Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Sales Trader
Summary: NVIDIA (NVDA) reports 1Q earnings tomorrow morning after US market closes. The obvious area to watch would be the AI hype that has been building up this year and its data center number as it accounts 60% of the total revenue.
While daily debt ceiling talk updates are ongoing focus, a number of chip stocks continue to make headlines with the latest being Broadcom (AVGO) getting a new multiyear deal with Apple for 5G radio frequency components last night. Both AVGO and QCOM rely heavily on AAPL with sales accounting 20% and 22% respectively, but when it comes to AI related GPU, NVDA and AMD are the leading stocks alongside Intel that is also hoping to enter the AI bandwagon.
NVIDIA (NVDA) reports 1Q earnings tomorrow morning after US market closes followed by the earnings call at 5am SGT and the obvious area to watch would be the AI hype that has been building up this year and its data center number as it accounts 60% of the total revenue. The gross margin is expected to be one of the main bright spot while free cash flow should be the record number reaching nearly $3b. The option trading volume has been fading last two days compared to the 20 day average of 773,328 but calls continue to dominate puts marginally while open interest favors puts over calls. ATM implied vol for 26 May expiry is nearly 100 doubling the other ones post the earnings and there is no OTM skew between calls and put.
Top 10 most active options that expires this Friday and call options C340 & C330 near all time high seem to be popular strikes maybe linked to potential covered call setups.
Name | Last | PxChg | Px%Chg | Vol | Volm%Chg | OInt | OI%Chg | IVM | IV%Chg | Ntnl | Mny | Delta |
NVDA US 05/26/23 C315 | 7.20 | (2.08) | (22.41) | 10,024.00 | (27.44) | 7,822.00 | 16.75 | 95.33 | 15.91 | 307,656,529.69 | 102.63 | 0.40 |
NVDA US 05/26/23 P267.5 | 0.44 | 0.04 | 10.00 | 8,933.00 | 884.90 | 2,062.00 | 3.15 | 89.83 | 8.30 | 274,171,566.21 | 87.16 | (0.04) |
NVDA US 05/26/23 C310 | 9.10 | (2.55) | (21.89) | 8,929.00 | 34.33 | 9,010.00 | 10.24 | 95.03 | 15.73 | 274,048,798.24 | 101.00 | 0.47 |
NVDA US 05/26/23 P270 | 0.54 | 0.06 | 12.50 | 8,435.00 | 112.95 | 11,887.00 | 14.02 | 89.02 | 9.50 | 258,886,954.10 | 87.97 | (0.05) |
NVDA US 05/26/23 P310 | 11.95 | 2.35 | 24.48 | 7,986.00 | 30.88 | 3,572.00 | 27.16 | 93.05 | 14.93 | 245,106,249.61 | 101.00 | (0.53) |
NVDA US 05/26/23 P295 | 4.93 | 1.16 | 30.77 | 7,963.00 | 136.92 | 6,270.00 | 21.32 | 90.00 | 13.45 | 244,400,333.79 | 96.12 | (0.30) |
NVDA US 05/26/23 C320 | 5.55 | (1.78) | (24.28) | 6,673.00 | (21.11) | 7,290.00 | 11.40 | 95.98 | 15.97 | 204,807,663.87 | 104.26 | 0.33 |
NVDA US 05/26/23 C340 | 1.85 | (0.67) | (26.59) | 6,191.00 | 23.28 | 7,358.00 | 5.48 | 99.41 | 15.23 | 190,014,123.63 | 110.78 | 0.14 |
NVDA US 05/26/23 P290 | 3.42 | 0.83 | 32.05 | 6,044.00 | (8.77) | 6,989.00 | 50.08 | 89.16 | 13.14 | 185,502,400.78 | 94.49 | (0.23) |
NVDA US 05/26/23 C330 | 3.30 | (1.10) | (25.00) | 6,007.00 | (20.70) | 10,661.00 | 12.54 | 97.26 | 15.78 | 184,366,797.07 | 107.52 | 0.22 |
1Q
2Q
Earnings reactions
16 stocks under semiconductor sector listed in NASDAQ 100 sorted by forward PE ratio with NVDA’s competitors in bold. NVDA not only has the highest forward PE of 61 within the sector, but also seventh highest in the index (higher than TSLA’s 47 times) hence the stock is only 7.78% off all time high $346.47. Given strong growth expectations for current FY with revenue 12% YoY and adj EPS 38% YoY, high PE isn’t expected to be a major concern for the investors even though profit taking or some minor pull backs cannot be ruled out in the near term as 200 DMA is sitting at $193.52 as a reference point.
Ticker | Name | 52Wk High % | 52Wk Low % | 30D VOL | YTD return | Beta | Market Cap | Free cash flow | BEst P/E |
NVDA | NVIDIA CORP | (3.58) | 183.81 | 46.39 | 109.99 | 1.51 | 771,022,782,464 | 3,808,000,064 | 60.87 |
INTC | INTEL CORP | (34.32) | 20.01 | 31.74 | 11.65 | 0.92 | 126,297,882,624 | (19,909,000,448) | 35.88 |
AMD | ADVANCED MICRO DEVICES | (2.59) | 98.13 | 43.88 | 66.93 | 1.34 | 173,919,076,352 | 2,519,000,000 | 32.66 |
ASML | ASML HOLDING NV-NY REG SHS | (2.63) | 87.65 | 27.46 | 24.72 | 1.42 | 281,648,496,640 | 9,132,199,808 | 31.25 |
MRVL | MARVELL TECHNOLOGY INC | (24.49) | 37.60 | 49.56 | 25.38 | 1.60 | 39,794,434,048 | 1,082,600,000 | 27.08 |
GFS | GLOBALFOUNDRIES INC | (20.66) | 56.26 | 35.81 | 6.74 | 1.30 | 31,672,172,544 | (404,000,000) | 23.40 |
TXN | TEXAS INSTRUMENTS INC | (8.89) | 17.50 | 22.33 | 2.74 | 1.22 | 155,081,736,192 | 4,400,000,128 | 21.86 |
LRCX | LAM RESEARCH CORP | (4.46) | 91.42 | 32.12 | 36.45 | 1.62 | 78,598,578,176 | 3,951,503,008 | 21.70 |
KLAC | KLA CORP | (3.44) | 65.74 | 30.86 | 9.99 | 1.88 | 57,734,668,288 | 3,193,851,008 | 19.76 |
AMAT | APPLIED MATERIALS INC | (5.73) | 75.04 | 31.06 | 27.84 | 1.34 | 106,949,738,496 | 5,913,000,064 | 17.39 |
ADI | ANALOG DEVICES INC | (5.21) | 40.79 | 27.92 | 14.56 | 0.89 | 96,774,643,712 | 4,260,959,936 | 17.24 |
AVGO | BROADCOM INC | (1.79) | 65.39 | 29.09 | 22.78 | 1.28 | 282,828,505,088 | 16,860,000,000 | 16.04 |
NXPI | NXP SEMICONDUCTORS NV | (11.71) | 32.54 | 29.40 | 10.78 | 0.84 | 46,070,542,336 | 2,637,000,000 | 12.79 |
MCHP | MICROCHIP TECHNOLOGY INC | (11.55) | 42.87 | 30.73 | 10.49 | 0.66 | 43,379,957,760 | 3,171,100,032 | 12.31 |
QCOM | QUALCOMM INC | (33.90) | 1.60 | 28.59 | (5.80) | 1.31 | 117,281,923,072 | 6,853,999,872 | 11.26 |
MU | MICRON TECHNOLOGY INC | (12.17) | 36.75 | 37.74 | 32.51 | 1.13 | 72,481,734,656 | (1,948,999,936) | NA |
Performance comparison since 23 March 2020 when S&P 500 made COVID low 2,191.86 and NVDA with near six-fold return even though INTC, AVGO and QCOM have decent dividend yield of 4.13%, 2.53% and 2.9% respectively.
Some information from generative AI (run by our GST intern JORN):
<Bard>
ChatGPT doesn't use physical chips directly. However, it is typically deployed and run on powerful hardware infrastructure consisting of high-performance servers equipped with CPUs (Central Processing Units) and GPUs (Graphics Processing Units) or TPUs (Tensor Processing Units).
During the training process, models like ChatGPT are trained on large-scale clusters of GPUs or TPUs to accelerate the computation required for training deep learning models. These chips are optimized for matrix operations and can handle the intensive calculations involved in training and running neural networks efficiently.
During the training phase of ChatGPT, clusters of Nvidia GPUs are often employed to accelerate the training process and handle the large-scale computations involved. These GPUs are specifically designed to efficiently perform matrix operations, which are fundamental to training neural networks.
<ChatGPT 4>
Dominant position in the AI chip market: Nvidia's 89% market share in the AI chip market provides a significant advantage, considering the rapid expansion of the AI sector. This positions Nvidia well for future growth opportunities.
Strong performance and growth prospects: Nvidia has a robust presence in the gaming and data center markets, which contribute significantly to its revenue. The consensus numbers project solid revenue for the first and second quarters, indicating expected growth.
High profitability: The estimated adjusted gross margin of 66.6% for the first quarter suggests a high level of profitability. This is a positive indicator for the company's financial performance.
High valuation: The financial ratios suggest that the stock may be overpriced. This high valuation raises the possibility of a correction if Nvidia fails to meet high investor expectations.
Political and macroeconomic headwinds: Ongoing tensions between the US and China could impact Nvidia's access to the Chinese GPU market. Additionally, a global economic slowdown could lead to reduced demand for electronics and components, affecting Nvidia's revenue.
Considering these factors, investors should exercise caution and closely monitor Nvidia's performance and market conditions. While the company has strong growth prospects and dominance in the AI chip market, the high valuation and potential challenges should be taken into account when making investment decisions. Conducting further research and staying updated on earnings reports and market developments will be crucial for informed decision-making.
The partnership between Nvidia and Microsoft for the cloud gaming platform GeForce Now, along with the inclusion of Xbox and Bethesda games, can be seen as a bullish indicator for Nvidia. It offers revenue potential, market expansion, and strategic advantages. By tapping into a wider user base and attracting gamers with popular titles, Nvidia has the opportunity to generate additional revenue and strengthen its position in the gaming industry.