Artificial intelligence could have saved the day of semiconductor companies in the fourth quarter, said an analyst at KeyBanc Capital Markets on Monday.
Weak Industry Fundamentals: Broad-based demand trends remain weak, weighed down by continued inventory destocking in the auto and industry end markets, said John Vinh in a note. Despite the bottoming of the PC industry, demand trends remained weak, he added.
The analyst also noted weakness in the traditional server market and Chinese iPhone demand. On the flipside, Android smartphone demand sustained and AI server demand remained robust, he said.
"We see AI and Android handset-exposed names as best positioned into earnings, while anticipating moderate risk to analog names with outsized auto and industrial exposure," said Vinh.
Positive On AMD: Advanced Micro Devices, Inc.
The positive expectation is premised on strong server results amid improving Genoa demand, the analyst said. Genoa is AMD's high-performance server processor based on the Zen 4 microarchitecture.
The analyst estimates first-quarter revenue and earnings per share of $5.98 billion and 77 cents, ahead of the consensus estimates of $5.76 billion and 68 cents.
Customer traction for AMD's AI accelerator chipset MI300x is inflecting, the analyst said. This will lead to upside to the management's 2024 estimate for over $2 billion in revenue, he said.
"Street sentiment on the name is incrementally positive, given signs of growing MI300X traction, and expectations of server share gains given the ramp of Genoa despite weak traditional data center demand," KeyBanc said.
The firm expects investors to focus on customer engagements for MI300X, updates on the
prior $2 billion revenue estimate, plus, the target for 2024, Genoa ramp and the status of PC recovery, and market share expectations versus Intel Corp.
The firm has an Overweight rating and $195 price target for AMD shares.
AMD is scheduled to report its quarterly results after the market close on Jan. 30.
Nvidia On Track To Q4 Beat Despite China Weakness: Nvidia Corp.
"We expect demand from the rest of the world to be able to backfill, with GPUs remaining on allocation," the analyst said.
As Nvidia continued to bring in incremental supply, it should be able to better service demand, he added.
KeyBanc estimates Nvidia's fourth-quarter revenue and earnings per share to come in at $21 billion and $4.72, respectively, ahead of the consensus estimates of 20.2 billion and $4.71.
The firm expects the China-compliant GPUs, i.e. H20, to begin ramping toward the end of the first quarter, contributing modestly to the outlook.
For the first quarter, Vinh estimates revenue of $22.3 billion and earnings per share of $5.03 compared to the $21.2 billion and $4.71 billion consensus estimates.
Street sentiment on Nvidia is positive due to the company's unique position in monetizing generative AI demand, the analyst said.
Investors will likely be keen to know expectations for 2024, order visibility, updates on China outlook and long-term implications of export restrictions, ramp and uptake of H100/H200/GH200 and H20, and updates on CoWoS capacity and any adjustment for the second-half, he added.
The analyst has an Overweight rating and $740 price target for Nvidia.
Nvidia is due to report its quarterly results after the market closes on Feb. 21.
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