J.D. DURKIN: Good Friday morning, subscribers. The one and only Sarge Guilfoyle joins me now on a very consequential day for the market. Sarge, thanks for being here.
SARGE GUILFOYLE: Oh, thank you for having me. Thank you for calling me the one and only. That's very flattering.
J.D. DURKIN: Well, and it's also very true. So as this video hits the inbox of our subscribers, Sarge, markets are reacting to the latest comments from Fed Chair Powell out at Jackson Hole, Wyoming. With any event like this, of course, we often have more headlines than substance to sort through the noise for us. What are your most consequential things to take away from what we heard from Mr. Powell today?
SARGE GUILFOYLE: I think he said a lot. I agree with most of what he said. I'm not going to be able to take shots at him here or anything, but he was hawkish. He sees that inflation is lower. He sees that the recent acceleration of the US economy is a good thing, but it's also a threat. He's cognizant of the lag between policy implementation and results. He is not sure if this lag will be enough to slow down inflation, as long as the economy stays relatively hot.
Lastly, he says rates may have to stay put, and rates may have to rise. So it's nothing about rates being cut. So I think cuts are really off the table unless there is a potential recession, which could come about either through fiscal irresponsibility, which our congress is good at, or B, some kind of government shutdown, which would be related to the fiscal irresponsibility, or if that lag turns into more of a drag, and really, really slows things down. But as you have seen, the Atlanta Fed, their GDPNow model is out of control. I don't think I've ever seen it at 5.9% before. So if Atlanta thinks we're hot, if they think we're 5.9, we're probably above 3%. And 3% is pretty darn good in 2023.
J.D. DURKIN: And as of yesterday, August 24, we are, in fact, at least according to that Atlanta GDPNow figure, at 5.9%. Another figure is 2%, Sarge. We've heard from Mr. Powell and his colleagues for a long time. They say 2% is 2%. We are sticking with that goal. What do you make of Mr. Powell's insistence, despite all the other chatter and potential speculation from people who say well, maybe the Fed doesn't actually need to go to 2%.
That's not what Powell is saying. He seems pretty intent on that goal. Does that surprise you?
SARGE GUILFOYLE: Not really, because if you go back to even before Powell, 2% was the was the Fed's target for all those years that they couldn't even come close to 2%, back when Janet Yellen and Ben Bernanke were trying to create inflation. So it's-- and then they stuck to that goal that whole time. They never said, OK, 1.2, 1.4 is OK.
So yeah, it's good that he sticks to his goal, his target. It's not good if we get to a place where most of the country is comfortable with an economy that's growing, which I am surprised by, by the way. I did not think I'd see the economy growing this year. But it is undeniably growing, and if inflation is running at 3.2% or 2.8%, I think it's good to have a 2% goal, but don't force the issue if most people are not being hurt at that time.
J.D. DURKIN: Sarge, was the speech today really the make-or-break market news of the week, or are there other things you think investors should be paying attention to?
SARGE GUILFOYLE: Well, I mean, yes, this was the make-or-break moment for the week. I think it's what most of us looked forward to, especially folks that weren't invested in Nvidia. They probably were focused more on the speech than anything else.
Next week is a bigger week. We have we have a GDP revision next week. And it's jobs week, so August jobs are going to be printed on September 1 this year, so we'll come right out of the gate in September with the jobs report. So there'll be a lot to look at next week. Not a lot of earnings, although there are a few.
But this was almost a paused week, where there was really just two things. For the earnings crowd, there was Nvidia, and for the macro crowd, there was Powell. And we're going to get Lagarde later if you're trading internationally, but that's just about it.
J.D. DURKIN: Yeah. We do have some other Fed heads, as Chris Versace calls them. We've got Loretta Mester set to make some public comments here in the next little bit. I do want to move over--
SARGE GUILFOYLE: And she's a hawk.
J.D. DURKIN: --to earnings this-- yeah, absolutely. No, so we appreciate that context. OK, so you mentioned Nvidia. Let's talk Nvidia for a bit. After the close on Wednesday, my goodness, numbers that jump off the page-- you join the chorus here, Sarge Guilfoyle, singing the chipmaker's praises in a column over on Real Money. For members trying to sort through all of the hype, what to make of this or that, what stood out to you in the numbers from Nvidia, and do you see any challenges to the company's winning streak in the upcoming months, I wonder?
SARGE GUILFOYLE: There's so much good to say here that I wrote them all down so I wouldn't forget to say anything. I mean, in terms of execution, operational execution, sales were up 101%. Cost of sales were only up 6.7%. Operating expenses only up 10.2%. Net income up 843%.
Adjusted gross margin hopped from 43.5% to 71.2%. Operating cash flow up 399%. Free cash flow up 634%. Data center revenue, up 171%, and gaming revenue, returns to growth at up 22%. Jensen Huang spoke of the architectural moat that his company is building to keep the likes of AMD and Marvell Technology in very tertiary places as far generative AI architecture is concerned.
What they're trying to do is build a reliance upon the hyperscalers and other purchasers on the Nvidia equipment so they won't be able to switch so easily because there will be a language difference if they were to switch to say, cheaper chips from AMD or Marvell or somebody else. So that's very-- I think that's very-- that's key, and it's probably not getting enough play right now. Colette Kress, the CFO, she mentioned that she does not expect further material impact from the Biden administration's stance on China, which I thought was-- that's pretty key right there.
The guidance was outstanding. I mean, $16 billion in revenue looking forth to the current quarter, when Wall Street was looking for less than $13 billion. Gross margins around 72%. That's fantastic. The balance sheet, awesome! Current ratio of 2.79. Quick ratio of 2.37. $25 billion buyback.
As far as my own-- I am long the stock, as folks probably know if they read my article. I've been long the stock for a long time. I reiterated my $576 target price on, what was that, Wednesday or Thursday morning, whatever it was. Thursday morning. My full case was $600. I see the stock coming in. The pivot's $480, so it's still a good pivot for right now. That was the former August high.
I am willing to add, from here, down to the 50-day simple moving average, which is currently $441. It was $432 about a week ago. Where I panic is if that line breaks. That means I'll take something off the table. But if we get--
INTERVIEWER: At $441?
SARGE GUILFOYLE: If the stock moves-- what's that?
J.D. DURKIN: I was clarifying the level that you'd break at. Was that $441 or so, you said?
SARGE GUILFOYLE: Right now, it's $441, but it's a moving thing. There's 50-day simple moving average. But right now, $441 is where I would say OK-- I wouldn't sell all my stock, but I would take something off the table to reduce the risk. I actually took something off the table at AMD yesterday because that one got me a little nervous.
So I'm not opposed to selling stocks I love. You never fall so much in love with your stocks that you're not able to act when you need to. But if these-- going back to Nvidia, if the chart moves sideways for a little while here, the pivot will move up to $502 because that will be the new August high. And having a higher pivot means you're going to have a higher target. So if-- I mean, we're getting ahead of ourselves because trading in the $450s right now-- but if it can go sideways and then make a move past $502, then you're talking about probably a 100-point move if Nvidia gets on a roll.
J.D. DURKIN: $457 as we speak. It is down 3%, but of course, that's just what an incredible name, though, that we've been following over the course of many months here. Given your background as both a trader and an economist, Sarge, how significant is it that the market at least at face is so obsessed with one consolidated name? Is this something you've seen before? What context, historically, can you point to, and is it an Apple, where you have a company that controls the software, the hardware, the ecosystem, all the other names rely on what comes out of that what name? Or is it maybe not a direct comparison to anything else?
SARGE GUILFOYLE: Well, at this point, it could be an Apple. It could be a Cisco, from the '90s too. I mean, it could. But I do think it is it is unique where one name is so heavily focused upon. It's not that unique, because we've had the magnificent seven, which is still a magnificent seven, but now there's a super magnificent one. We've had Fang. We've had FAANG, with the extra A in it. We've had Fat Man. We've had a whole bunch of acronyms that we've come up with when there's been a select group that have dominated the marketplace.
And for the time being, the market, at least this week, was focused on that one name. At least for the last few weeks, I would say. Or maybe even three months, the market was focused on that one name. So anybody with either even secondary or tertiary exposure to AI probably got an artificial pop because they were not related to Nvidia, but related to artificial intelligence.
And now, that's slowly unwinding a bit because we're seeing here that there's only one company right now, and that's Nvidia, that's really getting paid for artificial intelligence. For everyone else, it's a cost. Microsoft got slapped around a little bit because it's a cost. All the hyperscalers are spending on AI, but not seeing a benefit yet. The other types of firms like ServiceNow and Salesforce, which will report next week, yeah, they're also spending on chips, spending on the architecture for increased artificial intelligence integration with what their customers do, but they can't charge their customers yet.
So there's really only one name that's already seeing a pop. And if we listen to Lisa Sue over at AMD, she's going to get a pop probably sometime this year, too, but it's going to be something for newer customers just that are late getting into the AI game because everybody else is already on board with Nvidia. And as I said, that moat is going to make it difficult to switch up. So there are going to be the second and third names that get into the space and benefit, but as far as the purchasers of this equipment, it's going to take a while for them to see any kind of benefit.
J.D. DURKIN: I could talk to Nvidia with you for at least an hour, but I do know you have thoughts on AEP Holding Marvell. Sarge, what are your thoughts on that report, and how does it stack up to the broader semiconductor story? What are you following there?
SARGE GUILFOYLE: Yeah, I'm not so thrilled with Marvell. I'm actually working on a piece for Real Money with them. And it's a name I've liked in the past. I've owned it in the past, but I don't own it now. I know it's in the AEP portfolio, but it is rated a three, and I do agree with Chris that it should be a three.
I mean, I'm looking at the balance sheet. They only have about $5 billion worth of assets. They have $21 billion worth of total assets, but only $5 billion are actually tangible. So I mean, that, to me, is awful-looking.
If you'll look at the chart, which is really Bob Lang's game, you have a gap that was created last earnings season back in the end of May that there's pressure on the name right now. If that gap were to fill, the stock's going below 50, which I can see that. I can certainly see that.
Hang on, here. What else was I going to say about Marvell? OK, I see the data center source, 6% or so sequential increase in revenue, and it accelerated on AI. But it's still down 28% year-over-year, which is frightening. And if you look at the EPS, they posted-- what did they post? They posted adjusted EPS of positive $0.33, but it was GAAP EPS of -$0.24.
The firm made adjustments for stock-based compensation, restructuring-related charges, the amortization of acquired intangible assets, and something labeled as other cost of goods sold. Paul, thank you for being so specific. I mean. If I was actually looking at this for a trade-- that's why I'm writing a piece for Real Money, it's not going to be a buy order, I can tell you that much.
J.D. DURKIN: Great context. Great perspective, as always. Sarge, I'm very thankful for your willingness to stop by and do this interview this morning. Sarge, thanks a lot.
SARGE GUILFOYLE: Oh, my pleasure.
J.D. DURKIN: All right. Have a good weekend. Go Mets, huh? That one's there for Sarge.
SARGE GUILFOYLE: Go Mets.
J.D. DURKIN: All right, members, Chris Versace and I, we'll be back on Monday to get you ready for another busy week ahead, which will include September 1 jobs for the month of August, as Sarge just broke down there a moment ago. Until then folks, have a great weekend. We'll see you again soon.
