Category: Semiconductor Stocks

Nvidia Q4 Earnings: A Tough Company to Bet Against

Posted on 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. 

Nvidia Throwback: An Example of Why Conviction Matters for Stocks

Posted on by io-fund

The video below was originally recorded on August 8th 2022. You can view the full clip here.view the full clip here.

Last August, Nvidia had a $2.5 billion revenue miss due to gaming and crypto mining related weakness. This caused the stock to selloff (8%) in one day. Many pundits were questioning if Nvidia could overcome the gaming segment weakness given Ethereum’s Merge to Proof of Stake would permanently reduce demand for gaming GPUs.

Charles Payne of Fox Business News asks Beth Kindig of I/O Fund if she still plans to hold the stock given the crypto mining surprise.

Her answer is fairly simple: “It’s a tough day for Nvidia investors but in the long run it’s not going to matter. We hold the stock for its lead in artificial intelligence. Anything outside of that thesis is not important to us.  To be contrarian, data center is going to be up 61%, so for AI investors such as myself, we are right on track.”

Below is the I/O Fund trading history on Nvidia which shows why it’s important to have conviction in tech stocks. Due to having this conviction, the I/O Fund bought Nvidia at the low in October at exactly $108 with a real-time trade alert sent to their research customers. 

You can view follow-up analysis on Nvidia here:

Get Free Weekly Webinars Delivered to Your Inbox! Subscribe for Free Weekly Stock Analysis from Top-performing Analysts with 403% gains here:

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NVDA chart

Nvidia: How We Plan to Manage our I/O Fund Position

Posted on by io-fund

From the October 13th low, one of the best performing sectors has been semiconductors. This is a theme that we introduced in the I/O Fund Essentials video “Semiconductor Stocks Continue to Outperform Value” where we stated:

“With a rotation into value names underway, it would be easy to discard all of tech and move towards the sectors that are working. However, as we discussed last week, one specific tech sector is currently outperforming most value names – semiconductors.

This week, we provide a brief video taken from our weekly webinar where we offer a more macro context around why we like semiconductors going forward. Some markets appear to be closer to new highs than lows, and we believe that semiconductor stocks are signaling that they are ready to resume their leadership role going into 2023. 

Reference our analysis last week “The Next Bull Market’s Leaders are Being Decided Now” for more information in addition to the video below.”

Since releasing this for our Essentials Members at the end of December, semiconductors have continued to shine. The chart below shows semis are the number one performing sector in tech.

Once of the leading stocks within this sector is Nvidia, a stock that has been a top holding in our portfolio since 2018. Notably, focusing on building Nvidia and closely managing this allocation is as relevant as ever.

We covered this last week in our February stock tip when we stated: 

“Simply put, as Big Tech continues to build out hyperscale scale data centers and AI based technology, they will require specialized semiconductor chips – AI accelerator chips – to provide the necessary computing power required. At the moment, the AI chip market is a duopoly with Nvidia and AMD. However, Nvidia’s position is much larger than AMD and a “better” GPU. So as Big Tech continues these AI related investments, Nvidia is the first place Big Tech will go to buy them – namely Nvidia’s H100 GPU chip.”

Nvidia: Technical Analysis

Unlike most tech names, NVDA has a probable path to new highs. The long-term technical path from the 2018 low is listed below in blue, with my alternative path in red.

The market is stretched and setting up for a pullback. This is evident with NVDA’s momentum indicator below the chart. Every time internal momentum reached these heights, and pullback soon followed. As long as the coming pullback holds the $140-$138 region, then the blue path remains valid. This path has the 2022 bear market as a pullback in a larger uptrend, targeting $355+ in the coming months. If we do break below the $140-$138 region, then the odds of this path to new highs becomes diminished, and it opens the door to the $90 region.

The pressing question is how much farther can NVDA run in this bounce off the October lows? The $230 region is strong resistance. There is a confluence of key angles in this region.

If we do see a breakout above the $230 region, this is not a breakout we would buy. If we zoom in on the bounce off the October lows, it is quite clear that the structure of the uptrend is only 3 waves.

A three wave move (in either direction) tends to be symmetrical, and leads to large corrective moves. In terms of symmetrical, what I mean is that the length of the 2nd move higher tends to be the length of the first move higher.

So, if NVDA does see one more high into the $241 region, this would be the exact symmetrical move where most 3 wave bounces tend to end. When you factor in that each move higher is happening with less momentum, the risk is quite elevated above $241.

Conclusion:

We see the odds of NVDA retracing back to the $170-$150 region as a high probability. We will likely look to slowly layer in around these levels. However, NVDA holding the $140-$138 region will be crucial. If this region breaks, it will open the door to the $90 region. This would coincide with the macro environment beginning to drive equities once again. As long-term investors, our plan is to keep NVDA as a high allocation in our portfolio. Our goal is to further accumulate on the coming drawdown, and we will slowly layer into this stock at key levels.

We favor buying in small layers of 1% or 2% at key levels, which we described above. This mitigates our risk if we do reach the $90 region. For example, we bought at the Nvidia low in October at $108. No matter how high our conviction may be in a specific name, macro is the primary force on stocks right now, which is why adding in small layers is even more important in 2023 than in previous years, such as 2020-2021.

Knox Ridley holds a premium webinar every Thursday where he reviews key positions, including NVDA. We cover macro charts as well as various stocks to get a clear understanding of where the market may be going and how to position for it. Learn more about Advanced Market Signals here.Advanced Market Signals here.

February Stock Tip: The Best Way to play Big Tech AI in 2023

Posted on by io-fund

Recently, we wrote about the 2023 outlook and trends for overall IT spending and Big Tech capex. In summary, both are expected to be flat to slightly down. Here is what we said on the premium site:

“Overall, Big Tech has forecasted capex to be flat to slightly down y/y. However, an important theme was a shift toward higher ROI capex such as technical infrastructure and reduction in lower ROI capex, such as office facilities. After embarking on an aggressive capex program in 2021 and 2022, Big Tech has taken a pause to reassess their cost base and to reprioritize capex in light of the current macro environment.  

Put another way, the size of the capex pie isn’t expected to grow in 2023 compared to 2022, but the slice spent on technical infrastructure (i.e. Cloud and AI), will grow at the expense of labor, office facilities etc. A change in capex mix that we believe is supportive in the medium-term of NVDA and AMD.”

There is a collective shift from higher return capex at the expense of lower return capex. From an investing perspective, the key takeaway is to identify markets where demand continues to be driven by secular demand and avoid those facing cyclical demand headwinds. For example, there is continued demand for Hyperscale Data Centers and AI related investments while the memory sector is grappling with weaker consumer related demand exacerbated by excess inventory.

The key theme from Big Tech Q422 commentary was the strategic importance and focus on AI investments to enhance their competitive positioning. Here at I/O Fund, we have continually looked for opportunities to invest in this secular theme and identify companies with strong market positions and competitive product offerings led by focused management teams with an identifiable investment catalyst.

With that in mind, we thought it would be worthwhile for our readers to revisit our positive investment thesis on Nvidia. It’s one of our largest core positions.  

Simply put, as Big Tech continues to build out hyperscale scale data centers and AI based technology, they will require specialized semiconductor chips – AI accelerator chips – to provide the necessary computing power required. At the moment, the AI chip market is a duopoly with Nvidia and AMD. However, Nvidia’s position is much larger than AMD and a “better” GPU. So as Big Tech continues these AI related investments, Nvidia is the first place Big Tech will go to buy them – namely Nvidia’s H100 GPU chip. (Note: Later in the year, AMD will release a GPU to rival Nvidia and we will cover this for you including correct timing as the I/O Fund has predicted every twist and turn AMD has taken in its enormous comeback against Intel – for now, Nvidia has a near monopoly on GPUs for AI acceleration.)

Given the market dynamics outlined above, here is how Nvidia’s CEO Jensen Huang described the AI market opportunity in response to a question by Vivek Arya around the overall capex outlook. Huang’s comments focused on Nvidia driving growth from AI acceleration, rather than general purpose computing. This implies that capex can be flat while Nvidia will be serving the most valuable piece in the stack. AI acceleration, according to the CEO, will not be flat or down. A similarly positive tone echoed by Big Tech.

“And then, Jensen, the question for you. A lot of concerns about large hyperscalers cutting their spending and pointing to a slowdown. So if, let’s say, U.S. cloud capex is flat or slightly down next year, do you think your business can still grow in the data center and why?”

“Vivek, our data center business is indexed to two fundamental dynamics. The first has to do with general purpose computing no longer scaling. And so, acceleration is necessary to achieve the necessary level of cost efficiency scale and energy efficiency scale, so that we can continue to increase workloads while saving money and saving power. Accelerated computing is recognized generally as the path forward as general purpose computing slows. The second dynamic is AI. And we’re seeing surging demand in some very important sectors of AIs and important breakthroughs in AI.”

“And so, you could see that our company is indexed to two things, both of which are more important than ever, which is power efficiency, cost efficiency and then, of course, productivity. And these things are more important than ever. And my expectation is that we’re seeing all the strong demand and surging demand for AI and for these reasons.”

In light of Big Tech’s focus on higher return capex, Jenson’s comment was very informative on how Nvidia stands to benefit from Big Tech’s change in capex mix. As Big Tech continues to invest in AI infrastructure, they will need chips that provide the highest computing power and productivity with the most efficiency. At the moment, Nvidia’s H100 is the best AI chip to fulfill these requirements.

How will Nvidia benefit?

The key investment catalyst for Nvidia is the adoption and implementation of the H100 GPU by its customers. 

So without getting too technical, here is an outline of the medium and long term investment thesis.

  • Nvidia’s March 2022 introduction of the Hopper H100 GPU with 80bn transistors – 48% more than Nvidia’s A100 with 54 billion – is a game-changer. Simply put, more transistors means faster speeds and increased computing power
  • H100 is 6x faster and its performance is 2-3x better than Nvidia’s prior A100 GPU. H100 has 50% more memory and interface bandwidths. Higher bandwidth will create more demand for their software in the future. The ability for the GPU to connect directly to the network will avoid CPU bottlenecks
  • The A100 has led company gains since Q22020, now the H100 will lead the next leg of growth. In the most recent Q322 investor call, management indicated H100 will quickly overtake A100
  • H100 will power AI based and high performance computing systems. There are four layers to Nvidia’s full stack accelerated computing: hardware (AI accelerators), system software, platform software and applications. Overtime, this position will enable Nvidia to monetize more of the software stack due to vendor lock-in effects. In the Q322 call, management indicated this is effectively starting “now” at the enterprise level
  • Over the long term, Nvidia will combine its hardware offering with software component primarily targeting the auto industry  
  • Nvidia is taking a play out of Apple’s playbook that helped it’S market cap grow to 2 trillion.  Nvidia’s goal is to leverage their dominate position in hardware to capture the lion’s share of the software. That’s exactly what Apple did with mobile devices and software related apps and services.
  • Most importantly, and not covered at the level it deserves (or at all by the media), Nvidia is going to be an AI software leader. This marks a monumental shift for a company that is traditionally hardware-only. We have written about this long-term opportunity for our premium subscribers here.
  • This transformation has not yet been appreciated by Wall Street nor reflected in the stock price. Nvidia’s 2022 Investors presentation identified a $300B Market opportunity.

To use a baseball analogy, Nvidia has just begun the first inning of this transformative process.

Upcoming catalysts

Nvidia is up about 52% ytd and is due to report earnings on 2/22/23. We will be looking for continued signs that gaming has bottomed, adoption trends of H100 and whether management expects a 2H23 bounce similar to what their peers guided for. We’ll touch upon these topics after the company report earnings.

It is important to note that Gaming is still an important business for Nvidia for its earnings contribution. Gaming’s exposure to consumer-related hardware products like PCs and gaming consoles has historically been the source of cyclical growth concerns and stock volatility around earnings releases. Future growth will not come from gaming, where Nvidia is already a mature, market leader. Nvidia’s 2022 Investor’s Presentation provided future estimates which detail how consumer exposure should become less of a concern to investors. Overtime, Nvidia will transform from a gaming to an AI software focused company.

There were signs that gaming weakness had bottomed in Q322 and the market may still be focused on that in Q422. Our main focus will be on H100. If the nascent signs of H100 adoption seen in Q3 continue to grow, this will increase our conviction on Nvidia and it will begin to get attention from Wall Street it deserves as 2023 unfolds.  

Why 2023 May be a Strong Year for Nvidia:

Big Tech is not immune to the weaker macroeconomy nor consumer. This has been evident in their earnings releases. For Big Tech’s next capex act, their commentary focused on shifting capex to higher ROI investments with a focus on cost efficiency. These comments have increased our conviction that investments in AI are a key strategic priority and will continue.

From an investing perspective, it supports our investment thesis in Nvidia and AMD. Nvidia’s new H100 GPU chip has positioned it to benefit from the buildout in AI related and hyperscale data center infrastructure. Critically, given their dominant market position in AI chips, this will enable Nvidia to then monetize and gain a greater share in the software stack. In addition, AMD plans to commercially release its MI300 GPU this year.

Per the most recent AMD earnings call:

“MI300 will be the industry's first data center chip that combines a CPU, GPU and memory into a single integrated design, delivering 8x more performance and 5x better efficiency for HPC and AI workloads, compared to our MI250 accelerator currently powering the world's fastest supercomputer. MI300 is on track to begin sampling to lead customers later this quarter and launch in the second half of 2023.”

In the most recent earnings report, Nvidia management commented that the H100 adoption rate and software monetization at the enterprise level is happening faster than expected.

This month, keep an eye out for technical analysis from Knox Ridley, where he will go over how he plans to manage the Nvidia position in the portfolio. On a side note, he nailed Nvidia’s bottom with an entry of $108.51 on October 13th with a real-time trade alert. You will get his very best technical analysis on a leading position in the portfolio that the analyst team believes will fundamentally stand apart this year. Stay tuned for this!

In addition, Essentials Members will receive an earnings update on Nvidia following the earnings report to  better gauge 2023 timing and entries.

We can’t urge you enough to take your time with each stock as too many research services pump out content for content’s sake. We are a real, live portfolio that is audited, and we show you the exact process we follow to make smart investing decisions. For the February stock pick, we want to drill down deep so our readers get top notch coverage of one of our highest conviction holdings. Don’t be surprised if you get more Nvidia coverage this month rather than moving on quickly to another name. Institutions take months to research a stock, and this level of depth is exactly what we bring to retail investors.

Have a wonderful weekend and we will see you next week!

AMD Q4 Earnings: Mixed Report that Points Toward H2 Rebound

Posted on by io-fund

Objectively, AMD had a mixed report. There are no serious red flags, per se, and the report was a bit better than Microsoft as management gave investors something to look forward to. Management sounded confident (or even adamant) there would be a H2 rebound in the data center and a Q2 rebound on PCs. 

Certainly, the report wasn’t a disaster like Intel, and that comparative performance is likely helping AMD with flat price action despite there being some puts and takes. 

Where the report was mixed is the weaker-than-expected data center sequential growth and lower gross margin. Investors will need to trust management has enough visibility into H2 to deliver. It’s helpful TSM echoed the same, which is a H2 rebound. However, the current information provided for next quarter is double digit deceleration sequentially in the data center due to high inventory levels. 

We remain positive on AMD but want to be a good messenger on the nuances of the earnings report. 

Financials: 

AMD reported inline with expectations for Q4. There was a slight beat on revenue at $5.52 billion expected compared to $5.6 billion actual. This represented growth of 16% compared to growth of 14.3% expected. 

The March quarter guide missed, and this is where analysts on the earnings call were primarily focused. Guidance of $5.3 billion missed by expectations of $5.52 billion, which equals growth of (10%) compared to (6.3%) expected. Please read the Earnings Call Notes below, as it required further discussion to put the pieces together. Prior to Xilinx, GAAP tracked about 1 point within the Non-GAAP margins.  

The inline Q4 resulted in the FY2022 also being in line for growth of 44% and revenue of $23.6B. 

GAAP Margins are not the best to focus on right now as they include the amortization of Xilinx assets and intangibles. Rather, for YoY comparison, the adjusted margins are a better indication of AMD’s business operations.   

Q4 Margins: 

  • Adjusted Gross Margin of 51% compares to Adjusted GM of 50% in the year ago quarter and 50% in Q3
  • Adjusted operating margin of 23% compares to 27% a year ago, analysts were concerned about this
  • Adjusted net margin of 19.6% compares to 23% a year ago, analysts were concerned about this 

FY 2022 Margins: 

Same as above, the GAAP margins aren’t reflective of the business operations due to the Xilinx acquisition.  

  • Adjusted Gross Margin of 52% for gross profit of $12.273B
  • Adjusted operating margin of 27% for operating profit of $6.345B
  • Adjusted net margin of 23.3% for profit of $5.5 billion 

Cash Flow: 

AMD reported lower than usual cash flow in Q4: 

  • Operating cash flow of $567 million, for a margin of 10% compared to a margin of 17% a year ago and 17% last quarter
  • Free cash flow of $443 million, for a margin of 7.90% compared to FCF of 15% a year ago and FCF of 15% last quarter 

For Fiscal Year 2022, cash flow:

  • Operating cash flow of $3.6 billion for a margin of 15.2%
  • Free cash flow of $3.1 billion for a margin of 13% 

The company repurchased $250M shares this quarter. There is $2.3 billion in cash on the balance sheet and $330 million in debt. 

Revenue Segments: 

The data center was up 42% YoY for $1.7B in revenue. This is $1 billion higher than the previous quarter for 6% QoQ growth. As stated above, the issue is the miss on Q1. It was vague in the quarterly report yet was indicated on the call that data center would be down “double digits” sequentially due to high inventory levels. However, management had positive things to say about H2 and the data center.  

Client revenue of $903 million was down (51%) YoY and down (9.7%) sequentially. It was indicated on the call that client revenue would be down single digits in Q1 and this would mark the bottom, according to management. There was a reported operating income loss of ($152) million.  

Gaming revenue of $1.6 billion was down (7%) YoY and flat sequentially.  

Embedded revenue of $1.4 billion was up 1,868% YoY due to the Xilinx acquisition and was up 7.6% QoQ. 

Earnings Call: 

The first hint of some data center weakness in Q1 was in this information provided by the new CFO, Jean Hu: 

“Year-over-year Data Center and Embedded segment revenue are expected to grow, offset by lower Client and Gaming segment revenue. Sequentially, Embedded segment revenue is expected to increase. Client and Gaming segment revenue are expected to decline largely consistent with seasonality. Data Center segment revenue is expected to decline due to elevated levels of inventory with some cloud customers.” 

Despite not guiding for full year 2023, the CFO added: 

“Directionally, we expect Embedded and Data Center annual revenue to grow from 2022 based on the strength of our product portfolio and expected share gains. In addition, we expect Client and the Gaming segment revenue to decline based on the current demand environment.” 

This was followed by a question later on by Ross Seymore: 

“So just trying to get the magnitude of just how much Data Center has to drop to make that outcome on the mix side be true.” 

Lisa Su: 

“Sure, Ross. So let's see. We said the Client and Gaming segments would be seasonal. So you would expect that the Data Center would be more than seasonal. So maybe to help you size that, think about the Data Center sequential drop as double digit, whereas the Client and the Gaming segments are more like single digit, if that helps.” 

The bulk of the call was dedicated to dissecting the data center segment with some additional questions on gross margin and the Client segment/PCs.  

Right out the gate, an analyst asked what is on everyone’s mind: 

“But I've gotten about a zillion versions of the same question tonight, which was do you think the company can grow for the year 2023 overall? And if you could just kind of walk us through the drivers of the business as we work through the year? Thanks.” 

The CEO answered with the following, indicating that data center would be a growth driver with emebedded: 

“As we mentioned in the prepared remarks, coming off of a very strong 2022, there is some inventory at some of the cloud customers. And so, we are expecting a softer first half and then a stronger second half, but we feel very good about our market share position and opportunity to grow with Data Center.  

Also on the embedded side, I would say we have a very strong portfolio there. The Xilinx business has done very well in 2022. It's a diversified set of markets. We see strength in a number of the end markets. And so, we think that's also a grower for AMD.  

On the other side, our Client and Gaming businesses, we believe, will decline. We have made good progress. When we look at the PC markets in the second half of the year of 2022, we were really trying to rebalance inventory.” 

That was the first of many times management clarified that the data center would grow in H2. Here were a few other times:

“Our expectation is that sort of the first half softness for cloud and then second half strength as that's worked through. But like I said, it's different for each customer. And then in terms of overall growth, as I said, we're very bullish on the overall growth of our Data Center business and the opportunity to gain share as we go through the year.” 

Discussion on Q1 Being the Bottom for PCs: 

Vivek Arya: 

“But when we look at the shipments, right, from you and your competitor, they could be down as much as 40% or 50%, right, year-on-year in Q1. So do you think there's a possibility that the TAM assumption of just down 10% could be an optimistic one?”  

Lisa Su: 

“I think second quarter – first quarter should be the bottom for us in PCs. We – and then grow from there into the second quarter and then into the second half. And I should note also, Vivek, I mean, we just launched our Ryzen 7000 Series with sort of our AI capabilities, both from a notebook and desktop standpoint.”  

There was more reiteration later by Lisa Su but she was hesitant to say if the H2 strength will result in YoY growth. 

“I think our Data Center grow – growth in the second half versus first half, we expect that to be significantly stronger. As it relates to clients, we would also expect it to be stronger. Again, depending a bit on macro and sort of how the TAM actually evolves. 

I think for the Embedded businesses, I would say that we expect to grow over the full year 2023 versus 2022. What we see right now is a fairly strong backlog and good visibility into the first half of the year. I'm not ready to say that Embedded will grow in the second half versus the first half, though, because we're coming off very strong growth already. And so I think those are the puts and takes.” 

It was interesting to hear that AMD took market share on PCs as the narrative has been that Intel did due to aggressive pricing 

Lisa Su: 

“I would say that in general, the PC market share numbers are probably a bit noisy right now, just given all of the sell-in, sell-through and the inventory dynamics that are being worked through. Actually, in the fourth quarter, we believe we gained a little bit of share in the PC market.” 

There was (yet) another question on PCs: 

Mark Lapacis: 

“And Lisa, correct me if I am wrong, I thought I heard you say in an answer to an earlier question that you expect the PC client, but just to grow into second quarter. So is that suggest that 1Q, you think is the bottom on the PC? And then I had a follow-up? Thank you.” 

Lisa Su: 

“We do believe the first quarter is the bottom for our PC market – for our PC business, and we'll see some growth in the second quarter and then a seasonally higher second half.”

Discussion on Adjusted Gross Margin Guide: 

Management provided guidance of 50% on the adjusted gross margin which is 3% lower than the year ago quarter. Due to data center being down sequentially, the Q1 margin is expected to be lower than usual. 

Matt Ramsay: 

“But I kind of wanted to focus on the drivers of the longer-term margin that's down, I guess, three or four points from where you were a few quarters ago despite more mix of the revenue coming from Embedded and Data Center?” 

Lisa Su: 

“In terms of the sequential question that you had from Q4 to Q1, that's just a product of the mix. So with Data Center being lower sequentially that – that's that. We are also working through our client inventory clearing [..] And so as Jean said in the prepared remarks, we would expect margin expansion as we go into the second half with the growth in Data Center, Embedded and some normalization of the client business as well.” 

Stacy Rasgon: 

“Can you give us any idea like first half to second half? Or I mean just for the full year, do you think gross margins grow year-over-year from the 52% that you printed in 2022?” 

Jean Hu: 

“The major headwind we are facing is really Client side, which if you think about the gross margin in the first half of 2022 versus the first half of 2023, the major impact is from the client revenue, inventory correction, which impact the gross margin in the Client segment […] But overall, we feel pretty good. Once we normalize the Client segment, our gross margin will continue to expand.” 

Conclusion: 

We plan to see it through with AMD. I had just written in the Tesla write-up that we won’t get a perfect ER from any company this quarter, so investors will need to subjectively determine what they are willing to hold through and what will cause them to move to the sidelines. 

We don’t have to wait too long as the Q2 guide on PCs should potentially clear some of the cloudy skies. From there, we will know from not only AMD but also from TSM, NVDA and others if the much-anticipated H2 rebound will be on time. It makes sense because the comps were low in Q3 from the initial PC miss and same for NVDA’s crypto miss.  

If a picture is worth a thousand words, then this is why we plan to see it through with AMD. Notably, other semi industry analysts believe AMD’s true market share is in the mid-20s. We covered this here.

 Source: Reuters 

Notably, I had stated on the forum in the pre-ER report for AMD that I’m not expecting much from the company for Q1. We are looking at Q2 and beyond. 

Look for Meta’s comments tomorrow on capex to potentially hurt AMD and NVDA stock if the rumors are true about a $2B pullback on capex spending. We covered this on the forum here. We aren’t too concerned as there’s only one path to build out the AI economy – which is data centers and eventually edge microdata centers. If not Meta, then other Big Tech players will step up. Meta is simply trying to keep up as there are many hyperscaler customers to consider.

 

 

AMD Q4 Earnings: Mixed Report that Points Toward H2 Rebound

Posted on by io-fund

Objectively, AMD had a mixed report. There are no serious red flags, per se, and the report was a bit better than Microsoft as management gave investors something to look forward to. Management sounded confident (or even adamant) there would be a H2 rebound in the data center and a Q2 rebound on PCs. 

Certainly, the report wasn’t a disaster like Intel, and that comparative performance is likely helping AMD with flat price action despite there being some puts and takes. 

Where the report was mixed is the weaker-than-expected data center sequential growth and lower gross margin. Investors will need to trust management has enough visibility into H2 to deliver. It’s helpful TSM echoed the same, which is a H2 rebound. However, the current information provided for next quarter is double digit deceleration sequentially in the data center due to high inventory levels. 

We remain positive on AMD but want to be a good messenger on the nuances of the earnings report. 

Financials: 

AMD reported inline with expectations for Q4. There was a slight beat on revenue at $5.52 billion expected compared to $5.6 billion actual. This represented growth of 16% compared to growth of 14.3% expected. 

The March quarter guide missed, and this is where analysts on the earnings call were primarily focused. Guidance of $5.3 billion missed by expectations of $5.52 billion, which equals growth of (10%) compared to (6.3%) expected. Please read the Earnings Call Notes below, as it required further discussion to put the pieces together. Prior to Xilinx, GAAP tracked about 1 point within the Non-GAAP margins.  

The inline Q4 resulted in the FY2022 also being in line for growth of 44% and revenue of $23.6B. 

GAAP Margins are not the best to focus on right now as they include the amortization of Xilinx assets and intangibles. Rather, for YoY comparison, the adjusted margins are a better indication of AMD’s business operations.   

Q4 Margins: 

  • Adjusted Gross Margin of 51% compares to Adjusted GM of 50% in the year ago quarter and 50% in Q3
  • Adjusted operating margin of 23% compares to 27% a year ago, analysts were concerned about this
  • Adjusted net margin of 19.6% compares to 23% a year ago, analysts were concerned about this 

FY 2022 Margins: 

Same as above, the GAAP margins aren’t reflective of the business operations due to the Xilinx acquisition.  

  • Adjusted Gross Margin of 52% for gross profit of $12.273B
  • Adjusted operating margin of 27% for operating profit of $6.345B
  • Adjusted net margin of 23.3% for profit of $5.5 billion 

Cash Flow: 

AMD reported lower than usual cash flow in Q4: 

  • Operating cash flow of $567 million, for a margin of 10% compared to a margin of 17% a year ago and 17% last quarter
  • Free cash flow of $443 million, for a margin of 7.90% compared to FCF of 15% a year ago and FCF of 15% last quarter 

For Fiscal Year 2022, cash flow:

  • Operating cash flow of $3.6 billion for a margin of 15.2%
  • Free cash flow of $3.1 billion for a margin of 13% 

The company repurchased $250M shares this quarter. There is $2.3 billion in cash on the balance sheet and $330 million in debt. 

Revenue Segments: 

The data center was up 42% YoY for $1.7B in revenue. This is $1 billion higher than the previous quarter for 6% QoQ growth. As stated above, the issue is the miss on Q1. It was vague in the quarterly report yet was indicated on the call that data center would be down “double digits” sequentially due to high inventory levels. However, management had positive things to say about H2 and the data center.  

Client revenue of $903 million was down (51%) YoY and down (9.7%) sequentially. It was indicated on the call that client revenue would be down single digits in Q1 and this would mark the bottom, according to management. There was a reported operating income loss of ($152) million.  

Gaming revenue of $1.6 billion was down (7%) YoY and flat sequentially.  

Embedded revenue of $1.4 billion was up 1,868% YoY due to the Xilinx acquisition and was up 7.6% QoQ. 

Earnings Call: 

The first hint of some data center weakness in Q1 was in this information provided by the new CFO, Jean Hu: 

“Year-over-year Data Center and Embedded segment revenue are expected to grow, offset by lower Client and Gaming segment revenue. Sequentially, Embedded segment revenue is expected to increase. Client and Gaming segment revenue are expected to decline largely consistent with seasonality. Data Center segment revenue is expected to decline due to elevated levels of inventory with some cloud customers.” 

Despite not guiding for full year 2023, the CFO added: 

“Directionally, we expect Embedded and Data Center annual revenue to grow from 2022 based on the strength of our product portfolio and expected share gains. In addition, we expect Client and the Gaming segment revenue to decline based on the current demand environment.” 

This was followed by a question later on by Ross Seymore: 

“So just trying to get the magnitude of just how much Data Center has to drop to make that outcome on the mix side be true.” 

Lisa Su: 

“Sure, Ross. So let's see. We said the Client and Gaming segments would be seasonal. So you would expect that the Data Center would be more than seasonal. So maybe to help you size that, think about the Data Center sequential drop as double digit, whereas the Client and the Gaming segments are more like single digit, if that helps.” 

The bulk of the call was dedicated to dissecting the data center segment with some additional questions on gross margin and the Client segment/PCs.  

Right out the gate, an analyst asked what is on everyone’s mind: 

“But I've gotten about a zillion versions of the same question tonight, which was do you think the company can grow for the year 2023 overall? And if you could just kind of walk us through the drivers of the business as we work through the year? Thanks.” 

The CEO answered with the following, indicating that data center would be a growth driver with emebedded: 

“As we mentioned in the prepared remarks, coming off of a very strong 2022, there is some inventory at some of the cloud customers. And so, we are expecting a softer first half and then a stronger second half, but we feel very good about our market share position and opportunity to grow with Data Center.  

Also on the embedded side, I would say we have a very strong portfolio there. The Xilinx business has done very well in 2022. It's a diversified set of markets. We see strength in a number of the end markets. And so, we think that's also a grower for AMD.  

On the other side, our Client and Gaming businesses, we believe, will decline. We have made good progress. When we look at the PC markets in the second half of the year of 2022, we were really trying to rebalance inventory.” 

That was the first of many times management clarified that the data center would grow in H2. Here were a few other times:

“Our expectation is that sort of the first half softness for cloud and then second half strength as that's worked through. But like I said, it's different for each customer. And then in terms of overall growth, as I said, we're very bullish on the overall growth of our Data Center business and the opportunity to gain share as we go through the year.” 

Discussion on Q1 Being the Bottom for PCs: 

Vivek Arya: 

“But when we look at the shipments, right, from you and your competitor, they could be down as much as 40% or 50%, right, year-on-year in Q1. So do you think there's a possibility that the TAM assumption of just down 10% could be an optimistic one?”  

Lisa Su: 

“I think second quarter – first quarter should be the bottom for us in PCs. We – and then grow from there into the second quarter and then into the second half. And I should note also, Vivek, I mean, we just launched our Ryzen 7000 Series with sort of our AI capabilities, both from a notebook and desktop standpoint.”  

There was more reiteration later by Lisa Su but she was hesitant to say if the H2 strength will result in YoY growth. 

“I think our Data Center grow – growth in the second half versus first half, we expect that to be significantly stronger. As it relates to clients, we would also expect it to be stronger. Again, depending a bit on macro and sort of how the TAM actually evolves. 

I think for the Embedded businesses, I would say that we expect to grow over the full year 2023 versus 2022. What we see right now is a fairly strong backlog and good visibility into the first half of the year. I'm not ready to say that Embedded will grow in the second half versus the first half, though, because we're coming off very strong growth already. And so I think those are the puts and takes.” 

It was interesting to hear that AMD took market share on PCs as the narrative has been that Intel did due to aggressive pricing 

Lisa Su: 

“I would say that in general, the PC market share numbers are probably a bit noisy right now, just given all of the sell-in, sell-through and the inventory dynamics that are being worked through. Actually, in the fourth quarter, we believe we gained a little bit of share in the PC market.” 

There was (yet) another question on PCs: 

Mark Lapacis: 

“And Lisa, correct me if I am wrong, I thought I heard you say in an answer to an earlier question that you expect the PC client, but just to grow into second quarter. So is that suggest that 1Q, you think is the bottom on the PC? And then I had a follow-up? Thank you.” 

Lisa Su: 

“We do believe the first quarter is the bottom for our PC market – for our PC business, and we'll see some growth in the second quarter and then a seasonally higher second half.”

Discussion on Adjusted Gross Margin Guide: 

Management provided guidance of 50% on the adjusted gross margin which is 3% lower than the year ago quarter. Due to data center being down sequentially, the Q1 margin is expected to be lower than usual. 

Matt Ramsay: 

“But I kind of wanted to focus on the drivers of the longer-term margin that's down, I guess, three or four points from where you were a few quarters ago despite more mix of the revenue coming from Embedded and Data Center?” 

Lisa Su: 

“In terms of the sequential question that you had from Q4 to Q1, that's just a product of the mix. So with Data Center being lower sequentially that – that's that. We are also working through our client inventory clearing [..] And so as Jean said in the prepared remarks, we would expect margin expansion as we go into the second half with the growth in Data Center, Embedded and some normalization of the client business as well.” 

Stacy Rasgon: 

“Can you give us any idea like first half to second half? Or I mean just for the full year, do you think gross margins grow year-over-year from the 52% that you printed in 2022?” 

Jean Hu: 

“The major headwind we are facing is really Client side, which if you think about the gross margin in the first half of 2022 versus the first half of 2023, the major impact is from the client revenue, inventory correction, which impact the gross margin in the Client segment […] But overall, we feel pretty good. Once we normalize the Client segment, our gross margin will continue to expand.” 

Conclusion: 

We plan to see it through with AMD. I had just written in the Tesla write-up that we won’t get a perfect ER from any company this quarter, so investors will need to subjectively determine what they are willing to hold through and what will cause them to move to the sidelines. 

We don’t have to wait too long as the Q2 guide on PCs should potentially clear some of the cloudy skies. From there, we will know from not only AMD but also from TSM, NVDA and others if the much-anticipated H2 rebound will be on time. It makes sense because the comps were low in Q3 from the initial PC miss and same for NVDA’s crypto miss.  

If a picture is worth a thousand words, then this is why we plan to see it through with AMD. Notably, other semi industry analysts believe AMD’s true market share is in the mid-20s. We covered this here.

 Source: Reuters 

Notably, I had stated on the forum in the pre-ER report for AMD that I’m not expecting much from the company for Q1. We are looking at Q2 and beyond. 

Look for Meta’s comments tomorrow on capex to potentially hurt AMD and NVDA stock if the rumors are true about a $2B pullback on capex spending. We covered this on the forum here. We aren’t too concerned as there’s only one path to build out the AI economy – which is data centers and eventually edge microdata centers. If not Meta, then other Big Tech players will step up. Meta is simply trying to keep up as there are many hyperscaler customers to consider.

 

 

Q1 Webinar Highlights

Posted on by io-fund

Below is an excerpt from the I/O Fund team on what to expect for the upcoming earnings season. We discuss some trends we will watch during the earnings season. We do it every quarter, and it is not an earnings call or prediction, as anything can happen during an earnings season. It’s an opportunity for us to go over our fundamental research with our members.

  • Portfolio Manager Knox Ridley talks about the broad market. He compares ARKK, which includes innovators of the future companies, with the Dow Jones Industrial Average. ARKK has not even tested its bear market trendline and is only 5% off the October 13th low. On the other hand, the Dow has broken its bear market trendline and is 18% off the October 13th low. It suggests that the market is rewarding the value companies.
  • The semiconductor sector is outperforming all the sectors since the October 13th low. We are investing in this new trend. On the other hand, Crypto and other high-beta stocks are getting punished.
  • The two important themes for 2023 that we will closely watch is the weakening US Consumer and the Bank of Japan losing control of its bond market.
  • Lead Tech Analyst Beth Kindig says that in the current environment, we will give out fewer company names to our premium members this year as it is difficult to clear the high bar set to be considered quality companies. We would mainly look for companies in this quarter that are accelerating bottom line, and if we get potentially accelerating top line, that would be a nice combo.
  • On the trends, the ad-tech sector is not expected to do well in 2023. CTV ads will lead the market. We don’t want to front run ad-tech and want to wait for the evidence of a bottom.
  • The semiconductor companies are expecting a turnaround in the second half of 2023.
  • Equity Analyst Royston Roche says that most of the cloud companies have shown a notable sequential decline in growth from Q3 to Q4. So, we have been cautious until we get some concrete information, which is why we will remain on the sidelines and keep a watch on the earnings.
  • Solar stocks were the winners in 2022 as they will benefit from the Inflation Reduction Act of 2022 in the next few years. The expected revenue growth rate is over 30% for the major renewable companies for the full year 2023. Q1 revenue growth is also strong.

TSM Q4 Earnings Review

Posted on by io-fund

Taiwan Semiconductor Manufacturing released its Q4 2022 results on January 12th. Revenue grew by 26.7% YoY and declined 1.5% QoQ to $19.93 billion. It came in at the lower end of the management guidance of $19.9 billion to $20.7 billion. The company’s profits were strong. EPS came at $1.82 and beat the analyst’s estimate by $0.05. The market reacted positively to the company’s report.

Note: reference our previous deep dive from December here.

The company’s CFO, Wendell Huang said, “Our fourth quarter business was dampened by end market demand softness, and customers’ inventory adjustment, despite the continued ramp-up for our industry-leading 5nm technologies,” He further added, “Moving into first quarter 2023, as overall macroeconomic conditions remain weak, we expect our business to be further impacted by continued end market demand softness, and customers’ further inventory adjustment.”

The gross profit came in at $12.4 billion compared to $8.29 billion in the same period last year. Gross profit margin improved to 62.2% from 60.4% in Q3 2022 and 52.7% in Q4 2021. It was higher than the management guidance of 59.5% to 61.5%. It was higher due to cost improvements and favorable foreign exchange rate, partially offset by lower utilization rates. We had also noted the Morgan Stanley analyst note in our pre-earnings update. Morgan Stanley analyst Charlie Chan named TSMC as a "Catalyst Driven Idea" ahead of the company reporting Q4 results and providing Q1 guidance. Chan, who thinks gross margins may surprise to the upside given TSMC's wafer price hikes, kept an Overweight rating and NT$700 price target on TSMC shares into the results.TSMC's wafer price hikes, kept an Overweight rating and NT$700 price target on TSMC shares into the results.

The operating income was $10.36 billion compared to $6.56 billion in the same period last year. Operating margin improved to 52% from 50.6% in Q3 2022 and 41.70% in Q4 2021. It was higher than the management guidance of 49% to 51%.

The net income was $9.43 billion compared to $5.97 billion in the same period last year. Net profit margin improved to 47.30% from 45.8% in Q3 2022 and 37.90% in Q4 2021.

The EPADR (Earnings per American Depository Receipt) came at $1.82 compared to $1.79 for Q3 2022 and $1.15 for Q4 2021. It beat the analyst’s estimate by $0.05. Return on Equity was 41.7% compared to 42.9% in Q3 2022 and 31.3% in the same period last year.

The free cash flow was $4.78 billion with a free cash flow margin of 24%, compared to a free cash flow of $4.84 billion (free cash flow margin 24%) in Q3 2022 and $5.12 billion (free cash flow margin of 33%) in Q4 2021. The company has a stable balance sheet. The company had cash & marketable securities of $50.84 billion and debt of $27.8 billion.

The advanced technologies, which are defined as 7-nanometer and below accounted for 54% of Q4 wafer revenue, with 5-nanometer process technology accounting for 32% and 7-nanometer process technology accounting for 22%. In Q3, 5-nanometer accounted for 28% and 7-nanometer accounted for 26%. This means 5nm is gaining market share sequentially.

Smartphone declined 4% QoQ and accounted for 38% of revenue. HPC increased 10% QoQ and accounted for 42%. IoT declined 11% QoQ and accounted for 8%. Automotive increased 10% QoQ and accounted for 6%. Digital Consumer Electronics accounted for 2% and others accounted for 4% of revenue.

For the full-year 2022 revenue grew by 33.5% YoY to $75.88 billion. The company’s CFO, Wendell Huang, said in the earnings call, “To recap our performance in 2022, we had a strong growth in 2022 as our technology leadership position enabled us to capture the industry’s megatrends of 5G and HPC.” technology leadership position enabled us to capture the industry’s megatrends of 5G and HPC.” The gross margin improved to 59.6% from 51.6% in the previous year. Similarly, the operating margin improved to 49.5% from 40.9% in 2021. The company generated free cash flow of $17.7 billion (23% of revenue) compared to $9.8 billion (17% of revenue) in 2021.

The company spent $36.3 billion in Capex in 2022 and plans to spend $32 billion to $36 billion in 2023.  Wendell Huang said in the earnings call, “As I have stated before, given the near-term uncertainties, we continue to manage our business prudently and tighten up our capital spending where appropriate. That said, our commitment to support customers’ structural growth remains unchanged and our disciplined CapEx and capacity planning remains based on the long-term market demand profile.”

3-nanometer process technology update

The company has started mass production of N3 chips. The CEO, C.C.Wei, said in the earnings call, “Our N3 has successfully entered volume production in late fourth quarter last year as planned with good yield. We expect a smooth ramp in 2023 driven by both HPC and smartphone applications. As our customers’ demand for N3 exceeds our ability to supply, we expect the N3 to be fully utilized in 2023. Sizable N3 revenue contribution, we expect to start in third quarter ‘23 and N3 will contribute mid single-digit percentage of our total wafer revenue in 2023. We expect the N3 revenue in 2023 to be higher than N5 revenue in its fourth year in 2020.” We expect a smooth ramp in 2023 driven by both HPC and smartphone applications. As our customers’ demand for N3 exceeds our ability to supply, we expect the N3 to be fully utilized in 2023. Sizable N3 revenue contribution, we expect to start in third quarter ‘23 and N3 will contribute mid single-digit percentage of our total wafer revenue in 2023. We expect the N3 revenue in 2023 to be higher than N5 revenue in its fourth year in 2020.”

He further added, “Our 3-nanometer technology is the most advanced semiconductor technology in both PPA and transistor technology, thus, we expect customers a strong demand in 2023, 2024, 2025 and beyond for our 3-nanometer technologies and are confident that our N3 family will be another large and non-large node for TSMC.”

Guidance:

The guidance for the Q1 is $16.7 billion to $17.5 billion, representing a YoY decline of 2.7% at the mid-point of the guidance. Gross margin to be between 53.5% to 55.5%. Operating margin is expected to be between 41.5% to 43.5%.

Wendell Huang, said in the earnings call “We have just guided our first quarter gross margin to be 54.5% at the midpoint mainly due to a lower capacity utilization rate as customers further adjust their inventory levels and a less favorable foreign exchange rate. In 2023, our gross margin faces challenges from lower capacity utilization due to semiconductor cyclicality, the ramp-up of entry, overseas fab expansion and inflationary cost.” However, the management is confident to achieve the long-term gross margin as he said “Excluding the impact of foreign exchange rate, we continue to forecast a long-term gross margin of 53% and higher is achievable.”

C.C. Wei said in the earnings call, “Entering 2023, we continue to observe softness in consumer end market segment, while other end market segments such as data center related have softened as well.” They expect revenue to decline mid-to high single digit percentage in the 1H of 2023 and expect revenue to increase in the 2H of 2023.

Even though 2023 will be a challenging year, the company will continue to grow faster than the industry. “For the full year of 2023, we forecast the semiconductor market, excluding memory, to decline approximately 4%, while foundry industry is forecast to decline 3%. For TSMC, supported by our strong technology leadership and differentiation, we will continue to expand our customer product portfolio and increase our addressable market and we expect 2023 to be a slight growth year for TSMC in U.S. data terms.”

Conclusion

The overall results are good particularly the margins have been strong. The management has given a cautious outlook for 2023. However, the company is expected to grow faster than the industry particularly due to its technological leadership. The management expects strong demand for the 3-nanometer chips in the coming years which is positive.

For more information regarding TSM’s products and our investment thesis, please reference this analysis from December

Interview with Real Vision: Nvidia is the #1 AI Stock and Why Cloud Looks Weak

Posted on by io-fund

Last week, I joined Samuel Burke from Real Vision to discuss “3 Ideas.” We discussed why I see Nvidia as the #1 AI stock and also why cloud is weaker than it appears.

View the Clip on Twitter hereView the Clip on Twitter here

The full 30-minute video is available here with a Real Vision subscription or 7-day free trial.

 For more information on our Nvidia thesis, you can access previous research here:

 For more information on why Cloud is Weak, you can access our previous research here:

 The I/O Fund offers a $99/year subscription tier that offers more weekly research. We offer a Pro and Advanced subscription tier that offers deep dives and real-time trade alerts. Learn More here.

Drawing Conclusions from the Top 10 Stocks of 2022

Posted on by io-fund

Last week, we published the Top 5 Stocks of 2022 on Forbes. Below, we expand on that list to include an additional 5 Stocks for our Essentials Members. We believe this is one of the most important pieces we can write – not because we are looking to buy these exact stock tickers in 2023 – but because it’s sending an important message about what stocks performed well in the new macro conditions of 2022.

The number one mistake that tech investors are making is to white knuckle the idea that growth will lead. We know this mistake well as we made this mistake ourselves before pivoting hard in April/May of last year to overhaul our tech portfolio for bottom line strength. This will change again but we think it’s premature to assume it will happen in H1 2023.

What you’ll note below are a few things:

  • The market greatly rewards expanding margins and increasing profitability:
    o   Gross Margin should be flat to expanding
    o   Operating Margin should be flat to expanding
    o   Net profits should be flat to expanding, this is expressed by earnings per share growth (EPS)
  • As we move into Q1 earnings, the above three-line items can make or break an earnings report. Our plan is to build key positions that demonstrate strength in these line items throughout this upcoming earnings season. This is playing it safe and assuming top line growth is not in the driver’s seat yet. It also means we believe there could be more deceleration to come on the top line across many otherwise-solid tech companies. It’s hard to guess which ones will decelerate and we prefer to make companies prove themselves and earn a spot in the portfolio.
  • The market rewards accelerating revenue. You can argue this is a no-brainer but with so few tech companies being able to accelerate revenue right now, this requires a sharp eye as tech investors are hung up holding on to favorites/darlings that reported decelerating revenue in 2022. We allow some variance here but it’s better to step aside if the revenue is decelerating too much and return to a stock when it can prove it’s found a revenue bottom in its fundamentals.

This means, we’ve made a choice to put risk above reward. We could be wrong and growth could go on a big winning streak. We feel we are agile enough to recognize if the leadership changes, and if so, we will change our strategy at that time. For now, every signal we follow proves that earnings are in the driver’s seat. We’ve published on this throughout many of our broad market and earnings coverage articles, for example:

  • Knox has stated the Dow is the leading broad market index to watch. He has also discussed that the FAANGs are not the leaders, which also marks an important change. Overall, this means growth stocks are not truly in the drivers seat right now over value.
  • I covered the slowing growth in cloud for Essentials here. I fully believe some cloud stocks will provide positive and negative bottom line surprises this year – I don’t know which ones those will be given the weak bottom line cloud characteristically has. We prefer to wait and see, and then build those that can meet the bullet points outlined above.
  • We’ve covered the bottom line strength in other sectors here — for example, building semi positions despite negative new headlines.

The first half of the article below as published in Forbes. We’ve copied the article in full. The second half is for Essentials Members only. Please note, although we disclose the positions we own to adhere to disclosure guidelines, these positions may change at any time. For example, at time of writing we owned Enphase and we have recently cut back on Enphase. The disclosure below is not to be relied on as “Stock Picks” for Essentials Members. We provide a stock pick once per month and if that stock pick changes, we will cover our new positioning and new fundamentals outlook. For example, we will cover AMD and Netflix earnings reports and let you know if we are changing those positions.

Top 10 Stocks for 2022

By Royston Roche and I/O Fund Team

Original copy from Forbes starts here:

In this analysis, rather than prognosticate on the top stocks of 2023, we think it’s more productive to go back and review the stocks that performed well under new macro conditions in 2022. This exercise helps to inform tech portfolios for the upcoming year as investors can reasonably assume 2023 will look more similar to 2022 than the preceding years.

 2022 was a very volatile year for the stock market with rising rates, inflation, and geopolitical tensions leading to sudden sell-offs. All three main U.S. indices ended the year with negative returns, with Dow Jones Industrial Average down 6.86%, S&P 500 index down 18.11%, and Nasdaq down 32.54%. Despite the indexes being in the red, some stocks greatly outperformed the broad market.

 We think it’s important to pause and draw some parallels around the stocks that performed well in 2022 to form an opinion on what might perform well in 2023. This is assuming macro will be more similar to 2022 than the preceding years, which is a reasonable assumption to make at this time. Below, we review the [top ten] stocks of 2022. These stocks were chosen based on their price action and strong fundamentals. Choosing a [top 10] means many great stocks were left off this list, yet this sample helps to form conclusions around how 2022 was a different trading environment from years past.

 Source: YCharts

Super Micro Computer (SMCI)

 Super Micro Computer stock had 2022 returns of 86.8% and is the best-performing stock in our tech universe. Below is a chart that shows the quarterly year-over-year revenue acceleration Super Micro posted in 2022, which helped support its 2022 winning streak.

 Pictured above is SMCI’s Qly revenue YoY growth. Source: YCharts

The company provides server and storage solutions to data centers, cloud computing, 5G, AI, and edge computing markets. The company was recently added to the S&P MidCap 400 Index and enjoys tailwinds from leading semiconductor companies such as AMD, Nvidia, and Intel.

In the recent earnings call, the founder and CEO of the company, Charles Liang said, “For Intel, we are engaged with many large opportunities with Intel’s upcoming Gen 4 scalable Xeon CPU codenamed Sapphire Rapids. We now have hundreds of early seeding engagements including several dozen early shipments. Similar programs have been executing with AMD, and we have seen very strong demand for our upcoming Genoa CPU based platforms.”

“With respect to NVIDIA, not only do we have the most complete portfolio of systems supporting H100 GPUs, but we have also developed many brand new architectures for the leading Metaverse and Omniverse partners.”

The company’s revenue in the recent quarter, Q1 FY23, grew by 79% YoY to $1.85 billion. The gross margin improved to 18.8% in Q1 FY23 up from 13.4% in the same period last year. The company’s profits have grown steadily with net income of $184 million compared to $25 million in the same period last year. The stock is currently trading at a P/E ratio of 10.3 and a fwd P/E ratio of 8.1.

Source: YCharts

Microsoft (MSFT)

 Microsoft was one of the best performing tech mega cap stocks last year ending the year down (28%), compared to Meta and Tesla, which ended the year down (64%) and (65%), respectively. Notably, Microsoft narrowly beat the Nasdaq in 2022.

The company is positioned for outsized growth due to its exposure to secular tailwinds such as Artificial Intelligence (AI), Machine Learning (ML), and the build out of the 5G edge network. Microsoft could take a substantial share of these markets at the infrastructure level due to its relationships with the Fortune 500 and Global Fortune 2000.

In addition to top-down enterprise penetration across the Fortune 500, Microsoft is also focused on developers to help complete Microsoft’s customer cloud strategy. Microsoft addressed its previously poor reputation in open-source communities by acquiring GitHub for $7.5 billion in 2018. Developers help determine the cloud IaaS service an enterprise or SMB customer will choose, so in-roads into this community could help Microsoft hedge the developer favorite, Amazon Web Services.

The company’s Q1 FY23 revenue grew by 11% YoY and down 3.4% QoQ to $50.1 billion.

Operating income increased by 6% YoY to $21.5 billion. Net income was $17.6 billion compared to an adjusted net income of $17.2 billion in the same period last year (adjusted net income in the previous year as the company received income tax benefit last year).

The net profit margin was 35% in the recent quarter.

Microsoft has proven it has many levers it can pull during a tougher macro compared to its mega cap tech peers – primarily seen in the consistency of its profit margin.

 Source: YCharts

ASML Holding (ASML)

 ASML Holding is benefitting from strong semiconductor equipment demand from the leading foundry companies. As new fabs are built, these companies will need equipment in the coming years. The company’s fiscal year 2022 revenue analysts estimate rose 12% in the last 2 months. The company raised the 2025 revenue guidance to be between €30 billion and €40 billion, up from the previous guidance of €24 billion to €30 billion. The company in its press release acknowledged, “While the current macro environment creates near-term uncertainties, we expect longer-term demand and capacity showing healthy growth.”

The company’s Q3 revenue was €5.8 billion compared to €5.2 billion in the same period last year. The management expects Q4 revenue to be between €6.1 billion to €6.6 billion. The gross margin was 51.8% compared to 51.7% in the same period last year. Net income was €1.7 billion (net profit margin of 29.4%) compared to a net income of €1.7 billion (net profit margin of 33.2%) in the same period last year.

The company has a strong backlog of over €38 billion. The company’s CEO Peter Wennick said in the earnings call, “And as a matter of fact, our 2023 shipment demand is still significantly above our build and shipment capacity for next year. And this is supported by the record bookings this quarter, of €8.9 billion and our largest backlog ever of over €38 billion. Almost 85% of this backlog is for EUV and immersion, which is used for advanced nodes and related wafer capacity expansions.”

Palo Alto Networks (PANW) 

Leading cybersecurity company Palo Alto Networks has a strong free cash flow margin, which is rare in the cloud and cybersecurity category. The company has been GAAP profitable in the last two quarters. The company’s revenue in the Q1 FY23 grew by 25% YoY to $1.6 billion, which was above the management guidance of $1.535 billion to $1.555 billion.

The company’s margins are improving. The company reported a GAAP net income of $20 million compared to a GAAP net loss of ($103.6) million in the same period last year. The adjusted net income was $266.4 million compared to $170.3 million in the same period last year. Consistent GAAP profitability is key in this macro environment.

The company reported free cash flow of $1.2 billion (76.6% of revenue) compared to $554 million in the same period last year (44.4% of revenue). Dipak Golechha, CFO of the company, said in the earnings call, “This cash flow performance was largely driven by strong collections in the quarter, that we expected based on the strength of our business in Q4.” The management has guided an adjusted free cash flow margin in the range of 34.5% to 35.5% for the FY23.

Dipak Golechha said, "We exceeded our top-line guidance while generating $1.2 billion in free cash flow and expanding our operating margins," He further added, "We will continue to balance growth with profitability and cash generation to further strengthen our position in the market."

Source: YCharts 

First Solar (FSLR) 

Solar stocks were the leading sector in tech last year. First Solar ended the year on fire with a return of 72% compared to the (33%) return of the Nasdaq. The sector got a boost from the Inflation Reduction Act of 2022, which we covered last year in our free newsletter when we said:  

“The solar industry will benefit since Inflation Reduction Act includes the extension of Production Tax Credits (PTCs) and Investment Tax Credits (ITCs) for the construction of wind and solar projects beginning before January 1, 2025. It means a three-year extension for PTCs and a one-year extension for ITCs.

It also extends the 30% federal tax credits for installing solar panels on rooftops by another 10 years, from 2022 to 2032. Solar installations are eligible for 26% tax credit for installations in 2020 and 2021. It now extends till 2032 for 30% tax credits, and in 2033 the tax credit will be reduced to 26% and 22% in 2034. There will be no tax credit after this period unless Congress renews it. Home battery systems that store energy generated by solar systems for later use will also be eligible for a 30% tax credit.”

First Solar is a leading provider of photovoltaic (PV) energy solutions. It is one of the major beneficiaries of the IRA in the form of solar manufacturing tax credits. The company was also recently added to the S&P 500 index.

The company announced last year its plan to invest $1.2 billion to expand its solar module manufacturing in the U.S. It includes a $1 billion investment for a new manufacturing facility in the Southeast U.S. and $185 million for the upgradation of the existing Ohio facility.

Mark Widmar, CEO of the company, said in the Q3 earnings call, “In our view, by passing and enacting the Inflation Reduction Act of 2022, Congress and the Biden-Harris administration has entrusted our industry with responsibility of enabling and securing America's clean energy future, and we recognize the need to meet the moment in a manner that is both timely and sustainable.”

The company’s Q3 2022 revenue was up 7.8% YoY to $628.9 million. It reported a net loss of ($49.2 million) compared to a net income of $55.8 million in Q2 2022 and $45.2 million in the same period last year. The company benefitted from the gain from the sale of the Japan project development platform in the Q2 2022 and also experienced higher logistics charges in the recent quarter.

Mark Widmar, CEO of First Solar said, “Our focus continues to be on setting the stage for long-term growth, and from this point of view, 2022 has so far proven to be foundational,” He further added, “This year we have developed the potential for our CdTe semiconductor technology by progressing our next-generation Series 7 and bifacial platforms, set in motion plans to scale our global manufacturing capacity to over 20 GWDC by 2025, and secured record year-to-date bookings of 43.7 GWDC with deliveries extending into 2027.” 

Taiwan Semiconductor Manufacturing (TSM)

Taiwan Semiconductor Manufacturing was in the news in November after Warren Buffet’s Berkshire Hathaway invested $4.1 billion in the company.

The company has developed market leadership in the foundry industry particularly with advanced nodes, which are nodes defined as 7nm and below. The advanced nodes have strong demand by top design companies, such as Apple and Nvidia, particularly in high-performance computing and smartphones. The company has started the production of 3nm process technology and currently this is the most advanced chip production technology. Samsung is a competitor that has begun production using 3nm technology. However, in the past TSMC has been able to win the business from Samsung due to better yields and economies of scale. Apple constituted 26% of the total revenue of 2021.

TSM’s Q3 2022 revenue grew by 36% YoY and 11% QoQ to $20.23 billion. Wendell Huang, CFO of the company, said, “Our third quarter business was supported by strong demand for our industry-leading 5nm technologies.” This means TSM is maintained strong growth throughout 2022 with 37% in Q2 2022 and 36% in Q1 2022. 

The margins are also expanding – TSM’s gross profit was $12.2 billion, with a gross margin of 60.4%, up from 51.3% in the same period last year. This was higher than management guidance of 57.5% to 59.5% as the company benefited from favorable foreign exchange and cost improvements.

The net profit was $9.3 billion compared to $5.6 billion in the same period last year. The net profit margin was 45.8% compared to 37.7% in Q3 2021. Many companies have struggled with rising costs, while TSM has successfully navigated these challenges with cost controls and negotiating better prices with its customers.

In addition to expanding margins, the company generated a total of $18 billion in free cash flow in the last four quarters.

Pictured above: TSM’s expanding net margin. Source: YCharts

Enphase Energy (ENPH) 

Enphase has an exceptional product, which is the IQ8 Microinverters, and a strong management team. Enphase was one of the top performing stocks in the Nasdaq last year and for good reason – the company reported accelerating revenue in 2022 across two quarters and has expanding margins. It ended the year with a return of 45% compared to the (33%) return of the Nasdaq. The company is also a beneficiary of the Inflation Reduction Act of 2022. Enphase is seeking new ways to manufacture domestically to take advantage of the Inflation Reduction Act. The company plans to open 4-6 manufacturing lines in the USA by the second half of 2023. The IRA provides a credit of approximately $43 per microinverter manufactured in the United States directly to Enphase.

The company reported Q3 revenue of $634.7 million, up 80.6% YoY. Management guided Q4 revenue of $680 million to $720 million, representing an expected YoY growth of 70% at the mid-point.

The company’s margins are also expanding along with strong revenue growth. The gross margin was 42.2% in Q3 2022 compared to 39.9% in Q3 2021. The operating margin was 21.4% compared to 10.6% in Q3 2021. Similarly, the adjusted operating margin improved from 24.5% in Q3 2021 to 30.6% in the recent quarter.

The GAAP net margin of 18.1% is nearly three times higher than Q3 2021 net profit margin of 6.2%. Analysts on the call were excited to hear about the prospect of Enphase improving its already-good bottom line with IRA credits. The company’s CEO Badri Kothandaraman mentioned in the earnings call, “Once the IRA with details have been finalized and the implementation is clear, the U.S. manufacturing could provide substantial benefits in terms of the production based tax credit.”

Texas Instruments (TXN) 

Texas Instruments has a strong net profit margin. The company’s Q3 2022 revenue grew by 13% YoY to $5.24 billion. Operating profit increased by 16% YoY to $2.68 billion. Operating profit margin improved to 51.1% from 49.6% in the same period last year. Net income grew by 18% YoY to $2.3, billion with a net profit margin of 43.8% compared to 41.9% in Q3 2021.

Source: YCharts

In addition to strong margins the company has been generating consistent cash flows. The company’s CEO and President, Rich Templeton, said, “Our cash flow from operations of $9.0 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the same period was $5.9 billion and 29% of revenue. This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-mm production.”

The company also accrued investment tax credit in Q3 from the CHIPS Act. Rafael Lizardi, CFO of the company, said in the earnings call, “Let me now make a few comments on the CHIPS Act that was recently signing to law. The combination of the investment tax credit, the grant as well as funding for research and development will help make the U.S. semiconductor industry more competitive. We accrued about $50 million on the balance sheet in third quarter due to the 25% investment tax credit for investments in our U.S. factories. This will eventually flow some statement as lower depreciation and we will receive the associated cash benefit in the future.”

Box Inc (BOX) 

Box was the best-performing cloud stock of 2022 and gave a return of 19%. The company beat analyst estimates on 3 out of 4 occasions last year in both top-line and bottom-line estimates. The company’s margins are improving, which is another reason for the stock’s outperformance.

The company’s revenue in the Q3 FY23 grew by 12% YoY to $250 million. The adjusted gross profit margin was 76.5% compared to 74.7% in the same period last year. Adjusted operating margin improved to 24% from 20.7% in Q3 FY22.

Dylan Smith, co-founder and CFO of the company, said in the earnings call, “Box will be better positioned to continue delivering profitable growth as we scale, exiting next year with an even stronger operating margin model after completing this important transition to the public cloud.”

GAAP net income was $4.98 million compared to a net loss of ($18.2) million in the same period last year. The adjusted net income was $46.6 million compared to $35.4 million in Q3 FY22. Free cash flow was $55 million (22% of revenue) compared to $31.2 million (14% of revenue) in the same period last year.

For those who closely follow cloud, it may be surprising that Box was the top performing stock in the category yet this is sending a strong signal to cloud investors as to what is being rewarded in the current macro conditions – as stated, it’s firmly a strong bottom line is being rewarded. It’s also a strong signal as to the change in paradigm as Box has been a lagging cloud stock for many years when growth was in the driver’s seat.

Indie Semiconductor (INDI) 

Indie Semiconductor is benefitting from the growth trend in advanced-driver assistance systems and electric vehicles. The company has a Serviceable Addressable Market (SAM) of $48 billion by 2027. The company supplies chips and software to the automobile sector. Its chips power sensor capabilities like LiDAR and Radar, and vehicle electrification.

The consensus analyst revenue estimate for FY 2022 is $110.73 million, representing a YoY growth of 129% and for FY 2023 it is $222.64 million, representing YoY growth of 101%.

The company’s revenue in Q3 2022 grew by 147% YoY to $30 million. The company’s margins have been expanding. The adjusted gross margin was 50.4% compared to 43% in Q3 2021.

Tom Schiller, CFO of the company, said in the earnings call, “To put this performance in better context, when we announced our plans to IPO in Q4 2020, indie was at just $6.7 million in quarterly revenue with a 35.4% gross margin. Since then, and despite global supply chain constraints, we successfully scaled our business nearly five-fold and increased our gross margin by 1,500 basis points in less than 24 months”. Net loss was ($37.6) million compared to ($79.6) million in the same period last year.

Co-founder and CEO Donald McClymont discussed a strong backlog when he said “We’re excited to announce that our strategic backlog has grown to $4.3 billion, more than doubling from the level we initially outlined during our IPO launch less than twenty-four months ago.” 

Beth Kindig and the I/O Fund own TSM, Microsoft, and Enphase from the list of top ten stocks at the time of writing. I/O Fund has losses on Enphase, minimal gains on TSM and has owned Microsoft off/on for a few years. The stock disclosure is not intended to recommend a stock pick to Essentials, rather these disclosures are required to avoid any conflict of interest. These stocks are included in this list because they were notable performers last year.  The I/O Fund trades stocks frequently and offers position updates on our official stock picks for Essentials Members only.