In recent two years, chip supply shortage and increasing demand has been the key driving force for the development of the industry. However, evidence shows that the chip industry is facing a downward trend. PHLX Semiconductor Sector Index (SOX), which composed of the top 30 US semiconductor companies, was down 18.35% in 2022. In the past year, global macroeconomic factors have been the negative driving forces for chip industry. High inflation, interest rate hike cycle, lower consumer confidence had led the chip industry into a downturn.
Although the business was performing well, the stock price of NVIDIA has been quite volatile in 2022, with a high of 252.18 on February 2 and a low of 233.68 on February 22. Since then, the stock price has been steadily increasing, with a brief dip around March 4th, and reached a high of 281.28 on February 24. After this peak, the stock price started to decline and reached a low of 139.29 on September 1. As of January 31th, the year of year change is -21.67%.
Nvidia share price performance in 2022 (Source: Yahoo Finance)
Intel faces performance shortfall. The stock price was dropped 42.90% to 27.95, compared to the price of 48.95 in the previous year.
Intel share price performance in 2022 (Source: Yahoo Finance)
Many investors anticipated the harsh economy would have some impacts on intel, but the results are much worse. Intel’s fourth quarter revenue declined 32% compared to previous year. The adjusted EPS is $0.10, which is a decrease of 92% compared to previous year. This was a substantial deviation from the analysts' consensus estimates of $14.5 billion in revenue and $0.20 in EPS. It indicates a significant shortfall in Intel's performance.
According to Intel’s annual report, it was due to a decrease in the sales of PC computers in the consumer and educational segments. Under current economic condition, corporate clients were more cautious with their purchases. They plan to reduce their existing inventory amid a sluggish data center market, leading to a decrease in demand.
(Source: Intel Annual Report)
AMD showed some growth, but the stock is still underperformed. AMD’s stock price dropped 37.96% to 72.45, compared to the price of $116.78 in the previous year.
AMD share price performance in 2022 (Source: Yahoo Finance)
AMD’s total revenue this year was $23.6 billion. It shows an increase of 44% on the previous year due to stronger sales in the Embedded, Data Center, and Gaming divisions. The pro forma revenue was $24.1 billion, which shows a rise of 20% from 2021's $20.1 billion.
(Source: AMD Q4 Report)
The gross margin of 45% was 3% lower than the previous year. It is mainly due to the amortization of intangible assets from the Xilinx acquisition. Non-GAAP gross margin was 52%, which was 4% higher than the previous year. The growth in margin was mainly due to a more favorable product mix with increased Embedded and Data Center revenue.
The price drop of NVIDIA was mainly caused by investors’ declining confidence of the stock market. NVIDIA’s intrinsic value was still there.
For the fiscal year 2022, NVIDIA achieved remarkable success. Its revenue, gross margins, operating income, and diluted earnings per share (EPS) all reached record highs. Revenue rose 61% year-over-year to $26.9 billion, driven by the increasing utilization of NVIDIA Ampere architecture across the Graphics and Compute and Networking verticals. Gaming, Data Center, and Professional Visualization all achieved record-breaking sales.
Gross margins increased 260 basis points year-on-year to 64.9% due to the greater demand for higher-end products in the Gaming sector. Despite the global supply chain shortages and rising costs, NVIDIA was able to increase its operating income by 122% to $10.0 billion. Its diluted EPS also increased by 123% to $3.85.
NVIDIA Ampere architecture products have consistently been in high demand. Data Center revenue grew 58%, amounting to $10.6 billion, as a result of sales of NVIDIA Ampere architecture GPUs for cloud computing, AI, natural language processing, and deep recommender models.
Professional Visualization revenue saw a 100% surge to $2.1 billion, attributed to the launch of NVIDIA Ampere architecture products, as well as elevated workstation requirements to accommodate hybrid work environments, and increasing AI, 3D design, and rendering workloads.
(Source: NVDIA Annual Report)
NVIDIA is an American technology company that designs and manufactures graphics processing units (GPUs). Founded in 1993 by Jensen Huang, NVIDIA is one of the most recognized companies in technology industry.
The company’s main business include gaming hardware like graphic cards, data centers for massive computation, driving assist hardware used in the automobile, and AI robots.
NVIDIA's graphics cards are used in PC gaming areas because of its excellent graphic cards. In recent years, NVIDIA expanded its business to artificial intelligence and machine learning areas, utilizing its GPUs to provide computing power for AI and machine learning solutions.
NVIDIA has been a leader in autonomous vehicle technology sector. Its Drive PX self-driving platform was used by the world's leading automakers, such as Mercedes-Benz and Volvo. NVIDIA continues to explore its potential in hardware and software applications by creating innovating products and solutions.
Undoubtedly, NVDIA has demonstrate its excellent performance in the previous year. However, it is facing a series of challenges.
International Monetary Fund’s (IMF) chief Kristalina Georgieva has warned that recession might be coming. “We expect one third of the world economy to be in recession,” she said, adding that even for countries that are not in recession: “It would feel like recession for hundreds of millions of people.”
Georgieva commented that, while the US may be able to dodge a recession, Europe's circumstances seem to be more dire due to the conflict in Ukraine. She said, “Half of the European Union will be in recession.”
The International Monetary Fund estimates global growth to be at 2.7% in 2023, down from 3.2% in 2022. Under the situation, consumer confidence might keep low. This might be a pressure for NVIDIA to maintain its growth this year.
On Wednesday, the Federal Reserve announced that it would raise its short-term borrowing rate by 0.25% to 4.50%-4.75%. The approach is intended to reduce price hikes by slowing economic growth and curtailing demand. Although it carries the risk of driving the U.S. economy into a recession and causing mass job losses.
December's government report showed that inflation had decelerated for six months. At the press conference, Fed Chair Jerome Powell stated that inflation has cooled recently. However, it is still too high and Fed must hold interest rates elevated to drive inflation to normal levels. Under the situation, consumer confidence might keep low. This might be a pressure for NVIDIA to maintain its growth this year.
The global semiconductor industry has been dominating headlines since 2020, when the pandemic forced the world to shut down and the impact of digital on our lives and businesses accelerated rapidly. By 2021, sales had grown by more than 20% to around US$600 billion, and experts agreed that this industry was poised for a decade of growth, projected to become a trillion-dollar industry by 2030.
Unfortunately, the short-term outlook for semiconductor revenue has worsened according to Gartner’s practice VP Richard Gordon. He predicted that the global semiconductor revenue will decline 3.6% in 2023, amounting to US$596 billion, down from the previous forecast of US$623 billion. A separate projection by the World Semiconductor Trade Statistics (WSTS) also suggested a contraction of about the same level - US$557 billion.
The root cause of the decline is attributed to oversupply and weakening consumer demand for devices such as smartphones and computers. This is due to the decrease in disposable income caused by rising inflation and interest rates, as well as the reprioritization of consumer discretionary spending to other areas such as travel, leisure and entertainment.
In contrast, the enterprise-driven markets such as enterprise networking, enterprise computer, industrial, medical and commercial transportation have, so far, been relatively resilient despite looming macro-economic slowdown and geopolitical concerns. This is because corporations are strategically investing in the industry in order to strengthen their infrastructure.
The semiconductor industry has always been competitive. Moore's Law, formulated in 1965 by Intel co-founder Gordon Moore, states that the number of transistors in an integrated circuit will double every two years, allowing for a greater level of computational power.
In reality, it means the semiconductor chips we use in our laptops and smartphones would upgrade every 18 months. This prediction was found to be true for the past five decades, and has had a dramatic effect on the development of computing technology. Moore's Law has enabled the rapid development of microprocessors.
Although Moore's Law is gradually coming to an end, and even NVIDIA’s CEO Jensen Wong had admitted frankly that “Moore’s is dead”, we are entering an even more exciting era. Unlike the conventional evolution every 18 months due to process iterations, the competition between the chip giants led by Intel, NVIDIA, and AMD has become exceptionally fierce.
Looking at the product lineups of Intel, NVIDIA, and AMD, the three companies have almost all the CPU, GPU, and even DPU product lines.
NVIDIA’s competitive advantages compared to its rivals include its cutting-edge technology, strong brand recognition, and partnerships. NVIDIA’s GPUs are among the most powerful on the market, and the company has a strong presence in the gaming and data center markets. The company’s brand is also well-recognized, and its products are trusted by many of the world’s leading PC gaming platforms.
NVIDIA also has strong partnerships with leading technology companies, such as Microsoft, Google, and Apple, which gives it an edge in the AI and machine learning markets. Additionally, NVIDIA has a strong patent portfolio, which helps it protect its intellectual property and maintain its competitive advantage.
As the development of the chip process was slowing down due to the increasing level of difficulties and cost in the whole supply chain, the competition transfers from not only chip itself but its applications in different areas, which means that the players have to find a new way to survive. NVIDIA chose its path: AI.
At the virtual GTC conference in 2022, NVIDIA announced its biggest-ever wave of new products, including their latest GPU, CPU, and networking chips and systems. The new Hopper-architecture-based NVIDIA H100 GPU brings unbelievable performance with four petaflops of AI power, an order of magnitude beyond that of the NVIDIA Ampere-based A100.
This new GPU also introduces a suite of security features, such as GPU isolation and confidential computing, dynamic programming to speed complex science problems, direct memory connections, and high-speed networking. The new Grace CPU Superchip also arrived, boasting an incredible 1 terabyte per second memory bandwidth and optimized for AI infrastructure, cloud, and scientific computing.
NVIDIA Spectrum-4, the world's first 800 Gbps networking switch, was also announced, alongside the DOCA networking, storage, and security infrastructure software stack.
All of these products construct the basis of NVIDIA's computing stack and are complemented by over 450 AI libraries and software development kits, allowing NVIDIA to provide applications in industries such as gaming, design, quantum computing, AI, 5G/6G, and robotics. All of these products are essential to the success of NVIDIA's mission to build out the world's AI infrastructure, from end to end.
According to Grand View Research, the scope of the global artificial intelligence market has been increasing rapidly, with it being valued at USD 136.55 billion in 2022 and estimated to grow at a CAGR of 37.3% from 2023 to 2030.
This growth is largely due to the research and development efforts of tech giants, leading to the adoption of AI-based technologies across various industry verticals including automotive, healthcare, retail, finance, and manufacturing.
By the heavy investment in the AI infrastructure, NVIDIA is hope to keep its advantage in long term.
(Source: NVIDIA Annual Review 2022)
Electric vehicle is the future of automobile. It has been the consensus for automakers and consumer. The EV not only provides a green emission, low-cost solution for customers, but also shows a possibility to free people from driving and provide another lifestyle in cars.It requires efficient algorithm and strong computing power of the chips in EV.
In recent years, NVIDIA has accelerated its deployment in the intelligent vehicle technology industry, actively seeking automotive partners, and an increasing number of automakers have joined NVIDIA's DRIVE ecosystem.
The NVIDIA DRIVE platform for autonomous vehicle development encompasses the car, sensors, DRIVE AGX system, software tools, and the data center.
DRIVE Hyperion is the on-board solution, offering the necessary components for reliable automated driving and intelligent cockpit functions. In the data center, NVIDIA provides the hardware and software tools needed for AV development, such as NVIDIA DGX to train DNNs for perception and DRIVE Sim to generate data sets and test the entire AV stack.
Currently, a large number of automakers around the world are using NVIDIA DRIVE Orin computer system chips for development, including Mercedes-Benz, TuSimple, Volvo and Zoox, etc. NVIDIA has previously revealed that out of the 30 major global electric passenger vehicle manufacturers, 20 have chosen the Orin chip to perform artificial intelligence computing tasks.
If it is said that Orin has occupied the majority of the market of major global electric passenger vehicle manufacturers, NVIDIA's recently released DRIVE Thor chip with 2000 TOPS super computing power has exploded the entire autonomous driving industry.
Enterprises such as GAC Aion, XPeng, Ideal Auto, NIO, Yuanrunqi Xing, Xiaoma Zhi Xing, and Wenyuan Zhi Xing have all expressed their expectations and support for this "epic" chip.
In September 2022’s NVIDIA GTC, the successor of Orin Chip- “Thor” was introduced. NVIDIA's vision for Thor chips is to replace the individual computers in cars with one machine that can do it all, and to use functional safety design technologies with broad isolation, including MIG, to prevent individual tasks from interfering with each other.
In short, in addition to its powerful computing power, Thor chips unified traditional vehicular distributed functions, integrating functions such as assisted driving, parking, and cabin entertainment, greatly improving the development efficiency and software iteration speed.
This means that the autonomous driving chip not only integrates driving and parking, but almost all the work of the intelligent cabin chip. According to Jensen Huang, systems based on Thor chips can integrate all the functions of smart cars into a single AI computer, and "centralizing car computing resources can reduce costs by hundreds of dollars".
We can see the ambition of NVIDIA: it is not making more powerful chips, it is providing a comprehensive solution for electric vehicles.
According to Statista, revenue in the Electric Vehicles market is projected to reach US$457.60 billion in 2023, and is expected to increase at a CAGR of 17.02% over the next four years, resulting in a projected market volume of US$858.00 billion by 2027.
The number of Electric Vehicles sold in 2027 is estimated to be 16,206.9K, and the average price for these vehicles is anticipated to be US$53.19k in 2023. China is expected to lead the international market, generating the most revenue at US$190,400.00m in 2023. The EV market has a promising future in terms of growth and market size.
Among the top 10 electric vehicle makers, Mercedes-Benz, Volvo, Kia, Hyundai have established strategic partnerships with NVIDIA in AI driving. In estimation, NVIDIA accounts for at least 11.4% of the total AI driving market share. The Chinese electric vehicle (EV) market is the world's largest, with several Chinese automakers partnering with NVIDIA.
This suggests that NVIDIA's true market share could be much higher. NVIDIA's AI driving business is expected to achieve sustained and steady growth in the coming years based on the huge potential of the electric vehicle market.
In the background, despite market turbulence caused by the Federal Reserve's interest-rate tightening, the Russia-Ukraine war, and recession fears, many stock market forecasts for 2023 point to moderate improvement. Investment firms UBS and KKR have projected year-end S&P 500 indexes of 3900 and 4150, respectively, while CFRA is targeting a 2.9% gain that would take the S&P 500 above 3900. This would mark an increase from its current level around 3840.
Consequently, investors who are able to pick the right stocks may be able to profit in a meaningful way even if the overall market continues to struggle.
Looking ahead, NVIDIA’s stock price and company performance are expected to remain strong. The company’s gaming and data center are all expected to continue growing, and the company’s investments in AI and machine learning should help it capitalize on future opportunities.
The huge exposure in global AI automotive business, especially in China, gives NVIDIA the opportunities to sustain its growth and earnings in the long term. Additionally, the company’s strong partnerships, patent portfolio, and brand recognition should help it stay competitive in the industry.
Investment firm Barclays has taken a bullish stance on chipmakers with exposure to the data center, smartphone, and PC markets. Consequently, the firm has upped its price target for Nvidia stock to $250 from $170, representing a potential 29% upside from its current price.
This is due to the company's reliance on data centers and PCs for a sizable portion of its revenue, as well as the increased demand for its GPUs from the growing AI industry. As such, we expect NVIDIA’s stock price to continue to rise in the coming months and years.
As such, we expect NVIDIA’s stock price to continue to rise in the coming months and years.
There are several ways to invest in NVIDIA. The most popular way to invest in the company is through buying shares of its stock on the public markets. This can be done via any online stock broker or through an investment advisor. For investors that are risk adverse, the way to invest in NVIDIA is through mutual funds or exchange-traded funds (ETFs) that hold shares of the company.
According to ETF.COM, there are over 370 ETFs that with holdings of NVIDIA. For investors that pursue high returns and yields, they can purchase options contracts or futures contracts on NVIDIA.
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