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April 11, 2025
The Lithography Inflection Point - How Two Different Approaches to EUV Could Reshape the Semiconductor Industry
By
Kristal Investment Desk
If there is a defining characteristic of President Trump's second term, it is the resolve to rewrite America's economic relationship with the world. February's market gyrations reveal the first tremors of this tectonic shift.
The administration's shotgun approach to tariffs — targeting Canada, Mexico, Europe and, with renewed vigor, China — has sent markets from euphoria to anxiety in record time. The S&P 500 ended February with its bull narrative seriously challenged, while CTAs and algorithmic traders hastened the selling in what Goldman aptly termed a "Mr. Roboto" market.
Most telling was traders' reaction to Nvidia's stellar results. Instead of celebrating continued AI dominance, the stock dropped 8 percent — a signal that even technological supremacy offers limited shelter from macroeconomic storms. The "Magnificent Seven" now look distinctly "Lagnificent," as one wag put it, down 8% YTD.
Trump is deliberately engineering economic pain to achieve structural change. The Atlanta Fed's GDPNow model's precipitous drop from 2.3% growth to a 1.5% contraction for Q1 is exactly the type of short-term sacrifice the administration appears willing to accept.
The chaotic and confrontational meeting with Ukraine's President Zelensky — which ended with him being asked to leave the White House — only underscores this administration's comfort with disruption as policy tool.
For investors, the crucial question is whether Trump's economic brinkmanship will eventually deliver the promised prosperity or merely sacrifice current stability for an illusory future. The surging trade deficit, with imports up nearly 12 percent month-on-month as businesses frantically front-run tariffs, suggests the transition will be anything but smooth.
Bond markets have already voted, pricing in three rate cuts in 2025 as growth concerns overwhelm inflation worries. Yet institutional investors remain curiously unmoved — "aggressively watching" rather than actively selling, as JPMorgan observed.
This hesitation suggests either remarkable confidence in Trump's economic vision or dangerous complacency. The truth likely lies between these poles, but one thing is certain: the administration's gambit to "re-privatize" the US economy through tariff-induced creative destruction represents the most radical economic experiment since the stagflation of the 1970s.
Investors who fail to appreciate the scale of this ambition do so at their considerable peril.
Jensen Huang faces the curse of extraordinary success. Nvidia's latest results - with revenue beating guidance by 4.8% and data center sales exceeding estimates by 6.3% - were met with investor indifference. When excellence becomes expected, merely beating expectations no longer moves the needle.
The chipmaker continues extending its technological lead. Blackwell delivers 2.2x performance gains over the H200, with 30x faster inference. While AMD celebrates reaching Hopper-level performance, Nvidia has already moved ahead. This execution gap persists despite competitors' best efforts.
Contrary to market fears, Nvidia embraces cost deflation in AI training. The 200x reduction in inference costs over two years expands the market rather than threatens margins. As workloads shift from training to reasoning - which requires 100x more compute - demand should remain robust.
New growth vectors provide additional runway. Automotive revenue is projected to nearly triple to $5bn in 2025, while software ecosystem lock-in strengthens competitive moats.
The key question isn't Nvidia's execution but whether the semiconductor cycle has fundamentally changed. Customer ROI metrics (hyperscalers generate $5 for every $1 spent on Nvidia hardware) continue to justify aggressive spending. Yet semiconductor history suggests caution is warranted.
At 28x NTM PE, investors must decide if Nvidia can maintain hypergrowth in an industry historically defined by cycles.
The cloud data platform once left for dead in the generative AI race is showing signs of life. One year into Sridhar Ramaswamy's tenure as chief executive, Snowflake delivered quarterly results that beat revenue estimates by 3% while more than doubling its expected operating margin. The former Google advertising executive appears to be successfully defrosting investor sentiment.
Snowflake's shares have lost nearly half their value since their 2020 peak, as shareholders fretted about the company's ability to compete in the artificial intelligence gold rush. Those concerns now appear overblown. Ramaswamy has swiftly addressed product gaps, consolidating go-to-market teams, cutting middle management and accelerating innovation. The result: a 100% increase in product delivery for calendar 2024.
The company's new Cortex AI suite positions it for the emerging "agentic AI" wave, with tools that orchestrate tasks across enterprise data. Notably, Snowflake is the only data platform offering integration with both Anthropic and OpenAI models. With 4,000 customers already using its AI/ML products weekly, the investment thesis is beginning to crystallise.
What truly sets Snowflake apart is its network effect. As more customers like Stripe and Braze opt into data sharing within the ecosystem, the platform becomes increasingly valuable. Want access to the place where these companies and their customers share context? Choose Snowflake. Scale begets stickiness, which begets more scale.
Even the emergence of open-source technology like Iceberg tables, once feared as an existential threat to Snowflake's storage revenue, has proven "convincingly positive". Rather than cannibalising existing business, it has opened workloads previously inaccessible to the company. The rising tide of data processing is lifting Snowflake's ship.
Financial results reflect this renewed momentum. Product revenue beat guidance by 3.8 per cent, while earnings per share of $0.30 crushed the $0.18 consensus estimate. The company expects net revenue retention to remain in the healthy mid-120% range for the year.
Challenges remain, of course. Stock-based compensation still represents an elevated 37% of revenue, though this marks an improvement from 41% a year earlier. The announced retirement of CFO Mike Scarpelli creates transition risk. And the consumption-based revenue model lacks the visibility of subscription-based software, making Snowflake vulnerable to customer belt-tightening during economic downturns.
At 12.5x Forward EV/Sales, Snowflake no longer commands the stratospheric multiples of its early public life. But with margins expanding and innovation accelerating, investors have reason for cautious optimism. In the AI era, being the place where enterprise data lives and breathes remains a compelling proposition. After a long winter, Snowflake shows signs of a thaw.
PayPal is the financial equivalent of the ageing rock star with fading relevance — or so the market believes. While fintech upstarts claim the spotlight, this payments veteran has languished in obscurity, trading at a pedestrian 15 times forward earnings despite generating $5bn in annual free cash flow. Chief executive Alex Chriss, who took over in September 2023, wants to change that narrative.
The company's recent investor day reveals a business that is neither as stale nor as structurally challenged as its valuation suggests. Chriss is addressing the core issues: disparate platforms, leaking funds and unrealised cross-selling potential. Industry heavyweight though it may be, PayPal suffers from self-inflicted complexity. Its platforms — PayPal, Xoom, Venmo, Braintree, Zettle — have operated as technological fiefdoms rather than components of a unified system.
The integration of these platforms into "PayPal Open" is neither glamorous nor immediately accretive. But it is necessary plumbing. Migrating to cloud infrastructure has already delivered 20% lower transaction latency and faster product development for Braintree. Such improvements matter in payments, where milliseconds influence conversion rates.
Fundamentally, PayPal needs to stop leaking money. About 90% of the $18bn flowing monthly through Venmo exits within a month. Similarly, 80% of merchant funds quickly leave the platform. Each dollar retained generates net interest income and potential transaction revenue. New products like B2B bill pay and enhanced merchant services aim to stem this outflow.
The company's guidance — high-single-digit transaction margin dollar growth and low-teens earnings per share growth by 2027 — appears unambitious on the surface. More revealing is management's "longer-term ambition" of 10%+ transaction growth and 20%+ EPS growth beyond 2027.
Such targets would position PayPal as a growth company rather than a mature one. If achieved, its current multiple would look decidedly miserly. With $5.6bn in net cash and a robust cash conversion cycle, PayPal can afford the time required for this transformation. The question is whether investors will demonstrate similar patience for this old-money revival.
South Korea's population is shrinking. That normally spells doom for consumer businesses. Not so for Coupang. The e-commerce giant is tearing up the playbook, delivering fourth-quarter results that laugh in the face of demographic headwinds.
The numbers tell a compelling story. Strip away foreign exchange noise - a 7% point drag from the won's decade-low plunge - and revenue jumped 21% YoY. Profitability metrics were even more impressive. EBITDA outperformed expectations by 44%. Gross margins expanded to 31.2%, trouncing estimates.
Coupang's secret weapon is its vertically integrated logistics network, an expensive moat that deters would-be usurpers. The company's "Rocket Delivery" service, offering same-day and dawn delivery options, saw 45%. Its premium membership programme encourages customers to spend nine times more than non-members.
This infrastructure advantage solves South Korea's demographic puzzle. With just 25% of customers shopping across nine or more of its 20 product categories, there is ample room to increase wallet share even as the population contracts.
The company's $1.2bn Farfetch acquisition - rescuing the luxury marketplace from near-collapse - showcases operational discipline. The business generated about $30m in quarterly EBITDA after integration, confirming chief executive Bom Suk Kim's reputation for turning financial sinkholes into profit centres.
Like its regional rival Alibaba once did, Coupang has begun exporting its model. Taiwan, with about 45% of South Korea's population but lower e-commerce penetration, has delivered 23% QoQ. Japan may be next.
Investors remain cautious, valuing the company at just 26x estimated 2025 EBITDA despite projected growth of 26% this year and 44%. Such scepticism seems misplaced. Coupang has found the elusive balance between growth investments and financial returns.
For investors seeking exposure to Asian e-commerce, Coupang offers a compelling alternative to Chinese tech giants. South Korea's regulatory environment is more predictable, its currency less politically manipulated. The market seems to be missing the emergence of a genuine regional power.
Microsoft's cancellation of US data centre leases worth hundreds of megawatts has sparked concern around the generative AI boom's durability. Yet this appears less an industry-wide deceleration than a company-specific recalibration. The software giant, had telegraphed a shift from long-lived assets to shorter-lived ones like chips on its recent earnings call—suggesting optimization rather than retrenchment.
The timing aligns suspiciously with Microsoft's amended OpenAI partnership, which loosened Azure's cloud exclusivity as part of OpenAI's Stargate project. This points to demand redistribution rather than evaporation, particularly as other hyperscalers maintain aggressive build-out plans. Meta, for instance, continues development of a massive 2-gigawatt facility despite its own temporary setbacks attributed to environmental concerns.
For chip suppliers like Nvidia, this reshuffling may prove neutral or even positive if Microsoft redirects savings toward additional semiconductor purchases. The most probable interpretation is that AI infrastructure demand remains robust, but its distribution across providers is evolving. As Microsoft navigates this transition, investors should watch whether this recalibration reflects improved deployment efficiency or carries implications for the growth narrative that has propelled the company to its nearly $3tn valuation.
Tariff deadline, US NFP & ISM, China Two Sessions, ECB policy announcement, EZ HICP, Japanese Unemployment Rate, Fed's Musalem speech, and earnings from Bunzl, Broadcom, Marvell, Sea Ltd, and MongoDB.
Disclaimer: This musing is for informational purposes only and should not be considered as investment advice.
By
Kristal Advisors
March 1, 2025
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April 11, 2025
By
Kristal Investment Desk
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We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).
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