AI PCs Have Arrived: Shipments Rising, Competition Heating Up

Posted on September 19, 2024June 30, 2026 by io-fund

This article was originally published on Forbes on Updated Sep 13, 2024, 06:42am EDTForbesForbes on Updated Sep 13, 2024, 06:42am EDT

Chipmakers Qualcomm, Intel and AMD are working to bring AI-capable PCs to the “mainstream”, delivering powerful neural processing units to PCs for on-computer AI operations. AI PCs are not only a consumer market, rather will also be driven forward by enterprises and developers seeking to upgrade their employee PCs. This being one of the biggest upgrade cycles in PC history, competition has heightened as Q3 comes to a close.

Intel believes the AI PC “promises to be a huge improvement for everyday PC usages,” as it “represents a fundamental shift in how our computers operate.” Lenovo executives believe that “AI enables a personalized user experience that, once adopted, will lead to significant productivity gains and foster greater innovation and creativity.” AMD’s executives have explained that they “see AI as the biggest inflection point in PC since the Internet with the ability to deliver unprecedented productivity and usability gains.” Qualcomm’s CEO has said that he believes the AI PC “is as significant as Windows 95. It is changing the experience, delivering groundbreaking AI capabilities, fundamentally changing how we interact with our PCs.”

AI PCs are expected to usher in a new wave of AI underpinned by increased productivity. AI’s trajectory will increase when more people can access AI-powered applications, which in turn, will help AI developers build larger ecosystems. Existing PCs are not yet powerful or efficient enough to run AI at the edge, yet the PCs currently being released with NPUs (neural processing units) will exceed 40 trillion operations per seconds (TOPS) and this will usher forth the performance upgrades needed to make on-device AI a reality for millions of consumers and enterprises.

AI PCs Drive Growth in Q2

AI PCs gained momentum with AI PC shipments doubling sequentially despite low-single digit growth in the broader PC market in Q2. Further growth is expected in the second half of the year as Intel and AMD prepare competing chips to Qualcomm’s Snapdragon X lineup.

Current AI PC projections:

For Q2, PC market growth was estimated in the low-3% range:
Canalys is placing growth at 3.4% YoY
Counterpoint Research seeing 3.1% YoY growth
IDC reporting is reporting 3% YoY growth with its preliminary numbers.
Total shipment figures varied slightly for each group ranging from 62.5 million to 64.9 million, representing QoQ growth of 9.1% for the broader PC market.

AI PCs were a predominant driver of growth sequentially, rising from approximately 7% share in Q1 to 14% share of shipments in Q2. On a unit basis, AI PCs shipments jumped 120% QoQ, from 4.0 million in Q1 to 8.8 million in Q2. For the first half of the year, that puts shipments at around 12.8 million units.

Full year forecast from Canalys projects shipments of 44 million AI PCs in 2024, implying that Q3 and Q4 will combine for 32 million units, or averaging nearly 50% QoQ growth in both quarters. IDC expects AI PC shipments to run closer to 50 million, with Gartner estimating 54.5 million earlier this year, though that would require ~300% growth from 1H to 2H.

Regardless of the exact number, the setup looks strong for H2 growth, although keep in mind, many competitors are competing for market share.

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2024 is the Spark for 2025’s Boom

While 2024 is off to a strong start so far for AI PC shipments with Q2 showing triple digit sequential growth, the true growth story for AI PCs will be in 2025. This year is the initial spark for AI PCs to boom in 2025, when they are expected to quickly take significant market share.

AMD CEO Lisa Su cautioned that some investors may have mistakenly expected 2024 to be the big growth year, but that she believes that will instead be 2025. Su said at Goldman Sachs Communacopia and Technology Conference that she believes “we are at the start of a multiyear AI PC cycle. So again, you guys are always trying to go a little bit too fast. So, we never said AI PCs was a big 2024 phenomena. AI PC is a start in 2024. But more importantly, it's the most significant innovation that's come to the PC market in definitely the last 10-plus years.”

Should the broader PC market register growth in the mid-to-high single digit range to ~260 million shipments this year, AI PCs would take 17% share at 44 million units.

For 2025, shipments are forecast to rise more than 134% YoY to 103 million units, at the midpoint. Assuming high single digit growth in total shipments in 2025 to 280 million PCs, AI PCs would take close to 40% share at the midpoint of 106 million shipments forecasted.

Source: Gartner/IDC/Canalys

Longer-term, growth is expected to remain robust. Intel’s executives expect AI PCs to account for more than 50% of the PC market in 2026, and as much as 80% market share by 2028. Canalys sees AI PC shipments top 200 million by 2028, taking up to 70% market share.

Commercial to Drive AI PC Growth

AI PC’s rapid adoption curve will be driven primarily by the commercial market, with AI PCs expected to be a catalyzing force ahead of the upcoming Windows refresh at the end next year.

There is indication the early majority will adopt AI PCs in 2025, and the late majority in 2026, with industry projections matching this narrative. This leaves time for consumers to participate, which so far has been a challenge for AI.

I covered this in the past, stating: “AI-capable PCs are expected to be an explosive trend through 2025 and beyond. The trajectory of AI will increase when more people can access AI-powered applications, which in turn, will help AI developers build a bigger ecosystem. Currently, there is a major bottleneck right now for AI applications to where client devices are not powerful enough or energy efficient enough to leverage AI capabilities at the edge.” For a deeper dive on AI PCs and industry commentary on the growth potential, refer to AI PC Stocks: Emerging 2024 And 2025 Story (io-fund.com).

AMD’s Su believes that while the industry is only in the “beginning” of the AI PC cycle, “next year, as we think about commercial PCs and commercial refresh cycle, we actually see AI PC as a driver of that commercial refresh cycle.” This is a view shared by IDC, which “believes the commercial market has the biggest short-term upside for AI in the PC industry,” with the consumer side “yet to be told in full.” This is a view shared by Lenovo’s executives, who believe the end of support for Windows 10 in 2025 “will necessitate a migration to Windows 11 for enterprises and commercial users, further driving demand for new PCs.”

Commercial market share of AI PCs is projected to reach almost 60% by 2027, per Canalys. This implies end-market shipments of nearly 100 million, with the remaining 40% share in consumer. Additionally, Gartner forecasts that 100% of commercial (enterprise) PC purchases will be AI PCs by the end of 2026, driven by the productivity gains realized by on-device AI, and as enterprise applications begin to take advantage of AI features. Lenovo also expects that “enterprises may increasingly require AI-enabled PCs to remain competitive.”

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Competition is Intensifying

Competition in AI PCs is quickly intensifying, with Qualcomm moving downstream to the $700 and below market with a new Snapdragon chip. The x-86 based competitors, Intel and AMD, see growth opportunities ahead, with Intel forecasting a surge in CPU shipments as it comes off the launch of its Core Ultra 200V (Lunar Lake) chips.

Nvidia and AMD reportedly are lining up powerful Arm-based CPUs to take on Qualcomm after its Arm exclusivity deal expires at the end of 2024. Apple is also rumored to be planning an M4-powered Mac refresh either by the end of this year or early 2025.

The chipmakers are competing on NPU performance, alongside efficiency:

Qualcomm’s Snapdragon X NPU offers 45 TOPS of AI performance, while CEO Cristiano Amon “claiming a performance-per-watt 2.6 times better than AMD and 5.4 better than Intel's Core Ultra 7 chips.”

Intel’s Lunar Lake chip offers up to 48 TOPS on the NPU, and Intel is claiming “1.4x AI performance over the Snapdragon X Elite running the Stable Diffusion tool in a GIMP plugin; faster overall core performance versus Ryzen and Qualcomm competition; and a 1.5x improvement over its previous generation in the performance of the integrated GPU.”

AMD’s Ryzen AI 300 series chips (Strix Point and Strix Halo) offer up to 50 TOPS performance from the NPU, the highest on the market so far.

Apple’s M4 chip offers up to 38 TOPS performance on the NPU, with the chip originally deploying on the iPad lineup with the Mac refresh rumored for this year or next.

Nvidia does not have an NPU competitor yet, as it believes its GeForce RTX GPUs offer significantly higher TOPS and more AI performance, meeting the bill for AI PCs. However, Nvidia and MediaTek are reportedly working on an Arm-based AI PC chip for a 2025 launch following the expiration of Qualcomm’s exclusivity deal.

Intel’s Shipments Ahead of Expectations, AMD Execs See Share Gains

Though we are on the precipice of going through a major shift to where Arm architecture will compete more directly with x86 architecture for PCs, Arm lost share in both desktops and notebooks in Q2, according to data from Mercury Research.

In notebooks, Arm lost 144 bp market share QoQ to 11.4% share in Q2. AMD’s notebook share rose 121 bp QoQ to 18.0%, while Intel gained 23 bp QoQ to 70.6% share.

In desktops, Arm lost 31 bp QoQ to 5.9% share, AMD also lost 83 bp QoQ to 21.6% share, while Intel’s share rose 113 bp QoQ to 72.5%.

This was reflected in Intel’s Q2 report, where management noted that its Core Ultra (AI PC chip) shipments exceeded expectations in that quarters and “more than doubled sequentially.” Core Ultra shipments have surpassed 15 million since December 2023, with Intel believing that it remains firmly on track to surpass 40 million AI PCs by the end of 2024 and more than 100 million cumulatively by the end of 2025.

Qualcomm has also said that its initial launch of Copilot+ PCs, powered by its Snapdragon lineup, is exceeding internal expectations, but management has not shed light on AI PC shipments or revenue. Analysts questioned management over the impact of AI PCs on fiscal Q4’s guide, with management stating that “it's too early to kind of have either a bullish assumption or a specific assumption on PC,” and it is more “about kind of the longer-term growth opportunity, and being very specific on sell-through in the short term is not really something that we have insight into.” Management plans to provide more information on the revenue ramp during its upcoming Investor Day conference.

Qualcomm also mentioned that “20 Copilot+ PCs from Microsoft, Dell, HP, Lenovo, Acer, ASUS and Samsung are now available across 20 countries and 47 retailers.” This is a fraction of what Intel is launching, with Intel saying that “Microsoft has qualified Lunar Lake to power more than 80 new Copilot+ PCs across more than 20 OEMs.”

Similar to its competitors, AMD has been quite bullish regarding the impact of AI PCs on the upcoming refresh cycle, as it eyes a growth opportunity in commercial PCs.

AMD’s Ryzen AI 300 series (featuring the industry’s fastest NPU with 50 TOPS) launched at the end of July to “to strong reviews,” with “more than 100 Ryzen AI 300 series premium, gaming, and commercial platforms on track to launch from Acer, ASUS, HP, Lenovo, and others over the coming quarters.” Management noted that “customer excitement for our new Ryzen processors is very strong, and we are well positioned for ongoing revenue share gains based on the strength of our leadership portfolio and design win momentum.”

This builds on CFO Jean Hu’s prior comments that AMD was “gaining share” in PCs, as CEO Lisa Su sees “clear opportunities to gain additional commercial PC share based on the performance and efficiency advantages of our Ryzen Pro portfolio and an expanded set of AMD-powered commercial PCs from our OEM partners.” AMD’s executives hold the view that the company is “underrepresented” in PCs, “but particularly in the commercial PC side.” Management believes they can do “above-typical seasonality” in the second-half of 2024, based on the timing and strength of its product launches.

Intel’s Margin Troubles and AMD’s Growth

While Qualcomm is bringing a formidable Arm-based competitor to the industry, management has provided little clues to the revenue or margin impacts from AI PCs. Intel is looking to make large strides by prioritizing shipments at the expense of margins (and shareholders), while AMD is posting the strongest YoY growth rates, though comps were still weak in Q2.

Qualcomm’s IoT revenue, which houses its PC segment, has posted YoY revenue declines since fiscal Q2 2023, or six consecutive quarters. IoT revenue in Q3 declined (8%) YoY to $1.36 billion, as the pace of declines slowed, from (32%) YoY in Q1 and (11%) YoY in Q2. Management has not stated the impact of PCs on IoT revenue growth, or its contribution.

Intel reported 9% YoY revenue growth in Client Computing in Q2 to $7.41 billion, decelerating from Q1’s 31% YoY growth. On a dollar basis, growth has declined for two consecutive quarters, falling from $8.84 billion in Q4 to $7.53 billion in Q1 and now $7.41 billion.

Source: Company IR

Notebook revenue declined sequentially for Intel, despite shipping AI PC chips ahead of expectations. Desktop revenue gained sequentially, but not enough to offset the softness in notebook: desktop revenue rose just 2.7% QoQ to $2.53 billion, while notebook slipped (4.3%) QoQ to $4.48 billion.

While Intel is reporting sequential weakness, AMD is seeing growth recover and growth rates remain strong. AMD’s Client segment has registered YoY growth of 42%, 62%, 85%, and 49% respectively, though against weak comps. Revenue in Q2 was just under $1.5 billion, up 9.1% QoQ and reaching the highest level in eight quarters. However, Client revenue is still one-third below its peak levels since in 2022, suffering from the sharp inventory correction that hit the industry.

Source: Company IR

As this growth story unfolds, operating margins will be critical to track for both Intel and AMD. Intel’s margins and profitability took a hit from its decision to prioritize AI PC shipments, and management seems keen on keeping that a priority moving forward, suggesting margins may have not stabilized. For AMD, the Client segment has historically been a significant driver of operating income. For example, in Q2 2022, when revenues were above $2.1 billion, Client’s operating margin was 31%, compared to 6% now – essentially, there’s much more ground to cover on the profitability side versus the growth side.

Conclusion

AI PCs bring x86 and Arm to the battlegrounds, with Qualcomm’s Snapdragon lineup making an attempt at the first major inroad on x86 Windows-based CPUs. Intel and AMD see strong growth ahead for their x86 competitors, though Apple is expected to bring a major upgrade with M4 chips later this year. This is ahead of possible new Arm-based CPUs from Nvidia and AMD next year.

Shipments of AI PCs have only just begun accelerating, with Q2 showing triple-digit sequential growth but penetration rates remain low. AI PC adoption is projected to skyrocket towards 70% share of total PC shipments by 2027, with growth arising predominantly in commercial markets first.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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Nvidia Q2 Pre-Earnings: Hopper Thrives Yet Valuation is High

Posted on August 27, 2024June 30, 2026 by io-fund

Nvidia is slated to beat this quarter and raise again next quarter. Capacity is increasing for Hopper and demand remains elevated.

Analysts are expecting demand for Hopper to absorb any minimal impact pushing Blackwell to Q1 will cause. It’s likely the B100s are canceled, which is the release that was expected this year. We wrote about why this could ultimately be bullish, if we assume the GB200s are oversubscribed. We believe the Blackwell delay will ultimately be immaterial to FY2026 revenue, and the point of last week’s analysis is there’s a much bigger picture to focus on.

With that said, I’m not loving Nvidia’s valuation. Nvidia is trading at its highest levels since the AI accelerator boom was priced in. We’ve seen some blow-the-doors off quarters during the period reflected below — which pushes back on the idea a beat/raise justifies this valuation. The big spikes downward are fiscal year adjustments, meaning if an investor feels compelled to buy at a high valuation, it’s better to do so in Dec/Jan than August.

Here’s a bottom-line valuation that reflects 50 forward PE being a psychological hurdle since Jan 1, 2023, the period where we saw AI-driven beats/raises.

Where things get complicated is the FY2026 revenue estimates are simply too low. They are at $165B and the I/O Fund believes we will see $210B (or more) this time next year. That should create about 27% room. However, FY2026 is a ways off, as it begins nearly seven months from now in February. Therefore, Q4 offers a better risk/reward setup where we’d enter based on our understanding of the 27% upside that next fiscal year will bring.

Notably, to be balanced, this earnings report marks the moment when profits are expected to plateau (as opposed to skyrocket) and margins will slightly contract for the first time since Nvidia’s big AI moment.

I want to be crystal clear that I foresee Nvidia being the strongest mega cap stock for the next decade. Trading in this case sometimes does not work as emotions run high when stocks selloff, and some investors struggle to buy back when the market is in a state of fear (versus greed).

However, the I/O Fund is an actively managed portfolio, and so our style is distinct. The facts below point toward us trimming our position and attempting to buy again lower. Keyword is “attempt.” Knox’s Advanced Market Signals webinar this week is quite timely, being the first trading day after Nvidia reports. You can expect him to spend considerable time on this chart to inform our Members of our plan. He also briefly described the general outline here.

Revenue and Financials:

Revenue for the July quarter is expected to be $28.7 billion for growth of 112.6%. Management provided guidance of $28 billion for YoY growth of 107.3% at the midpoint. Q3 is expected to be $31.7 billion for growth of 74.8%.

Pictured Above: Nvidia reported peak growth in Q4 & Q1 and revenue will decline moving forward. Our firm covered this previously here.this previously here.

FY2025 Revenue growth is expected to be $121.3 billion for growth of 99.03%. Next year, growth is expected to be 38.7% for revenue of $168.2 billion.

We discussed earlier this year that Nvidia was hitting peak growth. Blackwell’s GB200 are the predominant catalyst for next year, along with an ongoing, rapid product release cycle.

Key Segments:

The data center revenue reported revenue of $22.5 billion, up 427% YoY and up 23% QoQ. Analysts are expecting between $105B and $107B in annual data center revenue.

This is what a rough idea looks like (back of the napkin math)

Q1 at $22.5B (reported)
Q2 at $25.5B – adding $3B
Q3 at $28.0B – adding $2.5B
Q4 at $30.0B – adding $2.0B

The chances Nvidia beats are high, for example: “Jefferies expects another "strong beat in July and strong guidance into October" from Nvidia with beats of about $1B for both results and guide.

Citi has also stated: “The firm sees $1B of upside to Street sales estimates but below the $2B beat in the last four quarters based on supply chain comments and Blackwell delay concerns. Citi expects Street estimates to go higher for the next two quarters post the earnings print and for Blackwell comments to reassure investors on a strong 2025 outlook for Nvidia.”

Margins:

You can read more about the importance of HBM3e and its integration into the H200s here.more about the importance of HBM3e and its integration into the H200s here.

This quarter, the H200s shipped with HBM3e memory, which are higher priced memory components that require a re-configuring of the pricing for Nvidia’s GPUs, and subsequently may also be affecting margins.

Back in February, Next Platform did a thought exercise to predict HBM3 represented $8,800 of the GPU price and HBM3e will represent $16,500 of the street price (Nvidia will pay a lower amount) if the H200s are priced at $41,000. Nvidia will push some of the costs onto the buyers, yet there is bound to be questions in the call to determine how these higher priced components are affecting margins. As of now, we are seeing some reports the H200s cost $39,900.

Notably, this quarter Nvidia is showing signs of plateauing on profit growth. We’ve seen historic quarter-over-quarter growth where Nvidia adds about $3 billion QoQ in profits. Yet, management is guiding for roughly flat QoQ growth, and in the case of net income, a nominal decline. This is a different discussion than YoY growth, which is quite high on profits, at well over 100%.

Gross margin last quarter was 78.4% and management has guided for a decline to 74.8%. The adjusted gross margin of 75.5% will also be lower than last quarter’s at 78.9% for adjusted gross profit of $21.14B. Last year, the adjusted gross margin was 71.2% for a 430 bps expansion YoY.

Management guided for GAAP operating margin to be 60.5% compared to 64.9% last quarter. The adjusted operating margin is expected to be 65.5% for adjusted operating income of $18.3 billion. The adjusted operating margin last year was 57.57% for a 293 bps expansion YoY.

Pictured above: Nvidia expected to report a decline in margins with last quarter marking the peak

Management guided for GAAP net margin of 51.1% for net profit of $14.3 billion. This will be lower than last quarter at 57.1% for net income of $14.8 billion. Yet, is up from 45.8% last year.

Nvidia is expected to report EPS of $0.64 for YoY growth of 137.8%. The company reported adjusted EPS of $0.61 last quarter for growth of 461.5%. Q3 is expected to report EPS of $0.71 for YoY growth of 76.8%.

FY2025 EPS is expected to be $2.75 representing growth of 111.8%. FY 2026 is expected to be $3.83 representing growth of 39.4%.

Cash:

Last quarter, the company report operating cash flow of $15.3 billion for a margin of 58.9%. The free cash flow margin of 57.3% resulted in FCF of $14.9 billion. The company has $31.4 billion on the balance sheet with debt of $9.71 billion.

The company utilized cash of $7.8 billion towards shareholder returns with $7.7 billion in stock repurchases and $98 million in cash dividends. The shares started trading on a 10-for-1 stock split basis on June 10th.

Conclusion:

Our process is to not become complacent around valuations. We closed heavyweight Microsoft on these concerns and closed best-of-breed CrowdStrike on valuation concerns.

We will notnot be closing Nvidia by any meansany means, but we do think a position that is 20%+ allocation and trading at a high valuation may have a mid-single digit to high-single digit trim in its allocation in order. Blackwell is coming, but it’s not here yet — we’ve got time.

Please note: Our style is (and should be) distinct from your style. We are not financial advisors and what is best for the I/O Fund may not be best for you. Per our terms and conditions, please consult your financial advisor before making any decisions.our terms and conditions, please consult your financial advisor before making any decisions.

We recently discussed an emerging ad-tech AI leader in our Advanced Market Signals Tier. Our proprietary custom-built screeners identified the stock. The company witnessed a strong acceleration in growth and margins due to its AI-powered advertising engine. To read the article, upgrade here.here.

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Nvidia Q2 Pre-Earnings: Hopper Thrives Yet Valuation is High

Posted on August 27, 2024June 30, 2026 by io-fund

Nvidia is slated to beat this quarter and raise again next quarter. Capacity is increasing for Hopper and demand remains elevated.

Here’s a bottom-line valuation that reflects 50 forward PE being a psychological hurdle since Jan 1, 2023, the period where we saw AI-driven beats/raises.

However, the I/O Fund is an actively managed portfolio, and so our style is distinct. The facts below point toward us trimming our position and attempting to buy again lower. Keyword is “attempt.” Knox’s webinar this week is quite timely, being the first trading day after Nvidia reports. You can expect him to spend considerable time on this chart to inform our Members of our plan. He also briefly described the general outline here for Essentials.

Revenue and Financials:

Pictured Above: Nvidia reported peak growth in Q4 & Q1 and revenue will decline moving forward. Our firm covered this previously here.this previously here.

FY2025 Revenue growth is expected to be $121.3 billion for growth of 99.03%. Next year, growth is expected to be 38.7% for revenue of $168.2 billion.

We discussed earlier this year that Nvidia was hitting peak growth. Blackwell’s GB200 are the predominant catalyst for next year, along with an ongoing, rapid product release cycle.

Key Segments:

The data center revenue reported revenue of $22.5 billion, up 427% YoY and up 23% QoQ. Analysts are expecting between $105B and $107B in annual data center revenue.

This is what a rough idea looks like (back of the napkin math)

Q1 at $22.5B (reported)
Q2 at $25.5B – adding $3B
Q3 at $28.0B – adding $2.5B
Q4 at $30.0B – adding $2.0B

The chances Nvidia beats are high, for example: “Jefferies expects another "strong beat in July and strong guidance into October" from Nvidia with beats of about $1B for both results and guide.

Margins:

You can read more about the importance of HBM3e and its integration into the H200s here.more about the importance of HBM3e and its integration into the H200s here.

Pictured above: Nvidia expected to report a decline in margins with last quarter marking the peak

Management guided for GAAP net margin of 51.1% for net profit of $14.3 billion. This will be lower than last quarter at 57.1% for net income of $14.8 billion. Yet, is up from 45.8% last year.

FY2025 EPS is expected to be $2.75 representing growth of 111.8%. FY 2026 is expected to be $3.83 representing growth of 39.4%.

Cash:

Conclusion:

Our process is to not become complacent around valuations. We closed heavyweight Microsoft on these concerns and closed best-of-breed CrowdStrike on valuation concerns.

Recommended Readings:

Broadcom Q2 FY2024 Earnings Preview: AI Networking and Early to AI Software

Posted on June 12, 2024June 30, 2026 by io-fund

Broadcom will release its results today. Investors will be closely watching the AI revenue updates. During its last earnings call, the company raised the AI revenue guide to $10 billion for FY2024 from the earlier $7.5 billion. In Q1 earnings, the stronger-than-expected growth from AI offset the cyclical weakness in broadband and server storage.

During its AI Infrastructure Investor meeting held in March, the company announced its third AI ASIC customer. We are likely to get more updates in the earnings call. In addition to the AI revenue, the software segment is also to be watched as the company integrates VMware into its fold.

Revenue

The analysts expect Q2 FY2024 revenue to grow 37.5% YoY to $12.01 billion and accelerate to 42.8% and 48.1% in the next two quarters. The company’s Q1 revenue grew by 34.2% YoY to $11.96 billion. Excluding the 10.5 weeks of contribution from VMware, it grew 11% and a 7-point acceleration from the previous quarter. To recap, the company completed its acquisition of VMware in November 2023 and the management’s FY 2024 guide of $50 billion includes VMware’s 11-month contribution of $12 billion.

Margins

The merger integration process is expected to take a year and will initially have a drag on profit margins due to transition costs and VMware's lower margin profile. However, cost-cutting measures and merger synergies are anticipated to improve margins in the long term.

Q1 gross margin was 61.7% compared to 67.4% in the year-ago quarter. Amortization of acquisition-related intangible assets adversely impacted gross margin by 11.5% in the quarter compared to 6.0% in the year-ago quarter. Adjusted gross margin improved 160 bps YoY to 75.4%.
Q1 operating margin was 17.4% compared to 46% in the year ago quarter. The operating margin was mainly lower due to the increase of amortization of acquisition-related intangible assets, restructuring charges, and stock-based compensation. The adjusted operating margin was 57.1%, compared to 60.9% in the year ago quarter.
Q1 net margin was 11.1% compared to 42.3% in the year-ago quarter. The net margin was lower mainly due to points discussed in the above paragraphs. The adjusted net margin was 43.9%, compared to 50.3% in the year-ago quarter. The adjusted EPS grew by 6.4% YoY to $10.99 and beat estimates by 5.4%.
The analysts expect adjusted EPS to grow 5.1% YoY to $10.84 in Q2 FY2024 and accelerate to 13% and 21.9% growth in the next two quarters.

Q1 FY2024 adjusted EBITDA margin was 59.8% compared to 63.7% in the year-ago quarter. The management reiterated its fiscal year revenue guide of $50 billion and full year adjusted EBITDA guidance of 60%. The margin drop is mainly due to VMware's lower margin. However, Broadcom aims to improve the margins through cost-cutting initiatives like job cuts and merger synergies.

Cash Flow and Balance Sheet

Q1 operating cash flows were $4.8 billion or 40.3% of revenue compared to $4.04 billion or 45.3% in the year-ago quarter. Free cash flows were $4.69 billion or 39.2% of revenue compared to $3.93 billion or 44.1%. Excluding the restructuring and integration spend of $658 million in the quarter, the free cash flow was 45% of revenue.

Cash was $11.9 billion and debt was $75.9 billion. The debt increased from the $39.2 billion in the previous quarter due to the additional debt taken to finance the VMware purchase and the company also assumed $8.3 billion VMware’s debt. We discussed this in our deep dive here.

The average coupon rate and years to maturity of fixed rate debt of $48 billion is 3.5% and 8.4 years, respectively. The average coupon rate and years to maturity of floating rate debt of $30 billion is 6.6% and 3 years, respectively. The company repaid $934 million fixed rate debt during the quarter. The company also repaid $2 billion of floating rate debt during the first week of March (the week the Q1 results were announced) and intends to maintain the $2 billion quarterly repayment of debt throughout FY2024.

In Q1, Broadcom paid stockholders $2.4 billion of cash dividends based on a quarterly common dividend of $5.25 per share. The company repurchased $7.2 billion of common stock and eliminated $1.1 billion of common stock for taxes due on the vesting of employee equity, resulting in the repurchase and elimination of approximately 7.7 million shares.

Days sales outstanding were 41 days in the first quarter compared to 31 days in the fourth quarter on higher accounts receivable due to the VMware acquisition. This is due to the accounts receivable from VMware having payment terms of 60 days compared to Broadcom’s 30 days.

The company ended the first quarter with an inventory of $1.9 billion, up 1% sequentially.

Segments

Infrastructure Software

Infrastructure Software segment revenue grew by 153% YoY to $4.6 billion. If we exclude a $2.1 billion contribution from VMware the segment grew by 37% YoY and accelerated from 7% growth in the previous quarter. When asked about this, management said not to get too excited about this particular growth as it’s due to strong contract renewals. Instead, the CEO explicitly stated: “Yes, don't get too excited over that. So that has also accelerated, but that's not the star of this show, Stacy. Star this show is the accelerating bookings and backlog we are accumulating on VMware.” In fact, it was indicated that some of this could fall off in future quarters given the software guide was not raised.

What the CEO is referring to as the star of the show is the consolidated bookings in software, which grew sequentially from less than $600 million to $1.8 billion in Q1 and is expected to grow to over $3 billion in Q2. Per management: “Revenue from VMware will grow double-digit percentage. Sequentially, quarter-over-quarter, through the rest of the fiscal year.” Management reiterated their software revenue guidance of $20 billion for this year.

Semiconductor solutions

Semiconductor solutions sales increased 4% YoY to $7.4 billion, up from 3% growth in the prior quarter. Stronger-than-expected growth from AI more than offsetting the cyclical weakness in broadband and server storage. AI revenue grew by 53% sequentially to $2.3 billion.

Q1 networking revenue of $3.3 billion grew 46% year-on-year, primarily helped by the strong demand for custom AI accelerators from the company’s two hyperscale customers. The networking revenue represented 45% of semiconductor revenue and accelerated from 23% growth in the previous quarter. Management stated, “For fiscal 2024, given continued strength of AI NAND working demand, we now expect networking revenue to grow over 35% year-on-year compared to our prior guidance for 30% annual growth.”

Q1 wireless revenue declined by (-4%) YoY to $2.0 billion. Wireless is expected to be flat YoY for FY2024.
Q1 server storage revenue declined by (-29%) YoY to $887 million. Management expects weaker demand in the first half of the year and recovery in the second half. Management revised its server storage revenue to decline in the mid-20 percentage range compared to prior guidance for a decline in the high teens.
Q1 broadband revenue declined by (-23%) YoY to $940 million. Management stated, “We are seeing a cyclical trough this year for broadband as telco spending continues to weaken and do not expect improvement until late in the year.” So, they revised the outlook for fiscal '24 broadband revenue to be down 30% year-on-year from prior guidance of down mid-teens year-on-year.
Q1 industrial resales of $215 million declined by (-6%) YoY. Management stated that industrial resales will be down by high single digits this year.

AI revenue

Management also reiterated the guidance for FY2024 for Semiconductor Solutions revenue to grow mid-to high single-digit percentage year-on-year. They also increased the AI revenue guide to $10 billion from the earlier $7.5 billion and now expects AI revenue to be 35% of the semiconductor revenue from the previous 25%.

During its AI Infrastructure Investor meeting held in March, the company announced its third AI ASIC customer. Charlie Kawwas, Broadcom's President, Semiconductor Solutions Group, said, “Well, since you're all here today and you traveled here, we wanted to actually share with you that we actually have a third customer. I don't hear any excitement. Come on. So we're very, very honored and pleased and happy to tell you that third customer is also in the consumer AI space and we are in the ramp phase and we will be shipping products in the next few months to that customer. And this is something that we believe will continue as well over the next few years.”

This is certainly big since the CEO mentioned, “it takes years. It takes a lot of heavy lifting to create that custom silicon because you need to do more than just hardware of silicon to really have a solution for generative…” The company counts Google and Meta as the first two customers and JP Morgan believes that the third could be ByteDance. They also believe that the company has recently won follow-on orders from Google and Meta.

"Overall, we estimate that Google and Meta combined will drive $9B+ in AI ASIC chip revenues for Broadcom this year (Google ~$8B+ and Meta around $500M-$1B), up almost 2.5x over CY23," wrote the analyst. "More importantly, as we said back in 2022, we believe that Meta remains on track to become Broadcom's next multi-billion dollar per year AI ASIC customer potentially starting in CY25." JP Morgan estimates that the AI revenue to be $10 billion to $12 billion for FY2024, driven by the third customer, strong demand for Tomahawk 5 and Jericho 3 switching/routing chipsets and PCIe Gen5/Gen6 switches.

Valuation

We understand the market expectations are high going into earnings. The company is trading at a P/E ratio of 52.1 and P/S ratio of 15.8, higher than the five-year average P/E ratio of 39.4 and P/S ratio of 8.1.

Conclusion

The continued strong AI revenue growth along with the addition of the recent AI ASIC customer is a bright spot offsetting the weakness in broadband and server storage. The synergies from the VMware acquisition are another key area to watch going forward.

Recommended Readings:

Broadcom: $10B in AI Revenue This Year Plus Software is Rapidly AcceleratingBroadcom: $10B in AI Revenue This Year Plus Software is Rapidly Accelerating

Broadcom: Networking/ASICs Giant and The Second Largest by AI RevenueBroadcom: Networking/ASICs Giant and The Second Largest by AI Revenue

Royston Roche, Equity Analyst at the I/O Fund, contributed to this article.

Semiconductor Stocks Q4 Overview: AI Gains Heat Up

Posted on April 15, 2024June 30, 2026 by io-fund

This article was originally published on Forbes on Apr 11, 2024,03:58 pm EDTForbes on Apr 11, 2024,03:58 pm EDT

Semiconductor stocks are standout performers so far in 2024, with investor appetite for AI stocks remaining elevated as AI chip leader Nvidia continues its streak of high growth. Numerous chipmaking equipment and chip stocks outperform the broader indices on a YTD basis – sixteen have YTD gains above 20%.

For years, the I/O Fund has published on semiconductors being the leaders in tech as the building blocks and common denominators for the decade’s largest tech trends, most notably AI and high-performance computing, but also EVs, robotics, 5G, and IoT. Our premium research urged our members to look closely at semiconductors across these trends dating back to 2019.

These emerging trends, coupled with strong demand for AI and HPC applications at the moment, set semiconductors up as an ideal investment, supported by strong free cash flow generation. Below, we update our semiconductor sector analysis to look at which companies have performed well in the most recent quarter, and also which companies stand out on a forward-basis with revenue growth estimates, profits, cash flows and earnings surprises. We also look into key management insights.

Top Semiconductor Companies with the Highest Quarterly Revenue Growth Rates

Nvidia led the semiconductor sector with 265.3% YoY revenue growth in Q4.

Source: YCharts

It should’ve been an easy guess that AI’s de facto leader Nvidia would sit atop the list here, as it reported more than 265% YoY revenue growth to $22.1 billion in its fourth quarter. Nvidia CFO Colette Kress said that Q4’s “data center revenue of $18.4 billion was a record, up 27% sequentially and up 409% year-over-year, driven by the NVIDIA Hopper GPU computing platform along with InfiniBand end-to-end networking. Compute revenue grew more than 5x and networking revenue tripled from last year.”

AI fueled gains outside of Nvidia as well – Micron is emerging as a big winner from surging AI demand. Micron’s recovery looks to be in full force as it reported nearly 58% revenue growth, driven by strong AI demand and increased pricing power stemming from a tighter supply environment.

However, we saw pockets of strength outside of AI – indie Semiconductor and Navitas Semiconductor both reported over 110% revenue growth, with primarily automotive and industrial end markets. ACM Research reported 57% revenue growth, and Qorvo followed with 45% revenue growth due to content gains at its single largest customer.

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Q4 Revenue Surprise

Cirrus Logic and ACM Research both beat quarterly revenue estimates by more than 14% in Q4, while AI favorites Micron, Arm, and Nvidia each beat by more than 7.5%.

Source: YCharts

Cirrus Logic reported a significant 14.6%, or $79 million, revenue beat in the December quarter (its fiscal third quarter) as it posted a record $619 million in revenue on strong smartphone shipments. This represented 29% QoQ and 5% YoY growth. Management said the $619 million was “significantly above our guidance range, as sales of components shipping and smartphones exceeded our expectations, driven by strength in orders from our largest customer. Shipments stayed strong throughout the quarter, including the first holiday week, and we also benefited from an additional week of revenue in the quarter.” This uptick in smartphone shipments also aided Qorvo, who beat estimates by 7.1%.

Three of the Street’s AI favorites — Micron, Arm, and Nvidia — all beat revenue estimates by 7.6% to 8.8%. Strong AI-fueled memory chip demand aided Micron’s growth in the quarter, while strong GPU shipments and still-dazzling data center revenue growth served as a major contributor to Nvidia’s $1.6 billion revenue beat. Arm’s $61 million revenue beat was driven by record royalty revenue, with royalties for the newest v9 design underpinning the latest AI chips and other advanced smartphone chips, double that of the v8.

Revenue Growth Estimates for Current Quarter

Source: YCharts

If it’s not obvious which chip stock would hold the crown for the highest estimated revenue growth for Q1, then you’ve been living in a cave.

Nvidia leads the sector with a blazing 237% estimated revenue growth rate for Q1, to an estimated $24.2 billion. Growth in Q1 is expected to be driven by sequential growth in data center revenues, as Big Tech companies continue to quickly snap up GPUs. Nvidia has been on a streak of beating-and-raising by approximately $2 billion over the past couple quarters, and it will be looking to keep this streak alive in the first quarter. Analysts have had an extremely difficult time pinpointing just how rapidly Nvidia’s GPU sales and revenue growth will be – six months ago, in October 2023, analysts’ Q1 revenue estimate was pegged at $18.4 billion, and now, it’s nearly 32% higher. This is reflective of the unprecedented growth materializing for Nvidia over the past year.

ACM Research is expected to see over 105% YoY growth in Q1, with management expecting a strong 2024 on mature node investment in China and product development progress at multiple customers. However, despite the triple-digit headline growth rate, the $152 million revenue estimate would represent an ~(11%) sequential decline.

Micron’s growth is poised to accelerate from 58% YoY to nearly 77% YoY, as it continues to reap the benefits of this unfolding recovery in the memory market with strong pricing tailwinds. Management said that “AI server demand is driving rapid growth in HBM, DDR5 and data center SSDs, which is tightening leading-edge supply availability for DRAM and NAND. This is resulting in a positive ripple effect on pricing across all memory and storage end markets. We expect DRAM and NAND pricing levels to increase further throughout calendar year 2024 and expect record revenue and much improved profitability now in fiscal year 2025.”

Revenue Growth Estimates for Current Year

Nvidia and Micron lead the sector with estimated revenue growth rates of 82.7% and 58.1% for the current fiscal year.

Source: YCharts

There should be no surprises here, with Nvidia and Micron leading the way with 82.7% and 58.1% estimated revenue growth for the current fiscal year. Navitas’ strong growth in Q4 and expected growth in Q1 are projected to translate to a solid year with nearly 43% growth, while Rambus is expected to record more than 32% growth.

Data center will be the main driver of Nvidia’s growth this fiscal year, with the H200 shipping at the end of the second quarter and the new B200 Blackwell GPUs commencing late in the year. Put in dollar terms, Nvidia is estimated to generate $50 billion in revenue growth this year – assuming data center drives ~90% of that growth, that could represent more than 1 million additional GPUs shipped this year.

What you may have noticed is that the estimated 83% growth for Nvidia is a far cry from the 237% estimated growth for Q1. It’s not that revenue growth will slow on a dollar basis – Nvidia is estimated to see ~$2 billion in sequential growth each quarter this year, but rather it will start to face tough comps in the back half of the fiscal year, when it comes head-to-head with $14.5 billion and $18.4 billion data center revenue prints. This is what will drag on YoY revenue growth rates, from the 237% to an estimated 40% by fiscal Q4.

We’re seeing thematic similarities in the chip companies making the list of fastest revenue growth expectations for the current fiscal year. Nvidia is capitalizing on data center AI demand and TSMC and Arm are seeing tailwinds from this growth. Micron is seeing rising DRAM and NAND prices aid AI strength, while Rambus and Camtek are both poised to capture growth on this memory upswing. Rambus is seeing the data center drive more than 75% of its chip and silicon IP revenue with outlets in DDR5 and HBM, and Camtek is benefiting from increased metrology equipment demand from HBM and AI chiplet customers.

Top-Line Valuation

Source: YCharts

Despite popular belief, Nvidia is not the most expensive semiconductor stock on a top-line (and even bottom-line) valuation. On a top-line, forward PS valuation, Arm is the most expensive semiconductor stock by a wide margin, trading at 32.4x forward sales despite having a forward revenue growth rate of just 18.7%. We discussed Arm’s extreme valuation and how it poses risks to investors to our free newsletter readers last month in the analysis “Arm Stock: AI Chip Favorite is Overpriced.”

Nvidia trades at 19.8x forward sales and arguably deserves this premium valuation due to its unrivaled position on GPUs and the raw earnings power this is driving; in addition, this 19.8x multiple surprisingly is a slight discount to the 21.7x average PS multiple Nvidia has traded at over the past 5 years.

Semiconductors with the highest exposure levels to the unfolding AI megatrends are predominantly among the sector’s most expensive stocks. For example, Monolithic Power is the fourth most expensive at 15.6x forward sales, while ASML and Marvell also feature on the list. Monolithic has seen strong growth in its Enterprise Data segment as a primary power management supplier for Nvidia’s H100 GPU, though it is also recording >20% growth in automotive and ADAS markets.

Operating Margin

Source: YCharts

Despite some of the blazing growth rates we are seeing emerge across the sector, only a handful of companies with the highest operating margins are seeing growth translate into increased operating leverage.

Due to the sheer pricing power of its H100 GPUs, Nvidia has seen its operating margin rise to nearly 62% in the most recent quarter, compared to a TTM operating margin of under 52%. This suggests that Nvidia will still feel these positive margin tailwinds over the next few quarters, assuming it can maintain a 60%+ quarterly operating margin as it scales its next-generation GPUs.

Smartphone strengths drove improvements in margins for Qualcomm and Cirrus Logic, while strong royalty revenue growth aided in Rambus’ margin improvement. TSMC is facing some margin headwinds, primarily due to its positioning in the ramp cycle of its 3nm node, which is still in the early stages.

Free Cash Flow Margin

Source: YCharts

Strong free cash flow generation and high FCF margins are a core factor in the chip sector’s attractiveness to investors – not only does strong FCF generation allow companies to reinvest rather heavily in R&D and remain on the leading edge of innovation, but it provides an extra safety net when the macroenvironment sours.

Skyworks led the sector with a 62% free cash flow margin as the company reported record quarterly cash flow metrics. CEO Liam Griffin said the company “continues to execute well and generate robust profitability in light of ongoing macroeconomic volatility” and “delivered record quarterly free cash flow of $753 million, which reflects strong working capital management and moderating capex intensity.”

Taking a broader view of the entire sector, 18 semiconductor stocks reported quarterly FCF margins above 30%, with 9 having a 30% or higher free cash flow margin on a TTM basis. Skyworks reported a 62% FCF margin in Q4, followed by Nvidia at 51% and Cirrus Logic at 49%.

Conclusion

Nvidia has quickly become the market’s most-followed AI stock due to its ‘hockey stick’ data center revenue growth, and it also became the first semiconductor stock to break both $1 trillion and $2 trillion in market cap. However, it’s not the only one putting up strong growth numbers, with Micron expected to see 58% revenue growth this year, and Navitas projected to record over 40% growth.

Strong free cash flow generation has been a hallmark of some of the sector’s top performers. As building blocks for AI and other developing megatrends, semiconductors remain a vital sector to track for tech investors, due to their position at the forefront of AI, strong margins, and strong free cash flow generation.

Recommended Reading:

Nvidia Was Up 235% In 2023, Don’t Expect It To Continue

Posted on September 26, 2023June 30, 2026 by io-fund

This article was originally published on Forbes on Sep 22, 2023,05:45am EDTForbes Forbes on Sep 22, 2023,05:45am EDT

It is our stance at the I/O Fund that the stock market is not logical, rather it’s sentimental. There is no logical explanation for a stock to go up 100% or more —— only to fall 40% or more in the matter of a couple of months. Fundamentals do not change this quickly, but sentiment does. In the simplest terms, sentiment is driven by how fear and greed interrelate with supply and demand. However, the way to track sentiment to protect capital is much more complex and needs to combine fundamental analysis with technical analysis

This roller coaster ride is most evident in tech stocks, which happens to be our specialty. Therefore, we openly and frequently discuss with our free newsletter readers the importance of layering into a leading position, setting up buy plans ahead of time, and also the importance of taking gains once the technical and fundamentals get stretched.

We’ve had unwavering conviction in Nvidia’s AI story since November of 2018. In fact, it was our leading position going into 2023 and our AI allocation of 45% exceeded Stanley Druckenmiller at 29%, meanwhile, Druckenmiller was celebrated for having a leading AI portfolio. The Street is also taking credit for being early to Nvidia, which was a latecomer recommendation in March of 2023. Ark often discusses AI as a leading trend, yet almost missed this AI leader entirely. We point this out because we provided Nvidia as a stock tip for free, repeatedly, with top tier analysis delivered on Forbes and through our free newsletter, with our own capital backing the research.

The I/O Fund is a strong proponent of offering quality information at the free level. We offer top tier analysis every single week in our free newsletter, and we do not know any other top-performing portfolio that offers this at the free level in a consistent mannertop-performing portfolio that offers this at the free level in a consistent manner.

Unfortunately, free information tends to come from those who are unproven and may not be very good investors at all, while those with a proven track record keep trades close to their chest.

Not only do we actively manage every position we own and send real-time trade alerts, but we discuss openly and frequently our thoughts along the way. Our track record on Nvidia over the past 1-2 years looks like this:

Source: I/O FUND

The single biggest issue individual investors face is a lack of quality information that is early, consistent, and comes with ultimate transparency around position sizing, portfolio performance, and how to handle sell-offs.

It is this last point that we’d like to discuss with you today “how to handle sell-offs.” We were considered crazy for buying Nvidia in 2022 and we are considered crazy for trimming in 2023. Yet, in what is rare transparency for the financial world, we are sharing with you our plans with this leading portfolio position.

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Price Analysis

On August 28th, we put out our price analysis on NVDA. We offered two general scenarios that we see playing out, which are still very much in play today. Here is what we said back then…

“There are two general Elliott Wave counts I’m using that represent both of these gap possibilities.

Blue – this count has the 2022 bear market as the first leg in a large degree correction. That would make 2023 the corrective leg, with the final drop on the horizon, which would likely retest the October lows.
Red – this count has us in a 4th wave correction within a larger 5 wave uptrend. This would make this current dip a buying opportunity as we push towards the $560-$590 region next.

The lowest I would allow this correction to go and still keep the red count valid would be the $340 region. If we break below $340, then the odds shift that the gap from Nvidia’s last earnings call was in fact an exhaustion gap. Our next move would be to set up downward targets to accumulate Nvidia for the long haul.”

Also, in the last report, we were looking for a breakout above $480 to signal that a low was in and we were heading towards our first overhead target around $545. We did see a breakout, but it failed to hold, which was a warning of more volatility to come. This coupled with some heavy distribution volume above the $440 price level, had us decide to take more gains in Nvidia.

Real-time trade alert offered by I/O Fund

My prior analysis still holds – as long as we hold $340, Nvidia has the potential for one more swing higher into year-end/early next year. However, we do not believe current prices are ideal for a long-term, buy and hold mindset. Patience will likely pay off in the long run. So, it will be up to each investor to decide if they want to take on the risk of potentially getting one more high.

For the I/O Fund, the reward is not worth the risk which is why we have decided to trim. Our last buy at $410 in July is our last buy and we do not have any more buys planned until we see a resolution. There are two other AI-related stocks that we like better in the near-term, and when we enter these, we will notify our premium members with real-time trade alerts.

This remains my primary perspective as long as we hold the $340 support. Below there, and the top is likely in.

Source: Tech Insider Network

When we Plan to Trim next

Nvidia is a core holding of ours, so we will likely never close the position, as long as the story and tech trend remain intact. However, we do strongly believe in taking gains, reducing risk, and targeting lower levels for a better cost basis. That being said, we believe we are approaching one of these moments. Even though we broke a key trendline today, we expect a bounce to occur soon. If this bounce is a corrective bounce that fails to reclaim key overhead levels, we will trim our position even more.

Source: Tech Insider Network

Insider Selling is Elevated Over the Past Month

There has been an excessive level of insider selling by the CEO, Jensen Huang. So far, he has sold over $110,000,000 worth of shares over the last 3 weeks. Regarding insider activity, there are many reasons insiders sell, which may have nothing to do with the business. However, when you the see executives within a company, like the CEO, it’s worth paying attention to. Since June, we’ve seen about $175,000,000 worth of NVDA sold.

Source: SECFORM4.COM

Conclusion:

In conclusion, our broad market work suggests that a complex topping process is forming. Many sectors and stocks have likely topped while some big tech names look like they have the potential for one more high into the end of the year.

Insider activity and institutional selling point toward another high being less likely. If we do get that second high, our plan is to trim more. Until the $340 support breaks, NVDA still has the potential for that last swing higher. Regardless, we believe being patient will pay off for those looking to buy a great company at a great a price. We are also being patient for when we add back to our position and feel it’s better to be defensive at the moment.

If you own Nvidia stock, or are looking to own NVDA, we encourage you to attend our weekly premium webinars, held every Thursday at 4:30 pm EST. Next week, we will discuss NVDA, as well two other AI plays that we will likely buy next – what our targets are, where we plan to buy, as well as where we plan to take gains.

I/O Fund Portfolio Manager, Knox Ridley, contributed to this analysis

Nvidia Stock: How We Plan To Position For Q2 Earnings

Posted on August 29, 2023June 30, 2026 by io-fund

This article was originally published on Forbes on Aug 23, 2023,12:30pm EDTForbes Forbes on Aug 23, 2023,12:30pm EDT

You’re probably well aware that last quarter, Nvidia guided fiscal Q2 at $11 billion, which is 53% higher than analyst expectations of $7.2 billion. The stock was up 25% after hours, adding $200 billion to its market cap in the matter of a day. During the earnings call, the stock went from being up 15% after hours to being up 25% after hours when the CFO confirmed H2 would also be strong with visibility on supply.

In addition to covering Nvidia’s AI angle many times since 2018, the I/O Fund holds an outsized Nvidia position at 17% allocation. Going into this year, we broke all of our portfolio management rules by holding a position that was over 10%. From there, we’ve talked consistently about a H2 2023 Semi Rebound to our premium members in webinars and analysis. I was also interviewed by Tier 1 media in August of 2022, and January of 2023about this very high conviction. As you know, Nvidia would later beat in May.

Source: BETH KINDIG

Well, it’s the day of Q2 earnings, so let’s cut to the chase … what should Nvidia investors do now?

Below, we will review why it’s likely Nvidia beats and sees expanding margins, and secondly, we will review our plans for our outsized position. My firm is unique in that we do not simply offer blanket buy recommendations, rather we disclose our trades in real-time to our premium members. Please also note our disclosure below that we cannot guarantee a stock’s performance, but we can tell you how the firm is managing our money.

As a reminder, Super Micro had a sizable beat with management doubling fiscal year guidance three months later from 20% to 40%, yet the market reacted harshly. Therefore, it is the practice of our firm to have an active portfolio stance by combining fundamentals and technicals for risk management.

Nvidia Stock: Will a Beat Be Enough?

It’s not a stretch to say that anticipation within the investment community is on par with the series finale of Game of Thrones. Everyone in the market will be watching this earnings report come market close.

In its Q1 announcement, Nvidia provided a first glimpse into the financial impact AI will have on its businesses with Q2 sales guidance of $11.07b. The sequential increase of +54% vs Q1 surprised the market. We expect Nvidia to only provide guidance into Q3. Although just one quarter, it will be an important data point for the market to assess the appropriate growth rate for the remainder of FY2024 and FY25.

Q2 SALES + Q3 GUIDANCE

Meeting or beating Q2 sales guidance and providing Q3 sales guidance better than consensus will be very important drivers behind Nvidia’s short-term stock performance.

During the earnings call, this was one of the comments that contributed to strong price action after hours:

“Vivek Arya:

Thanks for the question. Could I just wanted to clarify does visibility mean data center sales can continue to grow sequentially in Q3 and Q4 or do they sustain at Q2 levels? […]

Colette Kress:

Yeah, Vivek. Thanks for the question. Let me see if I can add a little bit more color. We believe that the supply that we will have for the second half of the year will be substantially larger than H1. So, we are expecting not only the demand that we just saw in this last quarter, the demand that we have in Q2 for our forecast, but also planning on seeing something in the second half of the year. We just have to be careful here. But we are not here to guide on the second half of that. Yes, we do plan a substantial increase in the second half compared to the first half.

On 6/14/23, Collette Kress, Nvidia CFO held a Q&A at the Jefferies Investor Conference . In particular, there is one question on all investors’ minds.

Question

“You guys gave guidance for the July quarter, which beat everybody’s expectations and 50% sequential growth. And I think there is a concern from investors that this is kind of a one-time spike that will come back down. I know you only guide one quarter at a time. But what do you say to investors who have a concern that it’s a one-time spike? And can you just talk in general terms, what is the visibility typically like with the data center and hyperscale companies?”

Colette Kress

“Yes. What we have seen is certainly an astounding amount of interest worldwide globally from many different types of customer sets […] We have better visibility than what we have seen before and our ability to focus right now on procuring the supply.

As we indicated in our earnings, we have procured the supply to the demand that’s been put in front of us and that visibility that we see. […] So our guidance for Q2 is really building upon years and years of working of the industry on accelerated computing and solutions such as AI. And we continue to see demand and demand visibility for the full year as well that we believe will sustain as we finish in Q2.”

Comparing her response to consensus sales estimates for the remainder of FY24, we come away with a couple of observations.

Source: I/O FUND

For Q2, consensus is in line with Nvidia’s guidance. There’s a chance that Nvidia will exceed their own forecasts
If Nvidia has indeed procured the supply needed to meet demand, we believe that consensus Q2/Q3 growth estimates of +12% is too conservative.

However, the magnitude of the Q3 guidance will be very important given heightened expectations. Assuming Nvidia meets its Q2 guidance, we’ve put together a simple scenario analysis to parameterize the different outcomes we anticipate based on Nvidia’s potential Q3 guidance. +/- indicates anticipated stock positive or negative price performance on the next trading day based on that scenario.

Source: I/O FUND

We’re optimistic that continued strength in AI related demand and stabilization in gaming will allow Nvidia to meet if not exceed their Q2 guidance. According to the Financial Times, “multiple sources close to Nvidia and its manufacturer, Taiwan Semiconductor Manufacturing Company, the chipmaker will ship about 550,000 of its latest H100 chips globally in 2023, primarily to US tech companies. Nvidia declined to comment.”

At $40,000 per H100, that equals $22 billion in H100 sales alone, and when you add the A100 and other data center sales at a current run rate of $14 billion, the data center segment could report a total of $36 billion in 2023. When you equal this out across the upcoming quarters, it looks something like this:

Q1: $3.5B A100s, $750M H100s = already reported, $4.2B

Q2: $3B A100s, $5B H100s = $8B data center, guided

Q3: $2B to $3.5B A100s, $7B H100s = $9B to $10.5B data center

Q4: $2B to $3.5B A100s, $10B H100s = $12B to $13.5B data center

H100s are priced differently depending on where they are sourced. The Information has the H100s at $20,000 yet sourced an analyst that believes we could see over 1M H100s sold in 2023. This arrives at $35 billion in sales. Given these variables, and credible sources, it appears $30 to $40 billion is the range going into Q2 earnings that analysts want to see for full year data center revenue.

We believe the market will react negatively if Nvidia provides Q3 guidance that is in-line with consensus or lower than 12%. On the flip side, Nvidia will likely need to provide guidance of at least greater than 20% for a significant positive reaction. This is because consensus will likely need to make upward revisions to their earnings for the remainder of FY2024 and FY2025. This is critical to support the current valuation.

Our base case assumption is that Nvidia’s Q3 guidance will estimate q/q growth of at least +20%. Remember, H100 was only introduced to the market toward the end of the last calendar year. Q1FY24 was the very first quarter where Nvidia is beginning to see the impact of AI and demand for the H100. Ultimately, we believe Nvidia will close out the year with data center revenue that is 50% higher than Q2.

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Q2 + Q3 MARGIN GUIDANCE

At the same conference, in response to a question of how much of revenue growth is pricing vs units, CFO Kress answered

Question

“I know that you have fielded this question probably 1,000 times since you reported there is kind of this view that all of your growth is driven by ASPs and maybe not as much by units. And how should investors think about the ASP growth versus the unit growth in the quarter past and the quarter outlook?”

Colette Kress

“No. We truly are seeing demand and need across such a wide group of folks. And that’s not just based based on selling a brand new architecture and ramping a new architecture, Hopper architecture. We are still shipping our existing prior architecture. But no, this is not about ASPs, this really is about just the growth that we are seeing in focusing on AI and accelerated computing. I believe more of it is just about sheer volume of companies that are really interested in taking this next step and really leveraging generative AI for all the work that they do. That’s really what it’s about.”

CFO Kress’s answer is important because it indicates further potential for margins to expand not just from pricing. On a three-year basis, Nvidia has just returned to its prior peak of about 65% gross margins (reported). Given the positive pricing and unit demand dynamics, the new normal is perhaps between 65% and 70% gross margins:

Source: I/O FUND

Operating Margin

Given CFO Kress’s comments that it’s both pricing and units, this suggests that there is upside to reported operating margins that still have yet to return to the prior 3-yr peak.

Source: I/O FUND

Net margin

A similar below-peak picture can be seen in reported net margins.

Source: I/O FUND

We likely won’t get answers to all these medium term questions in Q2, but it will help us to assess what the margin potential is in the upcoming quarters.

Outlook for Gaming for FY2024

Gaming is still an important segment and contributed 31% to Q1FY24 sales and has been impacted by the weaker consumer. It appears that gaming bottom in Q1. Although gaming sales were down 38% y/y, they were positive 22% q/q. Critically, in the Q1 call Nvidia stated “We believe the channel inventory correction is behind us.

A resumption of growth in gaming is important for the overall sales and profitability and is probably not quite reflected in consensus estimates. It provides another lever for Nvidia to exceed their Q2 sales guidance and Q3 consensus sales estimates. So, we will look for continued signs of improvement and what growth rate is sustainable.

Longer-Term View:

For more information on Nvidia’s Bull thesis, reference “Nvidia Will Still Surpass Apple’s Valuation” and also “Why Nvidia will Surpass Apple’s Valuation.”

Visually, you can see how Nvidia breaks down the $1 trillion opportunity. This was taken from the October 2022 investor presentation.

Source: NVIDIA

How We Plan to Manage our Position

By Knox Ridley, Portfolio Manager

With the cash we raised throughout 2022, NVDA was the primary target of deploying some of this cash once our analysis signaled a bottom was in place. The below is a real-time trade notification we sent to our stock research members on the October 13th.

Source: I/O FUND

The above alert was one out of nine alerts we sent out from 2021 – 2022 to buy NVDA below $200. However, since February of 2023, we have been systematically taking gains at key levels based on technical and macro warnings, while still holding it as our top position today.

In our last free Nvidia report, we identified the $405-$395 region as strong support. This was the buy zone we set up in advance, and were able to grab shares around the $410 region after it bounced from $403. Also, in our last report, we stressed the importance of last quarter’s earnings gap. For those that are not familiar, I’m referring to the rather large gap between closing price before their report and the opening price after the report.

Source: I/O FUND

Gaps are very important markers within price trends, and have many uses. For our purpose, the question we need to answer – is this gap a breakaway gap (the halfway point in a trend), or is it an exhaustion gap (the final bullish push before rolling over)?

There are two general Elliott Wave counts I’m using that represent both of these gap possibilities.

Blue – this count has the 2022 bear market as the first leg in a large degree correction. That would make 2023 the corrective leg, with the final drop on the horizon, which would likely retest the October lows.
Red – this count has us in a 4th wave correction within a larger 5 wave uptrend. This would make this current dip a buying opportunity as we push towards the $560-$590 region next.

Source: I/O FUND

Micro Analysis

Another point worth mentioning is that the structure of the final leg in a corrective pattern (the C wave) is always a 5 wave drop. Furthermore, these patterns are fractal, so a small 5 wave patterns will morph into a larger one, which turns into an even bigger one. So, if we analyze the structure of the initial drop, we can get clues on what is playing out.

Source: I/O FUND

This pattern appears to be an overlapping and corrective pattern, not a 5-wave pattern. If price can definitely break above the July high at $480, then the odds will shift heavily towards the red count as we push to new highs. The only chance the blue count will have is if we break $405 to make afresh low. If this happens, and it is followed by a 3 wave correction, then the odds will shift towards the blue count, allowing investors ample time to better risk manage this position.

If you own Nvidia stock, or are looking to own NVDA, we encourage you to attend our weekly premium webinars, held every Thursday at 4:30 pm EST. Next week, we will discuss NVDA, as well as a handful of other AI plays – what our targets are, where we plan to buy as well as take gains.

Nvidia Q2 FY24 Earnings: 226% Q3 Data Center Growth is Bonkers

Posted on August 24, 2023June 30, 2026 by io-fund

The price action was more muted, yet the earnings report was quite spectacular. Primarily, the guide for Q3 implies data center growth of 226%, an acceleration from the 171% year-over-year reported in Q1. Our research based on the channel checks published by The Financial Times and The Information were pointing toward analysts/sources expecting between $30B to $40B in data center revenue growth. We are going to now easily clear the $40B number. If we assume an incremental $3B in Q4 (which is a reasonable assumption), then we will be at $42.6B.

The $42.6B is now probably too low if we factor in that Nvidia just beat 28% on data center in this quarter and 30% for overall revenue in Q3.

· $8B in data center expected versus $10.3B reported = 28% beat

· Q3 revenue expected of $12.35B versus $16B reported = 29.5% beat

Should the trend continue, it will lead to a $20B revenue quarter for Q4 and overall data center revenue for FY2024 of $48 billion, up from $15 billion last year for growth of 220%. These are hypothetical, but in line with what Nvidia has been reporting.

What I’m trying to describe here is that myself and the analysts covering this stock cannot keep up with the large beats and raises — even when you think you’ve provided a reasonable estimate, Nvidia blows right past it.

Financials Scorecard:

Revenue and EPS:

· Revenue of $13.5B beat estimates of $11.1B for growth of 101.5%

· Q3 Revenue of $12.35B beat estimates of $16B for growth of 169% estimated

· Look for FY2024 estimates to go up, although hopefully they aren’t too aggressive to help secure a beat next quarter. A beat is very important for Nvidia next quarter given the spotlight on this company.

· Adjusted EPS of $2.09 was expected versus $2.70 reported

· The company announced a $25 billion buyback with $4 billion remaining

Margins:

Similar to revenue, this was a blowout quarter on the margins. Although pricing power may not sustain, as software revenue grows, it will continue to help the margins. The strong margin is likely due to a mix from software and also higher average sales prices.

· 70% gross margin is also bonkers. This is the best gross margin in Nvidia’s history (typically in the mid-50%) and this marks the turning point of Nvidia becoming a software company.and this marks the turning point of Nvidia becoming a software company.

· Adjusted gross margin of 71.2% beat guidance of 70%

· Operating margin of 50% beat guidance of 44%. On a year-over-year basis, operating income was up an incredible 1,263% from $499 million last year Q2 to $6.8B this year and was up 218% QoQ.

· Adjusted operating margin of 57.6% beat guidance of 52.7%

· Net margin of 45.9% compares to net margin of 28% last quarter

· Net profits were $6.2B compared to $656 million in the year ago quarter – yes, 8-9X higher!

Earnings Call:

The CFO said the following in her opening comments about supply:

“We expect supply to increase each quarter through next year” and she also said “Demand for our Data Center platform where AI is tremendous and broad-based across industries on customers. Our demand visibility extends into next year. Our supply over the next several quarters will continue to ramp as we lower cycle times and work with our supply partners to add capacity.”

This is an indirect way of implying sales will increase each quarter through next year as Nvidia has plenty of demand.

The call was not as exciting this quarter. Per our notes last quarter, management said the following, which led to the stock action moving from 15% AH to 25% AH.

“Let me see if I can add a little bit more color. We believe that the supply that we will have for the second half of the year will be substantially larger than H1 […] Yes, we do plan a substantial increase in the second half compared to the first half.” -CFO Collette Kress, Q1 call

Considering the analyst was able to get this important color on the last call, the same analyst, Vivek Arya, thought he’d give it a go again by asking about supply. This time, the CFO declined to comment, and the price action AH softened from 9% to 6.5%.

Vivek Arya

Thank you. Just had a quick clarification and a question. Colette, if you could please clarify how much incremental supply do you expect to come online in the next year? You think it's up 20%, 30%, 40%, 50%? So just any sense of how much supply because you said it's growing every quarter […]

Colette Kress

So thanks for that question regarding our supply. Yes, we do expect to continue increasing ramping our supply over the next quarters as well as into next fiscal year. In terms of percent, it's not something that we have here […]

Speaking of demand, the CFO confirmed that cloud service providers (CSPs) are “a little bit more than 50% of revenue” in the data center followed by consumer internet companies.

Regarding software revenue, which is what leads to higher margins, the CFO said the following:

“Colette Kress

And let's see if I can answer your question regarding our software revenue. In part of our opening remarks that we made as well, remember, software is a part of almost all of our products, whether they're our Data Center products, GPU systems or any of our products within gaming and our future automotive products. You're correct, we're also selling it in a standalone business. And that stand-alone software continues to grow where we are providing both the software services, upgrades across there as well.

Now we're seeing, at this point, probably hundreds of millions of dollars annually for our software business, and we are looking at NVIDIA AI enterprise to be included with many of the products that we're selling, such as our DGX, such as our PCIe versions of our H100.”

Conclusion

I took the opportunity to make a plug for technical analysis after SMCI dropped as it was a strong report that received a harsh reaction. I want to make another plug for technical analysis because our last entry at $410 was bold given the stock was up 200% this year. We used technical analysis for this, not fundamentals. Our hope is that we can take gains in the mid-$500s to low $600s per this Forbes article. When we do, we will update our 3-position Portfolio found here on the Dashboard

Risk:

It may seem like Nvidia stock will keep climbing forever, but the words “China ban” can and will rock this stock. There is 20% to 25% exposure to China in the data center. We assume this risk by owning the stock and will use technicals to risk manage when appropriate.

Additional Reading:

https://www.forbes.com/sites/bethkindig/2023/08/23/nvidia-stock-how-we-plan-to-position-for-q2-earnings/

https://io-fund.com/premium/nvidia-q1-earnings-est-100-growth-for-data-center-in-q2-is-bonkers

Nvidia Q4 Earnings: A Tough Company to Bet Against

Posted on February 23, 2023June 30, 2026 by io-fund

Nvidia stock has reacted positively to an adjusted EPS Q4FY23 beat of $0.88 vs $0.80 and a Q1FY24 revenue guide of $6.5B vs $6.32 consensus. The most important statement on the call was: “We expect sequential growth to be driven by each of our 4 major market platforms led by strong growth in data center and gaming”We expect sequential growth to be driven by each of our 4 major market platforms led by strong growth in data center and gaming” as it supports the H2 rebound.

Nvidia’s current quarter weakness is already priced in, yet the anticipation is high that Nvidia nails the turnaround come the October quarter. This quarter — especially with the comment on sequential growth comment across all four quarters — makes this outcome a bit more likely.

We had recently written about Big Tech’s prioritization of AI related infrastructure and how Nvidia was well positioned to benefit from this secular trend here and here. We listened for further evidence of this from the conference call. Big Tech capex can’t be overestimated in terms of how Nvidia will perform, and the comments about re-allocating for AI investments was further reflected in Nvidia’s report.

Financials:

$6.05B revenue came in line with prior guidance and consensus estimates, up 2% sequentially and down 21% year-over-year. For the full year, total revenues came in at $26.9B, flat year over year.

Next quarter’s revenue guide was $6.5B, better than consensus of $6.32B.

Adjusted eps came in $0.88 which beat consensus of $0.80.

Within the main business segments, Data centers came in at $3.6B, down 7% sequentially, and up 11% year-over-year. Gaming revenue was $1.8B, up 16% sequentially and down 46% YoY. Importantly, gaming’s sequential improvement showed further evidence that it had bottomed. We wrote about this in November here.

Gross and adjusted gross margins came in at 63.3% and 66.1%, in-line with guidance. Operating and adjusted operating margins came in at 20.7% and 36.8%, in-line with guidance.

Both gross and operating margins showed sequential improvement as China related inventory write-downs and higher compensation related expenses were limited to Q3.

Net income improved to $1.4B vs $0.7B in the previous quarter for a net income margin of 23.3% vs 11.5%. Adjusted net income improved to $2.2B vs. $1.5B in the previous quarter for an adjusted net margin of 35.9% vs 24.5%

For the full year, total revenues came in at $26.9B, flat year over year. Within full year sales Data center sales were up 41% and gaming sales was down 27% YoY. Gross margins were 56.9% vs 64.9% the prior year while adjusted gross margins were 59.2% vs 66.8% prior. Operating margins were 15.7% vs 37.3% prior while adjusted operating margins were 33.5% vs 47.2% prior.

Regarding Gaming, Nvidia added the following. “The year-on-year decline reflects the impact of channel inventory correction, which is largely behind us.” This is important because it is exposed to the consumer and was facing cyclical headwinds last year that impacted group earnings. Rather than a detractor, it should be a contributor to group earnings going forward. Management provided a Q1 outlook compared to Q4 for all business segments.

“Let me look to the outlook for the first quarter of fiscal '24. We expect sequential growth to be driven by each of our 4 major market platforms led by strong growth in data center and gaming.”“Let me look to the outlook for the first quarter of fiscal '24. We expect sequential growth to be driven by each of our 4 major market platforms led by strong growth in data center and gaming.”

Looking at the balance sheet. Cash, cash equivalents and marketable securities were $13.30B. Inventory increased, primarily to support the ramp of new products in Data Center and Gaming. Meanwhile, free cash flow was $1.74B compared to $2.74B a year ago and negative $156 million a quarter ago. Fiscal-year free cash flow was $3.76B, down from $8B a year ago.

Earnings Call:

The main write-up on Nvidia’s product side will come following GTC at the end of March. However, on the call, Nvidia’s AI-as-a-service was mentioned, so I want to provide that quote for you, as it was one of the most important parts of the earnings call.

I’ve discussed in the past that the H100 is an important leap forward for enterprise AI when stating: “the A100 GPU is what led the company’s gains since Q2 2020 (detailed here) and the Hopper H100 GPU is what will lead the company’s gains for the next two years (detailed here).”

The company has stated the following in regards to H100 sales:

“Adoption of our new flagship H100 center GPU is strong. In just the second quarter of its ramp, H100 revenue was already much higher than that of A100, which declined sequentially.”

I feel like I’ve talked quite a bit about the H100 and its importance, so we won’t rehash that right now.

However, per our July write-up here, there is an important point to what was discussed on the call and what Nvidia investors can expect to hear about in the coming quarters in regards to software monetization. I’m repeating here what we wrote in July before I elaborate on what I think was the most important part of the earnings call:

“According to Nvidia, the H100 delivers 9X more throughput in AI training, and 16X to 30X more inference performance. The company also states in HPC application-specific workloads, the H100 is 7X faster. The goal of the H100 was not only to add more transistors and make the H100 faster, but to also offer function-specific optimizations. This is achieved through the transformer engine.

The architecture aims to answer one of the bigger challenges facing superfast compute, which is that moving data into traditional servers overloads the CPU and system memory and becomes bottlenecked by PCI-Express.

By improving the bandwidth issue, Nvidia’s goal is to create more demand for their DGX Pod and SuperPod Systems, which in turn, will create more demand for their software.”

The comments in the earnings call that pertain to the H100 and DGX Pods and SuperPods is this – it’s important because it can mark the beginning of Nvidia’s software revenue. So, I’m including this as a bigger quote from the earnings report:

“Generative AI's versatility and capability has triggered a sense of urgency at enterprises around the world to develop and deploy AI strategies. Yet, the AI supercomputer infrastructure, model algorithms, data processing and training techniques remain an insurmountable obstacle for most […]

We are partnering with major service — cloud service providers to offer NVIDIA AI cloud services, offered directly by NVIDIA and through our network of go-to-market partners, and hosted within the world's largest clouds. NVIDIA AI as a service offers enterprises easy access to the world's most advanced AI platform, while remaining close to the storage, networking, security and cloud services offered by the world's most advanced clouds […]

AI supercomputers are hard and time-consuming to build. Today, we are announcing the NVIDIA DGX Cloud, the fastest and easiest way to have your own DGX AI supercomputer, just open your browser […]

With our new business model, customers can engage NVIDIA's full scale of AI computing across their private to any public cloud. We will share more details about NVIDIA AI cloud services at our upcoming GTC so be sure to tune in.”

The takeaway is that not only will Nvidia begin to monetize through software on the DGX systems but accessibility will improve through CSPs, or cloud service providers. This is an attempt to democratize AI development while driving software sales.

In the call, management stated the following about CSPs, or cloud service providers:

“With cloud adoption continuing to grow, we are serving an expanding list of fast-growing cloud service providers, including Oracle and GPU specialized CSPs. Revenue growth from CSP customers last year significantly outpaced that of Data Center as a whole as more enterprise customers moved to a cloud-first approach. On a trailing 4-quarter basis, CSP customers drove about 40% of our Data Center revenue.”

This is important as it links back to the comment about Nvidia’s AI as-a-service and cloud service providers helping to move DGX Cloud. It also helps to illustrate how DGX Cloud can be successful, given the strong CSP partnerships and revenue growth in the data center segment.

Here is another quote in regard to DGX Cloud and why it’ll be important for a lower barrier to entry for AI development:

“The accumulation of technology breakthroughs has brought AI to an inflection point. Generative AI's versatility and capability has triggered a sense of urgency at enterprises around the world to develop and deploy AI strategies. Yet, the AI supercomputer infrastructure, model algorithms, data processing and training techniques remain an insurmountable obstacle for most. Today, I want to share with you the next level of our business model to help put AI within reach of every enterprise customer.

Moving along, this was the Q&A piece that is most important to Nvidia investors long-term:

“Timothy Arcuri

Jensen, I had a question about what this all does to your TAM. Most of the focus right now is on text, but obviously, there are companies doing a lot of training on video and music. They're working on models there. And it seems like somebody who's training these big models has maybe, on the high end, at least 10,000 GPUs in the cloud that they've contracted and maybe tens of thousands of more to inference a widely deployed model. So it seems like the incremental TAM is easily in the several hundred thousands of GPUs and easily in the tens of billions of dollars. But I'm kind of wondering what this does to the TAM numbers you gave last year. I think you said $300 billion hardware TAM and $300 billion software TAM. So how do you kind of think about what the new TAM would be?

Jensen Huang

I think those numbers are really good anchor still. The difference is because of the, if you will, incredible capabilities and versatility of generative AI and all of the converging breakthroughs that happened towards the middle and the end of last year, we're probably going to arrive at that TAM sooner than later.”

Today, Nvidia trades at less than 1X that TAM at $515 million compared to what this analyst believes will be an easily-achieved TAM of $600 billion. This would suggest the stock price does not yet fully reflect the future market opportunity.

Conclusion:

There are some upset investors today on social media who shorted Nvidia going into the print. This was based on Nvidia’s current weak financial profile coupled with its valuation. As pointed out in our Q1 webinar, we are entirely focused on the H2 rebound, which can arguably be easier to predict with semiconductors due to the longer-term supply chain visibility this industry has. At least for today, Nvidia proved it’s on track for the H2 rebound.

As you know, we track Nvidia very closely due to its leading allocation in our portfolio. We saw evidence of a gaming bottom in November, which we published about here. We also felt Nvidia had masterfully timed it’s RTX40 Series with the Ada Lovelace architecture plus the H100 release to drop exactly when the crypto mining selloff would be most felt. We discussed this here in September. These points were entirely overlooked by Nvidia critics.

Yes, that revenue miss in the Fall was crazy – but what was lying beneath the surface for chances of a quick recovery?

Most importantly, we discussed Nvidia’s entry into AI software here, which we stated was the important analysis we have ever written on Nvidia. I think “most important analysis” will be rivaled when I write about Nvidia’s automotive segment.

Basically, the devil is in the details and not a lot of investors or analysts care to look into Nvidia’s complex hardware products. Jim Cramer got 1M views on his tweet here that admitted it was tough to listen to this particular company’s earnings calls. It works in our favor that talking heads prefer to discuss consumer tech, and that the masses are collected around those who have not taken the time to get to know his company.

We know Nvidia is not pushing a buzzword to move the stock, as we’ve been covering Nvidia’s AI angle for going on five years. It’s the headlines that changed; not Nvidia.

To remain balanced here, we agree that Nvidia is likely due for a pullback. The shorts were probably right in that regard. That is Knox’s territory. He had written here that $230 has a lot of resistance and also on the forum. He plans to update everyone on Nvidia in his webinar this afternoon.

Your bigger product update will come post-GTC as we begin to lay a strong foundation for 2024 and onward for this exciting company.

Big Tech Continues To Buy Semiconductors At Record Levels In 2022

Posted on October 19, 2022June 30, 2026 by io-fund

This article was originally published on Forbes Oct 14, 2022,09:31am EDTForbes Oct 14, 2022,09:31am EDT

Semiconductors have been rocked this year due to slower consumer spending on PCs, mobile and also slowing enterprise budgets that further affect hardware purchases, including PCs, notebooks and servers. The silver lining is Capex spending by Big Tech companies, which we’ve covered in the past for our premium members, when we stated that the increased Capex from companies like Google, Microsoft and Amazon and other big tech companies greatly benefit the semiconductor market.

The news has been in an uproar about crypto mining and the consumer-related PC markets. However, it has been our stance for some time that Big Tech capex is the true leading indicator for AI semiconductor companies. Despite an enormous increase in Big Tech capex primarily driven by data centers, this line item does not get the attention it deserves in terms of follow-through to the semiconductor industry. Below, we look at FY2022 budgets to draw the conclusion that H2 spending on data center chips is equal if not greater than the first half of 2022.

Market Opportunity

According to Gartner, the overall IT spending is expected to grow 3% to $4.5 trillion in 2022. It is lower than the 10% growth in 2021. The slowdown was mainly due to the cutdown in spending on personal computers, tablets, and printers.

The Data Center Systems segment, however, is expected to grow fastest among all the segments. It is expected to grow 11% YoY to $212 billion, higher than the 6.4% growth in 2021.

Hyperscale data centers, which are very large data centers primarily operated by Amazon, Microsoft and Google, are expected to outpace overall data center systems.

According to data from Allied Market Research, the global hyperscale data center market is expected to grow from $59 billion in 2020 to $585 billion by the year 2030, representing a Compound Annual Growth Rate of 26% from 2021 to 2030.

Similarly, the Artificial Intelligence chip market is expected to grow from $8.02 billion in 2020 to $194.90 billion by the year 2030, representing a CAGR of 37% from 2021 to 2030.

According to a report published by Dell’Oro Group, the global data center Capex is expected to be $377 billion by the year 2026 – which implies the majority of the growth noted by Allied Market Research will occur in the next few years.

The private markets are also signaling growth will continue as there has been quite a bit of deal activity in data centers.

According to data from Synergy Research Group, 87 data center focused merger and acquisition deals were closed in the first half of 2022, worth $24 billion. There is an additional $18 billion of pending deals in the pipeline that are agreed and are yet to be officially closed. The research group mentioned that 209 deals were closed in 2021 for over $48 billion, up 41% from 2020.

One of the more significant deals this year that was completed is the acquisition of CyrusOne for $15 billion by KKR and Global Investment Partners. John Dinsdale, Chief Analyst at Synergy Research Group, said, “There is an ever-increasing demand for data center capacity, driven by rapidly growing cloud markets, aggressive expansion of hyperscale operator networks and continued growth of data-rich digital services.”

Earnings season kicked off this week and our premium members are receiving deep-dive tech earnings analysis straight to their inbox each week. We also offer real-time trade notifications, weekly webinars, a completely transparent portfolio of 20+ positions and more. Learn more about our premium membership.premium members are receiving deep-dive tech earnings analysis straight to their inbox each week. We also offer real-time trade notifications, weekly webinars, a completely transparent portfolio of 20+ positions and more. Learn more about our premium membership.

Big Tech Capex H2 2022

Alphabet’s Q2 Capex grew by 24% YoY to $6.9 billion. Ruth Porat, CFO of Alphabet, said, “Turning to CapEx. The largest investments in the second quarter were in servers followed by data centers and office facilities.” were in servers followed by data centers and office facilities.” The company had invested $24.6 billion in Capex in the year 2021, up 11% YoY. The management expects Capex to rise in 2022. In the Q2 2022 earnings call, Ruth Porat said, “We continue to expect an increase in CapEx in 2022 versus last year. For the balance of 2022, the increase will be particularly reflected in investments in technical infrastructure globally with servers as the largest component.” Earlier this year, the company announced its plan to invest about $9.5 billion in data centers and offices in the U.S. for the year 2022. This is up from about $7 billion spent in 2021.

Similarly, Microsoft’s Capex including financial leases, grew by 19% YoY to $8.7 billion in the Q4 FY2022 quarter (i.e., Q2 CY2022). Amy Hood, CFO of Microsoft, said, “Maybe let me start by talking about Q4's capital spend. Obviously, the big driver of our growth this quarter was in data center spend, both new and newbuilds as well as adding capacity to existing data centers. We are seeing, obviously, good demand signal.” data center spend, both new and newbuilds as well as adding capacity to existing data centers. We are seeing, obviously, good demand signal.” The management expects a sequential decrease in the next quarter due to the normal variability in the quarterly spend. In the CY 2021, Microsoft’s Capex including financial leases, grew by 33% YoY to $27.5 billion.

Amazon incurred capital expenditures, including equipment financial leases, of about $60 billion in 2021. About 40% of this is made up of technology infrastructure supporting AWS and worldwide stores business. The management expects Capex to increase over the last year with the increase in technology infrastructure.

Brian Olsavsky, senior VP and CFO, said in the Q2 2022 earnings call, “For full-year 2022, we do expect to spend slightly more on capital investments than last year, but the proportion of capital spending shifts among our businesses. We expect technology infrastructure spend to grow year-over-year, primarily to support the rapid growth in innovation we are seeing with AWS. We expect infrastructure to represent a bit more than half of our total capital investments in 2022.”

Meta’s capital expenditures in Q2, including principal payments on finance leases were $7.75 billion, up 64% YoY. The company’s CFO, Dave Wehner, said in the Q2 earnings call, “Capital expenditures, including principal payments on finance leases, were $7.7 billion, driven by investments in servers, data centers and network infrastructure. The big step-up in CapEx, both year-over-year and sequentially related to server spend, including for our AI infrastructure.”driven by investments in servers, data centers and network infrastructure. The big step-up in CapEx, both year-over-year and sequentially related to server spend, including for our AI infrastructure.”

The company expects 2022 capital expenditures, including principal payments on financial leases, to be $32 billion at the mid-point of the guidance, representing a 66% YoY growth. Tracking the Capex in the first two quarters, Meta Platforms had spent $13.3 billion which suggests the spend will be higher in 2H 2022. When we deduct from the mid-point of the guidance, it comes to $18.7 billion for H2.

Meta also recently announced its plan to expand the Eagle Mountain data center project. It is Phase 3 expansion plan and brings the total investment in the project to over $1.5 billion.

Conclusion

Thanks to very big Big Tech capex budgets, Nvidia’s data center revenue grew 71% YoY to $7.6 billion in 1H 2022. Similarly, AMD’s data center revenue grew by 83% YoY to $1.5 billion in Q2 2022 and doubled in Q1 2022.

Due to consumer-related weakness, the data center is now the leading segment for these companies, which we had predicted would occur in 2018 in my free weekly newsletter. We also provide regular deep dives for our premium research Members on a more granular level as to what will happen next in the semiconductor industry.

Royston Roche, Financial Analyst for the I/O Fund contributed to this article.