Rare downgrade today for AMD shares of Nvidia sank on Monday, crashing over the past two quarters here. Gaming is expected to fall 33 years over ythe ear horrendously. They miss consensus by a billion and a half dollars, and the number comes out.
It’s terrible they came in well below its initial guidance, which is unheard of. The stock is getting beaten up. We didn’t meet our expectations or shareholders’ expectations. It’s been an incredibly rough year for tech stocks, including some of the biggest names in their Industries.
Nvidia stock has collapsed by 50 per cent over the last year, and it’s still going down the same with Intel stock, which is at its lowest price in over eight years. Even Tesla’s Supply isn’t safe, going down around 60 per cent in the last three months alone, with interest rates rising and a significant recession on the way in 2023
There’s only one question: Are all tech stocks doomed, or are there some queer winners that are still worth investing in? Your time is valuable, so let’s get right into it first. Let me quickly recap why the.
The market has been terrible for chip designers and Hardware companies throughout 2023. because a lot of this will still apply in 2023 as well. During the pandemic, most consumers got some form of stimulus checks while most businesses were forced to shut down and send people home. so while we were stuck inside, many more people spent money upgrading.
The things that let them work from home are computers, laptops, desktops, and smartphones. Still, businesses shutting down means nobody was making or moving the same computers and components everybody was trying to buy, with Supplies Plus skyrocketing.
Demand equals massive price inflation, which means enormous revenues for the semiconductor companies who enjoyed having this captive audience full of people with extra money to spend at their Peak. P.C. shipments were up by almost 60 per cent yearly compared to the five years before when the market was hardly growing.
We have a lot more data to look at. We know that this growth was pulled forward, which means that people who weren’t in a rush to upgrade their computers decided to upgrade them anyway, but here’s the thing as chips keep getting better and better, consumers can go longer and longer.
Between these upgrades you can go for five years between upgrades if you’re using your computer for things like checking email, browsing the internet, videos, and just chatting with your friends. That’s how good current processors and graphics cards are getting.
But it’s even worse than that because almost every Company double or triple-ordered every product they could. Knowing that their supply chains were being stretched thin, many even spent the extra money to ensure they got their goods just in case that order was their last until the supply chains were fixed.
And in many cases, consumer demand was virtually gone by the time these massive orders were fulfilled, thanks to the world’s economies opening back up and people heading back into the office. Now everybody is using their newly upgraded computers even less than before.
High Supply And low demand left many semiconductor companies selling their products at steep discounts, which look even worse when you compare them to the premiums people were paying just one year earlier. That’s why we’re seeing disappointing earnings calls and guidance almost across the board, which lowers every Company’s stock prices.
Not to mention Rising interest rates which make bond yield rise which makes stocks look even riskier, which lowers their price even more, which makes it more expensive for these businesses to raise more money to keep growing, which lowers their stock price even more,
Which, well, you get the picture. There are many genuine reasons for High-Tech growth companies to be underperforming now and next year. But not all companies are created equal three semiconductor companies will outperform the rest. Let’s start with AMD.
AMD stock has been in a landslide all year and is now down by almost 60 per cent. Date. Even though the P.C. market is declining. The data centre Market is still expected to grow as more workloads and services move to the cloud.
Intel has dominated the data centre CPU market for decades, but AMD has been slowly eroding Intel’s market share when it comes to servers and data centres; according to Mercury Research, AMD has almost an 18 market share in data centres today, and this is its 14th consecutive quarter of market share growth against Intel.
AMD’s market share grew by 7.3 per cent, and its revenue from data centres grew by 45. Per cent thanks to huge cloud service providers like Amazon web services and Microsoft’s Azure using their server CPUs. One reason is that AMD can pack a ton of cores onto a single chip. They expect their epic line of server processors to have up to 128 bodies in 2023.
These ships have much better specs and tend to cost even less than Intel’s current Xeon chips, another critical reason AMD has gained. So much ground over the last few years is that Intel has faced several substantial production delays with their 10-nanometer chips Intel’s following Generation server processors called Sapphire Rapids were supposed.
They were to come out in 2021, but now they’re planned for release in January 2023, so they’ve been watching AMD release better processors for years while Intel Xeon chips keep losing ground. AMD is also the dominant chip maker in video game consoles providing semi-custom chips for the PlayStation 4, PlayStation 5 steam deck Xbox series s, and series X consoles. On a related note, AMD has also seen growing demand for embedded systems.
For example, In cars, AMD provides the embedded chips behind the infotainment displays in the Tesla Model S and the Model X, and their fragments will also be found.
In Tesla’s Model 3 and model-wise infotainment systems, most of AMD’s embedded chip business will also come from their acquisition of Xilinx. Which is the market leader for field programmable gate arrays or FPGAs reprogrammable logic is becoming increasingly appealing for applications that need to update after a chip is made and installed, for example. Machine learning algorithms that get retrained and re-architected over time. This is why reprogrammable logic chips are also becoming more mainstream in data.
Since FPGAs can be reconfigured via code one, FPGAs can serve many different purposes inside a data centre, which removes the need for various application-specific chips. Hence, AMD’s Xilinx-enhanced chips and chipsets could play a key role in increasing the power efficiency of their high-performance data centre processors by around 30X over the next four years and making them attractive options for further eating into Intel’s market share and speaking of desirable options.
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Tsmc, the Taiwan semiconductor manufacturing company, has a 56 market share in manufacturing the world’s chip Supply even crazier. Ninety per cent of all advanced chips in the world are made by time, like the ones found inside Apple’s iPhones’ invidious GPUs, and even the future versions of Tesla’s self-driving chips AMD is set to become tsmc’s.
The second largest client for five-nanometer chips right behind Apple, tsmc manufactures Apple’s a series chips for iPhones and their M series chips that go into Apple’s desktops, MacBooks, and iPads Apple accounted for about 25 per cent of tsmc’s overall revenues.
Last year, I initially hesitated to put TSM stock on this list because it had just shot up by 20 over the previous few weeks. Still, the reason that TSM stock jumped so much so fast is that Warren Buffett just invested over four billion dollars into time. Warren Buffett probably knows a ton about their relationship with apple since Berkshire Hathaway owns over five per cent of the Company.
That’s right, Berkshire Hathaway holds over 120 billion dollars of Apple stock today, but besides tsmc’s connection to Apple, Warren Buffett’s significant investment implies something else. It means he must believe that China won’t invade Taiwan.
Which is where most of tsmc’s foundries are located today. Even though they plan to keep their most advanced fabrication nodes in Taiwan, they must diversify the countries where they build chips in time. Originally intended to spend 12 billion dollars on a Fab in Arizona that will produce five-nanometer chips, they changed that commitment in two massive ways.
First, they decided to upgrade that Fab, which was already under construction, to produce four-nanometer chips after completion by 2024. second, they increased their commitment from 12 billion dollars to 40 billion, spending that extra money
They were building another Fab that will produce even more advanced chips using their new three-nanometer process. once the Fab is completed by 2026.
These two Fabs will only have a combined final output of about 50 000 Wafers a month, nearly half of the production of one of their gigafabs back in Taiwan.
Still, according to CNBC, that’s enough to meet the chip demand in the United States. This is such an essential milestone for protecting our chip Supply that President Joe Biden and the CEOs of Apple, Nvidia AMD.
And Micron all attended tsmc’s announcement event at Apple and reserved one-third of tsmc’s capacity in Arizona, making them the site’s largest customer Nvidia and AMD also plan to be big customers of tsmc’s U.S. Fabs.
Last month, reports suggested that Tesla is dropping Samsung for their next generation of whole self-driving chips, which will be built using tsmc’s four-nanometer process. Instead, this will be the first time that tsmc will supply chips to an electric vehicle company those chips will probably.
Be produced in Taiwan to start with, but some could end up being built in that four-nanometer Arizona Fab once it comes online in 2024. Hence, time made this list because they can defend their dominant position in the semiconductor market. They’re receiving huge investments from the best investors and tech companies.
And they’re lowering their overall Risk by diversifying where they’re making the most advanced chips in the world. Still, while AMD was growing its market share and time was already dominating theirs, this third Company had a straight-up Monopoly when building the machines Behind these chips in 1984.
All was spun out of Phillips, a Dutch electronics company that realized the potential of photolithography for making chips. Small stands for advanced semiconductor materials lithography, and they’re currently the only Company on Earth that makes extreme ultraviolet lithography machines. These machines help companies like tsmc make the world’s most miniature and sophisticated chips.
Each euv lithography machine has over one hundred thousand parts and needs dozens of trucks and cargo planes to transport. Hundreds make up around 90 per cent of the parts of outside companies.
All around the world with, all act as the system’s integrator that way, as it doesn’t need to be the best in the world at making each part or subsystem, many of which require insane amounts of engineering to be built to spec; instead. They’ve created a massive network of exclusive deals with hundreds of specialized suppliers because these experts say that.
It could take decades and billions of dollars for any other company to challenge al’s model. For example, the designs etched into each wafer are made using U.V. light created from Tiny explosions of molten tin that are almost 80 times hotter. Then, on the surface of the Sun, that light is bounced off unique mirrors made by a company called Zeiss.
These are the flattest mirrors on Earth. They’re said to be so bland that if Zeiss made a mirror the size of the United States, the most significant bump in that mirror would be the size of a speck of dust, and it would be much riskier for all to be responsible for making.
All of these complex and intricate components themselves, in addition to having to put them together, each machine currently costs around 200 million dollars which is more than most companies on Earth will ever be worth. Because of that, my only has a few customers.
Just three companies time, Samsung and Intel, accounted for over 80 per cent of asthma’s business last year. They’re also some of asthma’s largest shareholders, so their incentives are aligned. That’s another reason no company is trying to disrupt asml’s deep move. All stock is up by around 20 per cent after their latest earnings call went much better than expected.
They also recently held an investor day where they announced that they were increasing production capacity to meet the long-term demands of the industry as well as instituting a 12 billion dollar share buyback program, even though all stock looks. Expensive today at a price-to-earnings ratio of around 40. it belongs on every Investor’s watch list.
I’ll be coming out with an engineering teardown video on asml’s machine soon because they’re mind-blowing. Also, there are real risks to investing in these three stocks today.
I reviewed a few of them at the beginning of this episode inflation and Rising interest rates reduced customer demand. Excess chip supplies the incoming recession, more workloads moving to the cloud and mobile devices, and more time between upgrades as current ships fill more at-home Computing needs for longer.
There’s also the ban on A.I. chips and other trade restrictions that we should consider. Many of the most advanced designs, chunks, parts, and machines coming out of AMD tsmc and small are being restricted from going to China, the world’s second-largest economy and First largest consumer Market.
Only time will tell how long these restrictions will be held up and whether or not the markets outside of China will grow to close this Gap, but there’s an even more considerable risk to consider for growth stocks in 2023, so before you invest, you are challenging.