Author: The INO.com Team

NVDA’ Blackwell Delay: Is It Time to Rotate Into AMD?

Posted on by The INO.com Team

NVIDIA Corporation (NVDA), the AI darling, recently hit a rough patch. A report from The Information revealed that Nvidia’s highly anticipated Blackwell series chips are delayed due to design flaws, causing a sharp 15% drop in the stock over the past week. Even with this dip, the stock is still up more than 170% over the past year, but as we know, past performance isn’t a guarantee of future returns.

So, what’s going on with Nvidia? And more importantly, is it time to consider alternatives?

Dark Clouds Are Looming Over the Future of Nvidia

Back in March, NVDA announced its Blackwell series, boasting capabilities that promised to build and operate real-time generative AI on trillion-parameter large language models at a fraction of the cost and energy consumption of its predecessor. But fast forward a few months, and the picture isn't as rosy.

According to the report, the company has informed major customers, including tech giants like Alphabet Inc. (GOOGL) and Microsoft Corporation (MSFT), that shipments of its Blackwell AI accelerator will be delayed by at least three months due to design flaws. It appears to involve Taiwan Semiconductor Manufacturing's new packaging technology, which NVDA is one of the first to use, and issues with the placement of bridge dies connecting two GPUs.

This isn’t just a minor hiccup. The delay could throw off the plans of customers such as Microsoft and Meta Platforms, Inc. (META), who have invested billions in Nvidia’s new GPUs to drive their AI services. The worry is that these delays might prevent these companies from deploying large clusters of the new chips in their data centers by the first quarter of 2025, as they had hoped.

Design flaws aren’t something that can be fixed overnight, which explains the significant delay. Nvidia, for its part, hasn’t outright confirmed or denied the delays but did say that “production is on track to ramp later in 2024.” However, with only a few months left in the year, this sounds more like an early 2025 release.

The delay has led tech companies to look for alternatives from NVDA’s competitors, such as Advanced Micro Devices, Inc. (AMD). MSFT and GOOGL, for example, are already working on next-generation products with AMD.

While Nvidia still dominates the data center GPU market, the Blackwell delay could weigh on its stock price and reputation. It’s arguably the most significant setback NVDA has faced since the AI boom began, and it might just be the moment for AMD to shine.

The Future of Advanced Micro Devices

With a market cap of $3.18 trillion, NVDA’s growth prospects seem more limited compared to AMD, which could see its valuation double from its current $250 billion as it gains momentum in the data center space.

In the second quarter, AMD’s data center revenue surged 115% year-over-year to $2.83 billion, accounting for nearly half of its total revenue. The Mi300 series brought in over $1 billion in quarterly revenue for the first time, with its customer base expanding as Microsoft became the first cloud provider to offer general availability for the Instinct Mi300X.

The significant increase in AMD’s data center sales, driven by AI applications, is expected to boost profits further, as this segment typically yields higher margins. Additionally, the company's recent acquisition of Silo AI, Europe's largest private AI lab, will enhance its capabilities in generative AI, including inference, training, and large language models.

Furthermore, Advanced Micro Devices’ client revenue rose 49% year-over-year to $1.49 billion, though with slimmer margins than its data center business. The recent drop in the gaming and embedded segments will likely bottom out soon, potentially lifting overall results. Even modest gains could significantly boost AMD's bottom line. The company reported net income of $265 million or $0.16 per share, up from $27 million or $0.20 per share recorded last year.

Investors are keen to see AMD challenge NVDA with its MI300X AI chip and demonstrate growth in its data center AI business. On the other hand, Street expects its revenue and EPS for the current year (ending December 2024) to increase 12.9% and 27.6% year-over-year to $25.62 billion and $3.38, respectively. If AMD can exceed expectations, the stock could experience significant gains in the coming months. Earlier this year, the company projected $4 billion in AI chip sales for 2024, representing about 15% of its expected revenue.

Is It Time to Ditch NVDA and Buy AMD?

Delays in Blackwell chip could impact NVDA’s market share and growth. If the delay is short, the stock might have minimal impact on its fiscal 2025 results. However, if it extends beyond three months, it could weigh heavily on the stock, especially as some analysts were anticipating a quicker resolution.

Additionally, concerns about whether the design flaw could lead to chip failures or affect production yields add to the uncertainty. Nvidia's decision to pause production and address the issue is a smart move, but it highlights the risks of its aggressive development timeline, which has been shortened from two years to one. While this strategy could pay off, it also increases the risk of errors or delays.

On the other hand, AMD is well-positioned to benefit from NVDA's ongoing headwinds. With its MI300X AI chip gaining traction and strong data center growth, Advanced Micro Devices could capture some market share from Nvidia. Given this backdrop, it might be the right time to consider rotating out of NVDA and into AMD, especially for investors looking to capitalize on the AI-driven growth in the semiconductor sector.

China's Naval Expansion: Why Defense Stocks Like NOC & LMT Are Poised for Growth

Posted on by The INO.com Team

In the first half of 2024, China's shipbuilding industry secured nearly 75% of new global orders, demonstrating the nation's expanding manufacturing power. Ship completions surged by 18.4% year-over-year to 25.02 million deadweight tons (dwt), which represents 55% of the global total during this period. Moreover, the industry's order backlogs increased by 38.6% to 171.55 million dwt. China’s dominance is no fluke, the country leads in 14 out of 18 major ship types for new orders.

But what’s driving this rapid ascent? It’s a mix of cutting-edge technology, surging global demand, and the unmatched efficiency of Chinese shipyards. By adopting advanced construction techniques and digital tools, China has managed to build ships faster and better, which has translated into booming profits. In fact, the industry’s profits for the first five months of 2024 came in at 16 billion yuan ($2.24 billion), up 187.5% year-over-year.

China's defense industry is rapidly advancing, producing increasingly larger and more capable warships at an impressive pace. For instance, the construction of the Yulan-class landing helicopter assault (LHA) ship, also known as the Type 076, at the Changxing Island Shipbuilding Base. This vessel is set to be a game-changer, poised to become the largest amphibious assault ship in the world.

Satellite images from July 4 show the vessel's flight deck spans over 13,500 square meters, which is nearly the size of three American football fields. That’s significantly larger than the U.S. America-class LHAs and Japan’s Izumo-class carriers and much bigger than its Chinese predecessor, the Type 075.

The Type 076 isn’t just about size; it’s about capability. With room for dozens of aircraft, drones, and amphibious landing craft, plus accommodations for over 1,000 marines, this ship is set to revolutionize the People’s Liberation Army’s (PLA) power projection. Its expansive flight deck and roomy internal hangar will offer enhanced capacity and flexibility, making it a formidable addition to China’s naval arsenal.

Images also reveal that the drydock where the new 076 class is being constructed opened only in October as part of a new port expansion. This rapid production is giving Beijing a significant edge, with the potential to outpace its rivals like the United States.

Since 2019, China has launched four Type 075 vessels, with two now combat-ready and four more on order. Although the U.S. Navy leads in total warship tonnage, China has surpassed the U.S. in the number of warships over 1,000 tons, and in combat logistics and support vessels.

The real worry for U.S. officials is China's shipbuilding capacity. According to U.S. Naval Intelligence, China’s shipbuilding capacity is now 632 times greater than the U.S., supported by a vast network of efficient shipyards.

In the past decade, China has launched 23 destroyers and eight guided-missile cruisers, while the U.S. has launched only 11 destroyers and none of the cruisers. This booming production capability, backed by a robust civilian shipbuilding industry, is raising serious concerns in Washington.

As nations respond to China’s expanding naval prowess, there is likely to be increased demand for advanced defense technologies and military solutions. This heightened demand could drive growth in defense stocks, reflecting the broader trends in global military strategy and procurement.

Therefore, investors and defense analysts are turning their attention to how companies like Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC) are positioned to capitalize on these developments. With that in mind, let’s dig deeper into the fundamental strength of the featured stocks in detail.

Lockheed Martin Corporation (LMT)

Security and aerospace company LMT focuses on research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.

LMT’s net sales increased 8.6% year-over-year to $18.12 billion in the fiscal 2024 second quarter (ended June 30). Its consolidated operating profit grew marginally from the year-ago value to $2.04 billion, while its non-GAAP net earnings amounted to $1.64 billion in the same period. Also, the company’s EPS came in at $6.65, up 3.3% year-over-year.

While analysts predict a slight 4.6% drop in EPS for the year ending December 2024, its revenue is expected to grow by 5.5% year-over-year to $71.25 billion. For fiscal 2025, forecasts suggest revenue and EPS will hit $74.16 billion and $28.01, respectively.

Regarding rewarding shareholders, Lockheed Martin offers a stable dividend with a four-year average yield of 2.66% and a payout ratio of 44.3%. LMT’s current annual dividend of $12.60 translates to a 2.26% yield at the prevailing share price. Moreover, the company has increased its dividend payouts at a CAGR of 6.9% over the past three years.

In terms of price performance, the stock has gained nearly 30% over the past six months. As defense budgets rise globally, driven by geopolitical tensions, Lockheed Martin is well-positioned to benefit and deliver stable returns to your portfolio.

Northrop Grumman Corporation (NOC)

NOC operates as a global aerospace and defense technology company through four segments: Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems. The company leads in satellite manufacturing and space technology, contributing to missions like NASA’s Artemis program.

Recently, the company declared a quarterly dividend of $2.06 per share on the common stock, in consistent with its 10% increase announced on May 14. This dividend is payable to its shareholders on September 18, 2024. With a forward annual dividend of $8.24 per share and a yield of 1.62%, Northrop not only rewards shareholders but also boasts 21 years of consecutive dividend growth.

Financially, NOC is on a solid footing. In the second quarter (ended June 30, 2024), its total sales increased 6.7% year-over-year to $10.22 billion, while its total operating income rose 12.7% from the year-ago value to $1.09 billion. Net earnings for the quarter came in at $940 million and $6.36 per share, reflecting an increase of 15.8% and 19.1% from the same period last year, respectively. Also, its free cash flow improved by 79.7% from the prior-year quarter to $1.10 billion.

Street expects NOC’s revenue to increase 5.2% year-over-year in the current year (ending December 2024) to $41.34 billion, while its EPS is expected to grow by 8.2% from the prior year to $25.20 in the same period. For the fiscal year 2025, its revenue and EPS are expected to reach $42.92 billion and $27.69, registering an increase of 3.8% and 9.8%, respectively.

Moreover, NOC’s shares have gained more than 16% over the past month and nearly 9% year-to-date, making it a compelling option in a rapidly evolving defense landscape.

eBay’s Revenue Boost: Will Dropping AmEx Lead to Lower Costs & Higher Margins?

Posted on by The INO.com Team

Imagine logging into eBay, excited to use your American Express card to grab that coveted item, only to find out eBay no longer accepts AmEx. This scenario became a reality on August 17, 2024, when eBay Inc. (EBAY) officially stopped accepting American Express Company’s (AXP) credit cards due to what they call “unacceptably high” processing fees.

eBay made this move after months of criticism over rising credit card transaction fees. According to eBay, despite technological advancements and increased investment in fraud protection, fees for processing transactions have only increased. They argue that this trend is due to a lack of competition among credit card issuers, which keeps costs high. This decision was made public over two months ago, giving users time to prepare for the switch.

With $10.11 billion in revenue last year, EBAY is pushing for stricter regulations to encourage competition and “help reduce transaction processing costs for merchants and their customers.” Credit card processing, or swipe fees, are what businesses pay every time a customer uses a card. These fees can range from just over 2% of each transaction to as high as 4% for premium cards. These fees are among the highest operating costs for businesses, often leading to higher consumer prices and reduced sales.

American Express is known for its high fees, which is why eBay decided to cut ties. EBAY’s decision came after negotiations between the two companies broke down. Despite the move, AXP downplayed the impact, stating that “eBay represents less than 0.2%” of its total network volume. They expressed disappointment but insisted that eBay’s decision limits customer payment options and “take away the service, security, and rewards that customers value when paying with American Express.”.

Is It a Big Hit to Either Company?

Surprisingly, while EBAY and AXP part ways, Amex isn’t too worried. The company’s fiscal 2024 first quarter report revealed that over 60% of new account openings came from Millennials and Gen Z, two demographics they’re keen to keep growing. But the big question is, are these youngsters spending their money on eBay?

Last month, eBay adjusted its sales forecast to $2.50-$2.56 billion, compared to $2.57 billion recorded in the second quarter (ended June 30, 2024), hinting that sales might be slipping. However, the company’s stock has been on an upward trend this year. EBAY shares have gained more than 35% year-to-date and nearly 12% over the past three months.

According to eBay, most customers are “willing to use alternative payment options,” like Visa, Mastercard, and Discover. So, while ditching Amex might be inconvenient for some, most eBay shoppers are likely to switch to another payment method without much fuss.

Despite inconsistent consumer spending, the company managed to squeeze out profits with a 1.2% year-over-year increase in its net revenue of $2.57 billion. It wasn’t a huge leap, but it was enough to exceed analyst expectations of $2.53 billion. Its gross merchandise volume (GMV) also inched up by just 1% from the prior year to $18.42 billion. In the earnings release, eBay cited “an uneven discretionary demand environment in our major markets” as a reason for the sluggish figures.

On the bottom line, EBAY reported a non-GAAP net income of $602 million and $1.18 per share, up 8.5% and 14.6% year-over-year, respectively. It also surpassed the consensus EPS estimate of $1.12 per share, which is impressive.

Analysts seem to expect this trend of modest revenue growth and stronger earnings to continue. They anticipate EBAY’s full-year revenue to increase by just 1.9% year-over-year to $10.31 billion. However, its earnings per share is forecasted to grow by 13.5% this year to $4.81 and 7% in 2025 to $5.14.

Could This Be a Tipping Point for Amex?

Amex has been riding high in 2024, but eBay’s decision to cut ties with the credit card giant could be a sign of a broader shift. That raises the question: Will other companies follow suit, or is this just a one-time loss?

For large retailers, credit card processing fees are significant, typically ranging from 1.5% to 3.5% per transaction. These fees quickly add up, turning into billions in profit for credit card companies each year. Amex, however, tends to charge about 1% more per transaction compared to competitors like Visa, Mastercard, or Discover. Because of this, some local businesses and select merchants have stopped accepting Amex cards altogether. That’s a bummer for loyal Amex users.

Shares of AXP took a hit recently after Bank of America Securities analysts raised concerns that the stock might be overvalued, with limited room for further growth. The investment firm downgraded Amex from a “Buy” to a “Neutral” rating, maintaining a price target of $263 per share, signaling caution about the company’s future potential.

eBay’s Cost-Saving Strategy in a Volatile Market

As the Federal Reserve considers lowering interchange fees, eBay’s decision to drop American Express highlights a broader effort to reduce costs amid economic uncertainties. With inconsistent consumer spending and inflationary pressures, particularly in markets like the U.K. and Germany, eBay is strategically reducing costs to bolster profitability.

By cutting high transaction fees, eBay could reduce overhead and better position itself in the fiercely competitive eCommerce market. While the initial reaction might include some pushback from loyal Amex users, the long-term impact on EBAY’s marketplace could be decidedly positive. As the payments landscape continues to evolve, this decision may signal the start of broader changes designed to create a more competitive, cost-effective, and user-friendly environment for both consumers and merchants.

 

 

BYD Partners with HUBC: A Strategic Move or Risky Bet?

Posted on by The INO.com Team

The China-Pakistan Economic Corridor (CPEC) has been a major project under China’s Belt and Road Initiative (BRI), channeling billions of dollars into Pakistan’s infrastructure, especially its power sector. Over the past decade, these investments have resulted in the installation of numerous power plants, raising Pakistan’s total power capacity to a significant 42,000 MW.

However, Pakistan’s economic slowdown has kept power usage far below this level, often only reaching around 20,000 MW. This mismatch means the country is stuck paying for all that unused capacity, straining its finances.

Recently, Finance Minister Aurangzeb managed to renegotiate some of the hefty debts owed to Chinese power companies, providing short-term relief. Still, the core issue of overcapacity remains unresolved, leaving Pakistan with a tricky financial balancing act.

BYD’s Entry: A New Chapter in Pakistan-China Relations?

As the country grapples with its energy dilemma, China seems to seize an opportunity to further expand its economic influence. BYD Company Limited (BYDDY), a global leader in electric vehicles (EVs), is set to launch its vehicles in Pakistan, marking a significant milestone in the country’s automotive industry. That isn’t just about introducing new cars; it's a strategic move to use Pakistan’s surplus energy capacity.

BYDDY is teaming up with Hub Power Company Limited (HUBC) for its launch in Pakistan. HUBC (through its subsidiary Mega Motors Limited) has a solid history of collaborating with Chinese companies on power projects, including partnerships with China Power Hub Generation Company and China National Machinery Industry Corp (Sinomach). The details on whether BYD will build an assembly or manufacturing plant are still under wraps, but China's extensive involvement in Pakistan’s power sector means energy won't be a stumbling block.

The Chinese EV giant recently unveiled its plans to expand its operations in Pakistan. The company is set to launch its own car production facility in the country, marking a major step as the first significant player in the electric vehicle sector to enter the Pakistani market. Partnering with Mega Motors, BYDDY will introduce three of its models, including two SUVs and a sedan, starting in the fourth quarter of 2024.

The company also revealed that it will open three flagship stores in major cities like Karachi, Lahore, and Islamabad. While Pakistan currently lacks a robust EV charging infrastructure, BYD’s move includes plans for Hubco to establish fast-charging stations across major cities, motorways, and highways when the new assembly plant opens in 2026.

Hubco’s CEO, Kamran Kamal, hailed this venture as a “landmark investment,” emphasizing its role in boosting Pakistan’s green transportation options.

This strategic entry not only addresses the country's air pollution and greenhouse gas emissions but also promises to offer cleaner, more efficient alternatives to traditional gasoline and diesel vehicles. With BYD’s innovative EVs hitting the market, Pakistan is poised for a significant shift towards sustainable transportation.

Bottom Line

BYD’s partnership with HUBC and its entry into the Pakistani market is a bold strategic move underpinned by China’s extensive investments in Pakistan’s power sector. This collaboration aims to capitalize on Pakistan’s excess energy capacity and introduce a new wave of electric vehicles to a market ripe for innovation. On the surface, it appears to be a well-calculated move to drive industrial growth and enhance economic activity in Pakistan.

However, the venture is not without its risks. The increased dependency on Chinese investments could deepen Pakistan’s financial obligations and impact its economic sovereignty. As BYD rolls out its vehicles and infrastructure projects, the real challenge will be balancing the potential economic boost against the risks of heightened dependency and financial strain. Whether this partnership will ultimately prove to be a shrewd strategic play or a precarious gamble remains to be seen.

Cintas Corp. (CTAS) Record-Breaking Year: Is It Time to Invest?

Posted on by The INO.com Team

Cintas Corporation (CTAS) has carved out a niche in helping businesses stay clean, safe, and professional. Whether it’s uniforms, floor mats, cleaning supplies (like mops, disinfectants, and restroom essentials), fire extinguishers, or even first aid kits, Cintas provides the essentials that keep workplaces running smoothly.

The stock has been on a tear lately, appreciating nearly 200% over the past five years. On May 2, Cintas’ board approved a split of its common stock, which trades at around $772 per share. This four-to-one stock split is expected to increase the number of outstanding shares from about 101 million to approximately 404 million. The split is set to take effect when shares begin trading on a post-split basis on Thursday, September 12, just as summer comes to a close.

Moreover, the CTAS shares have surged more than 28% year-to-date. This impressive performance came on the heels of better-than-expected fiscal 2024 fourth-quarter earnings and a strong outlook for the coming year. Management’s guidance suggests that fiscal 2025 could surpass the success of 2024.

Cintas by the numbers

The company’s recent earnings report showed strong results across the board. While the top-line revenue came close to estimates, the bottom line shone, beating analysts’ expectations yet again. Cintas has consistently topped the EPS and revenue estimates in each of the trailing four quarters, which is promising.

In the final quarter of fiscal 2024, CTAS reported a record revenue of $2.47 billion, up 8.2% from the previous year’s quarter and $60 million higher than the prior quarter. Its revenue from the core uniform rental and facility services segment increased 7.8% year-over-year to $1.91 billion, driven by new and existing customers. The company’s first aid and safety services unit also performed well, with revenue up 11.2%, while other operations grew by 7.9% from the prior-year quarter.

For the full fiscal year 2024, CTAS revenue came in at $9.60 billion, reflecting an 8.9% increase year-over-year, with organic growth at 8%. Its First Aid and Safety Services operating segment crossed the $1 billion mark in annual revenue for the first time.

During the earnings call, the company stated that demand remains strong across its focused verticals of health care, hospitality, education, and state and local government. They also noted that about two-thirds of their new customers came from businesses that previously did not have any programs, showing the potential for continued growth. Moreover, Cintas' retention rates remained high, reflecting continued customer satisfaction.

On top of this, CTAS continues to see growth in profits and earnings, with margins expanding again. In the fourth quarter, its gross margin increased by 11.6% to $1.22 billion, compared to $1.09 billion the previous year. Gross margin as a percentage of sales rose to 49.2%, up 150 basis points from 47.7% a year ago. Despite increasing sales, the company has effectively managed its operating expenses, leading to impressive growth in operating income.

Operating income for the quarter grew by 16.3% from the prior-year quarter to $547.6 million, with an operating margin of 22.2%. The company’s net income surged 19.7% year-over-year to $414.32 million, while its EPS hit $3.99, surpassing estimates by $0.20 and up from $3.33 a year ago.

For the full year, the company’s operating income grew by 14.8% year-over-year, and its operating margin hit an all-time high of 21.6%. Moreover, its EPS grew by 16.6% for the year. Cintas attributed its improved profitability and earnings growth to a strong focus on operational efficiency, including better sourcing, supply chain management, and route optimization through initiatives like SmartTruck and SAP integration.

In addition, CTAS’ cash flow from operating activities for the fiscal year 2024 was $2.08 billion, compared to $1.60 billion last year, reflecting an increase of 30.2%. Thanks to its strong cash flows, the company paid out $530.90 million in cash dividends, up 18% year-over-year.

What’s Ahead for Cintas?

Based on its strong performance, Cintas is optimistic about continued success in the current fiscal year 2025. The company expects revenue to fall between $10.16 billion and $10.31 billion, representing a 5.9% to 7.4% increase over fiscal 2024. Moreover, its earnings per share are estimated to be between $16.25 and $16.75 for 2025.

Meanwhile, the consensus revenue estimate for the current year ending May 2025 is $10.28 billion, signaling a 7.1% year-over-year increase. Likewise, the company’s EPS is anticipated to witness a 10.2% uptick from the previous year, reaching $16.70. Further, analysts predict a 7.1% increase in revenue for the fiscal year 2026 to $11.01 billion. Similarly, EPS for the next year is expected to experience a growth of 10.4% from the prior year, settling at $18.44.

In terms of valuation, CTAS is trading at a lofty non-GAAP price-earnings ratio of 45.80x, which is 142.4% higher than the industry average of 18.89x. Likewise, the stock’s forward EV/Sales and forward Price/Cash Flow of 7.73x and 35.64x compared to their respective industry average of 1.79x and 14.48x.

While these metrics indicate a premium valuation, they are supported by the company’s strong financial performance. For instance, CTAS’ impressive trailing-12-month gross profit margin of 48.83% underlines its efficiency and pricing power. Similarly, its trailing-12-month ROCE of 38.28% is 198.8% higher than the industry average of 12.81%. Furthermore, the stock’s 24.83% trailing-12-month EBITDA margin exceeds the 13.76% industry average by 80.5%.

Bottom Line

Investment analyst Quad 7 Capital is bullish on Cintas' prospects, projecting continued growth into fiscal year 2025. Although the stock’s high price-to-earnings ratio of 46x might seem steep, Cintas' solid financial performance, efficient operations, and ongoing share repurchases suggest a potential for further appreciation.

Over the past three years, CTAS’ revenue and net income increased at CAGRs of 10.5% and 12.3%, respectively. Its EPS grew at a 13.9% CAGR during the period. Moreover, the company’s levered FCF rose at a 9.9% CAGR over the same time frame.

Given its robust financials, accelerating profitability, and bright long-term outlook, we believe CTAS is an ideal buy now. It might be wise for long-term investors to consider buying during any market dips to take advantage of this promising stock.