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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

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

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.

Categories
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%.
Categories
Cybersecurity Semiconductors

Strategic 2024 Investment Opportunities in Cybersecurity, Technology, and Semiconductors

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.

Categories
Enterprise Software

GitLab’s Growth: Strategic Partnerships, High-Demand Offerings, and Alphabet’s Investment

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.

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Semiconductors

Micron (MU) Rating Upgrade to Buy: Strong Earnings and HBM Demand Drive Optimism

source:micron

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.

https://www.barrons.com/articles/micron-technology-stock-earnings-d6cd03f9?mod=BRNS_ENG_NAS_EML_BULLETIN_AUTO_NAH

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

FQ3-24GAAP(1) OutlookNon-GAAP(2) Outlook
   
Revenue$6.60 billion ± $200 million$6.60 billion ± $200 million
Gross margin25.5% ± 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.

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
Semiconductors

Nvidia (NVDA) Update: $715-$720 – Taking Profits While Maintaining Long-Term Outlook

source:nvdia

Nvidia (NVDA) $715-$720. Planning to take profits, and reduce position by about 10% this week.

Nvidia reports Q4-FY24 earnings after market tomorrow, 02/21 and expectations are high for an impressive beat and raise for FY2025. Nvidia has a January year-end.

Nvidia is the largest holding in my portfolio and I need to reduce it a bit to keep my risk rules and parameters intact. I also believe that expectations are a little too rich for my liking and anything less may be hammered, instead of the usual earnings pop there could be a selloff. Nonetheless, it remains a great investment over the long term and I wouldn’t sell more than 10-15% of my position. Just pure profit-taking and risk control.