 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Heading into the second half of last year, some investors felt that the semiconductor run-up last summer was a harbinger for a broader tech rally. And that thesis proved prescient and rewarded managers who took on risk at that time with leading firms and semiconductor security and enterprise software. The question is, of course, where do we go from? From here, hello and welcome to this week's theCUBE Research Insights powered by ETR. In this Breaking Analysis, we welcome back Ivana Dilevskaya, the founder and chief investment officer at Speer Invest NASDAQ SPRX. Ivana, great to see you again. Thanks for taking some time. Thanks for having me, Dave. Yeah, you bet. Last time we had you on was August of 2023 and, you know, my bad, I apologize that it took so long to have you back. But at that time, I asked you about NVIDIA and you were very strong in your conviction that we're heading into what I'll call data center spending supercycle. And rather than read this, let's listen to what you said at the time. Please, Alex, play the clip. Well, David, we still love NVIDIA going into the next cycle. We believe we're in the early innings of data center spending. So you're just starting to see companies like Microsoft, Meta, Google, expand their CAPEX budgets going into next year. So we believe NVIDIA is going to benefit from that. They're unique. Now, Ivana, that was pretty forward thinking. And well, it's certainly not dollar for dollar. Last quarter NVIDIA's revenue equated to about half of the CAPEX spend from the big three hyperscalers. So there's some kind of correlation there. And that premise, combined with what we said at the top really paid off for your fund. You made the previous statement back in August. And you can see here your fund performance relative to the S&P 500, the NASDAQ. You told us at the time you were fully invested and were pretty risk on setting up for a good run in the second half and obviously into 2024. You were right on. And the NVIDIA trade, of course, has powered a number of high flying companies beyond the MAG7. So the question is now what? How are you thinking about the market going forward? The cloud and the hyperscale is loading up on GPUs as is Meta to train Lama 2 and Lama 3 at the wood trimmed her NVIDIA holdings in 2023 and missed the recent move. And other investors are starting to show some concerns about the inflated nature NVIDIA stock and maybe over buying of GPUs. Although I saw Piper today upped its target price on NVIDIA. You've done very well with the stock. What are your thoughts going forward? Are you taking some profits? The profits are you holding firm? Looking to buy pullbacks. What's your thinking? Well, Dave, we believe we're still in the early innings of this tech cycle and we're just crushed the surface of the GPU opportunity. So we still see a lot more upside than several years actually of upside here. If you look at the earnings estimates for NVIDIA, while they've increased for the current year, if you look out to 2025, 607, the street is assuming less than 20% Kager in the earnings for the data center segment versus the prior cycle we saw over 40% Kager for data center. So we still think that the street is underestimating the earnings potential. If you look at the valuation, it actually screens quite reasonable. NVIDIA is trading close to the middle to the bottom of the EV to EBDA range on a one year forward basis. So this is really what we follow closely to assess whether we are at the peak of the cycle or we're in the middle of the cycle. And right now, it seems more like we're closer to the middle or the beginning rather than the peak. And I tend to agree with that. I mean, if you think about the hyperscalers and they're flush with cash and they're investing all this money in to get these GPUs, we have a new set of GPUs coming out, the H200s, and correct me if I'm wrong, but that investment, that CAPEX really doesn't hit the income statement. I mean, maybe partial for the depreciation of those assets, but what else are these hyperscalers gonna do with their cash? They might as well load up on GPUs and where else are they gonna go for GPUs? I mean, yeah, maybe a little bit of AMD, maybe Intel will have something, but NVIDIA's got by far the strongest play. Do you agree with that? That's right, I think you're spot on. And if you even listen to how they're talking about building out these GPU clusters, it's not necessarily a one time investment. This is an ongoing investment that will be needed by the hyperscalers and enterprises. So the large ones have really already gotten a head start, like Meta is one of the ones that's the most heavily invested in GPUs, but they were just a block force the other day about the new cluster that they're building. And you can just by reading that, you can see that this is not a one time investment. It's something that will be ongoing as new models come to market and as inference and applications come to market. So I think back to my prior point, you really are seeing how this is just the beginning. Yeah, these clustering architectures are back. And the other thing Jensen said in the call last quarter was that 40%, and he said that might be even conservative, 40% of their deployments were for inference. And then one of the Wall Street analysts, I thought asked a really good question, he said, is it right to assume that today's training GPUs will become tomorrow's inference GPUs, the importance of that being there'll be a depreciated asset and essentially be a free for these data center managers to just deploy at inference. So how do you think about that? What were your thoughts on those comments? Well, so that's one very interesting thing that I think the market misunderstand. People think that model training is a one time thing. And then it's like, okay, you're done, you've trained the model moving on to inference. Model training is actually an ongoing process. So the new information you are getting from the inferencing, you need to feed it back to the model and train the model. And you need to constantly upgrade the models, right? So I think that goes back to the core of the misunderstanding of how this is not a one time investment that needs to be made, but an ongoing thing where like, you're running the applications which gives you even more data to feed the models with. Okay, let's take a look at your portfolio if we can pull this data off your website. NVIDIA's run up has obviously made it your number one holding. AMD has bumped up as well in the leaderboard, Marvell and Semis. You've also taken on more exposure to cybersecurity with Zscaler, Sentinel-1, and of course, CrowdStrike and some other enterprise software names that we've talked about before, like Snowflake. Confluent, I think is relatively new for you as our Shopify and HubSpots. That was interesting to see them on there. We already talked about NVIDIA and we have some survey data later that we plotted many of these names. So let's keep this at a high level for now if we can. The right hand side of this graphic is a bit dated, but it still shows your general approach in terms of sectors that you like. So how are you thinking about your portfolio mix and then we can get into some of the specific names and more details. Yeah, absolutely. So we still see upside in hardware. So we still have a large position in the names that you, in the companies that you mentioned. We do as well have a very large exposure to cybersecurity. What's been happening this year as we went in towards the end of last year, people decided to take a lot more risk and they gravitated towards this higher valuation software stocks that ran up significantly into ERN. However, what we've seen this year is a pretty significant pullback. So when we're looking for new opportunities, it's really the software side where we're finding a lot going on, especially post this earnings season when you had like many stocks just get completely destroyed on earnings. So even though from high level perspective, it seems like the Nasdaq is near its highs, the indices are near highs. If you look under the foot, actually a lot of stocks have really sold off. On the peak, it all goes back to interest rates. People are nervous now about the Fed when they're exactly gonna cut. And usually these sort of run-ups in interest rates create very good entry points for technology. So while we still like hardware, I think that's a still great place to have a location to going into 2025. There are a lot of video and syncretic opportunities here post some of these earnings shifts that we've seen. Great, thank you. I want to also ask you about the AI effect and how you think about that. Here's a graphic from our partners at ETR that shows net score, which is a measure of spending momentum within a sector on the vertical axis and the presence in the survey, pervasion if you will, on the horizontal axis. This is 1700 enterprise IT decision makers. And so again, you've got that spending momentum. That's the net percent of customers in the survey spending more in a sector. So a couple of points and then I want to get your thoughts. The first point is that the AI momentum is showing signs of deceleration right after we exited COVID, but then it's taken over as the number one position on the vertical axis since the announcement of chat GPT. And now our data shows that 44% of customers say their Gen AI initiatives are being funded by stealing from other budget buckets. So in watching this data over time, many if not most of the other sectors have been contracting on that Y axis and that red line of 40% by the way indicates extremely elevated momentum. There's one more data point that we can discuss and I want to get your thoughts on this. This next graphic shows the LLM innovators which are private companies, only private companies we've superimposed where our data suggests Metis Lama would fall on the spectrum the end of the open source effect. And this shows intent to engage on the vertical axis, we call it net sentiment and then mind share on the horizontal axis. And what you see in the upper right, it's so far off the charts we had to highlight it as open AI. It's literally off the charts and it's created a very wide gap between itself and the rest of the LLM pack. So Vana, you have this situation where enterprises are spending on AI experiments. They're stealing from other budgets to do so. Microsoft and Open AI have taken the mind share mantle and they have incredible momentum and the rest of the world is catching up. So how do you play this? You're famous for doing deep research into the value chain. So help us understand how the AI momentum fits into your investment thesis and how the companies you track and like are leveraging AI, how do you play this? Well, I think your data is spot on with what we're seeing in earnings that they're getting reported right now. There is a lot of excitement in AI but not a lot of it is showing up just yet in the numbers. And the reason why it's showing up is that as you said, basically there is spending on AI but it's getting offset by cuts in other spaces. So the overall spending that will come to a vendor may not look significantly higher than what it would have been without AI and a stable or accelerating macro environment. But the important thing to keep in mind for investors is that we are still in a very tough macro, right? So if you're seeing companies still being able to grow 30 plus percent even though that may be a little lower than what you would have expected those are still very solid numbers in light of the current macro. So AI is showing up a little bit. It's basically adding few hundred basis points that are maybe now getting offset by what's been taken out by by macro. But if you're a long-term investor and can step back you are gonna see as AI accelerates you're gonna see it show up in the numbers we've seen investors kind of like going all in on the hype but then once the numbers come through and not many patient investors are there to stick around and see the benefits. You're right about the macro. Our data suggests that last year IT spending grew about 3.4 percent. IT decision makers came into this year expecting a 4.3 percent increase for 2024 but it's all back loaded. It's all second half. Q1 and Q2 were below that mean and we're just getting in the April data now so we'll be reporting on that but there's no question it's still a tough macro. All right let's look at some of the companies that you own and or used to own and see what the survey data says about them. This chart from ETR like the one we showed earlier plots net score which again is spending momentum on the vertical axis and penetration into the data set on the on the X axis. And we plotted a lot of the names that you own and some you've trimmed like Koopa and Cloudflare and we've also put in some other names like Metaslama, Intel and SAP just to balance out the chart and give a context and we purposely left off the hyperscalers even though they're buying a lot of NVIDIA GPUs because they're so dominant and they tend to skew the data. So a couple of things. First, many of the companies that you own are above that or near that 40 percent mark so that's you own some firms with a lot of momentum from a customer perspective but let's start with the enterprise software players. You know Snowflake, I want to talk about Snowflake you know Frank Slutman stepped down he's now just the chairman. We saw this with ServiceNow I don't know how closely you were tracking them several years ago. I thought at the time I thought Jim Cramer was going to cry when Frank Slutman stepped down from ServiceNow I think the same thing is happening here but Mike Scarpelli the CFO is still there he committed to three more years he has really run the operations. Shridhar Ramaswamy obviously has AI chops from Google. Have you talked to the company how do you feel about Snowflake? Well the original announcement when Frank stepped down was a pretty big surprise to the market and that's why you saw the stock being hit so hard however if you step back and you look at Snowflake's execution they have been very slow in coming up with new products to the market so if you look at the numbers we would have expected the numbers to positively inflake last quarter but for short this quarter and you really didn't see that you really didn't see that show up in numbers now they're guiding to a little over 20% growth which is not really all that great for a company with this type of positioning in the market especially with what's going on with AI and all the products that they've been talking about so I just attended a customer event yesterday for Snowflake which was very interesting the products that they have been introducing to the market like Cortex they talked about it yesterday and they did a demo of how easy it is to use they're actually super interesting we're just in this period of time where there is not enough demand because of this cloud optimizations to offset what's new coming from this new products that they're announcing which haven't reached critical scale but we're still very positive on the company because as you look into second half you will start seeing contribution from this new product announcement so after walking out of that customer event yesterday I came out pretty positive it will take some time for it to work itself through and get use of these use cases but I still really like Snowflake Okay, great and of course the street has to get comfortable with the new CEO and see some track record there how about console? Absolutely, there is a lot more risk I would say there is a lot more risk to the story but then what it was last year where it was like okay it's just a cyclical downturn you are going to see some sort of a bounce now we're here we haven't seen the cyclical bounce so they are going to need to do something that it's kind of beyond what the market will deliver and deliver on their own product introductions You know, this is nuanced but I'll share this with you in terms of the conversations we've had with Snowflake customers is you know everybody's always chirping about Snowflake price and when a company, you know you hear that about some of the great company service now Oracle but what we have heard is that some customers are doing a lot of the engineering and the data pipelining work outside of Snowflake because it's maybe more cost effective remember Snowflake as you well know essentially resells Amazon infrastructure and so that's a big part of their revenue and so you know they got to keep that up they have to sort of mark that up if you will to maintain their margins now they negotiate really strong deals with Amazon and they pass those savings on to customers but that's a tricky balancing act that Scarpelli has to play he can't cut prices too aggressively because he's relying on that margin and so that's something that we're watching closely has that come up in any of the conversations? I mean if you look at their products they will actually save money compared to what you can build in house so I'm not as worried about that part of the story I mean just going to this demo yesterday it almost seems that like I can make and build some of these products that they were demoing right? So it would be like using LLNs to do sentiment analysis that would pull from either your data or PDFs and they can even like you can use the machine learning tools to forecast whole volume or whatever you wanna forecast so I think the products themselves add a ton of value and I don't think it's something that you can as a customer replicate as a significantly cheaper cost I think it's more a matter of proving these use cases showing them to people and just kind of hand holding them through the process to do it on the platform rather than in house but I don't think cost is the problem I think it's literally just learning about these new tools and products and how they can be helpful Yeah so it's adoption I mean there's a lot of data in Snowflake that the phrase bring the AI to the data so they're in a good position from that standpoint Okay I want to talk about Confluent I mean here you're betting on real time streaming it's built on top of open source Kafka the stock has been kind of up and down but what's your angle there Ivana why do you like Confluent? Well the stock really fell out of favor two quarters ago when they reported basically two customers left the platform and then people started getting all worried about that and then they said oh well one of the customers is actually moving from the cloud back to on premise which was like oh my god like maybe this is happening across the board so digging into the details we did not find the customer loss that's significant I think the stock was down over 40% that day so it ended up being a very attractive entry point entry point for us and as we've learned more about the company data streaming could be as big market as data at rest so this is something that it's a little bit more under the radar than data at rest and a little bit less understood but basically this could be a pretty significant market and what they've done recently with this flink acquisition is basically able to do real time data processing so I think a lot of the investors even like on the analysts call on the earnings call they didn't quite understand what this company does and how this flink will benefit it so I think digging one layer deeper and understanding the size of the opportunity can really make a pretty big differentiation here in the stock price so I think it's gonna be a pretty significant data streaming will be pretty significant opportunity I think what they do is basically able to lower your cost or lower the cost to the customers to do this makes a ton of sense especially the time where people are looking at ROIs and cutting down costs so I think this company will do pretty well again similar to Snowflake they have had some execution hiccups so they will need to prove out their business model and step up their growth from currently the 20s to 30% so as these companies and it basically it's interesting how Snowflake came out it was a one-off Confluent came out it was a one-off where like growth is slowing but then if you look you kind of see a pattern across the board where I think a lot of it is under the hood driven by tougher macro, right? So when you see the macro stabilize I think a lot of these companies will be able to reaccelerate growth which is not really common for this part like in their life cycle Right and you know they're kind of a they're not a direct AI play per se but they're going to benefit them in a way they're more vitamins than they are sort of painkiller and so that maybe takes some time Okay now just moving on you trimmed Koopa and you know picked up Shopify and HubSpot that was kind of interesting What do you see there and why do you like those guys? No we've owned Shopify and HubSpot for a while yeah we've owned those two and Koopa basically we exited a long time ago even prior to the deal as part of a risk management like when things were selling off so I think for HubSpot and Shopify they're going to be pretty significant beneficiaries of AI is they own just a ton of customer data right so we're still at the early innings where we don't exactly know how they're going to be able to use this data and what they're going to be doing but they will basically benefit they will be able to introduce tools that they can sell to their customers where the customers can use the data and be able to come up with predictive things so like HubSpot I'm currently a user of it as well and basically what it can do like in the future is if AI can somehow help predict who are the customers that you should be calling on that would be a pretty significant time saving for the users and similarly Shopify just deals like sees a ton of commerce data so they're kind of at the forefront of innovation so they're going to be able to use this to develop tools that will leverage this data All right, let's talk about cybersecurity maybe we could start with CrowdStrike I feel like you can't own enough of that platform play ZScale, ZScale was a bit of a head scratcher to me and they beat and raised and then the stock got hit pretty hard I guess it's because it's going to back loaded but look at your thoughts on that Sentinel-1 very strong earnings but maybe weaker than Hope Guide so it's something that one's like a much cheaper version of CrowdStrike so interested in why you like those and it looks like you trimmed Cloudflare so interested in your thoughts on cybersecurity Yeah, so honestly going into this year I think cybersecurity is going to be a pretty significant team and the fact that these stocks have sold off so aggressively post this earnings season is creating some very attractive entry points basically what's been going on is the companies that are coming out in terms of earnings pretty close to what they guided but they're not really beating by significant amounts and the street I don't know if it's because expectations got a little bit ahead of themselves in December or is it the fact that interest rates are creeping up and that's pretty a pretty big headwind but basically when they report there is zero valuation support so any small miss or comment really gets sold off so I think CrowdStrike obviously was probably the strongest report out of the three but the stock is a lot more expensive than Sentinel-1 I thought the Sentinel-1 report was very strong as well the company could have guided a little bit higher than what they did but again it's a tough macro and some of their new products are still kind of at a point where they haven't reached like scale yet they did say that today cloud and data is about 30% of their booking so that's pretty significant and that's growing at 60, 70, 80% growth rate so I think all three look very attractive and yet the scaler to your point people didn't like that the guide was really implying a very strong fourth quarter but the company was pretty confident on the call saying that they are seeing larger deals and they are seeing improved momentum so if I had to say like out of the enterprise space especially post this sell off here after Q1 a lot of these companies look very attractive and then Cloudflare is just more of a we still really love it I just spoke to them this morning I think they have some really nice momentum on the zero trust side and also on their workers and R2 platforms it was more a matter of valuation and the stock is a little bit more expensive than the rest but we would look to enter basically any of these pullbacks I think are very attractive entry points for this space because as soon as you see interest rates stabilize or the narrative change back to cutting I think to cutting rates I think you're gonna see these names hit new highs You know it was interesting Of course Nikesh Arora from Palo Alto Network set off sort of this chain reaction when he said when he used the term spending fatigue so of course all the cyber stocks got hit but we heard from Jay Chaudhry at Zscaler they're not having that problem and certainly CrowdStrike's not having that problem so there's CrowdStrike for sure is playing out that platform scenario so obviously executing very very well and of course you own AMD which we show on this chart we don't really have spending data on NVIDIA we talked about how you're thinking about that but just broadly on the semi-trade let me make sure I understand this you feel like this still has a ways to go I think you feel like NVIDIA really has a moat with CUDA and the lead that they have in GPUs and their packaging, et cetera do you have any concerns there? So basically for NVIDIA the concern would be as we reach further into the cycle you are gonna see the numbers closer reflect reality which I think we're still few years away from it now what I would say though for NVIDIA specifically is that you can even own this stock through the next cycle because the data center side is gonna be significantly less volatile than the traditional gaming side because data center is not sold through the channel a lot of these GPUs are sold directly to customers when you see pullbacks or if there is a digestion period you're gonna see a one-for-one impact what's been historically very cyclical for semis is when you see impact on demand you almost see a double whammy from the channel because people are then going through a period of this talking so I think what you're gonna see with NVIDIA specifically it's a lot more durable and less cyclical cycles going forward so I think we're comfortable owning it in the next two or three years because of the cycle but then forward even through a cycle maybe not at the current size that we currently have it but I think you can comfortably hold something like this through a cycle and AMD is actually interestingly if you look at their numbers they're closer to the bottom than the top so client is really going through a down cycle and is just stabilizing and embedded is another segment that they have these are chips that are embedded into industrial products that actually went through an up cycle and now it's kind of bottoming out so that's why if you look at valuation AMD will screen a little more expensive and the idea is that that's because the numbers are actually at a bottom so I think even though it may not be obvious just by looking at the stock prices I think we're really closer to the bottom here than the peak in the semis great thank you all right let's wrap with maybe some final thoughts and we'll get your Ivana your take on the market going forward you know Fed watching obviously as you mentioned still very important for tech stocks because if I get 5% parking my money you know that sucks investments away from high-risk stocks but as I pointed out in my post comparing the AI wave to the dot-com boom interest rates back then there were 78% and tech stocks did just fine for a while anyway look the markets seems to be trying to go higher it's just sort of shrugged off sort of hotter than expected inflation data and earnings continue to be a major driver seems like company CFOs are being conservative with guidance so there may be some upside to earnings although visibility still remains a bit a bit murky and the AI bet is that it's going to lift all boats and drive economic growth and productivity you know we'll see if that kicks in this year but Ivana the market has been very hot it's run up nicely since your premise you know last summer so you know how do you play it from here maybe you could could summarize and we can wrap yeah absolutely so on the software side as we talked about it's a pretty significant pullback so I think for investors that can take a slightly longer term I'm not talking about a 10 year view right I'm talking about six to 12 months view just to see this down cycle play out I think software we're finding a ton of opportunities as you said people are just overly focused on interest rates but interest rates on their own don't really have a negative effect on the technology sector so what you're seeing is a lot of times when there is volatility in rates it creates this volatility in the stock prices and not the fundamentals right so they do end up being very attractive entry points so I do think right now even though the cycle even though like the indices seem like they're at their highs it is actually a pretty attractive entry point for investors that can take a little bit longer view and to your point I think second half comps are going to get very easy just because of how tough fourth quarter was last year so fourth quarter as a reminder now it seems like it was in a distant past but rates hit 5% things came almost to a full stop from the economy perspective and a lot of the earnings that you're seeing reported today or over the past few months really restrict that reality that is now a little dated so I think comps will get significantly easier the guides don't seem very aggressive at all so I think it's actually like if you step back I think it's a very good time to look back at the tech sector Yvonne I love having you on because you're a fund manager with real conviction and you do a lot of your own research you go deep and we really appreciate that so thanks so much for your time thank you all right that's it for now I want to thank Alex Meyerson and Ken Schiffman on production Alex also does our podcast Kristen Martin and Cheryl Knight help get the word out on social media and Rob Hoth is our editor-in-chief over at SiliconANGLE remember all these episodes are available as podcasts all you got to do is search breaking analysis podcasts wherever you listen I publish each week on thecuberesearch.com at siliconangle.com you can DM me at dvalante on twitter or comment on our LinkedIn posts and do check out etr.ai they've got great survey data they continue to expand their their data set this is Dave Vellante for the cube research insights powered by ETR thanks for watching we'll see you next time on breaking analysis