Author: The INO.com Team

Chinese EV Companies: Top Leaders in the Global Shift to Electric Vehicles

Posted on by The INO.com Team

In the rapidly evolving landscape of electric vehicles (EVs), Chinese manufacturers are emerging as dominant players, reshaping global markets traditionally led by Western automakers. As the U.S. and Europe impose tariffs and trade barriers, China’s EV upstarts are strategically expanding into developing markets, including Brazil, Mexico, and Southeast Asia.

In May, the Biden administration announced plans to slap new tariffs on Chinese EVs, advanced batteries, and other goods intended to protect U.S. manufacturers. Moreover, the European Commission (EU) will impose extra duties of up to 38.1% on imported Chinese electric cars starting in July, raising concerns about possible retaliation from Beijing.

According to data compiled by technology intelligence firm ABI Research for Business Insider, Chinese automakers have already established significant dominance in several emerging markets. In Brazil, China’s carmakers captured around 88% of the EV market, while in Thailand, they held a 70% share during the first quarter.

Despite their current small size, the EV markets in most of these countries are experiencing rapid growth.

Chinese EV companies such as BYD Company Limited (BYDDY), NIO Inc. (NIO), and XPeng Inc. (XPEV) are at the forefront of this transformation, leveraging technological prowess and strategic market expansions to solidify their positions worldwide.

BYD Company Limited (BYDDY)

With a $95.78 billion market cap, BYD Company Limited (BYDDY) is one of China’s leading automobile manufacturers that engages in new EVs and power batteries internationally. The company operates in two segments: Mobile Handset Components, Assembly Service and Other Products; and Automobiles and Related Products and Other Products.

BYDDY’s strategic approach combines technological leadership, market diversification, and strategic partnerships and investments to solidify its position as a frontrunner in the global EV industry. The company has expanded its footprint in regions, including Brazil, Mexico, Australia, and Southeast Asia, capitalizing on growing world demand for EVs.

According to ABI Research figures, BYD accounted for about 71% of EV sales in Brazil and 45% in Thailand in the first quarter.

On May 16, BYD launched its first pickup truck, BYD SHARK, in Mexico. BYD SHARK is positioned as a new energy-intelligent luxury pickup featuring the DMO Super Hybrid Off-road Platform. This model represents the latest addition to BYD's product range, tailored for global markets, marking the company’s first global product launch outside China.

Stella Li, Executive Vice President of BYD and CEO of BYD Americas, said, “With the introduction of our inaugural new energy pickup, BYD SHARK, we’re poised to redefine the conventional fuel pickup landscape through advanced technology, providing users with a lifestyle characterized by boundless opportunities. BYD is now ushering in the era of the global new energy pickup.”

Also, in March, BYDDY launched its third electric car, Seal, a premium electric sedan with a price starting at around $49,458, in India’s booming EV market. In 2023, the company sold 1,877 cars in India, an increase of 314% year-over-year.

Notably, in the same month, BYD Company became the world’s first automaker to roll off its seven millionth new energy vehicle, the DENZA N7, which was introduced at its Jinan factory in China, underscoring another groundbreaking accomplishment for the brand.

For the first quarter that ended March 31, 2024, BYDDY’s operating revenue increased 4% year-over-year to RMB124.94 billion ($17.20 billion). Net profit attributable to shareholders of the listed company rose 10.6% from the year-ago value to RMB4.57 billion ($629.28 million). Its earnings per share came in at RMB1.57, up 10.6% from the previous year’s quarter.

Analysts expect BYDDY’s revenue and EPS for the fiscal year (ending December 2024) to increase 25.7% and 15.9% year-over-year to $104.92 billion and $3.14, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to grow 13.3% and 9.2% from the prior year to $118.86 billion and $3.43, respectively.

BYDDY’s stock is up nearly 14% over the past month and has gained more than 11% year-to-date.

NIO Inc. (NIO)

With a $9.27 billion market cap, NIO Inc. (NIO) has gained prominence for its focus on high-performance, smart EVs and innovative battery-swapping technology. Based in Shanghai, China, the company provides five and six-seater electric SUVs, as well as smart electric sedans. It also offers power solutions, including Power Home, Power Swap, Power Charger and Destination Charger, Power Mobile, Power Map, and more.

Besides its solid presence in China, NIO has established footholds in global markets such as Southeast Asia, Latin America, and Europe, aiming to capitalize on the growing demand for luxury EVs. Moreover, NIO plans to expand to the Middle East in 2024, CEO William Li stated on an earnings call, adding that deliveries of its lowest-priced brand will begin in the first half of the following year.

On April 8, NIO officially inaugurated its Smart Driving Technology Center in Schönefeld near Berlin. It is the first center outside China, underscoring the company's expanding international footprint.

NIO delivered 20,544 vehicles in May, indicating a substantial increase of 233.8% year-over-year. The deliveries comprised 12,164 premium smart electric SUVs and 8,380 premium smart electric sedans. Also, in April, the company delivered 15,620 vehicles. As of May 31, 2024, cumulative deliveries of NIO vehicles reached a staggering 515,811.

“Despite the intensifying market competition, NIO’s premium brand positioning, industry-leading technologies, and innovative ‘chargeable, swappable, upgradeable’ power experience have been recognized for their exceptional competitiveness, leading to solid sequential growth in vehicle deliveries in recent months,” said William Bin Li, chairman and CEO of NIO.

“In April 2024, we launched the 2024 ET7 Executive Edition, featuring 180 upgrades tailored to the needs of business travelers and professionals, further enhancing our competitiveness in the premium sedan market. In addition, with a commitment to create better family life, our new smart electric vehicle brand, ONVO, along with its inaugural product L60, was unveiled in May 2024,” he added.

Further, NIO extended its strategic cooperation on battery swapping by collaborating with GAC Group and FAW Group. These add to NIO’s existing network of strategic alliances with Changan Automobile, Geely Group, JAC Group, Chery Automobile, and Lotus Technology. NIO remains dedicated to advancing its evolving battery-swapping ecosystem, aiming to deliver efficient and convenient recharging solutions for its customers.

During the first quarter that ended March 31, 2024, NIO reported vehicle sales of $1.16 billion, and its total revenues were $1.37 billion. Its gross profit grew 200.5% from the prior year’s quarter to $67.60 million. As of March 31, 2024, the company’s cash and cash equivalents, restricted cash, short-term investment and long-term time deposits stood at $6.30 billion.

Analysts expect NIO’s revenue for the fiscal year (ending December 2024) to increase 21.4% year-over-year to $9.38 billion. Likewise, the company’s revenue for the fiscal year 2025 is anticipated to grow 43.7% year-over-year to $13.48 billion. Also, NIO’s stock has surged approximately 2% over the past five days.

XPeng Inc. (XPEV)

With a $7.48 billion market capitalization, XPeng Inc. (XPEV) designs, develops, and markets Smart EVs in China that appeals to the large, growing base of tech-savvy consumers. It provides SUVs under the G3, G3i, and G9 names; four-door sports sedans under the P7 and P7i names; and family sedans under the P5 name.

XPeng’s competitive pricing appeals to budget-conscious consumers without compromising quality or innovation. The company has expanded its operations into Europe and Southeast Asia, leveraging local partnerships and market insights to adapt its offerings to regional preferences.

XPEV delivered 10,146 Smart EVs in May, an increase of 35% year-over-year and 8% over the previous month. The XPENG X9 notably achieved monthly deliveries of 1,625 units, reaching a cumulative total of 11,456 units. Since its launch, it has continuously led sales in both the all-electric MPV and three-row model segments in China. XPENG has delivered 41,360 Smart EVs year-to-date, marking a 26% rise year-over-year.

On May 20, XPEV launched XOS 5.1.0, Tianji, the industry’s first AI-powered in-car OS. It features end-to-end large model technology, promoting the smart driving experience for XPENG car owners. The company will offer intelligent and personalized in-car AI assistant services through AI assistant Xiao P, AI Chauffeur, and AI Bodyguard. The recent launch outlines XPeng’s new market positioning as the global pioneer and promoter of AI smart driving.

In the first quarter that ended March 31, 2024, XPEV’s total revenues increased 62.3% year-over-year to $910 million, and revenues from vehicle sales were $770 million, up 57.8% from the prior year’s quarter. The company’s gross margin was 12.9% for the first quarter, compared to 1.7% for the same period of 2023. As of March 31, 2024, its cash and cash equivalents, restricted cash, short-term investments and time deposits were $5.73 billion.

XPENG’s physical sales network reached 574 stores, covering about 178 cities as of March 31, 2024. Also, its self-operated charging station network had a total of 1,171 stations, including 359 XPENG S4 ultra-fast charging stations, at the end of the first quarter.

Xiaopeng He, Chairman and CEO of XPENG, further stated, “Through our strategic partnership with the Volkswagen Group, XPENG is at the forefront of monetizing in-house developed smart technologies as a technology enabler. Our industry-leading technologies are expected to gain greater market influence and yield better financial returns.”

Street expects XPEV’s revenue for the second quarter (ending June 2024) to increase 63.2% year-over-year to $1.13 billion. Similarly, the consensus revenue estimate for the fiscal year (ending December 2024) of $6.12 billion indicates an improvement of 43.6% year-over-year. Also, the company has topped the consensus revenue and EPS estimates in three of the trailing four quarters.

Shares of XPEV have surged more than 7% over the past five days.

Bottom Line

China’s EV newcomers seem to be strategizing for global dominance. They are expanding into developing markets, including Brazil, Mexico, Indonesia, Thailand, and India, amid tariff and trade barriers imposed by the U.S. and Europe.

Chinese manufacturers like BYDDY, NIO, and XPEV are leveraging their technological prowess and strategic market expansions to establish themselves as leaders in the global EV industry. These companies lead in cost-effective manufacturing and are at the forefront of advancements in battery technology, autonomous driving, and user-centric design.

With ambitious global expansion plans and a commitment to sustainability, these China-based EV giants are poised to reshape the automotive industry, setting new standards for electric mobility worldwide.

Can McDonald's $5 Meal Deal Boost Its Stock Performance?

Posted on by The INO.com Team

McDonald’s Corporation (MCD), the global fast-food chain, recently announced the highly anticipated $5 Meal Deal, set to roll out on June 25 for a limited period at participating restaurants in the U.S. This strategic move comes as part of McDonald’s strategy to enhance affordability and attract customers amid ongoing macroeconomic pressures.

In recent years, McDonald's has faced criticism as prices surged, resulting in less revenue from lower-income consumers and reduced foot traffic in its stores. 

Understanding the $5 Meal Deal

The $5 Meal Deal includes your choice of a McDouble or McChicken sandwich, 4-piece Chicken McNuggets, small fries, and a small soft drink. This offering aims to provide consumers with a substantial meal at a competitive price point, echoing MCD’s commitment to delivering value to its customer base.

The company is extending enticing offers through the McDonald’s App, including a promotion where customers can receive free medium fries with a $1 minimum purchase for “Free Fries Friday,” available nationwide until the year’s end.

Additionally, franchisees in communities are celebrating summer by offering local special deals. For instance, in Memphis, Tennessee, customers can take advantage of a Buy One Get One for $1 deal on breakfast sandwiches and steals on lunch and dinner fan favorites such as a Double Cheeseburger & small fries pairing for $3.50 in Columbus, Ohio. In Western New York, MCD offers a mix-and-match McChicken and McDouble deal for just $3.99.

“Affordable prices and creating memorable moments are what McDonald’s is all about,” stated John Palmaccio, McDonald’s Owner/Operator and Operator’s National Advertising (OPNAD) Fund Chair. “As small business owners, it’s our responsibility to deliver great value to our local communities when they need it most. The $5 Meal Deal is the perfect complement to the everyday local deals customers can find in store and on the app, like the 25 percent off any purchase of $10 or more deal that I'm offering at my restaurants in Savannah, Georgia.”

McDonald’s Enhanced Focus on Affordability

During an earnings call in late April, MCD’s CEO Chris Kempczinski emphasized the company’s commitment to affordability in 2024, responding to customer concerns over recent price increases. According to a report by the New York Post in July, a McDonald’s located at a Connecticut rest stop was pricing a Big Mac combo meal at $18.

“Consumers continue to be even more discriminating with every dollar that they spend as they face elevated prices in their day-to-day spending, which is putting pressure on the industry,” said Chris Kempczinski. “It’s imperative that we continue to keep affordability at the forefront for our customers.”

Moreover, McDonald’s chief financial officer (CFO) Ian Borden said at an investor conference that lower-income customers have been cutting back spending on fast food and other types of restaurants. Borden hinted at concerns about inflation and possibly depleted pandemic savings, which resulted in customers choosing to eat out less often.

MCD reported mixed first-quarter results as profits were hurt by the effects of inflation on consumers and continued boycotts in the Middle East. For the quarter that ended March 31, 2024, McDonald’s reported revenues of $6.17 billion, slightly beating analysts’ estimates by 0.01%. That compared to $5.90 billion in the prior year’s quarter.

The company’s global comparable sales increased 1.9% in the quarter and reported U.S. comparable sales growth of 2.5%. The fast-food chain said the average check rose thanks to higher menu prices; however, it has also scared away some low-income customers.

Demand in McDonald’s International Developmental Licensed Markets was even weaker. The segment, which includes restaurants in the Middle East affected by the Israel-Hamas war and related boycotts, decreased comparable sales by 0.2% during the quarter.

Furthermore, the fast-food chain giant posted a first-quarter non-GAAP net income of $1.96 billion, or $2.70 per share, up 1.1% and 2.7% year-over-year, respectively. However, McDonald’s non-GAAP earnings per share missed the consensus estimate of $2.73.

Historical Impact of Value Meal Promotions on McDonald's Revenue and Stock Price

Historically, MCD’s promotional strategies, particularly those centered around value meal deals, positively impacted its revenue and stock performance. One notable example is McDonald’s “Dollar Menu,” which has been a recurring promotion aimed at offering affordable meal options to customers. Introduced in various forms over the years, including the current “$1 $2 $3 Dollar Menu,” these deals typically feature a selection of items priced attractively at $1, $2, or $3, such as sandwiches, sides, and beverages.

In the past, McDonald’s saw a significant uptick in customer visits and transaction sizes when value menus were heavily promoted. The attraction of affordable pricing has historically driven increased foot traffic and stimulated incremental purchases beyond the promoted items. This phenomenon underscores the effectiveness of value-driven promotions in boosting MCD’s sales volume and overall revenue.

Moreover, the company’s ability to sustain profitability during value-driven promotions is supported by its operational efficiencies and scale advantages, allowing it to maintain attractive margins despite lower price points. Simultaneously, McDonald’s stock experienced periods of growth attributed to enhanced consumer appeal and increased market share within the fast-food industry.

Bottom Line

During the first quarter, MCD slightly beat analyst expectations for revenue. However, the company’s earnings missed estimates as its results were hurt by the impact of elevated inflation on consumers and boycotts in the Middle East. As a result, CEO Chris Kempczinski said in a late April quarterly earnings call that McDonald’s has to be “laser-focused on affordability.”

The fast-food chain giant has since promised lower prices and expressed interest in winning over inflation-weary customers. As McDonald’s is exploring more avenues to win customers back, it recently announced the $5 Meal Deal, available starting June 25 for a limited time at participating restaurants nationwide. This move is a response to a decline in low-income customer traffic and a broader industry shift toward more value-focused offerings.

Historically, McDonald’s promotions like the “Dollar Menu” and “$1 $2 $3 Dollar Menu” illustrate their potential to impact revenue and stock performance significantly. By attracting more customers through value offerings, McDonald’s increases short-term sales and strengthens its market position and investor appeal over the long term.

Therefore, McDonald’s $5 Meal Deal represents a pivotal initiative to capitalize on consumer demand for value-driven meal options. While the immediate financial impact will depend on execution and consumer response, historical data suggests a potential positive impact on revenue and stock performance. Investors and market analysts will likely closely monitor the rollout and consumer reception, anticipating insights into MCD’s resilience and strategic agility in navigating current economic challenges.

Chevron vs. NextEra Energy: Which Dividend Stock is the Better Buy?

Posted on by The INO.com Team

Despite the industry challenges, Chevron Corporation (CVX) and NextEra Energy, Inc. (NEE) are both gaining significant traction and rewarding shareholders with reliable dividends. But if you had to choose between them, which would be the better buy?

Chevron's Dividend Strength Over 37 Years

Chevron is one of the largest integrated energy majors globally, with operations spanning oil production, transportation, and processing. This strategic spread helps cushion the inherent volatility in oil and gas markets, ensuring stability and sustained growth.

Recently, oil prices dipped after hitting seven-week highs. Brent crude futures slipped to $85.27 a barrel, while U.S. West Texas Intermediate crude dropped to $81.47 per barrel. Despite the cyclical nature of the oil sector, Chevron’s solid operational and financial performance continues to shine through.

In its latest earnings release, the company reported a double-digit increase in worldwide production and returned $6 billion in cash to shareholders. CVX beat first-quarter earnings estimates, with an adjusted EPS of $2.93, surpassing analysts' expectations of $2.87. U.S. production surged to 1.57 million barrels of oil and gas per day, a 35% increase from a year ago, thanks to strong output from the Permian and Denver-Julesburg basins.

What truly sets Chevron apart is its financial muscle. The company’s debt-to-equity ratio is a mere 0.12, the lowest among its peers. This low leverage gives CVX the flexibility to support its operations and sustain its dividends even during downturns, providing a significant competitive advantage.

In the first quarter of 2024, Chevron’s return on capital employed exceeded 12%, reflecting efficient management and strategic investments. The company increased its quarterly dividend by 8% sequentially to $1.63 per share and repurchased nearly $3 billion worth of its shares.

With 36 consecutive years of dividend growth and a forward dividend yield of 4.16%, Chevron offers investors a compelling mix of income and growth potential. CVX has a four-year average yield of 4.35%, and its dividend payouts have grown at a CAGR of 6.4% over the past three years.

Moreover, the company aims to grow its annual free cash flow (FCF) by nearly 10% through 2027, even if Brent crude prices fall to $60 per barrel. With Brent crude currently around $83 per barrel, Chevron has ample room for growth. CVX’s strategy focuses on improving ROCE by investing in high-return areas like the Permian Basin, expected to drive substantial cash flow growth.

Increasing cash flow and robust dividend growth make CVX an attractive long-term investment. The company’s ability to navigate market fluctuations and maintain financial stability positions it as a top choice for investors seeking security and growth in the energy sector. Shares of CVX have gained over 4% over the past six months and nearly 5% year-to-date.

How Is NEE Positioned to Reward Shareholders?

NextEra Energy is a dual force in the energy sector, uniquely positioned with substantial operations in regulated utilities and renewable energy. As one of the largest regulated utility companies in the U.S., NEE enjoys stable earnings through its main subsidiary, Florida Power & Light (FPL).

FPL's recent expansion efforts, including the addition of 1,640 megawatts of new solar capacity, underscore its commitment to clean energy and meeting the growing electricity demands. In the first quarter that ended March 31, 2024, FPL reported a net income of $1.17 billion or $0.57 per share, reflecting an increase of 9.5% and 7.5% year-over-year, respectively.

Simultaneously, NextEra Energy Resources, the company's renewable energy arm, continues to advance in sustainable energy production. The segment had a record quarter, adding approximately 2,765 megawatts of new renewables and storage projects to its backlog. Its adjusted earnings for the quarter were $828 million and $0.40 per share, up from $732 million and $0.36 per share in the first quarter of 2023.

Financially, NEE's performance remains robust. During the quarter, the company’s adjusted earnings amounted to $1.87 billion or $0.91 per share, reflecting an increase of 11.6% and 8.3%, respectively. Its adjusted EBITDA was $462 million, and $164 million cash was available for distribution. Moreover, its revenue and EPS have grown at respective CAGRs of 16.6% and 20.2 over the past three years.

Looking forward, NEE sees significant growth potential in the U.S. renewables and storage market, expecting it to triple over the next seven years from 140 gigawatts to around 375-450 gigawatts. With an existing 74-gigawatt operating fleet, split between FPL and Energy Resources, the company aims to expand to over 100 gigawatts by 2026, further strengthening its operational scale and creating additional value for its stakeholders.

On June 17, NEE paid its shareholders a quarterly dividend of $0.52 per share. With 28 consecutive years of dividend growth and a forward dividend yield of 2.84%, NEE offers an attractive proposition for income-oriented investors seeking exposure to the clean energy sector. Also, it has a four-year average dividend yield of 2.23% and has grown its dividend payouts at a CAGR of 10.2% over the past three years.

All said, NEE stands at the forefront of the energy transition, leveraging its dual strengths in regulated utilities and renewable energy to drive sustainable growth and value creation. The stock has gained over 21% over the past six months and over 19% year-to-date.

Should You Buy Chevron or NextEra Energy?

Analysts are bullish on these dividend-paying giants, each presenting significant upside potential. So, how do these two stack up?

Mizuho gave Chevron a Buy rating and raised the price target from $200 to $205, implying a substantial 23.59% upside from the current price of $156.64. This sentiment is echoed by other prominent analysts, with HSBC and Scotiabank setting price targets of $178 and $195, respectively. This results in an average price target of $186.95, suggesting a potential 16% upside.

On the other hand, NextEra Energy has also caught the eye of analysts. BMO Capital recently maintained an Overperform rating on the stock and raised the price target from $78 to $79, suggesting an 8.3% upside from the current price of $72.46.

In terms of dividend yield as a rough measure of value, CVX's 4.2% yield is far more attractive compared to NEE's modest 2.8%. While both stocks historically offered higher yields during oil downturns, NextEra Energy's current yield is comparatively lower. This positions CVX as a stronger income play and suggests it may be the more attractive stock between the two.

Why Broadcom’s (AVGO) 10-for-1 Stock Split Could Attract a New Wave of Investors

Posted on by The INO.com Team

Broadcom Inc. (AVGO), a prominent player in the semiconductor industry, announced a 10-for-1 forward stock split set to take effect on July 15, 2024, taking advantage of a rally in its shares this year. This decision comes on the heels of an outstanding second-quarter performance, underscoring Broadcom’s strategic positioning amid the burgeoning artificial intelligence (AI) revolution.

Understanding Stock Split Mechanics and Strategic Implications for Broadcom

A stock split involves dividing each existing share into multiple shares, effectively lowering the share price proportionally while maintaining the company’s total market capitalization. In AVGO’s case, each shareholder will receive nine additional shares for every one share held, resulting in a tenfold increase in the number of outstanding shares.

The primary objective of a stock split is to make shares more affordable and accessible to a wide range of retail investors by reducing the nominal share price. Given Broadcom’s share price surpassing $1,800 recently, the split aims to address perceived affordability barriers that may have deterred investors.

The increased accessibility can broaden AVGO’s investor base, potentially stimulating demand for its shares. Consequently, a higher number of outstanding shares resulting from the stock split typically leads to higher trading volumes. This enhanced liquidity can benefit both existing and new investors, allowing for easier entry and exit from positions.

Comparison with NVIDIA’s Recent Similar Move

Broadcom’s stock split mirrors a similar move by NVIDIA Corporation (NVDA), its rival in the AI hardware market. With more individual investors gaining access to Nvidia’s shares post-split, which came into effect at the close of trading on June 7, increased trading activity and demand were observed, potentially driving share prices higher.

NVIDIA’s stock is trading above its 50-day and 200-day moving averages of $99.28 and $68.61, respectively. NVDA’s successful split this month was preceded by significant market gains, highlighting the strategic timing of Broadcom’s decision to capitalize on investor sentiment surrounding the AI and semiconductor sectors.

Historically, stock splits are viewed as a bullish signal. According to data from BofA research, total returns for companies announcing stock splits are about 25% in the 12 months after a stock split compared to 12% gains for the S&P 500 index.

Broadcom’s Unprecedented Growth Amid the AI Boom

With a $839.05 billion market cap, AVGO is a technology leader that develops and supplies semiconductor and infrastructure software solutions. The company manufactures sophisticated networking chips for handling vast amounts of data used by AI applications such as OpenAI’s ChatGPT, positioning it as one of the beneficiaries of increased enterprise investments in the boom.

According to Grand View Research, the global AI market is projected to reach $1.81 trillion by 2030, growing at a CAGR of 36.6% during the forecast period (2024-2030). As AI continues to revolutionize industry verticals, including automotive, healthcare, retail, finance, and manufacturing, chipmakers like Broadcom are at the forefront, providing the essential chips that power AI applications.

Broadcom’s second-quarter results were primarily driven by AI demand and VMware. For the quarter that ended May 5, 2024, AVGO’s net revenue increased 43% year-over-year to $12.49 billion. Its revenue surpassed the consensus estimate of $12.01 billion. Revenue from its AI products was a record $3.10 billion during the quarter. Broadcom reported triple-digit revenue growth in the Infrastructure Software segment to $5.29 billion as enterprises increasingly adopted the VMware software stack to build their private clouds.

AVGO’s gross margin grew 27.2% from the year-ago value to $7.78 billion. Its non-GAAP operating income rose 32% year-over-year to $7.15 billion. Furthermore, the company’s non-GAAP net income came in at $5.39 billion or $10.96 per share, up 20.2% and 6.2% year-over-year, respectively. Its EPS exceeded the analysts’ expectations of $10.84.

Also, the company’s adjusted EBITDA grew 30.6% from the prior year’s quarter to $7.43 billion. It reported a free cash flow, excluding restructuring and integration, of $4.45 billion, up 18% year-over-year. As of May 5, 2024, AVGO’s cash and cash equivalents were $9.81 billion.

After an outstanding financial performance, Broadcom raised its fiscal year 2024 guidance. The company expects full-year revenue of nearly $51 billion. Its adjusted EBITDA is expected to be approximately 61% of projected revenue.

Favorable Analyst Estimates

Analysts expect AVGO’s revenue for the third quarter (ending July 2024) to grow 45.6% year-over-year to $12.92 billion. The consensus EPS estimate of $12.11 for the current quarter indicates a 14.9% year-over-year increase. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending October 2024, Street expects Broadcom’s revenue and EPS to grow 43.4% and 13% year-over-year to $43.37 billion and $47.74, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 15.3% and 25.6% from the previous year to $59.22 billion and $59.95, respectively.

Bottom Line

As AI continues to revolutionize several sectors, chipmakers such as Broadcom are at the forefront, offering essential semiconductor and infrastructure software solutions powering this technology. Driven by robust AI demand and VMware, AVGO reported solid second-quarter performance, exceeding analysts’ estimates for revenue and earnings.

The management expressed confidence in the company’s growth prospects by raising the company’s fiscal year 2024 guidance for revenue to $51 billion and adjusted EBITDA to 61% of revenue. Moreover, AVGO’s strong financial health enabled it to approve a quarterly dividend of $5.25 per share, payable on June 28, 2024.

The company pays an annual dividend of $21 per share, which translates to a yield of 1.17% on the current share price, while its four-year average dividend yield is 2.69%. Its dividend payouts have grown at CAGRs of 12.9% and 17.5% over the past three and five years, respectively. Broadcom also raised its dividend payouts for 13 consecutive years.

In the last quarterly earnings release, AVGO announced a ten-for-one forward stock split of its common stock, making ownership of Broadcom stock more accessible to investors. The company’s decision to execute a stock split represents a strategic move to enhance shareholder value and broaden investor participation.

By making its shares more accessible and increasing liquidity, Broadcom positions itself to attract a diverse array of investors keen on capitalizing on the AI-driven semiconductor boom. The stock split is a pivotal catalyst that could propel AVGO’s growth trajectory forward, cementing its status as a critical player in the evolving tech industry.

In a report released on June 16, William Stein from Truist Financial maintained a Buy rating on AVGO, with a price target of $2,045. Further, Oppenheimer’s Rick Schafer increased the price target on Broadcom from $1,500 to $2,000 while maintaining a Buy rating on the stock.

In addition to Oppenheimer’s rating update, other analysts adjusted their price targets for AVGO. Goldman Sachs’ Toshiya Hari raised the price target from $1,550 to $1,850 and maintained a Strong Buy rating. Also, JP Morgan’s Harlan Sur raised the price target from $1,700 to $2,000 and maintained a Strong Buy rating on the stock.

In conclusion, for investors eyeing opportunities in the dynamic intersection of AI and semiconductor sectors, Broadcom’s ten-for-one stock split presents a compelling avenue to consider, backed by sound fundamentals and strategic foresight.

Coherent's Quantum Leap: Capitalizing on the AI Boom

Posted on by The INO.com Team

Formerly known as II-VI Incorporated, Coherent Corp. (COHR) has established itself as a critical supplier of materials, photonics, and laser technologies to a wide array of target markets. This company emerged from the merger of two leading laser industry giants and has since forged strong partnerships to extend its market reach and diversify its product offerings.

Substantial investments in research and development (R&D) and a laser-sharp focus on artificial intelligence (AI) products drive the company’s growth strategy. With a diverse portfolio ranging from engineered materials to optoelectronic components, COHR is setting its sights on dominating lucrative markets such as semiconductor manufacturing equipment and life sciences.

The laser maker's shares have doubled in recent months, benefiting from the burgeoning demand for AI and a boost in investor confidence following significant leadership changes. On June 3, the stock jumped more than 22% after Jim Anderson, who took over from the retiring Vincent Mattera Jr., was named the new CEO.

Anderson’s impressive stint at Lattice Semiconductor Corporation (LSCC), where he drove remarkable revenue and earnings growth, has investors dreaming big. They’re betting his leadership could propel Coherent to new heights, especially with AI's potential. Moreover, COHR’s stock has gained nearly 70% year-to-date and more than 130% over the past nine months.

In addition to leadership changes, Coherent has unveiled innovative products. On May 30, 2024, the company introduced a new laser power sensor, the PM10K+, designed to accelerate power output measurements by up to 500%. This new sensor is tailored for high-power applications, a growing sector in the industry.

Further, COHR launched a new single-mode, polarization-maintaining optical fiber. This product, the first of its kind in the market, is designed to support high-power 1550 nm amplifiers with over 20 watts of average power. Such developments highlight Coherent Corp's ongoing commitment to innovation, addressing market needs, and positioning itself as a leader in pushing the boundaries of laser technology capabilities.

How Did COHR Perform Financially and What Lies Ahead?

In the third quarter ended March 31, 2024, COHR posted revenue of $1.21 billion, exceeding the Wall Street estimates of $1.17 billion by 3.5%. Within its Networking segment, revenue amounted to $619 million, reflecting an 18% increase sequentially and a 12% rise year-over-year. This growth was driven by a significant, nearly 80% sequential rise in AI-related 800G Datacom transceiver revenue, which reached around $200 million.

Further, COHR saw an 11% increase in orders year-over-year, boosting its backlog to over $2.74 billion (up over $100 million from the previous year). The company’s non-GAAP operating income and attributable net earnings amounted to $182.20 million and $113.20 million, registering sequential growth of 6.2% and 31%, respectively.

Also, the company’s third-quarter non-GAAP EPS came in at $0.53, above the high end of its guidance. Moreover, Coherent surpassed the consensus EPS estimate of $0.42 by 27.3%.

Looking ahead, COHR anticipates sequential revenue growth in the remaining quarters of fiscal 2024, driven by solid demand in AI and other favorable end-markets. In addition, management lifted the lower end of its revenue outlook for the fiscal year 2024 by $70 million. It expects full-year revenue from $4.62 to $4.70 billion. Also, Coherent raised the non-GAAP EPS guidance to $1.56 to 1.73, a moderate increase from the previously guided $1.30 to $1.70.

Furthermore, Analysts expect COHR’s revenue for the fourth quarter (ending June 2024) to increase 5.8% year-over-year to $1.28 billion. The company is estimated to post an earnings per share of $0.60 in the current quarter, indicating a 46.5% improvement from the prior year’s period.

Is Coherent Poised to Capitalize on the AI Boom?

COHR is strategically well-positioned to capitalize on the burgeoning demand for AI-related technologies, mainly through its robust datacom portfolio enhancements. Analysts from JPMorgan highlighted Coherent among the companies poised to benefit from the expanding AI market.

Leveraging its specialized transceivers designed for AI and machine learning applications, which support key protocols like Ethernet and NVIDIA's NVLink, Coherent is reinforcing its commitment to innovation at the intersection of networking, lasers, and advanced materials.

Beyond its core strengths, the company is seeing significant momentum across its AI/ML portfolio. Revenue from 800G transceivers surged nearly 80% sequentially, nearing the $200 million mark in the last reported quarter. Looking forward, Coherent is gearing up for the commercial launch of 1.6T transceivers later this calendar year, anticipating continued strong demand driven by advancements in AI technology.

Meanwhile, management is optimistic about the future and anticipates that 50% of Datacom transceiver revenue for fiscal 2024 will be driven by AI-related revenue. It expects this robust demand environment to persist into the next fiscal year and beyond.

Given the expectations of continued market strength and a projected 21% CAGR in the Datacom transceiver market until 2028, Coherent remains well-positioned to capitalize on the accelerating demand for AI-driven technologies and data center expansions.

Bottom Line

As Coherent continues to navigate the AI boom, its ability to stay ahead of market trends and technological advancements will be crucial. With new leadership and a strong foundation in R&D, Coherent is well-positioned to maintain its momentum and achieve sustained growth in the competitive tech industry.

Meanwhile, the global AI in hardware market is poised to grow from $23.50 billion in 2023 to $84.90 billion by 2031, growing at a CAGR of 15.5%. COHR is expected to benefit significantly from the booming AI market due to its expertise in laser and photonics technologies, which are integral to AI hardware development and applications.

While the recent surge in COHR’s stock price following the announcement of the new CEO has brought it close to bullish expectations, this optimism warrants caution until more evidence of financial performance aligns with these high expectations. Hence, investors should stay vigilant and track the company’s progress in its key markets and ability to deliver on its growth promises.