Ticker Reports for December 11th
The Great CPU Race: AMD and Intel Battle for Dominance
The central processing unit (CPU) market is a cornerstone of the global technology sector, and it has long witnessed an intense rivalry between two industry titans: Advanced Micro Devices (NASDAQ: AMD) and Intel (NASDAQ: INTC).
For decades, these companies have competed fiercely to provide the fastest, most efficient, and feature-rich processors for consumers, businesses, and specialized applications. However, their approaches to achieving market dominance differ significantly. AMD has focused on delivering high-performance, innovative technologies, while Intel has pursued a more diversified strategy, including substantial investments in its foundry business and a renewed emphasis on efficiency. These divergent strategies have created a dynamic and unpredictable market for the two competitors. In a conflict of this nature, only one competitor can ultimately claim outright victory; however, given the scale and diversity of the market, is there sufficient room for both to thrive and achieve sustained success?
Q3 2024: A Tale of 2 Earnings Reports
AMD's earnings report for the third quarter of fiscal year 2024 (Q3 FY2024) painted a picture of healthy growth. The company announced revenue of $6.82 billion, exceeding AMD’s analyst community’s estimates of $6.71 billion.
The company’s earnings per share (EPS) reached $0.92, meeting the consensus, underpinned by strong performance in data center and client segments. This was further boosted by gross margins of 50% (54% non-GAAP), demonstrating efficient operations. The strong financial results point to the effective execution of AMD’s strategy and a keen understanding of current market demands.
Intel’s earnings report for Q3 FY2024 presented a stark contrast. While revenue of $13.3 billion exceeded Intel’s analyst community estimates of $13.02 billion, the company reported a loss of $(0.46) EPS. This significantly missed analyst expectations of a loss of only $(0.02).
The shortfall was attributed to substantial impairment charges and restructuring costs, highlighting operational challenges and the ongoing need for cost-cutting measures. The contrast between AMD’s growth and Intel’s struggle underscores the dramatic shift in the competitive terrain.
While AMD's Q3 2024 earnings clearly outperformed Intel's, declaring a definitive "winner" based solely on this single quarter's results would be an oversimplification. AMD's strong revenue growth and profitability demonstrate a positive trajectory and effective execution of its current strategy.
However, a single quarter's performance only partially captures the long-term competitive dynamics. Intel's underperformance in Q3, while concerning, is attributable to one-time factors rather than fundamental weakness in its business model. Furthermore, Intel's strategic shift towards foundry services and its significant investments in future technologies, coupled with substantial government support, offer potential for future growth and market share recapture.
Market Positioning and Technological Advancements
AMD’s financial performance in Q3 is primarily attributed to its dominant position in the gaming CPU market, achieved through its innovative 3D V-Cache technology. This technology delivers substantial performance improvements, outpacing competitors in multiple gaming benchmarks. The anticipated launch of the Ryzen 9000X3D series promises to solidify AMD’s lead further. Beyond gaming, AMD has made significant inroads in the data center market, experiencing strong sales of its EPYC and Instinct products. The acquisitions of ZT Systems and Silo AI further demonstrate AMD’s strategic focus on expansion into the high-growth AI sector.
Intel’s strategy is based on multiple fronts. Its significant investment in building its foundry business has the potential to create a substantial new revenue stream, diversifying its business model and reducing dependence on the CPU market. The company continues to invest in technological advancements, particularly its hybrid architecture seen in its latest Core Ultra series.
However, these latest processors haven’t yet translated to consistent market-leading performance, particularly in gaming benchmarks, where they currently lag behind AMD’s offerings. Moreover, the government funding received through the CHIPS and Science Act provides a significant financial boost, facilitating further research and development efforts.
Analyst Sentiment and Future Projections
Analyst sentiment is overwhelmingly more positive towards AMD, with a consensus rating of Moderate Buy compared to Intel's Reduce rating. This difference reflects the market's perception of each company's relative strength and future potential.
The average price target for AMD stands at $192.36, representing a substantial potential upside. While the price target for Intel is $30.04, the Reduce rating indicates caution among analysts regarding the stock's valuation and potential downside risks.
Further solidifying AMD’s optimism, its Q4 2024 revenue guidance projects a range of $7.2 billion to $7.8 billion, and its full-year 2025 EPS is expected to grow by 63.78%, from $2.54 to $4.16 per share. Intel's guidance, while still forecasting revenue growth, is notably less ambitious. Its Q4 2024 revenue is projected at $13.3 billion to $14.3 billion, with a non-GAAP EPS of $0.12. The projections highlight AMD’s significantly more bullish outlook and higher anticipated growth rates.
Navigating the Uncertainties
Despite the apparent advantages AMD currently possesses, several factors introduce uncertainty into any prediction regarding future market dominance. The semiconductor market is highly susceptible to economic downturns, fluctuating demand, and geopolitical events, introducing inherent volatility. Rapid technological advances mean that current product advantages could quickly become obsolete. Both companies face execution risk: Intel's cost-cutting plan and AMD's expansion strategy need to be successfully implemented to deliver their anticipated outcomes.
A Race Without a Clear Winner (Yet)
While AMD currently demonstrates stronger financial performance, a more positive analyst outlook, and a leading market position in key segments, declaring a definitive "winner" in the AMD vs. Intel race would be premature. Intel's long-term strategic investments, government support, and potential for its foundry business to generate significant revenue must be considered.
The future market leader will depend on several key factors: the successful execution of both companies' strategic plans, the market's reception of future product generations, and the broader economic and geopolitical environment. Investors must carefully consider these complexities when assessing the investment prospects of either company. The semiconductor market remains dynamic and unpredictable, demanding a cautious approach from those seeking to navigate its challenges and reap its rewards.
Nvidia is Pivoting to Solve Big Tech's $1 Trillion Problem
Taiwan Semiconductor, a partner of Nvidia's for more than two decades, has seen its shares explode as much as 4,744%.
Now, if you're like everybody else, you want to know what Nvidia's doing next … and who they're going to partner with …
GameStop Turns a Profit: So What? It's Still Not Worth Investing
GameStop (NYSE: GME) shares edged higher following its Q3 release, but so what? The report included a surprise profit, but the underlying cause and business metrics align with the trend. This company continues to contract and is consuming itself at investors' expense. It only profited in Q3 because of increased interest income related to its cash buildup.
The company raised billions in 2024, shoring up the balance sheet for an as-yet-to-be-determined turn-around effort.
The ultimate takeaway is that shareholder value is eroding, the underlying business loses money, and the stock is ridiculously overpriced. The only thing for certain is volatility, but the market is skewed toward lower prices, which is the most likely scenario in 2025.
GameStop’s single bullish factor is the cash balance, which swelled by 500% over the last year. Now over $4.6 billion, the interest income on the balance is enough to sustain the operation until something else happens. However, with the underlying business losing money and net income slim at $17.4 million, the company has little room to maneuver without eating away at the balance.
The bad news is that the build-up of cash is due to share sales, which increased the share count by 23% on average in Q3 and the issued amount by 43%, severely impacting shareholder value. The net result on the balance sheet is a 2.8x increase in total equity but a decrease in book value to roughly $11, more than 50% below the market price leading into the report.
GameStop: A Business Circling the Drain
GameStop’s Q3 results are mixed relative to consensus forecasts reported by MarketBeat, with revenue below targets and earnings above. The cause for bottom-line outperformance has been addressed; the cause for the top-line weakness is a contraction in all three retail operating segments, led by a 27% decline in the core hardware business.
Given the gaming industry trends, GameStop’s total sales are now a fraction of what they once were and are likely to continue contracting. The game makers face headwinds, including the rising cost of development and diminished post-pandemic interest, while consumers spend more time outdoors, tired of ads and relentless in-game expenses.
Video games are still popular, but the market is normalizing to its core, and core gamers are more price-conscious than ever.
The business margin is still poor, and there are risks to the profit outlook. The company reduced its SG&A expenses, which were insufficient to produce an operating profit. The operating loss topped $33 million, or about 61% of the interest income, more than doubling as a percentage of revenue compared to last year.
Regarding the risk, the FOMC is on track to reduce rates in 2025 if at a lesser pace than once forecasted, effectively reducing the company's ability to generate income from interest payments. In this scenario, GameStop has bought some time, but the clock is still ticking, and a turn-around plan needs to be established.
The Sell-Side Poses Risks for GameStop
Sell-side interest in GameStop is mixed, with only a single analyst rating the stock and that at Sell, while institutional interest is the opposite. The institutions have bought this stock on balance throughout 2024, supporting the market within its trading range, and Q4 activity ramped to a high that aligns with the stock price rise to new highs.
The market is now above one resistance target but still below the critical target at the range’s mid-point. If the institutions keep buying this stock, it will likely rise; the risk is that they won’t and may even begin to sell, adding downward pressure to the market.
Regarding short interest, the ratio is down from its peak, due primarily to the increased share count, but it rose at the end of November as short-sellers sold into the rally.
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C3.ai Stock Surges on Strong Sales Despite Profit Concerns
C3.ai Inc. (NYSE: AI) stock shrugged off an initial round of selling and was up about 3% in mid-day trading on heavy volume. This came the day after the company reported earnings for the second quarter of its 2025 fiscal year. C3.ai stock had dropped about 10% in the premarket as investors reacted to the company’s quarterly report.
The report's headline numbers beat expectations. The company generated $94 million in revenue, which was above expectations of $91 million. That was a 29% year-over-year (YoY) increase in revenue growth and a 22% YoY increase in subscription revenue growth. This was the seventh consecutive quarter of increasing revenue growth. The company also raised its revenue target for the coming quarter and the full fiscal year.
On the earnings front, C3.ai reported a narrower-than-expected earnings per share (EPS) loss of six cents. Analysts had been forecasting a loss of 14 cents per share. However, the issue troubling many investors is the company’s path to profitability. As we head into 2025, investors seem willing to accept that valuations are extended. Outside of some black swan event, that’s not likely to change.
But it’s one thing for technology stocks to trade at a premium valuation when companies are delivering growing, profitable earnings. That’s not the case with C3.ai, and with the path to profitability pushed back by at least 12 months, it’s fair to ask if this is the right place to put your capital.
A Plug and Play Solution With a Large Addressable Audience
Many companies know they need to have an AI presence. It’s becoming like what the internet was in the late 1990s and early 2000s. However, many of these same companies lack the resources to build their own large language models (LLMs) that are needed to train an AI system.
That’s where C3.ai comes in. It gives companies turnkey customizable AI applications for enterprise-level customers. This approach allows the company to serve a unique niche in the AI market.
Demand is strong based on the 58 new agreements the company added in the quarter. However, much of that growth may have already been baked into the stock price, which has surged by over 78% since the company reported an expanded partnership with Microsoft Corporation (NASDAQ: MSFT) on September 30. Under the terms of this partnership, C3.ai is a preferred application provider on Microsoft’s Azure platform. The company will also create a joint go-to-market engine fueled by Azure sales channels.
Biggest Opportunity or Biggest Risk?
Currently, C3.ai generates a significant amount of its revenue from government contracts. That’s not surprising. The wars of the future will increasingly be won by software and drones.
However, Federal, Defense & Aerospace contracts make up about 33% of the company’s business. That’s down from the 49% it was in the same quarter in 2023, but it still means that C3.ai is heavily dependent on cyclical business and likely to be under scrutiny from the incoming Trump administration.
Government contracts are more expensive to obtain and generally have a long sales cycle, which can negatively impact profitability. Therefore, the company must continue diversifying away from the government sector, but doing so may reduce margins.
Short Interest Makes C3.ai Stock a Better Trade Than Investment
If you’re not currently involved in C3.ai stock, be advised trading could be volatile. The post-earnings price action in AI stock points to a short squeeze. Short interest in the stock is currently over 17% of the float. That means the stock may have higher to run in the short term. It also means that the stock price could reverse just as suddenly as it’s gone up.
Since the report, the analyst forecasts tracked by MarketBeat show largely bullish sentiment. JMP Securities was the most bullish, maintaining its Outperform rating for the stock while raising its price target from $40 to $55. However, the current consensus price target is still at $33.10, which would be a downside of over 23%.
But it’s important to note that many of the company’s current agreements are pilot programs. It will take several quarters before investors know how many of these contracts will lead to sustainable revenue and push the company closer to profitable earnings. That’s where sustainable stock price appreciation will come from.
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