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Making Markets EP17: Zoom, NVIDIA, Dell, All Goes Well, Even When the Market Disagrees
by Daniel Newman | November 29, 2021

On this episode of the Making Markets Podcast, host Daniel Newman covers a number of the big earnings over the past two weeks ahead of Thanksgiving including Zoom, NVIDIA, and Dell Technologies.

While Dell and NVIDIA enjoyed absolute massive results and the stock price surged, Zoom saw its shares sell off hard following better than expected results. Overall, this earnings season has proven strength resides across tech as semiconductors, SaaS, and infrastructure all outperformed.

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Disclaimer: The Making Markets podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such. 

Transcript:

Daniel Newman: A couple of very busy weeks for tech as NVIDIA, HP, Dell, Zoom, and many more reported. And of course, the market sold off heading into the Thanksgiving holiday. We’re going to take a look at how all these companies have done and what’s ahead this week on Making Markets.

Announcer: This is the Making Markets Podcast brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies bridging the gap between strategy, markets, innovation and the companies featured on the show. The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host principal analyst and founding partner of Futurum Research, Daniel Newman.

Daniel Newman: Hey everybody, welcome back to another Making Markets episode. Excited to be here. We are right out of the Thanksgiving holiday, and I apologize for being out of pocket for a week or two. So I’m going to try to comprehensively cover a bunch of things that I’ve been involved with following, tracking and writing about opining, et cetera, over the past few weeks. Found myself in New York City at Qualcomm’s Investor Day, that was a great event. And I’m not going to talk about it here. And the reason I’m not going to talk about it here is because I’m going to be having CEO Cristiano Aman join me here on Making Markets in just the next couple of weeks. So rather than steal his thunder and talk about all the progress that that company has made, I’m going to let him come on the show and we’re going to ask him some questions and get between the lines because that’s what we do hear on Making Markets.

Now, there was a bunch of other earnings the last couple of weeks, but for this particular episode, I’m going to dial in on three of them. I’m going to go back a week in time, because I had to jaunt overseas, so I didn’t have a chance to record last week. And I’m going to talk a little bit about NVIDIA. NVIDIA has been meteoric in its nature, both in its technology, evolution and advancement, especially in all things AI and has also been meteoric with its stock price, which soared well about $300, taking the market cap over $700 billion, which is just crazy. But I feel like I called that early and often. So we’ll talk more about that. And then I’m going to talk about two other earnings that really caught my attention. That being Dell Technologies, which had a banger historic record quarter, so kudos Mr. Michael Dell. We’ll talk about that here on the episode.

And then we are going to talk about Zoom and Zoom had good results, but the market just simply is not satisfied and I’m not sure that there is anything that Eric Yuan and his team at Zoom can do to satiate a market that got used to exponential growth rates for the collaboration company. But let’s talk a little bit about what’s going on there and what it all means. But I’m going to do these, I’ll do them chronologically today. And so that means I’m going to start off with NVIDIA. Now, NVIDIA, no surprise, had another record breaking earnings result. This was top line, this was bottom line, this was record breaking results in the gaming and data center areas. This was some strong business growth in its professional visualization space and then automotive. Overall, the numbers were outstanding.

I called, well over a year ago, that NVIDIA was on a trajectory to usurp that prestigious trillion dollar market cap and I stand by my convictions. This is going to happen for NVIDIA. For this particular quarter, the company came in above on earnings, 60% up year over year at $1.17 and then drove $7.1 billion in revenue, a 50% year on year growth. In the current quarter, it’s predicting about $7.4 billion. So another strong number that goes well above the $6.86 billion that analysts are looking for. And like I said, 124% year to date growth for the company. What’s driving this? Well, at the core it’s AI. NVIDIA has basically rooted itself as the AI company in the data center, in gaming, in visualization and has also had a very strong yet somewhat more competitive run in automotive. And I’ll talk about that in a minute. So let’s start off with what was really good for the company.

Well, what was really good is data center up 55%, $2.9 billion over $1.9 billion in that same time last year. Hyperscale customers are making massive investments in GPUs. This is the companies, this is AWS, this is Microsoft, this is Google Cloud. But overall, this is the fact that NVIDIA has a pretty much free run at this space in cloud and data center and has been able to capitalize on this extraordinarily well. And since the completion of the acquisition of Mellanox, it’s only gotten better. This is record breaking quarter after record breaking quarter and this particular part of the business has been extremely robust and the supply shortage hasn’t seemingly caused the company too much of a challenge. I’ll talk more about that in a little bit.

On the gaming side, NVIDIA also had a tremendous result, $3.2 billion. It’s still the biggest segment, but data center has been catching up. It was up 42% from the $2.27 billion that it did a year ago. This part of the business has always been very robust, an extraordinarily loyal customer base in the data center and in gaming, gaming maybe even more so, and the gaming does include some business that’s related to cryptocurrency mining because there’s no way the company could track that perfectly. But overall that gaming business has been extraordinarily robust, as I said, and very impressive. Jensen Huang, one of the biggest questions that came out of this year’s most recent earnings and its recent GTC was all about the company’s endeavors into the Omniverse. Now why this so exciting? Well, NVIDIA is playing an important role in what Meta talked about with Metaverse with this whole idea of blending our digital and physical realities into one thing, and it’s impressive.

In its GTC event, the company announced a replicator service that essentially is going to allow companies to utilize synthetic data for things like robots and automotive, so that you can create simulations of autonomous and electric vehicles, simulations of robots that can create data that can be utilized to understand how these things will behave in the real world. You take that synthetic data in the NVIDIA Omniverse replicator, mix it with the real world data and you can accelerate the programming, training and inference of these devices. And by the way, avatars, which are something that are going to be critical. So everything from the ability for people in different languages to concurrently speak to one another to a chat bot being highly hyper-intelligent, and being able to interact in a seamless manner with humans around the world, no matter what language or what their needs are 24 hours a day, seven days a week. So, that Omniverse offering is going to increasingly play a part. I wrote about this on Market Watch, I’ll put a link in the show notes, all about how the company is really able to drive forward and be a key contributor to the development of Metaverse or as CEO Jensen Huang likes to call it, the Omniverse.

The only point of contention for the company overall was its automotive sales, $135 million, a really small number in comparison to the rest of the company. The company did announce its NVIDIA drive Hyperion 8, which was pretty exciting. They’re talking about fully autonomous vehicles on the road powered by NVIDIA by 2024. That’s a very short timeline and an exciting prospect. However, companies like Qualcomm, which recently won a big deal with BMW have been increasingly a competitor to NVIDIA. And that business has been slower to grow while basically all of the rest of NVIDIA has been growing so fast, which has been driving its share price. And of course the infinity of its investors up to the moon. People who bet on this company early in the year are feeling very good about themselves and rightfully so.

All right, let’s jump to the next company and that would be Zoom. So Zoom had better than expected earnings and did talk about a little bit of a slow down, but once again, after having several continuous quarters of triple digit growth coming in with a mid-double digit growth of about 35% on revenue versus last quarter, which was 54% after several in the hundreds of percent just didn’t make the market happy. The share prices fell from around $250, to around $200 and even a little bit lower on the day that followed its earnings report and the company then came out and forecasted earnings of about $1.06, $1.07 on 1.05 to 1.05, $3 billion, about 19% growth and the market just hated it. Now I’m going to be the contrarian here. I didn’t hate it at all. This is a company that saw monumental, extraordinary, exponential growth throughout the pandemic, was able to capitalize very successfully on the conditions in the market. And it went over customers across many different categories, big and small and has continued to grow even as the pandemic slowed down and we’re moving back to a more realistic hybrid in-person work experience. If you’re doubting in-person, I’m going to be on the road every week between now and Christmas to different events for the tech industry. So trust me, this thing is changing.

But Zoom is still growing. It’s growing at over 35%, it’s guiding towards growth. It grew in the hundreds of percents and it’s now generating over a billion dollars a quarter. It’s a company that’s expanding into platforms. It’s expanding its revenue. It’s consistently gaining paid customers. Couple of data points worth noting. It’s customers over 10 employees that are paid is up to 504,900 customers, 36% up over the same quarter last fiscal. It’s customers contributing more than a $100,000. These are large customers, have passed 2,500 customers spending more than a $100,000 per year with Zoom. This is up 94%. Now this number have been growing triple digits, but 94% of growth of big customers this quarter, that’s a good number. Something that people should feel good about.

And that net dollar expansion rate which is the one that’s basically all about taking customers, those 10 employee users that are on the premium software model and take them to paid grew over 130%. And this is for the 14th consecutive quarter. People, this is good. And again, it’s price, this $250, now under $200 per share price. This falling knife that it has been, has been the unfortunate cause of the 590 to fall through, has taken a ton of market value out, has hurt a lot of long term and investors who see the longevity and value in Zoom as a competitor in the market, competing with Microsoft teams and Cisco WebEx, to some extent with Slack, but also the company is doing really well. And that’s what probably bothers me the most about is, this is not a company that’s not performing, not growing.

They’re growing, and of course they’re growing even above all of that pandemic infused growth that came in a very short period of time. So I don’t see that growth number returning into the triple digits. At more than a billion, you’ve got large numbers, more than a billion a quarter. And this of course is the same thing that happened to big cloud companies. It’s going to slow down the growth for Zoom, but I feel encouraged about the company, it’s progress, it’s growth, it’s platform, it’s varying services. People still like it. It’s easy to use. Certainly, there is competitive companies out there and some very large competitors. Microsoft is of course a force and the one that most people worry about.

But I also think that Zoom is in a good position and this isn’t really just my opinion. This is based upon the growth that I mentioned, the growth of people from non-paid to pay, the growth of people from paid to more larger expenses. And then of course, these large customers proving that Zoom does have strength to the enterprise.

So while the share prices are falling and while this is not a show to provide investment advice, what I would say is down from over $500 a share, which means it’s fallen almost 60% or more from its top. This is a company that nothing’s changed. Fundamentals are the same. And sometimes people just get too emotional, but if you’re being rational, the company is in a good position. And I think in the long run to be in good shape.

And that takes me to the final company I want to talk about here on this episode of Making Markets and that’s Dell Technology. So big quarter for Dell. Probably the most notable thing for the company was the spinoff of VMware. A lot of people kind of wondered how that would go, what that was going to mean. I’ve talked about that a lot. I’ve talked about that on this show and on other podcasts. A lot of concern about what that meant for the company’s long term prospects in multi-cloud, what it meant for revenue and growth because VMware was a steady 10% or so growth on the revenue side and it had a ton of value. A ton of the company’s market cap was tied up in VMware, but the good news is when the deal was done, it created a ton of cash. It was a beautifully brilliantly engineered deal by Michael Dell and his team. It’s typical in what I’ve come to expect from Michael Dell. And now he’s freeing up cash, paying down debt. And of course, returning the company to investment grade, and this should open up the opportunities for new investments, whether that’s through acquisitions or building new products.

But look, this quarter itself was amazing. It was outstanding. I know people don’t get as excited about PCs and infrastructure as they do about cloud and software, but it’s hard not to look at this quarter, a historic quarter, record breaking quarter and say, “Hey, Dell is doing pretty well.” Second quarter revenue hit $28.4 billion, 21% growth, which is huge given the tough headwinds, macroeconomics, supply chain shortages, infrastructure, the movements to cloud and things that have been a force, a lack of PC availability. This company is operating extraordinarily well and efficiently understands its demand and has been able to manage its demand really well. It increased its operating income as revenue went up, it took income to $1.3 billion, 19% increase. And then of course had a strong non-diluted earnings per share, up 17%. All very strong, all good looking numbers for the company.

The business units itself were also very encouraging. On the infrastructure side, the growth has been slower, but this has been slower across the board. And you watch companies like HPE, Cisco, Dell, IBM, and you’ve seen, they’ve all grown a little bit slower, about 5%, $8.4 billion, but encouraging growth as the company a still is running into some of those headwinds that I mentioned. On the other side of the fence, on the client solutions group side or CSG, as they call it, the revenue was up bigly. If bigly is a number, I believe it was 35% on PCs. And that was just an outstanding result for that particular group and that particular number. You have to look at what’s going on in the PC space and the overall year to date revenue bounced up 28%. Operating income in this group is up 40%. And this is a classic case of managing their demand extremely well, despite the fact that the chip shortage and the headwinds are still in place. Got to feel good about the results coming out of Dell Technologies.

A couple of other things worth noting. This is the last quarter, as I mentioned with the spinoff of VMware. So it was reported it did have yet again, 10% and growth. It did, of course, bring some questions as to where’s multi-cloud going to come from, but in a good news, the company did actually announce some further and deeper partnerships with VMware that are going to come out of the company’s APEX offering. And the APEX offering is what I think is going to be the bellwether. So when I talk about Dell APEX, what we’re talking about is the consumption based on-prem IT solutions. That’s going to be compute, that’s going to be storage, that’s going to be multi-cloud and that’s something that is going to be further focused for the company. And that’s something I’m watching really closely. Overall, I just want to give really strong kudos for the particular execution that Dell was able to pull off in this quarter.

The spinoff, while, like I said, brought a ton of questions to Dell is going to prove to be a really good move that’s going to free up the resources, and again, return the company to investment grade, provide and instill more confidence in institutions and give the company a longer trajectory to meet its goals and to shift to this ARR, the recurring revenue and consumption based model that it’s targeting. I think it’ll make partnerships with not only VMware, which will be a deep partnership based upon history, but it will also be a door opener to other partnerships, could be Red Hat or Sousa, but it could also be deeper engagements and partnerships with the hyper-scale cloud providers.

Expect announcements over the next several quarters. It just makes sense. Dell’s in a good position to do this. So operating on all cylinders, building a huge growth result and ability to deal with difficult macroeconomic circumstances on the client side, seeing the infrastructure side return to growth, of course, being able to continue at this rate in challenge and maintain market share. Dell is the incumbent in so many parts of areas like storage. And it has leadership in areas like compute and PC. It has many different market leadership positions, and they’re always going to be chased, but they’ve been able to show consistently that they’re able to execute. They’re able to operate, they’re able to manage demand and it makes the company look more and more attractive. So congratulations to Dell, very strong quarter, very strong overall results.

So, that wraps it up. NVIDIA, Zoom, Dell, big week. More to come, we’ve got Cristiano Aman of Qualcomm that’s going to join me very soon here on the pod, along with several other CEOs. We’re going to welcome Matt Murphy from Marvell back in the not too distant future. And of course, several of the CEOs that have joined us in the past and will be joining us for the first time. Appreciate you tuning in.

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About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio