As the fourth quarter earnings season of the US stock market comes to an end, semiconductor technology giants have moved past the general uptrend phase and entered a phase of differentiation. While companies like NVIDIA, AMD, and TSMC continue to see their stock prices soar, others like Intel and Apple are experiencing a decline. When tech companies enter a phase of differentiation, beta may not necessarily lead to an increase, so it is more important to focus on alpha. Starting from the industry and company's operational status, let's observe the current changes:
1) Industry Perspective: There are signs of recovery in the smartphone and PC industries, but they are not as strong as the explosive growth in data centers and AI.
2) Company Perspective: NVIDIA's operational data and inventory situation are far better than other companies; AMD, Qualcomm, and Micron Tech are also showing improvements in various data, mainly benefiting from the industry's recovery.
Due to the strong demand in the current data center and AI sectors, and with NVIDIA and AMD being the top performers recently. Are the current stock prices of these two companies overvalued?
NVIDIA: Considering the capital expenditure of data centers and major factories, Dolphin Research expects the company's profit to exceed 700 billion by 2025 (calendar year), with the current stock price corresponding to around 30 times PE ratio.
AMD: Considering the company's market share in GPUs and CPUs in data centers, Dolphin Research expects the company's operational profit to reach around 10 billion by 2025 (calendar year), with the current stock price corresponding to around 30-35 times PE ratio.
In conclusion, although NVIDIA and AMD have already increased several times from the bottom, Dolphin Research believes that due to the strong demand in data centers and AI sectors.The current stock prices of both companies can be understood in terms of expected performance. As long as the performance continues to be realized, there is no apparent bubble in the stock prices of both companies.
For a detailed analysis of the US technology semiconductor market by Dolphin Research, please see below:
1. Situation of the Electronics Terminal Industry: Recovery in Smartphone and PC Markets
Smartphones and personal computers are the largest downstream markets for semiconductors, and both terminal industries are showing signs of recovery in shipment volumes. Specifically:
1) Smartphone Market
In the fourth quarter of 2023, global smartphone shipments increased by 8.6% year-on-year, with quarterly shipments exceeding 300 million units. The decline in demand since the second half of 2021 directly impacted market shipments and the semiconductor industry. As inventory is cleared, shipments have shown signs of recovery.
Looking at the performance of the top three global brands, Samsung's market share is declining, while Apple and $XIAOMI-W.HK's share remains relatively stable. Although Apple is facing competition in the Chinese market, shipments in other emerging regions have provided some support.
2) PC Industry Market
Similar to smartphones, the PC industry has also halted its decline. In the fourth quarter of 2023, global PC shipments reached 67 million units, remaining relatively flat year-on-year. Improvements in supply and demand have helped the PC industry emerge from the bottom, with quarterly shipments exceeding 65 million units.
In terms of brands, despite the boost from self-developed chips, Apple's market share is still below 10%, with the market still dominated by the Windows system. $Dominion Energy(D.US)ell Tech.US's share has declined slightly, while HP and $LENOVO GROUP.HK have seen a slight increase in market share in the PC market.
Analysis of Leading Technology Companies: AI Still Dominates
After examining the changes in the terminal industry, let's take a look at the situation of various leading technology companies. Judging from the aspects of revenue and inventory, we can determine the current stage of each company:
1. Revenue Growth: NVIDIA > Micron > AMD > Intel > Qualcomm > Apple > Taiwan Semiconductor;
2. Gross Margin: NVIDIA > Qualcomm > TSMC > AMD > Apple > Intel > Micron;
3. Inventory Turnover: Apple > NVIDIA > TSMC > Qualcomm > AMD > Intel > Micron
From these three indicators, it is evident that NVIDIA currently has the best operating condition, with products in high demand. Driven by downstream sectors such as smartphones and PCs, the operating conditions of all companies are improving, but none can match the explosive performance in the data center and AI sectors.
2.1 Operating Conditions
1) Operating Income
The semiconductor technology companies have seen an overall increase in operating income this quarter. Except for TSMC, all companies have experienced year-on-year growth in revenue this quarter, mainly due to positive signs in various downstream applications.
Although all are showing improvement, the extent varies. NVIDIA is leading the pack with a more than doubling of revenue year-on-year this quarter. Following closely behind are Micron and AMD, both with double-digit year-on-year growth. NVIDIA and AMD are mainly driven by the demand from data centers and AI, while Micron demonstrates strong cyclical characteristics, with the current cycle bottoming out and prices of products starting to rise.
2) Gross Profit Margin
Looking at the gross profit margins of various companies, it is also a sign of overall improvement. TSMC's gross profit margin declined slightly on a MoM basis due to the impact of expanding production on 3nm. NVIDIA achieved a new high in gross profit margin, driven by shipments in data centers and AI. The gross profit margins of other companies have also rebounded MoM, mainly due to the recovery in downstream demand, lifting the industry out of the trough.
The gross profit margins of companies related to the PC and mobile phone industries have all rebounded, with the strongest demand coming from the data center and AI sectors, driving NVIDIA's gross profit margin to over 75%.
2.2 Inventory Situation
From the perspective of the industrial chain, inventory data is also an important indicator of whether the industry and companies are emerging from the trough.
Except for NVIDIA and Apple, the absolute values of inventory for other companies this quarter have mostly decreased, aligning with the overall industry trend of destocking and emerging from the trough. Apple was affected by its own new product cycle and slowing demand in some regions. NVIDIA's increase in inventory, relative to its revenue growth, has turned into stocking up due to supply shortages.
Using the inventory/revenue ratio as a reference, we can observe the current inventory situation of each company. With the recovery in demand from downstream applications, the inventory indicators of all companies have declined.
Apple's inventory situation remains relatively stable with little change under high turnover. Additionally, NVIDIA's inventory ratio has dropped to a historic low, indicating a surge in downstream demand and supply shortages. AMD, Micron, and Qualcomm's inventory ratios continue to decrease, but the inventory levels of these three companies are still relatively high.
3) Data Center and AI Direction
Looking at the industry and individual company data, the best-performing sector currently is data centers and AI. Driven by supply-side logic, the main focus is on computing power . The primary chip manufacturers for computing power are currently NVIDIA, AMD, and Intel.
Combining the financial reports of these three companies, we consolidate the revenue related to data centers and AI. In the computing power chip market, NVIDIA's revenue share has reached 75%. Intel has seen the most significant decline, with its current revenue share falling below 20%.
When looking at the products of the three companies, NVIDIA mainly focuses on GPUs, Intel on CPUs, and AMD is involved in both CPUs and GPUs. In terms of revenue distribution, the data center and server demand was previously dominated by CPUs. However, with the rise in AI demand, there has been a significant increase in the demand for GPUs in data centers and servers, directly boosting NVIDIA's industry position.
In terms of revenue distribution among the three companies, NVIDIA has seen a significant increase, AMD has remained relatively stable, while Intel has experienced a sharp decline. This is also reflected in their stock price performance since the beginning of the year: NVIDIA (87%) > AMD (43.4%) > Intel (-7.9%). With the weakening of the CPU side, the stock price decline has left Intel bearing the brunt.
After this latest surge, NVIDIA's market value has exceeded 2 trillion, and AMD's market value has also reached a new high. The continuous rise in stock prices mainly reflects the market's expectations for these two companies. However, can this really sustain the market value of both companies?
1) NVIDIA: With the explosive performance of the data center business, it now accounts for over 80% of the company's revenue. Therefore, when evaluating the company's performance, the focus is mainly on its data center business. The continuous growth in business revenue is mainly due to the growth in demand from internet giants such as Microsoft and Google.
Considering the growth of internet giants and the increase in capital expenditure, the company's data center business is expected to grow by over 30 billion annually. Currently, the main issue is the severe supply shortage of the company's products, mainly due to supply-side constraints. With capacity expansion, it is expected that the supply issue will ease by 2025. The company's gross profit margin is also expected to decline from the high level of over 75%.
It is expected that the company's profit will continue to grow to over 70 billion by 2025. Although the market value has been rising, based on the performance expectations, the corresponding PE ratio of around 30 times, the overall valuation does not show any significant signs of being overvalued.
2) AMD: Although the company is in the same industry as NVIDIA, its growth is significantly weaker. This is mainly because although the company's data center and AI business are growing, it is not as explosive as NVIDIA's growth. This also indicates that customers mostly prefer NVIDIA's products, leading to NVIDIA benefiting the most from this recent surge. After NVIDIA's explosive growth, AMD's share in the data center GPU market has dropped to less than 10%. Over time, it is believed that AMD still has the potential to regain its previous stable market share relationship.With the shipment of data center and AI chips, the company's gross profit margin is expected to improve.
Dolphin Research expects AMD to regain over 10% of the GPU market share in the data center sector, while the CPU market share is expected to continue to increase to 30%. The company is expected to achieve an operating profit of around 10 billion by 2025 (calendar year). Based on the current market value, this corresponds to a multiple of 30-35 times, and the overall valuation can also be understood in terms of expected performance.
Overall, Dolphin Research believes that although NVIDIA and AMD have risen several times from the bottom, due to strong demand in the data center and AI sectors, the current stock prices of both companies can be understood in terms of expected performance. As long as there is continued performance realization, there is no apparent bubble in the current stock prices of these two companies.
Risk disclosure and statement of this article: Dolphin Research Disclaimer and General Disclosure
