Well, it's Thursday -- the day after news of Nvidia's (NVDA +0.77%) Q4 earnings report dropped. And it's already pretty obvious how investors are reacting to the news.
As of noon ET, shares of Nvidia rival Intel (INTC +8.78%) are down 0.8% -- recovered somewhat from an earlier decline of more than 2%. In contrast, shares of ASML Holding (ASML +2.94%) and Applied Materials (AMAT +3.51%), two suppliers of the semiconductor manufacturing equipment that's essential to grow supplies of in-demand AI semiconductor chips, are performing much better -- up 4.2% and 4.7%, respectively.
NASDAQ: ASML
Key Data Points
Nvidia's earnings report
Why the disparate reactions to Nvidia's news? Well, let's take a look at the report itself.
Nvidia reported 265% year-over-year growth in its revenues in Q4 -- $22.1 billion, exceeding Wall Street's expectations. Adjusted earnings were pretty fantastic as well, up 486% at $5.16 per share, and also ahead of expectations.
Fully 83% of Nvidia's sales came from the company's data center segment, by the way, which is weighted heavily toward production of chips for new artificial intelligence services. And as this is a relatively new business, the implication is that demand for these chips is red hot. According to Nvidia CEO Jensen Huang, AI has "hit the tipping point. Demand is surging worldwide across companies, industries and nations." And this in turn implies that there's going to be need for even more production of AI chips, and therefore a need for more manufacturing equipment to make that production possible.
Right there you've got your reason for why ASML and Applied Materials stocks are going up. (It doesn't hurt that this morning, ASML won a new buy rating from investment banker H.C. Wainwright, which said ASML holds a "monopolistic position" in lithography tools that will support its earnings.)
Meanwhile, Intel investors may be feeling a bit left out as Nvidia roars ahead, gobbling up market share. Huang predicted Nvidia's sales will grow a further 8.5% sequentially in Q1 2024.
Is Intel stock a sell? And are ASML and Applied Materials stocks buys?
So is all hope now lost for Intel? I don't think so.
All but lost in the uproar over Nvidia's earnings, you see, is the news that late last week, Bloomberg reported that Intel is in line to receive $10 billion in CHIPS and Science Act subsidies to build its new Ohio semiconductors factory. Also possibly lost in the shuffle: an announcement from Intel CEO Pat Gelsinger that Intel has a whopping $15 billion in deals to manufacture semiconductor chips for other companies. These customers notably include Microsoft (MSFT 0.24%), which wants to use Intel's "18A" technology to build a new artificial intelligence chip.
As money pours into the AI space from all directions, this seems like an excellent time to invest in pick-and-shovel plays such as ASML and Applied Materials. But what about Intel?
While the stock still looks like something of a basket case with its weak earnings and even weaker (i.e. negative) free cash flow, sales are growing at Intel, too. And it seems obvious to me that Intel is going to want to get a piece of the fat AI profit margins that Nvidia keeps raking in. With customers clamoring at the door, and the U.S. government offering to foot much of the bill for Intel's expansion into AI, I wouldn't count Intel out of this race just yet.
