Qualcomm’s earnings call did not go very well – continued cyclicality, weak end demand and the looming threat of losing Apple. Most critically, they are still working on an answer to the critical question “How will Qualcomm make money in AI?”
AMD reported a quarter with a lot of moving parts. Soft PC demand, a tight supply chain, uninspiring gross margins were offset by what sounds like good traction for new data center and AI products.
AI may wipe out humanity someday, but right now it is doing wonders for semis stocks.
Should we value Nvidia as a software stock? Its CUDA software is a major competitive advantage in AI. Even if we do this, it is hard to get comfortable with the current share price.
This semi cycle is different in that each segment fell at different times, unfortunately we may have to wait until all the segments recover before we see broader recovery in their stocks.
Themes we teased out from earnings season:
1) End-markets matter. Consumer bad, industrial good.
2) Everyone is putting a lot of faith in a 2H recovery
3) Inventories are still high, but fab utilization is holding steady
Qualcomm rounded up all the bad news to report this quarter. The bar will now be very low. This will give them breathing room next year, focusing on the Street on macro, which is better than letting them get impatient about autos.
This downturn in semis is different from past cycles in that each segment seems to be taking a beating at different times. This cycle is serial, not parallel, and we probably need to see all of that play out before the sector starts to recover.
Private Equity funds have largely avoided technology, but a bit more pressure on semis stocks could change that.
Growth stocks are a good place to be at point of maximum market fear. However, this time around, we think the decades long trend will reverse and when we come out of this downturn hardware will outperform software.