Tag: Advanced Micro Devices

Forget NVDA, Buy This AI Stock Instead

Posted on by The INO.com Team

Dell Technologies Inc. (DELL) is thriving amid the burgeoning artificial intelligence (AI) revolution, capitalizing on robust adoption. Following a stellar fiscal 2024 fourth-quarter earnings report, Dell’s stock hovers near record highs. Active participation in the AI landscape is propelling the company’s prospects, aligning with the prevailing industry momentum.

Last Friday, DELL's stock witnessed a staggering 30% surge. Investors lauded the company’s AI-driven advancements and heightened demand for its offerings, driving the year-to-date surge to 54%.

The Texas-based tech firm reported fourth-quarter adjusted earnings per share of $2.20, surpassing analysts’ expectations of $1.72. Additionally, Dell’s revenue amounted to $22.32 billion, exceeding the projected $22.17 billion. Strong data center server sales for generative AI applications offset sluggish PC sales during the period.

During the quarter that ended February 2, 2024, DELL experienced a 10.9% year-over-year decline in revenue to $22.32 billion. However, the company’s net income surged 91.1% from the prior year’s period to $1.16 billion. Despite a 5.8% year-over-year decrease, its Infrastructure Solutions Group (ISG) contributed $9.33 billion to revenue.

AI-optimized servers emerged as the primary revenue driver, generating $4.86 billion, while storage revenue saw a significant 9.9% sequential rise, contributing $4.48 billion. Servers and networking remained pivotal, underscoring DELL's strategic focus on AI-driven solutions and storage innovations.

Jeff Clarke, Vice Chairman and Chief Operating Officer of DELL, highlighted the company's robust AI-optimized server momentum, citing a nearly 40% sequential increase in orders and a doubling backlog, reaching $2.9 billion by the end of the fiscal year.

Clarke said, “We’ve just started to touch the AI opportunities ahead of us, and we believe Dell is uniquely positioned with our broad portfolio to help customers build GenAI solutions that meet performance, cost and security requirements.”

Turning to cash inflows and the balance sheet, DELL reported a fourth-quarter cash inflow from operations of $1.50 billion, primarily fueled by profitability. The company ended the quarter with $9 billion in cash and investments, and it reached its core leverage target of 1.5x, exiting the fiscal year 2024.

During the quarter, the company repurchased 11.2 million shares of stock and paid a quarterly dividend of $0.37 per share. Furthermore, DELL announced a 20% hike in its annual dividend, now standing at $1.78 per share. The dividend increase surpasses the company’s long-term financial framework and underscores its confidence in the business trajectory and capacity to generate robust cash flow.

Strategic Business Advancements

DELL has been expanding its portfolio to meet diverse customer needs across clouds, on-premises, and at the edge. Enhancements to the Dell Generative AI Solutions portfolio include support for Advanced Micro Devices, Inc.’s (AMD) Instinct™ MI300X accelerator in PowerEdge XE9680 servers and a new DELL Validated Design for Generative AI with AMD ROCm™ powered AI frameworks.

New enterprise data storage advancements have also been introduced, with planned validation with the NVIDIA Corporation’s (NVDA) DGX SuperPOD AI infrastructure, facilitating swift access to data for AI workloads using DELL PowerScale systems.

Moreover, the company has unveiled plans for the broadest portfolio of commercial AI laptops and mobile workstations, integrating built-in AI acceleration with neural processing unit (NPU) technology. Additionally, new XPS systems boast NPU integration, enhancing performance, productivity, and collaboration.

Furthermore, DELL has forged a strategic partnership with Nokia Corporation (NOK), becoming its preferred infrastructure partner for Nokia AirFrame customers. The collaboration entails transitioning to DELL PowerEdge servers with comprehensive DELL global services and support.

A Comparative Analysis of DELL and NVDA’s Performance

Following its robust fiscal 2024 fourth-quarter results reported last Thursday, DELL’s stock has surged significantly, showcasing its dominance in AI offerings. The momentum stems from DELL’s utilization of NVDA’s AI-powered GPUs for its servers, aligning with the chip giant's remarkable success.

DELL’s AI-optimized servers integrate graphics processing units (GPUs) from both NVDA and AMD. Clark noted that the heightened demand was across the H100, H800, H200, and MI300X, with the first three GPUs manufactured by NVDA and the last one by AMD.

This development is likely to please NVDA investors, given that the company also reported fourth fiscal quarter earnings surpassing Wall Street's expectations for both earnings and sales. However, its CEO, Jensen Huang, has acknowledged investor concerns regarding the sustainability of this growth and sales level throughout the year.

Furthermore, NVDA’s data center revenue suffered due to recent U.S. constraints on exporting advanced AI semiconductors to China. NVDA’s CFO, Colette Kress, highlighted that despite enhancements in the supply of AI GPUs, shortages are still anticipated, particularly for the upcoming next-generation chip, dubbed B100, slated for shipment later this year.

Additionally, NVDA’s smaller ventures didn’t exhibit the same remarkable growth. Its automotive segment experienced a 4% decline, generating $281 million in sales, while its OEM and other businesses, encompassing crypto chips, saw a mere 7% increase to $90 million.

Moreover, NVIDIA’s valuation is deemed excessively high, positioning DELL as a more favorable investment choice at present.

In terms of forward P/E, DELL is trading at 26.78x, 29.5% lower than NVDA’s 37.96x. DELL's forward EV/Sales of 1.12x is 94.1% lower compared to NVDA’s 18.91x. Additionally, DELL's forward EV/EBITDA of 9.48x contrasts with NVDA’s 29.38x.

Reflecting the heightened demand and growing interest in enterprise AI, DELL’s stock has surged nearly 37% over the past month, outpacing NVDA’s gain of 24%. Furthermore, DELL has skyrocketed more than 155% over the past nine months, while NVDA has gained approximately 119% during the same period.

DELL's Upbeat Fiscal 2025 Projections

DELL's confidence in its fiscal year 2025 outlook stems from three pivotal trends: the escalating momentum in AI, notable enhancements in traditional servers, and the imminent refresh of the aging PC installed base. Against this backdrop, DELL anticipates fiscal 2025 revenue between $91 billion and $95 billion, with a midpoint of $93 billion, reflecting 5% growth, surpassing its long-term value creation framework.

The company anticipates ISG to surge in the mid-teens, driven by AI, with a resurgence in traditional servers and storage. CSG business is forecasted to expand in the low single digits for the year. The amalgamation of ISG and CSG is expected to grow by 8% at the midpoint, counterbalanced by a decline in other sectors.

For the first quarter of fiscal 2025, DELL projects revenue between $21 billion and $22 billion, centered around $21.5 billion, marking a 3% increase. The company anticipates ISG and CSG combined to grow by 5% at the midpoint, with ISG climbing in the mid-to-high teens.

Yvonne McGill, DELL’s CFO, said, “We have strong conviction in the growth of our TAM over the long term, and we are committed to delivering against our long-term financial framework with average annual revenue growth of 3% to 4%, diluted EPS growth of at least 8% and a net income-to-adjusted free cash flow conversion of 100% or better over time.”

She has also emphasized the commitment to returning 80% or more of the adjusted free cash flow to shareholders over the long term.

Bottom Line

DELL, renowned for its PC business, has garnered considerable attention due to increased demand for its resilient servers designed for AI workloads. The fourth-quarter results showcased an enduring interest in DELL’s AI offerings, spotlighting the Dell PowerEdge XE9680 as the fastest-ramping solution in the company’s history.

After DELL’s strong earnings report, analysts have voiced optimism and confidence in the stock’s performance. Morgan Stanley analysts, led by Erik W. Woodring, upheld a Top Pick rating for DELL stock, raising the 12-month target price from $100 to $128.

Additionally, Goldman Sachs analyst Michael Ng has expressed a favorable outlook, suggesting that DELL’s stock is poised to trade higher, buoyed by the stronger-than-expected AI server backlog and improved margins in the Infrastructure Solutions Group (ISG). That bolsters the bank’s bullish stance on heightened earnings potential and sustained growth amidst robust AI demand.

Industry experts have also emphasized DELL’s position as a clear leader in the AI hardware and services market, citing the company’s ability to swiftly supply high-end server models with accelerators from various silicon providers. Dell’s competitive advantage positions it to capitalize on the early stages of the AI server opportunity, especially in the enterprise-focused market.

Expansion in AI servers will also drive growth in DELL’s storage business. With extensive training conducted using rich data sets, the company’s venture into enterprise territory presents a burgeoning storage opportunity. DELL has enhanced performance concerning latency-sensitive workloads, aligning with enterprise requirements as customers transition from training to inference.

In conclusion, DELL’s outstanding fourth-quarter performance and upbeat fiscal 2025 outlook, propelled by AI server momentum, have instilled investor confidence and received a commendation from analysts. Given NVDA’s slowing revenue growth, regulatory challenges, and alarming valuation, it could be wise to invest in fundamentally sound AI stock DELL instead.

Nvidia vs. Netflix- Which Is the #1 Growth Stock to Buy in March?

Posted on by The INO.com Team

With the S&P 500 soaring roughly 8% year-to-date, stocks have experienced a solid start in 2024, with investors reaping the rewards of putting their money in high-growth stocks. This positive momentum is expected to persist throughout the rest of the year and beyond.

Amid this market rally, chip giant NVIDIA Corporation (NVDA) and entertainment powerhouse Netflix, Inc. (NFLX) have emerged as beacons of growth, capturing investor’s bullish sentiment.

Although operating in distinct industries with unique business models, these titans share striking parallels in their journey to success. Their unwavering commitment to excellence, combined with strategic flexibility, has catapulted them to the forefront of their respective industries.

Therefore, let’s explore the fundamentals of NVDA and NFLX to unveil the ultimate growth contender of the month.

Last Reported Quarterly Results

In the fiscal fourth quarter that ended January 28, 2024, NVDA witnessed a staggering 265.3% year-over-year surge in its topline, totaling $22.10 billion. The company’s non-GAAP net income surged to $12.84 billion and $5.16 per share, marking a remarkable increase of 490.6% and 486.4% from the prior-year quarter, respectively.

As of January 28, 2024, NVDA’s cash, cash equivalents and marketable securities stood at $25.98 billion.

Conversely, for the fourth quarter that ended December 31, 2023, NFLX’s revenue rose 12.5% year-over-year to $8.83 billion. The company also experienced significant growth in net income and EPS compared to the previous year’s quarter, amounting to $937.84 million and $2.11, respectively. As of December 31, 2023, NFLX held $7.12 billion in cash and cash equivalents.

Growth Trajectory

NVDA, the reigning chip powerhouse, is currently one of the market's most sizzling stocks. Since its inception in 1993, NVDA has spearheaded cutting-edge computer chip technology, pushing the boundaries of graphics-heavy video games to unparalleled heights.

However, with the emergence of Artificial Intelligence (AI), these chips have swiftly ascended to newfound prominence, reflecting NVDA's enduring innovation and strategic adaptability. The company stands as a global giant in the production of Graphics Processing Units (GPUs) renowned for their ability to handle complex mathematical operations, powering captivating visuals across devices.

These advanced chips have become indispensable for training state-of-the-art AI programs such as ChatGPT and Gemini, underscoring NVDA’s pivotal role in driving the AI revolution forward. Leveraging AI to its advantage, NVDA’s earnings reports have managed to exceed expectations throughout 2023.

Furthermore, NVDA’s shares soared roughly 200% over the past year, buoyed by the company’s stellar earnings performance and solid demand for its AI chips. This surge attracted both institutional and retail investors, driving up share prices. With a market cap of around $2 trillion, NVDA has now claimed the title of the world's third most valuable company.

On the other hand, commanding a market cap of over $268 billion, NFLX stands as a pioneer in the streaming entertainment space, revolutionizing how audiences consume content worldwide. With a vast library of original programming and a global subscriber base, NFLX enjoys unrivaled dominance in the industry.

In a recent conference, NFLX’s CFO Spencer Neumann elaborated on NFLX’s trajectory under its revamped Co-CEO structure and its ambitious vision for future expansion. Neumann emphasized the smooth transition to the new leadership structure and NFLX’s dedication to broadening its entertainment repertoire, spanning films, TV series, gaming endeavors, and live content experiences.

Over the last few years, the tech company has adopted several strategic approaches to bolster its financial health. NFLX’s growth strategy hinges significantly on its substantial investment in content, with an annual expenditure projected at approximately $17 billion.

In addition, Netflix is venturing into new revenue avenues, including the introduction of an ad-supported subscription tier and measures aimed at bolstering monetization, such as combating password sharing.

Moreover, despite its risky move of cracking down on password sharing, NFLX’s latest earnings report revealed a surge of 13 million new subscribers in the final quarter of 2023, marking its most substantial growth since 2020. While initially met with resistance, the strategic move has been designed to counteract declining subscribership.

Greg Peters, NFLX’s Managing Director, emphasized during the earnings call that the company's top priority regarding ads is scalability. He highlighted a 70% quarter-on-quarter growth in the last quarter, following a similar growth trend in the previous quarter, indicating a positive growth trajectory for the company.

Competitive Landscape

In the dynamic worlds of technology and entertainment, both NVDA and NFLX are fiercely vying for supremacy in their domains.

The soaring popularity of generative AI owes a significant debt to NVDA and its groundbreaking GPUs. With skyrocketing demand and tight supply, NVDA's GPU H100 has emerged as a highly sought-after and premium-priced commodity, propelling NVDA to trillion-dollar status for the very first time.

With tech giants such as Microsoft Corporation (MSFT), Meta Platforms Inc. (META), OpenAI, Amazon.com Inc. (AMZN), and Alphabet Inc. (GOOGL) heavily relying on NVDA’s GPU chips to power their generative AI planforms, these companies have started developing their own AI processors.

In addition, NVDA faces stiff competition from other chip makers like Advanced Micro Devices, Inc. (AMD) and Intel Corporation (INTC), all striving to release the newest, most efficient, and potent AI chips to dominate the market.

Meanwhile, NFLX confronts fierce competition from fellow FAAMG (Meta (formerly Facebook), Apple Inc. (AAPL), Amazon, Microsoft, and Alphabet’s Google) heavyweights. The streaming arena is now brimming with contenders like Apple TV+, Amazon Prime Video, and YouTube Premium, launched by Apple, Amazon, and Google, respectively.

This fierce rivalry compels NFLX to perpetually innovate and enrich its content library to retain its crown as the streaming kingpin. Furthermore, the mounting expenses of content licensing and the delicate balance between original productions and licensed content present enduring hurdles for NFLX to overcome.

Bottom Line

As evidenced by their latest quarterly results, both NVDA and NFLX continue to deliver impressive performances, standing as formidable players in their respective industries, with their growth trajectories reflecting their strategic prowess and market dominance.

NVDA's cutting-edge GPU chips have propelled it to the forefront of the AI revolution, with staggering earnings growth and market capitalization making it a top contender in the tech landscape.

Fueled by these promising prospects, NVDA’s shares soared to unprecedented heights last month, with its market cap skyrocketing by a Jaw-dropping $267 billion in a single day. This remarkable surge nearly matched the entire market cap of NFLX, reflecting immense investor confidence in NVDA’s prospects.

NFLX, on the other hand, dominates the streaming entertainment space with its vast content library and global subscriber base. Despite facing stiff competition from tech giants and emerging streaming platforms, NFLX remains focused on expansion and innovation, which is evident in its ambitious growth strategies and robust financial health in the last reported quarter.

While challenges and competition persist, NVDA and NFLX demonstrate resilience, adaptability, and a relentless drive for success, making them compelling options for investors seeking growth opportunities in the dynamic worlds of technology and entertainment.

However, NVDA’s shares are trading at a much higher valuation than NFLX. For instance, in terms of forward Price/Sales, NVDA is trading at 19.37x, 178.7% higher than NFLX’s 6.95x. Likewise, NVDA’s forward Price/Book ratio of 24.32 is 116.2% higher than NFLX’s 11.25x.

The higher valuation of NVDA compared to NFLX indicates investor confidence in NVDA's future growth potential, leading investors to be willing to pay a premium price for its shares. However, it also signals that NVDA's anticipated growth might already be factored into its stock price, potentially dimming its attractiveness compared to NFLX.

Furthermore, while NVDA’s ascent captivates the stock market and propels the S&P 500 Index to unprecedented highs, Barclays research analyst Sandeep Gupta anticipates that demand for AI chips will stabilize once the initial training phase concludes.

Gupta underscores that during the inference stage, the computational demand is lower compared to training, suggesting that high-powered PCs and smartphones could suffice for local inference tasks. Consequently, this scenario may reduce the urgency for NVDA’s expanding GPU facilities.

As a result, investors might be banking on future growth that could potentially fail to materialize. With that being said, NFLX may emerge as a more promising growth stock compared to NVDA.

Examining AMD as a High-Growth, Long-Duration Asset Amid Chip Optimism

Posted on by The INO.com Team

Since the inception of civilization, humanity has perpetually sought the next groundbreaking advancement, extending across diverse fields, including entertainment, fashion, and technology. It is the forecasters, with one foot in the present and the other steering toward the future, whose evolutionary visions brought about automobiles, airplanes, and the internet.

While such visionaries may not always accurately predict the future, their ambitions fuel our relentless quest for innovation. In the spotlight recently has been Artificial Intelligence (AI), notably after OpenAI unveiled ChatGPT, a comprehensive language model that millions employ for diverse purposes such as searching, parsing, and content creation.

In the current digital era, the significance of semiconductors is evident. Powering an extensive array of devices from smartphones to aircraft, these components enhance the utility of modern electronics and act as technological accelerators, driving advancements in AI, machine learning, and quantum computing.

The semiconductor industry displays robust growth and is expected to expand at a CAGR of 9.18% by 2030, reaching $1.03 trillion.

The surge in demand for AI applications across different sectors for effective big data management serves as a key factor propelling the worldwide AI chip market's growth. Consequently, the market is anticipated to reach about $372.01 billion in 10 years.

Additionally, the rising requirement for quantum computing, especially for handling mammoth datasets linked to operational efficiency, is gaining increased prominence, which is forecasted to drive substantial market expansion.

Chip giant Advanced Micro Devices, Inc. (AMD) is set to officially join the AI chip competition in 2024. At the beginning of the second half of 2023, the tech titan announced the forthcoming MI300x GPU chipset.

According to AMD, the AI chip market, valued at $45 billion, is predicted to soar nearly tenfold to $400 billion by 2027. With an eye on this lucrative landscape, AMD's newly developed MI300X chipset is designed to vie with the AI-darling Nvidia Corporation’s (NVDA) flagship H100 for AI data center clientele.

According to AMD's forecasts, the new chips will generate an additional $2 billion in sales in 2024 – a figure some deem conservative considering the immense potential of the total addressable market. In contrast, analysts at Barclays project a figure closer to $4 billion – translating to roughly 18% growth rate based on AMD's trailing-12-month revenue, assuming all other business operations remain steady.

Over the past three and five years, AMD’s revenue grew at CAGRs of 36.8% and 28.2%, respectively, while its levered FCF grew at 68.2% and 84.4% CAGRs over the same periods.

For the fiscal third quarter that ended September 30, 2023, AMD delivered strong revenue and earnings growth fueled by rising demand for its Ryzen 7000 series PC chips and an all-time high in server processor sales. Its revenue for the quarter stood at $5.80 billion, up 4.2% year-over-year.

AMD's data center business is on a significant growth trajectory, rooted in the strength of its EPYC CPU portfolio and the accelerated shipments of Instinct MI300 accelerators. These factors have fortified multiple deployments across hyper-scale, enterprise, and AI customer frameworks.

Moreover, its non-GAAP net income and net income per share increased 3.7% and 4.5% from the year-ago quarter to $1.14 billion and $0.70, respectively.

AMD is scheduled to report fourth-quarter earnings on January 30, 2024. AMD EVP, CFO and Treasurer Jean Hu said, “In the fourth quarter, we expect to see strong growth in Data Center and continued momentum in Client, partially offset by lower sales in the Gaming segment and additional softening of demand in the embedded markets.”

Wall Street expects AMD’s revenue and EPS for the fiscal fourth quarter ending December 2023 to be $6.14 billion and 77 cents, up 9.6% and 11.6% year-over-year, respectively. If it delivers on those estimates, it will mark the fastest sales growth in one year. The company has surpassed the consensus revenue and EPS estimates in all of the trailing four quarters, which is impressive.

Shares of AMD jumped 5.9% on January 24, soaring above 140% over the past year. Since October, AMD has seen an approximate increase of 65%, comfortably outperforming the AI darling NVDA and the Philadelphia Semiconductor Index during this period. The S&P 500 registered just a 15% uptick.

This week alone, AMD surged above 12%, trouncing NVDA's increase. The significant leap in AMD shares is attributed mainly to the burgeoning potential to secure a prominent slice of this year's AI chip market.

Additionally, this week saw a significant boost when several notable analytics firms – including Barclays Plc, Susquehanna Financial, and TD Cowen – elevated their price targets for AMD.

Barclays emerged with the loftiest target at $200 per share, surging from $120. This optimistic adjustment primarily stems from high expectations for artificial intelligence as a key growth stimulant. Notably, over 70% of analysts monitoring AMD are recommending a buy-equivalent rating.

However, Wall Street analysts expect the stock to reach about $156 in the next 12 months, indicating a potential downside of 12.6%. The price target ranges from a low of $105 to a high of $215.

Bottom Line

Growth projections from AMD’s MI300X chip family are a lot to receive from one type of product. Should AMD's ambitious forecasts regarding AI chip demand materialize, investors could anticipate a considerable escalation in sales in a couple of years.

Investors should remain aware that the AI sector does not exclusively entail a winner-take-all scenario. The market’s rapid expansion could allow multiple companies to carve out their successes. Although entering the market later than others, AMD may establish a competitive edge through cost-effectiveness, nurturing an esteemed standing within a balanced and diversified investment portfolio.

The early adopters of the MI300A/X are unlikely to obtain high profits initially – they will enjoy competitive pricing until demand gains traction. By nature, building momentum takes time, and if AMD stays true to its usual course of action, it will focus on long-term progress rather than immediate financial gain.

AMD's stock price could fluctuate significantly, and despite positive reports and guidance, it may take several estimated returns to invoke a maximum increase. This is because AMD must substantiate its guidance, requiring, at a minimum, another quarter to validate and replicate its success.

Moreover, there are significant issues like demonstrating market competitiveness, particularly concerning software adoption. Some investors view AMD's rival, NVDA, as a dominant player in the GPU space. For AMD to make its mark, it must prove its ability to lead on its terms, complementing its other endeavors. This validation process will require time and consistency.

While waiting, macroeconomic risks persist, ranging from ongoing wars to the potential of economic recession and fluctuating interest rates. Staying the course involves maintaining progress amid potentially adverse circumstances.

From an investment standpoint, it is critical to acknowledge AMD's forward non-GAAP P/E multiple of 67.17, signaling that AMD's stock is substantially more expensive than the industry average.

Furthermore, AMD's 12.71x forward P/S is 330% greater than the industry average of 2.95x. Its revenue has increased at a modest CAGR over the past three years, and analysts predict a 15% annual growth rate for the next three years. However, these projections are less robust than the industry average, suggesting a potential shortfall in expected revenue for AMD. It is thus concerning that AMD’s P/S supersedes most within the same industry.

The disquieting underperformance in its revenue projections spells potential risk for AMD’s elevated P/S. If the anticipated revenue trend doesn’t take an upward turn, it could negatively impact the already high P/S. Given the current market prices, it would be prudent for investors to exercise caution, particularly if the situation fails to enhance.

Therefore, investors could wait for a better entry point in the stock.

Bypassing Qualcomm (QCOM) Turmoil: 3 Alternative Stocks to Add to Your Portfolio Now

Posted on by The INO.com Team

QUALCOMM Incorporated (QCOM), valued at over $124 billion, specializes in wireless technology development, licensing, and smartphone chip design. The firm's key patents are focused on CDMA and OFDMA technologies, fundamental to all 3G, 4G, and 5G networks. As the world's principal wireless chips supplier, it furnishes high-end handset manufacturers with cutting-edge processors.

Canalys’ figures indicate the global smartphone market's persistent decline, marking its sixth consecutive quarter of reduction as of June 2023. Even while cautious optimism for a potential market resurgence remains, this downturn has tangible impacts on QCOM, a significant player in smartphone chip supply. The shrinkage, intensified by soaring competition from Chinese chipmakers, has notably impacted the firm’s revenue and profit margins last quarter.

The company experienced its sharpest stock dip in September, consequent to turmoil in China, which disrupted QCOM's sales in a critical market. The company faces manifold risks, amplified by the imminent wave of layoffs that has stirred public apprehension. The timing of this layoff news has coincided with persisting trade tensions between the U.S. and China and Beijing's enactment of a partial ban on using iPhones by government personnel.

According to recent filings with the California Employment Development Department, the semiconductor behemoth will eliminate approximately 1,258 jobs in San Diego and Santa Clara, California, to accommodate dwindling demand for its primary product.

The layoffs are a part of “restructuring actions” aimed at channeling resources towards “investments in key growth and diversification opportunities.” Although the loss of 1,258 employees will be felt, this figure represents less than 2.5% of QCOM's total workforce of 51,000 employees.

Concurrent with these measures, the company anticipates incurring substantial additional restructuring charges, most of which are expected to be borne in the fourth quarter of fiscal 2023. The company forecasts the successful completion of these additional actions by the first half of fiscal 2024.

Impact of the Layoffs

Potential layoffs at QCOM could be a strategic move to mitigate operating costs and bolster profitability and cash flow. This action can amplify the company's earnings per share and future dividend payouts and refocus its direction toward the core business and strategically significant growth sectors such as 5G technology, automotive tech, and IoT.

The latest data suggests that over 750 members of QCOM's workforce facing possible layoffs belong to engineering cadres, with positions ranging from directors to technicians. The remaining reductions will impact various roles, encompassing accounting and internal technical staff.

These substantial reductions in the workforce might slow down QCOM's manufacturing capacity, along with their research and development activities, which could stifle innovation in the long term. This scenario could pave the way for QCOM's competitors in the microchip manufacturing industry to seize a higher market share by providing more competitive products and services.

Given QCOM's ongoing challenges, investors may watch fundamentally sound stocks Apple Inc. (AAPL), Advanced Micro Devices, Inc. (AMD), and Intel Corporation (INTC).

Let’s discuss these stocks in detail.

Apple Inc. (AAPL)

Tech giant AAPL has continuously enhanced its capabilities by designing custom chips for hallmark products such as iPhones, iPads, and iPods over many years. The initiative to design these crucial components in-house significantly boosts the overall device performance and optimizes power efficiency.

To strive for a self-reliant development strategy, AAPL has gilded significant resources to produce its modem chips to reduce dependence on external suppliers like QCOM. However, the mission is yet to be fully accomplished.

AAPL has been integrating QCOM's and home-grown chips in the technology behind its flagship iPhones. Despite intense challenges faced by AAPL's ambitious Sinope project, which has yet to result in a standalone ability to produce a 5G modem chip, the spirit of innovation and the quest for excellence remains unscathed within the company.

This ambivalent situation was recently accentuated when AAPL extended its contract with QCOM to supply '5G modem chips', a deal set to last through 2026.

Indeed, developing a standalone 5G modem chip is arduous, though certainly not beyond the realms of possibility. With resilience and commitment to navigating challenges, it is undoubtedly just a matter of time before AAPL actualizes its dream of rolling out its home-grown 5G modem.

Considering AAPL's staunch determination and its record of technological advancements, realizing this ambitious objective seems attainable. It’s plausible that we might witness the introduction of AAPL’s modem even before the ongoing QCOM deal concludes in 2026.

Shares of AAPL have gained over 35% year-to-date. Wall Street analysts expect the stock to reach $207.51 in the upcoming 12 months, indicating a potential upside of 18.3%. The price target ranges from a low of $167 to a high of $240.

Advanced Micro Devices, Inc. (AMD)

Semiconductor giant AMD, which currently boasts a market cap of over $165 billion, is strategically positioned to meet the potential demands spurred by chip shortages that may result from QCOM’s proactive cost-cutting strategy.

Recovering convincingly from being on the verge of bankruptcy, AMD has seen its stock value increase from a dismal $3 per share. The remarkable turnaround can be attributed to the flourishing success of its Ryzen line of central processing units (CPU), launched in 2017.

Now, AMD sets its sights on the lucrative AI market, unveiling the latest iteration of its MI300 chips, which the company hails as its most powerful GPU. As the market yearns for fiercer competition, the new chip, set to commence shipping in 2024, feeds this demand.

Over the past three and five years, its revenue increased at 42% and 28.2% CAGRs, while its levered free cash flow grew at CAGRs of 83.7% and 103.7% over the same periods. AMD has massive potential over the long term, making its stock worthy to be monitored.

Shares of AMD have gained over 58% year-to-date. Wall Street analysts expect the stock to reach $137.48 in the upcoming 12 months, indicating a potential upside of 34.3%. The price target ranges from a low of $95 to a high of $160.

Intel Corporation (INTC)

QCOM leads in the Android industry but faces stiff competition from chipmaker INTC in the PC market.

With a commendable market cap of over $150 billion, INTC plans to capitalize on the burgeoning AI market and presented a strategic vision last month to position itself as a pivotal architect of AI-integrated personal computers.

INTC recently debuted its glass substrates, designed to give the advanced packaging of chips a significant edge over traditional substrates. The innovation is expected to have positively impacted revenues in the third quarter.

In the same period, a critical alliance was formed between INTC and Tower Semiconductor Ltd., which could significantly impact the broader semiconductor ecosystem. The alliance showcases INTC's unwavering commitment to broadening its foundry services and manufacturing prowess.

Moreover, a significant breakthrough came when Ericsson chose INTC's 18A process and manufacturing technology to advance its next-generation 5G network. INTC was enlisted to produce custom 5G SoCs for Ericsson, projected to have fortified the company's top line in the third quarter.

Shares of INTC have gained over 34% year-to-date. Wall Street analysts expect the stock to reach $36.67 in the upcoming 12 months, indicating a potential upside of 2.8%. The price target ranges from a low of $17 to a high of $56.

 

NVIDIA (NVDA) vs. Advanced Micro Devices (AMD): Which Stock Is Proving to Be the Better Long-Term AI Buy

Posted on by The INO.com Team

After its earnings release on May 24, the Santa Clara-based graphics chip maker NVIDIA Corporation (NVDA) stole the thunder by becoming the first semiconductor company to hit a valuation of $1 trillion.

NVDA has also blown away Street expectations ahead of its quarterly earnings release on August 23, with profits for the current quarter expected to be at least 50% higher than analyst estimates and the momentum expected to continue in the foreseeable future.

On the other hand, since its humble beginnings as a supplier for Intel Corporation (INTC), Advanced Micro Devices, Inc. (AMD) has come a long way. During its earnings release for the second quarter, despite persistent weakness in the PC market, the company’s result topped analyst estimates.

While NVDA has carved its niche and cornered a significant share of the GPU domain through advancements in parallel (and consequently accelerated) computing which began back in 2006 with the release of a software toolkit called CUDA, Chair and CEO Dr. Lisa Su is widely credited with AMD’s turnaround and transition from being widely dismissed due to performance issues and delayed releases to being the only company in the world to design both CPUs and GPUs at scale.

The New (Perhaps Only) Game in Town

As a general-purpose technology, such as the steam engine and electricity, Artificial Intelligence (AI) that has already been touching and influencing all facets of our life, including how we shop, drive, date, entertain ourselves, manage our finances, take care of our health, and much more.

However, late in November of last year, when OpenAI opened its artificial intelligence chatbot, ChatGPT, to the general public, all hell broke loose. The application took the world by storm. It amassed 1 million users in five days and 100 million monthly active users only two months into its launch to become the fastest-growing application in history.

The generative AI-powered application’s capability to provide (surprisingly) human-like responses to user requests equally fascinated and concerned individuals, businesses, and institutions with the possibilities of the technology. A large language model or LLM powers ChatGPT. This gives the application the ability to understand human language and provide responses based on the large body of information on which the model has been trained.

NVDA is reaping the rewards for all that invisible work done in the field of parallel computing. Parallel computing was ideal for artificial neural networks' deep (machine) learning. As a result of that head start in the AI tech race, its A100 chips, which are powering LLMs like ChatGPT, have become indispensable for Silicon Valley tech giants.

To put things into context, the supercomputer behind OpenAI’s ChatGPT needed 10,000 of NVDA’s famous chips. With each chip costing $10,000, a single algorithm that’s fast becoming ubiquitous is powered by semiconductors worth $100 million.

However, AMD isn’t too far behind either. According to Dr. Su, Data Center is the most strategic piece of business as far as high-performance computing is concerned. AMD underscored this commitment with the recent acquisition of data center optimization startup Pensando for $1.9 billion.

At the premiere, AMD’s ambitions to capitalize on the AI boom were loud and clear, with the launch of MI300X (a GPU-only chip) as a direct competitor to NVDA’s H100. The chip includes 8 GPUs (5nm GPUs with 6nm I/O) with 192GB of HBM3 and 5.2TB/s of memory bandwidth.

AMD believes this will allow LLMs’ inference workloads that require substantial memory to be run using fewer GPUs, which could improve the TCO (Total Cost of Ownership) compared to the H100.

The Road Ahead

The optimism surrounding both companies is justified.

With NVDA’s presence in data centers, cloud computing, and AI, its chips are making their way into self-driving cars, engines that enable the creation of digital twins with omniverse that could be used to run simulations and train AI algorithms for various applications.

On the other hand, AMD has also been training its guns to exploit the burgeoning AI accelerator market, projected to be over $30 billion in 2023 and potentially exceed $150 billion in 2027.

AMD is one of the few companies making high-end GPUs needed for artificial intelligence. With AI being seen as a tailwind that could drive PC sales, the company announced plans to launch new Radeon 7000 desktop GPUs at its quarterly earnings release. It is being speculated that the GPU will come with two 8-pin PCIe power connectors and four video out ports, including three DisplayPort 2.1 and one HDMI 2.1.

Caveats

AMD existed as both a chip designer and manufacturer, at least until 2009. However,  significant capex requirements associated with manufacturing, amid financial troubles in the wake of the Great Recession, compelled the company to demerge and spin off its fab to form GlobalFoundries Inc. (GFS), which has been focused on manufacturing low-end chips ever since.

Today, both NVDA and AMD operate as fabless chip companies. Hence, both companies face risks of backward integration by companies such as Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), and Tesla Inc. (TSLA) with the wherewithal to develop the intellectual capital to design their own chips.

Moreover, almost all of the manufacturing has been outsourced to Taiwan Semiconductor Manufacturing Company Ltd. (TSM), which has yet to diversify significantly outside Taiwan and has become the bone of contention between the two leading superpowers.

With geopolitical risk being the potential Achilles heel for both companies, their efforts toward geographical diversification also receive much-needed political encouragement through the Chips and Science Act.

Dr. Su, who also serves on President Biden’s council of advisors on science and technology, pushed hard for the passage of the Act. It is aimed at on-shoring and de-risking semiconductor manufacturing in the interest of national security by setting aside $52 billion to incentivize companies to manufacture semiconductors domestically.

Bottom Line

Given its massive importance and cornucopia of applications, it’s hardly surprising that Zion Market Research forecasts the global AI industry to grow to $422.37 billion by 2028. Hence, this field has understandably garnered massive attention from investors who are reluctant to miss the bus on such a watershed development in the history of humankind.

Hence, in view of product diversification, increasing traction in the GPU segment, and relatively higher valuation comfort, investors in AMD could benefit from more sustained upside potential compared to NVDA.