Meeting With An AI Expert, Plus INTC, AMZN Updates, And A Trade Alert

We will do this week’s chat on Wednesday, November 1, 2023, at the normal time (3:00pm ET) via YouTube live. If you’d like to join Cody and Bryce on this week’s livestream Q&A Chat, use this link. If you’d like to just watch the livestream on our YouTube channel, go here. As always, you can just email us at support@tradingwithcody.com.

Also, we have been meeting with one of Cody’s long-time best friends who happens to be an AI Guru, John De Oliveira, once a week for the last couple of months. Our goal has been to learn everything we possibly can about AI and meeting with John has been extremely instructive for us thus far. Last week, John agreed to open up our AI calls to TradingWithCody subscribers so you can join us on our AI-learning journey. The call will be today at 5:00pm ET. If you’d like to join Cody and John on this week’s AI Revolution livestream, use this link. If you’d rather just watch the livestream on our YouTube channel, go here.

Now let’s talk stocks. Markets are mostly up this morning after a pretty brutal week last week nearly across the board. The semiconductor indices (like SOXX and SMH) are down after ON Semiconductor’s (ON) fourth-quarter revenue and EPS guidance came in below the Street’s expectations. As we discussed in The Great Semiconductor Shift, onsemi has a lot of exposure to the automotive sector, and especially to many of the legacy automakers like Ford (F), General Motors (GM), Hyundai, etc. We have been worried that many, if not most of the traditional automakers will struggle to effectively scale their EV businesses profitably. With the added impact of the shutdown in production resulting from the union strikes, it makes sense that onsemi’s customers are reducing their spending on chips for EVs and other cars at the moment. That said, onsemi is one of the few chipmakers that owns fabs and builds most of its own chips. onsemi and STMicroelectronics (STM) are also the leading designers and producers of silicon-carbide (SiC) semiconductors which are significantly more power-efficient than traditional silicon-based chips. ON is down almost 18% as of this writing and STM is down about 5% in sympathy with ON even though STM already reported good numbers last week. We think that most semiconductor stocks are still really crowded but we sold a few of our remaining SOXX puts today. We are also picking up some calls STM that are about 5% out of the money, dated out to November and December. Additionally, we started a small common position in STM which we like a little more than ON because it sells to Tesla and SpaceX. Be sure and read our full analysis of both of these companies in The Great Semiconductor Shift.

We also wanted to briefly touch on Amazon’s (AMZN) and Intel’s (INTC) earnings reports which came out last week.

Amazon beat on both the top and bottom line and the overall profitability of the company was up dramatically from where it was a year ago. Management at Amazon has done a good job of navigating the company through a lot of volatility in e-commerce since COVID and are positioned to continue to take share in retail as the remarkable resilience of the consumer persists. With respect to AWS, the cloud business is still growing an the company obviously is spending heavily to improve its data centers to accommodate the upshoot in AI workloads. Amazon is a long-term holding for us and we are mostly holding tight on this stock for now.

Intel’s call had us pretty excited as the company is firing on all cylinders. Intel reported big beats on revenue and EPS, and also raised the guidance for next quarter. By most indications, the CPU market put in a bottom earlier this year and Intel’s share of the CPU market versus that of AMD appears to be stable.

More importantly, the efforts of CEO Pat Gelsinger’s dedicated foundry strategy (dubbed “IDM 2.0”) are starting to bear fruit. The company signed two major customers for its foundry business and should have one more by the end of the year for a total of four customers. In Gelsinger’s words, Intel has contracts “with essentially the who’s who of foundry customers.” We might not know who these customers are for a while, but we think Intel’s strategy of building out fab capacity in the US and Europe will quickly propel the company to becoming the largest semiconductor foundry outside of Taiwan.

Intel is also seeing success with its Gaudi2 accelerator chips, which are essentially the only real competition for NVIDIA’s H100 and A100 GPUs for AI workloads. Gelsinger told analysts that demand for Gaudi2s is outstripping supply at the moment. This is certainly an exciting development for Intel but the main downside is that the manufacturing of Gaudi2s is reportedly outsourced to TSMC for production on its 7nm node, rather than being produced by Intel itself. The fact that Intel is having to outsource the manufacturing of one of its most-advanced chips is indicative of how hard it has been for the company to regain leadership in terms of process technology. However, the company’s five-nodes-in-four-years plan is on track, and we expect Intel’s next-generation accelerators, the Gaudi3s, will be manufactured in Intel fabs.

Intel remains one of our largest positions in the hedge fund and we are holding tight for now.

That’s it for now folks. Don’t forget to join us for today’s AI learning session at 5:00pm ET, and the weekly live Q&A chat on Wednesday, November 1, 2023, at 3:00pm ET via YouTube live using the links above or you can just email us at support@tradingwithcody.com.