3 Stocks We Love After Nvidia's Earnings Report

Welcome back to the channel everyone. I'm Rachel. Joining me today is Neil. And in this video, we're going to be looking at the ripple effects coming out of Nvidia's recent earnings report. And whenever Nvidia reports earnings, it seems the entire stock market holds its breath. Their latest report significantly significantly outpaced expectations once again. So Nvidia posted total revenue of 96.2 billion for a single quarter. That was a 106% increase from the same period last year. And as we have continued to see for a series of quarters, the engine behind this growth story is the data center division. That company, that business grew 117% year-over-year to 89 billion, accounting for over 92% of Nvidia's total sales. Adjusted earnings per share came in at $222. That beat Wall Street estimates by nearly 7%. So, what's the takeaway here? I think these metrics are continuing to show that despite all the market anxieties about an AI spending slowdown. The infrastructure buildout is running at full steam and it may just be in its early stages and Nvidia's revenue guidance of $ 108 billion for the upcoming quarter. I think it shows that demand is actually accelerating specifically as production for a lot of their highly anticipated architecture starts to ramp up. But Nvidia also made some really important announcements. You know their nextgen via Rubin platform is now ramping into full production with server racks running at the major partners Coreweave uh Google Cloud, Microsoft Azure, Oracle, Nebius. But they also unveiled Nvidia Vera which is the first CPU built specifically to power autonomous AI agents. They even revealed that SpaceX AI will be deploying these Vera CPUs to run their next generation of agentic applications. And to fund this expansion over time, Nvidia has teamed up with top financial firms including Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR to mobilize over 500 billion dollars of thirdparty capital for AI infrastructure. They're even securing their own physical footprint, locking down land, power, and building capacity through a partnership with SP Energy at the Portspike Technology campus in Ohio. So, this is essentially shifting the focus away from basic hardware speculation. We're looking at a lot of the suppliers that possess real pricing power, a lot of the players in the AI revolution that despite uh leveraging extensive capex to maintain their place in this race, they still have a lot of room left to run. >> Now, before we continue with today's episode, if you want market beating stock picks from our analyst, make sure to check out the pin comment and the description. Using that link gets you a promotional offer as our thanks for being a viewer. Thank you, and let's get back to today's episode. So when we see these companies growing at incredible scale, it creates essentially a supply chain vacuum that can also be the the tide that lifts all boats right along with it. And so today we're going to be looking at three top stocks that we think are emerging as winners in the wake of Nvidia's earnings, but also our winners in the long-term AI revolution. Neil, what do you have for us first? Yeah. So my first one is might seem very strange because it's not a direct beneficiary of what Nvidia has told us. One of the two is but the first one I'll talk about is Meta. Now Meta of course spends an insane amount of money on Nvidia chips but it also spends an insane amount of money on making its own custom chips. But the connection here is about cost and not revenue. So when Nvidia said that its new Vera Rubin chip delivers 30 times more throughput per megawatt and 35 times lower cost per token than its prior generation. Well, if that is true and Meta can get the same AI workloads for less money, of course, Meta's business, Meta's core business is going to look much much better. Now, right now, Meta's core business, which is basically the ads business, is actually doing extremely well. has generated $59.4 $4 billion last quarter grew by 27% year-over-year and the management said that it was directly driven by AI rankings is that's basically the big part of the growth here whenever you go on on Instagram the res on Facebook you name it of course if ad targeting becomes better and better the whole ecosystem becomes better the advertisers the return on ad spend is better as well it's good for the advertisers it's probably good for for the people that consume the ads cuz now you're actually getting ads from things you might you might be interested in and you might maybe buy it as well. So that's a win there. You get to use a service for free basically. Yes, you get targeted with advertising, but it's in my opinion a win-win everywhere. This could of course push the e-commerce play more and more for Meta. But I know this is a bit of an indirect way to explain how Meta's business benefits from all of this. But I do think that because Meta's core business today is already so profitable. If suddenly the GPUs that they're buying are becoming also more efficient, more cost effective for them, it will just make their core business even better. And then the next step of course is their own models, right? MSpark came out a couple of months ago. I do think yes, it took it took time until Meta really came out with a great model. I believe they're going to come out in a couple of weeks with their next model. The code name there is watermelon. But I do think that once they figured out that okay, Muark, that's a great baseline for us, which of course is running on Nvidia's GPUs as well. they can start building on top of it whether it's for their smart glasses VR or everything else that they want to do. They want to sell maybe more AI services to advertisers to companies to run their business on Meta's own stack. And if they can do this when the hardware layer becomes better and better, it just benefits the whole company. Today I view this as an extremely undervalued business. It is being overlooked because of the huge capex right now. So it is putting free cash flow under pressure today. There was a trial that was going on. They settled that in my opinion. They they came out of it as as winners as well because there is part of the money that they have to pay that they're only going to pay if their big competitors YouTube and Tik Tok participate in the change. And so while Meta might not be the direct beneficiary here, indirectly I do think they win from the upcoming uh Nvidia products. >> I think that's right. I mean also I I think it's easy to forget that the software is useless without the actual hardware, you know, to run it. And we saw that that Zuckerberg essentially realized that renting server space from other companies would be a losing strategy long term. And so Meta is spending an absolute fortune to build their own data centers. Um, and I think this is again so that they never really have to rely on anyone else in that way. You know, they've raised their capex expectations for the year. I think up to $145 billion as of the last numbers that they put out. And a significant chunk of that is going straight into Hyperion, which is their new $50 billion data center project in Louisiana. Um but they're also actively constructing AI optimized data centers in El Paso, Texas, in Indiana, uh in Oklahoma. So there is a lot to watch uh where that's concerned. And Meta has of course partnered with, you know, private equity and financial uh giants like uh Blue Capital and and Black Rockck to fund these multi-billion dollar projects as well. So when you look at this, you know, yes, they're spending a lot of money on construction and chips. We saw their their quarterly free cash flow plummeted to about 784 million down from over 8 billion last year. I think the bottom line is Meta needs to prove these investments can actually make their core ad businesses more profitable. Now that's not something they can prove in a quarter or two, right? That takes time. There's construction timelines and then there's of course optimizing the ad business. But if they are not able to prove that, they'll just be burning cash at a huge scale. But I do tend to think uh that Meta is very much going to come out on the other side of this a better and stronger company. I think these are the growing pains that it is experiencing right now. I think it's investing to grow. Um but we certainly can understand why some investors have not been thrilled by some of the numbers we've seen come out in their recent financial reports. >> Yeah. And you know what worst case scenario they are going to sell compute for a huge premium and and they've told us that they've had a lot of demand for it and they can charge a premium which means they can then if they do decide to let's say use a a big GPU cluster for outsiders then they can tell the market look this is the number that we can provide you with regards to that are you happy with that number because the big advantage that an Amazon a Google a Microsoft have is is the cloud business. Yes, we're spending hundreds of billions of dollars, but look, our cloud business is accelerating, margins are expanding. With a meta right now, they can just say our core business is getting better, but they cannot really tell us, oh, our pure ads business uh ads AI business is getting even better and better because there is no cloud business for them. Maybe in the future they'll break down at AIdriven ad services or something like that. maybe subscription services probably over the next maybe 12 to 18 months or so, but as of right now, not >> agreed. Well, I think your next stock for today ties more directly into the uh Nvidia theme that we were discussing. >> Yeah, the next one is is a very direct beneficiary here and the reason why Nvidia's margins are expected to come down a little bit and that's Micron. Micron, the memory maker. Now, Nvidia's own CFO said that memory cost increases have exceeded expectations and shortages could persist through fiscal 28. So, that's not a oh maybe Micron is benefiting from it. It's Micron, SKhing, Samsung, they are benefiting from it today, they will be benefiting from it a year from now as well. Most of them are already sold out for this year. A lot of them are maybe half sold out for 2027 as well. But a micron and all the other memory makers are definitely going to benefit from or are benefiting right now because we're seeing every single company has said okay capex is increasing. Part of the reason is because of higher memory prices. Higher memory prices will translate to higher margins for the memory makers and probably also accelerated growth there as well. Now, as we've said in a previous video, if you missed that one, that would be in the top right corner. Sometimes when you have these types of cycles and moves where companies suddenly see accelerated revenue growth, margins expand, over the short term, that's fine. But after a while, investors and the market will start to ask questions. How long can this last? Okay, we've heard Nvidia say could last through fiscal 2028, but what about after 2028? Is Micron still going to have margins of north of 80% by then? Maybe yes, maybe not. To me, it's more about can Micron grow revenue so much that even if margins are coming down a little bit, more dollars will flow anyways to the bottom line. And I do think that that scenario is more likely than seeing Micron in 2029 or 2030 still with gross margins of close to 85% or so. Maybe right now in the short term that might not be great for the market, but in my opinion, if you can generate hundred billion dollars in revenue more while taking a small margin cut, there still is way more dollars that are going to flow to the bottom line. Last thing here is that Micron is not allowed to buy any shares as of right now. the the free cash flow for Micron is increasing every single quarter. But towards the end of this year, calendar year 26, they will be allowed to buy back shares yet again. Which means if the stock remains super cheap and undervalued, their free cash flow, as I said, is not going to grow by tens of billions of dollars. They can just use it to buy back their shares, which means EPS growth is just going to become better and better and better. Well, what I think is interesting if you take a step back here, you know, historically memory chips were essentially treated like bulk commodities, right? They had these very, you know, boom and bust uh price swings. And what we've seen amidst the AI revolution, it has created a a very different environment for these types of businesses. Micron being one of the most prominent examples. You know, you alluded to this. They've sold out their entire high bandwidth uh memory supply for the year at hundred billion dollar cumulative future revenue through 2030. um is uh spread across over a dozen long-term customer agreements and we continue to see the major tech companies are rushing to secure supply rather than waiting for lower prices, which is also key. You know, I one of the things I've seen on kind of the bare side of this is that I think about 60% of Micron's revenue still is tied to some of the traditional open market spot pricing. You know, they're spending billions of dollars to build new fabrication plants. And so there's been this concern that if AI spending slows down, you know, those factories could create a sudden overupp. I tend to fall in the the camp that I don't think that that's going to be a likely reality anytime soon. I think this is a business that has transformed uh its business model um by ramping up that those high bandwidth memory chips. You know, they're already shipping out their newest HBM4 memory modules that's going straight into the nextG systems like Nvidia's Ruben platform. They've already seen a lot of their clients have handed over billions in upfront cash deposits as part of that hundred billion, you know, long-term customer contract figure that that Neil and I were talking about. Um, so I think the big thing to watch is, you know, they're obviously spending close to 30 billion this year alone just to build out factories and stay competitive. I think that this is another business that's investing in growth now for future gains. Um, and I think that we are seeing that the the growth story that they are experiencing right now as they're capitalizing on the high bandwidth memory boom is going to fuel that long into the future even if in fact some of the growth slows down say 5 10 years from now. >> I agree. I agree. I think there the market is misunderstanding the growth story here and the fact that yes, maybe this time it can be different. I know famous last words, but but uh as of right now I'm not seeing any cracks in those businesses. >> Well, I'm going to talk about uh the last stock in today's video. This is a company, not a household name, a company called Amphenol, and that the ticker for that is AP. So this is a business that's very much focused on the physical layer of tech infrastructure quite literally. So Amphenol designs and manufactures uh microscopic pins, precision plugs, uh high-speed copper cables. So this very unglamorous but essential hardware connectors that they sell to the enterprise server builders as well as auto manufacturers globally. So they have a a diversified business outside of you know the AI and data center boom. um something we've talked about you know the physical limitations that we are seeing in the buildout are one sort of gatekeeper of the AI boom but it's also the physical limitations on data transmission so you know when cloud giants are buying Nvidia graphics cards those chips can't communicate without very uh specialized precise cables connectors configurations that's what Amphanol sells they are the leader and have been for a long time uh in this hardware uh niche and so that makes them a essential utility provider um in this current time and I think as well uh moving forward the other thing that's I think really um compelling about their business model is that their total dollar content per server rack scales up as chips get more powerful so with the old server setups you had traditional copper wiring it was more than enough to handle standard web traffic but in today's uh you know data movement requirements um that is not enough um if a single connector experienc experiences even minor signal degradation, you can have an entire training model that degrades instantly. And so this is giving amphenol pricing power because you know obviously hyperscalers they're not going to cut corners on the vital hardware interfaces that are protecting their compute clusters. So, you know, one of the things that I find fascinating about this is whether a data center operator decides to build their infrastructure around Nvidia silicone and custom cloud processors or even alternative platforms, they're still going to require a company like Amphenol and often Amphanol to purchase the copper the fiber optic pathways to tie that facility together. Just to put a few numbers on this, the recent quarter they delivered revenue of about $4 billion. That was an 18% year-over-year growth rate, operating margin in the low 20s. Um, you know, you can change the AI model to a closed one to an open one or the geographic location, but you can't change the physical reality that high-speed signals have to move between the chips, the servers, and the racks. And as a primary partner for architectures like Nvidia's platforms, empanel essentially gets paid a toll on every piece of physical infrastructure that's deployed. Um, and advanced nodes, they don't just require a few more briars. They use very dense, high-speed cabling, fiber optics, and advanced distribution hardware. And Amphanol sells vastly more component value or content per AI rack than they ever did for uh the traditional cloud servers. Um, and they also have a global manufacturing footprint. So they're able to supply uh the big tech companies but also the localized sovereign supply chains seamlessly as sovereign AI is a huge trend that we're seeing. So interesting business maybe one that's less talked about in the AI revolution. One of those kind of quietly essential infrastructure plays on the AI race. >> Yeah, you know I wasn't very familiar with it. So I thought this would be a very small company, but this is a company worth almost $200 billion generating over the last 12 months $29 billion. So definitely not a a small player, but yeah, like you said, it's a very crucial player as nextg uh server rack systems become bigger and bigger, more complex. Guess what? More content per rack means more money flowing to a player like Amphanol. Also, like you said, they are diversified. their power, defense systems, cars, heavy industrial equipment, which means cash flow wise. They have steady steady cash flow and apparently they've been acquiring certain smaller companies and integrating them as well quite successfully which means that their competitiveness grows and grows and grows and of course this works because they managed to find the right company, buy them at the right price and integrate them in the right way. So as we see Nvidia's networking uh business and they told us last this quarter that their networking company or networking business was the fastest growing one out there. I think it increased by 18% or so just quarter over quarter. So if Nvidia is growing this quickly rest assured that Amphanol is is making quite a lot of money right now and in the foreseeable future. Well, I think Nvidia's earnings are some of the clearest proof yet that the AI buildout is continuing and that maybe it's still in its very early stages and that's also creating a very broad diversified ecosystem with a lot of compelling investment opportunities. We've talked about just three of those here today. We'd love to hear from you guys if there's any stocks you're watching or that you're adding to your buy list after Nvidia's earnings. Uh, drop a comment below letting us know. Give us a thumbs up and we'll see you next time.