NVDA - Mobileye's Bullwhip Will Come For Nvidia Too
2024-01-09 06:03:00 ET
Summary
- Demand for products from Mobileye and its peers will keep rising.
- Nvidia and its shareholders have suffered before from dissipating shortages and customers burning off excess inventory.
- Mobileye Global stated its revenue for the first quarter would fall about 50% from the $458 million generated in the same period last year.
By Breakingviews
Mobileye Global ( MBLY ) got thwacked by the same bullwhip that eventually came around for all chipmakers. The maker of technology for autonomous car systems warned on Thursday that its first-quarter revenue would fall to about half what it was around the same time last year because of customer stockpiling, knocking 25% off the company's market value. Suppliers of semiconductors used in artificial intelligence are unlikely to be immune from similar gluts.
Demand for products from Mobileye and its peers will keep rising. The average value of chips in each vehicle averaged $500 in 2020 and is forecast to reach $1,400 apiece in 2028, according to S&P Global Mobility. Shorter-term forecasting can be harder, though. Manufacturers, for example, couldn't produce enough cars to satisfy buyers' appetites in both 2021 and 2022.
That's when the so-called bullwhip effect, or a small change in demand, can cause bigger ructions up the supply chain. Carmakers become frustrated when they can't sell a $50,000 vehicle because they lack necessary components that cost a fraction as much. When they worry about running out of chips, they order more, even three times as many as needed if they fear a supplier will ration shipments. Extra inventory is better than not enough. And shortage fears can turn into reality if peers panic.
Now the bullwhip is cracking the other way. Sated carmakers are slashing orders. Chipmakers that invested to increase supply may have overdone it, and investors are less enthusiastic about Mobileye's prospects. Its $24 billion market capitalization is still 40% higher than when Intel (INTC) took the company public in 2022, and it trades at a robust 11 times expected revenue for 2024, but the value is likely to keep growing as self-driving does and as the bullwhip flicks back the other way.
It's a reminder to others riding high elsewhere in the industry. Nvidia ( NVDA ), for one, is now worth $1.1 trillion, as it dominates the design of specialized chips for training AI systems. Customers can't get enough. They're presumably ordering more than they need. Nvidia and its shareholders have suffered before from dissipating shortages and customers burning off excess inventory. The bullwhip is bound to crack them again.
Context News
Mobileye Global, which makes technology used in autonomous vehicles, said on Jan. 4 that its revenue for the first quarter would fall about 50% from the $458 million generated in the same period last year because customers had built excess supplies of inventory to avoid similar shortages as occurred in 2021 and 2022 and that production for some buyers was lower than expected in 2023. The Intel-backed company said it expects customers will use most of the excess inventory in the first quarter, and that revenue should normalize for the rest of the year. Mobileye's stock price fell about 25% by 1643 GMT, to $29.83. Intel bought Mobileye for $15.3 billion in 2017, and then sold a portion of the company in an initial public offering in 2022 at $21 a share, valuing it at about $17 billion.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Mobileye's Bullwhip Will Come For Nvidia Too