How Oracle is giving Nvidia, other chip stocks a boost

Semiconductor stocks rallied in Wednesday's trading session after Nvidia (NVDA) CEO Jensen Huang highlighted "great" demand for AI chips. KeyBanc Capital Markets equity research analyst John Vinh joins Morning Brief to discuss the state of the overall AI race and some of the key players in the sector.

After Nvidia rose 8% intraday, Vinh believes the movement indicates "a recovery based on kind of an overreaction on earnings." While Nvidia's most recent earnings met and beat expectations, investors were still disappointed as they looked for bigger returns.

However, Vinh doesn't think the AI trade is stopping anytime soon: "I think what really drove the recovery you're seeing more recently is that Oracle (ORCL) came out talked about very strong accelerating growth on the AI side. And they also said that their outlook for next year is going to result in a doubling of capex. So I think that's reassuring investors that the AI trade is not over yet."

He argues that Oracle is "one of the key important reads in terms of AI hyperscaler demand and spend going forward." He also points to AMD (AMD), Marvell (MRVL), and Broadcom (AVGO) as standout names in the "expansive market" and highlights Cirrus Logic (CRUS) as a lesser-known play. He calls the company a "proxy for Apple (AAPL)," noting that 80% of its revenue is Apple-driven. As the tech giant rolls out Apple Intelligence, Cirrus Logic will be a beneficiary, especially if it kicks off an upgrade cycle.

While the AI race shows no signs of stopping, Vinh expects spending to be "unabated" as data centers become a crucial part of the equation. He explains, "What we look at in our perspective, at least in the near to medium term, at least going into 2025, is that all these AI hyperscalers are going to have to aggressively spend. The next-generation platform that Nvidia is releasing, Blackwell, is going to basically lower your TCO (total cost of ownership) by 30x."

"So if we're still waiting for that monetization model, operationally, if you're a hyperscaler, you've got to go with the lowest cost TCO solution out there until you get that monetization model. So we don't see any sort of letup in spend over the next 12 months here," he concludes.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video transcript

Chip sock with their mix this morning.

A MD Intel and Qualcomm pulling back just a bit.

But this comes after yesterday's rally, you can see NVIDIA up another nearly a half of a percent today gained 8% yesterday.

Some of that recent increased optimism surrounding the sector coming as CEO S in the industry tout strong demand, the demand on it is so great and everybody wants to be first and everybody wants to be most and everybody wants to be.

And so that the intensity is really, really quite extraordinary.

I believe this is a market that will grow to, you know, $400 billion by 2027 which is huge and it is an A I supercycle.

So let's talk about that outlook for chip demand here.

Going forward for that.

We wanna bring in John Vin.

He's key bank capital markets, equity research analyst, John, it's great to talk to you again.

Let's start with NVIDIA given the massive move that we saw in the market yesterday closing out with an 8% gain.

Lots of optimism surrounding some of that commentary that we got from Jensen Wong.

Anything in there?

Surprise you or, or pretty much much of the same and just reassuring some of those skeptics out there on the street.

Yeah, I think the balance that you saw in NVIDIA yesterday was, you know, probably, you know, a recovery based on kind of an overreaction on earnings.

Right.

Obviously, NVIDIA just, you know, recently reported earnings that I need met and exceeded street expectations, but they kind of missed some of the higher bide expectations.

So you saw a little bit of a pull back there.

I think what really drove the recovery you're seeing more recently is that, you know, oracle came out, talked about very strong uh accelerating growth on the uh A I side.

And they also said that their outlook for next year is going to result in a doubling of Capex.

So I think that's reassuring investors that the A I trade is not over yet is oracle in that sense, the best non chip A I play in the market right now.

Um I don't cover oracle, I cover the semiconductor.

So I would just say that, you know, oracle right now is one of the key important reads in terms of A I hypercar demand and spend going forward, you know, obviously they're off cycle.

So they're, they're giving us the most recent read on A I chip spin at this.

I I knew you had an extremely informed read in.

I know, I know you don't cover them, John, I just gotta uh when we're on the topic, I gotta lob it into you and see, see what we come out with.

But great insights as always as we think about though, for chips, who is best positioned to really kind of catch some of the overflow that NVIDIA is not able to handle for themselves.

Um I would say kind of three names that we would throw out, you know, right now, we think it's such a um expansive market.

We heard Lisa Su talk about it being a 4, 400 billion market by 220 27 the three names I would kind of highlight would be an A ND A Marvel and a Broadcom, right?

So A MD, you're gonna be, you know, we think they're going to be the lead uh second source alternative on the merchant side.

Uh Marvel and Broadcom are going to be focused more on A I hyper scale or custom as uh development, you know, obviously Broadcom owns the Google TPU franchise there and, you know, they've got a pretty strong position whereas Marvel, you're starting to see them get some good traction in the market with, with Aws John when it comes to some of the maybe lesser known names, serious logic, I believe is one of the names that you like when you talk about focusing on gen A I and the further destocking process, where do you see the value there?

Yeah, we like Sears Logic.

Um They're kind of a proxy for Apple, you know, 80% of their revenues is is apple driven.

And if you look at the opportunity they had for Sears logic, right, there is potentially a replacement cycle.

Um if Apple starts to, to really get traction with um with apple and there, so you can start to see unit growth.

And on top of that, this is a company that has demonstrated content growth on pretty much every single new generation of iphones.

So on top of unit growth, you also have content growth that compounds and it's it's kind of a proxy and a play on apple.

So with that in mind, I mean, as we're waiting for some of uh especially coming from Apple, waiting for some of these generative A I features to really hit critical mass coming through either via operating system updates or other consumer technology.

Where do we still need to see a lot of the industry be built out?

Where are some of the gaps that still exist where investors would be apt to pay closest attention to, you know, obviously, uh everybody saw the Apple launch event the other day and you know, I think they made some progress.

But I think if you take a step back, you know, I think the industry is still waiting for that kind of killer kind of A I app and I don't know if we really saw it the other day.

So I think um you know, you're definitely seeing some progress, but I think the the broader market um is still waiting to see what that killer application is going to be, that's going to drive potentially a, a replacement in A I.

What, what does that mean for the future of the data center?

We've heard NVIDIA talk about this, the the possibility for 1 million chip data centers in the future oracles talked about needing a, a data center to be powered by nuclear reactors.

So the the data center itself seems to be set for a massive overhaul.

How much more spending though do you think needs to come on the front end of that from some of the very companies that are looking to play in this A I space?

I think in the near term, uh we think spending is likely going to be unabated.

You know, obviously, the debate and controversy is, you know, when are you going to start to see the monetization models for, for all this A I spend and you really haven't seen it yet.

Um You are obviously seeing some pretty good growth.

But what we love that in our perspective, at least in the near to medium term, at least going into 2025 is that all these A IH scales are going to have to aggressively spend the next generation platform that NVIDIA is releasing Blackwell is going to basically lower your TCO by by 30 X.

So if we're still waiting for that monetization model.

Um operationally, if you're a hypercar, you've got to go with the T the lowest cost TCO solution out there until you get that monetization model.

So we don't see any sort of let up and spend over the next 12 months here, John Vin, who is the key bank capital markets, equity research analyst, John, always a pleasure to get some of your insights.

Thanks so much for joining us.

Thank you.