Micron shows how the cloud is saving chip makers


Memory-chip maker Micron Technology Inc. was saved by a boom in data centers, adding to chip makers’ growth as the pandemic forces more companies to expand their cloud computing capabilities.

On Monday, Micron
MU,
+1.35%

reported better-than-expected fiscal second-quarter earnings and had a stronger outlook for the next quarter, despite some issues with the global supply chain due to the COVID-19 pandemic. Micron’s shares jumped nearly 6% in after-hours trading. At Monday’s close, Micron was trading at $49.15, down 8.62% for the year but a huge recovery from its plunge in March, when it hit a low of $31.13 in the early days of the pandemic.

“We continue to see healthy demand trend in cloud in the second half of the year,” Micron Chief Executive Sanjay Mehrotra told analysts on a conference call. “Cloud is still actually in early innings, and long-term trends for cloud are strong.” In the second quarter, the company said that the work-from-home economy, e-commerce and videogame streaming all drove a strong surge in demand for more cloud-computing capabilities.

Micron’s comments echo those that other chip giants, such as Intel Corp.
INTC,
+1.33%

and Nvidia Corp.
NVDA,
+0.49%

NVDA,
+0.49%
,
made last quarter. On Monday, Xilinx Inc.
XLNX,
+1.03%

joined the crowd when it updated its guidance for its fiscal first quarter, noting that strong performance in wireless and data center were offsetting weakness in consumer segments.

In the second half of the year, Micron said that it expects demand for consumer technology products such as PCs and smartphones to improve. That’s in part due to the ongoing rollout of 5G networks, which will drive demand of new smartphones that have more dynamic random access memory (DRAM) chips, compared to 4G-network phones. The company said that average selling prices of both DRAM chips and NAND flash memory were up sequentially from the previous quarter.

One issue hovering over the company, and indeed most chip makers, is the growing rise in inventories, both by Micron and its customers, especially in the smartphone market. When asked by an analyst about the growing inventories, Mehrotra said its customers are trying to prepare for when consumer demand returns.

“Customers want to be prepared to supply the smartphone demand” when it returns, he said. “So, overall, you know, it’s a mixed picture with respect to the inventory on the customer front. Cloud inventories are in decent shape,” while mobile inventories are “somewhat in anticipation of demand.”

NVDA,
+0.49%

The chip industry has been amazingly resilient during the coronavirus pandemic, and most of the demand is due to data centers and the demand for more cloud computing. If the PC and smartphone markets return to growth, there could be even more upside for chip makers such as Micron. But for now, the sure thing is centered around the data center.



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Venmo and Square’s Cash App were going gangbusters before the pandemic — now they’re doing even better


Peer-to-peer payment platforms were already seeing explosive growth in the U.S. before the COVID-19 crisis gave them a new surge of momentum.

Services like Square Inc.’s
SQ,
-0.29%

Cash App and PayPal Holdings Inc.’s
PYPL,
-2.19%

Venmo found new uses during the height of the pandemic as people looked for ways to tip service workers, donate to causes, and patronize businesses that had moved to offer digital services during lockdowns.

The services also allowed users to get their stimulus payments direct deposited through their platforms, which helped some people get their money more quickly and drove more users to try the Cash App, Venmo, and PayPal.

“I think we’re going to look back and it’s going to be a really important inflection point” for these services, KeyBanc Capital Markets analyst Josh Beck said of the COVID-19 crisis.

Don’t miss: Square and PayPal finally have a chance to prove they can beat the banks


“I think we’re going to look back and it’s going to be a really important inflection point.”


— Josh Beck, analyst, KeyBanc Capital Markets

Square disclosed on its latest earnings call that direct deposit volumes on its service grew by three times in April as customers moved to store more than $1.3 billion in aggregate balances on the Cash app during the month. PayPal Chief Executive Dan Schulman said on his company’s call that Venmo has “become much more central to people’s management and movement of money instead of just being a social payment [service].”

The digital tailwinds likely gave a further boost to peer-to-peer services that Ark Invest analyst Max Friedrich estimates had already been growing faster than social-media services did in the U.S. back in the late 2000s and early 2010s.


ARK Invest

Like social-media platforms, peer-to-peer payments services benefit from network effects and become more valuable to users as more members of their social circles join. But unlike with “cool” social media sites, younger users actually have an incentive to bring their older relatives on board their payments services, helping to spur user growth, Friedrich told MarketWatch.

Schulman said on PayPal’s earnings call last month that Venmo has become a “cross-generational platform” with “entire families” now using the service to send money to one another.

The network effects of peer-to-peer payments give PayPal and Square a leg-up on traditional banks, as well as challenger banks like Chime and Revolut, Friedrich said, contributing to lower customer acquisition costs because users are helping the companies do their marketing.

Wells Fargo “literally spends $500 million each year on postage and supply costs,” he said. Lower customer-acquisition costs help digital wallets like the Cash App and Venmo pick up unbanked customers, in his view, as these customers are typically viewed as unattractive for mainstream banks from a financial perspective.

PayPal and Square both say their services are popular among unbanked and underbanked customers. While Venmo is viewed as more popular with coastal millennials, the Cash App has caught on in the South and the Midwest. Square announced Monday that it has acquired Verse, a startup from Spain that lets users transfer money to one another.

Sending money to family and friends through peer-to-peer services is generally free, but PayPal and Square increasingly have been adding functions that allow them to make money off their user bases. Venmo and Cash App users can pay a fee to transfer their funds over to their bank accounts instantly or spend their funds with associated debit cards. Venmo users can also use a dedicated Venmo checkout button with some online merchants.

Though both originated as peer-to-peer payment services, Venmo and the Cash App seem to be going in different directions as they build out their functionalities. PayPal is “starting to play more of a commerce angle” with Venmo, in line with its broader strengths, while the Cash App is becoming “much more of a financial services platform,” Beck told MarketWatch.

Square has allowed Cash App users to buy and sell bitcoin on the platform for years, and it recently added equities trading as well. The company’s debit card lets users choose amongst a rotating set of rewards including 10% off DoorDash orders or 10% off a purchase at any grocery store.

“I think they’re likely to retain new users that they’ve gotten from stimulus products or people looking to save money on non-discretionary items like groceries,” Beck said. For underbanked consumers, these perks are “excellent,” he said.

Eventually, the company could branch into adjacent areas, such as deposit accounts, savings accounts, credit cards, or loans, according to Beck. (On the merchant side of the business, Square has obtained conditional approval for a bank charter that will let it more easily distribute loans to sellers.)

A company like Square could also more closely link its merchant and consumer businesses, Friedrich said, using coastal merchants to drive more Cash App users and allowing local businesses to offer targeted discounts to nearby Cash App users.

The Holy Grail for PayPal, Venmo, and the Cash App is convincing users to set up direct deposits of their regular paychecks through these services, but that appears to be a tougher sell than it was for the one-time stimulus payments, said Lisa Ellis, a payments analyst at MoffettNathanson.

“Wherever your paycheck is going, that’s your home base, and banks typically own that,” Ellis told MarketWatch. She said that while some users who tried Venmo or the Cash App for the first time to access their stimulus payments may stick around and try out other features, it’s still an “open question” whether these users will deem the user experience to be so much better that it becomes worthwhile to set up direct deposits of their real paychecks.

Square Chief Financial Officer Amrita Ahuja said on the last earnings call that direct-deposit customers “have generated revenue, which is multiples higher compared to customers who only use peer-to-peer.” They typically carry higher balances and engage with more of the company’s services.

Amassing regular direct-deposit customers could hinge on feature improvements. PayPal, for example, is making a large push into bill payments through a partnership with Paymentus, which aims to help customers more easily manage recurring bills. A better bill-pay experience could prompt more to ship their payments straight to PayPal or Venmo, Ellis said, since many people go to handle their bills shortly after getting paid.

“The idea is that the large banks like Chase are working on something similar, but naturally not everyone banks with large banks and the small banks are nowhere on this,” she said. “Even if Chase rolls it out, there are lots of customers out there who wouldn’t have access.”

Venmo and the Cash App already have an edge on the traditional banks, according to Ark’s Friedrich, who estimates that each service had more active mobile users last year than any mainstream bank.

He projects that there could be 220 million digital wallet customers by 2024 and calculates that if these customers were assigned a “lifetime value” similar to that of traditional bank customers, it would represent a $800 billion opportunity.

Of course, that assumes that Venmo and the Cash App morph into “real banking platforms” that generate “real banking revenues,” which Friedrich admits is a “bull-case scenario,” especially given that PayPal has proceeded more carefully with how it adds features to Venmo.

Still, he said it’s “interesting to think about what scale [the digital wallets] could go to,” given the more optimal margin structures of digital banks.

Investors, for their part, seem to be slowly coming around to the value of digital wallets. Beck said there was “low” investor reception when he suggested back in December a high standalone valuation for the Cash App, but now Wall Street appears to be looking past retail-related challenges for Square’s merchant business, in part due to the potential for a surge in Cash demand.

“I’ve very rarely seen a change in sentiment this quickly on a stock,” Beck said.



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Nvidia data-center sales top $1 billion for first time, earnings beat expectations


Nvidia Corp.’s data-center sales topped $1 billion for the first time at the start of 2020 as the company beat expectations for earnings and sales, but shares were sluggish in late trading Thursday following nearly a week of record closes.

Nvidia
NVDA,
-2.17%

reported first-quarter net income of $917 million, or $1.47 a share, compared with $394 million, or 64 cents a share, in the year-ago period. Adjusted earnings were $1.80 a share, compared with 88 cents a share in the year-ago period. Revenue rose to $3.08 billion from $2.22 billion in the year-ago quarter.

Analysts surveyed by FactSet had forecast earnings of $1.65 a share on revenue of $2.97 billion. Nvidia had forecast revenue of $2.94 billion to $3.06 billion, which had factored in a $100 million headwind from the COVID-19 pandemic.

Shares shifted between slight gains and losses, and were last down 1% in after-hours trading, following a 2.2% decline in the regular session to close at $351.01. Thursday’s regular session was the first decline for Nvidia’s stock after a run of four consecutive closes at record highs.

Business in the Age of COVID-19: Nvidia should dodge coronavirus effects thanks to data centers and videogames

Nvidia’s two largest segments are chips for gaming and data centers, both of which seem safe from negative effects from the coronavirus pandemic after emerging from a year of struggle at the end of 2019. Data-center operators continue to push new chips into their servers to increase machine-learning capabilities for cloud customers and their own usage, while videogames have enjoyed a strong surge amid shelter-in-place requirements.

Nvidia launched new data-center products like its A100 graphics-processing unit last week as part of its annual GTC event, introducing a new architecture for its GPUs, dubbed Ampere. Chief Executive Jensen Huang said then that the new chips were already being shipped to customers, including the largest cloud-computing offerings such as Amazon.com Inc.’s
AMZN,
-2.05%

Amazon Web Services, Microsoft Corp.’s
MSFT,
-1.20%

Azure and Alphabet Inc.’s
GOOGL,
-0.17%

GOOG,
-0.27%

Google Cloud.

For more: Nvidia unveils Ampere GPU architecture for AI boost, and the first target is coronavirus

Nvidia reported gaming revenue of $1.34 billion, up from $1.06 billion in the year-ago period. Data center revenue came in at $1.14 billion, the first time the segment has cleared $1 billion in sales. That’s up from $634 million a year ago. Analysts had expected a 24% rise in gaming sales to $1.3 billion from a year ago, and a 62% surge in data-center sales to $1.03 billion.

“Cloud is a $100 billion market segment of IT today, growing at 40% into a $1 trillion opportunity,” said Jensen Huang, Nvidia founder and chief executive, on a conference call. “Cloud computing is the single largest IT industry transformation that we have ever seen. The two forces that are really driving our data-center business are AI and Cloud computing. We’re perfectly positioned to benefit from these two powerful forces.”

Nvidia expects second-quarter revenue of $3.58 billion to $3.72 billion, while analysts had forecast revenue of $3.25 billion.

Patrick Moorhead, principal analyst at Moor Insights & Strategy, called the quarter “phenomenal” given the pandemic.

“The A100 data-center training/inference product appears to be off on a rocket-ship start, a very good sign,” said Moorhead in emailed comments. “Gaming and workstation growth are directly tied to competitive products and the need to work, govern and school from home.”

Nvidia shares are up 49% for the year. In comparison, the PHLX Semiconductor Index
SOX,
-2.70%

is down 3% in 2020, the S&P 500 index
SPX,
-0.77%

is down 9%, and the tech-heavy Nasdaq Composite Index
COMP,
-0.96%

is up nearly 4%.

Of the 40 analysts who cover Nvidia, 32 have buy or overweight ratings, five have hold ratings, and three have sell ratings, along with an average price target of $325.18, according to FactSet data.



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Chip stocks pump brakes to rebound as broader market keeps bleeding out


Chip stocks broke ranks with the rest of the tech sector on Friday, bouncing back amid a week long bloodbath for the broader market fueled by fear of the COVID-19 coronavirus.

Nvidia Corp.

NVDA, +2.02%

led gainers in the subsector Friday with a 4.2% advance, as the PHLX Semiconductor Index

SOX, -0.34%

 rose 1.1%. In comparison, the S&P 500 index

SPX, -2.60%

 was down 1.6% Friday, for a 12% drop on the week, and the tech-heavy Nasdaq Composite Index

COMP, -1.97%

 was down 0.7%, for a 11% weekly drop.

Nvidia shares were down 10% for the week, but up 12% for the month, to rank as the only chip stock on the S&P 500 with a February gain. The SOX index was down nearly 11% for the week and down 5.5% for February.

Read: Nvidia stock rockets past $300 to third straight record close as holdout analyst turns bullish

The only tech stock on the S&P 500 to show a gain on the week also held the distinction of being a chip stock. Qorvo Inc.

QRVO, +3.07%

 shares rose 4.4% Friday for a 0.8% weekly gain. But shares fell 6.6% in February.

On the whole, chip stocks fared best on Friday with as 13 out of the 16 chip stocks on the S&P 500 traded in positive territory Friday, beating out every other tech subsector on the index.

Of the 14 stocks in the software subsector, five traded higher on Friday with Autodesk Inc.

ADSK, +1.30%

 up 2.3% and Microsoft Corp.

MSFT, -0.18%

 up 2%. Oracle Corp.

ORCL, -4.25%

 led decliners down 3%. The iShares Expanded Tech-Software Sector ETF

IGV, -1.63%

 crept up 0.1% Friday, but is down 9.5% for the week and 6% for the month.

Three out of the eight stocks in the electronic equipment instruments and components subsector traded higher with IPG Photonics Corp.

IPGP, +3.35%

 leading gainers up 3.4%, and FLIR Systems Inc.

FLIR, -6.45%

 weighing on decliners down 5.7%

Seven out of the 21 IT services stocks on the S&P 500 traded higher Friday with FleetCor Technologies Inc.

FLT, -1.01%

 up 0.9%. Both Accenture PLC

ACN, -4.34%

 and International Business Machines Corp.

IBM, -3.83%

 weighed on the subsector with 3% losses.

Arista Networks Inc.

ANET, -1.65%

 was the only gainer in the communications equipment five-stock subsector with a 0.5% gain, while Motorola Solutions Inc.

MSI, -3.60%

 shares fell 2.3%

Of the seven technology hardware storage and peripherals stocks on the S&P 500, only Apple Inc.

AAPL, -2.53%

 and Western Digital Corp.

WDC, -2.18%

 rose, both with a 0.3% gain, while HP Inc.

HPQ, -5.74%

 and Xerox Holdings Corp.

XRX, -5.11%

 both declined 4%.

Outside of the S&P 500, the clear winner in tech from COVID-19 fears has been videoconferencing stock Zoom Video Communications Inc.

ZM, -9.19%

 While shares declined 8% on Friday, the stock is up 2.5% for the week and 37% for the month.



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Nvidia stock rallies more than 6% as data-center sales, outlook beat Street


Nvidia Corp. shares rallied in the extended session Thursday after the chip maker’s data-center sales and outlook topped Wall Street estimates while returning to revenue growth.

Nvidia

NVDA, -0.65%

 shares rose more than 6% after hours, following a 0.7% decline in the regular session to close at $270.78.

The company reported fourth-quarter net income of $950 million, or $1.53 a share, compared with $567 million, or 92 cents a share, in the year-ago period. Adjusted earnings were $1.89 a share.

Revenue rose to $3.11 billion for its first gain in four quarters, compared with $2.21 billion in the year-ago quarter.

Analysts surveyed by FactSet had forecast earnings of $1.67 a share on revenue of $2.96 billion.

Read: For chip companies, stocks soared as sales slumped in 2019 — what does that mean for 2020?

“Adoption of Nvidia accelerated computing drove excellent results, with record data-center revenue,” said Jensen Huang, Nvidia founder and chief executive, in a statement.

Nvidia reported a 56% gain in gaming sales from a year ago to $1.49 billion, while analysts had forecast $1.52 billion, and a 43% surge in data-center sales of $968 million, compared with the Wall Street consensus of $825.8 million.

“Nvidia had an incredible quarter with record revenue in many places,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy. “Key drivers were PC gaming, driven by RTX and SUPER lines; data-center, driven by cloud giants with machine learning; and even growth in professional visualization.”

The company expects revenue of $2.94 billion to $3.06 billion for the first quarter, while analysts had forecast revenue of $2.85 billion. Nvidia said its revenue outlook accounts for a $100 million reduction from original estimates due to expected headwinds from the COVID-19 coronavirus.

Read: Nvidia earnings: A return to revenue growth expected after a tough year

Over the past 12 months, Nvidia shares have gained 77%. In comparison, the S&P 500 index

SPX, -0.16%

has gained 23%, the tech-heavy Nasdaq Composite Index

COMP, -0.14%

has grown 31%, and the PHLX Semiconductor Index

SOX, +0.08%

has increased 46% in that time.

Of the 39 analysts who cover Nvidia, 28 have buy or overweight ratings, nine have hold ratings and two have sell or underweight ratings, with an average price target of $262.41.



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