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Tag: Earnings Report

Categories
Semiconductors

Nvidia (NVDA) Update: Exceeding Expectations but Facing Margin Challenges

source:nvdia

Nvidia’s results exceeded expectations as usual, kind of becoming a habit! The previous quarter’s (Jan 2024) revenue beat by $1.6Bn and it guided Q1-FY25 (April 2024) revenue 10% or 2Bn higher to $22Bn.

Shares took off from $675 to $725. Everybody’s happy. 

Now comes the tough part.

Nvidia had a net profit margin of 55% = $12.2Bn in profits on $22Bn in sales. That is drug lord margin territory! Simply, they can charge whatever they want for the H100s, the new Grace Hopper, and the H200s that are coming down the pike. I’m confident that these margins will continue for at least a year untill competitors get their act together.

However, to assume that these margins will continue beyond that is difficult to swallow, and most of the street estimates for earnings are based on at least 52% in NPM, which if not achieved can be a huge disappointment.

So I modeled earnings at a 40% Net Profit Margin, which is similar to a big pharma company’s patented drug margin that also charges as much as the market can pay for it.

With that NPM, Earnings come down naturally; three years down the road in the 40% model, EPS is  $26 compared to the street estimate of $33. Assigning a P/E of 40, that gets us to $1,030 from today’s price of $725 or an annualized gain of 12%. And if the street is correct, we’re looking at 40*33 =$1,320 or an annualized gain of 22%.

The counter argument to the lower margin thesis is – Nvidia can lower prices and sell more, and at some point this is likely to happen – the overall growth doesn’t reduce – especially if you’re changing the whole paradigm of accelerated computing replacing the way data centers are built now.

At the moment, I’m not planning to add any more, my exposure to Nvidia is already very high, and the long-term thesis doesn’t change.

Categories
Market Outlook

S&P 500 Earnings Overview: Q4 2023 Insights and Valuation Metrics

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FactSet reported the following for S&P 500 earnings through 2/9.

This is a very helpful 10,000 feet view and provides good benchmarking and comparisons.

Earnings Scorecard: For Q4 2023 (with 67% of S&P 500 companies reporting actual results), 75% of S&P 500 companies have reported a positive EPS surprise, which is below the 5-year average of 77% but above the 10-year average of 74%

Earnings Growth: For Q4 2023, the blended (year-over-year) earnings growth rate for the S&P 500 is 2.9%. If 2.9% is the actual growth rate for the quarter, it will mark the second-straight quarter that the index has reported earnings growth.

65% of S&P 500 companies have reported a positive revenue surprise, which is below the 5-year average of 68% but above the 10-year average of 64%.

In aggregate, companies are reporting revenues that are 1.2% above the estimates, which is below the 5-year average of 2.0% and below the 10-year average of 1.3%.  

If 3.9% is the actual revenue growth rate for the quarter, it will mark the 13th consecutive quarter of revenue growth for the index.

It is interesting to note that analysts were projecting record-high EPS for the S&P 500 of $243.41 in CY 2024 and $275.34 in CY 2025 on February 8. 

On February 8, the forward 12-month P/E ratio for the S&P 500 was 20.3, which marked the seventh time in the past nine trading days in which the P/E ratio for the index was above 20.0. How does this 20.3 P/E ratio compare to historical averages? 

Here is the chart for the historical PE, we have been above the 10 year average of around 18 for a while, and are now above the 5-year average of 19 as well.

Categories
Market Outlook

Great Expectations: Tech Giants’ Solid Earnings Can’t Satisfy High Hopes

Great Expectations. Hi everyone. Sometimes, stocks get ahead of themselves.

Late Tuesday, three of the biggest names in technology—Alphabet, Microsoft, and Advanced Micro Devices—reported December quarter results and offered the latest updates on their AI progress.

While the headline numbers were generally solid, they weren’t good enough to impress investors given the stocks’ big runs.

Microsoft had the best quarter of the bunch, reporting earnings per share of $2.93, well ahead of the analyst consensus of $2.76. Alphabet beat profit estimates, posting EPS of $1.64 versus the consensus of $1.59. AMD’s profit was in line with the estimates, but the company’s revenue outlook was disappointing.

All three stocks were down in mid-day trading Wednesday. Alphabet shares dropped 6%, AMD slipped 3%, and Microsoft was down 1.4%. The tech-heavy Nasdaq Composite was off 1.6%.

The main problem with the reports wasn’t the numbers but the expectations going in. Take AMD’s AI chip outlook. On last night’s conference call with investors, CEO Lisa Su said that AMD now expects revenue for its AI data center MI300 GPU products to surpass $3.5 billion in 2024—up from a $2 billion forecast just three months ago. While the guidance is up significantly, some Wall Street analysts had estimates of up to $8 billion.

Investors would be wise to largely overlook these day-to-day stock movements. The technology companies’ conviction over future AI demand is more important. And, given the latest commentary about capital expenditure budgets, the robust trend is intact.

Microsoft said its expects capex to “increase materially” in the current quarter, and it intends to invest aggressively in the coming quarters. Alphabet said its capex would be “notably larger” in 2024 versus the prior year. Both companies said infrastructure investments are being driven by trends in AI demand.

There’s other evidence the AI arms race is still on beyond the comments from Microsoft and Alphabet. On Monday, Super Micro—a leading independent manufacturer of high-end AI servers for data centers— easily beat expectations and raised its full-year revenue guidance by nearly 40%. Last week, Nvidia CEO Jensen Huang told reporters in Taiwan that demand for AI GPUs is still outstripping supply, while adding 2024 is going to be a “huge year.”

Finally, Meta CEO Mark Zuckerberg boasted on social media earlier this month that his company will have 350,000 Nvidia H100 GPUs—and almost 600,000 H100 equivalent GPUs based on total computing power—by the end of this year.

We’ll find out more when Meta, Amazon, and Apple report on Thursday, but all signs suggest that AI spending is still accelerating—no matter what stocks said on Wednesday.

Categories
Semiconductors

Qualcomm Surpasses Q1 Earnings Expectations, Driven by Handset and Automotive Growth

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Qualcomm (NASDAQ:QCOM) shares rose 2.7% in extended trading on Wednesday after the semiconductor company reported fiscal first-quarter results and guidance that topped expectations.

For the period ending Dec. 24, Qualcomm earned $2.75 per share on $9.92B V consensus estimates of $2.37 per share on $9.52B in revenue.

QCT revenue rose 7% year-over-year to $8.4B. 

Revenue from handsets rose 16% year-over-year to $6.69B 

Automotive sales jumped 31% to $598M. – this will be Qualcomm’s biggest growth catalyst.

Sales from IoT plunged 32% to $1.13B.

Licensing revenue fell 4% year-over-year to $1.46B.

Revenue and Earnings Midpoint Guidance is higher at$9.3Bn and $2.3 for the next quarter.

Qualcomm said it expects to earn between $2.20 and $2.40 per share, with revenue forecast between $8.9B and $9.7B. Analysts were expecting $2.25 per share in earnings and $9.28B in revenue.

Categories
Cloud Service Providers

Microsoft (MSFT) Hold at $407 – Impressive Earnings, Awaiting Guidance

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Microsoft (MSFT) Hold $407

Earnings: $2.93 per share, vs. $2.78 per share expected, 33% Higher YoY

Revenue: $62.02 billion, vs. $61.12 billion expected, 18% Higher YoY.

CLOUD DOES WELL – Intelligent Cloud revenue $25.88Bn V 25.29Bn expected, 20% Higher YoY contains Azure cloud infrastructure, SQL Server, Windows Server, Nuance, GitHub and enterprise services. Within that segment, revenue from Azure and other cloud services grew 30%. Analysts polled by CNBC had expected 27.7% growth, and the StreetAccount consensus was 27.5%. The metric for the previous quarter was 29%.

This is impressive growth – but most of it is already in the current price.

I own Microsoft but haven’t had a chance to add Microsoft during this rally, and it’s already up 9% this year.

The guidance will be out during the earnings call starting at 5:30 and will update after the call.

Categories
Semiconductors

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

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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.