Razor's Edge- Sep 3rd
I'll be publishing these short updates for paid subscribers going forward with a focus on what I'm paying attention to for my trading and update of current positions. The idea on these is to be brief. Enjoy.
Macro Commentary:
235k non-farm payrolls missed consensus of 750k and lowest print since January. Not much to read into here after the open up boost we got last few months and delta headwinds, but more support for the tapering of the taper talk. Good news for SaaSy names and not good news for the cyclicals. Other than that not much new to cover here since my recent write-up on the macro.
Earnings:
Pagerduty: Solid earnings w them finally printing a magical 30%+ topline at 33% and notably the 1st one since I flipped this from short to long right befor covid. Stock keeping in line with theme of rotation in SaaS and more value names doing better of late. This follows Workday, Salesforce, Anaplan and generally names that I’ve favored at decent risk/reward balance at expense of high multiple momentum names in edge/security/proj mgmt. and over former covid darlings. Note pd is showing a nearly plus 35% differential over the week vs zoom which those that have gone through the past year of vol here will realize is a first. One analyst did grill them a bit on NDR getting a one-time boost from lapping last years soft q at this time which I did find a bit odd considering that is essentially the nature of the metric. The CFO will be coming on podcast next week so will get a chance to dig in a bit deeper here, but overall think the name still looks goods at the current valuation. I may trim some if we get over $55.
Avgo: No position in this semi bellweather though the call did have some interesting exchanges.
They dodged (not surprisingly) this question on price increases:
Harsh Kumar
Yeah. Hey, Hock. First of all, congratulations on solid results guidance. The question for you is, everybody's favorite foundry TSMC is talking about price increases. In some cases, they're substantial.
Do you feel that you can pass us along and also at this point in time, companies are probably securing capacity for next year? Can you talk about your capacity, you know, your ability to get some extra capacity to be able to grow next year? Thank you.
Hock Tan
Okay. Very interesting questions, Harsh. First and foremost, -- from outside, we try not to talk about customers specifically. And the same applies very much too strategic suppliers too.
So, I wouldn't comment at all on what you alluded to here, but as far as our capacity for 2022, I think we have gotten a pretty good supply availability lineup for 2022, and we feel pretty okay about then. I won't say great but, in this environment, all things considered, we're feeling quite good. Thank you.
And then they offered this take w respect to double ordering/inventory builds in semi space
Vivek Arya
Thanks for taking my question. Actually, I just wanted to clarify something and then have the question. On the clarification, I think, Hock, you mentioned you're shipping to demand? Does it mean you're not seeing any supply shortages?
Then that would be very different than what we are hearing from every other semiconductor Company. So just wanted to make sure I have the right interpretation. And then my question is just kind of the long-term growth rate for Broadcom? In the past year, I mentioned this mid-single-digit growth rate. I understand that this year's compares make it easier to grow faster than that.
But as you look at Broadcom over the next handful of years, do you think you are in a situation to grow better than the mid-single-digit growth rate? What is missing to make you upgrade that mid-single-digit growth rate, the conceptual forecast that you have provided in the past?
Hock Tan
Okay. Let me take the first question first. Because -- the first part of the question first, because I think it's very important and very interesting, it ties into the first question by John Pitzer, it's "hey, why you are guys not shipping like crazy?
Are you supply-constrained? " That's always overhanging our care about making every waiver count in this environment and we do that very carefully. And we do that, I believe very well, given in looking at how well our margins are performing in this environment.
But we also are always, as I said before, a few times, the way we manage our supply chain, we pretty much liked to carefully scrutinize and demand as defined -- as defined by ourselves, which is one -- the -- the end-user who need those products.
What we also see, and I mentioned that in the industrial segment in 2000 in Q3, where resale from a distributor to know industrial generally goes through -- pretty much go through distributors.
The end-users just go to our distributors and wipe out our inventory -- both our inventory there. So, we'd show a resale growth of 55% and we all know that's not real demand. People are building up a buffer that's at a certain level of panic buying.
Take that across all segments of semiconductor markets today, you see that kind of behavior unless you call key suppliers. We put in careful discipline to manage supply to where demand is really needed, as opposed to where OEMs or even end-users are just building up buffers -- a bucket of buffers everywhere.
And that's pretty much what we spend a lot of our time doing. I cannot necessarily say the same of many other semiconductor companies out there, which is probably why John Pitzer is saying, why are people showing bigger numbers?
We can show bigger numbers. But that means we will build up inventory in the wrong places and we need every one of those wafers in this environment, not just this quarter or next quarter and the quarter after that, to ensure that our strategic customers are able to get what they need to launch, to deploying programs, right?
There is definitely a lot to think about here if you are a chip investor heading into 2022. I do think it’s highly likely the space experiences a covid related correction sometime next year, and that you want to consider short exposure or at least a defensive positioning in the sector ahead of this. Complacency is very high right now in semis, and it’s hard to imagine that they do not experience some operational volatility in 2022. I’m keeping a close eye on this for now.
Positions
Long: Twitter, Booking, Boeing, Workday, Pagerduty, William Sonoma, Anaplan, Netflix
Short: Yalla
Content Worth Checking out
1) New China Revolution post that been making the rounds and supposedly blessed by the government. This is either a very interesting read or a very extremist piece of propaganda. As with all things china politics its often hard to decipher. But it has made the rounds and is worth a read.
2) Patrick Oshaughnessy podcast with YGG co-founder Gabby Dizon- This is a good listen if you've taken an interest in all things Metaverse. I would have liked to see some more grilling here and it pains me to hear the words 'community owned' 'economy' and 'gdp' used to describe these yield schemes, but this space is the current flavor flave in crypto. If you are trading this stuff i do think the Axie governance token is going to have a serious blowup. That's not exactly a short recommendation unless you are a binance perpetuals expert, but at some point this will grab headlines. This structure is the definition of unsustainable, and there are serious regulatory concerns with respect to allowing these investment schmes to continue in present form.
3) Nice post on Tesla’s D1 training chip and Dojo by Dylan Patel. It’s more on the technical side but still some good perspective. He's a good follow if you interested in chip stocks.
4) Also, good pushback on this take from Nervana founder and former Intel DCG head Naveen Rao in this Hyperchange roundtable interview with Dylan and James Wang. I've been following this space closely for years, and maybe will do a more detailed piece on the topic later.