00:00 Speaker A
It’s now time for some of today’s trending tickers. We are watching Applied Materials, Apple and Nvidia. First up, Applied Materials, missing revenue estimates and issuing a disappointing outlook, sending shares lower today. The company feeling the pain of export controls to China, which is Applied Materials largest overseas market. I’m still joined by Victoria Fernandez Crossmark Global Investments Chief Market Strategist for more. Victoria, I wonder, this is the question people want to know is how Amat may be a signal for Nvidia going forward here. To what extent do you think that some of the pressure Amat felt is singular to them versus a broader concern?
00:40 Victoria Fernandez
Well, we know that the semiconductor system space is really the largest component of revenue for Amat. So, I can see why when they are concerned about export controls, why that’s going to be a big hit for them. And especially when you look at China, I mean, we look last quarter, it was what over 40% of their revenue was from China. You look at the earnings that we just got from them and you’re seeing down to around 20, 25%. So a big hit for them. I think you can say that that would translate into Nvidia into other semiconductor names as well. But to the extent, I just don’t know because of the revenue component there. How is that going to go forward? And I think the problem is that these export controls, it changes weekly, right? You get a new headline every few days around what that’s going to look like. We had the diffusion component, right? Then they’re saying, well wait, we’re going to put new controls on starting next week. But you look at someone like a Lam Research who can be a competitor of Amat, and they’re actually up double digits this year. So, I think we need to watch the space and see how it flows through to other companies, but it’s obviously going to be a roadblock for a lot of companies when it comes to China and export controls.
02:30 Speaker A
Yeah, and certainly a reminder to really watch those policies as they continue to unfold. The next up, let’s talk about Nvidia. Looking to build a research and development center in Shanghai as export curbs hit sales. That’s according to Financial Times reports. Nvidia CEO Jensen Wong reportedly discussing plans with Shanghai’s mayor in a meeting when he visited China last month. The stock is up about 7/10ths of a percent, but it’s interesting Victoria, this comes after Jensen Wong was just in Saudi Arabia, obviously talking about building the biggest data center outside of the US in Abu Dhabi. Is this a signal of Jensen diversifying his portfolio globally when it comes to opportunities? What does it tell you?
03:27 Victoria Fernandez
Just like we were talking about how clients need to diversify their portfolios. I think it makes sense for a company to do the same thing as well. And you’re looking at China that’s 13% of Nvidia’s revenue and he’s saying, how do I still have a presence here? What can I do to still generate that revenue that we need from there? It’s a huge market for them. So if you put a research and development center there, which they’re saying, you know, will be different things. It’ll be global projects that they’re working on autonomous cars, different things like that, and it will not be anything related to IP coming from the US. We’ll see if that works out. They already have 2,000 employees in Shanghai as it is. So they have a presence there, but he needs to figure out a way to keep his presence in China. And I think this is one way he’s going about doing it, hoping at the same time the things that we’re seeing in the Middle East will please the current administration and he’ll continue to have some progress there.
04:46 Speaker A
Yeah, a lot of chess movement when it comes to the geopolitical space at the moment. But finally here, let’s get to Epic Games extremely popular mobile game, Fortnite. It’s now unavailable on Apple devices worldwide. Apple blocking the company’s bid to reinstate the game in the App Store. Reminder, Fortnite, it was originally pulled from the App Store in 2020 after it attempted to skirt Apple’s 30% fee for in-app purchases. Epic Games submitted Fortnite to Apple’s US App Store last week after a judge ruled that Apple could not charge commission on those purchases. You got Apple off just about two tenths of a percent, but it’s fascinating and makes me think of course about the broader regulatory challenges that Apple is facing at the moment.
05:42 Victoria Fernandez
Yeah, I feel like my son should be here to answer the questions on this gaming segment, right? Exactly. But I mean, you’re looking at $350 million in revenue that Apple is going to lose from this component. And they are under a lot of pressure. I mean, we’ve had Trump make quite a few comments about Apple this week. I’m talking about they don’t want a building in India and Apple is trying to put more money to work in the US. But the regulatory effects are going to be large. We’ve seen it in the stock price. We’ve seen it in the earnings that are coming out. And so I think Apple is going to continue to struggle a little bit and they’re going to have to find ways to work with these companies in order to keep some revenue generation coming. But at the same time, you know, they’re going to have to work within the the regulatory confines that they have.
06:55 Speaker A
Yeah, 300 million plus, it may not be a ton for a company like Apple, but it’s just another headwind that they don’t have to deal with.
