NVIDIA Reports
Data center spend on GPUs continues to show explosive growth
Summary: Retailers reported last week. According to Williams Sonoma, the consumer is "probably a little better off than everybody thinks." Walmart's results suggested that consumer spending is very healthy as well. The world's most valuable company, NVIDIA, reported earnings last week and showed that data center spend on GPUs continues to show explosive growth.
Editor’s Note: In the spirit of Thanksgiving, this week's newsletter is available to everyone. Happy Thanksgiving from The Transcript!
Macro
The consumer is better off than people think
"It's really hard to know exactly what's going on with the consumer, but our opinion is they're probably a little bit better off than everybody thinks, especially our consumer." - Williams-Sonoma (WSM 0.00%↑) President & CEO Laura Alber
"So we continue to see the consumer is relatively strong. We're not really seeing our customers pull back, right?...as long as people are working, we tend to think the lending environment will stay relatively good." - Equifax (EFX 0.00%↑) CFO & VP John W. Gamble
"Consumers tell us their budgets remain stretched and they're shopping carefully...Yet, consumers are still willing to spend when they find the right combination of newness and value." - Target (TGT 0.00%↑) Chair & CEO Brian Cornell
"U.S. customers remain resilient with behaviors largely consistent over the past four to six quarters. They continue to seek value to maximize their budgets." - Walmart (WMT 0.00%↑) CFO John David Rainey
But the hiring environment is a bit weaker
"We are seeing hiring be a little bit weaker, right? We talked about that in October...And we've actually seen that continue as weakening continue as we went through the rest of October and a little bit into November. So the hiring environment does appear to be a little weaker from our perspective." - Equifax (EFX 0.00%↑) CFO & VP John W. Gamble
Fed governors are signaling a continuation of interest rate cuts
"My guess is the fed-funds rate will be lower by the end of next year than it is today. It will depend on the data and the progress we make. Month to month, there are movements up and down in individual [data] series, but they are moving in the way that I would like to see." - Federal Reserve Bank of New York President and CEO John Williams
"If the labor market and inflation continue to progress in line with my forecast, it could well be appropriate to lower the level of policy restriction over time until we near the neutral rate of interest." - Federal Reserve Governor Lisa Cook
Companies are excited about a business-friendly administration
"President Trump is going to be more business-friendly...if I think about what happened on election day, holding aside sort of maybe the social context of it, but actually how do you think about it as CEO of a 125,000-personal organization? Effectively you're entering a period that is going to have a more business-friendly tone to it. It's a good thing." - Thermo Fisher Scientific (TMO 0.00%↑) Chairman, President & CEO Marc Casper
"I think President Trump and whoever his men and women are supporting them are the most likely people to kind of clean things up, streamline them...I think that's could be a huge positive for the industry, reduce the cost of the government, accelerate." - L3Harris Technologies (LHX 0.00%↑) Chair & CEO Christopher Kubasik
The economy is good but not euphoric
"I would say from the economy, it's very similar to what I said last quarter. It's not euphoric, but it's good, it's not bad." - Snowflake (SNOW 0.00%↑) CFO Michael Scarpelli
International
Tariffs are on CEOs' minds
"I'll start it off by saying a statement of the obvious, and that is it's very early. And like everyone, we're waiting to see what happens when the Trump administration actually takes office in January. Having said that, we feel good about the processes and the systems we put in place since the first Trump administration to manage tariffs or other challenges." - Lowe's Companies (LOW 0.00%↑) EVP Marvin R. Ellison
"So the last time we were faced with tariffs. We had just over $100 million exposure in terms of Chinese imports into the United States. And out of that, about $100 million was subject to tariff. At that time, we were pretty successful in mitigating most of the exposure with pricing. This time around what's changed is that we'll have to see what we can do with pricing. It depends on what product categories they have go after it depends on the magnitude of what they're doing...But what's changed probably more so is that our exposure is a little bit less, it's less than $100 million right now, and we have more manufacturing capabilities." - Mettler Toledo International (MTD 0.00%↑) CFO Shawn P. Vadala
Companies will seek to reduce dependence on China
"And then the third thing is what I would call the more permanent structural change, which is how do we continue to drive our strategy around our supply chain to lessen our dependence on China, which we've done a lot of that, 8 years ago, 10 years ago, about 40% of what we sold in the U.S. came from China. Today, that number is closer to 20% to 25%...we will continue to be less dependent on China from a supply chain point of view. So that's all I'd like to say about tariffs." - Stanley Black & Decker (SWK 0.00%↑) President, CEO & Director Donald Allan
Tariffs may create inflation
"The question, I think, would be more to the extent that tariffs can have a negative impact or negative read-through on inflation that might have a chilling effect into how quickly the Fed continues to lower interest rates, and that would be more detrimental to biotech. So again, not a policy, but more of a kind of macroeconomic." - Charles River Laboratories International (CRL 0.00%↑) Corporate EVP Flavia H. Pease
"I went through the tariff regime at Stanley Black & Decker back in the first President Trump Administration. We were not proactive in pricing. The learning from that is we are going to be proactive in pricing going forward. And so as you hear more about this over time, I want you to realize that this is going to be something that is on our radar and is very important that we address early on in whatever changes if things change." - Stanley Black & Decker (SWK 0.00%↑) President, CEO & Director Donald Allan
Chinese travel is rebounding with consumer confidence
"In the third quarter of 2024, the China travel market demonstrated remarkable resilience with strong performance in both domestic and cross-border travel. This surge in demand reflects a recovery in consumer confidence and a growing enthusiasm for travel. The National Day holiday clearly highlighted this momentum with passenger trips and travel bookings surpassing pre-pandemic levels...Inbound hotel bookings on our platform increased by around 100%, reflecting a heightened interest in traveling to China." - Trip.com Group Limited (TCOM 0.00%↑) CEO Jane Sun
Financials
Longer-term rates haven't cooperated with short-term decreases
"We've seen interest rates do the opposite of what we were anticipating is going to happen after the Fed's first reduction in September. So we've seen the 10-year treasury pick up...right after the rate cut in September, where we saw rates come down and we saw the mortgage volumes start to pick up as the 30-year mortgage rate approached 6%, we saw volumes definitely picked up. But coming into October, because of the economic strength that we believe we're seeing as well as our customers anticipating an administration change, we started to see the 10-year treasury pick back up. And as a result of that, the mortgage volume has slowed." - TransUnion (TRU 0.00%↑) CFO Todd M. Cello
A wave of pent-up demand for M&A is coming
"I will tell you that the pent-up demand of M&A is coming. And we're seeing it not only with what we're hearing from our clients, but what we're hearing from others in the industry. I had a conversation with the head of the [ICBA] just on Monday, actually. And she indicated that she's hearing a lot of the same stuff. So not only are we hearing M&As going to pick up, definitely opportunities for regulatory concerns and scrutinies to maybe lessen specifically from the [CFPB] and some things that were coming there. So all of those will continue to help kind of drive this M&A market." - Jack Henry & Associates (JKHY 0.00%↑) COO Gregory R. Adelson
More drivers are opting for liability-only insurance as rates rise
"In the past year or 2, in particular, the insurance premiums have generally increased at a pace -- at a rate outpacing other components of the consumer experience, in part because of the natural regulatory lag in raising insurance rates. As a result, then, the liability only plus uninsured motors combined are a greater share of the drivable fleet than they had been in prior years." - Copart (CPRT 0.00%↑) Co-CEO Jeffrey Liaw
Consumer
Walmart posted strong growth
"For the quarter, sales grew 6.1% in constant currency and profit was up 9.8%...Walmart U.S. delivered comp sales of 5.3%." - Walmart (WMT 0.00%↑) CEO Doug McMillon
Higher-income consumers are driving share gains
"Households earning more than $100,000 made up 75% of our share gains. In the U.S., in-store volumes grew, curbside pickup grew faster, and delivery sales grew even faster than that. Becoming more convenient for our customers and members is helping drive our growth." - Walmart (WMT 0.00%↑) CEO Doug McMillon
This holiday shopping period will be short
"And there is a few factors in Q4 that make it very unusual. The first one is the holiday calendar shifts. And you hear us talk about that today. With the late Thanksgiving and the shorter holiday shopping period, it makes reading the business really difficult." - Williams-Sonoma (WSM 0.00%↑) CFO Jeff Howie
Consumers continue to prioritize travel over goods
"Consumer's investing in experiences rather than goods. And that trend continues to accelerate." - Delta Air Lines (DAL 0.00%↑) CEO & Director Edward H. Bastian
Millennials have a lot of wealth
"Today's millennials have 36% greater wealth than Gen X had back when they were in that same age range or boomers had -- 20% higher than boomers had. So real wealth. This is not -- this is all inflation adjusted. So our millennials not only have the desire and capability more than ever, but they also have the execution. They're the fastest-growing generation, and their travel spend across all generations are growing by 3 to 4 points across any other spend category." - Delta Air Lines (DAL 0.00%↑) CEO & Director Edward H. Bastian
Technology
The age of AI is in full steam at NVIDIA
"The age of AI is in full steam, propelling a global shift to NVIDIA computing...Demand for Hopper and anticipation for Blackwell — in full production — are incredible as foundation model makers scale pretraining, post-training, and inference...AI is transforming every industry, company, and country. Enterprises are adopting agentic AI to revolutionize workflows. Industrial robotics investments are surging with breakthroughs in physical AI. And countries have awakened to the importance of developing their national AI and infrastructure." - NVIDIA (NVDA 0.00%↑) CEO Jensen Huang
Foundation models are scaling rapidly
"The last generation of foundation models were at about 100,000 Hoppers. The next generation starts at 100,000 Blackwells. And so that kind of gives you a sense of where the industry is moving with respect to pretraining scaling, post-training scaling, and then now very importantly, inference time scaling. And so the demand is really great for all of those reasons." - NVIDIA (NVDA 0.00%↑) CEO Jensen Huang
Inference demand is also booming
"But remember, simultaneously, we're seeing inference really starting to scale up for our company. We are the largest inference platform in the world today because our installed base is so large. And everything that was trained on Amperes and Hoppers inference incredibly on Amperes and Hoppers. And as we move to Blackwells for training foundation models, it leaves behind it a large installed base of extraordinary infrastructure for inference. And so we're seeing inference demand go up. We're seeing inference time scaling go up. We see the number of AI native companies continue to grow. And of course, we're starting to see enterprise adoption of agentic AI is the latest rage. And so we're seeing a lot of demand coming from a lot of different places." - NVIDIA (NVDA 0.00%↑) CEO Jensen Huang
Data center revenue was $30B, up 112% y/y
"Another record was achieved in Data Center. Revenue of $30.8 billion, up 17% sequential and up 112% year-on-year...Cloud service providers were approximately half of our Data Center sales with revenue increasing more than 2x year-on-year." - NVIDIA (NVDA 0.00%↑) CFO & EVP Colette M. Kress
Blackwell GPUs deliver a 4x cost reduction for training
"Last week, Blackwell made its debut on the most recent round of MLPerf training results, sweeping the per GPU benchmarks and delivering a 2.2x leap in performance over Hopper. The results also demonstrate our relentless pursuit to drive down the cost of compute. The 64 Blackwell GPUs are required to run the GPT-3 benchmark compared to 256 H100s or a 4x reduction in cost." - NVIDIA (NVDA 0.00%↑) CFO & EVP Colette M. Kress
There's a long runway for GPUs
"I believe that there will be no digestion until we modernize $1 trillion with the data centers. Those -- if you just look at the world's data centers, the vast majority of it is built for a time when we wrote applications by hand and we ran them on CPUs. It's just not a sensible thing to do anymore...We have to modernize the data center from coding to machine learning." - NVIDIA (NVDA 0.00%↑) CEO Jensen Huang
Healthcare
Smaller biotechs are feeling more confident about funding availability
"The confidence in the smaller companies is much, much higher. So, if I say, what's the tone? Why are they, why is pipelines building on clinical research? Why is consumables, those things starting to pick up, there's a confidence that funding's going to be available to that customer set. So actually, if I say what's the biggest change, actually it's been that confidence level in the smaller companies, has really picked up quite substantially." - Thermo Fisher Scientific (TMO 0.00%↑) Chairman, President & CEO Marc Casper
Industrials and Transport
There are signs of stability in freight markets
"We did have the best domestic intermodal week last week since 2020. So, second best week since 2020 on the domestic side, so that's encouraging. I think we're seeing more of a normal kind of peak season...I'm not here to say the truck cycle is back, but hopefully, I think we have seen some stability at least, right? It doesn't seem like it's going down further. So that's encouraging as well." - CSX (CSX 0.00%↑) CCO Kevin Boone
Inventories are in balance
"We see that inventory levels as of today are not abnormal compared to normal inventory level to be expected at this time of year. The demand has been strong and resilient in the US. So we don't feel too alarmed that there might be an inventory buildup going on right now in the US that might bite us back in subsequent quarters into 2025. At this stage, we don't see that." - ZIM Integrated Shipping Services (ZIM 0.00%↑) EVP & CFO Xavier Destriau
Labor markets are tight in manufacturing and construction
"So there's a number of challenges that manufacturing is facing post-COVID and with supply chain volatility. And top of that list is in terms of the workforce and manufacturing. Labor shortages along with an aging population, will continue to constrain the world's workforce over the next decade, and there are major shortages expected in the manufacturing sector. Deloitte forecasted that 3.8 million manufacturing jobs in the U.S. alone will go unfilled. And so manufacturing companies are really struggling to attract and retain the workforce that they need to run their operations." - Rockwell Automation (ROK 0.00%↑) SVP Tessa M. Myers
"In addition, as construction activity ramps up, so will the priority for productivity. With a tight labor market, labor inflation, our end users more than ever, will be motivated to embrace our new innovations to drive productivity on the job site as the labor market becomes tighter." - Stanley Black & Decker (SWK 0.00%↑) President Christopher John Nelson
EVs are still taking market share in the US
"We also have said repeatedly that it's not going to be a linear adoption rate from here to there. It's going to be ebbs and flows. We see a little bit of a plateau after a few years of growth. But like I said, our EVs are growing faster than the industry is and where we're being able to pick up share in that space and continue to offer good products to customers." - General Motors (GM 0.00%↑) EVP & CFO Paul A. Jacobson
China's EV penetration will likely hit 85%
"The penetration rate of China's new energy vehicles will likely rise to over 85%, while the integration of AI will lead to the next stage of consolidation of market shares. Unlike the traditional car companies that have relied on cooperative integrated supply chain models for research and development in the past, winners in the AI-defined car sector will be those with in-depth full-scale self-development capabilities." - XPeng (XPEV 0.00%↑) Co-Founder, Chairman & CEO He Xiaopeng
Vehicle miles traveled have surpassed pre-pandemic levels
"We're all aware, of course, of the anomalous very well-documented steep decline in vehicle miles traveled in 2020, courtesy of COVID-19. We are now above pre-pandemic peaks on this specific metric. If you were to look at a visual chart showing vehicle miles traveled over this 60-plus year period, I think you'd likely also conclude that we still have several years of return-to-work tailwinds ahead of us as more and more businesses implement those policies." - Copart (CPRT 0.00%↑) Co-CEO Jeffrey Liaw
Materials & Energy
Global ag markets are expected to contract further in 2025
"We expect farm fundamentals to remain depressed globally in 2025, putting additional pressure on farm profitability...Anticipated record production in South America, particularly in Brazil and Argentina, is likely to further pressure global commodity prices in 2025. And with input costs relatively flat year-over-year, farm net incomes will remain compressed globally." - Deere & Co. (DE 0.00%↑) Director of Investor Relations Josh Beal
Farm balance sheets remain healthy but cash receipts have slowed
"Broadly across the ag sector and despite significant macro headwinds, farm balance sheets remain strong, with land value supporting healthy debt-to-equity ratios. That said, as cash receipts have slowed and credit conditions in the industry have tightened, many growers are keeping a greater focus on the liquidity of their operations." - Deere & Co. (DE 0.00%↑) Director of Investor Relations Josh Beal
Real Estate
The current CRE market is worse than in '08, but showing signs of bottoming
"This has been the worst market we've seen in really probably our lifetime. It was worse than '08...there are signs that we're sort of at the bottom that we -- I don't know if we bounced it down there for a while, but you see signs around the commercial real estate brokers seeing activity up, revenue changing their guidance, et cetera." - Navient Corporation (NAVI 0.00%↑) EVP & CFO Christian M. Lown
Nuggets of Wisdom
Rafael Nadal on how he would like to be remembered
"The titles, the numbers, are there, so people probably know that, but the way I would like to be remembered is as a good person from a small village in Mallorca. Just a kid that followed their dreams, worked as hard as possible to be where I am today." - Tennis Legend Rafael Nadal