Tech Thoughts Newsletter – 15 March 2024.

Market: The market has been taking a breather, trying to decide whether to continue up or not. Stock-specific volatility has increased, especially among the YTD winners like Nvidia and the AI cluster. The fundamentals around AI, if anything, are just getting more robust, and next week is the “Woodstock of AI” Nvidia GTC conference. 

Portfolio: We have not made any major portfolio changes this week. 

• Oracle (not owned): Oracle reported sales in line with expectations and with a small beat on the bottom line. Shares were, however, materially higher on the back of total remaining performance obligations (RPO), growing 29% to $80bn or $15bn Q/Q by AI and cloud demand. Cloud revenue grew 25% Y/Y to $5.1bn in the quarter. Cloud infrastructure was robust – up 49% Y/Y driven by Gen2 AI infrastructure, where demand outstripped supply, adding to RPO. 

Our view: The company is aggressively building its infrastructure around data centres to become a key player in the cloud. The company states that GPU availability is improving. We do not hold Oracle, as there are better ways to play the cloud and AI theme. 

• Adobe (not owned): 1Q was in line with expectations, while a slightly weaker-than-expected forecast for 2Q dragged down the shares in the aftermarket. The 2Q sales forecast of $5.25bn to $5.30bn was slightly below the consensus forecast of $5.31bn, while the EPS forecast was in line. Digital Media grew 12%, Creative 11%, while Document Cloud grew 18%. The RPO performance accelerated to 16% Y/Y.

• The price increases made last year have started to roll in, and a part of that is the new Creative Cloud pricing with Firefly (AI). The company expects further price lifts when Express Mobile and the AI Assistants go live. 

Our view: We can see how the company is implementing AI solutions across the product portfolio and some price increases with it. However, our question is whether the new AI capabilities will lead to fewer seats going forward. We have already started seeing signs that the marketing agencies have been able to cut back as they started using AI services in their workflow. 

• Applied Materials (owned): Applied Materials declared a 25% increase in dividends. The company stated: “Our latest dividend increase reflects our confidence in Applied Materials’ ability to generate profitable growth and strong free cash flow.”

Our view: This is very much in line with our view on Applied Materials. The company has handled the downturn really well and is in a great position as demand picks up again. 

• Nvidia: Next week will be interesting as Nvidia holds its annual GTC conference. We have already heard from Oracle that something will come from them at the conference. We expect Nvidia to talk about its roadmap from H200 to B100 and onwards going into 2025. 

Our view: The conference will show the width of Nvidia’s product portfolio and the speed with which it develops new products. In addition, a lot of emphasis will likely be on Cuda and the scale of its software. We would not be surprised if there are also coumments about the stronger demand for H200 and B100 than they saw in the early days of H100. 

• Qualcomm is also expected to host a conference next week focused on its Elite X PC CPU. We already heard rumours that the processor will be inside the new Samsung Galaxy Book4 Edge. We would expect more announcements about vendors adopting their new ARM-based CPU. The benchmark figures we have seen so far have been impressive and in line with Apple and Intel.

Our view: This is bad news for AMD (owned), especially Intel (not owned). This is the bread and butter for Intel, an area they still dominate strongly. 

• Wistron (not owned) and Foxconn (not owned): The companies reported their FY2023 results this week. Both companies assemble Nvidia GPU modules. 

• Wistron stated that their revenue from GPU-based AI servers, GPU accelerator cards, AI modules and AI systems is expected to triple this year after growing compared to 50% last year. Growth in 2023 was held back by chip-on-wafer-on-substrate (CoWoS) packaging capacity. The company expects a triple-digit percentage growth in revenue generated by AI products this year, with the second half being even stronger than the first half in AI business.

• Foxconn sales fell 6% year-over-year in 4Q and are expected to fall slightly year-over-year in 1Q (tough comparison due to the Apple build catch-up last year). The company is, however, expecting to grow for FY2024 driven by AI servers, and the visibility around AI servers has become very high. The chairman/CEO also stated that the outlook for FY2024 has improved since November 2023. 

For enquiries, please contact:
Inge Heydorn, Partner, at inge.heydorn@gpbullhound.com
Nejla-Selma Salkovic, Associate, at nejla-selma.salkovic@gpbullhound.com

About GP Bullhound
GP Bullhound is a leading technology advisory and investment firm, providing transaction advice and capital to the world’s best entrepreneurs and founders. Founded in 1999 in London and Menlo Park, the firm today has 13 offices spanning Europe, the US and Asia.