Tag: Tech

Nvidia Out to Prove AI Means (Even More) Business

Posted on by slightbourne@noblecapitalmarkets.com

Chipmaker Nvidia (NVDA) is slated to report fiscal third quarter financial results after Tuesday’s closing bell, with major implications for tech stocks as investors parse the numbers for clues about the artificial intelligence boom.

Heading into the print, Nvidia shares closed at an all-time record high of $504.09 on Monday, capping a momentous run over the last year. Bolstered by explosive growth in data center revenue tied to AI applications, the stock has doubled since November 2022.

Now, Wall Street awaits Nvidia’s latest earnings and guidance with bated breath, eager to gauge the pace of expansion in the company’s most promising segments serving AI needs.

Consensus estimates call for dramatic sales and profit surges versus last year’s third quarter results. But in 2022, Nvidia has made beating expectations look easy.

This time, another strong showing could validate nosebleed valuations across tech stocks and reinforce the bid under mega-cap names like Microsoft and Alphabet that have ridden AI fervor to their own historic highs this month.

By contrast, any signs of weakness threatening Nvidia’s narrative as an AI juggernaut could prompt the momentum-driven sector to stumble. An upside surprise remains the base case for most analysts. But with tech trading at elevated multiples, the stakes are undoubtedly high heading into Tuesday’s report.

AI Arms Race Boosting Data Center Sales

Nvidia’s data center segment, which produces graphics chips for AI computing and data analytics, has turbocharged overall company growth in recent quarters. Third quarter data center revenue is expected to eclipse $12.8 billion, up 235% year-over-year.

Strength is being driven by demand from hyperscale customers like Amazon Web Services, Microsoft Azure, and Alphabet Cloud racing to build out AI-optimized infrastructure. The intense competition has fueled a powerful upgrade cycle benefiting Nvidia.

Now, hopes are high that Nvidia’s next-generation H100 processor, unveiled in late 2021 and ramping production through 2024, will drive another leg higher for data center sales.

Management’s commentary around H100 adoption and trajectory will help investors gauge expectations moving forward. An increase to the long-term target for overall company revenue, last quantified between $50 billion and $60 billion, could also catalyze more upside.

What’s Next for Gaming and Auto?

Beyond data center, Nvidia’s gaming segment remains closely monitored after a pandemic-era boom went bust in 2022 amid fading consumer demand. The crypto mining crash also slammed graphics card orders.

Gaming revenue is expected to grow 73% annually in the quarter to $2.7 billion, signaling a possible bottom but well below 2021’s peak near $3.5 billion. Investors will watch for reassurance that the inventory correction is complete and gaming sales have stabilized.

Meanwhile, Nvidia’s exposure to AI extends across emerging autonomous driving initiatives in the auto sector. Design wins and partnerships with electric vehicle makers could open another massive opportunity. Updates on traction here have the potential to pique further interest.

Evercore ISI analyst Julian Emanuel summed up the situation: “It’s still NVDA’s world when it comes to [fourth quarter] reports – we’ll all just be living in it.”

In other words, Nvidia remains the pace-setter steering tech sector sentiment to kick off 2024. And while AI adoption appears inevitable in the long run, the market remains keenly sensitive to indications that roadmap is progressing as quickly as hoped.

Microsoft Scores AI Talent by Hiring OpenAI’s Sam Altman

Posted on by slightbourne@noblecapitalmarkets.com

Microsoft emerged victorious in the artificial intelligence talent wars by hiring ousted OpenAI CEO Sam Altman and other key staff from the pioneering startup. This coup ensures Microsoft retains exclusive access to OpenAI’s groundbreaking AI technology for its cloud and Office products.

OpenAI has been a strategic partner for Microsoft since 2019, when the software giant invested $1 billion in the nonprofit research lab. However, the surprise leadership shakeup at OpenAI late last week had sparked fears that Microsoft could lose its AI edge to hungry rivals.

Hiring Altman and other top OpenAI researchers nullifies this threat. Altman will lead a new Microsoft research group developing advanced AI. Joining him from OpenAI are co-founder Greg Brockman and key staff like Szymon Sidor.

This star-studded team will provide Microsoft with a huge boost in the race against Google, Amazon and Apple to dominate artificial intelligence. Microsoft’s share price rose 1.5% on Monday on the news, adding nearly $30 billion to its valuation.

The poaching also prevents Altman from jumping ship to competitors, according to analysts. “If Microsoft lost Altman, he could have gone to Amazon, Google, Apple, or a host of other tech companies,” said analyst Dan Ives of Wedbush Securities. “Instead he is safely in Microsoft’s HQ now.”

OpenAI Turmoil Prompted Microsoft’s Bold Move

The impetus for Microsoft’s talent grab was OpenAI’s messy leadership shakeup last week. Altman and other executives were reportedly forced out by OpenAI board chair.

The nonprofit recently created a for-profit subsidiary to commercialize its research. This entity was prepping for a share sale at an $86 billion valuation that would financially reward employees. But with Altman’s ouster, these lucrative payouts are now in jeopardy.

This uncertainty likely prompted top OpenAI staff to leap to the stability of Microsoft. Analysts believe more employees could follow as doubts grow about OpenAI’s direction under Emmett Shear.

Microsoft’s infrastructure and resources also make it an attractive home. The tech giant can provide the enormous computing power needed to develop ever-larger AI models. OpenAI’s latest system, GPT-3, required 285,000 CPU cores and 10,000 GPUs to train.

By housing OpenAI’s brightest minds, Microsoft aims to supercharge its AI capabilities across consumer and enterprise products.

The Rise of AI and Competition in the Cloud

Artificial intelligence is transforming the technology landscape. AI powers everything from search engines and digital assistants to facial recognition and self-driving cars.

Tech giants are racing to lead this AI revolution, as it promises to reshape industries and create trillion-dollar markets. This battle spans hardware, software and talent acquisition.

Microsoft trails category leader Google in consumer AI, but leads in enterprise applications. Meanwhile, Amazon dominates the cloud infrastructure underpinning AI development.

Cloud computing and AI are symbiotic technologies. The hyperscale data centers operated by Azure, AWS and Google Cloud provide the computational muscle for AI training. These clouds also allow companies to access AI tools on-demand.

This has sparked intense competition between the “Big 3” cloud providers. AWS currently has 33% market share versus 21% for Azure and 10% for Google Cloud. But Microsoft is quickly gaining ground.

Hiring Altman could significantly advance Microsoft’s position. His team can create exclusive AI capabilities that serve as a differentiator for Azure versus alternatives.

Microsoft’s Prospects in AI and the Stock Market

Microsoft’s big OpenAI poach turbocharged its already strong prospects in artificial intelligence. With Altman on board, Microsoft is better positioned than any rival to lead the next wave of AI innovation.

This coup should aid Microsoft’s fast-growing cloud business. New AI tools could help Microsoft chip away at AWS’s dominance while holding off Google Cloud.

If Microsoft extends its edge in enterprise AI, that would further boost revenue and earnings. This helps explain Wall Street’s positive reaction lifting Microsoft’s stock 1.5% and adding $30 billion in market value.

The success of cloud and AI has fueled Microsoft’s transformation from a stagnant also-ran to a Wall Street darling. Its stock has nearly tripled since early 2020 as earnings rapidly appreciate thanks to its cloud and subscription-based revenue.

Microsoft stock trades at a reasonable forward P/E of 25 and offers a dividend yield around 1%. If Microsoft keeps leveraging AI to expand its cloud business, its stock could have much further to run.

Hiring Altman and deploying OpenAI’s technology across Microsoft’s vast resources places a momentous technology advantage within the company’s grasp. Realizing this potential would be a major coup for Satya Nadella as CEO. With OpenAI’s crown jewels now safely in house, Microsoft’s tech lead looks more secure than ever.

Airbnb Makes First Acquisition as Public Company, Buys AI Startup

Posted on by slightbourne@noblecapitalmarkets.com

Airbnb has made its first acquisition since going public in 2020, purchasing artificial intelligence startup Gameplanner.AI for just under $200 million. The deal marks Airbnb’s intent to integrate more AI technology into its platform to enhance the user experience.

Gameplanner.AI was founded in 2020 and has operated in stealth mode, away from the public eye. The startup was co-founded by Adam Cheyer, one of the original creators of the Siri voice assistant acquired by Apple. Cheyer also co-founded Viv Labs, the technology behind Samsung’s Bixby voice assistant.

With the acquisition, Airbnb is bringing Cheyer’s AI expertise in-house. In a statement, Airbnb said Gameplanner.AI will accelerate development of AI projects designed to match users to ideal travel recommendations.

Airbnb’s CEO Brian Chesky has previously outlined plans to transform Airbnb into a “travel concierge” that learns about user preferences over time. The integration of Gameplanner.AI’s technology could allow Airbnb to provide highly personalized suggestions for homes and experiences based on an individual’s travel history and interests.

For example, the AI could recommend beach houses for a user that has booked seaside destinations in the past, or suggest museums and restaurants suited to a traveler’s tastes. This would enhance the trip planning experience and help users discover new, relevant options.

The acquisition aligns with Chesky’s vision to have AI play a central role in Airbnb’s future. With Gameplanner.AI’s specialized knowledge, Airbnb can refine its AI models and more seamlessly incorporate predictive data, natural language processing, and machine learning across its apps and website.

Strategic First Acquisition for Airbnb

The purchase of Gameplanner.AI is Airbnb’s first acquisition since going public in December 2020. The deal could signal a shift in Airbnb’s M&A strategy as it looks to supplement organic growth with targeted acquisitions.

The ability to tap into Gameplanner.AI’s talent pool and proprietary technology accelerates Airbnb’s timeline for deploying more sophisticated AI tools. Developing similar capabilities in-house could have taken years and delayed the introduction of new AI features.

Acquiring an established startup with proven expertise allows Airbnb to boost its competitive edge in AI much faster. As travel continues to rebound from the pandemic, Airbnb can capitalize on these enhancements sooner to attract and retain users.

The Gameplanner.AI deal is relatively small for Airbnb, which as of September 2023 held $11 billion in cash and liquid assets on its balance sheet. But the acquisition could pave the way for more M&A deals that augment Airbnb’s core business.

As Airbnb branches out into new offerings like Airbnb Experiences and long-term rentals, the company may seek to acquire startups innovating in these spaces as well. For investors, Airbnb’s renewed openness to acquisitions makes it a more well-rounded and potentially appealing target.

AI Race in Travel Heats Up

Airbnb’s acquisition also comes amid surging demand for AI across the travel industry. Google is rumored to be investing hundreds of millions into a startup called Character AI that creates virtual travel companions powered by artificial intelligence.

Character AI lets users chat with AI versions of celebrities and public figures, including a virtual travel advisor designed to mimic the personality and advice of Sir David Attenborough.

With travel demand rebounding sharply, Google and Airbnb are demonstrating the value of AI for reinventing the trip planning and booking process. Both companies recognize the technology’s potential for driving personalization and convenience in the fiercely competitive sector.

As part of the wider rush to AI adoption, expect Airbnb’s move to spur more activity in the space as other travel platforms vie to enhance customer experiences through intelligent automation. The Gameplanner.AI acquisition gives Airbnb first-mover advantage, but likely won’t be the last pivot toward AI we see in the industry.

For Airbnb, integrating advanced AI unlocks tremendous opportunity to tighten its grip on the global accommodation and experiences market. With innovation led by strategic acquisitions like this, Airbnb aims to extend its position as the premier one-stop shop for travel.

The Rise and Fall of WeWork: How the $47 Billion Startup Crumbled

Posted on by slightbourne@noblecapitalmarkets.com

WeWork, once the most valuable startup in the United States with a peak valuation of $47 billion, filed for bankruptcy protection this week – a stunning collapse for a company that was the posterchild of the shared workspace industry.

Founded in 2010 by Adam Neumann and Miguel McKelvey, WeWork grew at breakneck speed by offering flexible office spaces for freelancers, startups and enterprises. At its peak in 2019, WeWork had 528 locations in 111 cities across 29 countries with 527,000 members.

The company was initially successful at attracting both customers and investors with its vision of creating communal workspaces. SoftBank, its biggest backer, poured in billions having bought into Neumann’s grand ambitions to revolutionize commercial real estate. WeWork was the cornerstone of SoftBank’s $100 billion Vision Fund aimed at taking big bets on tech companies that could be mold-breakers.

However, WeWork’s model of taking long-term leases and renting out spaces short-term led to persistent losses. The company lost $219,000 an hour in the 12 months prior to June 2023. Occupancy rates are down to 67% from 90% in late 2020. Yet WeWork had $4.1 billion in future lease payment obligations as of June.

Problematic corporate governance and mismanagement under Neumann also came under fire. Eyebrow-raising revelations around Neumann such as infusing the company with a hard-partying culture and cashing out over $700 million ahead of the planned IPO while retaining majority control further eroded confidence.

The lack of a path to profitability finally derailed the company’s prospects when it failed to launch its Initial Public Offering in 2019. The IPO was expected to raise $3 billion at a $47 billion valuation but got postponed after investors balked at buying shares. Neumann was forced to step down as CEO.

Since the failed IPO, WeWork has tried multiple strategies to right the ship. It has attempted to renegotiate leases, cut thousands of jobs, sold off non-core businesses, and reduced operating expenses significantly. For example, it got $1.5 billion in financing in exchange for control of its China unit in 2022.

WeWork also tried changing leadership to infuse more financial discipline. It brought in real estate veteran Sandeep Mathrani as CEO in 2020. Mathrani helped cut costs but could not fix the underlying business model. He was replaced in 2022 by David Tolley, an investment banker and private equity executive.

Additionally, WeWork tried merging with a special purpose acquisition company (SPAC) in 2021 that valued the company at $9 billion. But the co-working space leader continued struggling with low demand and high costs.

Commercial real estate landlords also pose an existential threat by offering their own flexible workspaces. Large property owners like CBRE and JLL now provide custom office spaces. With recession looming, demand for flexible office space has waned further.

As part of the Chapter 11 bankruptcy filing, WeWork aims to restructure its debt and shed expensive leases. However, it faces an uphill battle to rebuild its brand and regain customers’ trust. The flexible workspace model also faces an uncertain future given hybrid work arrangements are becoming permanent for many companies.

WeWork upended the commercial real estate industry and had a meteoric rise fueled by stellar growth and lofty ambitions. But poor management and lack of profitability finally brought down a quintessential startup unicorn valued at $47 billion at its peak. The dramatic saga serves as a cautionary tale for unproven, cash-burning companies and overzealous investors fueling their growth.

Tech Stocks Stumble Despite Strong Earnings from Alphabet and Meta

Posted on by slightbourne@noblecapitalmarkets.com

Tech stocks have taken it on the chin over the past two days, with the Nasdaq tumbling nearly 3.5%, despite stellar earnings reports from two giants in the space. Alphabet and Meta both exceeded expectations with their latest quarterly results, yet saw their shares plunge amid broader concerns about economic conditions weighing on future growth.

Alphabet posted robust advertising revenues, with Google Search and YouTube continuing to hum along as profit drivers. However, its Google Cloud division came up shy of estimates, expanding at a slower pace as clients apparently pulled back on spending. This reignited worries about Alphabet’s ability to gain ground on the cloud leaders Amazon and Microsoft.

Meanwhile, Meta also topped analyst forecasts, led by better ad revenues at Facebook and Instagram. But in the earnings call, Meta CFO Susan Li warned that the conflict in the Middle East could impact advertising demand in the fourth quarter. This injected uncertainty into Meta’s outlook, leading the stock lower.

The sell-off in these tech titans reflects overall investor angst regarding the challenging macroeconomic environment. While both companies beat expectations for the just-completed quarter, lingering headwinds such as high inflation, rising interest rates, and global conflicts have markets on edge.

Details

This skittishness has erased the gains tech stocks had made earlier in the year after a dismal 2022. Meta and Alphabet remain in positive territory year-to-date, but have given back chunks of their rallies from earlier this year. Other tech firms like Amazon and Apple are also dealing with the fallout ahead of their upcoming earnings reports.

The market is taking a “sell first, ask questions later” approach with these stocks right now. Even as fundamentals remain relatively sound, any whiff of weakness or caution from management is being seized upon as a reason to sell. The slightest negative data point is exaggerated amid the unsettled backdrop.

Both Alphabet and Meta have been aggressively cutting costs after overindulging during the pandemic boom years. But investors are now laser-focused on the revenue outlook, rather than celebrating the expense discipline. If top-line growth decelerates materially, the bottom-line gains from cost reductions will be moot.

For now, the Nasdaq remains in a confirmed uptrend, so this could prove to be just a brief pullback before tech stocks regain their footing. Many firms in the sector remain highly profitable with solid balance sheets. But the risk is that slowing economic activity and consumer jitters will weigh on future earnings potential.

Tech investors may need to buckle up for more volatility ahead. The days of easy gains propelled by boundless growth and ultra-low interest rates appear to be over. Now tech companies face much more skeptical scrutiny of their business fundamentals. In an environment where growth is harder to come by, even stellar quarterly results may not be enough to pacify traders worried about what lies ahead.

Nvidia and Chip Stocks Tumble Amid Escalating China-U.S. AI Chip Export Tensions

Posted on by slightbourne@noblecapitalmarkets.com

Shares of Nvidia and other semiconductor firms tumbled Tuesday morning after the U.S. announced stringent new curbs on exports of artificial intelligence chips to China. The restrictions spooked investors already on edge about the economic fallout from deteriorating U.S.-China relations.

Advanced AI chips like Nvidia’s flagship A100 and H100 models are now barred from shipment to China, even in downgraded versions permitted under prior rules. Nvidia stock plunged nearly 7% on the news, while chip stocks like Marvell, AMD and Intel sank 3-4%. The Philadelphia Semiconductor Index lost over 5%.

The export crackdown aims to hamper China’s progress in developing cutting-edge AI, which relies on massive computing power from state-of-the-art chips. U.S. officials warned China could use next-generation AI to threaten national security.

“We have specific concern with respect to how China could use semiconductor technologies to further its military modernization efforts,” said Alan Estevez, an under secretary at the Commerce Department.

But hampering China’s AI industry could substantially dent revenues for Nvidia, the dominant player in advanced AI chips. China is estimated to account for billions in annual sales.

While Nvidia said the financial impact is not immediate, it warned of reduced revenues over the long-term from tighter China controls. Investors are concerned these export curbs could be just the beginning if tensions continue to escalate between the global superpowers.

The escalating trade barriers also threaten to disrupt global semiconductor supply chains. Many chips contain components sourced from the U.S., Japan, Taiwan and other countries before final manufacturing and assembly occurs in China. The complex web of cross-border production could quickly seize up if trade restrictions proliferate.

Nvidia and its peers sank Tuesday amid fears of being caught in the crossfire of a technology cold war between the U.S. and China. Investors dumped chip stocks on worries that shrinking access to the massive Chinese market will severely depress earnings.

AI chips are essential to powering everything from data centers, autonomous vehicles, and smart devices to facial recognition, language processing, and machine learning. As AI spreads across the economy, demand for specialized semiconductors is surging.

But rivalries between the U.S. and China now threaten to put a ceiling on that growth. Both nations are aggressively competing to dominate AI research and set the global standards for integrating these transformative technologies. Access to the most powerful AI chips is crucial to these efforts.

By curbing China’s chip supply, the U.S. administration aims to safeguard America’s edge in AI development. But tech companies may pay the price through lost revenues if China restricts access to its own market in retaliation.

For the broader stock market already on edge about resurgent inflation, wars in Ukraine and the Middle East, and rising interest rates, the intensifying technology cold war represents yet another worrying threat to global economic growth. While a severe downturn may ultimately be avoided, the rising risk level underscores why investors are growing more anxious.

DoorDash Ditches NYSE for Nasdaq in Major Stock Exchange Switch

Posted on by slightbourne@noblecapitalmarkets.com

Food delivery app DoorDash announced it will transfer its stock exchange listing from the New York Stock Exchange to the Nasdaq. The company will begin trading on the Nasdaq Global Select Market under the ticker ‘DASH’ starting September 27, 2023.

This represents a high-profile switch that exemplifies the fierce competition between the NYSE and Nasdaq to attract Silicon Valley tech listings. It also reflects shifting sentiments around brand associations and target investor bases.

DoorDash first went public on the NYSE in December 2020 at a valuation of nearly $60 billion. At the time, the NYSE provided the prestige and validation desired by the promising young startup.

However, DoorDash has since grown into an industry titan boasting a market cap of over $30 billion. As a maturing technology company, Nasdaq’s brand image and investor mix provide better positioning.

Tony Xu, co-founder and CEO of DoorDash, emphasized the benefits of the Nasdaq in the company’s announcement. “We believe DoorDash will benefit from Nasdaq’s track record of being at the forefront of technology and progress,” he said.

Nasdaq has built a reputation as the go-to exchange for Silicon Valley tech firms and growth stocks. Big name residents include Apple, Microsoft, Amazon, Tesla, Alphabet, and Facebook parent company Meta.

The exchange is also home to leading next-gen companies like Zoom, DocuSign, Crowdstrike, Datadog, and Snowflake. This creates an environment tailor-made for high-growth tech outfits.

Meanwhile, the NYSE leans toward stalwart blue chip companies including Coca Cola, Walmart, Visa, Walt Disney, McDonald’s, and JPMorgan Chase. The historic exchange tends to attract mature businesses and financial institutions.

Another factor likely influencing DoorDash is the investor makeup across the competing exchanges. Nasdaq generally appeals more to growth-oriented funds and active traders. The NYSE caters slightly more to institutional investors like pension funds, endowments, and passive index funds.

DoorDash’s switch follows ride sharing pioneer Lyft’s jump from Nasdaq to the NYSE exactly one year ago. Like DoorDash, Lyft desired a brand halo as it evolved past its early startup days.

“It’s a signal of us being mature, of us continuing to build a lasting company,” said Lyft co-founder John Zimmer at the time of the company’s NYSE listing.

Jared Carmel, managing partner at Manhattan Venture Partners, believes these exchange transfers reflect the “changing identities of the companies.”

As startups develop into multi-billion dollar giants, they evaluate whether their founding exchange still aligns with their needs and desired perceptions. Brand association and shareholder registration are becoming as important as operational capabilities for listings.

High-flying growth stocks like DoorDash also consider indexes, as the Nasdaq 100 often provides greater visibility and buying power from passive funds tracking the benchmark. Prominent inclusion in those indexes requires trading on Nasdaq.

Whether mature blue chips or emerging Silicon Valley darlings, the rivalry between Nasdaq and NYSE will continue heating up as each exchange vies to attract and retain brand name public companies. With lucrative listing fees on the line, exchanges will evolve branding, services, and capabilities to better cater to their target customers.

The DoorDash switcheroo exemplifies the changing perspectives and motivations influencing exchange selection. As companies lifecycles and personas transform, they reevaluate decisions made during those frenetic early IPO days.

U.S. Justice Department Takes On Google Search Monopoly in Landmark Trial

Posted on by slightbourne@noblecapitalmarkets.com

The U.S. government is launching a monumental legal challenge against Google in a bid to curb the technology giant’s dominance in internet search. A federal antitrust trial begins Tuesday in Washington D.C. where the Justice Department and a coalition of state attorneys general will argue that Google improperly wields monopoly power.

At the heart of the case are allegations that Google unlawfully maintains its position in the search market through exclusionary distribution agreements and other anticompetitive practices. Google pays billions annually to companies like Apple and Samsung to preset Google as the default search engine on smartphones and other devices. This boxes out rivals, according to prosecutors.

The government contends that Google’s actions have suffocated competition in the critical gateway to the internet, enabling the company to extend its grasp with impunity. Google counters that its search supremacy is earned by offering a superior product that consumers freely choose, not due to illegal activity.

But smaller search upstarts like DuckDuckGo allege that Google abuses its might to hinder their ability to gain users. At stake in the trial is nothing less than how the power of dominant tech platforms is regulated and how competition – or lack of it – shapes the internet as we know it.

The verdict could lead to sweeping changes for Google if found guilty of violating antitrust law. Potential sanctions range from imposed restrictions on its business conduct to structural reorganization of the company. Fines could also be on the table.

Google’s practices echo the behavior that got Microsoft into hot water in the 1990s. That landmark case saw the government successfully prove Microsoft leveraged its Windows monopoly to quash competition. Google is accused of similar monopolistic plays via its search engine dominance.

The Google antitrust trial is slated to last around three months. Testimony from Google CEO Sundar Pichai and executives of tech firms like Apple is anticipated. The federal judge overseeing the case will determine if Google’s undisputed leadership in search equates to unlawful monopoly status.

The verdict stands to fundamentally shape Google’s role in internet search and potentially alter business practices of other dominant technology companies. It represents the most significant legal challenge to Silicon Valley power in the 21st century.

Take a look at Information Services Group, a leading global technology research and advisory firm.