The Semiconductor Sector has generated more than just solid gains so far this year, chip shortage has helped accelerate sales of semiconductors, sending the stock prices of companies that design and sell chips skyrocketing.
In the last couple of weeks, I thought about adding a Semiconductor company to my portfolio, I decided to focus on AMD, NVIDIA, and INTEL, but because it might be a long post I decided to post in parts, the next post will be bot AMD so stay tuned.
If you think there is a company in this sector more worthwhile looking into, I'd be happy to hear some suggestions.
IMAGE SOURCE: youtube - cha cha video
Nvidia ~ $NVDA
"Nvidia is a platform story. We think there are many tentacles of future growth opportunity for Nvidia inclusive of the data center momentum that they are seeing today" - Wells Fargo analyst
Nvidia is a big winner of many of the big tech events of the past year, including the global chip shortage, cryptocurrency volatility, and mining, the relentless fight by PC gamers to find RTX 30 series graphics cards in stock, and rising demand across segments-from work-from-home laptops to data centers. During it all, NVDA stock has continued its relentless climb, adding over 60% to its value so far in 2021.
Q2 Earnings
Almost all the company's business segments registered eye-popping growth in the 2nd quarter of fiscal 2022. The company reported a record Q2 revenue of $6.51 billion. This was up 68% year-over-year, which handily beat forecasts. Gaming revenue — all those RTX 30 series graphics cards — hit $3.06 billion, up 85% YoY. Datacenter revenue also set a record at $2.37 billion. Adjusted earnings of $1.04 per share (compared to 55 cents a year ago) also beat estimates.
Crypto Market dependence
When of the negative points in NVDA Q2 earnings is that CMP sales came in well under the company’s estimates. CMP is a graphics card that was designed specifically for the cryptocurrency market. When the price of cryptocurrencies like Bitcoin fall, crypto mining rigs power down. Miners stop buying GPUs.
For Nvidia, this was felt in Q2. The company had projected it would sell $400 million worth of CMPs in the quarter. Instead, it sold just $266 million.
Future Growth In the Gaming Segment
NVIDIA's 80%-plus market share of gaming graphics cards will be a big tailwind for the company. Its video gaming revenue more than doubled last quarter to $2.76 billion. Jon Peddie Research estimates that the market for discrete gaming GPUs could jump from $23.6 billion last year to more than $54 billion by 2025. NVIDIA's dominant market share means that it could win big from the additional revenue opportunity. If you want to read more about the gaming market I posted a few weeks ago about corsair and Logitech here.
Arm Deal
Nvidia is in the process of acquiring ARM Holdings from SoftBank for approximately $40 billion, which would be a game-changer in its data center segment. The acquisition is currently held up in the approval process, but Nvidia told investors on their recent earnings call that the deal should get done. Denial is certainly a risk for Nvidia's stock price, so it's something to be aware of. recently Chinese and British regulators have had serious concerns about the acquisition and could block it.
Advanced Micro Devices ~ $AMD
AMD has been making a comeback for years with a fast-improving lineup of chips addressing the laptop and PC markets, as well as hardware for data centers and the cloud computing services built on them. AMD is on track to record 50% revenue growth in 2021. The company's market share gains in the client and server CPU (central processing unit) markets, as well as the growing demand for graphics cards, have helped it to raise the guidance.
Q2 Earnings And Growth
On July 27, AMD recorded 99% YOY revenue growth, to $3.85 billion, operating income of $831m (380% change YOY), and Net income of $710m - 352% YOY growth. The company consistently winning market share from Intel. Video game platform "Steam" reports that AMD's share of the client CPU market has now exceeded 30%, a massive improvement from three years ago when it held just over 16% of the market.
AMD website - q2 Financial results
Video Games Potential Growth
Video game consoles have been in hot demand since last year, Sony could end 2021 with sales of 17.9 million PS5 consoles, up from last year's 4.5 million units. The PS5's sales momentum could remain strong with Sony expected to ship over 33 million units in 2022, 50 million units in 2023, and 67 million units in 2024. Meanwhile, sales of Microsoft's Xbox Series X are expected to jump from an estimated 3.3 million units in 2020 to 12 million units in 2021, and 37 million units in 2024.
AMD supplies semi-custom chips to both Sony and Microsoft for their latest consoles. Nvidia, on the other hand, supplies chips for Nintendo's Switch consoles. The Japanese video gaming company estimates that it could sell 25.5 million units of the Switch in the current fiscal year that ends in March 2022.
Xilinx Acquisition
AMD's $35 billion merger with Xilinx is expected to be completed by the end of this year.the merger will allow AMD to expand the chips it offers the customers and it will take on Intel. The merger could make AMD one of the biggest tech companies and could expand its market share significantly.
Intel ~ $INTC
Intel’s stock has underperformed the market in recent years, It’s struggled with R&D, manufacturing, and management issues. the stock gained 15% in the past 3 years while the PHLX Semiconductor Index's gain of approximately 130%.
Intel fell behind TSMC in the race to create smaller and more advanced chips. and lost market share to AMD in PC and data center CPU markets.
New CEO = New Future?
Intel’s new CEO, Pat Gelsinger, set his eyes on reclaiming the process lead by 2025. Gelsinger plans to achieve that goal by spending tens of billions of dollars on new foundries, upgrading the company's plants, expanding its third-party foundry services to pull orders away from TSMC, and attracting government subsidies in the U.S. and Europe to resolve the ongoing chip shortage and eliminate the industry's production bottlenecks in Asia.
If Intel achieves all those goals, its growth could accelerate over the next few years and make it a compelling long-term investment again.
GPUs War
Intel generates most of its revenue from PC and data center CPUs and abandoned the high-end GPU market amid fierce competition from Nvidia and AMD, but it's now trying to bundle its new GPUs with its CPUs. Intel could challenge Nvidia and AMD in the laptop market with its DG1 mobile GPUs, pursue the desktop market with its DG2 GPUs, and enter the data center GPU market with its top-tier Ponte Vecchio GPUs.
Financial Comparisons
Market Size
- INTC: $217.009B
- NVDA : $511.284B
- AMD : $121.722B
when NVDA surpassed Intel's size this year - jika.io
Gross Profit - After Q2
- INTC: $11.21B
- NVDA : $4.21B
- AMD : $1.83B
Intel is still the most profit fron the 3 - jika.io
Return On Equity - After Q2
- NVDA : 11.23%
- AMD : 10.05%
- INTC : 5.94%
Gross Profit Margin
- NVDA: 64.78%
- INTC : 57.07%
- AMD : 47.53%
Net Profit Margin
- NVDA : 36.48%
- INTC : 25.78%
- AMD : 18.44%
My Conclusion
In my opinion, Intel is pretty much out of the race, even if the new CEO will shake things up, Intel will take a long time until climbing back up.
I think that the better choice is between the fast-growing semiconductor stocks, NVIDIA or AMD. Given that AMD's growth pace was better than NVIDIA's in Q1 and Q2 and is likely to keep up that momentum for the remainder of the year, it looks like the better option right now. AMD also looks like a better buy for those looking for a growth stock at a reasonable valuation.
Personal note: Feel free to diagree and express your opinion about the post.
Sources:
Jika.io - Companies comparisons
Motleyfool.com - stocks news
nasdaq.com - news and information
amd.com - investor relations
investor.nvidia.com - investor relations
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