Nvidia: U.S. government to allow chip ‘development’ despite export ban, analyst says
KeyBanc Capital Markets Equity Research Analyst John Vinh joins Yahoo Finance Live to discuss Broadcom earnings, chip stocks, supply chain issues, U.S. government banning the export of chips to China, and the outlook for the space.
Nvidia: U.S. government to allow chip ‘development’ despite export ban, analyst says
KeyBanc Capital Markets Equity Research Analyst John Vinh joins Yahoo Finance Live to discuss Broadcom earnings, chip stocks, supply chain issues, U.S. government banning the export of chips to China, and the outlook for the space.
Video Transcript
AKIKO FUJITA: Well, same with tech. Broadcom shares firmly higher after the chipmaker said it sees revenue this quarter coming in ahead of expectations at $8.9 billion. The forecast will help dispel fears that business internet spending is set for a sharp slowdown.
Third quarter EPS also beating the street, with CEO Hock Tan citing solid demand across enterprise and cloud. For more on this, let's bring in John Vinh. He is KeyBanc Capital Markets equity research analyst. John, good to talk to you today. A solid pop on the stock here, up more than 4%. What stood out to you in the numbers?
JOHN VINH: Yeah, thanks for having me. I think they put up really solid results. They had strong numbers across the board, across all of their segments, Enterprise Cloud, and broadband access. You know, I think in the near-term, they're seeing great near-term demand. They've got great visibility with their lead time standing at 50 weeks. But the one thing I would say is that they are starting to acknowledge that their visibility going into the second part of 2023 is starting to get a little bit more murky at this point.
BRIAN CHEUNG: Hey, John, Brian Cheung here. I mean, the broad story for the chip space is that it's really all about their ability to enforce-- or increase the supply to meet the massive demand. So when you see the guidance coming out from Broadcom, I mean, what does that tell you about whether or not they're seeing any sort of alleviation in the supply chain pressures, or is that still continuing this deep into 2022?
JOHN VINH: Yeah, I think they're clearly starting to make some progress in terms of increasing their supply. Their lead times have not really eased, but I think you will start to see their lead times ease over the next couple of quarters, which is typically an indication that supply is starting to get better. But I think the broader issue that you're seeing with the supply chain is that there's kitting issues and mismatches and lead times. And potentially, we'll likely get to supply-demand balance probably sometime next year.
AKIKO FUJITA: John, we got a big selloff in Nvidia yesterday on the back of those reports that they had been advised by the Commerce Department to essentially limit selling specific AI chips to China. Investors trying to parse through what the implications are not just for NVIDIA, but other semiconductors as well, including AMD. What's your read?
JOHN VINH: Yes, I think the impact right now is primarily isolated to Nvidia. They make GPU chips that are widely used by the industry for machine learning and AI training. The implications here is the US wants to limit China's ability to develop kind of military applications with it. There are some broader implications, I would say, generally all pretty negative. I would say, one, this is only going to push China to more regionalize their vertical semiconductor supply chain, which is going to be inefficient for the broader industry.
It's also going to limit demand for some of the other chipmakers that supply into that data center server supply chain. In terms of impacting AMD, I think it's actually pretty minimal. For AMD, their GPU data center is roughly about 1% of revenues. They're not widely-- as widely adopted as NVIDIA for machine learning and AI at this point in time. But the impact right now is really focused around NVIDIA.
BRIAN CHEUNG: John, as a follow-up to that, there was another 8-K that Nvidia filed yesterday, where they said that the government has actually authorized exports, re-exports, and in-country transfers needed to continue development of the H100 circuits that they're making. It hadn't seen a massive reversal in the stock selloff that we saw yesterday. Just wondering how you're reading that clarification there. What does that tell you about whether or not we'll see the full impact of that $400 million they were warning about as an impact to their potential sales to China the day before that?
JOHN VINH: Yeah, that additionally doesn't really impact the overall restrictions that are placed by this licensing agreement. All that is indicating is that the US government is going to allow them to continue development of this next generation H100 chip that is coming out at the end of the year. It still is not going to allow them to export those chips to Chinese entities at this point in time.
AKIKO FUJITA: Finally, John, there's a lot of noise in this space. On the one hand, we've got the earnings reports that seem to point to some companies being better positioned. We've seen, heard the reports of those slowdowns, especially in PC sales. And then you've got all the geopolitical headwinds that continue to surround the sector. When you look at all of that, who do you think is best positioned? Where do you think investors should be putting their money right now?
JOHN VINH: We like companies that have de-risked their guidance. I think the wall of worry right now is that a lot of these companies are not seeing some of these headwinds. And that's potentially going to be the next shoe to drop. We like Nvidia here. Obviously, there's a little bit of uncertainty in terms of what's going on with the China restrictions right now, but they really have de-risked their forward estimates related to kind of the consumer gaming risk.
We also like onsemi, who is extremely well positioned with kind of the EV, electrical vehicle, trends. They've really starting to ramp up their silicon carbide revenue pipeline, which is expected to exceed a billion dollars next year. And I also like Qualcomm, even though they're tied to the consumer right now. They've taken down their risk on smartphones and handsets in the second half of the year. And next year, we're expecting outsize share gains at customers such as Samsung.
BRIAN CHEUNG: All right, John Vinh, KeyBanc Capital Markets equity research analyst, thanks so much. Really appreciate the time.