The chipmaking business is booming as more and more companies adapt to working-from-home measures, but which is the best?
Aug. 13, 2020
This article was originally published on Opto – Understand What Really Moves Markets.
Semiconductor companies have seen their prices take off during the pandemic, despite difficult circumstances. What’s behind the growth of Qualcomm, Advanced Micro Devices (AMD) and Nvidia’s share prices?
Semiconductor supply chains have been disrupted by the coronavirus pandemic, but this hasn’t stopped the biggest chipmakers from largely outperforming the S&P 500 since the mid-March market sell-off.
Nvidia’s [NVDA] share price skyrocketed over 86% since the start of the year (to 10 August); Qualcomm’s [QCOM] share price rose 20% and AMD [AMD] share price leapt 67.5% in the same period.
In July alone, the share prices rose 11.8%, 15.8% and 47%, respectively.
What’s behind Nvidia, AMD and Qualcomm’s share price rally? And how have they performed in recent quarterly earnings?
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AMD: Taking on Intel
AMD’s share price an all-time high of $86.71 on 6 August — the stock has been rising sharply it reported Q2 2020 earnings at the end of last month.
For the three months to the end of June, the company posted revenue of $1.93bn, a 26% rise year-over-year, far surpassing the Refinitiv estimate of $1.86bn. Earnings per share were $0.13, versus expectations of $0.16.
For Q3 2020, the chipmaker expects revenue growth of 42% at $2.55bn, while full-year revenue is expected to grow by nearly a third. The speed and rate at which revenue is rising is being — and will continue to be — driven mainly by its Ryzen CPU line, which it first introduced at the start of 2017.
Since 21 July, AMD has been rolling out its latest 7nm Ryzen 4000 chips to desktop computers. This comes at a time when its biggest competitor in the desktop CPU space, Intel [INTC]announced during its second-quarter earnings that the release of its next-generation 7nm chips would be delayed from 2021 to 2022.
Intel’s chip supply struggles are likely to be seen by investors as AMD’s gain.
Analysts including Jefferies’ Mark Lipacis and Susquehanna’s Christopher Rolland have both indicated in recent notes that as the gap between AMD and Intel widens — and the former captures market share from the latter — AMD’s share price will no doubt make further gains.
Qualcomm: Settling the score with Huawei
Qualcomm’s Q3 2020 earnings beat Wall Street expectations as well. Although revenue of $4.89bn represented a 49% year-over-year decrease, analysts had predicted $4.81bn.
As for Q4 2020, Qualcomm, the biggest supplier of mobile phone chips, has estimated that revenue will be between $5.5bn and $6.3bn. The FactSet analyst consensus is towards the lower end of the range.
The current quarter and full-year revenue are likely to be impacted by the advances and investments in 5G technology — Qualcomm has signed dozens of licence agreements in the past couple of years. Furthermore, more than a third of Q4 2020 revenue ($1.8bn) is expected to come from payments due from a settlement agreed with Huawei, following a long-running patent dispute.
According to Bernstein analyst Stacy Rasgon, Qualcomm might still sell chips to Huawei in the future and, if it does, such a deal could add $0.30 share to its earnings. “Any announcement of such could act as a likely further catalyst for the stock,” he added in a note to clients, as reported by Yahoo Finance.
Nvidia: Eyeing a $500 share price target
Nvidia’s earnings call for Q2 2021 is scheduled for 19 August. The company is hoping to see revenue arrow around $3.65bn — in line with analyst estimates.
Revenue for Q1 2021, ending 26 April, was PS3.08bn, up 39% on Q1 2020. This was largely propped up by Nvidia’s gaming ($1.9bn, up 25% year-over-year) and data centre (PS1.14bn, up 80% year-over-year) segments.
Demand for Nvidia’s gaming computers and laptops had not slowed down during the early part of the pandemic and it’s expected that this trend won’t have let up during the second quarter. As for the data centre segment, revenue is likely to be affected by the $7bn purchase of Mellanox to advance its data centre capabilities. The acquisition was closed on the first day of the next quarter (27 April).
Rosenblatt analyst Hans Mosesmann has said: “Data centre and gaming tailwinds are just getting started”. He sees potential for Nvidia’s share price to pass the $500 mark for the first time ever, according to TipRanks.
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