{"id":11682,"date":"2023-08-11T09:28:43","date_gmt":"2023-08-11T08:28:43","guid":{"rendered":"https:\/\/www.gpbullhound.com\/?post_type=article&p=11682"},"modified":"2023-08-18T08:04:15","modified_gmt":"2023-08-18T07:04:15","slug":"tech-thoughts-newsletter-11-august-2023","status":"publish","type":"article","link":"https:\/\/www.gpbullhound.com\/articles\/tech-thoughts-newsletter-11-august-2023\/","title":{"rendered":"Tech Thoughts Newsletter \u2013 11 August 2023."},"content":{"rendered":"\n
Market: <\/strong>the market continues to be volatile, on broadly lower volumes. The macro data is still mixed \u2013 China data released this week showed exports falling for a third consecutive month, which was followed by China officially falling into deflation as consumer and producer prices both dropped in July. Now the market is waiting to see what stimulus plans may emerge there. US inflation data was better (lower) than expectations, which helped stocks and tech into the end of the week. <\/p>\n\n\n\n Portfolio: <\/strong>we made no major changes to the portfolio this week. <\/p>\n\n\n\n AI arms race continues <\/strong>\u2013 Nvidia still gated by supply <\/strong><\/p>\n\n\n\n Portfolio view: <\/strong>we\u2019ve commented before that it\u2019s Nvidia\u2019s ecosystem (which speaks to the breadth of announcements this week) across AI which forms<\/strong> a key part of its competitive moat. To the extent which it is following AMD\u2019s memory expansion could be seen as a positive affirmation of AMD\u2019s MI300 product. We own both Nvidia and AMD and see them as seeing the bulk of the accrued value in the short term from AI. <\/strong>We believe supply remains the key gating factor for Nvidia, and to the extent that AMD can launch a competitive solution whilst Nvidia is supply-constrained will be positive for establishing it as a credible alternative.<\/strong> <\/p>\n\n\n\n Smartphone inventory correction continuing into year-end <\/strong><\/p>\n\n\n\n Portfolio view:<\/strong> there are few signs of life in the smartphone space and it continues to be an area we try to avoid direct exposure to. We do own Sony, where we see positive offsets elsewhere in its gaming business (comments below). <\/p>\n\n\n\n Memory likely first in semis to see a recovery<\/strong><\/p>\n\n\n\n Portfolio view<\/strong>: as we said last week there\u2019s no doubt that ex-AI and auto, semis are taking longer to recover than we might have expected at the start of the year. It does seem that we will likely come out of the memory cycle the soonest<\/strong> (possibly this H2) \u2013 memory cycles can often be different to the broader semis cycle given the commodity nature and the price elasticity.<\/strong> This memory down cycle, which started in the middle of 2022, has been particularly brutal. <\/p>\n\n\n\n We don\u2019t invest in memory players \u2013 while we do believe that the build-out of generative AI infrastructure will result in meaningful bit growth for the memory industry as a result of the DRAM content growth per server (and increased technical features around bandwidth and transfer rates), the reality is that the industry relies on rational supply. While Hynix and Samsung both spent their conference calls arguing for tech leadership in DRAM, ultimately the three players have always ended up with broadly the same tech<\/strong>, which means that rational supply can very easily break down, and has always struggled to make a sustainable return \u2013 just as we\u2019ve seen over the past several quarters in the industry with the negative impact on pricing. <\/p>\n\n\n\n We do think we should benefit from any memory recovery and the related bit growth through our semicap equipment exposure<\/strong> \u2013 any stabilisation in DRAM ASPs is positive \u2013 and areas like HBM require new higher-end process tools given the increased technical requirements (see also Veeco comments below). <\/p>\n\n\n\n Positive signs in Semicap orders <\/strong><\/p>\n\n\n\n Portfolio view<\/strong>: semicap remains a key exposure for us (we own ASML, LAM Research, KLA and Applied Materials). The resilience of the space amid the recent downturn in memory and weakness in logic is something we view as attractive<\/strong>, and we expect multiple structural drivers (geopolitics \u2013 see Germany subsidy news below, tech leadership and China trailing edge demand) to support growth into 2024\/2025. The recent results point to a shallower trough than prior cycles, which we may now be through. <\/p>\n\n\n\n Germany\u2019s semiconductor subsidies continue with auto-focused fab<\/strong><\/p>\n\n\n\n Portfolio view: <\/strong>Governments around the world seem to have decided to build and subsidise local fabs is a good idea, with Germany particularly active over the past year or so (it is also subsidising a leading-edge fab for Intel). We think this fab \u2013 specifically trailing edge nodes serving the auto space, makes much more sense than Intel\u2019s leading-edge fab. <\/strong>Europe clearly has a very large auto export industry, and trailing edge auto chips will continue to face a structural shortage as a result of the increased semis content in the move to EV (which is why we own Infineon and NXP). <\/p>\n\n\n\n More localised fabs should benefit semicap equipment names\u2019 order books this year<\/strong><\/p>\n\n\n\n Semis and geopolitics continue to be intertwined. More localised fabs ultimately means more semicap equipment and it remains one of the drivers of our above consensus view on the space. <\/strong><\/p>\n\n\n\n In general a tough week in software reporting, with guidance mostly disappointing expectations<\/strong><\/p>\n\n\n\n Portfolio view: <\/strong>We don\u2019t own any of these software businesses, which all fall into the too expensive, with too uncertain a path to profitability bucket for now. Consumption business models (like Datadog) still haven\u2019t really been through a cycle, and it\u2019s clear that more broadly customers continue to scrutinise spend. More broadly for software it feels like though we may now be close to a trough in terms of budget optimisation, the shape of the recovery looks uncertain. Possibly most significantly, the high valuations create a lot of volatility in the shares, even with what were fairly \u201cin line\u201d results: Datadog -17%, Teradata -17%, Five9 -14%. We continue to be cautious around these. <\/strong><\/p>\n\n\n\n Taiwanese monthly numbers coming in ahead of usual seasonality <\/strong>\u2013 catch up from June<\/strong><\/p>\n\n\n\n Portfolio view<\/strong>: Stabilisation is good news, particularly amidst the very weak smartphone end demand. We still think TSMC 5nm capacity will be filled by Nvidia H100 demand, as Apple shifts from 5nm to 3nm for its A17 chip. We still think China’s sell-through for the iPhone is declining to a high single digit, and similar for Android. <\/p>\n\n\n\n Disney results are mixed <\/strong>\u2013 streaming still searching for a path to profitability<\/strong><\/p>\n\n\n\n Portfolio view:<\/strong> we no longer hold Disney, having sold the last bit of our holding earlier this year (we started to heavily reduce positions after their October results last year). Broadly we question the long-term returns within the streaming sector \u2013 and Disney still wonders what Iger can do in terms of a strategy pivot and more cost-cutting. <\/p>\n\n\n\n Gaming strength continues in June<\/strong><\/p>\n\n\n\n For weekly insights on the latest market updates, please subscribe to our Tech Thoughts podcast<\/a>. We provide investors with access to category leading technology companies, globally. Our assets under management have a total value of more than $1bn, and our limited partners include institutions, family offices and entrepreneurs. Learn more about our funds here<\/a>.<\/p>\n\n\n\n Enquiries About GP Bullhound\n
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Portfolio view: <\/strong>We own Sony, and the report is also good news for AMD being the sole supplier of the processor, <\/strong>now through the 2020 supply issues. <\/strong>\u00a0June 2023 data gives some reassurance that we may be through the Covid hangover for the gaming market.
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For more information about the latest trends and forecasts, please visit our official Tech Thoughts page<\/a>.<\/p>\n\n\n\n
<\/strong>For enquiries, please contact:
Inge Heydorn, Partner, at inge.heydorn@gpbullhound.com<\/a>
Jenny Hardy, Portfolio Manager, at jenny.hardy@gpbullhound.com<\/a>
Nejla-Selma Salkovic, Analyst, at nejla-selma.salkovic@gpbullhound.com<\/a><\/p>\n\n\n\n
<\/strong>GP Bullhound is a leading technology advisory and investment firm, providing transaction advice and capital to the world\u2019s best entrepreneurs and founders. Founded in 1999 in London and Menlo Park, the firm today has 14 offices spanning Europe, the US and Asia.<\/p>\n","protected":false},"featured_media":11577,"template":"","categories":[49,64],"sector":[37],"region":[43],"class_list":["post-11682","article","type-article","status-publish","has-post-thumbnail","hentry","category-insights","category-tech-thoughts","sector-software","region-global"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.gpbullhound.com\/wp-json\/wp\/v2\/article\/11682"}],"collection":[{"href":"https:\/\/www.gpbullhound.com\/wp-json\/wp\/v2\/article"}],"about":[{"href":"https:\/\/www.gpbullhound.com\/wp-json\/wp\/v2\/types\/article"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.gpbullhound.com\/wp-json\/wp\/v2\/media\/11577"}],"wp:attachment":[{"href":"https:\/\/www.gpbullhound.com\/wp-json\/wp\/v2\/media?parent=11682"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.gpbullhound.com\/wp-json\/wp\/v2\/categories?post=11682"},{"taxonomy":"sector","embeddable":true,"href":"https:\/\/www.gpbullhound.com\/wp-json\/wp\/v2\/sector?post=11682"},{"taxonomy":"region","embeddable":true,"href":"https:\/\/www.gpbullhound.com\/wp-json\/wp\/v2\/region?post=11682"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}