This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Tax rules can change and benefits depend on personal circumstances.
The conversation then shifts to the US, where Nvidia once again delivers blockbuster results, sparking a deep dive into AI, chips, competition and China’s role in the global tech race.
Use the player icons above to listen on your favourite podcast app, or read the full transcript below.
This podcast isn’t personal advice. If you’re unsure what’s right for you, seek financial advice. Tax rules can change, and benefits depend on personal circumstances. Investments can fall as well as rise in value, so you could get back less than you invest. Past performance is not a guide to the future. This is not a recommendation to buy, sell or hold any investment.
Full podcast episode transcript
Anna
Hello and welcome to the Switch Your Money On podcast from Hargreaves Lansdown. I'm Anna Macdonald, Investment Strategy Director…
Matt
And I'm Matt Britzman, Senior Equity Analyst. Welcome back to your Investment Special. Thanks for tuning in. We've got a few things to talk about this week. As usual, commentary on markets, what's going on in the world of geopolitics. And then we're also going to talk a bit about the UK government bond markets. And then we had some monster earnings from Nvidia that we're going to cover as well. So, Anna let's start. I mean we're recording on Wednesday the 27th and about an hour before we're recording or so, oil markets are down off the back of some news that Iran may be making some effort to reopen the Strait of Hormuz. So, Anna do you want to just give us a round of where we are. It's been a couple of weeks since we've spoken about this.
Anna
Yeah, oil had basically started to hover around the high $90, low $100 mark. And I think it's fair to say that investors, central banks, others were starting to get increasingly concerned about what a really long-term shutdown would mean for the Strait of Hormuz, because, as we know, the longer things are shut down, the harder they are to restart, the more that we see supply squeezes elsewhere. And there's lots: it's not just oil and gas, it's the refined products you get from them, whether it's the precursors for fertilizers or the helium you need to make semiconductor chips. So, you start worrying about it the longer it goes on. But on the other hand, I think we all knew this tension was there, that no one wanted this crisis to go on for any longer than it needed to. Because if the one thing we know that really messes up democratic elections, it's inflation. And we've seen that already in the local elections in the UK. And we know that Trump and the Republicans are worried about that in the US. All of our research shows that actually the reason that we often get political change, change of leadership is because of cost-of-living problems. So, where we are now is that we're seeing oil prices fall. But what I wanted to sort of delve into a bit more was actually the fact is that our markets are tremendously good at trying to work around issues about supply chain adaptation, and particularly in developed markets where we saw there was, for example, a big concern around jet fuel. Actually, sourcing has been able to switch completely from the Middle East, to the US, to Norway, and to West Africa. So, I mean, it's incredible the supply chain adaptation that you see, and often on the other side of a crisis, actually, prices end up lower than they were going into the crisis. And we may well see that. So yes, oil prices are rattling back. If indeed we do get some more passage through the Straits of Hormuz, that's going to help a lot in terms of those worries that we had around inflation. So I'm actually quite impressed about already the amount of supply chain resilience and adaptation we've seen. And I think it speaks well to those pretty powerful forces that you have. Market forces are very powerful. The cure for high prices, as they say, is high prices. So, you know, they do lead to lower prices over the longer term.
Matt
It's almost a forcing function, isn't it? You have to be put under some stress and then the market reacts. That's how capital markets evolve. And then you get something better out the other side of it. So it might be that more supply comes on line because countries are going to look at this and go, "Well we can't have that happen again." So then you start to build out all the supply chain bits and pieces to make sure that you don't have this reliance on one Strait, sending oil prices up to 120 or whatever.
Anna
Yeah, and we see that, for example, pipelines that are being built, extraordinary speed in the Middle East so that you don't ever have to rely on that one single route out of the Gulf.
Matt
I think it's interesting the point on those elections coming up, I think absolutely spot on. And we know that one of the things that Trump ran on was getting prices down, especially like gas prices and things. So, he's clearly under pressure to fix that. But equally, I was listening to a podcast of the week and someone made a really interesting comment that actually at a country level, the US could be a relative winner from the Strait of Hormuz being closed, because I think they’re if not the largest, one of THE largest oil and natural gas producers and exporters, so they can service their own demand from their own produce supply and if prices go up, then they can sell at higher prices. So, on a relative global scale, this was the argument that was being made, is that the US is relatively better than, for example, China and Europe if the strait stays closed. Now, I'm not suggesting that the incentive is to keep it closed, but it's just an interesting kind of subplot.
Anna
Yeah, I think it depends on where the pricing is. So, we know that the oil price is globally set. So yes, they can do better by selling oil at higher prices, which increases their tax take, but consumers in the US are still having to pay that. So, they're still having to pay that high price at the filling station. The gas prices have always been substantially lower and they are locally charged. So that means when you feed through to overall energy costs, actually in the UK we pay by far the highest developed market cost for energy. In the US, it's about 2 to 3 times cheaper, which is astonishing and is a real, actually a real disadvantage for us. And I think unless that changes, there's no way we're going to become a data centre hub in in the future. So yes, the US can. I mean, they can't make every single kind of oil product that you need, which, then handily ties into what happened at the very beginning of this year, which is quite incredible to think, it's only it's not even five months ago when Maduro was taken out of Venezuela. And so they could start using Venezuela's oil products. So, the US, I think, are coming at this from a position of strength. The EU, it varies, but we are unfortunately, we are pretty set into quite a high price cycle, which means that we are de-industrializing fast. China has enormous coal reserves and oil reserves. And so, I mean, I think when we talk about deindustrialization in Europe and congratulate ourselves on our low carbon intensity, we must remember that, on the other hand, we're importing from very carbon-intensive industries. So, yes, I mean, I think that the US does come out of this as a winner, and that is certainly not something that would have been the case 25 years ago. I mean, I remember the markets would have reacted in an extreme fashion if this had been 25 years ago because the shale revolution in the US hadn't yet happened.
Matt
Yeah. Let's switch gears to government bonds. And something again, we've been talking about recently. There's been some massive spikes. There's been moves in either direction. Give us the lay of the land.
Anna
Yeah, I mean, when we look at UK bonds, actually since 2022, since the mini budget, the return that investors demand has always been higher than it would be in several other developed markets, say hovering around half a percent. And this started to actually even increase this premium once we saw the pressure that Keir Starmer was under and worries about his replacement as UK premier. So the market is concerned that any new prime minister might move to the left, might want to spend more, tax more. And so there's quite a lot of uncertainty. And yields, actually the ten year, which is kind of the benchmark that everyone looks at, got close to 5.2%. And those longer dated gilts, and we actually have quite a few investors buying some of those long-dated gilts here at Hargreaves Lansdown. They were yielding close to 5.8%. And what makes a gilt particularly attractive is that if you make a capital gain on a gilt, you don't pay any tax. So, if you're holding it outside an ISA or a pension, that's really attractive. However, two things have started to reassure investors, and therefore mean they demand less of a return. One of those is I think this feeling that we've just been talking about, that there will be some resolution or at least supply chain adaptation to what we're seeing in the Gulf. And secondly, the various contenders. And let's think the primary one is probably Andy Burnham, has said that he will continue to stick to fiscal rules. So that has meant those gilts have come in so, at close to 5.17% for the ten year, when I just checked before coming up, it was below 4.8%. So that's a pretty big move actually and quite significant. Now we've got quite a few things coming up next month. 18th of June: we have the Makerfield by-election. I saw a poll yesterday, it's really neck-and-neck. So, 40% Reform and 43% Labour. Not much for the other parties there. But I think that's going to be something that people really watch for. If Burnham gets in, that could mean he will contend for the Labour Party leadership and become the new prime minister. So, it could be a summer of uncertainty ahead of us.
Matt
And if UK government bonds are half a percent higher than elsewhere in the globe, for example, that half a percent may sound tiny, right? If you think about it in terms of 100 per cent. But actually, this is relative to yields that are like 4 or 5%. It's actually quite a big difference.
Anna
It is quite a big difference. Absolutely. It is a big difference. And that's worth remembering. And particularly when you're looking really far out in terms of the actual prices paid, it can be really quite substantial. That difference.
Matt
Yeah. And one of the other things we've been looking at is perhaps an impact on UK markets. There's been a lot of M&A talk recently, some big announcements that we've had. I know that's something you've been looking at.
Anna
I wrote about this a couple of weeks ago, actually. We've seen a huge amount of mergers and acquisitions in the UK market. Last year, there was total value of about 35 billion. This year, it's already at 43 billion. And we're not even halfway through the year. We have seen some really big deals this year. There were no FTSE 100 companies bought last year, but it's looking at already four have been bid for this year. So why is that? I mean UK valuations are seen as pretty low. That's because there's been just sustained selling of UK markets. Now part of that's been to do with everyone rushing to the big companies, the mega caps, that I know that you look at, Matt. But also, we've seen pension funds sell down, and we've seen some domestic investors sell down. So, it's strange in a way that that hasn't generally boosted the value overall of the UK market. So, I think that just means that there is more persistent selling. And if you think about it, you know, we've got attractive valuations, pretty internationally oriented English speaking companies, the UK-listed companies have really broad dispersed shareholder bases. It's not like European companies, for example, that might have a big family ownership, a foundation or even states. And we just have always been very open and we're an attractive place to buy. We’re really the path of least resistance if you're trying to deploy some capital and we've got private equity and we've got big overseas buyers coming in. So hopefully, you know, I don't want to lose all these great companies, but hopefully in time, we will see other companies come to list. And if we start seeing that change in how investors view the UK market sort of become more widespread, then we will see hopefully just generally valuations will start to improve. It is quite stark, the level of M&A that we're seeing, but hopefully we are going to see a genuine what we call rerating. It's a genuine level of enthusiasm about what we're going to see in terms of valuations in UK companies. Right, so Matt, that's enough for me. Let's move from the UK to the US as I believe you've got, well first of all, some Nvidia results to share and maybe just a general chat about what we're seeing in the remarkable world of AI and chips.
Matt
Yeah, every two weeks it seems to be changing, evolving, news coming out. Nvidia obviously the largest company on the planet. It's a massive market mover. Everyone's looking at these results. And interestingly they come at the end of reporting season. So, most of Nvidia's largest customers have already reported, they've already told us what their spending plans are. So you would normally expect, I mean, this is kind of one of the crazy things about everything, you would normally expect to go into earnings, that the analysts have all got the numbers locked down because they've heard from the biggest customers. But once again, Nvidia comes out with another blowout set of numbers, easily surpassed analyst expectations, past their own guidance. I mean, I don't know about you. I've never seen anything really like this, at this consistent level. So just to have some high-level numbers for you here. Revenue growth in the first quarter, which is one just reported, 85% year over year. And this is a company that's just done over $80 billion in revenue. Let's also not forget that in the quarter last year they had China revenue. They were sending some deprecated chips to China. As you went along, something from the US, something from China, etc. They basically effectively have no China sales at the moment, something that's still being worked on. So that's 85% year-over-year revenue growth with one of the largest markets effectively not existing anymore and it was in the numbers last year.
Anna
Are they just managing to charge whatever they like because there's such demand? Are their margins just ridiculously high,m or are they actually shipping an awful lot more?
Matt
I think it's a bit of both. I mean, one of the one of the things with Nvidia is that the core thesis that Jensen Huang has as the CEO is to drive costs down. So this is a slightly different dynamic, I think, to the memory market, which we discussed a couple of weeks ago, where the vast majority of that performance is due to the price going up…
Anna
Because there's so much demand and not enough chips…
Matt
Whereas Nvidia takes a different approach and is attempting constantly to lower the price on the basis to sell more at a lower price. You know, you keep the customers going back. But I mean, gross margins for Nvidia are 75%. Now, that's like a top-0tier software company gross margin. But I think one of the things to remember about Nvidia is that we think about it as a chip maker, but it's actually a chip designer. It doesn't physically make the chips itself. That's one of the reasons why it can have high margins. And also it's capital intensity. So the amount of money that it has to invest to produce the chips is relatively low compared to if it was a manufacturer as well. So it off-sources most of its manufacturing to Taiwan Semiconductor Manufacturing Company, in the main, and a couple of others.
Anna
Yeah. So well, back in my days studying economics at university, we always thought that high margins would attract competition. So, what is it that's keeping them sustaining this remarkable level of growth and market dominance?
Matt
Yeah, that's the great question. If you take a bullish outlook on earnings, Nvidia is trading at high teens earnings multiple right now. That's a discount to the S&P 500 to the broader market, for a company growing 80% year over year. And I didn’t even talk about their guide. But they're guided for over 100% year-over-year growth in the coming quarter, for the second quarter. What's allowing them to keep that growth up? You’re right: Economics 101 is if you have an economic advantage, someone else comes in to try and get it. What are we seeing? We are seeing these other companies come in to try and take some of that margin and kind of economic benefit off of Nvidia. The problem, well, it’s not a problem, it's good for everyone at the moment. The pie is growing so fast that other people can come in and Nvidia can keep growing. They can keep growing. It's kind of this is, at the moment, for now, a tide that's lifting all boats. I also think that Nvidia has some significant advantages over some of its peers. Part of that is there's this huge software ecosystem that overlays all of their data centres and chips; actually, to make use of chips, you need the software. And they've been doing this for 20 years, whereas other companies are coming in, don't have that big software ecosystem. It’s called a CUDA system that they have, which is one of their key economic and moats that they have at Nvidia. The second is Jensen, the CEO, is really good at going out and speaking to the supply chain companies five years in advance of when he needs the supply. So, they've got much better supply chain advantages over the rest of their peers, which is enabling them to service more of that increased demand, as opposed to being too supply constrained. It also allows them to help keep prices in check because they've agreed things X number of years ago. That doesn't mean that there is no competition, right? And Broadcom comes reporting next week, which is probably one of the key competitors in what we call the custom chip market. So, these are kind of specialist chips that Google or Alphabet might make to try and service some of their own specific niche use cases, but those are more specialist. It's the idea of: you can go out and buy a race car. And for some people a race car is great. But for most people, an SUV is even better. Nvidia is the SUV of the market. You know, it's a top-tier SUV. Some people will want the race car, but they probably will also buy the SUV, and that's what the Googles of the world do. They buy the GPUs and the data centre stuff from Nvidia. And they're also trying to build their own. At the minute there's enough of a build out for everyone. And I also think a really interesting point that gets misunderstood - when there's a supply drought, there's not enough supply. The companies that perform relatively better are the ones that have a second-, third- or fourth-tier product. And that might sound counterintuitive. But the way I like to frame this is if you have 100 people going to buy toys from a toy store, and there's only 100 toys. The first ten people can buy the best toys. The second 90, they need a toy, so they have to buy a toy. If there's 500 toys in that store, the 100 people can go and buy the best one because they have a choice - which means that the second, third or fourth shares don't get sold. Now, when we're in a market, where you don't have enough supply, people are selling all of their second-, third- and fourth-tier products, which they may not do when the kind of, you know, the market is an equilibrium. So I think it's going to be a really interesting dynamic to watch what happens when the supply and demand starts to become more equal. People start to have a choice of what to buy because there's enough supply. At that stage, the advantages that the best companies have, I think, will come to the forefront.
Anna
Yeah. So they need to have not only the top-end chips, but they need to have a good sort of stable of those other chips to keep.
Matt
Exactly. Because we're talking about data centres now. We're not talking about just chips. I mean the latest Nvidia data centres, something like six different chips, GPUs, CPUs, which we talked about a couple of weeks ago. And then you've got all of the networking and cabling, like this is a massive kind of build out here. And there is way more than just the one chip that goes into building out a data centre. And the real kind of push now is who can deliver the lowest AI output per cost. So if you‘re building a data centre, you only have a certain number of watts that can go into energy, like you're limited by how much energy you can have? So in five years' time, when I can build whatever I want, I want the one that's going to give me, for my one gigawatt of energy that I have, the most amount of output. So efficiency is really important. And one of the other things that Nvidia and other chip makers are doing at the moment, to be fair, is each year Nvidia comes out with the new chip, you're chasing something that's always improving. So a company like AMD, another key chip maker at the moment, builds a chip and in a year's time it's going to be as good as Nvidia's chip. That’s Nvidia’s chip for this year. They've already got another one next year. Right. So it's that constant cadence which makes it difficult for other companies to keep up. But yes, there is definitely competition. It's just going to be a really interesting kind of dynamic to watch.
Anna
And you mentioned China at the very beginning. How does China compete properly? And will it? I mean, it seems to be able to do things at a lower energy cost. Is it a significant player in the AI race?
Matt
100%, yes. One of China's advantages is I mean, you mentioned this earlier. They have so much energy, which means they can use lower-tier chips and just use loads of them because they don't, they're not limited by energy. So they can stack together more lower quality chips to achieve a similar output on a kind of total basis, which is one of the reasons why we're seeing - you know if we talk about large language models, what we call close end models, which are the ones that, you know, you have to pay to access, for example, through Open AI or Anthropic, etc. Those are largely US-based. They’re maybe six months ahead of the open-source models that we get from China. So they're not that far behind in terms of the quality of their models. And that's without being able to buy the best chips. So yeah, there's an argument that they can just stack together loads of the kind of, let's call it a second-tier chip and achieve a similar output, then you can, simply because they can just throw as much energy as they want.
Anna
So why are we all still using US LLMs like Anthropic’s Claude and Open AI's ChatGPT? Or do you think people will start using other models?
Matt
This is such a good argument or debate about open source versus closed source. What’s the value that you're really getting from paying the subscription? I think there's a couple of things there. If you're a business and you have the ability and the technical expertise to put an open-source model into your business and utilize it, then because it can be so much cheaper, you might do that. The point is, it's not that easy to do. So the wrappers that go around these models are actually, probably to some extent going to be as valuable as a lot of themselves at one point. I think, especially as a consumer, you want to go to the ChatGPT or the Anthropic or whatever language model it might be, and it needs to be easy. It needs to be able to do the things you want it to do. Whereas if you just pick a random model from China, you have to kind of construct a system to be able use it and utilize it. Whereas if you have the wrapper built in, which is kind of one of the reasons ChatGPT is arguably the consumer king. Anthropic is the enterprise king. But you see Anthropic bringing out tools to help companies use them. It's that add-on in addition to the top-quality models that make it the product.
Anna
I mean, I suppose for example, we could compare, you could have composed your own email service, but actually Microsoft offers you Outlook and you go that's all right.
Matt
And this is one of the reasons why I think that the, you know, we spoke about the "SaaS Apocalypse" before, the software sell off. One of the reasons why I think that probably went too far in a lot of cases, is exactly like you said, people for 20 years I've been able to build an Excel spreadsheet or a spreadsheet tool. Right? But you don't see anyone going around with their own spreadsheets. People still use Excel, right? And Microsoft tools, because there's more to the product than the code underlying it, right? It's how you sell it. It's how you package it, how you distribute it. The ongoing support that you can give to the products, how you can evolve them. Right, there's all of those different things that are kind of like intangible, that kind of are a huge part of the value offering.
Anna
Okay. Now that's a really, really interesting point. That's probably us for this week. Just to let you know, this session was recorded, as Matt said earlier, on May the 27th 2026, and information was correct at the time of recording. Next week, Helen Morrissey and Clare Stinton will be back, talking about the top money mistakes and how you can avoid them.
Matt
Yep. And just to mention that I do hold shares in Nvidia and individual stocks are not the recommendation to buy, and it's important to stress that diversification is always your portfolio’s friend, but even more so when markets are volatile, and the outlook is unclear. Those that are comfortable investing in individual stocks should do their own due diligence. And it's worth remembering that it requires a bit more ongoing attention. Nothing in this podcast is personal advice, and you should seek advice if you aren't sure what's right for you.
Anna
I should also point out that I also own shares in Nvidia, and investments rise and fall in value so you could get back less than you invest. And past performance is not a guide to the future.
Matt
No view is given on the present or future value or price of any investment. Investors should form their own view on any proposed investments.
Anna
So, all that's left for us to do is to thank our producer, Elizabeth Hotson.
Matt
And to thank you so much for listening. We'll be back again soon, goodbye.
Anna
And goodbye from me.