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Ad Tech AI Cloud Service Providers Industry Stocks

Amazon Is A Good Bargain At $202

AWS

I’ve been adding Amazon (AMZN) to my portfolio in the past week; it is a bargain at $202, having dropped almost 20% from its high of $242.

Amazon has 4 businesses.

Amazon Web Services

AWS is a cloud services behemoth and market leader with $ 108 Bn in 2024 sales, and still growing at 19%. That is remarkable growth for a market leader of that size with two other 800-pound Gorillas, Alphabet and Microsoft, chasing it. It generated operating profits of $39 Bn last year, a growth of 66% with an operating profit margin of 37%. This is Amazon’s most profitable segment and the growth engine, which powers everything.

Advertising

Amazon includes its advertising revenues in the online retail sales segment, but its advertising revenue last year was estimated between $ 56 Bn to $ 64 Bn in 2024, growing around 20% a year. This is also a high operating margin business, generating over 20% in operating profits.

Prime Subscriptions

Amazon doesn’t disclose its Prime subscriber numbers, but we estimate about 200Mn subscribers, including 180Mn in the US in 2024, generating over $40Bn in revenue.

This is another sustainable, sticky, and high-margin business, I’d value it at about 9x sales or $360 Bn.

I used a 9-10x multiple for the high-growth, high-profit margin, and sustainable businesses.

Online and physical retail sales in the US and abroad

These include third-party sales. Physical sales revenues are minuscule compared to total retail sales; loss leaders to expand reach and for analytic purposes, including in the online retail business. Amazon had a whopping $ 431 Bn in 2024. While online domestic and international sales are a drag, growing slower in single digits, they’re not significantly slower than Walmart’s sales growth and margins.

Amazon Segment Sales: Sources Amazon

Based on the Sum of the Parts schedule above, we’re getting the online and physical retail operations of $431 Bn at a market cap of just $170 Bn. The multiple of 0.4 is much lower than Walmart’s multiple of 0.74, or 40%.

Amazon has been spending heavily on Capex for AI to gear AWS and expand its web service offerings. In this arms race, they are scheduled to spend $100 Bn in 2025 to maintain and possibly expand their leadership.

We haven’t even valued all their investments and partnerships under AI development. That can be very valuable in the future.

I’d continue to buy the stock on declines.

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AI Cloud Service Providers Industry Semiconductors Stocks

Credo Technology (CRDO) $46 Is A Great Pick And Shovels Play On AI

Credo Technology Is Essential For Data Center GPUs

While all eyes and ears are on tariff uncertainties and geopolitical risks, we remain focused on finding good investments for the long term – tuning out the drama and volatility.

Excellent Q3-FY2025 results

Credo Technologies (CRDO) supplies high-quality Active Electric Cables (AECs) to data centers, counting on Amazon, Microsoft, and other hyperscalers as its biggest customers. The stock dropped 14% today to $46.75 in spite of excellent Q3-FY2025 results with a 154% increase in sales to $135Mn Vs $120Mn expected and a sizable improvement in gross and operating margins, which is unusual when you’re ramping up production for a customer like Amazon.

Revenue guidance for the next quarter was even more impressive at 162% growth to a midpoint of $160Mn. For the full year ending in April 2025, Credo is expected to grow revenues to $427Mn – a whopping 121% increase, over the previous year.

Good pick and shovels play in data center and AI

Credo is a pick and shovels AI/GPU/Data center play as data centers ramp up all over the world for accelerated computing. Its key products are essentially AEC replacements for optical cables — a play on back-end networking of high, and reliable bandwidth for data center GPUs and GPU systems like the Nvidia Blackwell N36 and N72, which are expected to start ramping up in the 2nd quarter of 2025.

Data center equipment suppliers have become very crucial parts of the AI/GPU supply chain, and Credo’s results certainly speak volumes of their capacity to scale and scale profitably, which is even more admirable.

Its founders are from Marvell (MRVL), there is a fair amount of credibility and experience.

They are general purpose and custom silicon agnostic, which is good because get business from Nvidia and from ASIC players like Amazon and Google.

The business is also GAAP breaking even in FY2025, another exception for such a small company.

Credo had gross GAAP margins of 63.6%, and GAAP operating margins of 20% and a stunning Adjusted Operating Margin of 31.4%, which is astonishing for a fledgling 400Mn operation with Amazon as its main customer.

Key Risks 

Customer concentration – not likely to change soon, the nature of the industry currently needs high volume from hyperscalers.

AEC cables will become a commodity after 3-5 years, so they’ll need to maintain their growth without dropping prices.

Valuation

Credo’s valuation is not expensive at 11x sales as the revenue growth is easily going to surpass 60% in FY2026 and 30% in FY2027, after growing 120% in FY2025. The P/S to growth ratio drops to a low of 0.2 with such high growth. Furthermore, it has an operating profit margin of 20% easily adding to more than the rule of 40, or 60+20 = 80.

The drop today was ostensibly because of customer concentration – Amazon 68%. But analysts and investors should have known this; I believe the correction is overdone and Credo should resume its upward march again. I bought at 45.75 today, the stock is down almost 50% from its all-time high of $86.69, but still up 187% in the past year.

I’m targeting a return of 24% per year or double in 3.

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AI Cloud Service Providers Industry Semiconductors Stocks

Nebius (NBIS) $45 Has Long-Term Potential But May Be Priced To Perfection

Source: The Next Web


While Nebius has shot up 135% in the past year and is approaching fever pitch as a speculative AI infrastructure investment, it does have long-term potential to justify buying on declines.
Nebius was carved out of the Yandex group, an erstwhile Russian company, known as the Yahoo of Russia. After sanctions due to the Ukraine war and the resulting spinoff, this is a European company with US operations with little or no Russian exposure or additional geo-political risks.
Nvidia has a 0.3% stake in the company, and a strategic partnership to expand AI infrastructure to Small and Medium businesses beyond hyperscalers.
Nebius has five revenue segments – Data Center, Toloka, Triple Ten, Clickhouse and AVRide.

I want to focus on the main data center segment in this article.
Datacenter
The best and most strategic segment is the data center, and the key reason to invest in the company is to take full advantage of AI needs beyond the hyperscalers. I expect at least 100% annual revenue growth in the next two years from the data center, slowing down to 50% in year 3.
Nebius is going all out in creating enough capacity for demand in the next two to three years.
It launched its first data center in the US, in Kansas City to start operations in Q1 2025 with an initial capacity of 5 MW, scalable up to 40 MW.
Further expansion plans – most likely all of that is Nvidia’s B200 GPUs.
• Finland 25MW to 75MB by late 2025 or early 2026.
• France – 5MW Launching in November 2025.
• Kansas City – Second facility with 5MW to expand to 40MW.
• One to two further greenfield data centers in Europe.
Datacenter offerings: Either as computing power or GPU rentals, or the more specialized PaaS (Platform As A Service) with its AI studio, which gives customers choices of OpenAI or DeepSeek models among others. It is priced based on usage and token generation to cater to medium-sized, smaller, and/or specialized domain-specific customers.
Fragmentation likely: As the AI data center industry progresses, I believe, Inferencing and modeling requirements will be fragmented and domain-specific. The DeepSeek software and modeling workarounds do suggest this market could easily be targeted by customized requirements, where brute computing power as the norm will morph into specialized or customized requirements. In which case while customers could contract for larger GPU training clusters, they would also look for cheaper inference solutions, which rely on software enhancements. This is likely to happen over time and may well work to Nebius’ advantage since they want to go beyond pure GPU rentals and provide a full stack – this could be both a challenge and an opportunity and it would be crucial to get more visibility in Nebius’ offerings or services as the year progresses specially compared to competition like CoreWeave.
Lowering training costs: While there remains a huge cloud about what DeepSeek did spend on training, and even as 2025 seems to be secure because of the large Capex of $320 Bn committed by the hyperscalers, it would be remiss to not acknowledge that the trend would seek lower training costs as well – in which case a) data center computing power will be at risk and b) pricing could be the main differentiator. As of now, Goldman Sachs is projecting data center demand to exceed supply by about 2:1, and the gap is unlikely to be filled even with rapid deployment through 2026.
Spend more to earn more: Most of the forecasted growth is based on Capex possibly over $2.5Bn in 2025 with an additional $2.5Bn to $3Bn in 2026. Currently, Nebius is well capitalized with about $2.9Bn in cash, but if data centers don’t generate enough cash, there could be dilution to raise more capital or the sale of stakes in their 4 other businesses. This is very likely to happen in 2026.

Negatives and challenges

Provide value to customers beyond brute computing power: Over time data center rentals will get commoditized and become price-sensitive. The DeepSeek modeling workarounds do suggest that brute computing power will morph into smaller specialized or customized requirements. This could also work to Nebius’ advantage, since they can provide a full stack, i.e. –a challenge and an opportunity.
Pricing could be a challenge: The trend towards seeking lower training costs should continue – as of now Goldman Sachs is projecting data center demand to exceed supply by about 2:1, and the gap is unlikely to be filled even with rapid deployment through 2026, but Nebius needs to stay on top of it, to ensure they generate enough cash to continue spending on growth.
High Capex Needs: Most of the forecasted growth is based on Capex possibly $2.5Bn to $3Bn in 2025 and 2029 each – currently Nebius is well capitalized with over $2.9Bn in cash, but investors will need to be patient with this outlay first and prepared for dilution.

Valuation:

Nebius had forecasted to reach an ARR (Annual Recurring Revenue) Run Rate of – $750Mn to $1Bn for 2025, which is based on about $60-80Mn of ARR in Dec 2025 times 12. It’s not the ARR in February. It would grow from the current $300 Mn to $ 875 Mn by the end of 2025. Normally annual revenues are much lower than ARR – a lot of ARR is deferred revenue because the ARR includes contracted revenues, which are then pro-rated for the year. An ARR of $875Mn at the midpoint could imply 2025 revenue of between $400 and $500Mn. (This is still about 3x the estimated 2024 revenue of $137Mn – so there is tremendous growth. (But at this stage a lot of estimates!)
At a market cap of $10.4Bn, we’re looking at over 20x to 25x, 2025 revenue, so the price may have gotten ahead of itself.
This is a thinly traded company with rampant speculation, and I think the best move would be to sell 25% to 50% before earnings, should the quarterly results and forecasts disappoint. I’m already making a decent profit in a short time and keep the rest for the long term. Nebius reports pre-market on Thursday 20th, Feb.
I would like to see more visibility before committing to invest more.

Competition

CoreWeave (which is private) and also an Nvidia strategic partner had estimated revenue of $2.4Bn in 2024, and with the addition of 9 new data centers to 23 very likely to have around $8Bn of sales in 2025.
CoreWeave was last valued at around $23Bn but is targeting an IPO valuation of $35Bn thus giving it an estimated sales multiple of anywhere between just 4-9x for 2025, way below Nebius.
Even if we assume that the other businesses contribute an additional 25% or $125Mn in 2025 revenues we’re still valuing Nebius much higher than CoreWeave – a larger and more established competitor with Nvidia as a partner, and Microsoft as a customer.

That makes me wary; I’d be happy if my sales estimates are too low, but if they are not, then I would rather wait for dips.

Categories
Industry Stocks Technology

Confluent’s Excellent Quarter Is A Major Inflection Point

Confluent Data Streaming

02/11/2025

Confluent (CFLT) $37 – Still worth buying.

I’ve owned it for over two years but will pyramid (add smaller quantities on a large base) it further.

Why is this company still worth investing in after a 20% post-earning bump?

Four important catalysts

Databricks partnership: The partnership with Databricka, which is much better known and valued increases brand awareness and opens a lot of new opportunities and doors.

This could accelerate growth from the current 22-23%.

Strong customer base: 90% of its revenues are coming from 100K + ARR clients.

The $1Mn+cohort saw the highest growth, and Confluent managed a net ARR of 117%, indicating strong upselling.

A changing data processing market: The entire batch processing model could be up for grabs – customers moving at the speed of light and willing to pay for the latest technology could be a huge TAM. 

This is a paradigm shift, which Confluent has been trying to build into for a decade. 2025 might be that inflection year, with all the AI build-outs and use cases that are likely to need live processing – Confluent is the leader in that field. To be sure it’s not going to throw data processing models into obsolescence, why would you spend money on data that doesn’t need to be processed in real-time, but could take a large chunk of that market?

Snowflake acquiring RedPanda: Snowflake is reportedly trying to buy streaming competitor RedPanda for about 40x sales: While it’s not an obvious comparison, Red Panda is supposedly less than 10% of Confluent’s revenues but growing at 200-300%. But it’s the synergy with the larger data provider that’s getting it a massive price tag – Snowflake would love to have this arrow in its quiver of data tools.

Confluent is best positioned to take advantage of the possible shift from batch processing to processing in data streaming; its founders invented Apache Kafka, the open-source model for data streaming. And while its own invention is available for free – managing and maintaining it at scale needs the paid version. Over the years with the focus on Confluent Cloud, Confluent gets 90% of its $1Bn revenue from customers over $100K in annual revenue. 

Confluent has the cash the tech chops and the focus – sure Apache Kafka is open source and many cloud service providers like AWS and Microsoft also provide enough competition, but no one has the product breadth that Confluent does.

I would not be surprised if Confluent’s multiple expands from the current 8x sales after this earnings call.

Here are the details of the December 2024, 4th quarter earnings:

  • Q4 Non-GAAP EPS of $0.09 beat by $0.03.
  • Revenue of $261.2Mn (+22.5% Y/Y) beat by $4.32Mn.
  • Q4 subscription revenue of $251Mn up 24% YoY
  • Confluent Cloud revenue of $138Mn up 38% YoY
  • 2024 subscription revenue of $922Mn up 26% YoY
  • Confluent Cloud revenue of $492Mn up 41%YoY
  • 1,381 customers with $100,000 or greater in ARR, up 12% YoY.
  • 194 customers with $1Mn or greater in ARR, 23% YoY.

Financial Outlook

Q1 2025 OutlookFY 2025 Outlook
Subscription Revenue$253-$254 million$1.117-$1.121 billion
Non-GAAP Operating Margin~3%~6%
Non-GAAP Net Income Per Diluted Share$0.06-$0.07 vs. consensus of $0.06~$0.35 vs. consensus of $0.35

Categories
AI Industry Semiconductors Stocks

ASML – An Excellent Company That’s Still A Bargain

ASML- EUV

The Monopoly

As the source of all things AI and related, ASML is (and has been for the past decade) the monopoly for EUV lithography machines that power the most advanced GPUs from Nvidia and others. There’s no other manufacturer that can do this at scale.

Around October 2024, on their earnings call, they disappointed the market with a 10-15% lower than forecast revenue for 2025-2026, as one of their customers (very likely Intel) did not place orders for a large order of EUV machines as expected. Intel’s troubles are well known and this order is unlikely to come back. They also feared export controls to China and/or weakness in Chinese demand after 3-4 years of rapid growth.

I bought and recommended buying on 10/27/2024 at $690, with the following comments

Sure it could stay sluggish, range-bound, or fall till there’s some improvement in bookings, export controls to China, etc. Perhaps, that may not even happen for a while.

I think that’s an acceptable risk, now I’m getting a monopoly at a 37% drop from its 52-week high of $1,110, still growing revenue at 12% and EPS at 22%, selling for 8x sales and 25x earnings.

With TSM’s results, we saw how strong AI semiconductor demand still is and there was absolutely no let-up in their guidance.

A monopoly for AI chip production – an essential cog, without which AI is not possible – is definitely worth the risk

Fast Forward to the next quarter, the dynamic is much better and the price hasn’t shot beyond affordable.  

Bottom line: A must-have, it’s always going to be priced at a premium given its monopoly status and the strength of the AI market, so returns are likely not going to be like a fast grower tech but I’m confident of getting 14-16% annualized return in the next 5-10 years.

ASML’s Q4-2024 results on 01/29/2025 were excellent:

ASML beats expectations as bookings soared.

The EUV, machines leader grew Q4 revenues 28% YoYr to €9.26B, and 24% QoQ, beating estimates.

Bookings: ASML’s Q4 bookings came in huge at €7.09B, way ahead of estimates of €3.53B., with net new adds of €3B.

On the earnings call, CEO Christophe Fouquet had this to say about AI and sales to China:

AI is the clear driver. I think we started to see that last year. In fact, at this point, we really believe that AI is creating a shift in the market and we have seen customers benefiting from it very strongly. Others maybe a bit less.

We had a lot of discussion about China in 2023-2024 because our revenue in China was extremely high. We have explained that this was caused by the fact that we are still working on some backlog created in 2022, when our capacity was not big enough to fulfil the whole market. 2025 will be a year where we see China going back to a more normal ratio in our business. We are going to see numbers people used to see before 2023.

USA led sales with with 28% share in the fourth quarter of 2024, edging China’s 27% of about €7.12Bn

Challenges remain as the AI arms race gets hotter:

ASML has not been able to sell its EUV machines to China because of U.S.-led export curbs to restrict China from getting advanced lithography equipment to manufacture cutting-edge chips like the H100s from Nvidia, or the new generation Blackwells.

From 2025, ASML will provide a backlog of orders on an annual basis instead of bookings to more accurately reflect its business.

Guidance: 2025 total net sales remain the same, between €30B and €35B. Q1-2025 is slightly higher with total net sales to be between €7.5B and €8.0B versus consensus of €7.24B.

ASML remains an excellent opportunity and I plan to add it on declines.

Categories
Cloud Service Providers Industry Semiconductors Stocks Technology

Marvell’s Investment Case Got Stronger With Hyperscaler Capex

Marvell Custom Silicon

Marvell Technology (MRVL) $114

I missed buying this in the low 90s, waiting to see if their transformation to an AI chip company was complete. Having a cyclical past, with non-performing business segments made me hesitate, besides far too many promises have been made in the AI space only for investors to be disappointed.

Marvel has been walking the talk, Q3 results in Dec 2024 were exemplary, and guidance even better.

Hyperscaler demand

With a planned Capex of $105Bn for 2025, Amazon confirmed on their earnings call that the focus will continue on custom silicon and inferencing. Amazon and Marvell have a five-year, “multi-generational” agreement for Marvell to provide Amazon Web Services with the Trainium and Inferentia chips and other data center equipment. Since the deal is “multi-generational,” Marvell will continue to supply the released Trainium2 5nm (Trn2) while also supplying the newly-announced Trainium3 (Trn3) on the 3nm process node expected to ship at the end of 2025. Amazon is an investor in Anthropic with plans to build a supercomputing system with “hundreds of thousands” of Trainium2 chips called Project Rainier. The DeepSeek aftermath does suggest a further democratization of AI, as inference starts gaining prominence from 2026.

Critically, like other hyperscalers Microsoft, Meta, and Alphabet, Amazon announced a high Capex (Capital Expenditure) plan of $105Bn for 2025, 27% higher than 2024, which itself was 57% higher than the previous year, for AI cloud and datacenter buildout. It was the last of the big four to confirm that massive AI spending was very much on the cards for 2025.

Here’s the scorecard for 2025 Capex, totaling over $320Bn. A few months back, estimates were swirling for $250 to $275. Goldman had circulated $300Bn in total Capex for the year, and these four have already planned more.

Amazon $105Bn
Microsoft $80Bn
Alphabet $75Bn
Meta $60 to $65Bn
Total $320Bn

The earnings call discussed DeepSeek R1 and the lower AI cost structure that it may presage, with the possibility of lower revenue for AI cloud services.

“We have never seen that to be the case,” Amazon CEO Andy Jassy said on the call. “What happens is companies will spend a lot less per unit of infrastructure, and that is very, very useful for their businesses. But then they get excited about what else they could build that they always thought was cost prohibitive before, and they usually end up spending a lot more in total on technology once you make the per unit cost less.”
Amazon plans to spend heavily on custom silicon and focus on inference as well besides buying Blackwells by the truckload.

Q3-FY2025

Marvell reported impressive Q3 results that beat revenue estimates by 4% and adjusted EPS estimates by 5.5%, led by strong AI demand. FQ3 revenue accelerated to 6.9% YoY and 19.1% QoQ growth to $1.52 billion, helped by a stronger-than-expected ramp of the AI custom silicon business.

For the next quarter, management expects revenue to grow to 26.2% YoY and 18.7% QoQ to $1.8 billion at the midpoint. The Q4 guide beats revenue estimates by 9.1% and adjusted EPS estimates by 13.5%. Management expects to significantly exceed the full-year AI revenue target of $1.5 billion and indicated that it could easily beat the FY2026 AI revenue target of $2.5 billion.

Marvell has other segments, which account for 27% of the business that are not performing as well, but they’re going full steam ahead to focus on the custom silicon business and expect total data center to exceed 73% of revenue in the future.

  • Adjusted operating margin – 29.7% V 29.8% last year, and better than the management guide of 28.9%.
  • Management guidance for Q4 is even higher at 33%.
  • Adjusted net income – $373 Mn or 24.6% of revenue compared to $354.1 Mn or 25% of revenue last year.
  • Management has also committed to GAAP profitability in Q4, and continued improvements.

Custom Silicon – There are estimates of a TAM (Total Addressable Market) of $42 billion for custom silicon by CY2028, of which Marvell could take 20% market share or $8Bn of the custom silicon AI opportunity, I suspect we will see a new forecast when the company can more openly talk about an official announcement. On the networking side, the TAM is another $31 billion.

“Oppenheimer analyst Rick Schafer thinks that each of Marvell’s four custom chips could achieve $1 billion in sales next year. Production is already ramping up on the Trainium chip for Amazon, along with the Axion chip for the Google unit of Alphabet. Another Amazon chip, the Inferentia, should start production in 2025. Toward the end of next year, deliveries will begin on Microsoft’s Maia-2, which Schafer hopes will achieve the largest sales of all.”

Key weaknesses and challenges

Marvell carries $4Bn in legacy debt, which will weigh on its valuation.

The stock is already up 70% in the past year, and is volatile – it dropped $26 from $126 after the DeepSeek and tariffs scare.

Custom silicon, ASICs (Application Specific Integrated Circuits) have strong competition from the likes of Broadcom and everyone is chasing market leader Nvidia. Custom silicon as the name suggests is not widely used like an Nvidia GPU and will encounter more difficult sales cycles and buying programs.

Drops in AI buying from data center giants will hurt Marvell.

Over 50% of Marvell’s revenue comes from China, and it could become a victim of a trade war.

Valuation: The stock is selling for a P/E of 43, with earnings growth of 80% in FY2025 and 30% after that for the next two years – that is reasonable. It has a P/S ratio of 12.6, with growth of 25%. It’s a bit expensive on the sales metric, but with AI taking an even larger share of the revenue pie, this multiple could increase.

Categories
AI Semiconductors Stocks

Micron’s Low Price Is A Gift

Micron’s data center revenue should grow 91% and 38% in FY2025 and FY2026, driven by cloud server DRAM and HBM.

The market is not assigning a strong multiple to Micron’s largest, most profitable, and fastest-growing segment, with HBM3E contributing significantly, and future growth expected from HBM4.

Micron should gain from an extremely strong AI market as evidenced by huge CAPEX from hyperscalers, Nvidia’s Blackwell growth, and Taiwan Semiconductors’s forecasts.

Consumer NAND business faced challenges due to inventory reductions, seasonal slowdowns, and delayed PC refresh cycles, impacting Q2 revenue guidance and margins.

Despite short-term consumer weakness, Micron’s strong data center prospects and attractive valuation make it a compelling buy, especially at the current price of $90

You can read the entire article on Seeking Alpha; Micron (MU) dropped a massive 15% after DeepSeek deep-sixed the market. Nvidia (NVDA) too dropped 14%, but has begun to recover and I expect Micron to recover as well.

Categories
AI Stocks Technology

UiPath: The Path Forward Is Getting Smoother

  • UiPath’s competitive edge lies in its AI integration, SAP partnership and industry-agnostic automation solutions, making it a strong contender in RPA despite generative AI threats.
  • Recent struggles were due to sales execution issues, and competition, but the company shows signs of recovery with strategic changes and a focus on large clients and collaborations.
  • Founder Daniel Dines’ return as CEO, workforce reductions, and strategic partnerships, especially with SAP, are pivotal in steering UiPath back on track.
  • Despite current challenges, UiPath’s strong cash position, cost-saving measures, and promising AI Agentic capabilities make it a worthwhile investment with limited downside risk.

UiPath’s (PATH) updated financial forecast and current valuation do make a great case for investment as a GARP, now that it’s likely to grow only in the mid-teens, valued at just 5X sales, and 25x adjusted earnings. Besides, cash flow is almost double the adjusted operating income, so that too is a plus. I own some and plan to accumulate on declines.

Here’s the complete article on Seeking Alpha.

Categories
AI Semiconductors Stocks

Taiwan Semiconductor  Manufacturing (TSM)  Hits It Out Of The Park

What a great start to the earnings season! 

TSM is up 5% premarket after a massive beat and terrific guidance for AI demand.

TSM, the indispensable chip producer and source for some of the world’s largest tech companies, including Apple (AAPL), Nvidia (NVDA), AMD (AMD), and other chipmakers produced outstanding results this morning.

Q4 Metrics

Sales up 37% YoY to $26.88B

Earnings per American Depositary Receipt $2.24, up 69% YoY compared to $1.44 

Both top and bottom line numbers surpassed analysts’ expectations.

“Our business in the fourth quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies,” said Wendell Huang, senior VP and CFO of TSM in the earnings press release.

Strong AI momentum

TSMC’s brilliant Q4 results beat management’s guidance, and confirmed the strong AI momentum for 2025, disproving any notions about reduced or waning demand. With $300Bn in planned Capex by just the hyperscalers, I believe investors’ concerns are misplaced.

Management highlighted TSM’s growing collaborations with the memory industry during the earnings call, reinforcing confidence in strong and accelerated HBM demand, which bodes well for HBM makers like Micron (MU).

Closer interaction with HBM makers also suggests a strong foundation for the potential ramp of TSM’s 3nm node and upcoming 2nm node, which would be essential for AI development.

TSM has de-risked geo-political issues with its overseas factories in Arizona and Kumamoto. It also noted that it could manage further export controls from the US government to China, besides only 11% of their sales were to China.

“Let me assure you that we have a very frank and open communication with the current government and with the future one also,” said Wei when asked about the current and next U.S. administrations.

Any de-risking is a tailwind for increasing multiples and valuation for the stock. I had recommended TSM earlier stating that the geo-political concerns shouldn’t devalue the crown jewel of the semiconductor industry.

Q4 Revenue by Technology

TSM said 3nm process technology contributed 26% of total wafer revenue in the fourth quarter, versus 15% in the year-ago period, and 20% in the third quarter of 2024.

The 5nm process technology accounted for 34% of total wafer revenue, compared to 35% in the same period a year ago, and 32% in the third quarter of 2024. Meanwhile, 7nm accounted for 14% of total wafer revenue in the fourth quarter versus 17% a year earlier, and in the third quarter of 2024.

Total 3nm+5nm = 26+34 = 60% – that’s a fantastic high-margin business.

Advanced technologies (7nm and below) accounted for 74% of wafer revenue.

Q4 Revenue by Platform

High Performance Computing represented 53% of net revenue, up from 43% in the fourth quarter of 2023. – Nvidia, AMD, Broadcom.

The company’s smartphone segment represented 35% of net revenue, versus 43% in the year-ago period. – Apple

Q4 Revenue by Geography

Revenue from China — Taiwan Semi’s second-biggest market by revenue — accounted for 9% of the total net revenue in the period, down from 11% in the year-ago period and in the third quarter of 2024.

North America accounted for 75% of total net revenue coming from it, compared to 72% a year earlier, and 71% in the third quarter of 2024.

Outlook

“Moving into the first quarter of 2025, we expect our business to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand,” said Huang.

TSM expects capital expenditure to be between $38B to $42B in 2025. The amount is up to 19% more than analysts’ expectations, according to a Bloomberg report.

In the first quarter of 2025, TSM expects revenue to be between $25B and $25.8B (midpoint at $25.4B), consensus of $24.75B. That’s a raise.

Categories
Ad Tech Stocks Technology

Roblox (RBLX) $58, A Solid But Overpriced Company

Roblox (RBLX) is a market leader for gaming apps and the short report from The Hindenburg. alleging irregularities in engagement metrics had a negligible impact on its share price.

In October 2024, Roblox shares dropped 9% after Hindenburg’s short thesis but quickly recovered, closing only 2% lower, highlighting investor resilience. The stock, which was coasting in the low forties then, has gained almost 50% since then to $58 today.

I believe it is a solid company. Although it is overpriced, it is worth considering as an investment if the price drops below $50.

Positives

Market Leader: Roblox is the number one grossing app for the iPad across the App Store, and regularly among the top 10 apps for the iPhone, across categories, according to data collected by Refinitiv. 

Not gaming the market: Roblox also showed strong App Store momentum across some of the biggest gaming markets in the world, including North America, Europe, and SEA. I believe these gross numbers are extremely difficult if not impossible to fudge, instead it supports Roblox’s strong commercial value and future prospects.

Good quarterly numbers and guidance: Roblox’s booking in Q2 grew around 22% YoY, to $955Mn, and it guided to $1-$1.025Bn for Q3.

Partnering with Shopify: The commercial integration partnership with Shopify also helps Roblox further build out its virtual market, with better monetization opportunities.

Wall Street likes it: Ken Gawrelski, an analyst from Wells Fargo, maintained a Buy rating on Roblox, raising the price target to $58.00. He observes that the company’s strong engagement trends continue to outperform expectations, with a significant increase in concurrent users and app downloads, indicating robust user growth. These factors contribute to a raised third-quarter total bookings growth forecast, which is now expected to surpass the company’s guidance and the consensus estimates. 

Great monetization tools: Roblox’s expansion of monetization tools, and strength in in-game spending is a significant competitive advantage for driving long-term developer and user engagement on the platform. Shopify and other initiatives are expected to enable developers to better monetize their offerings. 

The trend is their friend: The strategic shift towards direct response advertising, including new partnerships and live commerce testing, indicates that Roblox can make the most of the new opportunities in digital advertising. 

These initiatives give me confidence in the company’s sustainable long-term revenue growth.

Negatives

Hindenburg’s biggest grouse was the possibility of fudging and overstating user growth and engagement numbers, which though denied strongly by the company and discarded by analysts could create doubts about the valuation in the future.

Revenue growth forecasts for the next 3 years is around 16-18% and with the stock selling at 7.5x sales, it is expensive and a quarterly miss could lead to a large drop. Even the positive Wells Fargo analyst had a price target of $58, we’re already crossed that level.

It is loss-making on a GAAP basis with heavy stock-based compensation, which likely sets a cap on its valuation. That said cash flow is strong – around 19% of revenue.

Overall, Hindenburg didn’t make an impact, Roblox is performing well but I would be very careful about the price and get it lower to make a meaningful return.