Source: Hard AI
Citi believes that in the first quarter, as the traditional low season for the semiconductor industry, the overall performance will be quite lackluster. AMD, the key weather vane, will not raise AI revenue guidelines until the second half of this year, but in the long run, the semiconductor sector still has room to rise, driven by AI and memory chips.
Against the backdrop that expectations of the Federal Reserve's interest rate cuts have been continuously thwarted in recent weeks, and US stocks are getting farther and farther away from high positions, the earnings season is becoming more and more important for US stocks. Among them, the performance of semiconductor stocks is the key to determining the trend of US stocks.
Recently, Citibank analysts Christopher Danely and Kelsey Chia released a report saying that semiconductor stock performance and guidance for the first quarter of 2024 will be more lackluster and will not be able to reproduce the AI results of 2023. Part of the reason is that AMD, the semiconductor weather vane, will not raise revenue expectations for the AI portion until this summer, and the performance and guidance of analog chip companies will also meet expectations.
Citi believes that stabilizing demand in the PC and mobile phone markets is beneficial$Intel (INTC.US)$und$Advanced Micro Devices (AMD.US)$. However, the outlook for data center business is mixed. The advent of AI has greatly increased data center business expenses, offsetting the weakness of traditional servers to a certain extent. It is expected that data center expenses (accounting for 22% of total semiconductor demand) will be affected by traditional data center CPUs being replaced by GPUs.
Citi stressed that although semiconductor stock valuations are currently high and first-quarter results are relatively lackluster, there is still room for growth, driven by AI demand. At this stage, it is not appropriate to sell semiconductor stocks simply based on valuation, and continue to be optimistic about the prospects of semiconductor stocks.
Citi expects semiconductor sales to increase 11% year over year in 2024, driven by memory chips and AI. Among them, memory chip sales will increase 66% year over year, and AI sales will increase from 40 billion US dollars in 2023 to 90 billion US dollars in 2024. In terms of memory chips,$Micron Technology (MU.US)$It is still the first choice; in addition, it is also optimistic about AMD,$Broadcom (AVGO.US)$,$Analog Devices (ADI.US)$,$Microchip Technology (MCHP.US)$etc.
AMD's earnings report may be relatively lackluster
Market analysts generally predict that in the upcoming first-quarter earnings report, AMD is expected to achieve earnings of 0.61 US dollars per share, and revenue may reach 5.45 billion US dollars, down 12% from the previous quarter.
Citi pointed out that the first quarter is the traditional low season for the chip industry. It is expected that the performance of the entire semiconductor industry in the first quarter will be relatively lackluster, and will not return to seasonal growth until the second quarter. As one of the leading semiconductor companies, AMD's performance will also be affected by the industry's off-season. Currently, investors are mainly concerned$Microsoft (MSFT.US)$Will the deployment of AMD's next-generation AI/HPC accelerator MI300X be curtailed:
We expect AMD's Q1 revenue of US$5.4 billion in 2024 (down 12% month-on-month), which is in line with general market expectations. Due to higher taxes, we expect earnings of $0.39 per share for the first quarter of 2024, which is lower than the general market estimate of $0.40.
Due to the increase in game sales (accounting for 27% of sales in 2023), we expect AMD to set the revenue target for the second quarter of 2024 at US$6 billion (up 11% month-on-month), which is higher than the market's general expectation of US$5.64 billion (4% month-on-month increase). Due to increased sales and gross margin, we expect earnings per share for the second quarter of 2024 of $0.55, higher than the general market estimate of $0.50.
Demand for AMD's MI300 chips is strong, and even if Microsoft cuts orders, it will be filled by other customers, but negative market expectations may still put pressure on AMD in the first quarter.
Citi still gave AMD a “buy” rating and reiterated its target price of 192, saying that the increase in its server market share and the decline in MI300 chips in the second half of this year will drive strong expectations.
Wells Fargo's team of analysts led by Aaron Rakers also pointed out in the report that their current focus is mainly on the upside of AMD's next-generation AI/HPC accelerator MI300X. Analysts predict that AMD will receive up to $8 billion in revenue from the MI300 series products, a significant increase compared to previous predictions.
Wells Fargo analysts believe that the market needs to pay attention to the partnership between AMD and Microsoft and the huge commercial value brought by the MI300X. At the same time, AMD Night Rain and Samsung have established a stable cooperative relationship, giving an “increase in wealth” rating, and set AMD's target price at 190 US dollars.
Demand for AI chips and storage is hot
Citi believes that although the semiconductor industry is already highly valued, the semiconductor industry is expected to continue to prosper due to strong demand for artificial intelligence and memory chips. The AI market is expected to grow by more than 100% in 2024, and DRAM memory chips will also grow 68% year over year:
$PHLX Semiconductor Index (.SOX.US)$It has risen more than 120% from its low at the end of 2022, and its price-earnings ratio (NTM P/E) for the next 12 months will nearly double from 16 times to 31 times. Many investors are concerned that current valuations are unsustainable and too high, but we believe that AI-driven growth can justify an increase in valuation multiples.
Judging from data center demand (accounting for 22% of total semiconductor demand), Citi said that traditional CPUs are being replaced by GPUs, which will affect Intel and AMD's server business. But in the long run, AI will drive a transformation of data center spending.
We expect AMD's server business to drop 8% in the first quarter of 2024, and Intel's traditional server business to drop 14%.
AMD expects its server business to decline seasonally, while Intel expects its server business to be at the low end of the seasonal decline. We expect AMD's data center business to grow 1% month-on-month and Intel's data center business to decline 12% in the first quarter of 2024.
According to Citi, AI and memory chips together will account for 15% of the semiconductor market and become the main driving force for industry growth. Micron Technology is still the first choice. In addition, it is also optimistic about AMD, Broadcom, Adderall, and Microchip:
$GlobalFoundries (GFS.US)$: Revenue for the first quarter of 2024 was US$1.55 billion (down 16% month-on-month), slightly lower than the market's general expectation of US$1.52 billion (down 18% month-on-month), due to lower prices.
As the semiconductor industry adjusts and stabilizes, we expect GF to set revenue guidance for the second quarter of 2024 at US$1.6 billion (up 3% month-on-month), which is higher than the market's general expectation of US$1.57 billion (up 3% month-on-month). Due to increased sales and gross margin, we expect earnings per share for the second quarter of 2024 of $0.24, higher than the general market estimate of $0.17. We maintain a “neutral” rating and target price of $56.
Intel (Intel Corp): Due to strong laptop CPU sales, we expect Intel to report revenue of $13 billion for the first quarter of 2024 (down 16% month-on-month), higher than the market's general expectation of $12.71 billion (down 18% month-on-month). Due to increased sales and gross margin, we expect earnings per share for the first quarter of 2024 of $0.04, which is higher than the general market forecast of a loss of $0.15.
Due to the decline in data center and artificial intelligence (DCAI) revenue, we expect Intel to set revenue guidance for the second quarter of 2024 at US$13.5 billion (up 4% month-on-month), falling short of the market's general expectations of US$13.64 billion (up 7% month-on-month). Due to higher gross margin, we expect earnings per share for the second quarter of 2024 of $0.12, higher than the general market estimate of $0.08. Intel was given a “neutral” rating, and the target price is $40, which is 20 times the expected earnings per share in 2025.
Microchip Technology (Microchip Technology): Given its conservative guidance, we expect it to report revenue of US$1.35 billion (down 24% month-on-month) for the fourth quarter of fiscal year 2024, which is higher than the guidance and general market expectations of US$1.33 billion (25% month-on-month decrease). Due to high sales and profit margins, we expect earnings per share for the fourth quarter of fiscal year 2024 of $0.58, which is higher than the general market estimate of $0.52.
Since we believe that Microchip's shipments have always been far below demand and are expected to improve performance, we expect it to set its revenue guide for the first quarter of fiscal year 2025 at 1.4 billion US dollars (4% month-on-month increase), which is higher than the general market forecast of 1.34 billion US dollars (1% month-on-month increase). Due to higher sales, we expect earnings per share for the first quarter of fiscal year 2025 of $0.62, which is higher than the general market estimate of $0.56. We gave it a “buy” rating, and the target price was $100.
$NXP Semiconductors (NXPI.US)$(NXP Semiconductors NV): NXP is expected to report revenue of $3.15 billion for the first quarter of 2024 (down 8% from the previous quarter). It is roughly in line with the market's general expectation of US$3.13 billion (down 8% month-on-month). We expect earnings of $2.73 per share for the first quarter of 2024, which is in line with general market expectations.
As we expect NXP's automotive business to adjust due to excess inventory, we expect it to set sales guidance for the second quarter of 2024 at US$2.8 billion (down 11% month-on-month), which is lower than the market's general expectation of US$3.13 billion (flat). Due to declining sales and gross margin, we expect earnings per share for the second quarter of 2024 of $1.81, which is lower than the general market estimate of $2.67.
As we saw anticipated downside risk, we gave NXP a “sell” rating with a target price of $150, equivalent to 17 times the expected earnings per share in 2025, which is lower than the peer average.
Editor/jayden