Semiconductor Sentiment Shifts: Nvidia Faces Delays, but Demand Remains Strong
Nvidia, the AI chip giant, is facing potential production delays for its upcoming Blackwell chip, raising concerns among investors who have already seen the stock shed a trillion dollars in market cap since June.
Despite the news, Bernstein analyst Stacy Raskin believes the delay may be relatively minor, likely resulting in a two to three month pushback. While acknowledging the impact on sentiment, Raskin affirms strong demand for Nvidia’s existing Hopper architecture and suggests the delay may ultimately benefit the company’s 2024 outlook.
"It seems like it’s real enough," said Raskin, referring to the reported design issues. "There’s enough smoke there, there’s some fire. We’ve had some confirmation from other folks in the supply chain."
Raskin believes the delay is not a major concern, highlighting that hyperscale capex guidance remains strong and incorporates the expected slowdown. She also points out that Nvidia is already increasing production of its Hopper architecture to offset the delay.
"Structurally, I don’t think it’s that big of an issue," she said. "We got a little push-out, I think it’ll be okay.”
Raskin also addressed the recent sell-off in Nvidia’s stock, attributing it to a general decline in sentiment towards the AI space. Despite the negative sentiment, she points out that Nvidia’s stock remains attractively valued.
“Nvidia’s never really been all that expensive," Raskin stated, pointing to the stock’s price-to-earnings ratio. "Even at its peak, it was maybe 40 times forward earnings, with the sell-side forward numbers that are based on are likely still too low. 40 times is about its five-year median or five-year average, so it’s not actually that expensive. It’s cheaper now, it’s probably 30 times now."
Looking beyond Nvidia, Raskin highlighted Applied Materials, a key player in semiconductor equipment, as a crucial indicator for the broader semiconductor market. The company is set to release its earnings next week, with investors closely watching its performance in China, where semiconductor demand has been strong.
"There are a few things people are clearly watching," said Raskin. "China semi-cap demand, which has been very strong," adding that Applied Materials has already guided for a decline in its China mix in the second half of the year.
Raskin also emphasized the importance of Intel’s recent capex cut and its potential impact on the semiconductor equipment sector. However, she noted that Applied Materials would have factored in Intel’s plans prior to its announcement, potentially minimizing any significant impact.
"The whole like China overbuild worry is not as big of an issue for Applied Materials, maybe as it is for some of the others," Raskin explained. "I’m not too worried about that, but those are the kind of things that people will be watching for I think with Applied as they report."
With Nvidia navigating a temporary delay and Applied Materials poised to report earnings, the semiconductor sector continues to face headwinds and uncertainties. However, Raskin’s analysis highlights the enduring strength of demand for AI chips and the potential for growth in the coming year.
Taiwan Semiconductor Reporting 45% Revenue Jump in July, AI Chip Demand Fuels Growth
Taiwan Semiconductor Manufacturing Company (TSMC) saw its revenue soar by 45% in July compared to the same period last year, driven by robust demand for its AI chips. While the stock is trading relatively flat for the moment, it’s a top performer for the year. This growth is particularly noteworthy given the recent market volatility in the semiconductor industry. TSMC counts Nvidia among its key customers, and this company has faced some turbulence in recent weeks.
Key Takeaways:
- TSMC’s soaring revenue highlights the strong demand for AI chips. This suggests that the growth of the AI sector is driving significant demand in the semiconductor industry.
- Nvidia has seen its share price plummet despite strong demand for its chips. This suggests that market sentiment towards the company is experiencing some hesitation.
- Experts believe that the decline in Nvidia’s stock price might be temporary. They point to a number of factors, including strong demand, a relatively healthy valuation, and potential delays in newer chip production.
- Applied Materials, a key player in the semiconductor equipment industry, will be releasing its earnings next week. This report is expected to provide further insight into the health of the semiconductor industry.
Nvidia’s Stock Volatility: Delays and Market Sentiment
Nvidia, a leading player in the AI chip market, has been experiencing a roller-coaster ride this week. Despite seeing its best trading day this month, the stock has shed over a trillion dollars in market capitalization since its peak in mid-June.
Experts believe that a number of factors are driving this volatility, including potential delays in the launch of its new Blackwell chip, a growing focus on efficiency in the AI space, and shifting market sentiment.
Bernstein analyst Stacy Rasking, who spoke to CNBC, maintains that the delays seem realistic. "There’s enough smoke there; there’s some fire," she said. She believes that the issue is likely a "relatively minor design issue" that could have already been addressed. Although the delays might push the full-scale launch of the Blackwell chips into the first quarter of next year, Raskin believes it’s not a "major" setback.
Raskin also emphasized that the delays might be offset by strong demand for Nvidia’s existing Hopper architecture chips, which are currently in production. She believes that the company will likely increase production of these chips to smooth the transition until the Blackwell chips are fully available.
Navigating Uncertainty: A Look at Nvidia’s Valuation and Future Prospects
Despite the recent volatility, Raskin is optimistic about Nvidia’s long-term prospects. She believes that the company’s valuation remains attractive, even after its recent drop. "Nvidia’s never really been all that expensive,” she stated. “Even at its peak, it was maybe 40 times forward earnings, which is about its five-year median or five-year average.”
She added that the current multiple, which is closer to 30 times, makes the stock even more compelling. Raskin believes that the strong demand and the potential for a more robust next year, thanks to the delayed Blackwell chips, creates upside potential for Nvidia’s earnings and stock price.
Applied Materials Reporting: A Gauge for Semiconductor Industry Health
With Nvidia’s stock facing turbulent waters, investors are looking for signals about the semiconductor industry’s health. One key indicator will be the upcoming earnings release from Applied Materials, a major player in semiconductor equipment.
Raskin, who covers Applied Materials for Bernstein, will be closely watching the report for insights into several key areas.
China Semiconductor Demand
The report is expected to provide updates on demand for semiconductor equipment from China, which has been a significant growth driver for the industry.
Raskin noted that Applied Materials was among the few companies in the semiconductor space that had already guided for a decline in its China revenue mix in the second half of the year. She will be looking to see if this trend is reflected in the earnings report.
Intel’s Capex and its Impact
Intel’s recent decision to cut its capital expenditures has also raised concerns within the semiconductor industry. While Raskin acknowledges the nominal reduction in capital spending, she believes that the impact on semiconductor companies might be minimal, as they would have been aware of Intel’s plans beforehand. Still, this will be a factor to monitor in Applied Materials’ report.
Looking Ahead: A Complex and Evolving Landscape
The semiconductor industry continues to face a complex and ever-evolving landscape. The growth of AI and other emerging technologies is driving demand for chips, but geopolitical tensions and global economic uncertainties create headwinds.
TSMC’s soaring revenue underscores the potential for growth in the semiconductor market, but Nvidia’s recent struggles highlight the risks and volatility associated with the industry. Applied Materials’ upcoming earnings report could provide valuable insights into the health of the sector and help investors navigate the uncertainty.
