As chip sales dry up, Nvidia CFO says spending on AI will save companies money
By Wallace Witkowski
Businesses are 'still working on efficiencies of how they're using their money,' chip maker's finance chief says in appearance after January chip sales showed stark declines year-over-year and month-over-month
Nvidia Corp.'s financial chief reasons that the efficiencies businesses need are not from spending less money, but from spending more on technologies like artificial intelligence, even as chip sales dry up.
"AI is in an inflection point," Nvidia's (NVDA) Colette Kress told Morgan Stanley's Technology Media and Telecom Conference on Monday. "We've now incurred a point in time with generative AI, in particular with [OpenAI's] ChatGPT, that folks understand, and just some of the most simple cases how this can benefit them -- benefit them from a use case as a consumer, or an enterprise on thinking about how they can develop AI within their universe as well."
In that vein, Kress made the pitch that tightening the belt was not always the best way to save money, seeing that the recent jump in interest in ChatGPT taxed many public servers' capacity.
"When you think about these economic times, it's both a time for folks to focus on their budgets or focus on what they're spending on," Kress said. "However, they're still working on efficiencies of how they're using their money, how they're using their capital."
"The focus on accelerated computing, no matter how you look at it, is always going to be an improvement of efficiency and the use of their money," Kress said. "The amount of money that they save in terms of moving to accelerated, not only is it more efficient just from a computing standpoint, but you're spending less."
Read: Nvidia adds to AI hype with new cloud-based service, stock jumps on forecast
But customers are already spending less. The Semiconductor Industry Association said Friday that global chip-industry sales for January fell 18.5% to $41.3 billion from a year ago and 5.2% from December 2022's $43.6 billion.
"Despite record-high sales in 2022, the global semiconductor market cooled considerably during the second half of the year, and that trend continued during the first month of 2023," said John Neuffer, SIA president and CEO. "Despite the current short-term cyclical downturn, the long-term outlook for the semiconductor market remains strong due to the ever-increasing role of chips in powering the critical technologies of today and tomorrow."
Looking at SIA data, Bernstein analyst Stacy Rasgon noted that month-over-month data was worse than typical seasonality and that memory-chip sales -- those from companies like Micron Technology Inc. (MU) -- fell 58.6% year-over-year.
For Nvidia, "opportunities around data center, software and auto remain early, and large," Rasgon said, even with gaming headwinds and near-term China sentiment; Broadcom "has a good narrative & margin of safety with semi revenue visibility, software offering support, cash deployment, superb margins & [free cash flow], & attractive valuation;" and Qualcomm struggles against "a weak market and channel flush ... impacting near-term trajectory, but the shares remain very inexpensive and setup into 2024 looks good as things normalize and Apple Inc. (AAPL) business hangs around."
For AMD, "the server story is working, though PC weakness (and potentially damaging behavior from their competitor) is weighing, and margins may face headwinds," and Intel's "long-term structural issues have finally broken to the forefront," Rasgon wrote.
Rasgon has outperform ratings on Nvidia, Qualcomm, and Broadcom, market-perform rating on AMD, and an underperform rating on Intel.
Read more: The world is buying fewer devices, and inventories for PCs, phones and tablets are building
Citi Research analyst Christopher Danely wrote in a note last week that "half" of the chip glut -- PCs and wireless -- has been worked through, evidenced by the massive inventory charges taken by chip makers like Intel Corp. (INTC), Advanced Micro Devices Inc. (AMD), Nvidia and Qualcomm Inc. (QCOM) in recent earnings reports. Qualcomm's forecast predicted that inventory issues would persist into June.
According to Danely, that other "half" -- the increasingly important data-center market, sustained by public-cloud providers like Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT) and Alphabet Inc.'s (GOOGL)(GOOGL) Google, and the auto and industrial markets that were starved of chips during the pandemic, the ones supplied by Texas Instruments Inc. (TXN) and NXP Semiconductors NV (NXPI)-- are due for a correction.
The PHLX Semiconductor Index , which tracks 30 components of the semiconductor industry and counts Nvidia and third-party fab provider Taiwan Semiconductor Manufacturing Co. (2330.TW) among its largest, last peaked on Dec. 27, 2021, when it closed at a record 4,039.51. A little more than a year ago, the sector then dropped from those record highs to within bear-market territory in a month -- and are still 26% off those highs -- as fears of a glut began to set in with Wall Street.
Over the past 12 months, however, the SOX index is only down 8% -- given 2023's strong year out of the gate, with an 18% gain -- while the Dow Jones Industrial Average has slipped less than 1% over the past 12 months, the S&P 500 index has declined 6.5%, and the tech-heavy Nasdaq Composite Index has fallen 12%.
-Wallace Witkowski
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March 06, 2023 17:05 ET (22:05 GMT)
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