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AI Cloud Service Providers Semiconductors Stocks

Nvidia Is An Excellent Long Term Investment

source:nvdia

Hyperscaler Capex Shows Strong Demand For Nvidia’s (NVDA) GPUs.

I know there is excitement in the markets as Nvidia reports Q3-FY2025 earnings after the market on Wednesday 11/20. Nvidia earnings watch parties have become part of the Zeitgeist, and its quarterly earnings are one of the most closely watched events each quarter.

I, however, don’t believe in quarterly gyrations and have been a long-term investor in Nvidia since 2017, having recommended it more than two years ago and then in March 2023 and again in May 2023 as part of an industry article on auto-tech.

I believe the Blackwell ramp is going strong, and reports regarding rack heating issues are just noise in a program of this size.

Capex from hyperscalers will continue to fuel demand for Nvidia’s GPUs in the next year and beyond and even though it’s expensive it remains a great long-term investment.

Capex from hyperscalers – Nvidia’s biggest customers.

AI spending from the hyperscalers is expected to increase to $225Bn in 2024. Cumulatively in the first 9 months of the year, the key hyperscalers who are Nvidia’s biggest clients, have already spent $170Bn, on Capex — 56% higher than the previous year. Here are the estimates for the full year 2024, 

  1. Amazon (AMZN) $75Bn 
  2. Alphabet (GOOG) $50Bn
  3. Meta (META) $38Bn to $40Bn
  4. Microsoft (MSFT) $60Bn

On their earnings call, hyperscalers’ management committed to continued Capex spending in 2025, but not at the same pace of over 50% seen in 2024.

When quizzed by analysts, hyperscalers also talked about AI revenues, which though are still relatively small compared to the amount of Capex spent, it is growing and growing within their products. Amazon mentioned that its AI business through AWS is at a multibillion-dollar revenue run rate growing in triple-digits year, while Microsoft’s CEO stated that its AI business is on track to surpass $10 billion in annual revenue run rate in Q2-FY2025. 

Meta and Alphabet had more indirect inferences about AI revenues. For example, Meta believes that its AI tools improve conversion rates for its advertisers, which creates more demand. On the consumer side, Meta believes that their AI has led to more time spent on Facebook and Instagram. Similarly, Alphabet also spoke about Gemini improving the user experience and its use of AI in search. Seven of the company’s major products—with more than two billion users—have incorporated Google’s AI Gemini model, While Capex from hyperscalers also goes towards infrastructure, and building, which take longer to show good returns, a fairly large chunk goes towards GPUs, which bodes well for Nvidia, which controls more than 80% of the AI-GPU market.

Besides Capex, I also believe in AI and there are several areas where AI has already shown promise.

Code Generation

The low-hanging fruit is being plucked: A quarter of new code at companies like Google is now initially generated by AI and then reviewed by staff. Similarly, GitLabs and GitHub, are providing Dev-Op teams similar offerings.

Parsing and synthesizing data for product usage:

Partha Ranganathan, a technical fellow at Google Cloud, says he’s seeing more customers using AI to synthesize and analyze a large amount of complex data using a conversational interface.

Other enterprise software companies see huge upsides in selecting a large-language model and fine-tuning the model with their own unique data applied to their own product needs.

I recommended Duolingo (DUOL) for the same reasons, their own AI strengths better their language app, creating a virtuous flywheel of data generation from their own users to create an even better product – data that exists within Duolingo, which is more powerful and useful than a generic ChatGPT product.

Using AI for medical breakthroughs

Pharmaceutical giants like Bristol Myers are using AI for drug discovery at a pace that was impossible before AI and LLMs became available. These are computational problems that need powerful GPUs to research, compute, and process for clinical trials.

Who is the indispensable, ubiquitous, and default option to turn their dreams into reality? – Nvidia and its revolutionary Blackwell GPUs – the GB200 NVL72 AI system, which incorporates 72 GPUs, linked together inside one server rack differentiating Nvidia from its lesser lights like AMD and Broadcom, which at a run rate of $5.5Bn and $11Bn, respectively are minnows compared to the $130Bn behemoth with 80% of that revenue from AI/Datacenter GPUs.

I believe we are in the first innings of AI and Nvidia will continue to lead the way. I continue to buy Nvidia on declines.

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AI Semiconductors Stocks

Qualcomm, (QCOM) Solid Beat On Turbocharged Auto Sales

Post earnings the stock was up 9% to $188, yesterday, but has given up most of its gains, today. I’m continuing to accumulate.

I’ve owned Qualcomm for a while now, and recommended it in July 2024, and earlier in September 2023, when I wrote a lengthy article on the auto-tech industry. I believe in its long-term strengths and plan to keep the investment for the next three to five years.

Key Strengths include:

  • The Crown Jewel – Its licensing business with its treasure trove of patents generating 70% margins.
  • Strong growth from autos – one of the market leaders with Nvidia and Mobile Eye.
  • Its partnership with Microsoft (MSFT) for AI PCs

Sep Q-2024 Results

QCT sales rose 18% year-over-year to $8.678B.

Within QCT, Auto was the best performer – sales jumped 68% to $899M. This was the biggest surprise as Qualcomm’s auto sales growth cadence is in the mid-thirties. Auto sales tend to be lumpy so this was a really big positive.

Revenue from handsets rose 12% year-over-year to $6.096B. Handsets tend to struggle sometimes –  based on Apple’s fortunes and after drops in the previous year, this was a welcome return to growth.

Its IoT segment has been a slow grower – usually mid-single digits, but it grew 22% this quarter to $1.683Bn. 

Licensing revenue rose 21% year-over-year to $1.521B. Licensing is its most lucrative segment with gross margins over 70% – pretty much its crown jewel.

Q1FY2025 Guidance:

Revenue of $10.5B-$11.3B vs $10.61B consensus. At the midpoint, that’s an increase of 3% Non-GAAP diluted EPS of $2.85-$3.05 vs $2.87 consensus, which at the midpoint is also an increase of 3%. from handsets rose 12% year-over-year to $6.096B.

The CEO, Cristiano Anon, had this to say about the quarter

“We are pleased to conclude the fiscal year with strong results in the fourth quarter, delivering greater than 30% year-over-year growth in EPS,” “We are excited about our recent product announcements at Snapdragon Summit and Embedded World, as they continue to extend our technology leadership and position us well across Handsets, PC, Automotive and Industrial IoT. We look forward to providing an update on our growth and diversification initiatives at our Investor Day on November 19.”

Analysts from UBS and J.P. Morgan upped their price targets, while Barclays analyst Tom O’Malley (who kept his Overweight rating and $200 price target) pointed out that there is now a “bifurcation in Android between the high and low end” and Qualcomm is benefiting both in units and average selling price.

At $180, Qualcomm is very reasonably priced at 16x next year’s estimated earnings and 4x next year’s forecasted sales.

Given its market leadership in auto-tech, AI PCs, and sustainable, and recurring high-margin licensing business, Qualcomm should be priced between 20-22x earnings. It spends a good 25% of its revenues on R&D, which will enable it to continue innovating and growing. Even after that, it still returned $1.6Bn to shareholders with $0.7Bn in share buybacks and $0.9Bn in dividends.

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AI Semiconductors Stocks

Nvidia – The Blackwell Ramp

Nvidia (NVDA) $121 (AI) (Semiconductors)

And here we are ramping Blackwell, and it’s in full production,” said Nvidia CEO Jensen Huang, during the Goldman Sachs Communacopia + Technology Conference. “We’ll ship in Q4 and scale it — start scaling in Q4 and into next year. And the demand on it is so great … and so the intensity is really, really quite extraordinary.”

https://seekingalpha.com/news/4152814-nvidia-trends-up-as-blackwell-release-date-nears

“Blackwell chips are expected to see 450,000 units produced in the fourth quarter of 2024, translating into a potential revenue opportunity exceeding $10B for Nvidia,” according to a post today on X.

The estimate during the August conference call was for $3Bn Blackwell revenue in Q4, so this is a big change. Fundamentally there wasn’t any real difference, just the quarterly cadence from Q4 to Q1, but this does help the stock in the short term and more importantly should put to rest any rumors or doubts about Blackwell design flaws.

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Semiconductors Stocks

AMD Bucks The Trend – The Stock Is Up 5% 

  • Advanced Micro Devices press release (NASDAQ:AMD): Q2 Non-GAAP EPS of $0.69 beats by $0.01. 
  •  
  • Revenue of $5.84B (+9.0% Y/Y) beats by $120M. 
  •  
  • Record Data Center segment revenue of $2.8 billion was up 115% year-over-year primarily driven by the steep ramp of AMD Instinct™ GPU shipments, and strong growth in 4th Gen AMD EPYC™ CPU sales. Revenue increased 21% sequentially primarily driven by the strong ramp of AMD Instinct GPU shipments. 
  •  
  • Client segment revenue was $1.5 billion, up 49% year-over-year and 9% sequentially primarily driven by sales of AMD Ryzen™ processors. 
  • Gaming segment revenue was $648 million, down 59% year-over-year and 30% sequentially primarily due to a decrease in semi-custom revenue. 
  •  
  • For the third quarter of 2024, AMD expects revenue to be approximately $6.7 billion vs. $6.61B consensus, plus or minus $300 million. At the mid-point of the revenue range, this represents year-over-year growth of approximately 16% and sequential growth of approximately 15%. Non-GAAP gross margin is expected to be approximately 53.5%. 
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Semiconductors Stocks

Taiwan Semiconductor Earnings Update (TSM) 

TSM hit it out of the park last week, confirming that the high-performance semiconductor sales are doing extremely well. 

Q2 revenue growth of 32.8% y/y and net income growth of 29% y/y. 

Q3 expected to set another revenue record on strong AI and smartphone demand, full year guidance raised. Full Year expectations are for 28% and 24% earnings growth to $6.4 per share. 

3Nm (the most advanced node powering Nvidia, Apple, etc.) revenue was 15% of sales. Nvidia’s not the only company with higher prices, they in turn pay TSM quite well for 3Nm processing! 5Nm also went to 35% of sales – the two now dominate TSM sales with 50%. 

If TSM didn’t have geopolitical risks from China, and Trump demanding payments for protection didn’t help either, this would have been easily 40x earnings, over $250 per share. given the technological and market share lead. Overall, TSMC should continue to dominate in advanced process nodes and high-volume manufacturing for many years. 

I had sold 20% around $183 last June, but am going to hold on to the rest, there’s really nothing much we can do with Chinese tensions – if there are nasty developments from that front, we’ll have much bigger problems than the price of TSM! 

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Semiconductors Stocks

Nvidia (NVDA) Q1-2024 Earnings Preview: High Expectations and Market Optimism

Source: Nvidia

Nvidia Earnings Preview – Q1-2024 

The big event is finally here (Post-market Wednesday, May 22nd) and expectations are sky-high! 

Consensus estimates are for earnings of $5.58 (up 412% YoY) and revenues of $24.6Bn, (up 242% YoY). However, analysts seem to be pointing out that anything less than $5.75 and $26Bn would lead to disappointments. Similarly, expectations for higher guidance for Q2 are also, well, high. Just meeting consensus estimates of $6 per share and $27Bn won’t cut it.

Wall Street remains optimistic – the average price target is $1,040 a 9% upside, with a high of $1,400 from Rosenblatt Securities, who believe that there won’t be any air pockets transitioning from the H(Hopper) series to the B (Blackwell) series, even as AWS this morning confirmed that they would wait for the Blackwell to ship before buying more Hoppers.

Other Wall Street analysts also have higher-than-average targets from $1,100 (Barclays) to $1,200 (Baird).

Seeking Alpha analysts, not to be outdone also talk of the large and growing TAM, with one estimate of $600Bn by 2030, extrapolating growth from the Chips Act, the massive Capital expenditures from mega-caps like Microsoft, Google, Meta, and Oracle, plus the partnership with Dell, new AI use cases and even proxying TSM’s manufacturing capacity. So yes, there are plenty of defensible theories about why this AI gravy train won’t slow down.

For my part, I last bought Nvidia for around $780 on April 22nd, and with a high exposure in it, don’t plan to add more for now. It should remain a very strong, high-conviction, core holding for a long time. I will be looking out for other AI stories.

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Semiconductors Stocks

Nvidia (NVDA) Achieves New Record: Q1 Earnings Beat and Forward Split Announcement

Nvidia (NVDA) Post Market $990 New Record.

  • Another beat, 10:1 forward split new record price, and higher guidance
  • Nvidia press release (NASDAQ: NVDA): Q1 Non-GAAP EPS of $6.12 beats by $0.54.
  • Revenue of $26.04B (+262.2% Y/Y) beats by $1.45B.
  • Record quarterly Data Center revenue of $22.6 billion, up 23% from Q4 and up 427% from a year ago
  • Ten-for-one forward stock split effective June 7, 2024
  • The quarterly cash dividend raised 150% to $0.01 per share on a post-split basis.
  • Q2 Outlook: Revenue is expected to be $28.0 billion vs. consensus of $26.84B, plus or minus 2%.
  • GAAP and non-GAAP gross margins are expected to be 74.8% and 75.5%, respectively, plus or minus 50 basis points. For the full year, gross margins are expected to be in the mid-70% range.
  • GAAP and non-GAAP operating expenses are expected to be approximately $4.0 billion and $2.8 billion, respectively. Full-year operating expenses are expected to grow in the low-40% range.
  • GAAP and non-GAAP other income and expenses are expected to be an income of approximately $300 million, excluding gains and losses from non-affiliated investments.
  • GAAP and non-GAAP tax rates are expected to be 17%, plus or minus 1%, excluding any discrete items.
  • Shares +4.3%.
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Semiconductors Stocks

Qualcomm (QCOM) Q2 Earnings: Strong Results and Guidance Boost Shares 4.5%

Qualcomm (QCOM) Maintaining Buy on Declines

Qualcomm (NASDAQ: QCOM) shares rose 4.5% in extended trading on Wednesday after the San Diego-based semiconductor firm offered up better-than-expected guidance on top of strong second-quarter results.

Auto is the big mover with a 35% increase in revenues. I’m also surprised that handsets held up considering Apple’s weakness.

Looking to the third quarter, Qualcomm said it expects to earn between $2.15 and $2.35 per share on an adjusted basis, with revenue forecast between $8.8B and $9.6B.

Analysts were expecting $2.16 per share in earnings and $9.05B in revenue.

For the period ending March 24, Qualcomm earned an adjusted $2.44 per share on $9.39B in revenue, as QCT sales rose 1% year-over-year to $8.02B. Revenue from handsets rose 1% year-over-year to $6.18B while automotive sales jumped 35% to $603M. Sales from (Internet of Things) IoT tumbled 11% to $1.243B.

Licensing revenue rose 2% year-over-year to $1.318B.

A consensus of analysts expected the company to earn $2.32 per share on $9.35B in revenue.

“We are pleased to report strong quarterly results, with EPS exceeding the high end of our guidance,” said Cristiano Amon, President and CEO of Qualcomm Incorporated. “We are excited about our continued growth and diversification, including achieving our third consecutive quarter of record QCT Automotive revenues, upcoming launches with our Snapdragon X platforms, and enabling leading on-device AI capabilities across multiple product categories.”

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Semiconductors

Super Micro Q3 Earnings: Strong EPS Beat, But Revenue Misses; Upgraded Guidance Boosts Outlook

source:supermarco

Super Micro Earnings Release. Source: Seeking Alpha

  • Super Micro Computer press release (NASDAQ: SMCI): Q3 Non-GAAP EPS of $6.65 beats by $1.08.
  • Revenue of $3.85B (+200.8% Y/Y) misses by $50M.
  • Guidance is better: 
  • For the fourth quarter of the fiscal year 2024 ending June 30, 2024, the Company expects net sales of $5.1 billion to $5.5 billion vs $4.86B consensus, GAAP net income per diluted share of $7.20 to $8.05 and non-GAAP net income per diluted share of $7.62 to $8.42 vs $6.96 Consensus.
  • For the fiscal year 2024 ending June 30, 2024, the Company is raising its guidance for revenues from a range of $14.3 billion to $14.7 billion to a range of $14.7 billion to $15.1 billion vs $14.59B consensus and establishing guidance for GAAP net income per diluted share of $21.61 to $22.46 and non-GAAP net income per diluted share of $23.29 to $24.09.

The stock is down 1.5% to $846 after losing 3.5% during market hours.