elon Musk and his promises about optimists and rolling millions of optimists into every home. And we know that's a few years away. I would think of that as extending the AI cycle. If the AI cycles about increasing productivity of white color workers, physical AI and robotics are about extending the productivity of blue color workers. For those of you that didn't see the keynote, they even animated Olaf from frozen and had him come on stage to talk to Jensen Wang.

And so it is coming and we've seen some demos of optimists and figure robots, etc. We just know that that's several years out. So that's probably behind the big AI wave.

What would you say was the single most important takeaway from GTC so far?

The incorporation of the grock technology that Nvidia acquired. So if we've been talking about broad calm and AMD trying to catch up to Nvidia, AMD has a new generation of GPUs, some custom GPUs they're doing from metaphor. And AI, broad calm does the A6, which is custom accelerators chips that they do for other large companies like Google, etc. And those companies appear to be catching up to Nvidia by incorporating grock technology into their data center systems, Nvidia is extending its lead from those companies.

They're talking about the fact that they can generate more tokens faster and cheaper than any of those alternatives and it was very important for them to bring the grock technology in in order to accomplish that.

“So it's Nvidia extending its lead over the competition and making the argument that the total cost of ownership even for inference is lower within video systems and the key to that was adding the grock technology.”

One other thing that has struck me about this conference is just how big it is. People are going at Super Bowl of AI Woodstock of AI. I mean, you see these images of these gigantic crowds literally filling out a stadium. I saw someone online saying that Jensen Wong is the Taylor Swift of men. I think is weirdly actually not that not that inaccurate. What do you make of just how big of an event this has become. And I guess the stardom of Jensen Wong in 2020, six, what does that say about society and where we are as a market right now?

This is the big event of the year for AI and it's not a coincidence. Jensen Wong foresaw the future of AI before anybody else did, right? He was meeting, yeah, same old man in 2017 to give him chips. So he saw this coming. He's anticipated several steps forward. So this is really well deserved in the sense that he is very much an Nvidia is very much responsible for the AI revolution and it's not a coincidence that they also capture most of the profit dollars in AI and will continue to do so for a while.

So it's his vision that's it's been responsible for a lot of the progress it's made in Viggen GTC the main event for AI right now. And that's why it's such a big celebration and plus he has the iconic black leather jacket that always helped you have something like that.

“That looks pretty good. I think we need to get one ourselves final question. $181 a share. That is what Nvidia is concentrating at right now. What do you make your evaluation ever did, Davidson?”

It's very attractive. That's a market multiple. So they're trading a 21 times earnings on a number that's probably too low a market multiple for a company. It's going to grow more than 50% this year and probably more than 30% this year. That's a lot more than market growth. So as long as you believe that we're going to continue to need more AI and build more data centers next year. And if it is probably the most attractive mega cap out there.

All right. Gil Luria, DA Davidson. Gil always appreciate your time. Thank you.

After the break, China's role in the Iran War. For even more markets insights you can subscribe to my weekly newsletter simply put at simply put dot property media dot com. Support for today's show comes from granola. The struggle of having back to back meetings throughout the day is a painful one. You're nodding along, contributing trying to stay present. But in the back of your mind, you're secretly stress scrolling your memory for what was just said or who's supposed to follow up on what meetings are a mess.

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We're back with broccoli markets. Trump is pressureing China to help him win the Iran war and Monday Trump asked to push his planned summit with Xi Jinping back by quote a month or so.

The meeting was set for March 31st and would have been the first US presidential visit to China since 2017.

This delay is widely seen as a tactic to push China to help reopen the state of Humus. And China is uniquely positioned to help do that. It buys roughly 91% of Iran's oil exports, making it the only country with real financial leverage over Iran. So here to help us unpack China's involvement in the Iran war was speaking with Alice Hahn. Director at Green Mantle and co-host of the China decode podcast. Alice, thank you for joining us. I want to ask you about China's role in all of this, but we should probably start with Trump.

“Maybe trying to send a message to China trying to get them to reopen the state of Humus is that the message he's sending and can they do that? Can they really make it happen?”

Well, thanks for having me back on the show and really interesting stuff. We've got a collision of what's happening on the US trying to front with what's happening in Iran.

So let me take it sequentially. I would say what Trump is trying to do is soft to requesting the Chinese to help out. Not just the Chinese, by the way, the Europeans are the actors in the region as well because he clearly doesn't feel that he can do this alone. Now, my own sense, and this is a sense amongst my colleagues here at my firm, is that there actually is a growing risk of boots on the ground of a US operation to eliminate Iranian miners that are posing a risk to the state of Humus.

“That could happen, but certainly I think in the weeks leading up to the current moment, there has been this sort of soft signaling from Washington that they would like to have the Chinese come in and contribute,”

and collaborate in the way that the Soviets did with the Americans back in the 80s during the Iraq Iran War. But what is clear to me, and what was clear from the readout of Wang Yi, the Chinese Foreign Minister's press conference back on March 8 during the two sessions, is that China doesn't want to get involved. Wang Yi made it very clear that China is abiding by quite far principles of peace and stability and not interference in foreign affairs. What that means, concretely, is that the Chinese are playing a wait and see game.

They are not directly aiding the Iranians as of yet and so far as I understand, but they are not willing to commit convoys or collaborate with Americans to really securitize the state of Humus.

“And last but not least, I would say that they, I think, benefit in the short term, or even the medium term if this becomes a more prolonged conflict,”

from the US being bogged down in the Middle East, moving away from the Indo-Pacific as its core area of strategic concern. And really, I think the Chinese believe that this could in the short medium term push the Gulf countries, which I think already is doing, closer towards Beijing, because the Gulf countries are very upset with what has been happening in terms of the US and Israeli's mismanagement from their perspective of the Iran issue. It seems like leverage and power is really the big question here and based on what Trump is doing with this sort of soft arse because he put it.

It seems to suggest that China has the power to make things okay in the straightiful moves because they buy so much of Iran's oil. At the same time, I also know that China depends on Iran for a lot of the oil that they import to their own nation.

Give us the the the lay of the land when it comes to power and leverage. Who is the real power player from a geopolitical perspective when it comes to the Iran war right now?

Well, I think about it from a national security framework of capabilities and intentions. Your first point at is, do they have the power and the leverage of Iran 100%.

Yes, they have bought overnight just over 90% of all Iranian oil exports China imports around 15% of its oil pride to this from Iran. So this is an asymmetric relationship in which the Iranians are highly reliant. This is because of sanctions on Chinese demand Chinese imports and above the way over the last four decades, the CCP Beijing has had really close strategic ties with the Islamic Republic because they see them as a key asset in the region and giving them an advantage in the Middle East.

“But does China have the intent to really get involved and this is where I'm skeptical. They could in theory say to the Iranians, hey, you should stop mining.”

You should stop putting miners in the region to obstruct trades. That may be on the table at some later date and some kind of diplomatic peace process. But right now, I think China isn't the advantage seat primarily because from what I'm hearing in the Gulf region, Iran will probably put China at the top of the list as it starts to open up the straight.

And already we see indications in the last day or so that there are tankers that are coming from India, Pakistan, one that's Guyana flagged but going ultimately to China.

This suggests to me that the pattern moving forward from the Iranians will be tanker by tanker case by case. They will decide based on what they consider to be friendly regimes. And what is clear to me, given the relationship of the last four decades, is that China will probably be the top of the list in terms of preferential treatment in terms of access through the straight.

“That immediately reduces China's strategic incentive to help the Americans because if they can still get access to the straight, why would they want to help the Americans in securing it?”

And obviously suffer blood and treasure loss if they do get involved. You mentioned how China is in kind of a comfortable position here, it seems.

And the markets, that's exactly what the markets are reflecting, Asian markets are getting pretty much clouded across the board except for China, where stocks seem to be barely moving, or at least the impact is far less significant in China. So we've got this dynamic where we're kind of distracted slash highly involved in the region. It seems to be affecting Europe too, it seems to be affecting emerging markets.

“China's kind of okay, does this mean that China may have more of an incentive to invade Taiwan at this point because we're also distracted?”

There isn't argument that is going around, which is some extent persuasive. You know, the US being bogged down and distracted in the Middle East. You know, using down its precision missiles, its ammunition gives China from a military balance of power perspective, some key advantages if it decides to go for Taiwan. But I think that that argument uh, understates the domestic challenges or the domestic changes in China, two of them I think are worth citing. Number one is we've had a complete wipeout of the highest party and state organ that oversees the PLA, the People's Liberation Army.

This is the armed forces combined military of China and you know, the fact that we've gotten rid of five of the seven members, the two remaining members just being Xi Jinping, the president and his anti-graphed minister. Suggest to me that they and have not put their house in order to really engage in what would be a risky strategic gamble even at this point. Even when the advantages are probably more occurring to the side of the Chinese. Second, what I have suspected for the last I would say euro so is that there has been a transition in the leadership, elite leadership in China to really do a political influence campaign to try to get the KMT.

This is the warming down that tends to be more permanent back in power in the next election cycle, which will be in 2028, you know, May 2028. Now, I think that it is in Xi Jinping's interest to see if he can achieve that without even firing a shot because there is an argument to be had, which I find persuasive that if they if they can install a KMT party in the leadership position in Taipei.

Now, I'm still skeptical that that will happen, but I think it's important to flag because I think this is a thinking within the elite leadership in Beijing, and that is why I think in the short term the next year or so.

“I'm very doubtful that there will be a quarantine or even an invasion of Taiwan.”

I guess the reason that our minds go there is because we're all distracted, we're all worried about what's happening in the Middle East.

As you say, China is in a more comfortable stable position, which makes you think, well, they're going to take advantage of these circumstances somehow, and Taiwan is probably the first thing that comes to mind at least was for me. I think it was for many others, but then the follow up question is, how might they take advantage of these circumstances, where we're all in pain, we're all distracted, we're all focused on what's happening in Iran, and they're in a more safe and secure position. I'm still skeptical because ultimately, they do not have, I think, the military experience and preparedness in the PLA elite general top-rust level to really oversee such an ambitious move and endeavor, and I think the military capabilities are extremely important, military personnel are extremely important.

Until we see key changes in the leadership, which I don't think will happen until the next party Congress in October, 2021, I still remain skeptical. I think the one area where I think China is going to take advantage, as the U.S. gets quagmiled again in the Middle East, is to really try to deepen its trading relationships and strategic relationships with these other Gulf states.

There are some indications that Saudi Arabia, particularly as really unhappy with what is happening, and that there could be more strategic ties with Beijing and the back of this.

“And certainly, I think that this plays well with the Europeans, too, who, again, are very unhappy with the way in which Trump and Washington have conducted this whole Iran campaign.”

And I think last but not least, you mentioned Asia and emerging markets. They are going to be the biggest losers because they are so dependent countries like India, for instance, on oil imports from the rest of the world, including notably the Gulf. I think these weakened countries will look to China more as a stable, bad rock, and a stable power in the region. Again, I think raising China's relative strategic influence and power in the region and beyond.

“It's a very, very big implication. Alice Hart and Director of Green Mantle Coast, China decode podcasts, as always appreciate your time. Thanks so much, Ed.”

A quick update on the Iran war. So yesterday we learned that Israeli military had killed Ali Larajani, one of Iran's top security chiefs in an air strike. In fact, this was someone who was so high up.

At one point had a 30% chance of becoming the next Supreme Leader of Iran, according to Calshi. Meanwhile, the death count is growing. 13 American soldiers have lost their lives, 15 are dead in Israel, 850 in Lebanon, 1500 in Iran, and it appears that despite what we were initially told by this administration, this will not end any time soon, which means that Americans at home will also be affected. Mostly from an economic perspective. And yes, that doesn't compare to the immense suffering that is happening abroad, but it is getting to the point now, where we do need to take these economic impacts quite seriously, because they are actually beginning to matter a lot.

So here is a quick update on how the war has affected inflation in America, how it has affected prices. So we will start with obviously crude oil, the price of which has risen nearly 40% since this conflict began. This is now trickling down to gas prices, prices at the pump, which have risen more than 30% since the conflict began. The price of a gallon of regular unleaded is now at its highest level in several years. Diesel prices are also so sorry, up more than 30%, since we struck around. This is a problem for people who drive cars obviously, but it's also a problem for many other people as well. For example, diesel is essential to the freight industry, which is why freight prices have also risen nearly 30%.

It's also critical for the agriculture industry, which is why fertilizer costs have risen around 25%, it is also essential for construction, which is why construction material prices have risen by about 30% and remember, this is just the beginning, because most of these items are input costs.

So when they get more expensive, what that means is that everything else gets more expensive too, and that is just in America, over in Europe, over in Asia, it is even worse, which means that anything we import from those regions will also be expensive. In fact, it will be even more expensive. In other words, with this round of inflation, there is essentially no place to hide. Now the Fed meets today, and it's widely expected that they will keep interest rates steady, they won't change them, but to be clear, more inflation is on the way.

And as we just saw in Australia, who central bank decided on Monday to raise rates, there is now an incentive in place to slow down the economy and fight inflation, which means we are now battling with the two-headed monster of rising prices and also declining growth.

“There is an economic word for this, and that word is "stagflation". We are not there yet, but with every day this war goes on, we get just a little bit closer.”

That's it for today, this episode was produced by Claire Miller and Allison Weiss, edited by Joel Passen and engineered by Benchman Spencer. Our video editor is Brad Williams, a research team is Dan Schlon, is about a kinsel, Christina Donahue and Mia Solveria, and our social producer is Jake McPherson.

Thank you for listening to Prophecy Markets, from Prophecy Media, if you like what you heard, give us a follow, I'm Ed Elson, I will see you tomorrow.

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