Market Review May 31 2023
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February 2024

Semiconductors: The AI Opportunity


Welcome to this week's exciting market review, where we dive deep into the phenomenal performance of Ndivia! Some of the stats are simply staggering.

Nvidia Nearing $1T

Nvidia (NVDA) is a fabless chip designer. They design and manufacture advanced graphics processing units (GPUs) and artificial intelligence (AI) computing solutions. They recently announced their 2023 Q1 earnings and it was a blockbuster. Nvidia's one day market cap change was the third biggest on record for U.S. stocks, rising $184 B in a single trading session.

Here are the top 5 biggest one-day market cap increases:

  • Amazon - Feb 04, 2022 - $197 B increase
  • Apple - Nov 10, 2022 - $191 B increase
  • Nvidia - May 25, 2023 - $184 B increase
  • Microsoft - Apr 26, 2023 - $148 B increase
  • Tesla - Jan 03, 2022 - $137 B increase

The AI Age

Nvidia is not the only chip designer, but it has been the dominant player in the space over the past number of years. They are well placed to capitalise on the AI revolution which is firmly underway. Their stock has gone vertical recently, rising well-over 100% in the past 12 months. The stock has added over $0.5T to it's market cap.

NVDA's impressive results have provided a significant boost to the chip industry. However, the other stocks have failed to keep pace with NVDA's performance. Broadcom (AVGO) and Micron (MU) have been strong, rising 51% and 13% respectively. On the other hand, Qualcomm (QCOM) and Intel (INTL) have struggled, with declines of 18% and 25% respectively.

semiconductor performance yearly

The factor driving the performance of each stock can partly be explained by the following chart. We've plotted the previous 6 quarters of revenue for each semiconductor stock listed above. The revenue of Intel and Micron has fallen almost 50% over the past 18 months while Nvidia and Broadcom have been steady.

Chip manufacturer sales

Next, we'll evaluate the net income or profit of each stock. A similar pattern has played out. Intel's quarterly net income has fallen from $4.6B to -2.75B, a $7.35B change in just 6 quarters of data. Once again, Nvidia and Broadcom have been resilient over the past 18 months. Their profits have been steadily rising since Q1 2022.

semiconductor earnings

Perhaps the most important question of all is how much investors are willing to pay for these companies. This is where a significant divergence appears in the data. Nvidia has a price-to-sales ratio of 36, which puts it among the top 2.5% of most highly valued companies based on this metric.

Investors are anticipating a lot of growth from this stock and the industry at large. Considering the valuations, is one of the other semiconductor providers a better investment?

Price to Sales of U.S. semiconductors

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