Micron: ‘It could take a few quarters for growth to re-emerge’ in semiconductors, analyst says

Bank of America Senior Semiconductor Analyst Vivek Arya joins Yahoo Finance Live to discuss Micron earnings, chip demand, supply chain woes, and the outlook for growth.

Video transcript

AKIKO FUJITA: Let's move on to another company that we did see report after the bell yesterday, and that is moving in the opposite direction here. Nvidia getting a big pop in the session after reporting earnings per share of $1.04 on revenue of $6.5 billion. Some weakness in its crypto business though, raising concerns potentially. Nvidia did forecast $6.8 billion in revenue for the current quarter, which was higher than the Street expected.

Let's bring in Vijay Rakesh, Mizuho Managing Director, and Senior Tech Analyst. Vijay, it's good to talk to you today, walk me through some of the headlines that stood out to you in this report. We're talking about crypto but of course, they did see-- Nvidia did see a lot of strength in their gaming, as well as data center business.

VIJAY RAKESH: Thanks for having me on. Yes, absolutely, I think Nvidia had a pretty strong quarter for the data center side in up about 16% sequentially. Gaming was strong as well. The weakness was obviously crypto, came in light but on the guide also they guided crypto down to pretty minimal exposure in the October quarter, so.

But even with that, they had a pretty strong guide, they guided above consensus. So there's definitely some concerns going into the quarter given the volatility on Ethereum and Bitcoin, and they definitely exceeded all expectations on the guide here. So you're seeing some reaction to that. I think Street was concerned going into the quarter. So some of that concerns coming off with the guide here, so.

But definitely, data center was a bright spot. Ampere on the GPU side was another bright spot, very long runway on that, they're only 5% penetrated in the PC gaming base there. So good runway there because the prior generation is almost 50% of the adoption on the customer base in PC, so.

JARED BLIKRE: Are there any numbers that investors can take away and say this is boding well for the tech industry, or that says something about future supply issues? Any big-picture macro trends that you can extract from this report?

VIJAY RAKESH: Yeah, absolutely. I think if you look at the data center side for them, it grew almost 35% year on year, even despite the pretty strong comps in first half of last year, where you had a big trend from work from home. So that continues to do well for them. I think when you look at the new next-generation Ampere, which just started maybe like three quarters back, it's only 5% penetrated of the entire gaming PC base there. So there's probably a nice runway on that ahead as well. So overall, I would say looking out, good tailwinds for Nvidia. Obviously, there's some concerns on ARM, crypto, et cetera, but the core leadership in AI continues to be intact, so.

AKIKO FUJITA: Let's talk specifically about that ARM deal. We did hear CEO Jensen Huang yesterday saying that the deal will unlikely be processed in time in this 18-month timeline that the company has laid out. We've seen the approval hit snags in China, in Europe. I mean, how much of that deal specifically has been priced into the stock? And if in fact, I don't know if we're at a point where we say the deal may potentially not go through, but if we're kind of at that point where investors start to get a little jittery around that, what kind of pullback do you think we could see in the stock?

VIJAY RAKESH: Yeah, most definitely I think the Nvidia management appears to believe that the deal is still on track. But as you see multiple reports come out, the eurozone is kind of revisiting that, UK's revisiting that, I think China as you mentioned, is going to be an issue there. But I would say investor sentiment is definitely in the camp that this would be a very-- would be a major uphill task, will be a major uphill battle.

So I think most people, most investors believe that this probably-- this deal probably would be tough to consummate. So but again, on the headline that if it gets blocked, there'll probably be a little bit of a-- there'll be some pullback for sure given that it was supposed to be part of a big runway going forward. But they still have access to the IP, they can still develop joint products, they can still develop a combined roadway. But they just won't have the asset in-house for sure, so.

JARED BLIKRE: Well, let me ask you, setting ARM aside for a second, we just had the Intel CEO come out and say that he's very much open to acquisitions. I'm wondering if Nvidia might be thinking along the same way as we see the industry really consolidating? And if that's the case, what kind of targets would they be looking at?

VIJAY RAKESH: Yeah, I think as you go into next year, 2022, and beyond, you probably see growth slowing globally. You know, I think you-- many of large stimulus is behind you, and you had some pretty strong hyper-growth in many of the segments. So fair to assume that you could see some consolidation in the markets.

The biggest issue, though, is antitrust and regulatory approvals. And so especially for large cross-border M&A, I think the issue will be trying to get regulatory approvals, trying to get it through major government, M&A government approvals, et cetera. So that would be the bigger issue. But you should expect some consolidation in the semi space for the next one, two years, so.

JARED BLIKRE: All right, Vijay. Thank you for those comments and we look forward to talking with you again. Vijay Rakesh, Mizuho Managing Director, and Senior Tech Analyst.