Author: The INO.com Team

Investing in AI: Should You Bet on AMD, Broadcom, or NVIDIA?

Posted on by The INO.com Team

Is NVDA the Top Player in AI Stocks?

Initially famed for gaming GPUs, NVIDIA Corporation (NVDA) has evolved into a leader in data center hardware, spearheading AI advancement. The company’s Hopper GPUs are in high demand, accelerating AI applications from recommendation engines to natural language processing and generative AI large language models like ChatGPT on NVIDIA platforms. At this point, NVDA’s dominance in AI and data center markets is undeniable.

For the first quarter that ended April 28, 2024, Nvidia saw over 3x year-over-year increase to $26.04 billion, a new record level. NVIDIA’s Data Center Group (primarily connected to its AI operations) chalked up $22.60 billion in revenue, resulting in a 23% sequential gain and a massive 427% rise over the same period last year.

The chip giant’s operating income surged 690% from the year-ago value to $16.91 billion. NVIDIA’s non-GAAP net income amounted to $15.24 billion or $6.12 per share, compared to $2.71 billion or $1.09 per share in the previous year’s quarter, respectively.

Buoyed by a robust financial position, NVDA increased its quarterly dividend by 150% from $0.04 per share to $0.10 per share of common stock. The increased dividend is equivalent to $0.01 per share on a post-split basis and will be paid to its shareholders on June 28, 2024.

Moving forward, the company guided for a nice round of $28 billion in revenue for its second quarter of the fiscal year 2025, representing a projected 7.5% sequential gain. Its non-GAAP gross margin is expected to be 75.5%, plus or minus 50 basis points.

Analysts expect NVDA’s revenue for the fiscal 2025 second quarter (ending July 2024) to increase 109.7% year-over-year to $28.32 billion. The consensus EPS estimate of $6.35 for the current quarter indicates a 135.1% improvement year-over-year. Moreover, the company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

Nvidia’s comprehensive offerings, from chips to boards, systems, software, services, and supercomputing time, cater to expanding markets and diversify its revenue streams. Moreover, the chipmaker’s shares have surged more than 130% over the past six months and nearly 190% over the past year. NVIDIA's trajectory suggests an unstoppable momentum fueled by AI adoption mirroring a similar upward curve, promising a bright future.

Amid this, do AI stocks Broadcom Inc. (AVGO) and Advanced Micro Devices, Inc. (AMD) stand a chance to be as big as the industry leader, NVIDIA? Let’s fundamentally analyze them to find the answer.

Broadcom Inc. (AVGO)

Broadcom Inc. (AVGO) is emerging as one of Nvidia's toughest rivals in the race for networking revenue, especially as data centers undergo rapid transformation for the AI era. As a global tech leader, AVGO designs, develops, and supplies semiconductor and infrastructure software solutions. The company produces custom AI accelerators for major clients and recently projected $7 billion in sales from its two largest customers in 2024, who are widely believed to be Alphabet Inc. (GOOGL) and Meta Platforms, Inc. (META).

AVGO will announce its fiscal 2024 second-quarter earnings on June 12. Forecasts indicate a 37.4% year-over-year revenue surge to $12 billion, reflecting steady growth and financial resilience. Moreover, analysts expect a 5% uptick in the company’s EPS from the preceding year’s period to $10.84.

Broadcom has consistently exceeded consensus revenue and EPS estimates in each of the trailing four quarters, including the first quarter. Its net revenue increased 34% year-over-year to $11.96 billion, with a triple-digit revenue growth in the Infrastructure Software segment to $4.57 billion. AVGO’s gross margin grew 22.8% from the year-ago value to $7.37 billion.

On top of it, the company’s non-GAAP net income for the three months came in at $5.25 billion or $10.99 per share, up 17.2% and 6.4% year-over-year, respectively. Also, its adjusted EBITDA increased from the prior-year quarter to $7.16 billion.

Looking ahead, the company forecasts nearly $50 billion in revenues for fiscal year 2024, with adjusted EBITDA projected to be approximately 60% of its revenue. The company anticipates a 30% year-over-year surge in networking sales, driven by accelerated deployments of networking connectivity and the expansion of AI accelerators in hyperscalers. It also expects generative AI to account for 25% of semiconductor revenue.

The artificial intelligence megatrend is poised to significantly drive Broadcom's revenue and earnings growth in the upcoming decade. During a recent earnings call, Broadcom CEO Hock Tan emphasized, “Strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment.”

On May 20, 2024, AVGO announced its latest portfolio of highly scalable, high-performing, low-power 400G PCIe Gen 5.0 Ethernet adapters to revolutionize the data center ecosystem. These products offer an enhanced, open, standards-based Ethernet NIC and switching solution to resolve connectivity bottlenecks as XPU bandwidth and cluster sizes grow rapidly in AI data centers.

Patrick Moorhead, CEO & chief analyst at Moor Insights and Strategy, noted, “As the industry races to deliver generative AI at scale, the immense volumes of data that must be processed to train LLMs require even larger server clusters. Scalable high bandwidth, low latency connectivity is critical for maximizing the performance of these AI clusters.”

He added, “Ethernet presents a compelling case as the networking technology of choice for next-generation AI workloads. The 400G NICs offered by Broadcom, built on its success in delivering Ethernet at scale, offers open connectivity at an attractive TCO for power-hungry AI applications.”

With the company's expanding presence in the AI space, Broadcom stands out as a compelling alternative to major chip companies such as NVDA and AMD. Over the past six months, shares of AVGO have gained more than 42%, and nearly 63% over the past year, making it an attractive addition to your investment portfolio.

Advanced Micro Devices, Inc. (AMD)

Advanced Micro Devices, Inc. (AMD) has been at the forefront of innovation in high-performance computing, graphics, and visualization technologies for decades. While NVDA may be the first name that comes to mind in AI processor sales, AMD has established itself as a formidable competitor in the GPU space, particularly excelling in chips tailored for AI workloads.

However, AMD's influence doesn't stop in hardware; it has been actively expanding its AI software ecosystem. The company recently unveiled the groundbreaking AMD Ryzen™ AI 300 Series processors, featuring the world’s most powerful Neural Processing Unit (NPU). These processors are designed to bring AI capabilities directly to next-gen PCs, promising a future where AI-infused computing is seamlessly integrated into everyday tasks.

Additionally, the next-gen AMD Ryzen™ 9000 Series processors for desktops solidify AMD’s position as a leader in performance and efficiency for gamers, content creators, and prosumers alike.

Moreover, the company’s comprehensive roadmap for the Instinct accelerator series promises an annual cadence of cutting-edge AI performance and memory capabilities across each generation. Beginning with the imminent release of the AMD Instinct MI325X accelerator in Q4 2024, followed by the anticipated launch of the AMD Instinct MI350 series powered by the new AMD CDNA™ 4 architecture in 2025, AMD is poised to deliver up to a 35x increase in AI inference performance compared to its previous iterations.

In the first quarter that ended March 30, 2024, AMD’s non-GAAP revenue increased 2.2% year-over-year to $5.47 billion. Both its Data Center and Client segments experienced substantial growth, each exceeding 80% year-over-year, fueled by the uptake of MI300 AI accelerators and the popularity of Ryzen and EPYC processors.

Moreover, the company’s non-GAAP operating income grew 3.2% from the year-ago value to $1.13 billion. Its non-GAAP net income and earnings per share rose 4.4% and 3.3% from the prior-year quarter to $1.01 billion and $0.62, respectively.

AMD expects its revenue in the second quarter of 2024 to be around $5.7 billion, with a projected growth of 6% year-over-year and 4% sequentially. Meanwhile, its non-GAAP gross margin is expected to be around 53%.

Street expects AMD’s revenue for the second quarter (ending June 2024) to increase 6.7% year-over-year to $5.72 billion. Its EPS for the ongoing quarter is projected to reach $0.68, registering a 17% year-over-year growth. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters.

While Nvidia’s Data Center segment reported a sales run rate of $90 billion in the last quarter alone, experts predict that the company could surpass the $100 billion mark in Data Center sales with this momentum. In contrast, AMD's recent guidance forecasts sales of $3.5 billion for its MI300 AI chips in 2024. There’s still a sizable gap between NVIDIA and AMD in AI revenue. To put things into perspective, NVDA's networking revenue alone is approximately four times larger than AMD's total AI chip sales.

Nonetheless, AMD is poised to drive AI innovation across various domains with a diverse portfolio spanning cloud, edge, client, and beyond. The stock has gained more than 55% and 39% over the past nine months and a year, respectively.

Bottom Line

With the global artificial intelligence (AI) market projected to soar from $214.6 billion in 2024 to $1.34 trillion by 2030 (exhibiting a CAGR of 35.7%), leading chip companies, including NVIDIA, Broadcom, and Advanced Micro Devices, are rapidly expanding their market presence, vying for a piece of the pie.

Given their solid fundamentals and promising long-term outlooks, NVDA, AVGO, and AMD appear in good shape to thrive in the foreseeable future. Thus, investors can place their bets on these stocks to garner profitable returns and capitalize on the upward curve of AI.

The Impact of Amazon’s (AMZN) Price Cuts on Its Financial Performance

Posted on by The INO.com Team

As summer heats up, North America's largest retailers are diving into aggressive price-cutting campaigns to attract shoppers. Last week, an array of discounts emerged as retailers aimed to ease the financial strain on consumers. For instance, Target Corporation (TGT) announced that it would cut prices on 5,000 items, including diapers and pet food. This followed their February launch of the ‘dealworthy’ discount brand, introducing 400 household and essential products mostly priced under $10. Walmart Inc. (WMT) also revealed that it would lower costs on 7,000 items, marking a 45% increase in price rollbacks. Aldi and The Kroger Co. (KR) have also jumped on the bandwagon, aiming to reduce grocery prices.

In a move to stay competitive, Amazon Fresh, a subsidiary of Amazon.com, Inc. (AMZN), has entered the fray with a promise akin to Prime Day, offering substantial price cuts on 4,000 products, with new deals rotating weekly. The company announced that these price reductions will apply to items both online and at its Amazon Fresh brick-and-mortar grocery stores.

“Increasing our weekly deals across thousands of items and expanding the reach of Prime Savings at Amazon Fresh is just one way that we're continuing to invest in competitive pricing and savings for all of our customers,” said Claire Peters, Amazon Fresh's worldwide vice president.

As reported by CNN, Amazon's sweeping price cuts will cover a variety of categories, including meat, seafood, frozen foods, beverages, snacks, dairy, cheese, and pasta. The discounts will apply to both well-known brands and Amazon’s private-label products, such as the Aplenty grocery line. Additionally, Amazon Prime members will receive an extra 10% off additional items when they shop online.

These widespread price cuts come at a time when inflation has persistently raised grocery costs by 1.1% year-over-year as of April, a slight decrease from March's figures. With restaurant food prices up by 4.1% over the same period, these retailers have a window to draw in budget-conscious consumers looking for grocery deals.

The company’s strategic move to offer significant savings not only aims to draw more customers but also solidify its position in the highly competitive grocery market.

Unlimited Grocery Delivery Subscription, a Treat for your Wallet!

Last month, the online retail giant launched a new, low-cost grocery delivery subscription service exclusively for Prime members. Priced at $9.99 per month (with a discounted rate of $4.99 per month for SNAP/EBT cardholders), this subscription service promises unlimited delivery on orders exceeding $35.

What sets this service apart is its extensive coverage, spanning over 3,500 cities and towns across the United States. Initially trialed in three cities in 2023, the program has now expanded nationwide, showcasing Amazon's commitment to streamline and enhance the grocery shopping experience.

Customers enrolled in this subscription gain access to a vast selection of retailers, including Whole Foods Market, Amazon Fresh, and various local grocery and specialty retailers accessible through Amazon.com. By incorporating popular stores like Cardenas Markets, Save Mart, Bartell Drugs, Rite Aid, Pet Food Express, and Mission Wine & Spirits, Amazon is further solidifying its position as a go-to destination for all grocery needs.

Tony Hoggett, senior vice president of worldwide grocery stores at Amazon, said, “Our goal is to build a best-in-class grocery shopping experience — whether shopping in-store or online — where Amazon is the first choice for selection, value, and convenience. We have many different customers with many different needs, and we want to save them time and money every time they shop for groceries.”

In the context of Amazon's recent price cuts and initiatives to enhance its grocery offerings, this new subscription service adds another layer of convenience and affordability for customers.

How Did Amazon Perform in the March Quarter?

In the first quarter that ended March 31, 2024, net sales increased 12.5% year-over-year to $143.31 billion. Sales at AWS accelerated 17%, reaching $25 billion, topping Wall Street’s expectations of $24.5 billion. This uptick comes after a period of slower growth due to reduced cloud spending, with new demand for generative artificial intelligence boosting AWS's performance.

Operating income surged 200% in the period to $15.31 billion, which outpaced revenue growth and demonstrated the effectiveness of Amazon’s cost-cutting and efficiency strategies. AWS contributed 62% of the total operating profit. In addition, AMZN’s net income more than tripled to $10.43 billion, or $0.98 per share, up from $3.17 billion, or $0.31 per share, a year earlier, beating analysts' average EPS estimate of $0.83.

The impressive earnings growth has been driven by Amazon's widespread cost-cutting, adjustments to its fulfillment operations, and stabilization in cloud spending. CEO Andy Jassy has been implementing a disciplined approach to spending while expanding profitable segments like advertising, cloud computing, Prime memberships, and the third-party marketplace.

For the second quarter, Amazon expects continued profitability growth, projecting operating income between $10 billion and $14 billion, up from $7.7 billion a year earlier. Net sales are forecasted to range from $144 billion to $149 billion, representing growth of 7% to 11%.

Shares of the e-commerce and tech company climbed more than 52% over the past year and nearly 21% year-to-date.

Bottom Line

Amazon’s strategic price cuts are more than just an attempt to lure in customers with the allure of a good deal; they are a calculated move to enhance consumer satisfaction and loyalty. By rotating sales and offering substantial discounts, Amazon gives budget-conscious shoppers a reason to keep coming back, ultimately boosting sales volume and customer engagement.

These discounts cover a wide range of essential grocery and entertaining staples, from meat and seafood to dairy and snacks, with some items marked down by as much as 30%. This tactic ensures that Amazon remains a top choice for food purchases, in addition to household items.

"Amazon is committed to building a best-in-class grocery shopping experience, whether in-store or online, grounded in the values Amazon is famous for: price, selection, and convenience," the company stated in a press release.

This commitment was evident during the recent Memorial Day sale, where Amazon slashed prices on over 50 items, including its own brands and popular electronics from Apple and Sony. The company offered up to 50% off Amazon devices like Fire tablets and Blink cameras, and 32-inch Amazon Fire TVs were discounted by 40%.

Moreover, the launch of subscription service complements these price cuts and enhances its competitive edge in the grocery delivery market. As the e-commerce giant continues to innovate and expand its offerings, its commitment to competitive pricing and customer satisfaction is evident. These efforts are likely to enhance customer loyalty, drive sales growth, and ultimately have a positive impact on AMZN’s financial performance.

Alibaba's (BABA) Secret Weapon for Future Growth

Posted on by The INO.com Team

Amid challenging regulatory pressures, economic headwinds, and fierce market competition, Alibaba Group Holding Limited (BABA) has showcased a resilient performance, as evidenced by its latest quarterly results. Shares of the Chinese e-commerce giant have gained more than 7% over the past three months. Moreover, the stock is trading above its 50-day and 200-day moving averages of $76.20 and $78.79, respectively, reflecting a solid momentum.

Alibaba's diverse business portfolio continues to be a driving force behind its steady financial performance. For the fourth quarter that ended March 31, 2024, BABA’s revenue increased 7% year-over-year to $30.73 billion, beating the analysts’ estimate of $30.42 billion. The growth was driven by robust performances across its core e-commerce and cloud computing segments.

BABA’s strategic investments in Alibaba Cloud infrastructure and its domestic and international e-commerce platforms have spurred double-digit growth in key metrics such as gross merchandise value (GMV). Yet, the company’s income from operations dipped 3% from the prior-year quarter to $2.05 billion.

Navigating through cautious consumer spending in China, Alibaba has observed early signs of recovery in its primary e-commerce operations. Revenue from the Taobao and Tmall Group increased 4% year-over-year to $12.91 billion, while customer management revenue grew 5%, rebounding from a previously flat quarter. Also, revenue from the Alibaba International Digital Commerce Group (AIDC) surged 45% year-over-year to $3.80 billion.

BABA’s CEO Eddie Wu's commitment to ‘reignite’ growth through further investments is beginning to yield results, as he noted the strategies were “working and we are returning to growth.”

But What's Behind This Robust Growth?

Alibaba’s secret weapon lies in its digital technology and intelligence arm, Alibaba’s Cloud Intelligence Group, which stood as the company’s second-largest revenue generator last year. Revenue from this segment rose 3% year-over-year to $3.54 billion, driven by the double-digit growth of its public cloud business. Core offerings like elastic computing, databases, and AI products led to a notable triple-digit growth in AI-related revenue in the fourth quarter alone. This surge in demand for advanced AI solutions positions the company to capitalize on the burgeoning AI market.

To foster long-term growth and attract startups and small businesses, Alibaba aggressively slashed prices on over 100 core public cloud products (including Elastic Compute Service (ECS), Object Storage Service, and database product categories) in China. This initiative was later extended globally in April with a 23% average price reduction. Customers ordering through Alibaba’s official website can now enjoy discounts of up to 59% on computing, storage, network, database, and big data products.

“Cloud infrastructure is poised to be the key cornerstone for the future of AI, and our commitment lies in making sure that the foundation for AI development remains affordable,” said Selina Yuan, President of the International Business of Alibaba Cloud Intelligence.

Moreover, Alibaba Cloud's AI capabilities have rapidly gained traction, with over 90,000 enterprises adopting the Qwen large language model (LLM) within a year of its debut and more than 7 million downloads on open-source platforms like Github. Alibaba Cloud introduced Qwen2.5, the latest addition to its Qwen model family, to meet the growing demand for AI solutions.

Furthermore, Alibaba Cloud recently launched a service to help companies customize and scale generative AI models, from consolidating multiple models to optimizing underlying infrastructure resources. The PAI-Lingjun Intelligent Computing Service, an AI computing platform tailored for high-performance computing tasks, also expanded its reach to Singapore for the first time this year.

Also, the group's strategic focus on public cloud and operational efficiency resulted in an impressive 49% year-over-year increase in adjusted EBITDA to $848 million in fiscal year 2024. Such growth figures solidify Alibaba Cloud’s role as a crucial driver of the company's future growth.

Is Price Cuts a Strategic Initiative or a Race to the Bottom?

Alibaba’s recent move to reduce prices across its cloud services has stirred the market. Some say it's a smart move to attract more customers (especially with the growing demand for AI services), while others fear it could hurt profits in the long run.

With enterprises’ expenditure on generative AI services expected to reach $143 billion in 2027 globally, the timing of BABA's price adjustments appears strategic, positioning the company to tap into this growing market.

Meanwhile, BABA's price cuts have sparked a price war among Chinese tech giants, with Baidu Cloud and ByteDance quickly following suit with their competitive offerings. While these cuts benefit consumers, Alibaba’s footing in the global marketplace is tenuous. Despite holding over 30% of China's Infrastructure as a Service market, Alibaba still trails behind AWS in the broader Asia Pacific region. Alibaba Cloud commands only a small fraction of the global cloud computing market, where AWS, Microsoft Azure, and Google Cloud dominate the landscape.

Making headway against these industry giants is not easy, especially considering their strong foothold in Western markets. While the price cuts may attract budget-conscious customers and bolster Alibaba's presence in emerging markets, success hinges on maintaining high-quality service and innovation in the long run. Only time will tell if Alibaba's gamble pays off.

Bottom Line

BABA reported a beat in revenue in the fourth quarter of fiscal 2024; however, the e-commerce giant’s earnings plunged. Despite a weak bottom line, CFO Toby Xu expressed confidence in the company's business outlook, citing early positive results from strategic investments and partnerships. Alibaba sees AI as a significant driver of innovation and value creation within its ecosystem.

During the March quarter, AI-related revenue delivered “triple-digit growth year-over-year.” The revenue was generated from foundational model companies and internet companies, as well as customers from the financial services and automotive industries.

Analysts expect BABA’s revenue for the first quarter (ending June 2024) to increase 5.1% year-over-year to $34.10 billion. However, its EPS for the ongoing quarter is expected to decline by 15.6% year-over-year to $2.03. Further, for the fiscal year 2025, Alibaba’s revenue is forecasted to reach $140.92 billion (up 8.3% year-over-year), while the consensus EPS estimate of $8.23 indicates a 4.4% decline from the prior year.

In terms of forward non-GAAP P/E, BABA is trading at 9.61x, 39.5% lower than the industry average of 15.88x. Similarly, the stock’s forward EV/EBITDA and Price/Book multiples of 5.94 and 1.31 are 39% and 45.3% lower than the industry averages of 9.73 and 2.40, respectively.

In response to its low valuation, Alibaba's management repurchased $4.8 billion worth of shares during the fourth quarter. Moreover, earlier this year, the company bolstered its share buyback program by an additional $25 billion, extending it through the end of March 2027.

In further demonstrating its commitment to returning value to shareholders, BABA approved a two-part dividend plan totaling $4 billion. This plan includes a regular cash dividend of $0.125 per ordinary share or $1 per ADS in FY24 and a one-time extraordinary cash dividend of $0.0825 per ordinary share or $0.66 per ADS. Both dividends will be paid out in U.S. dollars to holders of ordinary shares and ADS holders as of the close of business on June 13, 2024.

While the impact of price reductions on Alibaba's bottom line remains to be seen, achieving double-digit revenue growth across its specific segments amid strategic pricing adjustments underscores the company's resilience and adaptability in an ever-evolving market landscape.

Why Nvidia’s Stock Split Could Drive Further Market Gains

Posted on by The INO.com Team

NVIDIA Corporation (NVDA) shares topped a record high of $1000 in a post-earnings rally. Last week, the company reported fiscal 2025 first-quarter results that beat analyst expectations for revenue and earnings, reinforcing investor confidence in the AI-driven boom in chip demand. Moreover, the stock has surged nearly 120% over the past six months and more than 245% over the past year.

Meanwhile, the chipmaker announced a 10-for-1 forward stock split of NVIDIA’s issued common stock, making stock ownership more accessible to employees and investors.

Let's delve deeper into how NVIDIA’s stock split decision could attract more investors and propel future gains.

The AI Chip Leader

NVDA’s prowess in AI and semiconductor technology has been nothing short of remarkable. Its GPUs (Graphics Processing Units) have become synonymous with cutting-edge AI applications, from powering self-driving cars and training and deploying LLMs to revolutionizing healthcare diagnostics and e-commerce recommendation systems.

Amid a rapidly evolving technological landscape, NVIDIA has consistently remained at the forefront, driving innovation and redefining industry standards. Led by Nvidia, the U.S. dominates the generative AI tech market. ChatGPT’s launch in November 2022 played a pivotal role in catalyzing the “AI boom.”

NVDA holds a market share of about 92% in the data center GPU market for generative AI applications. The company’s chips are sought after by several tech giants for their diverse applications and high performance, including Amazon (AMZN), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Tesla, Inc. (TSLA).

Nvidia surpassed analyst estimates for revenue and earnings in the first quarter of fiscal 2025, driven by robust demand for its AI chips. In the first quarter that ended April 28, 2024, NVIDIA’s revenue rose 262% year-over-year to $26.04 billion. That topped analysts’ revenue expectations of $24.59 billion. The company reported a record revenue from its Data Center segment of $22.60 billion, up 427% from the prior year’s quarter.

“Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets,” said Jensen Huang, founder and CEO of NVDA.

“We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI,” Huang added. 

NVDA’s non-GAAP gross profit grew 328.2% from the year-ago value to $20.56 billion. The company’s non-GAAP operating income was $18.06 billion, an increase of 491.7% from the prior year’s quarter. Its non-GAAP net income rose 461.7% year-over-year to $15.24 billion.

Furthermore, the chipmaker reported non-GAAP EPS of $6.12, compared to the consensus estimate of $5.58, and up 461.5% year-over-year.

Nvidia’s Stock Split: A Strategic Move

Alongside an outstanding fiscal 2025 first-quarter earnings, NVDA announced a 10-for-1 stock split of its issued common stock. Nvidia’s decision to split its stock aligns with a broader trend among tech giants to make their shares more appealing to a wider range of investors, particularly retail investors. The chipmaker aims to democratize ownership and attract a vast investor base by breaking down the barrier of high share prices.

As more individual investors gain access to Nvidia’s shares post-stock split, we could see heightened trading activity and increased demand, potentially exerting upward pressure on its share prices. This strategic move reflects the confidence of NVIDIA’s management in its future growth trajectory and underscores its commitment to inclusivity in the investment landscape.

Bank of America analysts, led by Jared Woodward, head of the bank’s research investment committee, described the share split as “another large-cap tech pursuing shareholder-friendly policies” in a note to clients.

NVIDIA marks the fourth Magnificent Seven big tech companies to announce a stock split since 2022, following Google, Amazon, and Tesla’s efforts to make shares more accessible, according to Woodward and his team.

In recent years, as the share prices of several Big Tech companies surged past the $500 mark, it has become challenging for retail investors to buy shares. Consequently, these companies have been exploring ways to simplify the process for nonprofessional investors to buy in. BofA added, “Big Tech is going bite-sized” to lure retail investors, which might signal more market-beating returns.

Historical Data Suggests That Stock Splits Indicate a Bullish Outlook

Examining historical data on stock splits reveals a generally positive picture. While immediate post-split gains aren’t guaranteed, companies like Apple Inc. (AAPL) and Google have witnessed substantial appreciation in their share prices following splits. AAPL’s 4-for-1 stock split, which took effect in August 2020, primarily influenced investor sentiment and trading dynamics.

Following the split, Apple’s stock continued its upward trajectory, driven by solid performance in its core businesses, including iPhone sales, services revenue, and wearables. Throughout the latter half of 2020 and into 2021, its share price experienced significant appreciation, reaching new all-time highs.

Given NVIDIA’s robust fundamentals and leadership in AI and semiconductor technology, there’s reason to believe that its recent stock split could lead to similar outcomes.

BofA’s sell-side analysts have consistently been bullish on Nvidia shares, and following the first-quarter earnings release, they raised their lofty 12-month price target for the chip giant from $1,100 to $1,320. If the outlook proves accurate, Nvidia shares could surge by another 26%, and the stock split could support that bullish move, as per Bank of America’s reading of history.

“Splits have boosted returns in every decade, including the early 2000s when the S&P 500 struggled,” noted Woodard and his team. BofA’s research indicates that stocks have delivered 25% total returns within the 12 months following a stock split historically, compared to the S&P 500’s 12%.

Further, the bank highlighted that stock splits often ignite bullish runs, even in stocks that have been underperforming. For example, both Advanced Micro Devices, Inc. (AMD) and Valero Energy Corporation (VLO) experienced significant share price increases after announcing stock splits despite their prior poor performance. According to analysts, “Since gains are more common and larger than losses on average, splits appear to introduce upside potential into markets.”

However, it's essential to heed the standard caveat the Securities and Exchange Commission (SEC) provided: “Past performance is not indicative of future results.” In line, Bank of America emphasized that “outperformance is no guarantee” after a stock split. Companies still witness negative returns 30% of the time following a split, with an average decline of 22% over the subsequent 12 months.

The analysts noted, “While splits could be an indication of strong momentum, companies can struggle in a challenging macro environment.” They pointed to companies like Amazon, Google, and Tesla that faced difficulties in the 12 months following their stock splits in 2022 due to a high interest-rate environment.

Bottom Line

NVDA has a significant role as a global leader in AI and semiconductor technology, with its GPUs driving innovations across numerous industries, such as tech, automobile, healthcare, and e-commerce. Nvidia’s fiscal 2025 first-quarter results suggest that demand for its AI chips remains robust.

Statista projects the global generative AI market to reach $36.06 billion in 2024. This year, the U.S. is expected to maintain its position as the leader in AI market share, with a total of $11.66 billion. Further, the market is estimated to grow at a CAGR of 46.5%, resulting in a market volume of $356.10 billion by 2030. The AI market’s bright outlook should bode well for NVDA.

The company also recently made headlines with its announcement to undergo a 10-for-1 stock split. While stock splits generally do not change the fundamental value of a company, they make its shares more accessible and attractive to retail investors. So, the recent stock split could significantly increase retail participation, driving heightened trading activity and potentially exerting upward pressure on Nvidia’s share prices.

Historically, stock splits generally indicate a positive impact on stock performance. Companies like AAPL, GOOGL, and AMD experienced substantial price appreciation after stock splits, with enhanced accessibility to retail investors driving higher demand and liquidity.

However, it is crucial to acknowledge that past performance is not indicative of future results. While stock splits can signal strong price momentum, they do not guarantee outperformance.

In conclusion, Nvidia’s stock split will likely attract more retail investors, potentially boosting increased trading activity and stock price appreciation. Coupled with the company’s strong position in the AI and semiconductor markets, the stock split could facilitate further growth, aligning with historical trends of positive post-split performance.

10 Reasons Why Duolingo (DUOL) Is a Top Growth Stock to Buy in 2024

Posted on by The INO.com Team

Duolingo, Inc. (DUOL), a standout in the consumer discretionary sector, leads the digital language learning market with its innovative and engaging approach. With its iconic green owl mascot, Duolingo has gamified language learning, turning vocabulary and grammar lessons into an addictive game-like experience. Leveraging a freemium model, the company offers lessons in over 40 languages and has seen rapid growth in both user base and paid subscriptions.

Duolingo’s secret sauce? A blend of cutting-edge technology and gamification. By applying AI to personalize the learning experience, Duolingo keeps its 97.6 million monthly active users hooked. Their lessons are accessible anytime, anywhere via smartphones, transforming idle moments into productive learning opportunities. This approach has not only pulled education out of the classroom but also placed it right at our fingertips.

Expanding User Base

DUOL’s strong user engagement is evident by its impressive growth in daily active users, which reached 31.4 million in the first quarter, a significant increase from 20.3 million the previous year. Moreover, the number of paid subscribers has soared by 54% year-over-year, totaling 7.4 million (with the proportion of paying users increasing from 8% to 8.6%). Clearly, learners are more than willing to pay for the premium experience.

Duolingo’s Innovations in Learning, Now With AI

Beyond language learning, Duolingo is expanding into new educational territories, including Mathematics and Music, using the same gamified, engaging format. Last year, Duolingo launched a multi-subject app experience, integrating a new Music course and an updated Math course into its flagship app. This allows learners on iOS to seamlessly switch between learning a language, honing their math skills, or diving into the world of music. This expansion not only adds value but also attracts a wider audience, increasing daily practice and user retention.

But it doesn’t stop there. Building on its commitment to innovation, Duolingo has recently introduced AI-driven features to enhance the learning experience. With the launch of its premium subscription tier, Duolingo Max, users gain access to two powerful AI tools designed to accelerate language proficiency.

One of them is Roleplay, an AI chatbot that facilitates conversational practice in the user’s chosen language by providing real-time feedback and guidance. Meanwhile, the other Explain My Answer offers personalized feedback on mistakes made in each lesson, enhancing comprehension and retention.

As the company continues to evolve its platform, we can expect more AI-based learning tools to enhance the user experience further and drive subscription growth. Further, these innovations mark just the beginning of Duolingo’s long-term growth potential.

Financial Performance

In the first quarter that ended March 31, 2024, DUOL’s net revenues increased 44.8% year-over-year to $167.55 million, with a 53% growth in its subscription revenue of $131.69 million. Its gross profit grew 45.4% from the year-ago value to $122.36 million.

The company’s operational performance also witnessed a significant turnaround, with income from operations amounting to $16.44 million compared to a loss of $8.52 million in the previous year. In the March quarter, DUOL achieved its highest quarterly adjusted EBITDA, which increased by $28.90 million year-over-year to $44.01 million.

Moreover, its net income was $26.96 million or $0.57 per share, compared to a net loss of $2.58 million or $0.06 per share in the previous year. The uptick in margins and profits signifies that Duolingo is capitalizing on economies of scale, attracting millions of new users and successfully converting them into paying subscribers.

As of March 31, 2024, its cash, cash equivalents, and restricted cash amounted to $832.45 million, reflecting a 29.8% increase from the prior-year period. Also, its free cash flow improved by 176.5% from the prior-year quarter to $79.62 million.

Furthermore, the company comprehensively surpassed Wall Street’s EPS and revenue estimates. For the first quarter, DUOL’s earnings per share was 119.2% above the consensus estimate, and its revenue was higher than the analysts’ estimates by $1.90 million.

Optimistic Outlook and Analysts Forecasts 

Duolingo is optimistic about its revenue and earnings growth in 2024, driven by strong user engagement and the rollout of new monetization strategies. Second-quarter revenues are projected between $175 million to $177.5 million, with adjusted EBITDA to be in the range of $36.8 million to $39.1 million.

For the full year, the company foresees revenues in the range of $726.5 million to $735.5 million, with adjusted EBITDA estimated between $167.1 million to $176.5 million. Additionally, total bookings are anticipated to reach highs of $181.5 million in the June quarter and $817.5 million for the year.

The consensus revenue estimate of $177.02 million for the fiscal second quarter (ending June 2024) represents a 39.6% increase year-over-year. The consensus EPS estimate of $0.28 for the current quarter indicates a 252.8% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.

Looking ahead, analysts forecast a 38% and 344.2% year-over-year increase in DUOL’s revenue and EPS for the current year (ending December 2024), projecting figures of $732.95 million and $1.55, respectively. For the fiscal year 2025, revenue and EPS are forecasted to grow by 27.4% and 52.7% year-over-year, respectively.

Impressive Historical Growth

Duolingo stands out as a leading growth stock with a focus on innovation, efficient marketing strategies, and strong unit economics. Over the past three years, DUOL’s revenue has grown at a CAGR of 45.6%. In addition, the company’s total assets have grown at a CAGR of 82.1% over the same period, and its levered free cash flow has improved at a 79.9% CAGR.

Why Did Duolingo Plunge Post-Earnings? 

Despite an impressive performance in its recent earnings report, the company witnessed the steepest single-day decline, falling nearly 20%. Investors seemed spooked by a slight slowdown in the growth of daily active users, slipping from a robust 65% year-over-year surge in the previous quarter to a 54% uptick in the first quarter of 2024. Similarly, paid subscription growth softened from 57% to 54%.

Duolingo’s lofty valuation adds to the pressure, as its forward Price/Sales ratio stands at 10.50x, significantly above the industry average of 0.87x. Similarly, its forward EV/Sales ratio of 9.44x exceeds the industry norm by 671.8%, and its forward non-GAAP P/E ratio of 46.69x is 193.3% higher than the industry average of 15.92x.

Nonetheless, shares of DUOL have gained nearly 36% over the past nine months and more than 20% over the past year.

Bottom Line

Duolingo’s impressive user growth, revenue, and earnings underscore its dominance in the global learning market. As the market for digital language learning is poised to surpass $101.94 billion in 2032, the company’s revenue forecast for the year barely taps into its full potential. That means Duolingo has more room for growth. Moreover, with the anticipation of interest rates stabilizing or decreasing in the near future, Duolingo could become an attractive investment for growth-oriented investors again.

With a track record of innovation, efficient marketing, and strong profitability, Duolingo is well-positioned to seize opportunities in 2024 and beyond. Therefore, considering its strong fundamentals and growth prospects, investing in DUOL could be wise now.