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Market volatility within the big tech names has continued to be high as concerns about AI returns have arisen. However, the fundamentals of the industry have not changed and the strength in the AI area continues. Our data for July and August on manufacturing and exports from Taiwan and Korea clearly points to further growth, not forgetting the strong numbers from TSMC for July. As a result of the current market environment, GP Bullhound Global Technology Fund fell by 3.73 % in August.
Despite the market volatility, major technology companies have continued to perform well, with strong second-quarter results and generally strong forward-looking statements. However, most stocks in our portfolio have been hit hard by the broader market fall, with the strongest year-to-date performers taking the biggest losses. Looking ahead, we see that the current market estimates for 2024 and 2025 are still too conservative and that many companies will grow into their valuations. In this environment, we selectively buy on weakness to capture potential returns.
Highlights from the second quarter reporting season
TSMC's second-quarter sales met expectations, with a gross margin of 53.2 %, beating forecasts thanks to better capacity utilization. Growth was driven by a 28 % quarter-on-quarter increase in demand for high-performance computing, led by AI. The third quarter sales forecast suggests 32 % year-over-year growth with an expected gross margin of 53.5 %-55.5 %, well above previous guidance. Industry fundamentals are strong with higher-than-expected growth and margins, but geopolitical risks are rising due to potential US restrictions on China and comments from Trump on Taiwan's defense. TSMC's strategic importance remains high, especially since all 2nm and 3nm production will take place in Taiwan in the coming years.
ASML reported sales of €6.2 billion and earnings per share of €4.01, beating estimates of €6.1 billion and €3.72 respectively. This as a result of a higher sales mix of older immersion machines with better margins, with China accounting for 49 % of total sales. Order intake was slightly above consensus at €5.6 billion, with EUV orders accounting for €2.5 billion. While third-quarter forecasts were slightly below expectations, ASML maintained its full-year forecast and points to a stronger fourth quarter. Despite the strong performance, ASML's share price was affected by rumors of potential US equipment restrictions on the Chinese market, along with Trump's comments on Taiwan's defense. Future restrictions may target tools used for production below 14nm – a small but crucial segment for Huawei.
Nvidia's sales and earnings per share beat high expectations with stronger guidance for the coming quarters as well. However, the shares were sold off despite the strong numbers. The company says the Blackwell chip will sell billions of dollars in the fourth quarter and that Hopper sales will increase in the second half of the year compared to the first. We saw no weaknesses in the results and expect continued strong execution from the company.
AMD's results were in line with expectations, with data center sales up 115 % year-over-year. AI and increased Intel CPU market share were key drivers, with AI sales surpassing $1 billion in the quarter. AMD now forecasts that AI sales will exceed $4.5 billion this year and likely approach $5 billion. The company is gaining CPU market share and its cyclical segment is recovering, indicating a strong outlook for the second half of 2024 and 2025. Limited AI supply is also positive news for AMD's suppliers.