Nvidia’s GPUs a Game-Changer for Investors?

Posted on by The INO.com Team

NVIDIA Corporation (NVDA), a tech giant advancing AI through its cutting-edge graphics processing units (GPUs), became the third U.S. company to exceed a staggering market capitalization of $3 trillion in June, after Microsoft Corporation (MSFT) and Apple Inc. (AAPL). This significant milestone marks nearly a doubling of its value since the start of the year. Nvidia’s stock has surged more than 159% year-to-date and around 176% over the past year.

What drives the company’s exceptional growth, and how do Nvidia GPUs translate into significant financial benefits for cloud providers and investors? This piece will explore the financial implications of investing in NVIDIA GPUs, the impressive ROI metrics for cloud providers, and the company’s growth prospects in the AI GPU market.

Financial Benefits of NVDA’s GPUs for Cloud Providers

During the Bank of America Securities 2024 Global Technology Conference, Ian Buck, Vice President and General Manager of NVDA’s hyperscale and HPC business, highlighted the substantial financial benefits for cloud providers by investing in NVIDIA GPUs.

Buck illustrated that for every dollar spent on NVIDIA GPUs, cloud providers can generate five dollars over four years. This return on investment (ROI) becomes even more impressive for inferencing tasks, where the profitability rises to seven dollars per dollar invested over the same period, with this figure continuing to increase.

This compelling ROI is driven by the superior performance and efficiency of Nvidia’s GPUs, which enable cloud providers to offer enhanced services and handle more complex workloads, particularly in the realm of AI. As AI applications expand across various industries, the demand for high-performance inference solutions escalates, further boosting cloud providers’ financial benefits utilizing NVIDIA’s technology.

NVDA’s Progress in AI and GPU Innovations

NVIDIA’s commitment to addressing the surging demand for AI inference is evident in its continuous innovation and product development. The company introduced cutting-edge products like NVIDIA Inference Microservices (NIMs), designed to support popular AI models such as Llama, Mistral, and Gemma.

These optimized inference microservices for deploying AI models at scale facilitate seamless integration of AI capabilities into cloud infrastructures, enhancing efficiency and scalability for cloud providers.

In addition to NIMs, NVDA is also focusing on its new Blackwell GPU, engineered particularly for inference tasks and energy efficiency. The upcoming Blackwell model is expected to ship to customers later this year. While there may be initial shortages, Nvidia remains optimistic. Buck noted that each new technology phase brings supply and demand challenges, as they experienced with the Hopper GPU.

Furthermore, the early collaboration with cloud providers on the forthcoming Rubin GPU, slated for a 2026 release, underscores the company’s strategic foresight in aligning its innovations with industry requirements.

Nvidia’s GPUs Boost its Stock Value and Earnings

The financial returns of investing in Nvidia GPUs benefit cloud providers considerably and have significant implications for NVDA’s stock value and earnings. With a $4 trillion market cap within sight, the chip giant’s trajectory suggests continued growth and potential for substantial returns for investors.

NVDA’s first-quarter 2025 earnings topped analysts’ expectations and exceeded the high bar set by investors, as Data Center sales rose to a record high amid booming AI demand. For the quarter that ended April 28, 2024, the company posted a record revenue of $26 billion, up 262% year-over-year. That compared to the consensus revenue estimate of $24.56 billion.

The chip giant’s quarterly Data Center revenue was $22.60 billion, an increase of 427% from the prior year’s quarter. Its non-GAAP operating income rose 492% year-over-year to $18.06 billion. NVIDIA’s non-GAAP net income grew 462% from the prior year’s quarter to $15.24 billion. In addition, its non-GAAP EPS came in at $6.12, up 461% year-over-year.

“Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets,” said Jensen Huang, CEO of NVDA.

“We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI. Spectrum-X opens a brand-new market for us to bring large-scale AI to Ethernet-only data centers. And NVIDIA NIM is our new software offering that delivers enterprise-grade, optimized generative AI to run on CUDA everywhere — from the cloud to on-prem data centers and RTX AI PCs — through our expansive network of ecosystem partners,” Huang added.

According to its outlook for the second quarter of fiscal 2025, Nvidia’s revenue is anticipated to be $28 billion, plus or minus 2%. The company expects its non-GAAP gross margins to be 75.5%. For the full year, gross margins are projected to be in the mid-70% range.

Analysts also appear highly bullish about the company’s upcoming earnings. NVDA’s revenue and EPS for the second quarter (ending July 2024) are expected to grow 110.5% and 135.5% year-over-year to $28.43 billion and $0.64, respectively. For the fiscal year ending January 2025, Street expects the chip company’s revenue and EPS to increase 97.3% and 111.1% year-over-year to $120.18 billion and $2.74, respectively.

Robust Future Growth in the AI Data Center Market

The exponential growth of AI use cases and applications across various sectors—ranging from healthcare and automobile to retail and manufacturing—highlights the critical role of GPUs in enabling these advancements. NVIDIA’s strategic investments in AI and GPU technology and its emphasis on collaboration with cloud providers position the company at the forefront of this burgeoning AI market.

As Nvidia’s high-end server GPUs are essential for training and deploying large AI models, tech giants like Microsoft and Meta Platforms, Inc. (META) have spent billions of dollars buying these chips. Meta CEO Mark Zuckerberg stated his company is “building an absolutely massive amount of infrastructure” that will include 350,000 H100 GPU graphics cards to be delivered by NVDA by the end of 2024.

NVIDIA’s GPUs are sought after by several other tech companies for superior performance, including Amazon, Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Tesla, Inc. (TSLA).

Notably, NVDA owns a 92% market share in data center GPUs. Led by Nvidia, U.S. tech companies dominate the burgeoning market for generative AI, with market shares of 70% to over 90% in chips and cloud services.

According to the Markets and Markets report, the data center GPU market is projected to value more than $63 billion by 2028, growing at an impressive CAGR of 34.6% during the forecast period (2024-2028). The rapidly rising adoption of data center GPUs across cloud providers should bode well for Nvidia.

Bottom Line

NVDA’s GPUs represent a game-changer for both cloud providers and investors, driven by superior performance and a compelling return on investment (ROI). The attractive financial benefits of investing in NVIDIA GPUs underscore their value, with cloud providers generating substantial profits from enhanced AI capabilities. This high ROI, particularly in AI inferencing tasks, positions Nvidia as a pivotal player in the burgeoning AI data center market, reinforcing its dominant market share and driving continued growth.

Moreover, Wall Street analysts remain bullish about this AI chipmaker’s prospects. TD Cowen analyst Matthew Ramsay increased his price target on NVDA stock from $140 to $165, while maintaining the Buy rating. “One thing remains the same: fundamental strength at Nvidia,” Ramsay said in a client note. “In fact, our checks continue to point to upside in data center (sales) as demand for Hopper/Blackwell-based AI systems continues to exceed supply.”

“Overall we see a product roadmap indicating a relentless pace of innovation across all aspects of the AI compute stack,” Ramsay added.

Meanwhile, KeyBanc Capital Markets analyst John Vinh reiterated his Overweight rating on NVIDIA stock with a price target of $180. “We expect Nvidia to deliver higher results and higher guidance” with its second-quarter 2025 report, Vinh said in a client note. He added solid demand for generative AI will drive the upside.

As AI applications expand across various key industries, NVIDIA’s continuous strategic innovations and product developments, such as the Blackwell GPU and NVIDIA Inference Microservices, ensure the company remains at the forefront of technological advancement. With a market cap nearing $4 trillion and a solid financial outlook, NVIDIA is well-poised to deliver substantial returns for investors, solidifying its standing as a leader in the AI and GPU technology sectors.

BP vs. OPEC: What Conflicting Oil Demand Projections Mean for Your Portfolio

Posted on by The INO.com Team

The oil and gas industry is a cornerstone of the global energy landscape, powering everything from cars and factories to homes. It plays a vital role in our daily lives and the broader economy. Its equilibrium between supply and demand holds significant implications for energy security, economic stability, and environmental sustainability.

However, the industry's complexity has bred persistent imbalances and volatility, posing challenges for policymakers, industry stakeholders, and consumers. Various factors, including geological constraints on production, advancements in extraction and refining technology, changes in global energy policies, evolving consumer habits, and stricter environmental regulations, significantly influence the oil & gas market. This complex interplay makes predicting supply and demand trends a tricky business.

In recent years, the oil and gas sector has witnessed transformative shifts driven by advances in technology, changes in global energy policies, and shifts in consumer behavior. The rise of unconventional oil and gas production alongside investments in renewables and energy efficiency has reshaped the market landscape. But what’s next for the sector?

BP Thinks Oil Demand Is Dropping, But OPEC Sees It Going Up. What's the Deal?

In the latest Energy Outlook, BP p.l.c. (BP) paints a picture of declining oil demand. The company projects that global oil demand will peak at around 102 million barrels per day (bpd) by 2025, after which the decline will depend on how aggressively countries slash carbon emissions.

In the current trajectory, oil consumption is expected to decline gradually, reaching approximately 75 million bpd by 2050 due to advancements in vehicle efficiency and the increasing adoption of alternative fuels, led by the electrification of cars and trucks. Under BP’s more ambitious "Net Zero" scenario, the company envisions a drastic reduction in oil demand, potentially plummeting to as low as 25-30 million bpd by 2050. That’s a considerable drop, driven by a faster move towards renewable energy and smarter energy use.

On the other hand, the Organization of the Petroleum Exporting Countries (OPEC) maintains an optimistic outlook on global oil demand. According to its monthly outlook, OPEC foresees robust growth in oil demand, projecting an increase of 2.25 million bpd in 2024 and a further 1.85 million bpd in 2025. This forecast hinges on resilient economic growth, particularly in major economies, and sustained demand from sectors such as air travel.

OPEC’s stance underscores its expectation that oil will continue to play a pivotal role in meeting global energy needs despite increasing pressure for climate action. The agency also raised its forecast for world economic growth this year to 2.9% from 2.8%, citing positive momentum in non-OECD countries.

"Economic growth momentum in major economies remained resilient in the first half. This trend supports an overall positive growth trajectory in the near term," OPEC said.

Bottom Line: What could these conflicting forecasts mean for your portfolio?

OPEC's projections also contrast sharply with those of the Paris-based International Energy Agency (IEA). While OPEC expects robust demand growth, the IEA takes a more conservative stance, forecasting growth of only 960,000 barrels per day in 2024. The IEA also predicts that global oil demand will peak at 106 million bpd by 2029, reflecting a global shift towards greener energy alternatives and reduced oil consumption in road transportation.

These contrasting perspectives stem from differing priorities. OPEC members emphasize the importance of high oil demand to support economic growth and stability, while the IEA prioritizes climate commitments and the affordability of energy solutions. The widening disparity in their forecasts complicates investment decisions, leaving investors uncertain about current demand levels. OPEC reported that the first-quarter oil demand averaged 103.5 million barrels per day, whereas the IEA estimated it to be 101.7 million barrels per day.

As analysts navigate these varying outlooks, investors must make crucial decisions amid evolving energy trends and geopolitical shifts. Understanding these divergences is essential for strategizing and aligning your portfolio with future market directions.

Navigating the ebb and flow of supply and demand in the oil and gas industry is the key to making smart investment moves. Geopolitical tensions, technological breakthroughs, and shifting market dynamics all shape these intricate patterns. Stakeholders who stay vigilant on these fronts can steer through market volatility and pinpoint promising opportunities.

Considering the sector's relatively bullish outlook, it could be wise for investors to scoop the shares of fundamentally sound energy stocks such as Secure Energy Services Inc. (SECYF), Cenovus Energy Inc. (CVE), and Energy Transfer LP (ET). Conversely, stocks with weaker fundamentals, like EQT Corporation (EQT) and Chesapeake Energy Corporation (CHK), may warrant caution.

Investing Amidst the $100B China Chip War

Posted on by The INO.com Team

In a move set to reshape the global semiconductor landscape, China's ambitious $100 billion investment spree into its semiconductor industry is poised to disrupt Western chipmakers’ foothold in the lucrative Chinese market.

According to a recent report by the European Commission highlighted by Bloomberg, concerns are mounting over the potential erosion of market share for companies like NXP Semiconductors N.V. (NXPI), Infineon Technologies AG (IFNNY), and ASML Holding N.V. (ASML). These firms, pivotal players in microcontroller technology essential for automobiles, industrial applications, and consumer electronics, face intensifying competition from burgeoning Chinese counterparts.

The European Commission's report underscores that China's strategic maneuvers, including non-tariff barriers and local content requirements, could favor domestic microcontroller manufacturers. This advantage is particularly potent in China's burgeoning electric vehicle market, posing challenges for European and Japanese chip suppliers.

Moreover, China's aggressive investment surge follows heightened geopolitical tensions, including U.S. sanctions limiting Chinese access to high-end chips. Despite these restrictions, China has reportedly found alternative routes to procure U.S. technology, underscoring its determination to achieve semiconductor independence. As China makes aggressive investments in semiconductor fabrication plants and encourages local procurement of key semiconductor components, the ripple effects are felt globally.

Investors navigating this evolving landscape should consider diversifying across sectors and exploring resilient segments within tech. Despite China's semiconductor ambitions and geopolitical tensions, investing in solid companies like Advanced Micro Devices, Inc. (AMD) and Intel Corporation (INTC) could provide stability and growth potential.

Let’s look at the fundamentals of the abovementioned stocks in detail:

Stocks to Buy:

Advanced Micro Devices, Inc. (AMD)

Prominent chip giant AMD offers x86 microprocessors, graphics processing units (GPUs), and innovative solutions across Data Center, Client, Gaming, and Embedded segments. AMD also develops embedded processors, semi-custom system-on-chip (SoC) products, and advanced technologies like field programmable gate arrays (FPGA) and adaptive SoCs.

In the first quarter that ended March 30, 2024. AMD’s net revenue increased 2.2% year-over-year to $5.47 billion. Both its Data Center and Client segments experienced substantial growth, each exceeding 80% year-over-year, fueled by the uptake of MI300 AI accelerators and the popularity of Ryzen and EPYC processors.

Moreover, the company’s non-GAAP operating income grew 3.2% from the year-ago value to $1.13 billion. Its non-GAAP net income and earnings per share rose 4.4% and 3.3% from the prior-year quarter to $1.01 billion and $0.62, respectively.

Street expects AMD’s revenue for the second quarter (ended June 2024) to increase 6.7% year-over-year to $5.72 billion. Its EPS for the to-be-reported quarter is projected to reach $0.68, registering a 17.2% year-over-year growth. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters.

Intel Corporation (INTC)

INTC designs manufactures, and markets a wide range of computing products globally, including CPUs, GPUs, memory, and connectivity solutions. Known for its microprocessors, Intel powers PCs, servers, and emerging technologies across cloud, network, and edge computing platforms. It operates through segments including Client Computing Group, Data Center and AI, Network and Edge, Mobileye, and Intel Foundry Services.

The company delivered robust performance in the first quarter of 2024 (ended March 30), driven by solid innovation across its client, edge, and data center portfolios. Total Intel Products generated $11.90 billion in revenue, resulting in a 17% year-over-year increase. Revenue from the Client Computing Group (CCG) rose 31% year-over-year.

INTC’s net revenue increased 8.6% year-over-year to $12.72 billion, while its Data Center and AI (DCAI) division’s sales rose 5% to $3.04 billion. Also, the company reported a non-GAAP operating income of $723 million, compared to an operating loss of $294 million in the prior year’s quarter. Further, its non-GAAP net income and non-GAAP earnings per share came in at $759 million and $0.18 versus a net loss and loss per share of $169 million and $0.04, respectively, in the same quarter last year.

Analysts expect INTC’s revenue for the second quarter (ended June 2024) to increase marginally year-over-year to $13.02 billion. However, the consensus EPS estimate of $0.10 for the same period indicates a 19.5% year-over-year decline. Nevertheless, the company has an impressive surprise history, beating the consensus revenue estimates in three of the trailing four quarters.

Stocks to Sell:

NXP Semiconductors N.V. (NXPI)

NXPI, based in Eindhoven, the Netherlands, specializes in a diverse range of semiconductor products. Its portfolio features microcontrollers, communication processors, analog and interface devices, radio frequency power amplifiers, security controllers, and semiconductor-based environmental and inertial sensors.

For the first quarter that ended March 31, 2024, NXPI’s total revenue declined 8.6% sequentially to $3.13 billion. The company’s non-GAAP operating income fell 11.4% from the last quarter to $1.08 billion. Also, NXPI’s non-GAAP net income attributable to stockholders came in at $840 million and $3.24 per common share, down 13% and 12.7% from the preceding quarter, respectively.

Street expects NXPI’s revenue and EPS for the second quarter (ended June 2024) to decrease 5.2% and 6.5% year-over-year to $3.13 billion and $3.21, respectively. This downward trajectory is forecasted to persist throughout fiscal year 2024, with revenue and EPS expected to decrease by 1.5% and 0.3%, respectively.

Infineon Technologies AG (IFNNY)

Headquartered in Neubiberg, Germany, IFNNY is a global semiconductor leader specializing in power systems and IoT. The company drives decarbonization and digitalization with its innovative semiconductor solutions across four key segments: Automotive, Green Industrial Power, Power & Sensor Systems, and Connected Secure Systems.

During the fiscal second quarter that ended March 31, 2024, IFNNY’s revenue decreased 11.8% year-over-year to €3.63 billion ($3.94 billion), while gross profit fell by 26.9% from the year-ago value to €1.40 billion ($1.52 billion). The company’s operating profit stood at €496 million ($538.38 million), down 53.8% year-over-year.

In addition, adjusted profit for the period from continuing operations attributable to shareholders of IFNNY and adjusted EPS amounted to €551 million ($598.08 million) and €0.42, respectively, reflecting a 38.8% and 39.1% decrease from the prior-year quarter.

For the quarter ended June 2024, IFNNY’s EPS is expected to decrease 39.8% year-over-year to $0.45. Its revenue for the same quarter is expected to fall 8.2% from the prior year to $4.11 billion. Analysts project a further 7.5% decline in revenue and a 30.8% decrease in EPS for fiscal year 2024.

ASML Holding N.V. (ASML)

Based in Veldhoven, the Netherlands, ASML manufactures essential semiconductor equipment for global chipmakers. It focuses on lithography, metrology, and inspection systems, including advanced solutions like extreme ultraviolet and deep ultraviolet lithography. These technologies support semiconductor production across diverse technological ranges.

ASML’s total net sales for the first quarter that ended March 31, 2024, decreased 21.6% year-over-year to €5.29 billion ($5.74 billion). Its income from operations fell 36.9% from the year-ago value to €1.39 billion ($1.51 billion), while its net income declined 37.4% from the prior year’s quarter to €1.22 billion ($1.33 billion). In addition, the company’s net income per ordinary share stood at €3.11, down 37.2% year-over-year.

Analysts expect ASML’s revenue and EPS for the second quarter (ended June 2024) to decline by 15.6% and 27.7% year-over-year to $6.53 billion and $3.99, respectively. Likewise, the company’s EPS for the fiscal year 2024 is expected to decline 4.5% from the previous year to $20.67.

 

Top Energy Stocks Amid Hurricane Season & Summer Demand

Posted on by The INO.com Team

Since April, oil has continued to trade at its highest levels, supported by robust energy demand and tight supplies. WTI crude oil futures inched up $82 per barrel yesterday, following the EIA report indicating a larger-than-expected drop in US crude stockpiles. US crude oil inventories decreased by 3.444 million barrels, surpassing the projected decline of 3 million barrels.

Meanwhile, the heightened travel and mobility and increased air conditioning usage during the summer months continue to push oil demand higher. Amid solid seasonal demand and the looming threat of hurricanes and geopolitical instability, investors could take advantage of surging oil prices by watching key energy stocks Shell plc (SHEL), BP p.l.c. (BP), Phillips 66 (PSX), and Valero Energy Corporation (VLO).

Impact of Hurricane Beryl and Potential Future Storms on Oil Production and Prices

Hurricane Beryl battered Southeast Texas with powerful winds and torrential rain, forcing the closure of oil ports, the cancellation of hundreds of flights, and leaving around 2.7 million homes and businesses without power. Beryl shut U.S. refineries and ports along the Gulf of Mexico, raising concerns about oil production and transportation disruptions. Oil output from the Gulf of Mexico is generally about 1.8 million barrels per day.

Historically, hurricanes have significantly resulted in production halts and evacuation of rigs and refineries, leading to supply constraints, which typically push oil prices upward. The impact of these weather events is two-fold: immediate supply disruption and longer-term infrastructure damage, which can keep prices elevated even after the storm has passed.

Increased Travel and Cooling During Summer Driving Higher Oil Prices

The summer season traditionally sees a surge in travel and mobility alongside air conditioning usage, driving up oil demand. This year is no exception, with intense summer demand for gasoline and jet fuel contributing to rising oil prices. OPEC maintained its forecast for robust global oil demand growth in 2024, citing resilient economic growth and a solid rebound in air travel during the summer.

In its latest Monthly Oil Market Report (MOMR), OPEC expects global oil demand to increase by 2.25 million barrels per day this year.

“Expected strong mobility and air travel in the Northern Hemisphere during the summer driving/holiday season is anticipated to bolster demand for transportation fuels and drive growth in the United States,” the agency said in the report.

Robust seasonal demand translates into higher revenues for companies involved in oil exploration, production, refining, and distribution, presenting an opportune time for investors to evaluate their energy sector portfolios.

Key Energy Stock Picks Amid Summer Demand and Tight Supply

Shell plc (SHEL)

Valued at a market cap of $228.02 billion, Shell plc (SHEL) is a prominent energy and petrochemical company. The company operates through Integrated Gas; Upstream; Marketing; Chemicals and Products; and Renewables and Energy Solutions segments.

Tobago Ltd., a subsidiary of SHEL and Shell Trinidad, recently took Final Investment Decision (FID) on the Manatee project, an undeveloped gas field in the East Coast Marine Area (ECMA) in Trinidad and Tobago. Manatee will enable Shell to competitively expand its Integrated Gas business by capitalizing on development efforts in the ECMA, one of the country’s most prolific gas-producing regions.

"This project will help meet the increasing demand for natural gas globally while also addressing the energy needs of our customers domestically in Trinidad and Tobago," stated Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director.

Shell aims to expand its LNG business by 20-30% by 2030 compared to 2022. LNG liquefaction volumes are projected to increase by 25-30% relative to 2022, as outlined at the company’s Capital Markets Day in 2023.

During the first quarter that ended March 31, 2024, SHEL reported LNG sales volumes of 16.9 MT in the Integrated Gas segment. Its adjusted earnings increased 5.9% quarter-on-quarter to $7.73 billion, reflecting solid operational performance across its business. Its adjusted earnings per share was $1.20, up 8.1% from the previous quarter.

The company’s adjusted EBITDA was $18.71 billion, up 14.5% from the prior quarter. Its cash flow from operating activities (CFFO) grew 6% sequentially to $13.33 billion. Also, its free cash flow came in at $9.80 billion, an increase of 41.7% from the previous quarter.

In the last earnings release, Shell also announced that it commenced a $3.5 billion share buyback program, anticipated to be completed by the second-quarter 2024 results announcement. Over the past four quarters, total shareholder distributions amounted to 41% of CFFO.

Analysts expect SHEL’s revenue and EPS for the second quarter (ended June 2024) to increase 21.1% and 31.2% year-over-year to $90.27 billion and $1.92, respectively. For the third quarter ending September 2024, the company’s revenue and EPS are expected to grow 24.5% and 14.3% year-over-year to $95.06 billion and $2.13, respectively.

Over the past six months, shares of SHEL have surged more than 15% and approximately 21% over the past year.

BP p.l.c. (BP)

With a $100.95 billion market cap, BP p.l.c. (BP) engages in the production of natural gas, and integrated gas and power; trading of gas; operation of onshore and offshore wind power, as well as hydrogen and carbon capture and storage facilities; and production of crude oil. It operates through Gas & Low Carbon Energy; Oil Production & Operations; and Customers & Products segments.

On June 13, BP’s subsidiary, Archaea Energy, and Republic Services, Inc. (RSG) celebrated the first renewable natural gas (RNG) plant in the companies’ Lightning Renewables joint venture (JV). The Archaea Modular Design (AMD) plant at Republic’s National Serv-All Landfill in Fort Wayne, Indiana, is the first of nearly 40 landfill gas-to-RNG projects targeted by the JV and is expected to come online this summer.

The Lightning Renewables JV portfolio supports Archaea’s goal of increasing production to more than 50 million mmBtu per year by 2030.

Also, in April, BP, as the operator of the Azeri-Chirag-Gunashli (ACG) project, announced the start-up of oil production from the new Azeri Central East (ACE) platform. This platform is part of the ACG field development in the Azerbaijan sector of the Caspian Sea and is the first remotely operated offshore platform in the Caspian.

In the first quarter that ended March 31, 2024, BP’s reported production from the Oil Production & Operations segment was 1,463 mboe/d, up 7.6% from the first quarter of 2023. Its upstream production grew 2.1% year-over-year. Its underlying replacement cost (RC) profit was $2.72 billion, or $16.24 per share, respectively.

Furthermore, the company’s adjusted EBITDA for the quarter was $10.31 billion. Profit for the period attributable to BP shareholders rose significantly quarter-on-quarter to $2.26 billion.

“We’ve delivered another resilient quarter financially and continued to make progress on our strategy. Oil production was up and our ACE platform in the Caspian is now producing. We are simplifying and reducing complexity across bp and plan to deliver at least $2 billion of cash cost savings by the end of 2026 through high grading our portfolio, digital transformation, supply chain efficiencies and global capability hubs,” said BP’s CEO, Murray Auchincloss.

Moreover, the $1.75 billion share buyback program announced for the first quarter of 2024 was completed on May 3, 2024, part of the company’s $3.5 billion commitment for the first half of 2024. A resilient dividend is BP’s top priority within its disciplined financial frame. For the first quarter, the company announced a dividend per ordinary share of 7.27 cents ($0.0727).

Street expects BP’s revenue for the second quarter (ending June 2024) to increase 4.4% year-over-year to $50.65 billion. The consensus EPS estimate of $1.07 for the current year indicates an improvement of 19.7% year-over-year. Additionally, BP’s stock has gained marginally over the past six months.

Phillips 66 (PSX)

With a market cap of $56.54 billion, Phillips 66 (PSX) is a leading energy manufacturing and logistics company. It operates in four segments: Midstream; Chemicals; Refining; and Marketing and Specialties (M&S).

In May, Phillips 66 agreed to acquire Pinnacle Midland Parent LLC from Energy Spectrum Capital to expand its natural gas gathering and processing footprint in the Midland Basin. Pinnacle’s assets consist of the newly built Dos Picos natural gas gathering and processing system: a 220 MMcf/d gas processing plant, 80 miles of gathering pipeline, and 50,000 dedicated acres through high-quality producers in one of PSX’s focus basins. 

Pinnacle is a bolt-on asset that enhances PSX’s wellhead-to-market strategy and complements its diverse and integrated asset portfolio. Moreover, this acquisition aligns with its long-term goals of expanding its natural gas liquids value chain, maintaining disciplined capital allocation, and creating sustainable value for its shareholders.

On April 3, the Board of Directors of Phillips 66 declared a quarterly dividend of $1.15 per share, representing an increase of 10%. The dividend was paid on June 3, 2024, to shareholders of record as of the business close on May 20, 2024. The dividend increase demonstrates the company’s confidence in its growing mid-cycle cash flow generation and disciplined capital allocation strategy.

Since its formation in 2012, PSX has consistently raised its dividend, resulting in a CAGR of 16%. Moreover, the company is well-poised to continue delivering substantial shareholder value by executing its strategic priorities, including returning $13-$15 billion to shareholders via dividends and share repurchases from July 2022 to the year-end 2024.

During the first quarter that ended March 31, 2024, PSX posted revenue of $36.44 billion, exceeding analysts’ expectations of $33.56 billion. Its adjusted earnings were $822 million, or $1.90 per share, respectively. During the quarter, refining operated at 92% crude utilization. As of March 31, 2024, the company had cash and cash equivalents of $1.60 billion and $3.50 billion of committed capacity under its credit facility.

In addition, Phillips 66, through the successful execution of its strategic priorities, remains committed to increasing mid-cycle adjusted EBITDA to $14 billion by 2025 and returning more than 50% of operating cash flow to shareholders.

Shares of PSX have surged around 3% over the past six months and more than 33% over the past year.

Valero Energy Corporation (VLO)

Valued at a market cap of $47.65 billion, Valero Energy Corporation (VLO) manufactures, markets, and sells petroleum-based and low-carbon liquid transportation fuels and petrochemical products internationally. The company operates through Refining; Renewable Diesel; and Ethanol segments.

VLO owns 15 petroleum refineries in the U.S., Canada, and the United Kingdom, with a total throughput capacity of about 3.2 million barrels per day. Additionally, Valero is a joint venture partner in Diamond Green Diesel Holdings LLC, which owns two renewable diesel plants in the Gulf Coast region with a combined production capacity of nearly 1.2 billion gallons per year.

Valero also owns 12 ethanol plants in the Mid-Continent region, with a combined production capacity of around 1.6 billion gallons per year.

In the last earnings report, the company provided a strategic update on the Sustainable Aviation Fuel (SAF) project at the DGP Port Arthur plant. The project is progressing ahead of schedule and will likely be operational in the fourth quarter of 2024. It is anticipated that this will give the plant the flexibility to upgrade about 50% of its current 470 million gallons annual renewable diesel production capacity to SAF. Once completed, DGD is expected to become one of the world’s largest SAF manufacturers.

VLO reported revenues of $31.76 billion for the first quarter that ended March 31, 2024. The company’s net income and earnings per common share were $1.33 billion and $3.75, respectively. Net cash provided by operating activities was $1.80 billion for the quarter.

During the quarter, Valero returned $1.4 billion to stockholders, including $356 million paid as dividends and $1 billion as the purchase of about 6.6 million shares of common stock, resulting in a payout ratio of 74% of adjusted net cash provided by operating activities. The company paid a regular quarterly cash dividend of $1.07 per share on June 28, 2024.

VLO’s stock has soared over 16% over the past six months and is up approximately 28% over the past year.

Micron's AI Momentum: Outpacing Nvidia in the Memory Chip Market?

Posted on by The INO.com Team

Artificial intelligence (AI) has transformed major industries, including healthcare, finance, retail, automobile, and manufacturing. Nvidia Corporation (NVDA) has been at the forefront of advancing AI through its graphics processing units (GPUs). These GPUs are crucial for training large language models (LLMs) such as OpenAI’s ChatGPT, leading to outstanding growth in the company’s revenue and earnings.

As a result, NVDA’s stock has surged nearly 148% over the past six months and is up more than 205% over the past year. Nvidia stock’s exceptional performance lifted its market capitalization above $3 trillion, making it the second-most valuable company in America.

However, another leading semiconductor company, Micron Technology, Inc. (MU), known for its innovative memory and storage solutions, is also experiencing remarkable growth due to rapid AI adoption.

Let’s explore how the ongoing AI boom powers Micron’s impressive growth and assess if it could outpace Nvidia in the memory chip market.

Micron’s Solid Third-Quarter Financials and Optimistic Outlook

MU posted revenue of $6.81 billion for the third quarter that ended May 30, 2024, surpassing analysts’ expectations of $6.67 billion. That compared to $5.82 billion for the previous quarter and $3.75 billion for the same period last year. Robust AI demand and robust execution enabled Micron to drive exceptional revenue growth, exceeding its guidance range for the third quarter.

Micron’s non-GAAP gross margin was $1.92 billion, compared to $1.16 billion in the prior quarter and negative $603 million in the third quarter of 2023. Its non-GAAP operating income came in at $941 million, versus $204 million in the previous quarter and negative $1.47 billion for the same period of 2023.

Furthermore, the company posted non-GAAP net income and earnings per share of $702 million and $0.62, compared to net loss and loss per share of $1.57 billion and $1.43 in the same quarter last year, respectively. Its EPS surpassed the consensus estimate of $0.53.

MU’s adjusted free cash flow was $425 million, compared to negative $29 million in the previous quarter and negative $1.36 billion for the same quarter of 2023. The company ended the quarter with cash, marketable investments, and restricted cash of $9.22 billion. 

“We are gaining share in high-margin products like High Bandwidth Memory (HBM), and our data center SSD revenue hit a record high, demonstrating the strength of our AI product portfolio across DRAM and NAND. We are excited about the expanding AI-driven opportunities ahead, and are well positioned to deliver a substantial revenue record in fiscal 2025,” said Sanjay Mehrotra, Micron Technology’s President and CEO.

For the fourth quarter of 2024, Micron expects revenue of $7.60 billion ± $200 million. The midpoint ($7.60 billion) of its revenue guidance range represents an approximately 90% rise from the same period last year. Its non-GAAP gross margin is anticipated to be 34.5% ± 1%. In addition, the company projects its non-GAAP earnings per share to be $1.08 ± 0.08, a turnaround from a loss of $1.07 per share in the previous year’s quarter.

Vital Role in the AI Ecosystem

MU’s success in the AI ecosystem is primarily driven by its high-bandwidth memory (HBM) chips, integral to high-performance computing (HPC), GPUs, AI, and other data-intensive applications. The chips provide fast and efficient memory access for processing large volumes of data quickly.

Micron sold $100 million of its HBM3E chips in the third quarter alone. Further, the company anticipates its HBM3E revenue to escalate from “several hundred million dollars” in fiscal 2024 to “multiple billions” for fiscal 2025.

Earlier this year, the company started mass production of its HBM2E solution for use in Nvidia’s latest AI chip. Micron’s 24GB 8H HBM3E will be part of NVIDIA H200 Tensor Core GPUs.

Moreover, Micron’s dynamic random-access memory (DRAM) and NAND flash memory are critical components in AI applications. In June, MU sampled its next-gen GDDR7 graphics memory for AI, gaming, and HPC workloads. Leveraging Micron’s 1β (1-beta) DRAM technology and advanced architecture, the GDDR7 delivers 32 Gb/s high-performance memory in a power-optimized design.

On May 1, the company reached an industry milestone as the first to validate and ship 128GB DDR5 32Gb server DRAM to address the growing demands for rigorous speed and capacity of memory-intensive Gen AI applications. Powered by Micron’s 1β technology, the 128GB DDR5 RDIMM memory offers over 45% greater bit density, up to 22% improved energy efficiency, and up to 16% reduced latency over competitive 3DS through-silicon via (TSV) products.

AI-Driven Demand in Smartphones, PCs, and Data Centers

AI drives strong demand for memory chips across various sectors, including smartphones, personal computers (PCs), and data centers. In its latest earnings conference call, Micron’s management pointed out that AI-enabled PCs are expected to feature 40% to 80% more DRAM content than current PCs and larger storage capacities. Similarly, AI-enabled smartphones this year carry 50% to 100% more DRAM than last year’s flagship models.

These trends suggest a bright future for the global memory chips market. According to the Business Research Company report, the market is expected to reach $130.42 billion by 2028, growing at a CAGR of 6.9%.

Micron’s Competitive Edge Over Nvidia and Attractive Valuation

Despite NVDA’s expected revenue jump from $60.90 billion in the fiscal year 2023 to around $120 billion this year, MU is projected to outpace Nvidia’s growth in the following year. Micron’s revenue could increase by another 50% year-over-year in the next fiscal year, outperforming Nvidia’s forecasted growth of 33.7%.

In terms of non-GAAP P/E (FY2), MU is currently trading at 13.76x, 60.9% lower than NVDA, which is trading at 35.18x. MU’s forward EV/Sales and EV/EBITDA of 5.98x and 16.44x are lower than NVDA’s 26.04x and 40.56x, respectively. Also, MU’s trailing-12-month Price to Book multiple of 3.28 is significantly lower than NVDA’s 64.15.

Thus, Micron is a compelling investment opportunity for those seeking exposure to the AI-driven memory chip market at a more reasonable price.

Bottom Line

MU is experiencing significant growth driven by the AI boom, with impressive third-quarter financials and a strong outlook for upcoming quarters. The company’s strategic positioning in the AI-driven memory chip market, especially its HBM3E chips, is vital for high-performance computing and data-intensive applications. It has enabled Micron to capitalize on the surging AI demand across various sectors, including smartphones, PCs, and data centers.

On June 27, Goldman Sachs’ analyst Toshiya Hari maintained a Buy rating on MU shares and raised the price target to $158 from $138. Goldman Sachs’ stance indicates strong confidence in Micron’s long-term prospects, particularly with the expansion of AI computing capabilities and its strategic initiatives in the memory market.

Moreover, Rosenblatt Securities reiterated its Buy rating on Micron Technology shares, with a steady price target of $225. The firm’s optimism is fueled by expectations of solid financial performance surpassing analysts’ estimates, propelled by advancements in AI and HBM developments.

Compared to Nvidia, Micron offers solid growth potential at a more reasonable valuation. Despite Nvidia’s dominant position in the AI and data center segment and exceptional stock performance, Micron’s revenue growth rate is projected to outpace Nvidia’s in the following year, driven by its expanding AI product portfolio and increasing market share in high-margin memory products.

For investors seeking exposure to the AI revolution, Micron presents a compelling opportunity with its solid financial performance, innovative product offerings, and competitive edge in the memory chip market.