What happened
Good news just keeps on pouring in from the tech industry, and it's doing wonders for semiconductor stocks today.
Nvidia shares shot up 24.4% after the company gave strong guidance based on demand for semiconductor chips for artificial intelligence (AI) functions Wednesday evening. Marvell Technology is soaring 27% (as of 10:45 a.m. ET) on its earnings report. And the good news doesn't end there.
This morning, shares of Taiwan Semiconductor Manufacturing (TSM 2.84%) and Texas Instruments (TXN 1.25%) are up 3.2% apiece, while Qualcomm (QCOM 0.73%) is gaining 3.9% -- and none of those semiconductor companies even reported earnings!
So what
So what's all the fuss about semis this week? It began with Nvidia reporting earnings for its first quarter of fiscal 2024. Sales tumbled 13% since fiscal Q1 2023 -- which sounds bad, but analysts were expecting an even bigger decline. What's more, Nvidia cut its operating costs by 30%, with the result that despite revenue plummeting, Nvidia's earnings surged 28%, beating expectations by 16%.
Best of all, Nvidia set a new record for revenue from its data center unit -- $4.3 billion -- as demand for chips capable of running AI functions surged. Management is predicting out-of-this-world growth, with total sales climbing to $11 billion in this current fiscal Q2 2024, a 64% increase.
And Nvidia isn't the only semi company profiting from AI. Marvell Technology today reported a similar temporary decline in sales (down 9% year over year). Marvell wasn't profitable for the quarter, losing $0.20 per diluted share. However, that number was also better than Wall Street had forecast, giving Marvell a bump today. And furthering the AI story, Marvell CEO Matt Murphy observed that "while we are still in the early stages of our AI ramp, we are forecasting our AI revenue in fiscal 2024 to at least double from the prior year and continue to grow rapidly in the coming years."
Now what
Cue the stock market rally in semiconductor stocks. But does it make sense for all semi stocks to be going up today?
To an extent, yes it does. As a key contract manufacturer for Nvidia and many other semiconductor companies, Taiwan Semiconductor will clearly benefit from any increase in demand for AI semiconductor chips. Texas Instruments is introducing a new line of Arm-based vision processors for use in processing visual images for artificial intelligence. And Qualcomm calls itself "the on-device AI leader" (as opposed to Nvidia, which is rapidly being perceived as the leader in AI chips used in data centers).
Texas Instruments, Taiwan Semiconductor, and Qualcomm all report earnings next in July.
Granted, none of these three companies are (yet) enjoying the stock price gains that Nvidia and Marvell have reaped this week. Then again, at a mere 11.6 times earnings (Qualcomm), 13.3 times earnings (TSMC), and 18.6 times earnings (Texas Instruments), none of these three stocks costs as much as Nvidia (or even Marvell, a relative bargain at 22x earnings) either.
If you're optimistic about the future of AI, but don't want to pay too huge of a premium to bet on the success of the chipmakers that are making this technology happen, Texas Instruments, Taiwan Semiconductor, and Qualcomm might offer a safer way to dip your toe into this sector.
