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Nvidia revenue problem

While investors mostly focus on below whispered q3 guidance, or that revenue beat is smaller than recent quarters, a less discussed problem seems to be declining contribution from the US.

Singapore revenue contribution to Nvidia is rising qoq to 19%, while the US declined to 43% from 52%.

In absolute number, US revenue declined from $13.5bn to $13bn and Singapore rose from $4bn to $5.6bn.

Sure Nvidia says it’s not an indication for the end location. But Malaysia/Indonesia is likely, where end users include ByteDance or US CSP services (whose end user is ByteDance).

See the other post for ByteDance capex – it’s probably $10bn+ per year on data centers, or 1GW of IT load assuming $1mn per MW.

Tencent’s 3A games problem

Black Myth: Wukong is hot. Tencent is a shareholder in Game Science (developer of Wukong), a distributor for Wukong in China, and a significant shareholder in Epic Games (Wukong uses Epic Games’ Unreal Engine).

However, Tencent might have more problems with the rise of 3A games.

1/ For game development, mobile game are too profitable for Tencent. 3A games incurs more costs and is hard to monetize over the long run if can’t develop a long lasting IP.

2/ For game investment, Tencent can’t leverage its powerful Wechat/QQ as much in distribution, which can help increase portfolio value by a lot. In addition, 3A games take much longer to develop and can fail – Tencent is hard to wait that long with unknown result. So overall, the investments become more unpredictable for Tencent in 3A studios.

 

US CEOs need be careful about having a popular book in China

This is interesting: when I think of recent popular books in China written by or about US CEOs, it doesn’t seem to be good!

1/ Bob Iger’s book: The Ride of a Lifetime (一生的旅程 in mainland China)

  • published in 2020 (same year in China)
  • Disney stock now is only half of end of 2020 price

2/ Books about Elon Musk

  • one by Ashlee Vance in 2015 (硅谷钢铁侠 published in China in 2016) & one by Isaacson Walter in 2023 (埃隆·马斯克传 published in China in 2023)
  • in China, interest about Musk leveled up in 2021 (above average), per Baidu Index

  • If you compare current Tesla stock to end of 2020/2021, it’s down ~15%/~40%

3/ Ray Dalio’s book: Principles (原则 in mainland China)

  • published in 2017 (2018 in China)
  • Returns from Bridgewater for the past few years are not amazing (read this note)

Macau gaming – why bother?

Concerns for those names.

1/ what’s the long-run prospect for gambling? 

seems that the rich shall just go to Singapore etc.; too risky in Macau

mass market? why would the PRC gov wants gambling to grow?

for certain people (mainland gov officials etc.), it’s hard to go to Macau.

there is the licensing renewal issue every 10 years

2/ luxury shopping?

near-term most Chinese middle class families are still not in the mode of spending on luxury stuff.

shopping in tier-one cities like Shanghai, Beijing etc. is very convenient, although a bit pricer; if it’s in the $3k range, there’s not much difference (say 10% cheaper so saving $300 in shopping, but need to spend on flights & hotel)

the rich can go to Japan for shopping for weak Yen.

3/ food?

Portuguese egg tart? it’s very good indeed!

but you can try the KFC version of Portuguese egg tart in China; it’s about the same.

Personnel changes among China’s top financial regulators

1/ A new anti-graft sub-committee was created for the financial sector within Communist Party’s Central Commission for Discipline Inspection.

Wang Weidong heads this committee/working group.

2/ CSRC vice chairman (similar to SEC in China)

Li Ming replaced Fang Xinghai.

3/ National Financial Regulatory Administration’s (NFRA) Shanghai branch head

Qi Xiang replaced Wang Junshou.

4/ National Financial Regulatory Administration’s (NFRA) Beijing branch head

Pei Guang replaced Yang Dongning.

On a separate note, in recent days it was announced that

Dong Guoqun, an executive vice president of Shanghai Stock Exchange was charged / investigated.

Chen Xiaopeng, CSRC Shenzhen branch former head was charged / investigated.

How much should ByteDance spend on data centers?

ByteDance has deep wallet: in 2023, it generated $40bn+ EBITDA.

To compare, Meta had over $60bn in EBITDA during the same period.

Meta will grow to $80bn ebitda in 2024, while capex guidance is as much as $40bn – half of its EBITDA.

Assuming half of Meta’s capex goes to data centers -> $20bn. And half of that goes to GPUs > $10bn; building out those data centers etc. will be $5-10bn for Meta.

ByteDance is also growing, say at a similar rate as Meta, so $50bn+ EBITDA in 2024. And assume ByteDance invests at a similar ratio as Meta, then it needs to spend ~$25bn in capex, or ~$12bn (or 60% of $20bn) for data centers – $6bn  for GPUs, and $3-6bn to build out data centers etc.

USDJPY

Just using interest rate parity.

Before the interest hike cycle, in early 2022, 1 dollar = 115 yen.

To make it simple, assuming USD interest rate is 5% and JPY is 0%.

If you exchanged 115 Yen [$1 worth of JPY] for USD and held USD for for 3 years, you should get $1.05^3.

If you hold Yen for 3 years, you shall have 115 Yen. So 115 Yen = 1.05^3 USD

1 USD = 99 Yen…

Real life is not like that.

In the real world, people exchange JPY for USD to earn higher yield, which created demand in the short-term.

That portion of USD can be deployed in the equity market, buying S&P 500 for example.

In this case, if you borrow Yen, you pay very little cost of capital (near zero), and you earned S&P 500 return.

Meanwhile, as everyone wants to do this kind of trade, and due to this imbalanced demand in the short term, USD will appreciate against JPY << this means you earn extra return when exchanging USD back to JPY (1USD = ~160JPY a few weeks ago, vs the 115 exchange rate 3 years ago).

In sum, you get S&P 500 return, you get USD appreciation return (~40% in 3 years), and you pay only JPY interest rate.

This is crazy.

Why would this happen? against the interest rate parity?

The other side of the trade seems to be those who are bearing the low rate of return on JPY… The savers in Japan I shall say.

this is also happening again in China?

The victims are obvious.. savers who are only paid 2-3% in China.