Nvidia, Cisco & Micron – Tale of two cities

Two tech segments worlds apart.

• Nvidia and Cisco managed to reassure the market with reasonable results pointing to steady enterprise spending but Micron, Amazon, and Meta Platforms all point to inflation-linked softness in consumer expenditure.
• Nvidia reported reasonable results where once again, excellent execution in the enterprise helped offset the triple whammy (consumer, crypto & inventory) that has hit the gaming segment.
• Nvidia Q3 2023 revenue declined 17% YoY to $5.93bn but critically, this was above consensus of $5.79bn while Q4 2023 revenue guidance was broadly in line at $6.0bn +/- 2% compared to consensus at $6.1bn.
• Data centre continued to perform well growing by over 30% helping to mitigate the collapse in gaming where revenues fell by 51%.
• These results are a story of weak consumer offset by steady enterprise which we can see being replicated right across the technology industry.
• Nvidia is also making the most of its leading products as evidenced by the deal it has announced with Microsoft to power an AI service that will be offered by Azure where it squeezed out Graphcore who has been working on this for over 3 years.
• Although the cloud has slowed somewhat it still growing at more than 30% YoY which has also been echoed by Cisco which beat estimates for the quarter just gone and raised estimates slightly for the fiscal year.
• Cisco is a very good measure of demand as it operates mostly on a turns business with very little in terms of long-term contracts which can muddy the picture.
• Consequently, the demand from enterprise for technology looks like it is going to remain steady for at least the next few quarters even when factoring in the impact of restrictions on China and its poor economic outlook.
• However, consumer is a completely different picture as Amazon and Meta are cutting jobs and Micron called out demand being even weaker than it had previously anticipated.
• This is a result of the inflation-linked cost of living crisis which is the route that has been selected for the world to pay for the huge cost of the pandemic.
• Hence, I think that for the next 18 months or so, consumer discretionary spending is going to remain under real pressure creating weakness in smartphones, tablets, TVs, PCs and so on.
• This will create opportunity as the valuations of some of the players in this space are going to get hit much too hard.
• Qualcomm and MediaTek are two of these but also the likes of TSMC if one can get comfortable with owning fabs through what looks like it could be quite a sharp downturn.