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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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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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Stocks

AMD Q1 Results: Strong Data Center Growth Amid Challenges in Gaming and Embedded Segments

AMD Quarterly Result

The Datacenter and client segments did well.

AMD’s struggles outside the Datacenter continue with gaming and embedded segments still dealing with inventory digestion, but they did come in within estimates and kept guidance in line with the previous one. 

Source: Seeking Alpha

  • Advanced Micro Devices press release (NASDAQ: AMD): Q1 Non-GAAP EPS of $0.62 beats by $0.01.
  • Revenue of $5.47B (+2.2% Y/Y) beats by $20M.
  • Record Data Center segment revenue of $2.3 billion was up 80% year-over-year driven by growth in both AMD Instinct™ GPUs and 4th Gen AMD EPYC™ CPUs. Revenue increased 2% sequentially driven by the first full quarter of AMD Instinct GPU sales, partially offset by a seasonal decline in server CPU sales.
  • Client segment revenue was $1.4 billion, up 85% year-over-year driven primarily by AMD Ryzen™ 8000 Series processor sales. Revenue decreased 6% sequentially.
  • Gaming segment revenue was $922 million, down 48% year-over-year and 33% sequentially due to a decrease in semi-custom revenue and lower AMD Radeon™ GPU sales.
  • Embedded segment revenue was $846 million, down 46% year-over-year and 20% sequentially as customers continued to manage their inventory levels.
  • For the second quarter of 2024, AMD expects revenue to be approximately $5.7 billion, plus or minus $300 million vs. $5.69B consensus. At the mid-point of the revenue range, this represents year-over-year growth of approximately 6% and sequential growth of approximately 4%. Non-GAAP gross margin is expected to be approximately 53%.

The stock is down 3% to $153, after dropping 1% to $158 during market hours.

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
Semiconductors

ASML and Lam Research: A Tale of Two Semiconductor Equipment Leaders

Comment made on the SA article.

ASML – Lithography, Monopoly in EUV machines, each machine costs north of $200 Mn, absolutely vital for lower node semis like 3nm, which is powering the latest I-phone among others.

ASML is at the pole position since it’s a critical component for AI and/or high-end chips. Every chip being planned or in production for AI acceleration or incorporating AI acceleration is produced on a 5 nm or smaller node that requires EUV

They also have the lower-end D-EUV machines, which are also successful.

Here’s a good link to the equipment technology market.

https://www.yolegroup.com/strategy-insights/semiconductor-equipment-market-share-reshuffles-amid-memory-demand-decline

Lam Research on the other hand is strong in Etch and Deposition, which is exposed to cyclicality because it’s more of a mass market commodity with competition for AMAT, KLAC, and Tokyo Electronics. But the pickup from customers like Micron, which itself is riding the AI boom for high-grade memory equipment is a big benefit for Lam. To me the biggest strength is the resilience in the last 10 years with an EPS CAGR of 28% – that is a huge deal, cyclicals/commodity producers never get that.

Categories
Semiconductors

Marvell Technology: Positioned for AI Growth but Priced for Perfection

source

Marvell Technology (MRVL) $74

Networking infrastructure – It had a down year, with cyclicality in China and slower data center growth. China is about 50% of revenues.

That said, the forecast for the next three years is good, with 24% revenue growth and 35 to 40% adjusted earnings growth. 

A lot of this is riding on growth from Nvidia and other AI investments in data centers. 

Like most companies in the sector Marvell has also appreciated 73% in the past year so valuations are a bit expensive, 11x sales, with cyclicality and China exposure, it’s definitely on the higher side. It has also financed its acquisitions with debt, carrying a lot of interest burden.

I would prefer to buy 10% lower in the mid sixties for a better return – there is an AI event on April 11th, which may have more specifics/catalysts. Will keep a look out for that.

Categories
Semiconductors

Intel and AMD Face Revenue Impact from China Government Ban, but Scope May Be Limited

source:intel

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.

Categories
Technology

Indie Semiconductor: Why I’m Continuing to Buy Despite Short-Term Volatility

Indie (INDI) I have been continuing to buy in the past two weeks as the stock kept getting lower. The long term story is intact and very strong, but because it’s a loss-making tiny growth stock ($345Mn revenue in 2024), the stock tends to be volatile. Besides, there is a large short interest of over 13%.

Management’s guidance of $1Bn in revenues by 2028, implies a 5 year growth of 35% – they have the $6.4Bn pipeline so I suspect that’s a conservative estimate.

Qualcomm’s auto tech revenues grew over 30% so that’s reassuring but Mobile Eye’s was a disaster, they had too much inventory, so mixed bag there.

I’m very confident of the long term potential, but it is going to be a bumpy ride, as it often is with early stage growth stocks.

Indie reports on 2/22 – will update.

Categories
Technology

Synopsys, Inc (SNPS) at $558: A Hold on High Valuation Despite Strong Fundamentals

source

Chip Design. (Electronic Design Automation) Pick and Shovels semi and AI play.

I had looked at this company a couple of weeks ago and just checked my notes – “Where’s the growth for a P/E of 42 and a P/S ratio of 13?”

Yeah, it’s a 15% earnings grower, so that’s a PEG (Price Earning to Growth) of 3 and a 12% revenue grower, that sales multiple is also too rich.

It’s a solid company – no doubt, but likely paying a steep price for the ANSYS (ANSS)  acquisition, hoping for ambitious synergy targets, which often don’t happen. That said, its chip design simulation business is strong and with the AI buzz can get a boost – that’s why I was surprised to see only 12% revenue growth estimates. Operating margins of both companies are very high at 32% and 28% – that’s a big plus.

There’s another competitor in this space Cadence (CDNS) which is also very profitable at 30% operating margins – same problem – 50X earnings with 17% growth..and 17.6X sales!

I do want to keep this company under the radar for sure and let’s see what the next call reveals.

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.