Futurum's Newman Believes AI Trade Isn't Over

Dan, good to have you with us. I mean, we know Nvidia is such a massive pillar of the tech ecosystem. How are you reacting to the news?

Well, first of all, it was utterly surprising. I mean, Jensen's someone that's been seen as having incredibly high character, working very, very hard and not saying he's not fallible or not prone to making a mistake, but someone at his at his level, you certainly would think he would be very aware that he would be under very tight scrutiny. He'd be watched very closely. The issue that underlies this, right? The affair itself, I mean, CEOs, founders have come back from that. Jeff Bezos, for instance, that I think is one thing and I think it's really important that we do not conflate the affair with the other considerations right now, right? The concerns about China, mega speed, uh preference, potential national security risk. I think we have to acknowledge that CEOs can make mistakes, but what they are saying right now is that mistake was limited to a personal decision that obviously hurt his family and now is hurting his company, hurting his shareholders. But I think we do have to allow the investigation to play out. I think we do need to allow what will come next, which will likely be congressional hearing, Senate, uh house committees, foreign affairs because this is such a critical issue in the long term. And and I will say like I didn't necessarily agree with Jensen's position on China. I often thought that we needed to limit the uh, you know, the exports more. We needed to be careful in terms of setting China up to be more successful than the US in AI. But having said that, I'm also very, very cautious in making judgment too soon and I hope that, you know, the world allows this to come out before deciding or, you know, basically deciding that Jensen has done more wrong than what he's already acknowledged.

Well, you're withholding judgment. It does seem like the market is doing the same too. Is it surprising that there's been very little reaction? I mean, there could be key man risk right here, right? I mean, there's a lack of succession plan. There's also the man who's been pushing for looser expert controls.

Yeah, Haslinda, you you nailed it. Jensen is a very unique CEO. Your reporter commented on the hierarchical structure. It's much flatter. He really does drive on with this almost like this autocratic type of organization that really does build around his vision. There is is no known succession plan. There are no leaders in his company that would be the clear next to step up if he was to have to step down. I think the investors, first of all, the stock has already had a fairly difficult period of time. It's trading at a very low valuation and I think the business that the company has is pretty secure at this point, so long as they are able to kind of hold it together during this period of time during this investigation, can management continue to execute? And I think there is an overwhelming feeling that if their messaging is true and that what he did wrong is limited to, you know, a personal character decision that of course has gotten CEO's fired before, but he is a large shareholder, founder, CEO founders have survived these types of situations before. I think there may be an overwhelming sense in the market that this is something he can get past so long as there's nothing underneath that next turn of investigations.

What are the risks here, Dan? I mean, could it be supply chains? Could it be maybe changes in leadership? What are you looking out for in the next coming, I guess, hours, days, weeks?

Yeah, Jensen is going to need to acknowledge that he is um going to start to build the capabilities around him right now because what you don't know is as as these investigations start to take place, who would step up if things did come to the surface that are more significant that require him to to to step away for a period of time. If that is the case, this company will have to continue to run and and the world's largest companies, not just the, you know, mega speed, but you know, Microsoft, Google, um you know, uh Amazon, they all depend on this technology and the world is depending on this. We all know that right now the data centers are the hottest topic in the market. The vast majority of the infrastructure going into data centers is powered by Nvidia chips. This company's going have to act quickly. They're going to have to calm investors, calm employees. They're going to have to be very clear in in how they intend to at least temporarily succeed this. In many ways, Jensen is like the Steve Jobs here. It's not to say they can't find a Tim Cook in the future, but that is going to be a massive change of the guard and the company has not been set up for that.

Isn't it true as well that the risk is also in NVIDIA's export licenses? The timing couldn't be worse. I mean, we're on the verge of the Democrats perhaps, you know, uh putting in place stricter controls.

Well, I don't think that was a partisan issue so much. I think most of the the conservative parties, uh conservative Republican part of the the caucus 2 had strong feelings about China having access to too much of Adia and America's most advanced technologies. This is where I tended to uh disagree with Jensen along the way. I did feel that we did need these export controls and most of what we were allowing to be shipped in was the H200 product. And for those that are not familiar with that product, that was multiple generations older than the most advanced Nvidia chips. Now, whether some access was being given through the cloud and through some of these partnerships that we're going to learn in this investigation that gave China access to newer technologies from Nvidia. That's going to be something to keep an eye on. But I actually don't know that the political shift that just took place is going to be more or less favorable. I think largely uh Washington has been very cautious about China getting access to leading edge and President Trump and Jensen worked together on this, but what eventually was allowed was still a very small and limited subset of the parts and certainly not the most advanced ones.

We see Asian investors, you know, staying local, staying domestic. What do you see US investors doing?

I think there's a lot of watching right now that's going on in the US. I think the investors are looking at the situation, they're looking at the election. It was clearly a referendum on things like affordability. Uh there was definitely data centers on the ballot, although I tend to believe that the AI narrative in the US has been missing the right type of spokes people. I think overall though, the value that's being created from data centers across the US, you've seen stronger employment numbers, technology tends to be deflationary over time. There's a strong tax base that could come from the data center build out in the United States. And I still believe even as the politics shift from red to blue in the United States that there will be a strong desire to be the world's leader in the diffusion and innovation and that's going to provide opportunities for investors. But having said that we are digesting now only a few days since the election. Of course this news tonight from the largest uh company holding a large part of the S&P balance that sits with Nvidia. So I think that the market is digesting a lot right now Haslinda and I think there are opportunities in the AI trade, but not so much from either the election itself or from this news around Jensen, but AI as a whole has been selling off in a mean and fierce way over the last 30 to 45 days. And yet the demand for AI, we saw in Anthropic S one, we saw in the earnings from Amazon, from Google, from Microsoft, a lot of strength in the AI and the cloud parts of those businesses. I think that opportunity is going to present itself and I do think investors will come back in.

Dan, are you then saying that we're almost close to the end of this sell off. It's almost overdone. But if you take a look at what JP Morgan is saying, it says that vol targeted funds need to sell another $50 billion of equities. That's still a long way to go.

There certainly could be some continued downward pressure. I think the question a lot of investors have to ask themselves is going to depend on how they're thinking about horizons here. Uh Nvidia, of course, is one that's going to be unique right now that I think is important that investors take a breath, look, learn more information. It is selling at a pretty cheap price right now, but you may want to wait and see more of what comes out of this investigation. But you look at names like Micron, where we know this memory bottleneck is sufficient and it's going to last for three or four years. We heard that from SK Hex, we heard that from its peers. We know companies like TSMC will continue to be one of the most critical uh producers of semiconductor chips in the world and they run a very strong operation and this demand remains very, very stable. With all these things happening, if you're an investor with a horizon of three to five years, I think you can feel very confident that these companies will continue to generate strong earnings. They're going to create and continue to generate strong margins and they're going to generate cash flow. Of course, part of the AI trade has is more about whether or not they will create cash flow. and that's other parts like these cloud providers, these neo cloud companies, the ones that are having to borrow immense amount of money to be able to build out AI, deliver AI. and that, of course, may be met with more scrutiny as we have uncertainty around debt markets, private credit, um you know, credit spreads, uh bond rates. All these different things are putting pressure on those companies. But having said that, even the Googles uh have sold off immensely over the last month providing a great opportunity to own strong companies. So we tend to believe it's overdone, but to your point, there could be some pressure, there could be some continued selling, but if you're a multi-year horizon, there could be some generational buying opportunities as well.

Well, the thing is the pressure might come from energy costs as well. We see oil prices still at elevated levels and we know that has implications on on capex down the line. How are you assessing that risk?

Yeah, we believe that first of all, this ongoing conflict in the Middle East could be if there was a relief valve there, that could instantly take off some pressure on uh oil prices. It could influence uh, you know, bond bond yields and that of course could help drive more value to growth in a in a short period of time. We know high energy is going to be costly to the uh continued operation of data centers. and overall, it's just inflationary throughout the entire uh US and throughout the world. So we are watching that closely. We certainly believe that this conflict has dragged the market for several months. There's been this kind of on again, off again rhetoric. We've heard from President Trump, there's going to be a negotiation, we've solved it and then it's oh, we're going to go to war. I think that uncertainty, as you are very familiar, tends to create volatility in the market and investors hate the uncertainty. So we're watching the energy prices and the impact of energy closely and we know of course, energy is this scarce resource for the build out of of and the delivery of AI technologies. So all of this is is very much comingled and very important that we pay attention to.

Dan, before we let you go in a span of 12 to 24 months, what do you think uh is the best trade here?

Yeah, I'm definitely long, I continue to be long memory and I I definitely believe that you can stay long in core compute processing technologies. I look at memory companies, I mentioned Micron. I genuinely believe that company has an incredible run ahead of it. It basically is creating so much cash, it could buy the entire company back over just a couple of years and it's trading at a multiple of four or five. People say that this cycle for memory is is going to, you know, repeat itself from the past, but I continue to say this AI build out is going to last longer. Another one that I really like are these optical companies, the ability to trans uh transmit data very, very quickly. So companies like Coherence that are building the optical transceivers that can move data, uh not only within racks but across uh data centers and then to multiple data centers. We saw that Marvel Lumentum deal. I know the market didn't love it near term, but in the long term, that ability to move data is going to be invaluable to the market Haslinda.