Palantir Technologies lifts guidance after Q2 results beat Wall Street estimates
On Wednesday, semi stocks experienced a downturn, with the SOX index falling approximately 8% for the week to date. This reaction followed the release of the DeepSeek V3 model, which sparked concerns within the semiconductor sector regarding the future demand for compute and connectivity chips. According to InvestingPro data, semiconductor stocks have shown significant volatility, with NVIDIA trading at an EV/EBITDA multiple of 26.45x, reflecting market uncertainty. For deeper insights into semiconductor sector valuations and trends, InvestingPro offers comprehensive analysis across 1,400+ US stocks. Analysts at Piper Sandler noted that the latest iteration of DeepSeek suggests a decrease in the need for these chips, potentially making large language models (LLMs) cheaper to produce.
Despite the initial negative market response, Piper Sandler maintains a positive outlook on the AI proliferation and its implications for compute-related chip companies. They argue that the reaction to DeepSeek’s release is exaggerated and that the fundamentals for these companies will improve as AI continues to spread. The firm also expressed skepticism about the commercialization of DeepSeek by Western countries, citing security and origin concerns due to its Chinese roots.
Piper Sandler believes that the cost reductions associated with DeepSeek V3 will likely increase inferencing demand, as cheaper compute costs could lead to more widespread use of LLMs on devices like phones and laptops. They also anticipate growth opportunities in connectivity and networking, though compute is expected to attract the majority of investment.
The report suggests that hyperscalers, companies that provide cloud, networking, and internet services at scale, may adjust their spending on computing power. With the potential for cheaper LLMs, these companies might extend their purchasing cycles beyond the current one-year standard set by NVIDIA (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). However, management teams across the sector remain committed to spending on accelerated computing and connectivity.
In a recent development, Meta Platforms Inc (NASDAQ:META). increased its capital expenditure forecast to over $60 billion from the previously expected $38 billion to $40 billion for 2024, despite being aware of DeepSeek’s model. This move suggests that Meta does not see DeepSeek’s model significantly impacting their hardware usage plans.
Piper Sandler has set a price target for AMD at $180, with an overweight (OW) rating, based on a P/E multiple of approximately 38 times their estimated 2025 earnings per share (EPS) of $4.74. NVIDIA also holds an OW rating, with a price target of $175, based on a P/E multiple of around 42 times the firm’s estimated FY26 EPS of $4.18. Both companies’ stock performance may be influenced by factors such as industry cyclicality, inventory management, and the competitive landscape. InvestingPro subscribers gain access to exclusive financial health scores, valuation metrics, and real-time alerts on market-moving events. The platform’s Pro Research Reports provide comprehensive analysis of these semiconductor giants, helping investors make informed decisions in this volatile sector.
In other recent news, SkyWater Technology reported a record Q3 2024 revenue of $94 million, alongside a positive non-GAAP earnings per share of $0.08. The company also projected Q4 revenue to range between $72 million and $76 million, forecasting an 18% to 20% revenue growth for the full year of 2024. In a bid to secure long-term financial stability, SkyWater extended its loan and security agreement with Siena Lending Group LLC, increasing the facility amount from $100 million to $130 million and extending the maturity date to December 31, 2028.
SkyWater also announced a multiyear supply agreement with NanoDx, which is expected to contribute to future growth. Furthermore, the semiconductor manufacturer secured a preliminary memorandum of terms with the CHIPS for America program, potentially unlocking up to $16 million in federal funding, supplemented by $19 million from the State of Minnesota’s Forward Fund. This financial boost aims to increase the company’s 200 mm semiconductor technology production capacity by an estimated 30%, generating around 70 new jobs in Bloomington.
These recent developments reflect SkyWater’s strategic efforts to strengthen its financial position and expand its semiconductor production capacity.
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