Latest Positions: Semiconductor (NVDA, INTC, TSM) and Cloud (SNOW and NET) Stocks

Here is Part 2 of the list of my latest personal portfolio positions and most of the hedge fund positions with updated commentary and ratings for each position.

The ratings for each stock go from 1 to 10, 1 being “Get out of this position now!” and 10 being “Sell the farm, I’ve found a perfect investment.” The positions that are bolded are those that I consider to be “core” holdings and am unlikely to ever sell out of them entirely.

• The Semiconductor Revolution

• • NVDA NVIDIA (6+) — NVIDIA! NVIDIA! NVIDIA! NVIDIA reports tonight and expectations are high going into this print although maybe not quite as high as they were last quarter. If you remember when NVIDIA reported in Q2, the company reported a truly spectacular quarter with massive beats on the top and bottom lines and also significantly raised its guidance, yet the stock finished the next day flat. So even if NVIDIA has another great quarter, with expectations where they are at and the stock up 25% in less than three weeks, who knows what the stock will do immediately following the report? None of that matters for the long term anyway. NVIDIA remains the undisputed leader in providing the chips powering generative AI, plain and simple. We expect NVIDIA to say that demand for its two primary AI chips, A100s and H100s, continues to outstrip supply and will do so for the foreseeable future. NVIDIA also just rolled out their latest and greatest AI accelerator, the H200, and they may provide some color on how they expect that chip to do. NVIDIA is absolutely a Revolutionary company and it is a forever position (we sent out a Trade Alert to buy NVDA in 2016 at a split-adjusted $7/share) but we are concerned with the defensibility of its current position in the market. NVIDIA’s rapid growth and 80-90% gross margins have attracted competition. Intel’s Gaudi2 AI accelerator appears to be doing very well and AMD released its MI300 which is also intended to compete with NVIDIA’s GPUs. Moreover, The Great Semiconductor Shift (click here to read our recently-published best-selling book) continues to gain traction with Microsoft (MSFT) being the most recent big tech company to roll out a plan for in-house silicon development. Microsoft is expecting to spend $50 billion(!) building out data centers for AI over the next few years and one of the keys to its strategy will be getting the most compute at the cheapest possible cost, and therefore paying NVIDIA 90% gross margins on GPUs doesn’t quite make sense. As another sign of competition in the space, OpenAI CEO Sam Altman reportedly met with investors in the Middle East regarding a new venture that would design AI hardware to compete with NVIDIA. Long story short, the AI Revolution has massively increased the demand for computing power, and in 2-3 years NVIDIA will NOT be the only company with the right chips to meet this demand. We are holding tight on NVIDIA for now and sold some covered calls in the hedge fund expiring in the next few months with strikes around $440 and $490.

• • INTC Intel (7+) — Intel’s stock has been on a tear lately, up nearly 36% since reporting Q3 earnings on October 26th. We mentioned in the post-earnings write-up that the company was “firing on all cylinders” because (1) the company signed the “who’s who” of foundry customers; (2) demand for Intel’s AI chip (Gaudi2) exceeded supply; and (3) the PC market was recovering. For the last two years, market commentators and analysts largely ignored Intel because they did not believe that CEO Pat Gelsinger’s new strategy would work and because Intel was losing PC and server market share to AMD. For those reasons, we think Intel was pretty much underowned by most of Wall Street and only now that the company is showing signs of success are they starting to buy the stock, thus driving the big move we have witnessed since the Q3 earnings print. Many of the analysts who are now upgrading the stock are doing so not because anything has changed with the strategy, but because they now have some faith that Intel can pull off its turnaround. We have been in Intel since early 2022 and owning this stock was frustrating and painful at times. However, We’re reminded of Peter Lynch’s statement in his book, One Up On Wall Street, that he usually made the most money in his stocks in the third and fourth year of owning them. That is not always the case, but with a turnaround story like Intel, you are betting on the company essentially re-making itself from the ground up, thus a minimum three to four-year investment horizon should be expected. Especially given Intel’s global scale, the massive capital required to build fabs, and the long process of signing new foundry customers, it is understandable that Intel’s business would not turn around overnight. We are excited about Intel’s positioning right now and it remains one of our top three positions in the hedge fund. As long as the company keeps executing its strategy, we should continue to see strength in the stock.

• • TSM Taiwan Semiconductor (7) — TSMC reported a good quarter and also indicated that they are expecting a return to growth next year. Not much is new with our thesis for TSMC other than that the trend toward in-house silicon only continues to accelerate (see MSFT discussion above). Whether NVIDIA or Microsoft designs the chips for Microsoft’s data centers, it will be TSMC (or possibly Intel) who builds them. TSMC is a pioneer in the industry and we continue to expect TSMC to push the boundaries of physics to make chips more powerful and more efficient. Even though we are very bullish on Intel’s burgeoning foundry business, we think there is room for more than one major dedicated foundry company. We have owned TSMC since May 2019 when it was around $40/share and bought more when it was down around $85 and are holding tight for now. The recent run in the stock is probably attributable to a slightly better-than-expected quarter in Q3 plus somewhat easing tensions between the US and China. TSMC is a decent-sized position for us in the hedge fund and in the personal accounts and we are holding tight for now.

• The Cloud Revolution
  • SNOW Snowflake (7) — Let it SNOW, Let it SNOW, Let it SNOW. Christmas is just around the corner and Snowflake gift certificates are definitely at the top of our shopping list this year. Kidding of course. Snowflake is a cloud-based data warehousing company so unless your loved ones are IT managers at major corporations, they might be less than enthused when they unwrap their Snowflake gift card. Jokes aside, we still like Snowflake and think it is one of the best enablers of the AI Revolution as we mentioned in our deep dive from September. The stock has traded between $160 and $190 for most of this year and we are not expecting any major changes this quarter. We are excited to hear how the company’s latest products like Data Sharing and Data Marketplace are performing. Snowflake will also likely discuss its partnership with NVIDIA which allows corporations to build custom large language models (LLMs) using the corporations’ proprietary data. In the near term, one of the key drivers of the AI Revolution will be the efficiency and productivity gains that major corporations realize by using AI. Thousands of large organizations can now use generative AI to analyze their data to help them increase sales and cut costs, and much of that data is already stored on Snowflake. If the NVIDIA/Snowflake partnership is gaining traction, that could be a near-term catalyst for the stock. Snowflake is still expensive, trading at about 22x sales, and needs to keep growing rapidly or the stock will suffer. We are not gaming a post-earnings move for SNOW and are holding our common stock position tight for now.

• • NET Cloudflare (7+) — Cloud-based cybersecurity stocks have been one of the best-performing cohorts in tech all year, and Cloudflare has been no exception. Cloudflare continues to grow rapidly and has multiple secular tailwinds — most notably, edge AI. As we mentioned in our deep dive in September, most AI applications want to have the inferencing part of the AI done closer to the end user to reduce latency. For this reason, most AI startups are choosing to host their services on Cloudflare which has one of the best network of servers scattered around the world. Additionally, Cloudflare’s integrated cybersecurity and data protections offer companies more than just simple data storage. We think Cloudflare is in a sweet spot in the internet space because it offers all of the traditional cloud services like Amazon Web Services (AWS), cloud-based cybersecurity like Crowdstrike (CRWD) and Zscaler (ZS), and edge networking like Akamai (AKAM). Cloudflare’s platform is well-positioned to benefit from the AI Revolution and we think the company should continue to grow rapidly. That said, like Snowflake, Cloudflare is also expensive (25x sales) and we don’t want to chase this stock higher. We are holding are common stock position steady and sold a few near-the-money covered calls in the hedge fund on NET dated out to December.

That’s it for now. Part III will be out tomorrow. Rock on!