The major indices are all trading significantly higher at midday following another tumultuous overnight session across financial markets and the energy space, in particular. The price of crude oil exploded higher for the second straight day, as supply fears intensified and the OPEC decided to stick to its gradual supply increase schedule, despite the fact that heavy fighting continues unabated in Ukraine. While peace talks are set to resume today, both sides need to make compromises to achieve a ceasefire agreement, and Russian forces continue to fiercely attack several major Ukrainian cities, including civilian targets. With European assets spiraling lower, investors continue to treat the U.S. as a safe haven, helping this morning’s rally on Wall Street, while pushing the dollar to a nearly two-year high against the euro.
Stock Pick Summary:
As our portfolio is showing a strong recovery, we continue to tap into solid long term opportunities while the market still remains uncertain. Today, we are doubling down on the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Its GPU success can be attributed to its parallel processing capabilities supported by thousands of computing cores.
Companies are deploying its graphics chips to run sophisticated artificial-intelligence (AI) applications and services. These are services that people engage with every day, such as image and speech recognition, natural language processing, chatbots, personalized recommendations, and cloud graphics and gaming. Over the last three quarters, its data center revenue has increased by 71%, 55%, and 35%, respectively. It has one of the best financial profiles in the semiconductor industry with sales growth of 50% to 60% a year and a 47% operating margin and 70% year-over-growth in free cash flow. This acceleration entering the new year reflects a widening competitive position for it as an AI-chip leader. Companies are racing to invest in high-performance computing systems needed to process large amounts of data in the fastest time possible, that will continue to propel its growth.
Its recent guidance showed that the company is experiencing sustained accelerated broad based demand and the earnings indicated that its data center segment, which saw 72% year-over-year growth and had record revenue, is likely to keep benefiting from training and inference for cloud computing and AI workloads.
The company expects the supply to continue improve throughout fiscal 2023, which should set the company up for strong growth as demand for its GPUs in all segments, including data centers, gaming and automotive, continues.
Block is using its GPUs to power its conversational AI for Square Assistant. Meanwhile, social-media leader Snap is using the company's chips to power its recommendation software. Strong demand from leading tech firms is ultimately powering explosive growth on its bottom line. In addition, Omniverse, next generation networking/DPU adoption and autonomous driving could all contribute to the massive opportunity that lies ahead.
The 72% year-over-year and 11% sequential growth it reported for data center is a function of over 100% growth in hyperscale and cloud revenue and strong double-digit growth in vertical industries. It has created a comprehensive solution that spans silicon, system and software and remains solidly positioned as the broadest secular large-cap growth story in semis.
Considering the valuation for this growth stock, though, is what makes it little risky, implying it is too expensive. It is still expensive based on its P/E Ratio (65x) compared to the U.S. market (17x). However, we still believe that the valuation of top growth stocks become less of a concern in the longer term, and does not deter us in opening another position in this solid, long term play!
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