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The Nasdaq Update for Semiconductor Stocks

Today let’s continue the Nasdaq-100 updates with Semiconductor stocks.

Right now I’m listening to the new BG2 podcast interview with Dylan Patel, the founder of Semianalysis. Since launching a few years ago, Dylan now produces one of the best semiconductor research content in the world.

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In this interview, Dylan explains the competitive advantages of Nvidia, one of the best performing stocks in the Nasdaq-100 index. First, I was surprised to learn that Nvidia owns 98% of the A.I. Chip Market, if you exclude Google. If you include Google, it’s closer to 70% market share.

Two surprising facts I learned were: 1) The narrative that scaling is over is false; and 2) Companies like Meta, Amazon, Google, and Microsoft are investing heavily in building massive data centers and connecting them with high-bandwidth fiber.

If you’re outside of the semi industry, like me, you have no point of reference. I recommend watching Dylan’s interview to better understand the nuances.

Below are a few updates for two semiconductor stocks from the Nasdaq-100 to continue the discussion.

Meta is a sleeping LLM giant

Unlike most proprietary models (e.g., GPT-4 or Claude), Meta’s Llama is open-source. It allows developers to download the model weights and fine-tune them for custom applications. For me, this is what OpenAI should have been with their LLM.

The interesting element is what Meta has been able to accomplish several different spectrums. Right now most A.I. developments are happening in software. This has been amazing development because writing code was an obstacle for anyone who is not a developer. But the next obstacle are hardware applications.

For example, Nvidia continues to grab market share because they build the best hardware and software products. Next is Google with its Tensor chips and then Tesla with its autonomous vehicles. I think developing robotics will be massive for the industry. However, Meta does one thing different and better than all of the other A.I. companies: social.

Mark Zuckerberg and his team have been developing virtual reality technology for years. Meta’s Smart Glasses (Ray-bans and Quest 3) are well ahead of the competition. Integrating these hardware technologies with new age A.I. software will be amazing. The biggest application for gamers will be smart NPCs (non-playable characters).

Synopsys Material is a major supplier for semiconductors

Synopsys remains a dominant player in the semiconductor design software market. It’s a product people rely heavily on but have never heard of the name. Check out the stock price for the past five years. Synopsys is a $75 billion giant and up 2.5x over that period.

Right now they are delivering ~36% net profit margins. Very robust fundamentals with long-term growth prospects driven by AI and advanced chip designs. However, near-term pressures such as weaker guidance for 2025. Investors should weigh its strong market position against valuation risks and potential headwinds before making decisions.

This company has high gross margins, consistent revenue with very little debt. I used FinChat to break out their revenue segments. The time-based products revenue is something I would like to dive deeper into. However, what was more interesting to capture is the backlog obligation revenue in red.

This number dropped in 2024 but it’s quite strong. It suggests that they have ~2 years of client demand which will help withstand any near-term downturns.

But the stock is not without its risks. Synopsys is trading at 53x P/E ratio right now. Plus they are always exposed to geopolitical risks and potential regulatory hurdles related to China. Either way, Synopsys remains a dominant player in the semiconductor design software market and work looking into.