Strong earnings highlight Nvidia’s dominance, but China export curbs weigh on growth. Adek Berry/AFP via Getty Images
Nvidia delivered another estimate-beating quarter, but regulatory setbacks and U.S.-China tensions are casting doubt over its core data center business even as Wall Street continues to demand more from the world’s most valuable public company.
Revenue for the May–July quarter jumped 56 percent year-over-year to $46.7 billion, while net income climbed 59 percent to $26.4 billion, reported Nvidia yesterday (Aug. 27). Both figures beat analyst expectations. However, shares fell more than 3 percent after the earnings release as Nvidia’s core data center sales slightly missed estimates.
The chipmaker’s data center revenue, its most important line of business, came in at $41.1 billion for the quarter compared to expectations of $41.3 billion. It was hampered in part by geopolitical tensions between the U.S. and China. Sales of Nvidia’s H20 chips, which are designed specifically for the Chinese market in compliance with America’s export restrictions, in April were blocked under the Trump administration.
Nvidia CEO Jensen Huang has since convinced the President to lift the ban on H20 exports to China, agreeing to cut the government 15 percent of the company’s revenue from such sales. However, Washington “has not published a regulation codifying such requirement,” said Colette Kress, the company’s chief financial officer, on yesterday’s earnings call.
If restrictions do ease, Nvidia expects $2 billion to $5 billion in H20 revenue in the current quarter, Kress said. That will likely come from Nvidia’s existing inventory of H20. The company has reportedly halted H20 production after the Chinese government banned it, citing security risks. Nvidia is said to be developing another China-specific chip.
Huang has spent much of the past year shuttling between Washington and Beijing in an effort to soothe over tensions. While speaking to analysts, he stressed China’s importance as home to roughly half of the world’s A.I. researchers, the second-largest computing market globally and its status as a leader in open-source models through releases from DeepSeek and Qwen. Such advances, Huang argued, should be supported by U.S. technology to “help make the American tech stack the global standard.”
China’s A.I. market could represent a $50 billion opportunity for Nvidia, one that grows at 50 percent a year, said Huang. Globally, A.I.-native startups have already raised $180 billion in 2025, up from $100 billion last year, according to the CEO. Their revenues are growing even faster, reaching $20 billion this year, compared with $2 billion in 2024. “Next year being ten times higher than this year is not inconceivable,” he said.
In other business, Nvidia’s gaming division generated $4.2 billion in quarterly sales, while its professional visualization and equipment manufacturer units brought in $601 million and $173 million, respectively. Nvidia’s auto and robotics segment remains small, at just 1 percent of overall sales. Yet its $586 million in revenue marked a 69 percent year-over-year jump, reflecting Nvidia’s push into “physical A.I.” “As a result of agentic A.I. and vision-language models, we are now seeing a breakthrough in physical A.I. in robotics and autonomous systems,” Huang told analysts.
Cambricon Technologies Corp. swung to a record profit in the first half, reflecting a wave of demand for Chinese chips after Beijing encouraged the use of homegrown technology in a post-DeepSeek AI boom.
The Chinese AI chip designer, which competes with Huawei Technologies Co. to provide accelerators for developing and hosting AI models, posted a 1.03 billion yuan profit ($144 million) versus a year-earlier loss of 533 million yuan. That’s off a roughly 44-fold surge in revenue to 2.9 billion yuan. Its shares climbed more than 8% in Shanghai.
The results underscore how startups and big tech firms like Alibaba Group Holding Ltd. are increasingly employing domestic alternatives to Nvidia Corp. as the pace of AI development intensifies. The Chinese authorities have urged local agencies to use homegrown chips, citing security concerns as well as persistent uncertainty over the Trump administration’s export curbs.
That’s lifted sentiment toward chipmakers amid rising geopolitical tensions and supply chain disruptions. Cambricon—one of the largest listed AI chip designers—has doubled its market value to $80 billion this month alone. That’s after becoming China’s top performing stock of 2024, riding investor enthusiasm over government support for local tech. On Tuesday, the State Council reaffirmed support for AI adoption as well as the development of intelligent vehicles and robots—all of which require AI processors.
“Amid U.S. restrictions on China’s AI sector, government support for leading domestic firms is essential to drive growth and replace imported chips,” said Ma Cheng, chairman of Shenzhen Juze Investment Management Co. “Such protection is necessary, and Cambricon’s growth is far from temporary.”
Chip shares have led gains in the recent China stock market boom as investors grow more optimistic about the country’s AI prospects and DeepSeek’s latest model update, which it said was tailored to work with next-generation homegrown AI chips.
Despite the strong results, Cambricon acknowledged intensifying competition in the AI chip sector, with only Nvidia maintaining an absolute advantage in the market. That’s as the US government allows Nvidia and Advanced Micro Devices Inc. to resume sales of certain lower-end chips to the country.
To shore up its base, Cambricon said it’s expanded support for DeepSeek, Alibaba’s Qwen and Tencent Holdings Ltd.’s Hunyuan models. It also announced a 4 billion yuan private placement in July to fund its large-model chip platform.
Earlier this month, President Donald Trump publicly called on Intel CEO Lip-Bu Tan to resign. Photo by Andrej Sokolow/picture alliance via Getty Images
In its latest push into A.I. and semiconductors, SoftBank yesterday (Aug. 18) announced a $2 billion investment in Intel. The Masayoshi Son-led conglomerate purchased shares at a slight discount—$23 each—giving it about a 2 percent stake in the struggling U.S. chipmaker.
“For more than 50 years, Intel has been a trusted leader in innovation,” said Son in a statement. “This strategic investment reflects our belief that advanced semiconductor manufacturing and supply will further expand in the U.S., with Intel playing a critical role.”
SoftBank, long known for its bold bets, has been particularly aggressive in A.I. It has backed A.I. startups like Perplexity AI and OpenAI, leading a $40 billion funding round for the latter that valued the ChatGPT maker at $300 billion earlier this year. In January, SoftBank also joined OpenAI, Oracle, and others in launching Stargate, a $500 billion initiative aimed at boosting domestic A.I. development over the next four years.
On the semiconductor front, SoftBank is the majority owner of chip designer Arm and last year acquired Graphcore to position it as a Nvidia rival.The company previously held around 5 percent of Nvidia but sold its stake in 2019, just before the A.I. boom sent the chipmaker’s value soaring. SoftBank has since rebuilt its Nvidia holdings to around $3 billion.
While surging demand for A.I. chips has made Nvidia the world’s most valuable publicly listed company, Intel has struggled to capitalize on the boom. Once a leader in semiconductor manufacturing, the Santa Clara, Calif-based company has fallen behind rivals in areas like GPUs. After SoftBank revealed its investment, its own shares dropped more than 7 percent today, while Intel shares jumped 7 percent on the news.
The move would add a new twist to the tumultuous relationship between Washington and the semiconductor industry. Earlier this month, President Donald Trump publicly called on Intel CEO Lip-Bu Tan to resign, citing alleged conflicts of interest—a demand he walked back after meeting Tan at the White House last week. In August, the administration also announced that Nvidia and AMD could resume exporting chips to China, but only if they pay the U.S. 15 percent of revenue from those sales.
Tan, who took over as Intel’s chief executive in March, is focused on catching up with competitors by emphasizing engineering, cutting costs and laying off about 25,000 employees throughout 2025. A veteran of the semiconductor industry, Tan has close ties to Son, having previously served on SoftBank’s board until 2022.
“We are pleased to deepen our relationship with SoftBank, a company that’s at the forefront of so many areas of emerging technology and innovation and shares our commitment to advancing U.S. technology and manufacturing leadership,” said Tan in a statement. “Masa and I have worked closely together for decades, and I appreciate the confidence he has placed in Intel with this investment.”
Intel Corp. shares climbed after the Wall Street Journal reported that Qualcomm Inc. approached the company about a takeover, a potential record-setting deal for the chip industry.
The discussions occurred in recent days, the newspaper said, citing unnamed people familiar with the situation. Even so, a deal is far from certain, according to the Journal. Representatives for Intel and Qualcomm declined to comment.
The shares rose 3.4% to $21.87 in New York trading Friday, rebounding from a decline earlier in the day. The stock remains down 56% this year.
Intel, once the world’s largest chipmaker, has been struggling with flagging sales and mounting losses — exacerbated by the loss of its technological edge. The company’s market valuation, at $93.5 billion, is now roughly half of Qualcomm’s. Still, a takeover would be the largest-ever transaction for the semiconductor market and potentially transform the industry.
Shares of San Diego-based Qualcomm declined 2.9%, reflecting investors’ concerns about the risks of such a deal.
Intel, based in Santa Clara, California, announced a raft of changes this week aimed at getting its business back on track. The moves included a multibillion-dollar deal with Amazon.com Inc. to make a custom AI semiconductor and a plan to turn Intel’s ailing manufacturing business into a wholly owned subsidiary.
Qualcomm is the world’s biggest designer of smartphone processors, but it’s been trying to branch out into more areas. That includes chips that that run personal computers, where Intel is still the dominant player.
Acquiring Intel could potentially provide Qualcomm with access to its own production in the US, as well as giving it the biggest brand in the market for PCs and traditional server computers.
But Intel’s problems wouldn’t be solved by a Qualcomm takeover. The would-be suitor also has no experience in handling manufacturing or doing the science behind cutting-edge production technology — an area where TSMC excels.
Qualcomm was involved in a contentious takeover saga more than six years ago, when Broadcom Inc. attempted to acquire the company. Broadcom walked away from the bid after President Donald Trump blocked the deal, citing national security risks.
Jensen Huang prepares to throw out the ceremonial first pitch before the game between the San Francisco Giants and the Arizona Diamondbacks at Oracle Park on Sept. 03, 2024 in San Francisco. Lachlan Cunningham/Getty Images
There’s no question that Nvidia (NVDA) is one of the biggest winners of the A.I. boom so far. Funneled by an insatiable demand for its graphics processing units (GPUs), the chipmaker’s stock has skyrocketed by more than 450 percent since early 2023. As Nvidia’s market cap and revenue soar, so does the pace of its investing in A.I. startups. More than half of the company’s startup investments since 2005 took place in the past two years.
The value of the company’s startup investments reportedly totaled more than $1.5 billion at the beginning of 2024, a significant jump from the $300 million a year prior. The chipmaker has participated in more than ten $100 million-plus funding rounds for A.I. startups in 2024 alone, according to data from Crunchbase, and has backed more than 50 startups since 2023. That’s not to mention a flurry of activity from the company’s venture capital arm NVentures, which separately made 26 investments in 2023 and 2024.
Nvidia’s seemingly unflappable upward trajectory took a hit yesterday (Sept. 3) after reports surfaced that it had received a subpoena from the U.S. Department of Justice as part of an antitrust probe. The company’s stock dropped nearly 10 percent, shaving $279 billion off its market cap, which currently stands at $2.6 trillion.
But its falling stock price doesn’t mean the company is slowing down in its startup department. In addition to eyeing an investment in an upcoming funding round in ChatGPT-maker OpenAI, Nvidia yesterday unveiled its participation in a more than $100 million funding round for the Tokyo-based Sakana AI, a company that specializes in accessible A.I. models trained on small datasets.
“We invest in these companies because they’re incredible at what they do,” Nvidia founder and CEO Jensen Huang told Wired earlier this year. “These are some of the best minds in the world.”
From companies specializing in humanoid robots to autonomous vehicles, here’s a look at some of Nvidia’s most significant startup investments:
Perplexity AI
Huang hasn’t been shy about his love for Perplexity AI, the A.I.-powered search engine positioned as a competitor to the likes of Google. The Nvidia CEO uses the startup’s tool nearly every day for research, according to Huang’s interview with Wired.
He has also put his money where his mouth is, with Nvidia partaking in a $62.7 million funding round for Perplexity AI in April that valued the startup at $1 billion. Led by investor Daniel Gross, the round included participants like Amazon (AMZN)’s Jeff Bezos. It wasn’t the first time Nvidia has backed the company—the chipmaker also invested in Perplexity AI during another funding round in January that valued the startup at $73.6 million.
Hugging Face
Hugging Face, a startup providing open-source A.I. developer platforms, has long had close ties to Nvidia. The chipmaker participated in a $235 million funding round in Hugging Face in August 2023 that valued the company at $4.5 billion. Other corporate investors participating in the round included Google, Amazon, Intel, AMD and Salesforce.
Hugging Face has previously included Nvidia hardware among its shared resources. In May, it launched a new program that donated $10 million worth of free, shared Nvidia GPUs to be used by A.I. developers.
Adept AI
Unlike more well-known A.I. assistants from companies such as OpenAI and Anthropic, Adept AI’s primary product doesn’t center around text or image generation. Instead, the startup is focused on building an assistant that can complete tasks on a computer, such as generating a report or navigating the web, and is able to use software tools. Nvidia is on board, having participated in a $350 million funding round in March 2023.
Databricks
After receiving a giant valuation of $43 billion last fall, Databricks became one of the world’s most valuable A.I. companies. The data analytics software provider unsurprisingly uses Nvidia’s GPUs and has been backed by the chipmaker alongside other investors like Andreessen Horowitz and Capital One Ventures, all of whom participated in a $500 million funding round in September 2023. “Databricks is doing incredible work with Nvidia technology to accelerate data processing and generative A.I. models,” said Huang in a statement at the time.
Cohere
A formidable opponent to OpenAI and Anthropic, the Canadian startup Cohere specializes in A.I. models for enterprises. The company’s growth over the past five years has attracted backers such as Nvidia, Salesforce and Cisco, which funded Cohere during a round held in July. Nvidia also took part in a May 2023 funding round that brought in some $270 million for the startup.
Mistral AI
Mistral AI is a French startup focusing on developing open-source A.I. models. It was founded by former Google DeepMind and Meta employees in April 2023. Nvidia has participated in two of the startup’s fundraising rounds, a $518 million round in June and a $426 million round in December 2023. The collaboration between the two companies doesn’t end there—in July, Nvidia and Mistral AI jointly released a small and accessible language model for developers.
Figure
Huang has long reiterated his belief that A.I.-powered robots able to work among humans will constitute the next wave of technology. It is, therefore, no surprise that Nvidia is a backer of Figure, a startup developing humanoid robots for use in warehouses, transportation and retail. Nvidia reportedly funneled $50 million towards the company during a February funding round that raised a total of $675 million and included participants like Bezos and Microsoft.
Scale AI
To properly train A.I. tools like OpenAI’s ChatGPT, tech companies need vast amounts of data. This is where A.I. startups like Scale AI, which provides troves of accurately labeled data and is headed by billionaire Alexandr Wang, come in. Nvidia participated in a $1 billion funding round for the company in May alongside Big Tech players like Amazon and Meta.
Wayve
Autonomous driving is another area of interest for A.I. leaders across the tech world. Huang himself said that “every single car, someday, will have to have autonomous capability” in a recent interview with Yahoo Finance. One of the startups at the forefront of this wave is the U.K.-based Wayve. Nvidia participated in a $1 billion funding round in the startup in May.
Inflection AI
Out of the 92 startups Nvidia has backed throughout the decades, Huang’s company has only been a lead investor in 20 rounds. One of these occurred in June 2023, when Nvidia led a staggering $1.3 billion round for Inflection AI. The chipmaker co-led the round alongside Microsoft, Bill Gates and former Google CEO Eric Schmidt.
The A.I. startup, which was co-founded by LinkedIn (LNKD) co-founder Reid Hoffman and Google DeepMind co-founder Mustafa Suleyman and most recently valued at $4 billion, produces a chatbot known as Pi. Much of the round’s funding went towards bolstering Inflection A.I.’s computing cluster of 22,000 Nvidia H100 GPUs.
If all that is true—and there’s no way to tell right now—Groq might well pose a threat to the dominance of Nvidia. Ross is careful when discussing this. “Let’s be clear—they’re Goliath, and we’re David,” he says. “It would be very, very foolish to say that Nvidia is worried about us.” When asked about Groq, though, Nvidia’s prompt response indicates that the startup is indeed on its radar. With near-Groq-like speed, the Goliath’s PR team sent me a statement indicating that Nvidia’s AI advantage is not only in its chips but other services it provides to customers. like AI software, memory, networking, and other goodies. “AI compute in the data center is a complex challenge that requires a full-stack solution,” it says, implying that its unnamed competitor might be stack-challenged.
In any case, Ross says he’s not competing with Nvidia but offering an alternative experience—and not just in terms of speed. He’s on a mission to make sure that Groq will deliver fair results unsullied by political point of view or pressure from commercial interests. “Groq will never be involved in advertising, ever,” he says. “Because that’s influencing people. AI should always be neutral, it should never tell you what you should be thinking. Groq exists to make sure everyone has access. It’s helping you make your decision, not its decisions.” Great sentiments, but even the Groq chatbot, when I quizzed it about early-stage idealism, is skeptical about such claims. “The pressure to generate profits and scale can lead even well-intentioned founders to compromise on their ideals,” it promptly replied.
One other thing. You may have heard that Elon Musk has given the name “Grok” to the LLM created by his AI company. This took Ross by surprise, since he says he trademarked the name of his company when he founded it in 2016, and he believes it covers the phonetically identical original term. “We called dibs,” he says. “He can’t have it. We’ve sent a cease-and-desist letter.” So far he hasn’t gotten a response from Musk.
When I asked Groq about the name dispute, it first cautioned me that it doesn’t provide legal opinions. “However, I can provide some context that may help you understand the situation better,” it said. The bot explained that the term grok has been used in the industry for decades, so Musk would be within his rights to use it. On the other hand, if Groq trademarked the term, it might well have an exclusive claim. All accurate and on the mark—everything you’d expect from a modern LLM. What you would not expect was that the reply appeared in less than a second.
Time Travel
In my book on Google, In the Plex, I explained how the company, and its cofounder Larry Page, prioritized speed and recognized that faster products are used not only more often, but differently. It became an obsession within Google.
Engineers working for Page learned quickly enough of [his speed] priority. “When people do demos and they’re slow, I’m known to count sometimes,” he says. “One one-thousand, two one-thousand. That tends to get people’s attention.” Actually, if your product could be measured in seconds, you’d already failed. Paul Buchheit remembers one time when he was doing an early Gmail demo in Larry’s office. Page made a face and told him it was way too slow. Buchheit objected, but Page reiterated his complaint, charging that the reload took at least 600 milliseconds. (That’s six-tenths of a second.) Buchheit thought, You can’t know that, but when he got back to his own office he checked the server logs. Six hundred milliseconds. “He nailed it,” says Buchheit.
The Japanese government will provide an additional ¥732 billion ($4.86 billion) in subsidies for Taiwan Semiconductor Manufacturing Co. to expand its plant in the country, Economy Minister Ken Saito said on Saturday.
“TSMC is the most important partner for Japan in realizing digital transformation, and its Kumamoto factory is an important contributor for us to stably procure cutting-edge logic chips that is extremely essential for the future of industries in Japan,” he said at the opening ceremony for TSMC’s Kumamoto factory.
The chipmaker, Taiwan’s largest company, plans to start shipping logic chips for CMOS camera sensors and automobiles from the facility in Kumamoto on the island of Kyushu by the end of this year through its venture with iconic local companies including Sony Group Corp. and Toyota Motor Corp. The government has already allocated ¥476 billion for the factory.
The new aid will go toward construction of a new fabrication building next to the existing one, the company’s first in Japan. Known as TSMC Fab-23 Phase 2, the project announced by TSMC earlier this month will produce chips as narrow as 6 nanometer and plans mass production by 2027.
Japan has paid trillions of yen for companies such as TSMC, Samsung Electronics Co. and Micron Technology Inc. to move some operations to the country to secure supply of chips used in everything from automobile production to mobile phones.
“Governments around the world are fiercely competing by throwing in a large amount of money so that they can secure domestic supply of chips, and Japan investing this amount of money is necessary for us to foster further development of industries and economic security,” the minister said. “We learned from mistakes in the past, and I’m sure we have dazzled the rest of the world by the speed with which we have implemented.”
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Nvidia crushed expectations with a bumper quarterlyearnings report on Wednesday, reporting a 265% increase in revenue from the same period a year ago, sending shares up over 9% in extended trading. CEO Jensen Huang said Nvidia now has to “allocate [chips] fairly” as customers flock to its processors, key to the AI boom. “Accelerated computing and generative AI have hit the tipping point,” Huang said.
But amidst the blowout quarter, Nvidia also acknowledged how tensions between the U.S. and China, particularly over semiconductors, is affecting its business. China now represents “mid-single digit percentage” of Nvidia’s data center revenue, chief financial officer Collette Kress said on Wednesday. She suggested that China would make up a similar percentage of revenue for the current quarter as well. (Data center revenue aligns with Nvidia’s AI chip business)
It’s a significant drop: Nvidia has previously noted that China made up as much as a quarter of the company’s data center revenue.
The U.S. first announced controls on the sales of advanced semiconductors to China in October 2022. Companies like Nvidia then developed chips that complied with the restrictions yet still offered the same advanced capabilities. The Biden administration updated its restrictions last October to close that loophole.
On Thursday, Kress admitted that the U.S. government has not granted a license to Nvidia to ship restricted products to China. Nvidia has started shipping alternative products to China that don’t require a license, she continued.
Huang said Nvidia has “immediately paused” and “reset” its product offerings in China, which he blamed for the drop in data center revenue from China. The company would do its best to succeed in the Chinese market “within the specifications of U.S. restrictions”, he said.
Nvidia is again trying to develop chips for the Chinese market that comply with U.S. restrictions, but Chinese customers are reportedly turning to domestic alternatives instead. Chinese tech companies are less interested in buying Nvidia’s downgraded products, which are now closer in performance to cheaper Chinese options, the Wall Street Journal reports. Chinese chipmakers are pitching their own chips as a safer option due to the possibility of new controls from the U.S., Reuters reported in December.
Gina Raimondo, the US secretary of commerce, spoke at Intelâs event today and compared the US governmentâs current focus on revitalizing its chip industry to the space race of the 1960s. âThe fact that we are so overly dependent on a couple of countries in Asia that we need for life-saving medical equipment, cars, every piece of technology, showed us weâve got to get back to work making more chips,â Raimondo said.
Full Disclosure
Intelâs new foundry strategy will involve breaking out the new unitâs financials to let investors see how that part of the business is operating. âWe’re not fixing one company; we’re establishing two vibrant new organizations,â Gelsinger said.
An Intel factory employee holds a wafer with 3D stacked Foveros technology at an Intel fab in Hillsboro, Oregon.Photograph: Intel Corporation
Now all Intel needs is more customers willing to trust it with the future of their business. Some chip industry insiders say the companyâs revamped foundry plans seem more likely to succeed than previous attempts to revive Intelâs fortunes.
âBefore Pat joined they really didnât have an understanding of the foundry market,â says Dan Hutcheson, a long-time chip industry analyst with Tech Insights. âThis has steadily improved. The messaging is much more focused, and they are picking up customers, which proves they are doing something right.â
Gelsinger took over as CEO of Intel in 2021 with the company on a downward trajectory following several high-profile missteps. He promised an aggressive comeback plan that would involve developing more competitive chips of its own while also regaining an engineering edge in manufacturing and offering that up to other firms.
Hutcheson says the companyâs biggest edge may be that it can offer advanced packaging of newly carved chips into working components, guaranteed supply lines, and other ancillary chipmaking solutions that customers see as more secure in an uncertain world. âTheir biggest point of differentiation seems to be that they are a strategic alternative to TSMC,â he says.
Intelâs decline has caused concern in the US national security establishment because of the importance of computer chips and the extraordinary potential of AI. Chinaâs technology ambitions and the potentially vulnerable location of most of TSMCâs factories in Taiwan has caused fears that US access to the worldâs best chips could be cut off. In 2022, the US government passed the CHIPS Act promising $52 billion to reinvigorate domestic chipmaking and secure silicon supply lines. According to a Bloomberg report, Intel is in line to receive $10 billion of that money.
Intel apparently believes it could make use of even more government cash. Onstage today Gelsinger asked Secretary Raimondo if the US government might need a second CHIPs act. âI suspect there will have to beâwhether you call it CHIPS Two or something elseâcontinued investment if we want to lead the world,â Raimondo said.
As Nvidia prepares to publish its much-anticipated full-year results this Wednesday, analysts at JPMorgan say VAT Group, ASML Holding, and ASM International all offer the strongest prospects for investors seeking to cash in on an upturn in the market for microchips.
JPMorgan analysts led by Sandeep Deshpande explained that while the slump in the microchip market is now showing signs of improvement, certain segments of the market — including those that supply chips to the auto and industrial sectors — are improving more slowly than others.
The market for memory chips is, meanwhile, giving off signals of a bumper recovery, with inventory levels for the microchips used in computer storage devices currently sitting at lower than average seasonal levels, they said in a note to clients that published Monday.
As such, those Europe-based semiconductor companies least exposed to the autos and industrial sectors, which have the highest exposure to the market for memory chips, are set to see the biggest benefits in the near term, said Deshpande and the team.
Swiss company VAT Group VACN, +0.37%
makes vacuum valves used in chip manufacturing, while Dutch firms ASML Holding ASML, -0.10%
ASML, -1.73%
and ASM International ASM, -2.13%
both make the lithography machines used to manufacture semiconductors.
Shares in all three European companies are up significantly over the previous 12 months — VAT has gained 51%, ASML 43% and ASM 81%.
Notably, all three European companies are all focused on making the equipment used to manufacture the advanced microchips used in electronic products, including smartphones and personal computers. In JPMorgan’s view, this puts them in an advantageous position to benefit from any recovery.
At the same time, those companies most exposed to the auto and tech industries, including German firm Infineon Technologies AG IFX, -0.96%
and Swiss firm STMicroelectronics STM, -0.29%,
are set to continue trading at subdued levels — despite already being cheap — as the market remains challenging, they caution.
Deshpande and the team noted that inventory levels for the chips used in the auto and industrial sectors currently sit at rates 38.7% higher than three-year seasonal averages in the fourth-quarter of 2023, marking a deterioration on the 31.1% rate in the third quarter of 2023.
In contrast, inventory levels for memory chips improved significantly in the final three months of 2023, having fallen from rates 19% above seasonal averages in the third quarter to rates 1.7% below normal seasonal levels at the end of the fourth quarter of last year.
For reference, ASML Holding, which was previously split off from ASM International in 1984 through a joint venture with Philips PHIA, -0.32%,
is currently the world’s sole manufacturer of the extreme ultraviolet lithography machines used to make the advanced chips used in the AI industry.
ASM International continues to design the wafer processing machines used to make microchips. VAT Group produces vacuum valves that are needed to manufacture high tech chips in sterile environments to ensure they are not exposed to outside particles.
Nvidia NVDA, -0.06%,
the world’s largest chip designer, will on Wednesday announce quarterly results, which investors are expected to pore over, seeking vital clues on the health of the global chip market amid much excitement around a possible AI driven boom.
Amazon.com Inc. shares continued their charge higher Friday, securing their highest close in more than two years.
The e-commerce giant’s stock advanced 2.7% in Friday’s session to finish the day at $174.45. That was the best ending level since Dec. 9, 2021, when Amazon’s stock AMZN, +2.71%
closed at $147.17, according to Dow Jones Market Data.
GOOGL, +2.12%
as the third most valuable U.S. company by market capitalization last week, though it’s since fallen back to the No. 4 spot. Still, the recent momentum for Amazon shares has been enough to help the company hold down a place in the top four even as Nvidia Corp. NVDA, +3.58%
nips at its heels.
Alphabet finished Friday’s session with a $1.86 trillion market cap, while Amazon’s was $1.81 trillion and Nvidia’s was $1.78 trillion.
Wall Street had a mixed reaction to earnings from big technology companies this quarter, but Amazon’s results were among those that were well received.
“Overall the overhangs which kept a lid on AMZN shares — e-commerce deceleration in 2021, e-commerce deceleration and margin compression in 2022 and AWS deceleration in 2023 — will have dissipated throughout 2024,” UBS analyst Stephen Ju wrote in a note to clients following those results.
The company has been a huge driver of earnings growth for the S&P 500 consumer discretionary sector, as its quarterly earnings per share grew to $1 in the latest quarter from 3 cents a year before. The consumer discretionary sector is now expected to post 33% growth in EPS for the fourth quarter, according to FactSet, but without Amazon, that would swing to a decline of about 1%.
South Korean chipmaker SK Hynix Inc. is poised to choose Indiana over Arizona for its first major U.S. investment, a $15 billion advanced packaging facility that would mark a win for the Midwest and for U.S. efforts to build a full semiconductor supply chain.
The firm first announced the project in 2022 and originally intended to select a site within the first half of 2023. SK Hynix is slated to pick Indiana but still has Arizona as a second choice, according to people familiar with the matter who asked not to be named discussing confidential conversations.
An SK Hynix spokesperson said that no final decision has been made, following a Financial Times report that the firm had selected Indiana.
The project will be a significant step forward for advanced packaging in the U.S., which has become a bottleneck in Washington’s efforts to revitalize the domestic semiconductor industry. The U.S. has only 3% of the world’s packaging capacity, meaning that firms manufacturing chips in America have to ship them to Asia to be assembled for use.
Critical electronic components have become a battleground between Washington and Beijing, with the U.S. spending tens of billions of dollars to wean itself off Asian supply lines and bolster the domestic economy. Semiconductor firms have pledged to invest more than $230 billion on American soil since President Joe Biden took office, spurred by the 2022 Chips Act.
Most of that investment has gone to Texas, New York and Arizona, which has alone won more than $60 billion in investments from Taiwan Semiconductor Manufacturing Co., Intel Corp., Amkor Technology Inc. and dozens of others.
Indiana has a very modest footprint just north of $2 billion in recent investment. SK Hynix’s pending decision would be a boon to the state and the region, which secured a $20 billion Intel project in Ohio.
It would also be a victory for Senator Todd Young, an Indiana Republican and an architect of the Chips Act. Young declined to comment Thursday but had confirmed in a November interview that Indiana officials and SK Hynix were in talks.
Part of his pitch, he said, would be his state’s small profile in the semiconductor industry—which comes with his undivided attention, on domestic issues like permitting and on Washington’s political climate.
“As we try and properly modulate export controls on semiconductors, they want to make sure they have access to elected officials who actually can get the ear of the president of the United States and Department of Commerce,” Young said in November.
SK Hynix and Korean rival Samsung Electronics Co. are among the key foreign firms caught in the U.S.-China technology war, as Washington tries to cut off Beijing from the most advanced semiconductors and chipmaking equipment. The two companies—along with industry giant TSMC—have received U.S. waivers to continue shipping some equipment to China that would otherwise be restricted, but there’s no guarantee those measures will stay in place.
As Intel Corp.’s stock plunged to its biggest one-day drop in about three and a half years, analysts had some harsh words for the chip maker.
“How many times can you push the reset button?” Bernstein’s Stacy Rasgon asked in a note to clients.
While he thought many investors were bracing for the company to miss on its first-quarter forecast, the outlook came in “extremely weak and clearly worse than feared.” Intel INTC, -11.91%
expects $12.7 billion in revenue at the midpoint, while analysts had been looking for $14.3 billion.
“After yet another major reset this story probably just shifted to 2026 at the earliest for the bulls, and there is a lot of meat for the bears to sink their teeth into in the meantime,” Rasgon wrote, while sticking with his market-perform rating and $42 target price.
Baird’s Tristan Gerra highlighted challenges for Intel’s data-center and artificial-intelligence unit, which is “on track for a third consecutive year of revenue declines,” while his own revenue forecast implies a 14-year low.
Gaudi, the company’s accelerator chip for artificial-intelligence applications, “does not seem enough to lift [data-center] revenue, while gross margin will be impacted by higher depreciation inclusive of an expected U.S. Chip Act credit,” Gerra continued.
He also expressed some concerns about the company’s broader road ahead.
“Can top-line growth in future years be sufficient to fund continued node migration?” Gerra said. “Many hurdles remain, notably ramping units from this year’s small base (small baseline for Intel 4 makes it more challenging to yield at the next node), while [the Intel Foundry Service] revenue ramp entirely depends on future node execution including yield and performance.”
Gerra has a neutral rating and $40 target price on Intel’s stock.
Shares fell 11.9% in Friday trading, making for their worst single-day percentage decline since July 24, 2020, when they fell 16.2%, according to Dow Jones Market Data.
Needham’s N. Quinn Bolton, meanwhile, downgraded the stock to hold from buy in the wake of Thursday afternoon’s report, calling the earnings reset “unexpected.”
“In addition to an overall worsening risk-reward, Intel’s core [data-center] business is challenged by a shift to accelerated computing architectures and direct competition from AMD and ARM,” he wrote. “We expect AI to remain the spending priority in the data center for the next several quarters. To that end, dollars will continue moving away from Intel’s core competency.”
Rosenblatt’s Hans Mosesmann took a similar view as he argued that Intel’s sales outlook is “contrary to the uber bullish messaging to the Street and is consistent with share losses to AMD, a lack of any perceivable AI growth vector that moves any dial, and points to another, yes another, transitional year.”
Artificial intelligence “seems like everywhere except at Intel,” he continued, noting that his stance on the stock “has not changed for many years.” Mosesmann continues to rate it at sell.
Raymond James analyst Srini Pajjuri, however, was more upbeat about Intel’s ability to capitalize on AI. “While Intel won’t likely get much credit for AI in the near term, we are encouraged by the growing pipeline for Gaudi accelerators ($2b+) and expect meaningful revenue contribution” in the second half of 2024, he wrote, while sticking with his outperform call but cutting his target price to $52 from $54.
TAIPEI — William Lai, a China skeptic with a track record supporting independence, won the Taiwanese presidential election on Saturday in a result that risks inflaming tensions between Beijing and Washington in the South China Sea.
The election has been billed as the first major global geopolitical watershed of 2024, pitting the U.S. against China in a battle for regional influence. Beijing cast the vote as a choice between war and peace, and stressed the inevitability of the democratic island reunifying with the Communist mainland.
Lai is currently the island’s vice-president and Saturday’s poll represents an unprecedented third successive time in power for the Democratic Progressive Party (DPP) — regarded as anathema by Beijing for its insistence upon Taiwan’s sovereign rights and its close relations with the U.S., Europe and other democratic forces. In terms of global security, the fear is Beijing could now ratchet up pressure on the island with warplanes and warships, as it did after then-U.S. House Speaker Nancy Pelosi made a whirlwind visit in 2022.
Well aware of speculation that his victory could trigger heightened tensions with China’s President Xi Jinping, Lai held out an olive branch in his victory address, delivering a measured and cautious call for “exchanges and cooperation with China” on the basis of “dignity and parity.” He vowed to “replace confrontation with dialogue.”
“As president I have an important responsibility to maintain peace and stability in the Taiwan Strait. I will act in accordance with the Republic of China’s constitutional order in a manner that is balanced and maintains the cross-strait status quo,” Lai said, using Taiwan’s official name to please the more China-friendly constituents wary of his nativist Taiwan stance. “At the same time we are also determined to safeguard Taiwan from continuing threats and intimidation from China.”
Beijing’s immediate reaction was dismissive. “The elections of China’s Taiwan region are local elections and China’s internal affairs. Regardless of the result, it will not change the the basic fact that Taiwan is part of China and there is only one China in the world,” said a spokesperson for the Chinese embassy in the U.K.
With almost all the votes counted, Lai won slightly more than 40percent of the vote. The election is a first-past-the-post contest.
Hou Yu-ih from the more China-friendly Kuomintang (KMT) won 33.5 percent of ballots cast. Ko Wen-je, of the Taiwan People’s Party, scored 26.5 percent.
Hou conceded defeat at a KMT rally, saying: “I’m sorry I’ve let you down.”
“I congratulate Lai and Hsiao, but I hope they won’t let the voters down,” he said, referring to Lai and his running mate Bi-khim Hsiao, the vice presidential candidate, who’s a famous figure in Washington, having served as Taiwan’s de facto ambassador to the U.S. “Taiwan needs to be united and cannot be divided.” Hou continued. “Facing the U.S.-China-Taiwan relations, we need to approach them seriously, and leave the people with a stable environment.”
The only good news for Beijing in the results is that the DPP has lost its parliamentary majority, with the KMT vying to take over the speakership. This makes it very hard for Lai, as president, to pass legislation through a hostile parliament, and would certainly clip his wings in terms of antagonism with China.
Taiwan has no formal diplomatic relations with any major power as Beijing treats it as renegade region with no claim to sovereignty. It wields genuine economic heft, however, producing some 90 percent of the world’s most advanced semiconductors.
The only good news for Beijing in the results is a possibility the DPP could lose its parliamentary majority | Yasuyoshi Chiba/AFP via Getty Images
The winner, expected to be formally announced later Saturday, will succeed outgoing Tsai Ing-wen on May 20, amid growing fears of an escalation of tensions between between China and Taiwan. Beijing has been heavily critical of Lai over recent years, as the DPP leader has associated himself with the Taiwanese independence movement.
Indeed Lai went so far as to call himself a “pragmatic worker for Taiwan independence” in 2017, although he has now cooled that language.
Lai is a 64-year-old Harvard graduate and hails from a humble background. His father died in a mining accident when he was not yet one year old; and he was among six children raised by his mother. Before he became vice president, he was mayor of Tainan city and later Taiwan’s premier.
During the campaign, Lai ruled out declaring independence during his tenure, in an apparent bid to reassure Washington, which — alongside European allies — prefers that neither Beijing nor Taipei change the status quo unilaterally.
U.S. President Joe Biden reacted to Lai’s victory with a blunt message on Saturday: “We do not support independence” for Taiwan. The Biden administration has clarified that while it does not back Taiwanese independence, it favors dialogue between Taipei and Beijing and expects differences to be resolved peacefully and without coercion.
However, analysts and diplomats believe Beijing will increase pressure on Taiwan between now and the mid-May inauguration.
Days before the election, Beijing again threatened Taiwan by calling Lai a warmonger. “Lai … will bring Taiwan farther and farther away from peace and prosperity, and closer and closer to war and decay,” Chen Binhua, spokesman for China’s Taiwan Affairs Office, said on Thursday.
Lai is a 64-year-old Harvard graduate and hails from a humble background | Alastair Pike/AFP via Getty Images
China and the U.S. have shown signs of trying to manage the tension ahead of the election. In Washington, U.S. Secretary of State Antony Blinken met the visiting Chinese Communist Party’s international department chief Liu Jianchao, a day before the Taiwanese vote.
The U.S. and China also held the first physical military dialogue in four years, with Beijing demanding that the U.S. stop arming Taiwan. The Pentagon’s readout made no mention of how the U.S. responded to that call.
After Saturday’s vote, the U.S. State Department congratulated Lai on his victory and “the Taiwan people for once again demonstrating the strength of their robust democratic system and electoral process,” according to a statement. “The United States is committed to maintaining cross-Strait peace and stability, and the peaceful resolution of differences, free from coercion and pressure,” it said.
U.S.-China relations have seen a relative calm following U.S. President Joe Biden’s summit with China’s Xi in San Francisco in November. Xi, who’s grappling with an ailing economy at home, reportedly told Biden he had no timeline for achieving the ultimate goal of unifying Taiwan — indirectly pushing back at U.S. and Taiwanese officials’ suggestion that an invasion could take place by 2027.
Nvidia Corp. is raking in billions in cash, but one analyst thinks the chip maker could throw $100 billion more onto the pile if it started to look more like Salesforce Inc.
Nvidia NVDA, +2.29%
might unlock even more cash by developing businesses that expand recurring revenue, according to BofA Securities analyst Vivek Arya. The company has suffered some boom-and-bust cycles in recent years, and another bust could be smoothed by developing longer-term software contracts akin to those of Salesforce CRM, -0.05%.
, Workday Inc. WDAY, -0.48%
and ServiceNow Inc. NOW, +0.64%,
which generate recurring revenue from their customers.
Arya sees a pathway for Nvidia to rake in $100 billion in incremental free cash flow over the next two years if it can bulk up its own recurring-revenue options.
“While NVDA has a solid lead in AI, hardware-oriented businesses are not valued as highly as visibility tends to be limited,” Arya wrote. Nvidia generates only about $1 billion, or 2%, of its sales from software and subscriptions. Arya doesn’t think the company can get much higher than $5 billion with its software and subscription offerings unless it turns to acquisitions.
Nvidia has shown some openness to deals that would beef up its intellectual property and software offerings, Arya notes, as it tried to buy British chip designer Arm Holdings ARM, -1.96%
before facing regulatory pushback.
“We envision [Nvidia] considering more enhanced partnerships/M&A of software companies that are helping traditional enterprise customers deploy, monitor and analyze [generative AI] apps,” he wrote. Nvidia “is already serving them via on-premise hardware and/or its DGX cloud service, but we believe greater direct recurring software/service channel could be more impactful.”
The addition of more recurring-revenue streams could help Nvidia’s “relatively depressed trading multiple,” in Arya’s view. Nvidia shares trade at a 20% to 30% discount to its “Magnificent Seven” peers on the basis of price to earnings as well as enterprise value to free cash flow, even though the company’s compound annual growth rate on the top line is three times what it is for those other tech giants.
The discount is “partly due to uncertainty in [calendar 2025] growth prospects, and partly due to a very hardware-dependent business unlike other large-cap software/internet peers that have recurring-revenue profiles,” he wrote.
Arya has a buy rating and $700 price objective on the stock.
The Russell 2000 Index soared 12% in December, which might reflect investors’ exuberance about the state of the U.S. economy — it appears the Federal Reserve has won its battle against inflation.
But if you are looking to broaden your exposure to the stock market beyond the large-cap S&P 500 SPX,
buying shares of a fund that tracks the Russell 2000 Index RUT
might not be the best way to do it. This is because the Russell 2000 isn’t selective — it is made up of the smallest 2,000 companies by market capitalization in the Russell 3000 Index RUA,
which itself is designed to capture about 98% of the U.S. public equity market.
A better choice might be the S&P Small Cap 600 Index SML
because S&P Global requires companies to show four consecutive quarters of profitability to be initially included in the index, among other criteria.
Below is a screen of analysts’ favorite stocks among the S&P Small Cap 600, along with another for the Russell 2000.
Watch for a “head fake”
Much of the small-cap buying in December might have resulted from covering of short positions by hedge-fund managers. This idea is backed by the timing of trading activity immediately following the Federal Open Market Committee’s announcement on Dec. 13 that it wouldn’t change its interest-rate policy, according to MacroTourist blogger Kevin Muir. The Fed’s economic projections released the same day also indicate three cuts to the federal-funds rate in 2024.
Heading into the end of the year, a fund manager who had shorted small-caps, and then was surprised by the Fed’s interest-rate projections, might have scrambled to buy stocks it had shorted to close-out the positions and hopefully lock in gains, or limit losses.
That buying activity and resulting pop in small-cap prices could set up a typical “head fake” for investors as the new year begins, according to Muir.
The long-term case for quality
Looking at data for companies’ most recently reported fiscal quarters, 58% of the Russell 2000 reported positive earnings per share, according to data provided by FactSet. In other words, hundreds of these companies were losing money. These might include promising companies facing “binary events,” such as make-or-break drug trials in the biotechnology industry.
In comparison, 78% of companies among the S&P Small Cap 600 were profitable, and 93% of the S&P 500 were in the black.
Here are long-term performance figures for exchange-traded funds that track all three indexes:
For the first screen, we began with the S&P Small Cap 600 and narrowed the list to 385 companies covered by at least five analysts polled by FactSet. Then we cut the list to 92 companies with “buy” or equivalent ratings among at least 75% of the covering analysts.
Here are the 20 remaining stocks among the S&P Small Cap 600 with the highest 12-month upside potential indicated by analysts’ consensus price targets:
Any stock screen should only be considered a starting point. You should do your own research to form your own opinion before making any investment. one way to begin is by clicking on the tickers for more about each company.
Moving on to the Russell 2000, when we narrowed this group to stocks covered by at least five analysts polled by FactSet, we were left with 936 companies. Among these, 355 have “buy” or equivalent ratings among at least 75% of the covering analysts.
Among those 355 stocks in the Russell 2000, these 20 have the highest implied upside over the next year, based on consensus price targets:
The 2023 rally for stocks in the U.S. accelerated as more investors bought the idea that the Federal Reserve succeeded in its effort to bring inflation to heel.
The S&P 500 SPX
ended Friday with a 24.2% gain for 2023, following a 19.4% decline in 2022. (All price changes in this article exclude dividends). Among the 500 stocks, 65% were up for 2023. Below is a list of the year’s 20 best performers in the benchmark index.
This article focuses on large-cap stocks. MarketWatch Editor in Chief Mark DeCambre took a broader look at all U.S. stocks of companies with market capitalizations of at least $1 billion, to list 10 with gains ranging from 412% to 1,924%.
The Fed began raising short-term interest rates and pushing long-term rates higher in March 2022 by allowing its bond portfolio to run off. That explains the poor performance for stocks in 2022, as bonds and even bank accounts because more attractive to investors.
Investors are anticipating the return to a low-rate environment by scooping up 10-year U.S. Treasury notes BX:TMUBMUSD10Y,
whose yield ended the year at 3.88%, down from 4.84% on Oct. 27 — the day of the S&P 500’s low for the second half of 2023.
Before looking at the list of best-performing stocks of 2023, here’s a summary of how the 11 sectors of the S&P 500 performed, with the full index and three more broad indexes at the bottom:
A look at 2023 price action really needs to encompass what took place in 2022 for context. The broad indexes haven’t moved much from their levels at the end of 2022 (again, excluding dividends). We have included current forward price-to-earnings ratios along with those at the end of 2021 and 2022. These valuations have declined a bit, which may provide some comfort for investors wondering how likely it is for stocks to continue to rally in 2024.
Biggest price increases among the S&P 500
Here are the 20 stocks in the S&P 500 whose prices rose the most in 2023:
Updated Dec 27, 2023, 7:34 am EST / Original Dec 27, 2023, 4:26 am EST
Stock futures traded slightly lower Wednesday after the S&P 500 finished higher Tuesday and just 0.45% below its record close of 4,796.56 hit Jan. 3, 2022. The broad market index has risen 24% this year and has gained 4.5% this month as traders bet the Federal Reserve will begin cutting interest rates as soon as March.
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