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Tag: data center

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Cloud Service Providers Enterprise Software Stocks

Oracle Deserves A Seat At The AI Table

Oracle

Oracle (ORCL) $166 is a solid investment opportunity for 3-5 years, with a decent shot at growing data center cloud revenues faster than its other businesses, with a push from AI requirements from clients like Meta. Hyperscalers and cloud service providers are expected to spend a capex of $300Bn in 2025, boosting cloud infrastructure providers such as Oracle.

Oracle’s earnings should grow between 16-18% in the next 3-5 years- and it’s very reasonably priced at 24x forward earnings of $7.05. 

Its 31% GAAP operating margins are another sign of strength, especially for a legacy/mature $52Bn+ tech company. 

Revenues should grow at 12-14% annually in the next 3-4 years, which is impressive for a company of that size. Oracle’s P/S multiple is not expensive at 7X sales.

Oracle Cloud Infrastructure’s robust growth is a big catalyst for the company and the stock, and while the near-term Oracle’s FQ2 double miss disappointed investors, the price drop from $191 has created an opportunity for investors. Besides Oracle could gain market share over time.

Oracle’s modular approach and scalable infrastructure offer cost competitiveness, attracting customers. The company’s ability to scale AI clusters, demonstrated by the deployment of a 65,000 NVIDIA H200 supercomputer and a 336% surge in GPU consumption last quarter, further highlights its appeal.

Furthermore, Oracle’s strengthened partnership with Meta for AI training underscores its attractiveness to both large enterprises and smaller businesses. This reinforces the effectiveness of Oracle’s modular strategy, which aims to provide customers with an improved total cost of ownership (TCO) compared to leading hyperscaler competitors.

Their overall cloud segment is about 55% of revenues and growing at 25%, but the licensing segment has been stagnant for the past two years. Over time this will tilt more decisively towards the cloud, allowing them to either increase or maintain their multiples/valuation.

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AI Alternative Energy Cloud Service Providers Industry Power and Utilities Stocks

NextEra: The Green Energy Leader Can Benefit From Data Center

NextEra Energy

NextEra Energy (NEE) $84 has a huge scale of operations. It is the largest green energy producer in the world and the largest player in the U.S. market with more than 20% market share. Long-term revenue of at least 10% a year and dividend growth seem assured, but I would wait for a better entry price.

The U.S. is forecast to experience a significant growth in electricity demand in the coming years, fuelled by the growth in data centers and AI, the proliferation of electric vehicles, the increased use of energy in the home, and the increasing number of extreme weather events, especially prolonged heat spells.

Estimates vary, but NEE is expecting a 38% growth in power demand over the next 20 years (Statistica says 27%); that growth is 4 times higher than the growth seen in the previous 20 years. Clearly, data center demand will outstrip decades of growth, given the hyper scaler Capex.

NEE has a solid balance sheet with an A- credit rating and its unprecedented scale allows it to access huge amounts of capital. Its operating margins are more than 30% – This is a huge competitive advantage especially if data center power generation pans out. The long-term nature of their business and proven ability to generate cash over a long period de-risks the high level of debt.

The stock is up 55% in the past year but is definitely interesting to buy on a pullback.

Categories
AI Alternative Energy Cloud Service Providers Power and Utilities Stocks

Constellation Energy Could Be Interesting To Buy On A Dip

Constellation Energy (CEG) has surged over 130% in the past year to $280 – I would wait for a pullback. 

Constellation Energy (CEG) and NextEra Energy (EEE) are the largest carbon-free / nuclear energy companies in the US today. It’s important to note here that a nuclear power generator can operate cheaper than other energy sources but only if it’s already in commission.

New nuclear plants will take a huge amount of government help, subsidies, permissions, and cost overruns. Future profitability and cash generation will take a long time, so existing players like Constellation and Next Era who have a large nuclear/carbon-free energy share of total power generation have definite competitive advantages.

Microsoft’s deal with Constellation should be accretive to earnings from 2028. (Assuming that the govt okays the deal and it gets on track).

However, analyst haven’t added this to their forecasts, so there is a great deal of skepticism there. Constellation, by itself, is not a very efficient company, with operating margins at 8-12%, much lower than Next Era’s. 

AI needs power: With the renewed focus on nuclear energy power generation, investors likely expect the AI-driven surge to carry on as AI infrastructure investments enter the next scaling stage. OpenAI’s ability to raise more funds at a much higher valuation than the previous year has strengthened the AI growth thesis. Nvidia’s (NVDA) commentary suggests its new Blackwell chips are already sold out over the next twelve months has renewed the market’s interest in the AI theme, potentially benefiting nuclear power generators like CEG.

Money talks: Huge data center operators and hyperscalers have demonstrated their willingness to pay a substantial premium to secure their power requirements. Unless the AI monetization opportunities fail to pan out convincingly over the next few years, it seems reasonable to expect CEG’s much more robust profitability outlook to play out in the medium term.

Regulations remain tight: Possible market structure changes and regulatory hurdles could affect a more robust outlook moving ahead. Despite that, the government seems keen to restart nuclear plants, corroborating the fervor in CEG and its leading nuclear peers.

In addition, Constellation’s ability to obtain a federal loan guarantee (cleared initial review stage) to help finance the restart of the Three Mile Island nuclear plant is expected to provide more confidence to investors. However, investors could consider buying CEG at a dip, and not chase the stock, with so many uncertainties.

Categories
AI Alternative Energy Cloud Service Providers Stocks Utilities

The Nuclear Comeback Needs Careful Consideration

Small Modular Reactors

10/16/2024

Small Modular Reactors, (SMR) companies are going to be high-risk / high-reward stocks with such large jumps (40% in a day); and on Cloud Service Providers’ involvement, the risks got even higher. Besides Oklo and NuScale, I’ve included a couple of other much larger nuclear power and clean energy companies that could ride the boom if it materializes.

Oklo Inc (OKLO) $16.55  is up 42% today on the Amazon announcement!! 

It’s a Sam Altman (OpenAI) back SPAC, a nuclear power company or, more precisely, a fast-fission clean power technology and nuclear fuel recycling company. MIT graduates Jacob DeWitte and Caroline Cochran co-founded Oklo in 2013.

The growing demand for electricity globally and renewable energy policies will favor Oklo, but it would be prudent to see more progress before making an investment, these are really early stage companies in highly regulated environments.

The Nuclear Comeback:

Nuclear power provides ~9% of total and ~25% of low-carbon electricity globally, making it a major and clean energy source. 22 countries (including the US, the UK, France, Japan, and other influential countries) agreed and declared they would work towards tripling nuclear energy capacity by 2050 during the last COP28 meeting on December 2023, recognizing the key role of nuclear power in the green transition and the global net-zero emissions goal. Hence, we could experience a nuclear power boom, after decades of stalling. The ADVANCE Act also points in that direction regarding the US. Nuclear power rejuvenation could be unfolded from existing and new players in the coming years. Nuclear fission advanced technologies and small modular reactors will play an important role in achieving this goal. Commercialization of nuclear fusion is also expected to debut by the end of the decade.

For the coming quarters/years, the company is expected to burn cash ($40M-$50M 2024 expected operating loss) while revenue should start flowing in 2027 and profits even later. 

Key Risks

  • Regulatory, environmental, political, and application-related issues will cause delays.
  • Additional funding will be needed along the way, and Oklo will dilute shareholders or issue debt.
  • Oklo is an emerging growth, pre-production, unprofitable company; this could result in stock price volatility.

If you have some funds set aside for speculative/high-risk investment, you could allocate a small amount towards it, though  I would wait for a pullback.

NuScale Power Corporation (SMR)

  • NuScale – at $19, just like competitor OKLO is up 40% in a week and 220% in the past year!
  • A baby – it is a pre-commercialisation technology company designing a Small Modular Nuclear reactor, which could become very succesful.
  • It has US government support, and strategic partnerships, but faces intense competition from larger, more established players like Vistra, and better-funded startups with next-generation nuclear technology, like OKLO.
  • A very risky play at this stage

Positives: 

Samsung’s subsidiary, Korea’s No.1 private utility company, will lead the construction and engineering of the new plant.

Negatives: 

Competition is intense; they are up against established large-scale companies like Westinghouse Electric, which built a nuclear reactor over 60 years ago, TerraPower formed by Bill Gates, and BWX Technologies (BWXT) is another major competitor in the US, a second company with more than 100 years of operation and established nuclear divisions.

The Short Seller Report

NuScale was hit by a short seller report update from Iceberg Research last month, claiming that it has no serious customers. Given the charges, it would make sense for the dust to settle, before investing.

Besides the valuation is extremely high. This needs further analysis and investigation.

Categories
Semiconductors

Intel Q1 Earnings: Solid Results Overshadowed by Weak Q2 Guidance, Stock Drops 6%

Intel’s misery continues…

Intel’s (NASDAQ: INTC) significantly weaker-than-expected guidance for the coming quarter overshadowed better-than-expected first-quarter results.

For the coming second quarter, the Pat Gelsinger-led firm expects revenue to be between $12.5B and $13.5B, well below the $13.61B analysts were anticipating.

It also anticipates earning an adjusted $0.10 per share with adjusted gross margins of 403.5% and a tax rate of 13%. Analysts were anticipating adjusted earnings of $0.25 per share.

Shares fell more than 6% in extended-hours trading.

For the period ending March 30, Intel earned an adjusted $0.18 per share on $12.7B in revenue. The quarter is Intel’s first period in changing its reporting structure to focus more on its foundry business. Intel products, which now include client computing, data center, and network and edge, came in at $11.9B, including a 31% year-over-year rise in Client Computing revenue to $7.5B.

Datacenter and AI revenue came in at $3B, while revenue attributed to Mobileye (MBLY) was $239M, down 48% year-over-year. The Network and edge segment generated $1.4B, while the company’s foundry segment saw revenue decline 10% year-over-year to $4.4B.

Analysts expected a year-over-year increase in both the top and bottom lines, with the Pat Gelsinger-led firm expected to earn $0.14 per share on $12.78B in sales.

A consensus of analysts expected Intel to earn an adjusted $0.14 per share on $12.78B in revenue.

Categories
Stocks

AMD’s Resurgence in the AI Market: Is It Time to Invest?

source

AMD has been mostly relegated to second tier status because of Nvidia’s massive leap in AI related data center revenue, which catapulted it from $27Bn in sales the previous  year to $57Bn in 2023, this year and an estimated $90Bn in 2024.

However, AMD is a scrappy competitor and I have a lot of respect for Dr Lisa Su, who’s transformed this company from a commodity CPU/GPU semis supplier to game consoles and PC’s to a solid competitor in the data center segment. Most of Intel’s market share losses can be traced to AMD’s strengths!.

While Nvidia is likely to continue getting a lion’s share of AI GPU revenue for at least the next 2-3 years and in fact when AMD guided to about only $2Bn in AI/GPU revenue for 2024, during their last earnings call in Oct,  I felt it was too little to buy AMD at that time. Besides the hardware, Nvidia’s moat is CUDA, its operating system, which really makes its GPU’s so much more powerful. I didn’t see AMD getting much traction on that account.

However, that was a mistake as it turned out to be a conservative estimate.

This is from UBS analysts:

Recent channel and customer checks confirmed their view that AMD has a firm demand commitment for more than 400,000 MI300A/X units for 2024, the analysts said. This is a number that is fairly consistent with where the analysts have seen demand since last summer but they have been wary of double ordering and unsure of supply.

The analysts added that after having gone back to several customers and suppliers, they are more confident that these units are real and AMD now has sufficient Chip-on-Wafer-on-Substrate capacity to do over 10% the volumes of Nvidia (NVDA).

*Even assuming a very conservative average selling price (which could be as high as $20,000 or more for some customers), this suggests $5B for data center GPU revenue is a pedestrian target for this year. Even this implies AMD exits the year at a *run-rate which could be close to $10B per year* with AMD still likely to grow GPU units quarter-over-quarter through much of 2025, the analysts added.

AMD has already moved up from $135 this month to $177 and it lost a little bit after Intel’s poor guidance. I’m going to start buying this slowly – knowing fully well that I’m late but I do believe in its long term story and the $10Bn run rate is an excellent number – If we believe in the AI story and the resulting surge in its building blocks, there there is no way only one company, Nvidia can supply to the entire market – AMD will get a decent foothold. I’m anticipating +$8 in earnings two years out, that should be priced at 30x or $240, which is still 36% higher than today’s price, nothing to be sneezed at.

Citigroup (NYSE:C) stock rose 1.8% in Friday premarket trading after the bank said it expects 2024 revenue to increase to about $80B-$81B from $78.5B in 2023, driven by gains in treasury and trade solutions, securities services, a rebound in investment banking and wealth, and lower partner payments in retail services. The revenue outlook excludes markets and divestitures.

Net interest income, excluding markets, is expected to decline modestly as global interest rates fall. Citi (C) expects mid-single-digit loan growth, driven by its card business and modest operating deposit growth, it said in its earnings slides.

Citibank’s adjusted earnings also beat expectations, but they expect only 2% revenue growth for 2024 and a modest decline in NII. Their allowance for losses was $397 Mn so no dire warnings there either.

Wells Fargo also beat adjusted earnings and revenue expectations but is more pessimistic for 2024. It expects net interest income to be about 7%-9% lower than 2023’s $52.4B level on lower interest rates, an expected decline in average loans, and further attrition in Consumer Banking and Lending deposits. Their provision for credit losses was $1.28B, higher than the other two but below expectations. *Q4 net loan charge-off, as a percentage of average total loans, of 0.53% vs. 0.36% in the prior quarter and 0.23% a year ago.*

Percentage of loans charged-off is a key measure to monitor; in Wells Fargo’s case it was double of the previous year’s – will need to keep a strict watch on this.

Categories
Semiconductors

Super Micro Computer (SMCI) Earnings Report: Key Indicator for AMD and Nvidia’s Performance

source

Super Micro Computer (SMCI) reports this evening, after market close. If you recall, Super Micro had shot up from $300 just two weeks back to the $490 it is now, because of its revised guidance  – it too had its Nvidia moment!

Second-quarter anticipated sales now expected to be between $3.60 billion and $3.65 billion, which was a significant increase from the previous forecast of $2.70 billion to $2.90 billion. The company anticipates an improvement in adjusted earnings to the range of $5.40 to $5.55, up from the initial estimate of $4.40 to $4.48. 

This new guidance handily surpasses analysts’ expectations for the second quarter, set at $2.84 billion in revenue and earnings per share of $4.55. At midpoints, these revised projections indicate a 29% rise in revenue and a 24% increase in non-GAAP net income compared to Super Micro Computer’s earlier guidance.

I’m more interested in SMCI’s results as a good indicator for AMD and Nvidia (Nvidia), since they are the largest supplier for scalable rack systems for the data center GPU’s. If they overshoot even this revised estimate, I would look at AMD more closely.