Day: September 26, 2024

Intel (INTC) is in the midst of one of the most tumultuous periods in its 56-year history. Declining sales, missed opportunities to compete in the AI space, and a massive turnaround effort by CEO Pat Gelsinger looking to return the company to its former glory are putting significant pressure on the chip giant’s bottom line and share price.

And things for the company are only getting more interesting.

Last Monday, Intel announced that it signed a deal with Amazon (AMZN) to build custom chips for Amazon Web Services, a positive sign for the company’s nascent third-party foundry business.

Then, on Friday, the Wall Street Journal reported that Qualcomm (QCOM) reached out to Intel about a blockbuster takeover deal that would give Qualcomm a larger foothold in the PC and AI spaces. That’s not all. On Sunday, Bloomberg reported that Apollo Global Management (APO) has offered to make a multibillion-dollar investment in Intel to keep Gelsinger’s turnaround moving forward. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)

It’s a lot to follow and even more to make any sense of. Luckily, I’m here to help break it all down for you.

Intel’s slowing sales and AI troubles

Intel is dealing with sliding sales and the unenviable position of having to take on market leader Nvidia in the AI space. For 2023, Intel reported full-year revenue of $54.2 billion, a 14% year-over-year decline from the $63.1 billion the company saw in 2022.

That included an 8% decline in Intel’s Client Computing Group, which sells chips for PCs; a 20% drop in Data Center and AI revenue; and a 31% decrease in Network and Edge sales. Intel did, however, report a 103% increase in its Intel Foundry Services, but that amounted to just $952 million.

Part of Intel’s woes have stemmed from the fact that the explosion in PC sales at the onset of the pandemic pulled Client Computing Group revenue forward several quarters, creating a boom and bust. Consumers bought new computers in droves for work and play, sending chip revenue soaring. But millions of consumers don’t usually buy new PCs at the same time. With so many people holding new computers, there were fewer consumers looking for upgrades, and sales entered an extended slump that sent shipments plummeting for eight consecutive quarters.

Sales are picking up again, though. In July, IDC said the PC market grew 3% in the second quarter, notching a second consecutive quarter of growth. But the industry still has a way to go.

At the same time, Intel is facing a new threat from Qualcomm, which began offering its Snapdragon X Elite and X Plus chips in Windows PCs earlier this year as an alternative to Intel’s processors. Those chips provide improved performance and power versus Intel’s older offerings and are meant to compete with Apple’s (AAPL) exceptional M family of chips that power its MacBooks.

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Intel is fighting back, though. Earlier this month, the company showed off its Core Ultra 200V line of processors that it says can outpace Qualcomm’s chips.

Flagging PC sales also impacted graphics giant Nvidia (NVDA), which saw sales of its video game graphics chips deteriorate after the pandemic boom. But the company, unlike Intel, has managed to exploit its early investments in AI to take advantage of the surge in interest caused by the debut of OpenAI’s ChatGPT in November 2022.

That helped catapult Nvidia to the forefront of the semiconductor industry and sent its stock to extraordinary new heights, rising more than 860% over the last two years and 191% in the last 12 months.

Intel is working to try to catch Nvidia with its own Gaudi line of AI accelerators. On Tuesday, the company debuted its latest Gaudi 3 AI accelerator and announced that IBM will use it as part of its IBM Cloud offering.

But with Gartner estimating that Nvidia controls more than 70% of AI chip sales, it’s an uphill battle.

Intel’s foundry services

Intel is also battling for position as a chip manufacturer for third-party clients. The plan is for the company’s foundry business to operate as a subsidiary of Intel that builds processors for customers looking for an alternative to TSMC, which is among the world’s largest chipmakers

But the buildout is costly and Wall Street isn’t completely sold on the idea. Analysts at Citi Research have said Intel should exit the foundry business altogether so that it can improve margins and earnings per share.

In September, however, Intel announced a multibillion-dollar deal to “produce an AI fabric chip for AWS on Intel 18A, the company’s most advanced process node.” The company is also set to build a custom version of its Xeon 6 chip for Amazon.

The news comes after Intel announced that Microsoft signed on as a manufacturing customer in February. Two big-name companies are certainly a start for Intel, but it’s going to need to sign a slew of customers if it hopes to grow its manufacturing segment to match competing chip fabricators.

Qualcomm and Apollo

Intel’s PC and AI woes have left it as a potential takeover target, which is where Qualcomm and Apollo enter the mix. Qualcomm, according to the Wall Street Journal, wants to buy up Intel, though it’s unclear if the company would hold on to all of Intel or sell portions of its business segments. The deal is also sure to generate plenty of antitrust concerns, as the companies are two of the most important chip firms in the US.

Apollo, meanwhile, looks to favor Gelsinger’s plans and could invest up to $5 billion in Intel to follow through with the effort, Bloomberg reports.

Now investors will have to wait and see whether Intel moves forward with either company or continues to try to go it alone.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.

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Nvidia (NASDAQ: NVDA) shares have roared higher over the past several years, thanks to the company’s dominance in the artificial intelligence (AI) chip market — it holds a more than 80% share. But recently, the stock has lost some of its momentum, falling more than 6% over the past month. Some investors have worried about growing competition in the chip market, and others fear that any slowdown in AI spending could hurt the company.

In my opinion, these concerns are overdone and Nvidia still has plenty of fuel in the tank to climb both in the near term and over time. My prediction is that one thing, in particular, will help Nvidia stock soar in the fourth quarter and the recent loss of momentum is only temporary. Let’s dive into this tech story that still has plenty of exciting chapters ahead.

Nvidia’s path from gaming to AI

Just a few years ago, this technology giant’s biggest source of revenue was the gaming industry. Nvidia’s graphics processing units (GPUs) powered all of the action, due to their ability to handle multiple tasks simultaneously. It soon became clear that this profile made the GPU perfect for other uses, including AI.

Nvidia turned its attention to this high-growth field, and its earnings took off, climbing in the triple digits quarter after quarter. Today, Nvidia’s data center business — the one that serves AI customers — represents 87% of the company’s total quarterly revenue. That’s set to continue, considering the massive demand Nvidia’s seeing and the general growth forecasts for the AI market, which is expected to expand from $200 billion today to more than $1 trillion by 2030.

Of course, competitors do exist, but Nvidia is a step ahead when it comes to innovation. It also plans to update its GPUs on an annual basis, which should keep it in this top position. As for AI spending, my colleague Trevor Jennewine recently wrote about how spending on AI may gain more momentum over the coming years, representing great news for Nvidia.

Now let’s move on to my prediction. Yes, Nvidia shares have delivered a lackluster performance in recent weeks, but it’s important to put that into perspective. The stock still has advanced 144% so far this year and has soared 2,700% over the past five years.

“Several billion dollars” of new revenue

My prediction is that this is a pause in the action, and in the fourth quarter, sales of Nvidia’s new Blackwell architecture will help the stock roar higher. Nvidia said during its most recent earnings call that it plans to ramp up production of Blackwell in the fourth quarter and will record “several billion dollars” of revenue from it during that period.

Nvidia won’t report fiscal fourth-quarter earnings until early next year, but any communications from the company about the Blackwell release or talk in the market could happen much earlier — and investors are known to react to any news. All of this may equal strong performance for Nvidia shares in the fourth quarter of this year as investors consider the company’s message during the last earnings call — and look ahead to Blackwell’s contribution to the next fourth-quarter report.

It’s important to remember that Nvidia Chief Executive Officer (CEO) Jensen Huang said demand for Blackwell has surpassed supply, and he expects this to continue into the coming year, so it’s clear that customers are rushing to get in on this new platform. I recently wrote about how two major technology players begged Huang for more GPUs, further illustrating how eager customers are to get Nvidia chips.

All this makes me confident about Nvidia’s long-term revenue potential in the AI market and the potential for its shares to soar over time, as well — whether my near-term prediction is right or not. That means Nvidia still is a great stock to buy and hold for the long haul.

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• Nearly half of Americans retiring at 65 risk running out of money, Morningstar finds.

• Single women face a 55% chance of depleting funds, higher than single men and couples.

• Experts advise better tax planning and diversified investments to mitigate retirement risks.

If you’re aiming to retire at the standard age of 65, buckle up because you’re going to want to hear this one.

According to a simulated model that factors in things like changes in health, nursing home costs, and demographics, about 45% of Americans who leave the workforce at 65 are likely to run out of money during retirement.

The model, run by Morningstar’s Center for Retirement and Policy Studies, showed that the risk is higher for single women, who had a 55% chance of running out of money versus 40% for single men and 41% for couples.

The group most susceptible to ending up in this situation are those who didn’t save toward a retirement plan, according to Spencer Look, the center’s associate director. Still, retirement advisors say even those who think they’re prepared aren’t.

It’s a big problem, says JoePat Roop, the president of Belmont Capital Advisors, who has been helping clients set up income streams for their retirement years. What might surprise many is that one of the biggest mistakes people make isn’t so much about how much they save but how they plan around what they save.

To be more specific, Roop says what catches retirees off guard is taxes and the lack of planning around them. Many assume they will be in a lower tax bracket once they stop receiving a paycheck. But from his experience, retirees often remain in the same tax bracket or could even end up in a higher one.

“It’s wrong in so many ways,” Roop said. After retiring, most people’s spending habits either remain the same or go up. When you have more leisure time on your hands, more money goes toward entertainment and travel, especially in the first few years of retirement. The outcome is a higher withdrawal rate, which can push you into a higher tax bracket, he noted.

People spend their careers investing in a 401(k) or an IRA because they allow contributions before taxes. It sounds like a great perk when you can cut your taxes and defer them. The downside is that withdrawals will be taxed.

His solution is to add a Roth IRA, an after-tax account that allows gains to grow tax-free. This way, during a year when you need to withdraw a higher amount, you can resort to that account instead, he noted.

Another big mistake people make is moving money around in an inefficient way that leads them to incur more taxes than they should or lose on future returns. This can include choosing to withdraw a high amount of money from an investment account to pay off a mortgage or buy a house.

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“There are rules that the IRS has set up for us, and they’re there to pay the government, not you,” Roop said.

A prime example of a big tax mistake one of Roop’s clients (let’s call him Bob) made recently was liquidating part of an IRA to buy a house.

Bob is a man of modest means retiring this year, Roop said. But a sudden breakup with his girlfriend led him to cash out some of his IRA to buy a house. He decided to withhold the tax, which could have been between $30,000 and $40,000.

“When he told us this, my mouth dropped,” Roop said. “I said, Bob, you had the money for the down payment in another account where there would’ve been no tax, and we were going to roll over your IRA and put it in a tax-deferred account.”

In this case, Roop planned to move money from Bob’s IRA to an annuity that would have paid him a bonus of 10%, or $15,000. The mistake might cost Bob between $45,000 and $55,000, between the owed taxes and the missed bonus.

The lesson: don’t be Bob.

The next big mistake is sequence risk, which is when you withdraw from your portfolio when the stock market is down.

“The S&P 500 has averaged close to 10% for the last 50 years,” Roop said. “And so it’s a true assumption that over the next 50 years, it’ll probably make between nine and 11%. But when people retire, we don’t know the sequence of returns.”

Simply put, if you retire next year with an investment portfolio worth a million dollars and the market drops by 15% that year, you now have $850,000. If you need to withdraw during that time, it will be very difficult to get back to breakeven, Roop said.

It means that owning stocks and bonds isn’t enough diversification. He noted that you must also have something that is principal-protected, such as a CD, fixed annuities, or government bond. This way, you can avoid touching your portfolio during a bad time in the market.

Gil Baumgarten, founder and CEO of Segment Wealth Management, says another big reason he sees people run out of money is the lack of appropriate risk-taking they make during their income-earning years.

A low-risk approach is earning interest on cash, a terrible form of compounding because it’s taxed higher as ordinary income with lower returns, he noted. Meanwhile, stocks could see higher returns and aren’t taxed until sold, or aren’t taxed at all if you opt for a Roth IRA.

“People don’t take into account how expensive things get over time, not realizing that they can live another 40 years in retirement. You can’t get rich investing your money at 5%,” Baumgarten said.

As for those who do take risks, it’s often the wrong kind. They chase hype and bet on highly speculative investments. They end up losing money and assume risk is bad, Baumgarten said. The right kind of risk is a higher exposure to stocks through mutual funds or index funds and even buying blue chip stocks, he noted.

Read the original article on Business Insider

Nvidia’s (NVDA) ultra-bullish trend in the first half of the year has paused, with the stock failing to reach new peaks over the past few months. Following the highly anticipated Q2 earnings report at the end of August, Nvidia stock experienced a pullback due to elevated investor expectations for hypergrowth, despite the strong results it posted. I believe this price correction offers a compelling opportunity. In this article, I will outline five reasons for my bullish view on Nvidia, focusing on strong revenue growth (despite tough comps), AI dominance, valuation, technical indicators, and Wall Street analyst consensus.

Let’s dive in.

1. Nvidia’s Strong Revenue Growth Despite Tough Comparisons

The first point supporting a prolonged bullish thesis for Nvidia is the solid revenue growth demonstrated in its Q2 results, despite challenging comparisons.

Nvidia posted 122% year-over-year growth in the most recent quarter, reaching revenues of $30 billion—a remarkable achievement given the company’s already substantial revenue base. Although this growth rate is lower than the 200% surge from the previous quarter, the absolute triple-digit top-line growth remains impressive. This underscores Nvidia’s ability to scale its revenue significantly even when set against it’s prior performance.

While the post-Q2 stock pullback can be attributed to expectations being set too high, it’s crucial to note that Nvidia continues to deliver sequential quarterly revenue growth, signaling robust demand for its products, especially in AI and data centers. This level of sustained growth at such a large scale highlights Nvidia’s capacity to capture market share and drive long-term revenue expansion. Nvidia’s Q3 sales guidance of $32.5 billion further reflects the company’s confidence in maintaining its growth trajectory.

2. Nvidia’s Dominance in AI and Data Center Market

The second bullish point is Nvidia’s continued dominance in the data center GPU space, where it holds a 98% market share in this rapidly growing sector, according to HPCwire.

Demand for AI-driven solutions is booming across industries, with Nvidia’s H100 Hopper GPU becoming crucial for enterprise cloud applications that require massive computing power. Beyond hardware, Nvidia dominates AI through its software ecosystem, including CUDA and cuDNN, offering a comprehensive AI solution. As highlighted in Nvidia’s earnings call, the company aims to transform the $1 trillion data center market by shifting from traditional to accelerated computing using advanced data processing libraries.

Looking ahead, Nvidia plans to launch its Blackwell architecture in Q4 of Fiscal 2025, offering greater power and efficiency than Hopper. Designed to meet the demands of hyperscalers and AI developers, Blackwell will provide comprehensive solutions, including chips, systems, networking, and software. This release is a key catalyst that will further solidify Nvidia’s leadership in AI.

3. Nvidia Appears Attractively Priced When Adjusted for Growth

The third point concerns Nvidia’s valuations. At first glance, its P/E ratio of 54.7x and forward P/E of 42.5x may seem high, especially compared to the semiconductor industry average of 23.7x. However, my bullish stance is strengthened by Nvidia’s growth prospects, with the company expected to achieve 106% revenue growth and 119% EPS growth this year.

Furthermore, analysts expect Nvidia’s EPS to grow at a CAGR of 36.6% over the next three to five years. This impressive growth rate, combined with the current forward P/E, results in a reasonable forward price-to-earnings-to-growth (PEG) ratio of 1.16.

Traditionally, undervalued stocks have a PEG ratio below one, yet NVIDIA’s PEG ratio is more favorable than those of all other Magnificent 7 stocks. Among this group, Alphabet (GOOGL) and Meta (META) have the next lowest PEG ratios at 1.28 and 1.48, respectively. While this doesn’t necessarily mean NVIDIA is undervalued compared to its Big Tech peers, it does suggest that, according to this metric, the stock doesn’t appear overly expensive.

4. NVDA’s Moving Averages Suggest a Bullish Trend

The fourth point reinforcing the bullish thesis is closely tied to the sentiment surrounding Nvidia’s stock performance. Despite recent fluctuations, the company’s triple-digit revenue growth indicates that it is still in a hypergrowth phase. However, with a staggering 2,700% stock price surge over the past five years, concerns about a potential bubble remain.

In this context, I believe that focusing on long-term moving averages is essential for gauging momentum. This provides a clearer view of Nvidia’s trend amid daily volatility, especially given the stock’s 48% annualized volatility. NVDA stock’s upward trend is supported by a current trading price above its 200-day moving average of $92.80.

5. Wall Street Remains Overwhelmingly Bullish on NVDA

Finally, the fifth point contributing to my favorable outlook for Nvidia is the overwhelmingly bullish consensus among Wall Street analysts. Of the 42 analysts covering the stock, 39 have issued Buy recommendations, while the remaining three have a Hold rating. Moreover, the average price target among these analysts is $152.44, indicating potential upside of nearly 25%.

A standout is Rosenblatt analyst Hans Mosesmann, who has the highest price target on Wall Street for Nvidia at $200 per share. His optimism persisted after the Q2 results, which he deemed strong, driven by growth in Hopper AI and networking. Although gross margins dipped slightly due to updates on Blackwell chips aimed at improving yields, Mosesmann remains confident. He highlights that despite potential short-term weakness in the share price, the bullish sentiment is supported by a 44x P/E multiple based on Fiscal 2027 EPS.

Conclusion

In this article, I’ve outlined five key points supporting my Buy stance on Nvidia. I believe that the stock’s recent weakness presents an attractive buying opportunity for investors eager to capitalize on its strong growth trajectory.

While some short-term hiccups may persist, Nvidia’s Q2 results suggest that its growth story is set to continue robustly as the company consolidates its market dominance and prepares for the upcoming release of the Blackwell architecture. Given the potential for further growth in the coming years, the current rich valuation can be justified, and Wall Street believes the same.

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