Technology

If Nvidia Blows Out Earnings This Week, Chip Stocks Could Explode

Intel

This leader in semiconductors is grabbing big Internet of Things and data center cloud spending. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide.

The company’s platforms are used in various computing applications, comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.

The company’s share of total business with Apple is expected to be an estimated 5% of revenue for calendar 2018. That figure may be growing, and top analysts estimate that Apple was 3% of sales for Intel, excluding CPU revenues, in 2016, with an estimated 40% or so allocation for baseband processors. It is now thought this allocation likely expanded to about 60% in the latest generation iPhones, and note that recent press reports have this figure as high as 70% in 2018 and 100% in 2019.

Intel investors are paid a solid 2.24% dividend. The $70 Merrill Lynch price target is well above the consensus price objective of $60.25. The shares closed Tuesday’s trading at $53.63.

Nvidia

This top chip stock has reported strong earnings but was absolutely hammered last month and has rebounded in front of Thursday’s earnings. It is also on the Merrill Lynch US 1 list. Nvidia is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.

The company is also moving into visual computing chips for cars, mobile devices and supercomputers. Nvidia has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.

The Merrill Lynch analysts are bullish in front of the report and said this:

We reiterate Buy, top sector pick ahead of the first quarter report on Thursday, cloud strength offsets crypto volatility, watch for sell-in accounting charge. First quarter: Data center focus, sell-side $679 million, buyside $700 million, gross margins 63%, for second quarter: sales 2% quarter over quarter with crypto impact contained. Buy ahead of new Volta gaming cycle in the second half, plus continued AI inference wins, NVIDIA key beneficiary of surging cloud capex.

Nvidia investors are paid a small 0.24% dividend. The Merrill Lynch target price is $300. The consensus price target is much lower at $249.58, while the shares closed most recently at $250.40.

The market and demand for chips are not going away. The rapid growth may slow, so it makes sense to stick with companies that are involved in the business of tomorrow, rather than a commodity type businesse that can stress average selling prices.

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