Nvidia and AI changed landscape of the chip industry, as rivals play catch-up

This year’s artificial-intelligence boom turned the landscape of the semiconductor industry on its head, elevating Nvidia Corp. as the new king of U.S. chip companies — and putting more pressure on the newly crowned company for the year ahead.

Intel Corp.
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+2.12%
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which had long been the No. 1 chip maker in the U.S., first lost its global crown as biggest chip manufacturer to TSMC
2330,

several years ago. Now, Wall Street analysts estimate that Nvidia’s
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annual revenue for its current calendar year will outpace Intel’s for the first time, making it No. 1 in the U.S. Intel is projected to see 2023 revenue of $53.9 billion, while Nvidia’s projected revenue for calendar 2023 is $56.2 billion, according to FactSet.

Even more spectacular are the projections for Nvidia’s calendar 2024: Analysts forecast revenue of $89.2 billion, a surge of 59% from 2023, and about three times higher than 2022. In contrast, Intel’s 2024 revenue is forecast to grow 13.3% to $61.1 billion. (Nvidia’s fiscal year ends at the end of January. FactSet’s data includes pro-forma estimates for calendar years.)

“It has coalesced into primarily an Nvidia-controlled market,” said Karl Freund, principal analyst at Cambrian AI Research. “Because Nvidia is capturing market share that didn’t even exist two years ago, before ChatGPT and large language models….They doubled their share of the data-center market. In 40 years, I have never seen such a dynamic in the marketplace.”

Nvidia has become the king of a sector that is adjacent to the core-processor arena dominated by Intel. Nvidia’s graphics chips, used to accelerate AI applications, reignited the data-center market with a new dynamic for Wall Street to watch.

Intel has long dominated the overall server market with its Xeon central processor unit (CPU) family, which are the heart of computer servers, just as CPUs are also the brain chips of personal computers. Five years ago, Advanced Micro Devices Inc.
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Intel’s rival in PC chips, re-entered the lucrative server market after a multi-year absence, and AMD has since carved out a 23% share of the server market, according to Mercury Research, though Intel still dominates with a 76.7% share.

Graphics chips in the data center

Nowadays, however, the data-center story is all about graphics processing units (GPUs), and Nvidia’s have become favored for AI applications. GPU sales are growing at a far faster pace than the core server CPU chips.

Also read: Nvidia’s stock dubbed top pick for 2024 after monster 2023, ‘no need to overthink this.’

Nvidia was basically the entire data-center market in the third quarter, selling about $11.1 billion in chips, accompanying cards and other related hardware, according to Mercury Research, which has tracked the GPU market since 2019. The company had a stunning 99.7% share of GPU systems in the data center, excluding any devices for networking, according to Dean McCarron, Mercury’s president. The remaining 0.3% was split between Intel and AMD.

Put another way: “It’s Nvidia and everyone else,” said Stacy Rasgon, a Bernstein Research analyst.

Intel is fighting back now, seeking to reinvigorate growth in data centers and PCs, which have both been in decline after a huge boom in spending on information technology and PCs during the pandemic. This month, Intel unveiled new families of chips for both servers and PCs, designed to accelerate AI locally on the devices themselves, which could also take some of the AI compute load out of the data center.

“We are driving it into every aspect of the applications, but also every device, in the data center, the cloud, the edge of the PC as well,” Intel CEO Pat Gelsinger said at the company’s New York event earlier this month.

While AI and high-performance chips are coming together to create the next generation of computing, Gelsinger said it’s also important to consider the power consumption of these technologies. “When we think about this, we also have to do it in a sustainable way. Are we going to dedicate a third, a half of all the Earth’s energy to these computing technologies? No, they must be sustainable.”

Meanwhile, AMD is directly going after both the hot GPU market and the PC market. It, too, had a big product launch this month, unveiling a new family of GPUs that were well-received on Wall Street, along with new processors for the data center and PCs. It forecast it will sell at least $2 billion in AI GPUs in their first year on the market, in a big challenge to Nvidia.

Also see: AMD’s new products represent first real threat to Nvidia’s AI dominance.

That forecast “is fine for AMD,” according to Rasgon, but it would amount to “a rounding error for Nvidia.”

“If Nvidia does $50 billion, it will be disappointing,” he added.

But AMD CEO Lisa Su might have taken a conservative approach with her forecast for the new MI300X chip family, according to Daniel Newman, principal analyst and founding partner at Futurum Research.

“That is probably a fraction of what she has seen out there,” he said. “She is starting to see a robust market for GPUs that are not Nvidia…We need competition, we need supply.” He noted that it is early days and the window is still open for new developments in building AI ecosystems.

Cambrian’s Freund noted that it took AMD about four to five years to gain 20% of the data-center CPU market, making Nvidia’s stunning growth in GPUs for the data center even more remarkable.

“AI, and in particularly data-center GPU-based AI, has resulted in the largest and most rapid changes in the history of the GPU market,” said McCarron of Mercury, in an email. “[AI] is clearly impacting conventional server CPUs as well, though the long-term impacts on CPUs still remain to be seen, given how new the recent increase in AI activity is.”

The ARMs race

Another development that will further shape the computing hardware landscape is the rise of a competitive architecture to x86, known as reduced instruction set computing (RISC). In the past, RISC has mostly made inroads in the computing landscape in mobile phones, tablets and embedded systems dedicated to a single task, through the chip designs of ARM Holdings Plc
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and Qualcomm Inc.
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Nvidia tried to buy ARM for $40 billion last year, but the deal did not win regulatory approval. Instead, ARM went public earlier this year, and it has been promoting its architecture as a low-power-consuming option for AI applications. Nvidia has worked for years with ARM. Its ARM-based CPU called Grace, which is paired with its Hopper GPU in the “Grace-Hopper” AI accelerator, is used in high-performance servers and supercomputers. But these chips are still often paired with x86 CPUs from Intel or AMD in systems, noted Kevin Krewell, an analyst at Tirias Research.

“The ARM architecture has power-efficiency advantages over x86 due to a more modern instruction set, simpler CPU core designs and less legacy overhead,” Krewell said in an email. “The x86 processors can close the gap between ARM in power and core counts. That said, there’s no limit to running applications on the ARM architecture other than x86 legacy software.”

Until recently, ARM RISC-based systems have only had a fractional share of the server market. But now an open-source version of RISC, albeit about 10 years old, called RISC-V, is capturing the attention of both big internet and social-media companies, as well as startups. Power consumption has become a major issue in data centers, and AI accelerators use incredible amounts of energy, so companies are looking for alternatives to save on power usage.

Estimates for ARM’s share of the data center vary slightly, ranging from about 8%, according to Mercury Research, to about 10% according to IDC. ARM’s growing presence “is not necessarily trivial anymore,” Rasgon said.

“ARM CPUs are gaining share rapidly, but most of these are in-house CPUs (e.g. Amazon’s Graviton) rather than products sold on the open market,” McCarron said. Amazon’s
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 Graviton processor family, first offered in 2018, is optimized to run cloud workloads at Amazon’s Web Services business. Alphabet Inc.
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+0.66%

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also is developing its own custom ARM-based CPUs, codenamed Maple and Cypress, for use in its Google Cloud business according to a report earlier this year by the Information.

“Google has an ARM CPU, Microsoft has an ARM CPU, everyone has an ARM CPU,” said Freund. “In three years, I think everyone will also have a RISC-V CPU….It it is much more flexible than an ARM.”

In addition, some AI chip and system startups are designing around RISC-V, such as Tenstorrent Inc., a startup co-founded by well-regarded chip designer Jim Keller, who has also worked at AMD, Apple Inc.
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,
Tesla Inc.
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and Intel.

See: These chip startups hope to challenge Nvidia but it will take some time.

Opportunity for the AI PC

Like Intel, Qualcomm has also launched an entire product line around the personal computer, a brand-new endeavor for the company best known for its mobile processors. It cited the opportunity and need to bring AI processing to local devices, or the so-called edge.

In October, it said it is entering the PC business, dominated by Intel’s x86 architecture, with its own version of the ARM architecture called Snapdragon X Elite platform. It has designed its new processors specifically for the PC market, where it said its lower power consumption and far faster processing are going to be a huge hit with business users and consumers, especially those doing AI applications.

“We have had a legacy of coming in from a point where power is super important,” said Kedar Kondap, Qualcomm’s senior vice president and general manager of compute and gaming, in a recent interview. “We feel like we can leverage that legacy and bring it into PCs. PCs haven’t seen innovation for a while.”

Software could be an issue, but Qualcomm has also partnered with Microsoft for emulation software, and it trotted out many PC vendors, with plans for its PCs to be ready to tackle computing and AI challenges in the second half of 2024.

“When you run stuff on a device, it is secure, faster, cheaper, because every search today is faster. Where the future of AI is headed, it will be on the device,” Kondap said. Indeed, at its chip launch earlier in this month, Intel quoted Boston Consulting Group, which forecast that by 2028, AI-capable PCs will comprise 80% of the PC market..

All these different changes in products will bring new challenges to leaders like Nvidia and Intel in their respective arenas. Investors are also slightly nervous about Nvidia’s ability to keep up its current growth pace, but last quarter Nvidia talked about new and expanding markets, including countries and governments with complex regulatory requirements.

“It’s a fun market,” Freund said.

And investors should be prepared for more technology shifts in the year ahead, with more competition and new entrants poised to take some share — even if it starts out small — away from the leaders.

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Here are all the portfolio moves the Club made in this week’s oversold market

People walk by the New York Stock Exchange (NYSE) on February 14, 2023 in New York City.

Spencer Platt | Getty Images News | Getty Images

With the stock market deeply oversold this week, we put cash to work by picking stocks across a range of sectors including energy, technology and materials. We also added a former Club chipmaker to our Bullpen and upgraded a premium beer name to a buy rating. Finally, Friday’s market reversal helped us make good on a pledge to trim a once-downtrodden health-care stock.

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Jim Cramer’s top 10 things to watch in the stock market Friday

My top 10 things to watch Friday, May 5

1. Club holding Apple (AAPL) delivered better-than-expected quarterly results Thursday, with its installed base of active devices expanding to more than 2 billion. Apple’s board authorized a program to repurchase up to $90 billion worth of stock, while raising its quarterly dividend to 24 cents a share.

2. A slate of banks increased their price targets on Apple on Friday. These included Morgan Stanley, which raised its target to $185 per share, from $180, and Deutsche Bank which lifted its target to $180, from $170. Both firms reiterated the equivalent of buy ratings. Piper Sandler, meanwhile, was an outlier — lowering its price target on Apple to $180, from $195, even as it maintained an overweight rating on shares.

3. Shares of Club name Advanced Micro Devices (AMD) closed up more than 6% Thursday on a Bloomberg report that Microsoft (MSFT), another Club stock, is helping the chipmaker expand into artificial intelligence processors.

4. Club holding Coterra Energy (CTRA) delivered a first-quarter earnings beat Thursday, while reaffirming its commitment to regularly return at least half of its free cash to shareholders. Currently, Coterra said it plans to return a total of $420 million to shareholders, representing about 76% of its free cash flow in the first quarter. 

5. Barclays raised its price target on Bausch + Lomb (BLCO) to $18 a share, from $17, citing its “attractive growth profile.” The firm maintained an equal weight rating on BLCO shares. The eye-health products company holds the key to saving Club holding Bausch Health (BHC), which is in the process of unravelling its majority stake.

6. JPMorgan raised its price target on Kellogg (K) to $72 a share, from $68, while upgrading its rating to neutral, from underweight. The firm cited improved fundamentals at the food manufacturing giant.

7. DoorDash (DASH) received three price target raises following strong first-quarter earnings. Barclays increased its target to $75 a share, from $70, and maintained an equal weight rating. UBS lifted to $70 a share, from $68, maintaining a neutral rating. Oppenheimer raised to $85 a share, from $80, and reiterated an outperform rating.

8. Shares of Peloton Interactive (PTON) closed down more than 13% Thursday after the company reported a greater-than-expected loss for its fiscal third quarter — though, the reason why remains impenetrable.

9. Manufacturing firm Parker-Hannifin (PH) delivered a quarterly earnings beat Thursday, and there is no sign of a slowdown. Baird on Friday raised its price target on PH to to $415 a share, from $411, while maintaining an outperform rating on the stock.

10. Wells Fargo raised its price target on Royal Caribbean Cruises (RCL) to $88 a share, from $78, and kept its overweight rating on the stock. The firm cited “robust” cruise demand and RCL management’s solid execution following the company’s first-quarter results.

(See here for a full list of the stocks in Jim Cramer’s Charitable Trust.)

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER.  NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB.  NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Jim Cramer’s top 10 things to watch in the stock market Tuesday

My top 10 things to watch Tuesday, April 11

1. Truist Bank downgraded natural gas producer EQT Corporation (EQT) to hold from buy, while lowering its price target to $28 per share, from $41, on “potentially lower volumes.” Meanwhile, the bank raised its price target on Club holding Coterra Energy (CTRA) to $29 per share, from $26, on the expectation the oil-and-gas producer will “significantly outperform” the broader market in the second half of the year and in 2024. Truist maintained a hold rating on Coterra.

2. Barclays cut its price target on Club holding Constellation Brands (STZ) to $277 per share, from $279, while maintaining an overweight rating. The move is somewhat meaningless given how far the target is from where the stock is, with shares of STZ closing at $224.60 apiece on Monday. The bank also lowered its price target on Lincoln National (LNC) to $20 per-share, from $29, while maintaining an equal weight rating.

3. JPMorgan is positive on Netflix (NFLX) going into its first-quarter earnings, but sees a risk to the second quarter due to its new paid-sharing policy. The bank maintained a price target of $390 per share, along with an overweight rating.

4. Wells Fargo upgraded natural gas exploration-and-production group Range Resources (RRC) to overweight from equal weight, while raising its price target to $31 per share, from $30. The bank expects RRC to “relatively outperform” other gas players in a weak gas price environment. Meanwhile, the bank downgraded Southwestern Energy (SWN) to underweight, or sell, from equal weight, while lowering its price target to $5 per share, from $6 — largely a result of limited capital returns and weak cash flow generation.

5. Guggenheim lowered its price target on Club holding Walt Disney (DIS) to $130 a share, from $140, on the back of moderating growth at its parks and resorts — a target that is very far off. Shares of Disney closed at $100.81 apiece on Monday.

6. Citi reiterated neutral ratings on chipmakers Intel (INTC) and Club holding Advanced Micro Devices (AMD), a result of ongoing weak cloud demand. Still, computer notebook shipments were up 41% in March, month-over-month, 18% above Citi’s estimate.

7. KeyBanc raised its price target on Club holding Nvidia (NVDA) to $320 per share, from $280, citing strengthening demand for artificial intelligence (AI).The semiconductor firm’s graphics processing units (GPUs) have proven central to the proliferation of AI, which reached a tipping point late last year with the launch of OpenAI’s viral chatbot, ChatGPT.

8. Morgan Stanley raised its price target on Club holding Humana (HUM) to $637 per share, from $620, saying the health insurer has “the strongest earnings growth story in managed care through 2025.” The bank maintained an overweight, or buy, rating on the stock. But Morgan Stanley chose UnitedHealth (UNH) as its top pick in the sector, replacing Cigna (CI).

9. UBS lowered its growth estimates on Club holding Microsoft‘s (MSFT) Azure cloud business, suggesting customers will continue to cut back on cloud spending amid slower economic growth. The bank maintained a neutral rating and price target of $275 per share.

10. Despite recent price cuts, electric vehicle maker Tesla (TSLA) should be able to maintain “industry leading” operating margins and is better positioned than competitors to navigate economic headwinds, Baird argued. The firm maintained an outperform, or buy, rating and price target of $252 per share.

(See here for a full list of the stocks in Jim Cramer’s Charitable Trust.)

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER.  NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB.  NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Top Wall Street analysts find these stocks compelling

Jim Umpleby, CEO of Caterpillar Inc.

Adam Jeffery | CNBC

During these challenging times, making informed decisions with a long-term view is vital for investors.

Here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their track records.

Advanced Micro Devices

Semiconductor company Advanced Micro Devices’ (AMD) fourth-quarter results surpassed Street expectations even as continued weakness in the PC market dragged down the company’s client segment revenue. Nevertheless, higher sales from the data center and embedded divisions helped offset the weakness in the client and gaming segments.

Although AMD expects its revenue in the first quarter of 2023 to decline by about 10%, CEO Lisa Su remains optimistic about the company’s ability to win market share this year.

Susquehanna analyst Christopher Rolland said the company’s client and gaming results were better than feared. However, he noted that management’s weaker data center outlook for the first half was a “surprise.”

“While sales into North American hyperscalers more than doubled in 2022, management believes cloud is now undergoing a period of digestion in 1H, returning to growth in 2H (we think helped by ramps of Genoa, Bergamo, MI300 and Pensando, all of which are on track),” explained Rolland about the data center segment guidance. (See AMD Blogger Opinions & Sentiment on TipRanks)

Overall, Rolland reiterated a buy rating for AMD with a price target of $88, saying he prefers to look beyond the uncertainty in 2023 “towards a better 2024.” Rolland’s conviction is worth trusting, given that he is ranked at the 13th position among more than 8,300 analysts tracked by TipRanks. Moreover, 72% of his ratings have been profitable, with each generating a 21% average return.

Tesla

Leading electric vehicle maker Tesla’s (TSLA) upbeat fourth-quarter results wiped out investors’ concerns about supply chain disruptions, the distraction related to Elon Musk’s Twitter acquisition, and the recently announced price cuts.

Tesla is focused on reducing costs and enhancing productivity to combat the near-term macroeconomic pressures and rising competition. Taking into account potential supply chain issues and other possible headwinds, the company issued production guidance of 1.8 million EVs in 2023, even though it has the potential to make 2 million units.

Mizuho Securities analyst Vijay Rakesh projects Tesla’s revenue will grow 29% this year and 26% in 2024. The analyst highlighted that his conservative growth estimates reflect “potentially slowing macro demand offset by secular EV transitional trends.”

Rakesh reaffirmed a buy rating and $250 price target, pointing out that Tesla has industry-leading margins and is on the path to deliver more than $10 billion in free cash flow, compared to rivals who are still at negative free cash flow. (See Tesla Hedge Fund Trading Activity on TipRanks)​

Rakesh holds the 113th position among more than 8,000 analysts tracked on TipRanks. Additionally, 60% of his ratings have been successful and have generated a 17.4% average return.

McDonald’s  

After fast-moving EVs, fast-food giant McDonald’s (MCD) is next on our list. McDonald’s topped expectations, as the restaurant chain witnessed better-than-anticipated traffic at its domestic stores in the final quarter of 2022.

McDonalds’ delivered robust comparable sales across the domestic and international markets, thanks to “strategic menu price increases” in the U.S., attractive menu offerings, and marketing campaigns like the Happy Meal offering for adults. (See McDonald’s Dividend Date & History on TipRanks)  

Despite tough macro conditions, McDonald’s intends to expand further to grab additional business. It plans to open about 1,900 restaurants, with over 400 of these locations in the U.S. and the International Operated Markets segments. The remaining restaurants will be opened by developmental licensees and affiliates.  

BTIG analyst Peter Saleh, who reiterated a buy rating and $280 price target, expects McDonald’s to gain from “moderating inflation, carryover pricing, easing lockdowns in China, and foreign exchange finally becoming a modest tailwind.”

Saleh ranks 383 out of more than 8,300 analysts on TipRanks, with a success rate of 65%. Each of his ratings has delivered a 12.3% return on average.

Mondelez International

Mondelez International’s (MDLZ) recent results reflected the advantages of being a manufacturer of resilient product categories like chocolate, cookies and baked snacks. The Oreo-brand owner delivered robust revenue growth, fueled by higher pricing, increased volumes and strategic acquisitions, including Chipita and Clif Bar.

Despite currency headwinds and higher costs, Mondelez is positive about driving “attractive growth” in 2023 and beyond by increasing its exposure to high-growth categories, cost discipline, and continued investments in iconic brands. (See MDLZ Stock Chart on TipRanks) 

J.P.Morgan analyst Kenneth Goldman, who ranks 652 out of over 8,300 analysts tracked by TipRanks, feels that it is “refreshing to see at least one company surprise to the upside” on the volumes front amid growing concerns about this key metric in the staples industry.

Given the likelihood of several food producers reporting weak volumes in the coming days, Goldman said it could “become increasingly important to own stocks of companies with (a) relatively inelastic categories, (b) strong and unique brands with limited private label competition, and (c) a commitment to continually spending behind their brands.”

In line with his bullish stance, Goldman reiterated a buy rating and increased his price target to $74 from $71. It’s worth noting that 61% of his ratings have been successful, generating a 9.3% average return.  

Caterpillar

Construction and mining equipment maker Caterpillar (CAT) ended 2022 with a double-digit increase in revenue in the fourth quarter, driven by steady demand and higher pricing. However, investors seemed concerned about the impact of rising input costs and the strengthening U.S. dollar on the company’s bottom line.

Furthermore, Caterpillar’s warning about weaker China demand in 2023 didn’t go down well with the shareholders. Nonetheless, the company is optimistic about higher overall sales and earnings this year due to healthy demand across its segments.

Jefferies analyst Stephen Volkmann reaffirmed a buy rating following the Q4 print and maintained a price target of $285. Volkmann called the company’s pricing strength as “the standout positive.”

The analyst also noted that the demand for Caterpillar’s products remains strong, as indicated by a $400 million rise in the order backlog in the fourth quarter on a sequential basis. (See Caterpillar’s Insider Trading Activity on TipRanks) 

Volkmann’s recommendations are worth paying attention to, given that he stands at the 51st position out of 8,300 plus analysts tracked by TipRanks. Remarkably, 69% of Volkmann’s ratings have generated profits, with each rating bringing in a 19.9% average return.

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