 Hey everyone, this is Dan with another episode of my AMD and NVIDIA videos. AMD and NVIDIA reached their all-time highs in late November. After that, their prices dropped by almost 40% in December and January and started to recover a little in the last few days. As of today, their prices are still more than 20% below their all-time highs. Is it a good time to buy on a dip or are we just seeing dead cat bounces? I analyzed the broad market conditions and the fundamentals of the two companies and want to tell you what I found. Let's get into the details. I'd like to remind you that I'm not a financial advisor. I share my stock trading strategies and financial analyses for educational and entertainment purposes only. If you want to buy or sell stocks, you should make your own decisions and you should definitely consult with the financial advisors before you do so. Let's continue. We have a lot of cover. Let's look at the price movement of AMD and NVIDIA. In this chart, which is the daily chart for the last year, AMD is represented by the candlestick line and NVIDIA is represented by the yellow line. As you can see, NVIDIA went up by an impressive 68%, whereas AMD also impressively went up by 35% and QQQ went up by 15%, impressive, but not as well as AMD or NVIDIA and SPY went up by 7%. For the three-month chart, the picture is flipped, NVIDIA went down by 21% and AMD went down by 17%, whereas SPY went down by only 4% and QQQ went down by 10%. The market has not been good for NVIDIA and AMD in the last three months, and both stock peaked just around the end of November, although if you look at this part, the prices for NVIDIA and AMD have been recovering in the last two weeks or so. Let's zoom in closer. For the last five days, AMD recovered and went up by an impressive 14%, NVIDIA also recovered a little bit, went up by 4%, whereas SPY and QQQ went up by only about 1%. This big jump here for AMD was when they announced their quarterly earnings, and definitely the quarterly earnings from AMD impressed investors a lot. I will talk more about that later. To understand where NVIDIA and AMD will be going, we also need to understand the conditions in the broad market. First of all, S&P peaked on December 30th and dropped 12% before recovering a few days ago. NASDAQ also peaked actually a little bit earlier, November 22nd, and then dropped 18% before recovering a few days ago. Recently, we heard about the high inflation rate. For example, in December, the CPI came in at 7%. That's the highest number since 1982, and in the meanwhile fortunately we have low unemployment rate at 4%. The Federal Reserve Banks have been talking about QE tapering and raising interest rates. That will most likely cause the market to go down when they start doing that aggressively. Most analysts expect the Fed to raise rates 3-5 times in 2022. Based on the information from FactSet published on February 4th, Q1 2021, 56% of the S&P 500 companies reported the earnings already, and 76% of them reported a positive EPS surprise, and 77% of them reported positive revenue surprises. Definitely that's very bullish for the market. That means the economy has been doing well all the way up until the 4th quarter of 2021. And then on December 31st, the estimated earning growth rate for the 4th quarter of 2021 was 21.3%. Definitely that's very positive. However, for the first quarter of 2022, 34 S&P 500 companies have issued negative EPS guidance, and only 13 companies have issued positive EPS guidance. That means more companies are taking a cautious approach as far as their projections with regard to the beginning of 2022. Considering what everybody has been hearing about the inflation rate, or what the Federal Reserve Banks are going to do, there's no wonder that many of the companies are taking a very cautious approach, and that's why I would be taking a very cautious approach with regard to my stock investments in the next few weeks. This is the chart representing the movement of SPY in the last couple of months. It peaked here in late December, and then dropped, and then recovered a little bit in the last few days. My expectation is that the broad market will go like this. It will ping-pong up and down between the autumn high, and the men rich two or three weeks ago, pretty much going sideways. In the recent video that I published on January 30th, I talked about comparing today's broad market conditions with 1982, when we also had inflation in excess of 7%, what the Federal Reserve Banks did back then, and what the Fed action did to the market, and actually the market dropped as much as 21% back in the 1980s, primarily because of the Fed actions to control inflation. I don't think that'll happen this time around, but at least aggressive Fed actions will cause the market not to go up as quickly as what we've seen in 2021, and that's why my projection is that the market will be more or less going sideways within a channel like this. And this expectation will affect how I'm going to trade AMD and NVIDIA. I will talk about that in the next few minutes. If you like what you've seen so far, I'd like to encourage you to click the like, subscribe, and notification button that'll allow you to receive notification when I publish my next video. It'll also encourage me to make more videos like this in the future. Thank you very much. Let's continue. In my last video on AMD and NVIDIA, which was posted on November 30th, I talked about the two companies' involvement in the development of Metaverse, which is going to be a fast growing business segment. If you're interested, you can check out that video. Basically, my belief is that anything in 2D will become obsolete, just like black and white presentations have become obsolete. People in the near future will be expecting 3D visualization, and that's going to drive the increase in revenues for NVIDIA and AMD. Let's look at AMD in more details. Recently AMD posted their quarterly earnings, and that was definitely very impressive. For example, the EPS came in at 0.92, exceeding the estimate of 0.76, and it was up 26% year over year. Revenues was up 49% year over year. These are definitely very impressive numbers, and that's why the stock price jumped 10% right after they posted their quarterly earnings. Recently it was announced that AMD wanted a partnership to work with Meta, formerly known as Facebook, to develop their Metaverse applications, and that was very positive, and on that day, the stock price also jumped 10%. This is a chart showing AMD's market share in the CPU market compared to Intel. The two of them pretty much split the CPU market. As you can see, AMD since 2017 has been increasing their market share, but unfortunately in the last couple quarters, the market share has been receding. So now they have about 35% of the market share, whereas Intel is recapturing some of their lost market shares. But this is not necessarily a very scenario for AMD because if you look at the income statement, it tells you a very bullish scenario. This is the profit and loss summary from AMD in their investor presentation on February 1st, 2022. As you can see, the revenues increased from $9.7 billion in 2020 to $16 billion for 2021, and that's a 68% increase, definitely that's very impressive, and their net income grew by 27% year over year. So they must have been doing something right. And compared to Intel, their latest annual report, Intel's revenues only went up by 1.4% from 2020 to 2021, and their net income actually went down by 4.8% year over year. That means even though AMD has been losing some market share in the last two or three quarters in the CPU market, but they have been able to capture the more profitable part of the market, apparently. And I'll talk a little bit more about that in the next few minutes. This is the different business segments for AMD. The most important segment at this point is the computing and graphics segment. And year to year, the net revenue went up by 32%, operating income up by 35%, definitely impressive figures. But the next segment, the enterprise-embedded and semi-custom segment is even more impressive. Their revenue went up by 75% in the segment, and operating income went up by an amazing 214%. If you look at the net revenues, the second segment is almost catching up to the main segment of computing and graphics. And I would say probably within a year or so, this will be their leading segment. And looking at how fast their profitability has been growing in this segment, you know why AMD has been doing so well. With all the rosy scenarios about AMD, we need to also keep an eye on what might be threatening them in the near future. Recently, Intel introduced a new processor called Alder Lake, which is a high-performance series of processors. Based on this particular benchmark test from Tom's hardware, all the processors are leading the comparable AMD processors, the red bars here. And actually, there are several different tests, and they all more or less look the same. But definitely, Intel has done something right this time around. In the meanwhile, AMD already announced their next generation of processors to compete with Alder Lake processors. And that's the story of the CPU market, that basically the top players like Intel and AMD, they constantly leapfrog each other as the industry continued to develop. We got to stay tuned about these developments. It was also recently announced that Tesla model-wise reached from Intel to AMD Ryzen processors. First it started out with the China market, but now it's expanding to other markets for Tesla vehicles, which is great news for AMD. And this is another article talking about how much the Tesla center display has improved because of the new AMD chip. AMD has been working on this merger with the company called Xilinx, and the merger is targeted to complete within the next few weeks in the first quarter of 2022. And they expect to achieve operational efficiency of saving $300 million within 18 months of the merger. Xilinx is supposed to contribute greatly to AMD in the few programmable gate array market, which is a fast-growing business segment as we saw in the AMD segment financial information a couple pages ago, and definitely that merger will help AMD tremendously. As far as progress for that acquisition, they already got the OK from the EU, the UK, and FTC. And recently, as of last week, China gave its conditional approval. Basically, the acquisition is a done deal. That's great news for AMD. What are AMD strengths? They have been logging significant increases in revenues and profit in the last few years. And their embedded and semi-custom segment has been growing very impressively. And they recently secured a partnership to work with Meta, as well as with Tesla. And definitely the Xilinx merger is going to help them a lot. As far as their weaknesses, they do not have their own foundry and are dependent on companies such as Taiwan Semiconductor to produce their processors. And that's why they have been subject to the supply constraints, like many other semiconductor companies. In the GPU market, their market share definitely is not as high as Nvidia's. I will talk a little bit more about that in the next few minutes. Let's look at some of the financial data for AMD. If you look at the sales as represented by the black line, definitely the sales have been increasing very impressively since 2015, comparable to the increase of Nvidia and definitely much faster than Intel, the green line, and the industry average, the blue line. The EPS has been growing also very quickly. Here, I drew the dotted line representing 34.4% EPS growth year to year for the next five years. And as you can see, that's a very conservative estimate compared to their historical trend. Let's keep this in the back of our mind because I'll be using that number in the next couple of minutes in my valuation calculations. The return on equity is comparable to the industry average in the last two, three years. The debt to capital ratio is lower than Nvidia's and also Intel's as well as industry average. That means the company has been generating a lot of cash, aggressively paying off the debts. The company's definitely is a very well-managed company. Let's look at AMD's valuation. First I benchmark the PE ratios of the leading semiconductor companies and the PEG ratios. As you can see here, AMD with the current PE ratio of 48 and Nvidia with the current PE ratio of 75. And then I use the assumption of PE ratio of 40 for the next five years, which is conservative compared to the current PE ratio of 48 and EPS growth of 34.36% as we saw in the previous chart. That's that dotted line here. Definitely it's a conservative assumption. Also, the EPS growth for the last five years was at 39% higher than a 34% assumption for the next five years. And then based on what they announced for the 2021 net income and these assumptions, I extrapolated their stock prices for 2022 to be 137 and 2023 to be 184. And from this range of numbers, I decided to pick a very conservative target of $160 a share by the end of June 2022. My previous target when I posted my last video in November was that it was going to be at 180 by the end of January 2022. Because of what happened to the broad market in the last few weeks, I have revised my targets downwards to 160 to be reached by the end of June. For NVIDIA, this is a good chart to see how well NVIDIA has been doing in their main market, which is the GPU market. Here we can see that most recently NVIDIA has 83% of the market share in the GPU market. The rest of the market is owned by AMD, which has only 17% of the market share. And if you look at the various business segments of NVIDIA, their graphic segments, definitely that's where they earn the most revenues and net income has been growing 47% year to year. If you look at the last three months of operations and the net income has been growing at 61%, definitely very impressive. Their computing and networking segment revenue grew by 55%, also very impressive, and operating income grew by 80%. From this article published by Tom's Hardware, we learned that NVIDIA is working with a matter of Facebook in building a new supercomputer for artificial intelligence analysis. And that's definitely a big boost for NVIDIA in terms of sales and also business reputation. NVIDIA traditionally has been operating the GPU market. The GPUs are their main products, and they have more than 80% of the market share. But recently they've been working on additional product lines, including the DPU, the data processing unit, as well as CPU. And with the CPU, they'll be competing head on with Intel and AMD. Eventually NVIDIA will become a three-chip company instead of just relying on one chip, the GPU. What are NVIDIA strengths? First of all, they have been increasing very quickly in revenues and net income. They are the leader in the GPU market, which is a very profitable and fast growing market. And they have been growing fast in the gaming business as well. They have strong expertise in deep learning and AI. Their weaknesses include the fact that they do not have their own foundry, just like AMD, they are relying on companies such as Taiwan Semiconductor to produce their processors. And that's why both AMD and NVIDIA have been subject to supply constraints recently. They compete with AMD in the GPU market, although they have been the dominant player in the market with more than 80% of the market share. Their planned merger with the company ARM did not go through, unfortunately. But without ARM, NVIDIA is still going to be doing well by itself. So I'm not too worried about that. Let's look at some of the financial figures for NVIDIA. If you look at the sales, definitely it's been increasing very impressively, beating the Intel increase and beating the industry increase about the same rate of increase like AMD. The EPS has been growing impressively as well. And I drew the dotted line representing 39.4% annual growth. And that number I'll be using in the next couple of minutes in my valuation calculations. The return on equity is comparable to the industry average. The debt to capital ratio is comparable to the industry average, although not as good as ratio for AMD. For valuation of NVIDIA, again, I benchmarked the semiconductor companies and based on the analyst estimates of the quarter ending January 31st, 2022, I calculated their net income for the year 2021 at $9.3 billion. And then I used assumptions of PE ratio of 60, which is conservative based on the current PE ratio of 75. And the EPS growth, as I mentioned in my last page, my assumption is 39.4%. And that's a very conservative estimate compared to the growth in the last five years of 52.8%. Applying these assumptions, I arrived at the stock prices of $312 a share for 2022 and $436 a share for 2023. From this range of numbers, I picked a conservative target of $310 a share to be reached by the end of June 2022. This is a little bit lower than the 360 target I set in my last video posted in November. And that's mainly because of the broad market condition I mentioned in the beginning of this presentation, especially with regard to QE tapering and the Federal Reserve Bank's raising the interest rates. That's why I believe the market is going to go sideways a little bit without reaching all-time high anytime soon. But $310 is still more than 20% higher than the current price of NVIDIA. And that's why I will be buying NVIDIA shares in the next few days when the price is right. Let's look at the analyst's opinions. I'm comparing here the opinions from November 30th to now February 6th. AMD, the price went down from $158 to $126. My target went down a little bit from $180 to $160. Yahoo Business increased the high target from $180 to $246. And increased the average target from $141 to $152. Tipbranks.com increased the high target from $180 to $200. Increased the average target from $141 to $157. And also increased the low target from $113 to $125. CN Money increased the high target. Increased the median target as well as the low target. Lewis Nevillea maintained his ratings. Pretty much I see upgrades of price targets among a lot of analysts for AMD. That's a bullish sign. In the meanwhile, I want to be conservative. And that's why I lower my price target a little bit. My price target is somewhere between the medium or the average target and the low target from the professional analysts. For NVIDIA, the price went down from $326 to $243. My target was adjusted downward from $360 to $310. Yahoo Business increased their average target from $331 to $340. Tipbranks.com lowered the average target from $358 to $353. And also lowered the low target from $285 to $250. CN Money keeps everything the same and Lewis Nevillea keeps everything the same. What are my strategies? I've been holding some AMD and NVIDIA shares for the long term. And I bought quite a while back because I'm bullish on those two companies. And I've been swing trading the rest of the shares. I sold some AMD shares on February 3rd with 5% gain when the price was dropping. And I shared that information with my Twitter subscribers. In general, I would sell when the price pulls back at a key resistance level or fails to be supported at a key support level or when adverse news develops. In general, I will buy when the price bounces back from a key support level or when positive news develops. I'll definitely be mindful of corporate news, any actions from the federal reserve banks, macroeconomic events, the development in Ukraine, also the RSI level to spot any overbought or oversold conditions. And I'll definitely be mindful of the inflation rate, QE tapering, and any rate increase from the federal reserve banks. I will update my Twitter subscribers almost on a daily basis. At this point, I'd like to remind you to subscribe to my Twitter account, which is DanMarketL, in addition to subscribing to my YouTube channel. For example, on January 24th, I tweeted that I saw all my SQQ shares because the market seems to be recovering, and I saw the SQQQ shares at a profit. On February 3rd, I said I sold some of the BNTX shares and realized a small gain. And then on the same day I tweeted that I saw the AMD shares I bought a few days ago at an average 5% gain. And since then AMD has bounced up again, that's why I might be buying AMD shares in the next few days, as well as NVIDIA shares. Again, I'd like to encourage you to click the like, subscribe and notification button. As usual, I will very much welcome your comments, questions, and suggestions. Let me recap my price targets. I expect AMD to reach $160 a share and NVIDIA to reach $310 a share before the end of June 2022. This wraps up 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.