Intel could lose as much as $1.5B in sales due to China ban; AMD less: Bernstein
The news that China is looking to ban purchases of Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD) chips for government use could be a sizable topline hit to the two semiconductor companies, but perhaps not as much as some believe, investment firm Bernstein said.
On a nominal basis, Intel had roughly 27% of its sales in China in 2023 (or $15B), while AMD had roughly 15% or ($3.4B). However, government purchases were much smaller than that — approximately 10% or so — Bernstein analyst Stacy Rasgon said. As such, Intel could see a revenue impact between $1B and $1.5B, while AMD could lose a “few hundred million,” Rasgon said.
Here are ETFs that mirror the growing Semiconductor, Cybersecurity and Technology sectors, they have 4 to 5 Star ratings from Morningstar and have done exceedingly well this past year – over 40%. Which is a great performance but a drag going forward, because we’re entering at fairly high levels and very little chance of those gains. Nonetheless these have performed in the mid to high teens per year over a five year period and some have over a ten year – basically the underlying stocks are strong so in the long run, as we can see from their consistent performance.
Most Important: Spread your buying out in installments, on declines, anything we’re buying in 2024 is priced above their mean so we want as much of a bargain as possible.
Cybersecurity
CIBR – cybersecurity, mostly large cybersecurity companies, has the biggest names like PANW, CRWD, OKTA, FTNT etc, a good proxy for cyber security,
HACK – also cybersecurity, some small companies, but it has companies that specialize in military grade products, which is a bit of an advantage.
Technology
VGT – VGT is part of the Vanguard family, very well regarded and has all the biggest names in tech, half of the M-7, several cybersecurity companies, huge returns – even the 10 year return is like 18%, going forward if big tech performs this fund do very well. But given how well it’s done again don’t expect too much, anything in the 10-12% range per year for the next 5 should be good.
Semiconductor
SOXX – Largest semiconductor ETF also very successful, having Nvidia as a large holding will do that, but there are several semiconductor companies that haven’t done as well, which can be a drag. But that is common for a sector or any mutual fund or ETF, there will be mediocre and weaker companies, but they also tend to be less volatile, it’s not all bad.
The Macro approach and historic valuations, market breadth, outlook.
Top down market strategy is relevant and sometimes essential when you want to compare the S&P 500 against historical benchmarks. I did this in a series of articles for seeking alpha under Fountainhead, and spoke about the same things that Hussman does – historical valuations, poor market breadth, interest rate correlations, smaller categories dominating, and future earnings being misleading especially when they start to falter. I still pretty much look at the macro backdrop every week even now, but it’s a great backdrop, an important framework and benchmark but not a primary factor or thesis for making individual stock decisions. I stopped doing the market outlook top down series a while ago, when I realized I was better off focusing on getting into the weeds, than trying to get better returns by forecasting market direction. As an example, I was trying to predict a 4-6% correction in the S&P 500 when the AI revolution was happening right before my eyes, again ironical because my first article recommending Nvidia was in October 2022 at $108! And that’s been the story for the better part of 3 decades.
There are several who posit like Hussman and several rebutting parts or all of his thesis – the correlation with the Nifty Fifty gets the most pushback as does with the 1999 internet bust. In the 2007-2008 Great Financial Crisis bust, the financial sector had the highest concentration of the S&P 500, and financials are cyclical with P/E’s rarely exceeding 12-14, and then they were at 20, with expectations of 25% growth, their debt to equity ratios were like 33:1 – ABSURD!!.
The point is – extremely difficult to compare the bull market euphoria peaks, and to a great extent that time is better spent getting into the weeds of individual stocks and also using the macro backdrop as a variable but not the prime one. Also how are we going to make better returns trying to time the S&P 500, through downturns or predicting bubbles?
A great company bought at a good price will also go through a drop when the market turns bad – sometimes only because the sentiment has turned and more often on its own demerits and reduction in earnings power, often we’ve overpaid or not taken profits when the going was good. There is no escaping the inevitable downturn, and we try our best to mitigate it. Profit taking is important, not chasing momentum is important; Not overpaying is equally important. Buying quality companies is very important. Diversification is important, I do want to have less tech or AI stocks and am always looking out for good ones in other sectors, without getting into value traps just because they’re cheap. There are a bunch of strategists who’re advising buying the Russell 2000 as a de-risking strategy because the gap between the valuations of the Russell 2000 and the Nasdaq 100 is the widest in decades. There is some merit in that, but de-risking is a strange way to put it, because by definition the Russell 2000 has the biggest loss making stocks with the highest earnings risk!
In terms of macro strategy, I put out the Factset S&P 500 monthly earnings report on the group, which I follow for the broader Price/ Earnings multiple, earnings and earnings growth. I will after the PCE report next week – in my opinion, the market is overpriced by about 10% for sure, the last decade P/E was about 18-19, we’re at 21 now, with the Index at 5,100 / $245 earning per share. If you look at the earnings yield it is 245/5100 = 4.8%. The first question you would ask is why am I investing in the market when the 10 year risk free treasury gives me 4.2%, what, am I getting only 0.6% extra for the extra risk?? The historical risk premium in the last two decades has been closer to 1.5%, I ran the numbers from 1962 for the articles I wrote, the other decades have their own idiosyncratic reasons and are not comparable.
To be sure, Alphabet still has a small minority stake in GitLab — although its recent regulatory filing indicates its investment is a “member of 10% group,” meaning that Alphabet’s GV is working with a consortium of investors that collectively have a more-than-10% stake in GitLab.
Funnel business to Google Cloud, the way GitHib is doing it for Azure.
NVIDIA selected Gitlab Geo to tackle scalability and security issues, enabling their remote teams to operate with greater efficiency and effectiveness. This implementation reduces the duration required for cloning and project management, facilitating smoother operations.
GitLab’s Ultimate tier witnessed remarkable growth in the fourth quarter of fiscal 2024, with 50% of Annual Recurring Revenue (ARR) attributed to this tier. – Kind of reminding you of Apple’s priciest I-phones getting the most demand.
I don’t believe there is any reason to panic, I agree with Bernstein’s reasoning below.
It will take years and the outcome will be limited.
Apple (NASDAQ:AAPL) was sued by the U.S. Justice Department in a landmark antitrust case amid concerns about monopolization in the smartphone market, something Apple has vehemently denied.
While the case is likely to play out in the judicial system for years, investment firm Bernstein does not believe it will have much of a financial impact on the tech giant.
“While the DoJ’s charges are focused on iPhone, we do not see likely remediation as materially impacting Apple financially or undermining the iPhone franchise: worst case, Apple pays a fine, and loosens restrictions for competition across the iOS platform, which we believe will have limited impact on iPhone user retention or on Services revenues,” analyst Toni Sacconaghi wrote in a note to clients.
Sacconaghi believes any outcome is likely to take some time, likely between three and five years, given historical precedent from Microsoft (MSFT) and Google (GOOG) (GOOGL). And while it may not undermine Apple’s iPhone franchise, it could result in competitors having access to Apple’s APIs and ecosystem, level the playing field for future devices and result in some “regulatory overhang” for the stock.
“We think the DoJ creates some regulatory overhang on the stock, but see limited to no impact over the next several years,” Sacconaghi added.
Micron (MU) Rating Upgrade to Buy from Hold, $100.
Results expected this afternoon were very good, and I am more optimistic about the guidance. I was hesitant to add or recommend buying because it looked overpriced compared to its historical average and it had doubled in the past year.
Nvidia’s comments on needing more high bandwidth memory (HBM) vendors like Samsung, suggest the Micron is more likely to have challenges meeting demand. Unlike the past year when they had to discount inventory.
With this beat and these upgrades from Wall Street analysts in Barron, I would start buying.
“Micron is likely to report continued soaring demand for “high bandwidth memory,” or HBM—parts that combine multiple DRAM chips to improve data-processing speeds.
TD Cowen analyst Krish Sankar wrote in a recent research note previewing the quarter that when it comes to Micron, “HBM remains the centerpiece of attention.” Last week, he lifted his target for the stock price to $120, from $100. He said there is a “potential scenario” where the stock can reach $150, for a gain of more than 50% from current levels.”
For the May quarter, the Street is projecting revenue of $5.98 billion, with an adjusted profit of 8 cents a share. Analysts expect the rebound to continue from there. Estimates for the August quarter now point to $6.86 billion in revenue and an adjusted profit of 81 cents a share.
FQ3-24
Revenue 6.6Bn Expected 5.8Bn
EPS $0.17 Expected $0.08
FQ3-24
GAAP(1) Outlook
Non-GAAP(2) Outlook
Revenue
$6.60 billion ± $200 million
$6.60 billion ± $200 million
Gross margin
25.5% ± 1.5%
26.5% ± 1.5%
Operating expenses
$1.11 billion ± $15 million
$990 million ± $15 million
Diluted earnings per share
$0.17 ± $0.07
$0.45 ± $0.07
Wedbush analyst Matt Bryson wrote in a recent research note that recent trends in prices for both DRAM and NAND memory chips suggest Micron will beat its guidance for the quarter. Bryson, who has an Outperform rating on Micron shares, said he expects positive commentary from the company on the outlook for HBM demand.
“Since last summer, management has provided consistently optimistic commentary around anticipated progress with HBM in light of the technology being a derivative of their highly successful standard DRAM nodes,” Bryson writes.
Meanwhile, analysts say the balance between supply and demand has stabilized following a supply glut that spanned multiple quarters.
“Customer inventories have largely normalized, demand conditions across markets appear stable, and supply growth remains muted,” Raymond James analyst Srini Pajjuri wrote in a research note previewing the quarter. “In addition, HBM is a significant secular driver that could add $1.5-$2 in incremental EPS at the next peak.”
Pajjuri maintains an Outperform rating on the stock.
Hold for now, 15x sales 26% growth, no adjusted operating profits, but the promise of expansion of fleets and other business benefiting from AI/LLM’s more computing power should help the best IoT in the business. Pure play should be a moat.
Copy from the earnings report about the future growth prospects.
The recent drop, especially today, has been because of weak iPhone sales in China, which fell 24% year-over-year in the first six weeks of 2024, amid rising competition from Chinese rival Huawei Technologies, Counterpoint Research said. There’s a lack of consumer confidence in China, and several attempts to kickstart their economy have not succeeded; If it goes into a deflationary spiral, this problem could continue for a few quarters before bottoming out.
Getting out of the car project was a good idea, even if they wasted a decade and billions of dollars, but that’s no longer a drain, and diverting that to AI development is absolutely necessary, even if it is a little late.
The stock should remain sideways and sluggish for a while, but this is not a trading stock, it’s a long term investment, which doesn’t quite give blockbuster returns but is a steady performer. I’m not planning to sell any and will revisit if it falls further.
After the disastrous action taken by management to dilute shareholders within a few days after a reverse split, a lot of analysts including some of us on Seeking Alpha, raised some important questions. The management has agreed to a fireside chat and hopefully resolve this.
Pagaya has welcomed questions from investors for an upcoming fireside chat with CEO Gal Krubiner, CFO Evangelos Perros and President Sanjiv Das. The conversation will be moderated by John Hecht from Jefferies, on Tuesday, March 26, 2024 at 1:00 PM ET.
These are the questions from a group I was interacting with…
“1) Please address the surprise, blindsiding nature of the capital raise (3 days after the Reverse Split). Also, the midstream lowering of the price of the offering while increasing the number of shares you offered.
“I believe the original estimate was $14.70, then it was $12.70, and I watched the volume that day of the offering: the majority of it was under $12, and the share price closed a little above $11. Institutional participation seemed hesitant, even lacking. Today the share price is $9.12
“The timing and execution of this offering has been an unmitigated disaster for your shareholders, somewhere around a $600ML loss for a $90ML capital raise.
“How do you square that? Now that the damage has been done, it’s time to be honest with your investors about the capital raise. What happened?
“2) Since the bearish analyst at Wedbush Morgan downgraded your price target to $11.50, while remaining neutral, citing “losses in risk-retention assets” there has been a horde of relatively-inexperienced DYI accountants pouring through your past financial statements, looking for buried losses that you have not explicated for investors.
“You stated them, yes, in the March 8th 20-F, but now the investing world wants an explanation.
“What is the performance of your risk-retention assets? Are they insured? What is their current status? Do you now have sufficient capital to steer Pagaya to the end of the year? And cover the 5% needed for future ABS investments? Can you reaffirm your 1Q24 guidance and your full year estimates? Thank you.”
There are other questions, and other analysts will be on the call as well. I’ll update right after.
The main strategy is patience to get more margin of safety, especially when a solid company like Adobe gets clobbered 20% for a slightly lower than expected guidance. With a higher 10 year yield of 4.30, long duration tech stories always face more resistance, even more than the overall market. And there’s the volatility as you mentioned. By one measure, trading in options has surpassed that in the stock market for the first time since 2021, according to Goldman Sachs.
I don’t see this froth, volatility and overpricing dissipating; Algo trading, ODTE, (one day expiry options) are pretty much a regular part of the markets now. For us the best strategy is to be patient with limits and accumulate in tranches, even if we miss some opportunities. The goal is a 3-5 year investment and we’re not timing or trading in the market so we’ll have to ride through the rough patches, with confidence in the fundamentals.
