Altimeter Capital CEO on why Nvidia's stock is rising this year

I’m sure AI is getting a bunch of the conversation out there, rightfully, so why don’t you weigh in on that for starters, since I know NVIDIA is a large position of yours, We talk AI so often when we’re together. Druckenmiller trims it a little bit, says maybe overhyped, whereas Schmidt says overall AI is under hyped. What does Brad Gerstner think? Right. Well, you know, let me comment on this by maybe tell us telescoping out a little bit, Scott. And reflecting on what Josh also just shared, you know, year to date Nvidia’s up about 75%, Meta’s up about 35%, Google and Amazon about 20 or 25%, Microsoft 10%. And then think about the backdrop. We everybody knows that AI is driving these essential use cases in enterprises. But we also know that we started the year expecting six rate cuts. Now we’re down to maybe zero rate cuts and Larry Summers just a couple weeks ago saying the next move may be up. We have the 10 year that’s gone from 3.9 to 4.7. We’ve got an election coming up and the potential that the corporate tax rate cuts from 2017 will expire, not the potential. They in fact will expire at the end of 2025 unless extended. And those represent a meaningful part of the growth in the S&P 500. And then we have Warren Buffett over the weekend saying I’m trimming my position, I’m compounding cash at 5.4% because I’m worried about that backdrop. So you know, when we talk about risk or we talk about technology, I think it’s important to say we have to look at the hands that were dealt. All these stocks are up a lot, you know, to start this year and the backdrop has gotten a little worse. So I agree with Josh that if you want to take a little bit off the table today, you know, just reflecting on the fact that you’ve achieved a year’s worth of returns in the first few months of the year, I think that that makes sense. With that backdrop, clearly NVIDIA is the market leader. The reason the stock is at 900 isn’t because we’re in a bubble, it’s it started the year trading in the low 20s. Today it’s trading closer to 30 times earnings. But that’s because every hyperscaler in the world has increased their CapEx on NVIDIA, whether it’s Tesla, Amazon, Microsoft, Meta, every company is investing more. And remember, Jensen himself said there’s going to be $2 trillion of data center replacement over the next four to five years, right? This is not a one year phenomenon. This is not a 1/4 phenomenon. And despite all of the talk about custom ASICS out of Amazon or out of meta or out of Apple, the fact of the matter is today and in 2025, the most sought after silicon in the world to power all of AI, both training and inference, is NVIDIA. OK. You’ve always been incredibly transparent with us about your positioning at the very time that we have these conversations, which we do, you know every couple few months or so. So given what you just said, how does it look right now for you when your largest holdings are the Metas, the NVIDIA is the Microsoft, the Amazon snowflakes, etcetera. So how do you look right now? Well, we’ve taken down our own exposure by 1000 to 2000 basis points and our hedge fund and our long only fund, right and that we’ve done that by both adding shorts, custom basket shorts. We’re worried about some some things in the world as well as reducing some of the overall position sizes. Again, this isn’t about all or none. This isn’t about 100% net long or 0%. This is simply about going from 80% net long to start the year to something closer to 60% net long today. And to be honest it’s the exact same thing that Warren Buffett told us over the weekend. And so I think you know when folks come on the show, oftentimes you know they’ll talk about a stock and people think that they’re always 100% invested. That’s not the case when the market is up this much to start the year. When the backdrop is this volatile, I think it makes sense to trim a little. And so you know that’s what we’ve done in across our portfolios. You know I mean these these stocks have done so incredibly well, the ones we’re talking about. But then there was that pullback in, in April which had us I think for a moment or two reassessing the trajectory or at least the flight path of those stocks in in the near term. But here we are rallying back yet again. And I’m wondering whether you think though the worst in the growth pullback, the mega cap pullback is behind us or are you still concerned that we have some ahead of us. I go back to what Adam Parker was sending to his institutional clients, speaking to people like yourself about you know, if there’s a market correction, these high quality growth tech stocks are likely to materially underperform. I think it’s a stock pickers market, Scott. I mean you have NVIDIA up 75% and you have Tesla down 27% on the year. So I don’t think this is a market that’s going to treat all companies equally. You just spent a bunch of time talking about software, whether it’s Datadog or crowd strike or snowflake etcetera. The software index is trading about 15 to 20% below its 10 year average multiple, right. So you know, this has been a market that’s been driven in technology by the RE acceleration caused by AI. So if we just look at the hyperscalers in the quarter, they added $7 billion in aggregate of net new revenue, apply a 10X revenue multiple to that, that’s 70 billion in aggregate market cap just because of the revenue added in the quarter to those companies. But if you’re not beating your numbers, if you’re not raising your guidance, given the elevated multiples of some of these stocks, they’re going to be sold off. So all I’m suggesting is you know, this is not a a market where everything is going to be treated equally and you know, frankly things outside of technology, I think 1 ought ought to be somewhat worried about as well. We see you know again higher interest rates weighing on the low end of the consumer spectrum whether those are restaurant stocks or you know other stocks that cater to you know the low end of the economy, those stocks are coming under pressure. So you know that’s it. That’s our general perspective. We want to be in the names like NVIDIA that are re accelerating in the names like Amazon and Google and Microsoft and Snowflake that we believe are re accelerating. It’s only with that re acceleration it’s only if the numbers are going up for those companies that the stocks are going to work. What about Meta? What’d you make of the post earnings pull back in that stock? It’s had a recovery obviously, but April was the worst month for that stock since October of 22. You know, I I, if we reflect when I sat in this chair, you know in 2022, Scott, that company did 22 billion in net income in 2022, two years ago this year they’ll do $55 billion in net income. It’s the single greatest beneficiary of the AI boom because AI powers all of their engagement, whether it’s videos that they’re showing you in Instagram or on Facebook or whether it’s the monetization, the targeting that they’re providing, you know, to their advertisers. And then what did we learn in the quarter? Metal Launch Llama 3, which is the most performant large language model on the planet. It’s doing what ChatGPT 4 does, but it’s doing it for 90% less cost and with a much smaller footprint. So it’s working much faster for inference for a lot of companies. And so you know both, both, both in terms of what they are, you know what they already had and what they’re putting into the market. And then they launched AI search across all of their platforms. WhatsApp is the fastest growing communications platform in the world. They touched 3 billion customers. So they came out in the quarter and they said, you know they grew 27%. Their guidance was maybe a little bit softer than people expected, but still ahead of sell side consensus. And then they said they’re going to spend 3 to $4 billion more on CapEx. So at the midpoint of their guidance, I think 38 billion in CapEx. But they told us where they’re going to spend it. They’re going to double down on AI, triple down on AI because it’s working. We know the payback that’s coming from AI. And so I tweeted about it and I said as a long term shareholder, this is radically different than 2022. The company is the most fit and efficient company of the big cap in tech today. Remember, they went from 85,000 employees to 69,000 employees in this quarter. And so the fact that they’re investing more in the thing that is driving all the growth in the company, it’s exactly what they should do and exactly why you want to founder like Mark Zuckerberg leading the company.