The tech hardware industry is full of red flags, and this analyst sees only one exception
By Wallace Witkowski
Wedbush analyst Matt Bryson checks in from Taiwan with bad or mixed news for all hardware makers except for Nvidia, which he says has 'clear momentum in forward hyperscale AI projects'
Most tech segments and companies involving hardware "remain troubled," and the forecast is "mixed" at best with just one exception, a Wall Street analyst remarked Thursday as he checked in with manufacturers in Taiwan.
Wedbush analyst Matt Bryson said Thursday his "quick and dirty takeaway" from Taiwan is that "most segments in technology remain troubled, with limited forward visibility," and red-flagged the personal-computer and memory markets as being the worst off. Bryson gave red flags to Micron Technology Inc. (MU), Western Digital Corp. (WDC) and Seagate Technology Holdings PLC (STX), citing conversations he's had about memory demand remaining low as hyperscalers slow expansion.
"While we have encountered one-off comments suggesting modest green shoots in various areas, more broadly, commentary around PC demand remains soft with inventories still needing to be worked down," Bryson said. "Memory demand remains poor, inventories remain high, and pricing declines look to remain at elevated levels into [the second calendar quarter]."
The TV-display market received the best review of a bad bunch, with Bryson grading it as firmly "mixed," as it "appears to be the one area where excess inventory has been worked off."
Bryson marked both the handset market in China and the data-center market between a "red flag" and "mixed." The analyst said that while demand may still be soft, excess inventories have been mostly worked down. For data center, the forecast is mixed because of significant cuts to first- and second-quarter orders.
Bryson said the latter half of the year could show improvement as new data-center central processing units, namely, Nvidia Corp.'s (NVDA) Grace CPU, supported by Arm Ltd.'s chip architecture, are released. Following Nvidia's failed bid to acquire SoftBank Group Corp. -owned Arm last year, Nvidia announced it still had a 20-year license for Arm's architecture.
Nvidia was the sole winner of Bryson's analysis, receiving the only "green flag."
"While we generally lack conviction around the scope of recovery for most vendors, it appears clear momentum in forward hyperscale AI projects will benefit data-center GPU demand moving forward," Bryson said.
Read:Nvidia CEO expects AI revenue to grow from 'tiny, tiny, tiny' to 'quite large' in the next 12 months
Nvidia founder and Chief Executive Jensen Huang announced a slew of products and services targeted at expanding AI development this week, and forecast that the "tiny, tiny, tiny" amount of revenue the company currently receives from generative AI will become "quite large" over the next 12 months
Bernstein analyst Stacy Rasgon, who has an outperform rating on the stock, said that not only is Nvidia leading the pack when it comes to data-center hardware, its software "moat," which is essential to running that hardware, "appears to be getting ever close to insurmountable."
Read: Nvidia launches new AI platforms, with Google Cloud as an early adopter
As for Taiwan Semiconductor Manufacturing Co. (2330.TW) , GlobalFoundries Inc. (GFS) and United Microelectronics Corp. (2303.TW), Bryson had a "mixed" rating and sees a potential for an L-shaped (versus U- or V-shaped) outlook for the chip-fabrication sector.
Advanced Micro Devices Inc. (AMD) and Intel Corp (INTC) received red flags from Bryson, based on poor PC fundamentals and a slower server product transition for both, with AMD faring a little better as it siphons data-center share from Intel.
A slow start to the tech year doesn't appear to been concerning investors yet as the PHLX Semiconductor Index is up 25% year to date, while the iShares Expanded Tech-Software Sector ETF (IGV) has risen 13%, the tech-heavy Nasdaq Composite Index has gained 12%, compared with a 3% gain by the S&P 500 index .
For more:How Nvidia plans to fuel the AI surge and a new era of chipmaking
-Wallace Witkowski
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March 25, 2023 13:05 ET (17:05 GMT)
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