Strong AI Server Demand Supports These Two Holdings

Coming into this week, we shared that there were two known events we were waiting for: September revenue reports from Taiwan Semiconductor TSM and Hon Hai, better known as one of Apple’s manufacturing partners, Foxconn.

While TSM has yet to deliver that data, over the weekend Hon Hai reported its September revenue and what was seen is lifting our shares of Nvidia NVDA and Marvell MRVL.

Hon Hai’s September revenue rose almost 34% sequentially and more than 10% compared to year-ago levels to NT$733 million. The company shared that it saw strong demand for AI servers continuing, which pushed its Cloud and Networking Products segment ahead while new product launches for its Smart Consumer Electronics segment led to strong sequential growth.

With those monthly results in hand, we find Hon Hai's September quarter revenue reached NT$1,853.7 billion, up by 19.46% sequentially and just over 20% versus year-ago levels. In reviewing the September quarter, as one might expect, Hon Hai touted strong AI server demand, which ties with rising spending levels from Meta META, Alphabet GOOGL, Amazon AMZN and Microsoft MSFT. That revenue strength during September and the quarter keeps us bullish on the NVDA and MRVL shares.

Why the Muted Response for Apple, Qualcomm and Universal Display?

Turning to Hon Hai’s September quarter comments for its Smart Consumer Electronics segment, it benefitted from “strong quarter over quarter” and benefited from new product launches this season, which we take to primarily mean iPhone 16 models. That supports ramping September quarter volumes and revenue for both Qualcomm QCOM and Universal Display OLED. Based on the reaction to Hon Hai’s revenue report, it’s fair to say that part of the message is being overlooked in favor of Hon Hai’s AI-related comments.

The comparatively-underwhelming response we’re seeing in those shares is most likely tied to recent reports that wait times for iPhone 16 models are somewhat behind those for iPhone 15 models last year. We continue to think the staged rollout of Apple Intelligence features will drive a protracted upgrade cycle for Apple’s latest iPhone and other models. With that in mind, the next date to watch will be October 28, when Apple is expected to release iOS 18.1 with Apple Intelligence. Shortly thereafter, on November 1, Apple is expected to unveil a new set of Macs and its latest iPad mini.

Those announcements, plus Apple’s fiscal year ending on September 30, likely mean the company will deliver its September quarter results in early November. We would not be shocked to hear CEO Tim Cook share some favorable stats about iOS 18.1 downloads and early usage of Apple Intelligence during the earnings conference call. If we’re right, that may help spark the iPhone upgrade cycle, with more to come as future Apple Intelligence capabilities are released and folks take advantage of favorable iPhone trade-in programs.

When it comes to Qualcomm and Universal Display, let’s remember that, while the market has a close association with them and Apple, Apple is not their only customer. Qualcomm serves other smartphone vendors and is benefitting from the ramp in AI PCs, which carry a much higher price point for its chipsets than smartphones. Universal is benefitting from organic light-emitting diode usage at other smartphone, tablet and PC vendors as well as adoption in other end markets, including automotive. Recognizing that, we continue to rate QCOM and OLED shares One stocks.

Waiting on TSM’s September Revenue

Coming up next, at some point this week is the September revenue report from Taiwan Semiconductor. As a prelude for that report, typically TSM’s revenue peaked in August, which means if we see a sequential uptick this year with the September figures, it’s going to be attributed to AI chip demand. If that’s what we see, it will be a strong positive for our NVDA and MRVL shares.

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At the time of publication, TheStreet Pro Portfolio was long NVDA, MRVL, GOOGL, AMZN, MSFT, QCOM and OLED.