 Hey everyone, this is Dan. Welcome to my first video on advanced micro devices and NVIDIA. In the last two three years, these two semiconductor companies have outperformed the broad market and they also outperformed even the semiconductor industry average. In the last three months they have been picking up very quickly. Is it a good time to buy or is it too late to buy already? I did the fundamental analysis of these two companies and have set my price targets. Let's get down to the details. In the next few minutes, I'll be talking about first AMD, I will cover the profile of the company, any immediate merger activities that will affect the future of AMD, the market share, the product performance, the company strength and weaknesses. And then I'll do the same for NVIDIA. Then I will look at the key financial data for both companies and put them side by side with each other and then look at my own valuation of the companies. Then we'll look at the professional analyst opinions. We will also look at a couple of charts quickly with regard to the price movements of the two companies in the last year and in the last three months. And then I'll be talking about my strategies for trading the stocks. Advanced micro devices, they focus on computing and graphics and enterprise embedded and semi-custom processors. And they are headquartered in Santa Clara, California. It's a US company. Recently they announced a second quarter earnings and the results were very positive. For example, the bottom line, the net income went up 250% year over year. Very impressive. And the revenues went up 99% year over year. And that's why the stock price has been picking up quickly ever since the quarterly earnings announcement. This is the chart showing the market share of AMD in the CPU market compared to the industry leader, the market share leader Intel. We can see that back in 2006 AMD had 50% on market share and Intel had 50% on market share. And after that AMD dropped to less than 20% and then Intel benefited from AMD's decline. But starting from 2016 AMD's market share has been climbing up steadily at the expense of Intel. And there's a major player behind this at AMD causing good things to happen since 2016. I will talk more about that later. If you look at the performances of the AMD processors from this particular industry benchmark offered by tomshotware.com out of the top seven processors AMD occupies four spots, including the number one and number two positions. Of course, there are many ways to benchmark processor. This is just only one way to look at it. But at least from this, we have a glimpse of what the AMD processors are capable of from one perspective at least. This is a list of the top processors offered by AMD and offered by Intel and their prices. And you can see here AMD offers very competitive prices for processors that have performances that are better or equivalent to the performances of Intel processors. And that explains why AMD has been gaining back market shares since 2016. To talk about AMD, we need to talk about this other company called Xilinx. Why? Because AMD is in the process of acquiring Xilinx. In a nutshell, Xilinx offer integrated circuits in the form of programmable logic devices, which are different from the mainstream AMD processors. The products offered by Xilinx are complementary to what AMD has been offering up to now. A few bullet points about the merger. First of all, it was announced on October 27, 2020. And the merger will help AMD build cutting edge semiconductors for consumer electronics and cloud computing. AMD also expects to achieve operational efficiency and saving $300 million within 18 months because of the merger. It's a stock exchange merger. Each share of Xilinx stock will be exchanged for 1.7234 shares of AMD stock. And because it's the stock exchange merger, AMD will not have to borrow money or increase its debt mode to fund the merger. Of course, then new shares of AMD common stock will be issued in order to complete the merger. And by the way, the stockholders of both companies have already approved this merger. The merger will also have to be approved by major governments, including the UK, EU, which already approved the merger. And as far as I know, the US government has no objection to the merger. And one final piece is the approval from the Chinese government because AMD does a lot of business with China. And rumor has it that China will approve the merger, hopefully by the end of this year. Let's talk about AMD's strengths and weaknesses. As far as strength, number one, they have shown steady increases in revenues and EPS since 2016. Their enterprise, embedded and semi-custom segment have been posting annual growth. And actually, as of this last quarter, it posted growth of 183%, which is very impressive. And they reported a straight quarter of record server processor revenue. They are really gaining the market share in a server area very quickly. And AMD's processors are very competitive against Intel's in terms of price and performance. We saw those benchmarking charts. They have won quite a few major contracts for gaming consoles, including Sony's PS5 platform and Microsoft Xbox Series X platform. That means they will have steady source of orders for at least the next six to seven years. So that's a big plus for the company. And of course, the sidelines merger is supposed to generate synergy with AMD. As far as witnesses, number one, they are subject to the supply constraints in the semiconductor industry, the very well-known shortage that's been happening the last year or so, because they do not have their own fund. And in the GPU market, they are trailing NVIDIA in terms of performance and market share. We'll talk more about that later. But AMD is definitely gaining a lot of market share in the main CPU market for individual PCs or servers. If you like what you've seen so far, I'd like to suggest that you click the like, subscribe and notification button so that you'll be notified when I publish the next video for AMD and NVIDIA. Also, it will encourage me to make more videos like this in the future. Thank you very much. Let's continue. Let's talk about NVIDIA. Now, NVIDIA focuses on graphic and computer networking. The company's product are using gaming, professional visualization, data center and automotive markets. They had quartered in Santa Clara, California, the same location as advanced micro devices. This is also in U.S. company. The last time they announced the quarterly earnings was for the first quarter and that was on May 26, 2021. And their earnings beat the Zax Consensus Estimate of 3.28 per share. And it represented an earning surprise of 11.59%, which is very nice. And over the last four quarters, the company has surpassed the Consensus EPS Estimate four times. But definitely, this is a company with very strong financial performance. And we'll look at the charts later on. Their next quarterly earnings announcement date will be August 18, 2021, about 10 days from now. I'll be definitely watching that. Very careful. Since NVIDIA's main business is in the GPU market or graphic processing units market, let's talk about GPU. GPU is also known as visual processing unit. It's a computer chip that performs mathematical calculations rapidly for the purpose of rendering images. Actually, recently, the functions of GPU has been stretched to cover other applications. We'll talk more about that later, but they originated in processing images. A GPU is composed of hundreds of cores that handle thousands of threads. You might consider those to be thousands of simultaneous processes. Compared to the traditional CPUs, a CPU only involves a few cores with some memory that limits its ability to handle multiple threads or processes at the same time. GPUs are widely used in portable electronic devices and medical equipment, as well as mobile phones and many other devices. And recently, GPUs have been used for artificial intelligence platforms. Deep learning. We'll talk about that in the next page. Virtual reality and augmented reality systems, as well as in supercomputers. Now, this is the impressive part. The global GPU market size back in 2019 was valued at $19.75 billion. It is projected to reach $200 billion by 2027 at the annual growth rate of 33.6% much faster than the traditional CPU market. One of the major applications of GPU is deep learning, which is related to neural network and is a sub branch of artificial intelligence. The applications include facial recognition, autopilot for vehicles, for example, evaluating loan applications, SONA and radar, signal processing for national defense, ECG and EEG analysis for medical applications, even stock trading advisory systems. So that a lot of very important functions that are offered by GPUs today. It's a very fascinating subject. If you're interested, I've provided three different links. The first one is a five minute video about deep learning. The second one is a 19 minute video, and the last one is a one hour MIT lecture on deep learning. You can see the links below this video in the notes section. Let's look at the GPU market share. In the GPU market, there are two main players, NVIDIA and advanced micro devices. So starting from 2010, NVIDIA had 60% on the market, and then they increased their market share to more than 80% in 2015. And since then it's been going up and down. And most recently, they've regained market share and it's currently sitting at about 80% again. They're taking market share away from advanced micro devices. You might see the market share chart drawn like this with Intel way on the top with more than 60% on market share. This chart actually is not very truthful. When a chart is drawn like this, they are including the CPUs produced by Intel that integrate graphic processors in the CPUs. This type of integrated units cannot really match up with the dedicated GPUs in terms of performance when it comes to PC gaming and other computation intensive applications. And that's why I tend to want to look at this chart split in the market between NVIDIA and AMD. In terms of performance ranking, here is another ranking chart from timeshotware.com. Again, there are many ways of benchmark performances. This is just one aspect of it. With this particular benchmark test, NVIDIA GPUs occupies seven out of top 10 positions, including top two positions. Definitely NVIDIA has been producing some of the best GPUs in the market. When we talk about NVIDIA, we also need to talk about ARM. Why? Because NVIDIA is in the process of acquiring ARM. ARM is a British semiconductor and software design company based in Cambridge, England. Their main business is in the design of processors. Actually, they licensed their designs to semiconductor companies that make semiconductors for mobile phones, such as Qualcomm, and also semiconductors companies that make semiconductors for tablet computers, chips in smart TVs, and in total over 160 billion chips. Since 2016, ARM has been owned by SoftBank Group, which is a Japanese company. That's very important to know because I'll be talking about something in the next few slides. With regard to the NVIDIA and ARM merger, it was announced on September 13, 2020. And we already talked about what ARM offers. NVIDIA expects, of course, synergy from this merger and they will continue ARM's open licensing model. Specifically, NVIDIA expects the ARM merger to help them with development of artificial intelligence in the NVIDIA processors. And this merger is worth about 40 billion dollars. It will be met through a combination of shares and cash from NVIDIA. Here's the catch, though. Most recently, as of August 3rd, it was reported that UK, remember ARM is a UK company, that the UK government is considering blocking NVIDIA's $40 billion dollar takeover deal for ARM because of national security risk. Remember, we saw that ARM is currently owned by SoftBank, a Japanese company. So I don't think the UK government will be concerned about ARM being owned by American company instead of being owned by a Japanese company. I think the UK government is just posturing to gain some advantages in the trade negotiations with the U.S. And I think they're just using this as a bargaining chip. My prediction is that this merger will actually come through. We'll stay tuned. What are NVIDIA strengths? First of all, they have very steady increases in revenues and EPS since 2016. And they have the industry leading GPUs with over 60% of market share since 2011. Actually, at times, they reached 80% market share, especially in the last couple years. And the world demand for GPUs has been growing rapidly, especially for the automotive industry and for artificial intelligence development. The rate of growth of GPU market is estimated to be 33% annually. And it's definitely higher than a traditional CPU market, which has been growing at about 4%. And they definitely have the industry leadership in deep learning and AI. What are their weaknesses? They are subject to supply constraints because they do not have their own foundry, similar to advanced micro devices. And they face competition with AMD in the GPU market. Although NVIDIA has been doing pretty well in the last couple years, regaining their market share. And the ARM merger might be blocked by the UK government. My own personal opinion is that the merger will actually go through. Let's look at the key financial data related to these two companies. First of all, sales. The green line is the Intel sales. I've included Intel because they are still the industry leader in the CPU market. And then the black line is AMD. The orange line is NVIDIA. As you can see, the sales for Intel has been pretty steady, gradually going up. And NVIDIA has been going up much faster than Intel, although at a lower level, AMD has been bumpy. Their sales went down and then started picking up again from 2016 to today. If you look at EPS, pretty steady for Intel and steady for NVIDIA, actually with a pretty steep climb with EPS for NVIDIA. And then AMD, bumpy. They actually were having losses from 2012 through 2016. And then when they finally turned positive, they've been climbing up very quickly. Why do we have a curve like that? I can summarize it in two words. And that's because of Lisa Sue, who is the current president and CEO of AMD. Ms. Lisa Sue is an electrical engineer and an MIT Ph.D. After serving successfully a Texas instrument, IBM and free-scale semiconductor, she joined AMD in 2012 and then was promoted to president and CEO in October of 2014. And shortly after that, she was able to turn the company around and lead the team to design and produce some industry-leading processors. And therefore, they were able to perform very well financially since 2016. But that's a key player for AMD. Now, what about NVIDIA? NVIDIA is a little bit more fortunate. They have the same president and CEO since the founding of the company. And that was 1993. And that's why the performance has been pretty steady. More financial data. Return on equity, pretty steady for Intel and NVIDIA. Again, bumpy for AMD, but it's been going up in the last five, six years. Debt to equity ratio, again, pretty steady for Intel and NVIDIA. And if you look at AMD, they climbed up. And then just like the EPS, starting 2016, it's been very good here. The debt to capital ratio has been dropping quickly as of 2021. The debt to capital ratio is much lower than those of Intel and NVIDIA. So at this point, AMD financially is a very healthy company. That's why I'm very bullish about AMD, as well as NVIDIA. Let's look at my own calculations for the stock prices of AMD and NVIDIA. First, I look at the top semiconductor companies and look at their trailing PE ratio, forward PE ratio and PEC ratio. And AMD is here with the PEC ratio of 1.35, which is pretty impressive. And then based on their trailing 12-month performance, current PE ratio of 38.81, the EPS growth, which is 76% very impressive, market cap, and the current stock price. Then I apply the estimated earning growth of 32%, which is from Yahoo Finance. And if you look at the historical earning growth, 32%, it's actually a pretty conservative assumption. And then a PE ratio of 38, which is reasonable. Then I arrived at the stock prices for 2021, 2022, and 2023. And from that range, I paid a target of $160 a year. Now, you might ask, what about a merger with Xilinx? Let's talk about that. First of all, let's repeat the calculations we just showed in the previous page here. Now, if you then look at Xilinx as a standalone company, these are their current performances. And based on an assumption of 38 PE ratio, which is the same PE ratio as AMD assumption, and the EPS growth are just 9%. And that's also from Yahoo Finance. I think 9% is a low number because the current EPS growth is 69.6% based on the quarterly earnings from the first quarter. With these numbers, I arrived at the calculated stock prices for 2021 and 124, and then 135 for 2022 and 147 for 2023. I then merged the numbers for the two companies by adding the net income for the three years using the PE ratio of 38. And then from those numbers, I calculated market cap for each of the three years. And then I calculated total number of shares after the merger and arrived at these prices for the three years. And from that, I conclude that I could set the target of $150 a share. Notice that it's $10 less than the $160 a share for AMD being a standalone company. Now, if there's indeed a lot of synergy between AMD and Xilinx, of course, a combined company will be worth a lot more than $150 a share. But for now, I just want to be conservative and set it $150 a share, which is already higher than a current price. Let's look at NVIDIA. Similar to the way I calculated the evaluation for AMD, I assume the PE ratio of 70 against the current PE ratio of 96 and the EPS growth of 27%, which is based on the estimate from Yahoo Finance. And from those assumptions and the current figures, I arrived at these stock prices for 2021, 22, and 23. But I really think the 27% EPS annual growth rate is too conservative, especially considering that the GPU market is going to grow at 33% annual rate even faster. And that's why I did another set of calculations assuming 40% EPS growth rate. And with that, I arrived at a higher set of stock prices for 2021, 22, and 23. And based on these two sets of numbers, I believe it's okay to set a price target of $240 a share to be achieved by the end of November 2021. Let's look at the other analyst opinions. First of all, the closing price was $112.35 for AMD. And my target is $150, almost 40% higher than the current price. And I expect the target to be achieved by the end of November 2021. Yahoo Business gives AMD a buy rating, 2.3 out of 5. The high target is 169.7, average is 104. Low target is just 17. I think this is not a typo. I double check. I don't know which analyst gave that rating. Maybe it's a typo from Yahoo, but indeed it's 17. Lewis Nevillea doesn't like the company much, gave him an overall C rating because he heavily penalized AMD for their quantitative rating, which is related to the chart. And the reason why is because AMD stock price has been pretty flat in the last year or so until about three months ago, all of a sudden it stopped to jump up. And I believe Nevillea will upgrade AMD pretty soon. And the fundamental rating is a B, which is pretty solid. TipRanks.com overall is a moderate buy with a high target of $150, average target of $107, and low target of $70. CNN Money overall a buy rating, high target of $169, median $110, and low target of $60. So my rating of $150 is definitely higher than the average ratings from these analysts and almost at the high targets. And I'm comfortable with my target. Well, Nvidia, the current price is $206.37. My target is $240 to be reached by the end of November 2021. Yahoo gives an a buy rating with a high target of $250, just $10 higher than my target, average of $189, definitely lower than my target, and a low target of $110. Luz Nevillea gives them a B rating, which is a buy rating with a quantitative rating of B and a fundamental rating of B. That's because Nvidia has been going up more steadily in the last six months to a year than AMD. And tipsrank.com gives them an overall strong buy, which is very positive with a high target of $250, average target of $204, and low target of $150. CNN Money gives them an overall buy rating with a high target of $250, median target of $193, and low target of $110. Let's look at the charts for the last year. The yellow line here is Nvidia, which is definitely the best performing line here. And I also show the SMH semiconductor EDF, which went up by 58%, and Nvidia went up by an impressive 81% in the last year. AMD went up by about 29%, and the blue line here is QQQ, representing the movement of NASDAQ 100, went up by 41% or so. And then SPY represented the movement of S&P 500. The red line here went up by also about 29%. And then Intel definitely has been underperforming, went up only by 12%. And now if you look at the last three months, AMD really jumped up, especially since their quality earnings announcement, because they really demonstrated some very impressive performance in the last quarter. AMD went up by over 39% in the last three months. Nvidia about the same. SMH, the semiconductor industry went up by 10%, QQQ by 10%, and SPY barely went up only by about 2%. And Intel actually went down by 6.5%. And that's why I'm very bullish about AMD and Nvidia. What are my strategies? I'll be holding some AMD and Nvidia shares for the long term. Currently, I don't own any shares, but I will most likely be buying shares at the right moment in the next couple of weeks. And I will shrink trade some of the shares. Generally, I will sell when the price pulls back at a major resistant point or when bad news happens. And I will buy when the price bounces back from a low RSI point and from a major support point or when passive news develops. I usually update my subscribers by way of Twitter messages when I buy or sell shares or when there's major news development. In the next few days, I will be posting my technical analysis for AMD and Nvidia. Stay tuned. Let me recap my price targets. AMD is at $150 a share and Nvidia at $240 a share to be reached by the end of November 2021. And currently AMD is at $110 and Nvidia at $203. So both of them have a lot of room to move up. I'd like to suggest that you subscribe to my Twitter account, which is DanMarketL. For example, a few days ago I tweeted that I increased my price target for Moderna and BioNTech. Those are two of the stocks that I've been tracking. And I've made a lot of profits from those two stocks. On July 29th, I tweeted that I bought some shares of Moderna and BioNTech. If you like what you've seen, please click the like, subscribe, and notification button. As usual, I will very much welcome your comments, questions, and suggestions. I'd like to remind you that I'm not a financial advisor. I provide my stop trading strategies and my analyses for educational purpose only. If you want to buy or sell stocks, you should make your own decisions and you should consult with your financial advisors before you do so. This concludes my video for now. I will chat with you again in the next few days. In the meanwhile, I'd like to wish you the very best of luck with your financial investments. Have a wonderful day.