Author: The INO.com Team

The Risks and Rewards of Investing in SoundHound AI

Posted on by The INO.com Team

With a $1.68 billion market cap, SoundHound AI, Inc. (SOUN) is one of the most prominent names in AI-powered voice applications, drawing significant attention from investors and analysts. Shares of SOUN have surged more than 134% over the past six months and nearly 138% year-to-date.

SOUN is at the forefront of conversational intelligence, offering voice AI solutions that allow businesses to provide incredible conversational experiences to their customers. Built on proprietary technology, it offers top-tier speed and accuracy in multiple languages to product creators across automotive, IoT devices, restaurant, and customer service industries.

SoundHound’s innovative AI-driven products include Smart Answering, Smart Ordering, and Dynamic Interaction™, a cutting-edge real-time, multimodal customer service interface.

According to research compiled by Mordor Intelligence, the voice recognition market is expected to reach $42.08 billion by 2029, growing at a CAGR of 23% during the forecast period (2024-2029).

In the dynamic field of voice recognition technology, SoundHound encounters competition from various players striving to innovate and capture market share. Rivals range from established giants like Alphabet Inc. (GOOGL) and Amazon.com, Inc. (AMZN) to emerging start-ups specializing in AI-driven solutions, including Krisp, Deepgram, and more.

Let’s discuss SoundHound’s fundamentals and growth prospects in detail.

Accelerates Voice AI Innovation with Strategic Partnerships and Acquisitions

On May 9, SOUN partnered with Perplexity, the conversational AI-powered answer engine. The collaboration will integrate Perplexity’s online large language model (LLM) capabilities into SoundHound Chat AI across cars and IoT devices.

Leveraging Perplexity, the SoundHound Chat AI assistant will offer precise and up-to-date responses to web-based queries, addressing the type and complexity of the questions beyond the reach of static LLMs. This strategic move aims to solidify SoundHound’s AI product as the most advanced voice assistant available in today’s market.

Further, SoundHound unveiled a significant milestone on March 25. The company announced that its voice assistant with integrated ChatGPT debuted in vehicles in Japan. SoundHound Chat AI Automotive became the world’s first in-vehicle voice assistant with integrated generative AI upon its launch in April 2023. Starting in March, it became accessible in Stellantis DS Automobiles across Japan.

Also, on March 18, SOUN introduced an in-vehicle voice assistant that uses LLM on the edge through the NVIDIA DRIVE platform. SoundHound’s collaboration with NVIDIA Corporation (NVDA) expands the reach of generative AI to new places and situations, ensuring optimal performance even without cloud connectivity.

Notably, during the March quarter, the company closed the previously announced acquisition of SYNQ3 Restaurant Solutions, a leading provider of voice AI and other tech solutions for the restaurant sector. This deal will extend SOUN’s market reach by an order of magnitude to more than 10,000 signed locations and accelerate the deployment of leading-edge generative AI capabilities to the industry.

SYNQ3 will expand SoundHound’s customer base significantly, with the addition of prominent brands across the drive-thru, fast casual, casual dining, and convenience store segments – bringing the total to over 25 national and multinational chains.

Mixed First-Quarter Results and Upbeat 2024 Outlook

For the first quarter that ended March 31, 2024, SOUN’s revenues increased 73% year-over-year to $11.59 million. That surpassed analyst expectations of $10.10 million. The company’s non-GAAP profit rose 56.8% from the prior year’s quarter to $7.59 million.

Moreover, SoundHound’s cumulative subscriptions and bookings backlog was $682 million, up nearly 80% year-over-year. Also, it reported a 60% year-over-year increase in the annual run rate of more than 4 billion queries. SOUN had a cash balance of $226 million at the end of the first quarter.

“We were pleased to start the year with a robust top line performance, in our strongest Q1 ever,” stated Nitesh Sharan, CFO of SoundHound AI. ”Our business momentum continues to accelerate with a growing pipeline across all businesses.”

However, the company’s bottom line suffered significantly. SOUN’s adjusted EBITDA loss widened by 3.3% year-over-year to $15.40 million. Further, its net loss worsened by 20% from the year-ago value to $33.01 million. It posted a loss per share of $0.12, missing the consensus loss per share estimate of $0.09.

During the quarter, SOUN’s cash outflows from operating activities and investing activities were $21.95 million and $3.79 million, respectively.

Meanwhile, SOUN updated its full-year 2024 revenue guidance to be in a range of $65 to $77 million. Further, the company aims to achieve adjusted EBITDA profitability by 2025, anticipating even greater growth, with revenue exceeding $100 million.

Decelerating Profitability

SOUN’s trailing-12-month gross profit margin of 72.42% is 45.9% higher than the 49.6% industry average. However, the stock’s trailing-12-month EBIT margin and net income margin of negative 131.21% and negative 186.20% are unfavorable compared to the industry averages of 4.68% and 2.63%, respectively.

Additionally, the stock’s trailing-12-month levered FCF margin of negative 58.19% compared to the industry average of 10.12%. Its trailing-12-month ROCE, ROTC, and ROTA of negative 148.22%, negative 28.94%, and negative 32.88% compared to the respective industry averages of 3.91%, 2.57%, and 1.42%.

Elevated Valuation

In terms of forward EV/Sales, SOUN is trading at 21.93x, 657.9% higher than the industry average of 2.89x. Similarly, the stock’s forward Price/Sales of 23.62x is significantly higher than the industry average of 2.96x. Also, its trailing-12-month Price/Book multiple of 10.61 is 234.4% higher than the industry average of 3.17.

Bottom Line

SOUN’s position as a global leader in AI-powered voice applications and its strategic initiatives set it for continued growth in a rapidly expanding market. The company’s innovative AI-powered products, strategic partnerships with Perplexity and NVIDIA, and the recent acquisition of SYNQ3 accelerate market expansion across automotive and restaurant sectors, offering opportunities for revenue diversification.

Despite impressive revenue growth in the first quarter of 2024, SoundHound faces profitability challenges, as reflected in widening losses and negative margins. Continued losses and cash burn could strain financial resources and investor confidence.

Analysts expect SOUN’s revenue for 2024 and 2025 to increase 53.7% and 46.6% year-over-year to $70.52 million and $103.35 million, respectively. However, the company is expected to report losses for at least two fiscal years. Moreover, SoundHound failed to surpass consensus EPS estimates in three of the trailing four quarters, which is disappointing.

SoundHound’s valuation metrics, such as its forward EV/Sales and Price/Sales ratios, indicate a premium compared to industry peers. An elevated valuation can often lead to enhanced volatility and susceptibility to market corrections, particularly if the company fails to meet growth expectations or faces challenges in achieving profitability.

Thus, investing in SOUN presents a blend of potential risks and rewards for investors to consider. While the company demonstrates strength in revenue growth and market leadership within the voice recognition sector, notable challenges warrant attention, including massive losses, rapid cash burn, and stretched valuation.

So, investors are advised to monitor SOUN’s financial performance, execution of growth plans, and market dynamics before making informed investment decisions.

Gold Hits Record Highs: Is It Time to Buy Gold Mining Stocks?

Posted on by The INO.com Team

Gold prices soared to an all-time high on Monday, driven by a combination of factors, including expectations of U.S. rate cuts, China's stimulus measures, and geopolitical tensions, which boosted demand. Spot gold rose by 0.9% to $2,435.96 per ounce after hitting a record $2,449.89 earlier. U.S. gold futures also closed 0.9% higher at $2,438.50.

Recent data showing lower-than-expected U.S. consumer price increases in April has boosted hopes for a rate cut in September, further supporting gold prices. RJO Futures’ senior market strategist, Daniel Pavilonis, expects gold to approach $2,500 soon due to investor fear of missing out. Meanwhile, silver prices also surged, climbing 2.2% to $32.17, the highest in over 11 years.

These factors, coupled with gold's scarcity and intrinsic value, have made it an appealing investment in today's uncertain economic climate. With gold reaching a new record high, an increasing number of investors are seeking to capitalize on this potentially lucrative opportunity.

Let’s examine why Newmont Corp., Barrick Gold, Franco-Nevada, and Dundee Precious Metals (DPMLF) could be wise investments now.

Newmont Corporation (NEM)

Newmont Corporation (NEM) is the world’s leading gold mining company and a producer of other precious and industrial metals, including copper, silver, zinc, and lead. NEM has the largest gold reserve base in the metals mining industry, underpinned by its world-class ore bodies in top-tier locations.

In line with its strategic financial initiatives, on April 25, 2024, Newmont announced the sale of its financing facilities related to the Fruta del Norte gold mine in Ecuador to Lundin Gold Inc. for $330 million. This transaction, set to be completed in two tranches by September 30, 2024, allows Newmont to retain exposure to the operation through its equity interest in Lundin Gold.

Moreover, as part of its acquisition of Newcrest and a broader strategy to generate lasting value, the company has committed to delivering at least $2 billion in near-term cash improvements through portfolio optimization within the next two years. The early repayment of these facilities marks a significant step towards achieving this goal, reinforcing Newmont's trajectory towards a more profitable and resilient future.

In terms of forward non-GAAP PEG, NEM is trading at 1.44x, 10% lower than the industry average of 1.60x. Likewise, its forward EV/EBITDA multiple of 7.58 is 13.1% lower than the industry average of 8.72.

NEM’s sales increased 50.2% year-over-year to $4.02 billion for the fiscal first quarter that ended March 31, 2024. Its net cash from operating activities rose 61.3% from the prior-year quarter to $776 million. NEM’s adjusted net income came in at $630 million and $0.55 per share, representing 96.9% and 37.5% year-over-year improvements. Also, its adjusted EBITDA stood at $1.69 billion, up 71.1% year-over-year.

During the quarter, NEM produced 1.7 million attributable ounces of gold and 489 thousand gold equivalent ounces (GEOs) from copper, silver, lead, and zinc. This growth was largely driven by the production of 1.4 million gold ounces from Newmont's Tier 1 Portfolio.

Analysts expect NEM’s revenue for the second quarter (ending June 2024) to increase 53.1% year-over-year to $4.11 billion, while its EPS is expected to improve 68.1% from the year-ago value to $0.55 in the same period.

The stock’s trailing-12-month gross profit and EBITDA margins of 32.44% and 28.31% are 14.9% and 72.2% higher than the 28.23% and 16.44% industry averages, respectively. Its trailing-12-month Capex/Sales of 22.73% compares with the industry average of 7.76%.

NEM’s stock is already up more than 37% over the past three months and has gained nearly 2.4% year-to-date. Bolstered by its strong portfolio of Tier 1 gold and copper operations, NEM is poised to maintain its gold production at approximately 6.9 million ounces. With projected costs of sales (CAS) for gold at $1,050 per ounce and an all-in-sustaining cost (AISC) of $1,400 per ounce, NEM is well positioned to capitalize on higher gold prices.

Barrick Gold Corporation (GOLD)

Barrick Gold Corporation (GOLD), based in Toronto, Canada, is engaged in the exploration, mine development, production, and sale of gold and copper properties. The company holds ownership interests in producing gold mines across various countries, including Argentina, Canada, Côte d'Ivoire, the Democratic Republic of Congo, the Dominican Republic, Mali, Tanzania, and the United States.

On May 1, 2024, Barrick Gold (International Holdings) Ltd., a subsidiary of GOLD, entered into an exploration earn-in agreement with Geophysx Jamaica Ltd. This agreement provides GOLD with access to approximately 4,000 square kilometers of consolidated land positions in Jamaica. The strategic partnership is expected to enhance GOLD's exploration capabilities and potentially lead to significant new discoveries, aligning well with the company’s ongoing operations and growth strategy.

In another strategic move, GOLD’s Nevada Gold Mines celebrated the official opening of its new underground mine, Goldrush, on April 25. The Goldrush Project is projected to produce 130,000 ounces of gold in its initial year, contributing to the overall value and production capacity of Nevada Gold Mines (NGM). Barrick holds a 61.5% ownership stake in this project through a joint venture with Newmont, which owns the remaining 38.5%.

Such strategic partnerships provide a stable foundation for sustained growth and capital investment, allowing the company to fully benefit from favorable market conditions in the gold sector.

In terms of forward non-GAAP P/E, GOLD is trading at 16.74x, 8.6% lower than the industry average of 18.31x. The stock’s forward EV/EBITDA of 6.70x is 23.2% lower than the 8.72x industry average. Furthermore, the stock’s forward Price/Cash Flow multiple of 6.70 is 27.6% lower than the industry average of 9.25x.

In the fiscal first quarter that ended March 31, 2024, GOLD’s revenues increased 3.9% year-over-year to $2.75 billion. Its adjusted EBITDA grew 7% from the year-ago value to $1.27 billion with an attributable margin of 41%. GOLD’s adjusted net earnings amounted to $333 million or $0.19 per share, reflecting an increase of 34.8% and 35.7%, respectively, in the same period.

Also, it produced 940 thousand gold ounces during the quarter, which was slightly below compared to 952 thousand in the prior year.

The consensus EPS estimate of $0.25 for the fiscal second quarter (ending June 2024) represents a 33.9% improvement year-over-year. The consensus revenue estimate of $3.22 billion for the ongoing quarter indicates a 13.6% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

In addition, GOLD’s trailing-12-month gross profit margin and ROCE of 31.15% and 6.27% are 10.4% and 7.4% higher than the industry averages of 28.23% and 5.83%, respectively. Likewise, its trailing-12-month 12.58% net income margin compares to the industry average of 4.72%.

Further, the company anticipates a steady increase in gold production throughout the year, fueled by the completion of the Pueblo Viejo plant expansion and the restart of operations at the Porgera mine. Copper production is also on course to meet the full year's guidance. These initiatives position Barrick to capitalize on high market prices with elevated output. In terms of price performance, the stock has surged more than 20% over the past three months.

Franco-Nevada Corporation (FNV)

Headquartered in Toronto, Canada, Franco-Nevada Corporation (FNV) operates as a gold-focused royalty and streaming company with a presence in South America, Central America, Mexico, the United States, Canada, and internationally. Operating through the Mining and Energy segments, it manages its portfolio with a primary focus on precious metals, including gold, silver, and platinum group metals.

On May 1, the company declared a quarterly dividend of $0.36 per share payable to its shareholders on June 27, 2024. With a four-year average dividend yield of 0.89% and the current dividend of $1.44 translating to a 1.16% yield, the company continues to provide consistent returns to its investors. Also, it has a payout ratio of 39.20%.

During the fiscal first quarter, which ended March 31, 2024, FNV reported total revenues of $256.80 million and a gross profit of $165 million. The company achieved an adjusted EBITDA of $216.10 million, with a margin of 84.2%, compared to an adjusted EBITDA margin of 83% in the prior-year quarter. FNV’s adjusted net income came in at $146 million and $0.76 per share in the same period. Also, its cash and cash equivalents at the end of the period stood at $1.35 billion, up 8.3% year-over-year.

Looking ahead, analysts expect FNV’s revenue to reach $1.11 billion in the fiscal year ending December 2024, while its EPS is forecasted to be $3.20. Moreover, the company has topped the EPS estimates in all of the trailing four quarters, which is excellent.

For the fiscal year 2025, the consensus revenue and EPS estimates of $1.24 billion and $3.76 indicate increases of 12.3% and 17.5%, respectively.

In addition, the stock’s trailing-12-month gross profit and EBITDA margins of 85.59% and 83.64% are 203.2% and 408.9% higher than the industry averages of 28.23% and 16.44%, respectively. Likewise, its levered FCF margin of 50.04% compares with the industry average of 5.29%.

The company's strong growth outlook is driven by mine expansions and new mine starts, with expectations of up to nine new mines contributing from 2024 to 2028. FNV also holds significant long-term optionality in gold, copper, and nickel, with exposure to approximately 66,800 square kilometers of mineral-rich territory.

Additionally, FNV's financial resilience, characterized by a lack of debt, $2.4 billion in available capital, and a robust pipeline of precious metal opportunities, positions it favorably to leverage high gold prices for sustained growth and profitability.

FNV’s shares have gained nearly 17.1% over the past three months and more than 12% year-to-date.

Dundee Precious Metals Inc. (DPMLF)

Dundee Precious Metals Inc. (DPMLF), headquartered in Toronto, Canada, acquires, explores, develops, mines, and processes precious metals. The company owns and operates a mine that produces gold, copper, and silver.

On May 7, the company announced a dividend of $0.04 per common share for the second quarter, payable to its shareholders on July 15, 2024. The company maintains a four-year average dividend yield of 1.99%, with the current annual dividend of $0.16 translating to the same yield. DPM has demonstrated consistent returns to investors, with dividend payouts growing at an impressive 16.9% CAGR over the past three years.

On March 7, Dundee Precious announced the sale of its 98% interest in the Tsumeb smelter to a subsidiary of Sinomine for $49 million in cash, subject to normal adjustments. DPMLF will also receive $17.9 million from IXM S.A. for estimated metal recoverables. The transaction, pending customary approvals, is expected to close in Q3 2024. This sale will enhance DPMLF's liquidity and focus on core operations.

DPMLF’s forward EV/ EBITDA and EV/EBIT multiples of 3.10 and 4.08 are 64.5% and 70.1% lower than the industry averages of 8.72x and 13.61x, respectively. Also, its forward EV/Sales ratio of 1.57 is 9.8% lower than the industry average of 1.75x.

DPMLF reported revenues of $123.80 million for the fiscal first quarter that ended March 31, 2024. Its earnings before income taxes rose 7% from the prior-year quarter to $52.60 million, while its adjusted EBITDA stood at $65.90 million. The company’s net earnings came in at $45.70 million, while its earnings per share remained flat year-over-year at $0.25. Also, its free cash flow increased 5% year-over-year to $68.20 million in the same period.

During the first three months of the year, DPMLF produced 62,727 ounces of gold and 6.7 million pounds of copper, which was in line with expectations, with all-in-sustaining costs of $883 per ounce. The company also repurchased 253,000 shares for a total cost of $1.9 million, besides paying $7.2 million in dividends.

Street expects DPMLF’s revenue for the second quarter (ending June 2024) to reach $141 million. Its revenue for the current year is expected to grow 6.8% from the year-ago value to $555.73 million.

The stock’s trailing-12-month gross profit margin of 52.74% is 86.8% higher than the industry average of 28.23%. Likewise, its net income and levered FCF margins of 37.12% and 19.07% compare to the industry averages of 4.72% and 5.29%, respectively.

With strong operating performance from the Chelopech and Ada Tepe mines in the first quarter of 2024, DPMLF is on track to meet its 2024 guidance. The company expects gold production of 245,000 to 285,000 ounces, copper production of 29 to 34 million pounds, and an all-in-sustaining cost of $790 to $930 per ounce of gold sold.

Further, the positive outcomes from the Čoka Rakita Preliminary Economic Assessment (PEA) have prompted DPMLF to commence a Pre-Feasibility Study (PFS) for the project. This development has led to an increase in the company's 2024 evaluation expense forecast, now estimated between $30 million and $35 million, up from the previous $10 million to $13 million range.

DPMLF’s stock is already up more than 29% over the past nine months and has gained approximately 25% year-to-date.

Visa’s AI Innovations and What They Mean for Investors

Posted on by The INO.com Team

With a global presence in over 200 countries and territories, Visa Inc. (V) is a formidable player in the Financial Services industry. Over the years, the company’s innovative payment solutions have enabled individuals to transact across various devices and payment methods anytime, anywhere.

From mobile payments to contactless transactions, Visa has consistently introduced new technologies that have transformed how we pay and do business. And now, with its latest suite of payment products and services, the credit card behemoth continues to demonstrate its capacity for innovation and growth in the digital payments arena.

Unveiling Visa’s New Products for the Digital Era

Earlier this month, at the annual Visa Payments Forum in San Francisco, the company introduced innovative products and services designed to meet the evolving needs of businesses, merchants, consumers, and financial institutions.

These offerings, set to roll out later this year, include the Visa Flexible Credential, which empowers consumers to switch between payment methods on a single card. Users have unparalleled flexibility, whether debit, credit, “pay-in-four” Buy Now Pay Later options, or rewards points. Currently living in Asia, Visa Flexible Credential is set to debut in the U.S. market later this summer in collaboration with Affirm.

The company is embracing the widespread adoption of mobile devices by introducing innovative “Tap to Everything” features, capitalizing on the versatility of NFC-enabled devices. These new features include ‘Tap to Pay,’ which transforms any device into a point-of-sale terminal; ‘Tap to Confirm’ for easy online shopping authentication; ‘Tap to Add Card’ for enhanced wallet security when adding cards to digital wallets or apps; and ‘Tap to P2P’ for seamless money transfers between family and friends.

V introduced the Visa Payment Passkey Service to combat the rising threat of online payment fraud, which takes security to the next level by replacing passwords with biometric authentication for online transactions. This feature seamlessly integrates with Click to Pay, providing a frictionless checkout experience while enhancing security. Moreover, the company is partnering with issuers worldwide to enable Click to Pay and Visa Payment Passkey Service on new Visa cards, reducing the need to enter card details and passwords manually.

In addition, the credit card provider is also digitizing and streamlining account-to-account (A2A) payments with “Pay by Bank,” offering consumers greater flexibility in how they choose to pay. Through collaborations with Global Real-Time Payments (RTP) networks, Visa is leveraging AI technology to detect and prevent fraud in A2A payments. Already making strides in Latin America and piloting the UK, Visa Protect for A2A Payments has identified 60% of previously undetected fraud and scams, ensuring a safer payment ecosystem for all.

Lastly, the company also introduced Data Tokens, a privacy-centric feature that enables consumers to control data sharing with merchants for personalized offers and revoke access through their banking apps.

Such strategic initiatives signal promising prospects for the ever-changing payments landscape, and Visa’s commitment to continuous improvement is poised to fortify its foothold.

Visa Remains at the Forefront of AI Innovation

Threat actors are increasingly employing sophisticated technologies like automated scripts and botnets to amplify card testing attacks, resulting in substantial operational costs and annual fraud losses of $1.1 billion. To counter this threat, Visa announced updates to its Visa Account Attack Intelligence (VAAI) offering on May 7, introducing the VAAI Score.

This new tool utilizes generative AI components to identify and score enumeration attacks, providing real-time risk scores for each transaction. Initially available to U.S. issuers, the VAAI Score aims to mitigate fraud and operational losses by detecting and preventing enumeration attacks in card-not-present (CNP) transactions.

On March 27, 2024, the company added three new AI-powered risk and fraud prevention solutions to its growing global value-added services business. These additions, forming part of the comprehensive Visa Protect suite, aim to combat fraud in immediate account-to-account and card-not-present (CNP) payments, enhancing security for transactions on and off Visa’s network.

Visa’s Strategic Expansion Initiatives: Boom or Bust?

Recently, Visa partnered with SKUx, a digital payment solutions provider, to enhance digital payment experiences for select merchants and consumer packaged goods companies. The collaboration aims to address client needs such as customer acquisition, loyalty programs, and consumer care.

Visa clients will gain access to SKUx’s digital payments platform, improving business-to-business and business-to-consumer payment flows. Further, this strategic move underscores V’s commitment to enhancing its services and attracting new customers, ultimately increasing revenue opportunities.

On March 26, Visa reached a landmark settlement with U.S. merchants, more than 90% of which are small businesses. The settlement reduces credit interchange rates and caps those rates into 2030. It also includes updates to several key network rules, giving merchants more choice in how they accept digital payments.

While the settlement is subject to court approval, this move aims to enhance the company’s relationships with merchants and improve the affordability of accepting Visa payments, potentially leading to increased transaction volume.

Also, in January this year, the company acquired Pismo, a global cloud-native issuer processing and core banking platform. This acquisition equips Visa to deliver enhanced core banking and card-issuer processing capabilities to clients across various product types through cloud-native APIs. By leveraging Pismo’s platform, V can extend support and connectivity for emerging payment schemes and real-time payment networks, strengthening its offerings for financial institution clients.

How Are Visa’s Fundamentals?

Despite persistent high interest rates, U.S. consumer spending has remained robust, thanks to Americans’ continued appetite for big-ticket purchases and international travel. In the second quarter that ended March 31, 2024, V’s net revenue increased 9.9% year-over-year to $8.78 billion, surpassing Wall Street’s forecast of $8.62 billion.

Consumer spending remained resilient across all segments during the quarter, driving an 8% year-over-year growth in Visa’s payments volume. Cross-border volume (excluding intra-Europe) surged by 16%, indicating strong demand for international travel. Its processed transactions rose 11% from the prior year to $55.50 billion.

Moreover, the company’s operating income grew marginally from the year-ago value to $5.35 billion. Its non-GAAP net income and non-GAAP earnings per share stood at $5.12 billion and $2.51, up 16.7% and 20.1% year-over-year, respectively.

As of March 31, 2024, Visa had $12.99 billion in cash and cash equivalents, a significant cash pile but comparatively lower than the $16.29 billion on December 31, 2023. Yet, the company was able to return $3.8 billion to shareholders in the second quarter through dividends and share repurchases.

On April 23, 2024, Visa announced a quarterly dividend of $0.52 per share of class A common stock, payable to its shareholders on June 3, 2024. V’s four-year average dividend yield is 0.67%, and its current dividend of $2.08 translates to a 0.75% yield on the current price level.

With a strong payout history, the company’s dividend has grown at CAGRs of 16.8% and 15.9% over the past three and five years, respectively. Moreover, Visa has been growing dividends for 15 consecutive years, which makes it attractive to income-oriented investors.

What’s Ahead for Visa?

Street expects Visa to generate a revenue of $8.93 billion for the third quarter (ending June 2024), indicating a 9.9% increase compared to the same period last year. The company’s earnings per share for the ongoing quarter is expected to grow 11.9% year-over-year to $2.42. Moreover, V surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.

For the fiscal year ending September 2024, analysts anticipate a revenue surge of 10.1% on a year-over-year basis, reaching $35.95 billion. They forecast that earnings per share will reach $9.96, up 13.6% year-over-year. Further, Visa’s revenue and EPS for the fiscal year 2025 are expected to grow 10.4% and 12.4% year-over-year to $39.70 billion and $11.19, respectively.

Bottom Line

As consumers shrugged off worries of a slowing economy to swipe cards on everything from travel to dining out, the credit card provider has delivered solid topline growth and healthy profit margins in its latest quarterly results.

Alongside leveraging partnerships to boost its digital capabilities, Visa has remained steadfast in pursuing substantial investments to complement the same. These initiatives are anticipated to increase transaction volumes and enhance customer retention, with the company projecting low double-digit net revenue growth for fiscal 2024 on an adjusted constant-dollar basis.

Moreover, UBS anticipates a solid 11% to 12% organic net revenue growth for the year, factoring in the currency-neutral basis and the performance observed throughout the year’s first half. Reflecting this positive outlook, the firm has raised its price target on V stock to $325, up from $315, while maintaining a buy rating on the shares.

Furthermore, the stock exhibits robust profitability, as evident in its 97.81% trailing-12-month gross profit margin, which is 63.6% higher than the 59.78% industry average. V’s trailing-12-month net income and levered FCF margins of 53.86% and 46.69% are 133.7% and 166.1% higher than the industry averages of 23.05% and 17.55%, respectively. Likewise, its trailing-12-month ROTA of 19.90% compares with the 1.06% industry average.

In terms of price performance, V shares have gained more than 15% over the past nine months and nearly 6% year-to-date. To that end, it could be wise to scoop up the shares of this Dow Jones card giant to garner potential gains.

Short-Term Gains vs. Long-Term Risks: Evaluating Chinese Stocks in Your Portfolio

Posted on by The INO.com Team

Over the past half-decade, China has implemented unpredictable and business-unfriendly policies, including the world's longest-lasting COVID-19 lockdown, making it a challenging environment for investment. A poll conducted at a Goldman Sachs conference in Hong Kong in early February indicated that over 40% of attendees considered China ‘uninvestable.’

Major companies like Apple Inc. (AAPL) and Samsung are also shifting their supply chains away from China, and many others are not planning future investments in this previously coveted market.

As the Chinese economy grapples with market weakness, the New York Times reported a shift in the government’s stance towards more business-friendly policies.

Moreover, JPMorgan analysts are optimistic about the continuation of positive China trading trends, predicting this momentum could extend through the summer. While longer-term structural concerns such as deflationary backdrop, excess capacity, real-estate demand-supply imbalances, credit saturation, and global decoupling persist, analysts believe the worst of the housing market weakness is over. And that should keep the rally going.

Last week, Alibaba Group Holding Limited (BABA), JD.com, Inc. (JD), and Baidu, Inc. (BIDU) released their quarterly results, revealing that growth, although modest, continues. Their management teams are effectively delivering on efficiencies and enhancing shareholder value.

BABA shares have gained more than 8% over the past five days, while JD saw marginal gains over the same period. Although down 4% in the past week, BIDU has logged nearly a 7% gain over the past month.

Meanwhile, the iShares MSCI China exchange-traded fund (MCHI) climbed 17% over the past month, outpacing the S&P 500, which rose nearly 7%.

Despite these gains, the question still lingers: is the rally short-lived? Let’s dig deeper.

Alibaba Group Holding Limited (BABA)

The Chinese e-commerce giant Alibaba Group Holding Limited (BABA) faced tough regulatory, macroeconomic, and competitive headwinds in the past. For the fourth quarter that ended March 31, 2024, BABA’s revenue increased by a modest 7% year-over-year to $30.73 billion. However, the company’s income from operations declined 3% from the prior-year quarter to $2.05 billion.

Alibaba has been navigating a period of cautious consumer spending in China, yet there have been signs of a slight recovery in its core e-commerce business. Revenue from the Taobao and Tmall Group rose 4% year-over-year to $12.91 billion.

Also, customer management revenue (including marketing services for merchants on Taobao and Tmall) increased 5% after being flat in the prior quarter, and revenue from the Alibaba International Digital Commerce Group (AIDC) surged 45% year-over-year to $3.80 billion.

CEO Eddie Wu's commitment to “reignite” growth through further investments showed early results in the March quarter, as he noted the strategies were “working and we are returning to growth.”

However, BABA’s net income plunged by 96% from the prior year’s quarter to $127.18 million, primarily due to a decline in the value of its holdings in other publicly traded companies. The company’s non-GAAP earnings per share fell 5% from the year-ago value to $0.18. Also, its adjusted EBITDA decreased by 5% year-over-year to $3.32 billion.

Analysts expect Alibaba’s revenue for the first quarter (ending June 2024) to increase 5.5% year-over-year to $34.22 billion. However, its EPS for the ongoing quarter is expected to decline by 15.2% year-over-year to $2.04. Further, for the fiscal year 2025, BABA’s revenue is forecasted to reach $140.52 billion (up 8% year-over-year), while the consensus EPS estimate of $8.25 indicates a 4.1% decline from the prior year.

In terms of forward non-GAAP P/E, BABA is trading at 10.74x, 31.9% lower than the industry average of 15.79x. Likewise, its forward EV/EBITDA and Price/Book multiples of 6.93 and 1.47 are 28.9% and 40.5% lower than the industry averages of 9.74 and 2.48, respectively. Attractive, isn’t it? But the question remains: why is this stock so cheap in the first place?

In response to its low valuation, Alibaba's management repurchased $4.8 billion worth of shares in the fourth quarter. Although buybacks can theoretically boost the value of remaining shares by reducing the number outstanding, they fail to tackle the fundamental reasons for Alibaba's low stock price.

Alibaba's diverse investments dilute its focus on core e-commerce and cloud businesses, impacting its efficiency and valuation in the long run. For instance, although the management reported triple-digit growth in AI-related revenue in the fourth quarter, the cloud computing division only expanded by 3% year-over-year to $3.55 billion.

The stock has gained over 28% over the past month and nearly 14% year-to-date. Despite these gains, many investors are wary of the unpredictable and hostile Chinese market, and Alibaba's sprawling conglomeration of disjointed businesses further diminishes its appeal. Plus, the company's AI prospects seem weak compared to U.S. competitors.

Given BABA’s mixed financial performance and uncertain near-term outlook, waiting for a better entry point in this stock seems prudent.

JD.com, Inc. (JD)

Headquartered in Beijing, JD.com, Inc. (JD) offers a wide range of products, including computers, communication devices, consumer electronics, home appliances, and general merchandise. It also provides online marketplace services for third-party merchants, marketing services, omnichannel retail solutions, and online healthcare services.

In the latest quarter, the Chinese online retailer saw accelerated growth in its topline and market share, complemented by a robust bottom line that exhibited healthy gains. As consumers have been gravitating toward low-cost, discount-focused platforms, the company’s strategic price cuts and discount coupons have boosted sales that have been hit by cautious consumer behavior.

JD’s CEO, Sandy Xu, highlighted strong performance in categories like general merchandise, electronics, home goods (especially mobile phones), and apparel. He added that improved price competitiveness resonated with users, accelerating growth in lower-tier cities faster than in higher-tier cities.

During the first quarter that ended March 31, 2024, JD’s net revenues increased 7% year-over-year to $36 billion, beating analysts’ estimate of $35.68 billion. Its income from operations grew 19.8% from the prior year’s quarter to $1.10 billion. Furthermore, non-GAAP net income attributable to the company’s ordinary shareholders came in at $1.20 billion and $0.78 per ADS, up 17.2% and 18.7% year-over-year, respectively.

Earlier this month, analysts expressed concerns about the impact of JD.com’s low-cost strategy on margins and profitability. However, CFO Ian Shan dismissed these worries, stating that increasing users and profitability simultaneously is not contradictory.

“We believe by constantly dedicating resources to product, price, and service, this improves user experience, which drives up GMV (gross merchandising volume) and market share,” forming a virtuous cycle of business enhancement and profit growth, Shan explained.

Looking at the balance sheet, JD.com holds more cash than debt, which indicates financial stability and potential for investment in growth opportunities. As of March 31, 2024, its cash and cash equivalents stood at $11.31 billion, and its total current assets were $39.34 billion. Also, JD’s free cash flow increased by 166.3% over the past 12 months, reaching $7.01 billion.

This strong cash position allowed the company to pay an annual dividend (yielding 2.19% at the current price level) for the year ended December 31, 2023, of $0.38 per ordinary share, or $0.76 per ADS, to its shareholders on April 23, 2024. JD's four-year average dividend yield is 1.24%, with a payout ratio of 23.45%.

Despite robust short-term performance, JD.com has been cautious with international expansion compared to its peers. For instance, it opted not to acquire the warehouse and store network of British electrical retailer Currys in March. However, with expectations of slowing domestic growth, the company might need to explore new overseas revenue streams to sustain its momentum.

In terms of forward non-GAAP P/E, JD is trading at 10.66x, 32.5% lower than the industry average of 15.79x. Similarly, its forward EV/Sales multiple of 0.30 is 75% lower than the industry average of 1.22. Also, the stock’s 0.33x forward Price/Sales compares to the 0.89x industry average.

Street expects JD’s revenue and EPS for the second quarter (ending June 2024) to increase 5.6% and 7.2% year-over-year to $41.69 billion and $0.79, respectively. Also, the company has topped the consensus EPS estimates in all four trailing quarters.

For the fiscal year 2024, the Chinese online retailer’s revenue and EPS are anticipated to grow 6.6% and 7.4% year-over-year to $160.66 billion and $3.31, respectively.

Shares of JD have surged more than 43% over the past three months and approximately 20% year-to-date.

Based on the company’s outlook, JD.com is focused on enhancing user experience and solidifying its market position for sustainable growth. This includes developing an ecosystem benefiting both first-party and third-party merchants. Additionally, the company’s shareholder-friendly actions, such as share repurchases and dividends, will likely bolster investor confidence and support the stock’s valuation.

Analyst Saiyi HE maintains a bullish outlook on the stock, with a price target of $51.90.

Considering these factors, along with JD.com's ongoing initiatives and potential for margin expansion, investors should closely monitor the company's performance throughout this year.

Baidu, Inc. (BIDU)

Baidu, Inc. (BIDU) operates as a Chinese-language Internet search provider with its headquarters in Beijing. Its Baidu.com platform enables users to discover online information. The company operates through two segments, Baidu Core and iQIYI.

Often called the "Google of China," Baidu is a prominent AI leader in the world’s second-largest economy. It not only develops AI tools but also supports the technology through its cloud computing infrastructure. Baidu launched the ERNIE bot, China's first public ChatGPT-like tool, and has a growing business in self-driving taxis.

For the first quarter that ended March 31, 2024, BIDU reported a marginal year-over-year increase in its revenues of $4.37 billion, slightly above Wall Street’s estimate of $4.34 billion. Its non-GAAP operating income rose 4% from the year-ago value to $924 million. Its non-GAAP net income came in at $971 million, up 22% year-over-year.

 Baidu’s focus on AI-driven advertisements and cloud services is expected to drive long-term growth despite potential short-term volatility in ad revenue due to the lower monetization of AI-generated search results. Moreover, AI significantly contributed to Baidu’s performance in the latest quarter. The core business, which includes online marketing and AI efforts, reported revenue ahead of analyst expectations, driven by a 6% annual growth in the AI Cloud segment.

“Baidu Core’s online marketing revenue remained stable, while the end-to-end optimization of our AI technology stack continued to propel the growth of our AI Cloud revenue during the quarter,” said Robin Li, Baidu’s CEO, in a statement.

The company’s non-GAAP earnings per ADS amounted to $2.76, a 23.7% increase from the prior year’s quarter. In addition, its adjusted EBITDA increased marginally year-over-year to $1.14 billion.

As of March 31, 2024, the company’s cash and cash equivalents were $4.21 billion, and its total current assets stood at $30.12 billion.

Rong Luo, Baidu’s Chief Financial Officer, stated, “In the coming quarters, we will execute on what is needed to optimize our operational efficiency in support of our AI enabled businesses and high-quality growth, and maintain a healthy non-GAAP operating margin.”

In terms of forward non-GAAP P/E, BIDU is currently trading at 9.87x, 28.7% lower than the industry average of 13.86x. Also, its forward EV/EBIT multiple of 8.61 is 42% lower than the industry average of 14.85x.

Analysts expect BIDU’s revenue for the second quarter (ending June 2024) to increase 3.1% year-over-year to $4.81 billion. However, its EPS for the current quarter is expected to decrease by 12.2% year-over-year to $2.71. Over the past month, the stock has gained more than 17% to close the last trading session at $108.87.

While the firm’s short-term gains are apparent, demonstrated by robust financial performance and stock price increases, there are looming risks, primarily due to potential fluctuations in ad revenue and the complexities of integrating generative AI capabilities.

Given this backdrop, investors should monitor BIDU's progress closely, especially its advancements in AI and cloud services, to evaluate the sustainability of its growth.

Why Nvidia's Stock Surge Could Translate to Higher Dividends

Posted on by The INO.com Team

With a $2.35 trillion market cap, NVIDIA Corporation (NVDA) has had an exceptional year so far. Following a stellar 2023, NVDA’s stock has already surged nearly 92% since January. Moreover, the stock has gained over 200% in the past year.

This surge in NVIDIA has been fueled by its explosive growth in the AI and data center markets, making it one of the most talked-about and desirable stocks. With a high of just under $955 in yesterday’s session, expectations are mounting for the stock to hit four digits soon.

Ahead of Nvidia’s earnings, Stifel analyst Ruben Roy increased his price target on the stock from $910 to $1,085, citing that he expects Nvidia to again surpass expectations on the top and bottom lines and raise its guidance for the next quarter.

The company’s results have been bolstered by solid demand for its chips from hyperscalers, including Amazon (AMZN), Alphabet Inc. (GOOGL), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), and others. As a result, the first-quarter earnings report will serve as a crucial gauge of the industry’s appetite for further AI investment.

Also, Bank of America analyst Vivek Arya raised his price target on NVDA stock from $925 to $1100 while maintaining a “Buy” rating.

Let’s analyze how Nvidia’s stock price appreciation could lead to higher dividend payouts.

Dominance in AI and Data Center Markets

The U.S., led by NVIDIA, dominates the generative AI (GenAI) tech market. With the launch of ChatGPT in November 2022, the rise of GenAI gained substantial momentum.

From consumer-facing applications, foundational technology such as large language models (LLMs), cloud infrastructure, and semiconductors crucial for operations, U.S. companies hold a market share ranging from 70% to an impressive 90% across several segments of the generative AI landscape.

According to Statista, the global generative AI market is expected to reach $36.06 billion in 2024. Further, the market is projected to grow at a CAGR of 46.5%, resulting in a market volume of $356.10 billion by 2030. In global comparison, the U.S. is estimated to have the largest market share, totaling $11.66 billion this year.

Moreover, NVDA, a leading tech player, commands a market share of around 92% in the data center GPU market for GenAI applications.

Nvidia’s success extends beyond its cutting-edge semiconductor performance, owing to its software capabilities. The widely adopted CUDA development platform, introduced in 2006, has become a fundamental tool for AI development, amassing a user base of more than 4 million developers.

The company’s chips are essential in powering technology like Google’s Gemini and OpenAI’s ChatGPT. Also, META has placed a sizable order of 350,000 H100 GPU graphics cards from Nvidia. In line, MSFT has spent billions of dollars buying chips from the chipmaker.

Unveiled New Generation AI Graphics Processors

In March 2024, NVDA announced its next-generation chip architecture named Blackwell and related products, including its latest AI chip, B200. The latest GPUs are expected to dramatically boost developers’ ability to build advanced AI models.

The new GPU platform succeeds the company’s Hopper architecture, which was launched two years earlier and helped send NVDA’s business and stock surging.

Blackwell GPUs, containing 208 billion transistors, can enable AI models to scale up to 10 trillion parameters. It will be incorporated in Nvidia’s GB200 Grace Blackwell Superchip, which connects two B200 Blackwell GPUs to a Grace CPU.

The new AI chips are expected to ship later this year.

“Generative AI is the defining technology of our time,” said Nvidia CEO Jensen Huang during a keynote address at the company’s developers conference in San Jose, California. “Blackwell GPUs are the engine to power this new industrial revolution. Working with the most dynamic companies in the world, we will realize the promise of AI for every industry.”

With Blackwell’s superior performance, the chipmaker aims to solidify its dominance in the data center GPU market.

Outstanding Fourth-Quarter Financials

For the fourth quarter that ended January 28, 2024, NVDA’s revenue increased 265.3% year-over-year to $22.10 billion. That exceeded analysts’ expectations of $20.55 billion. It reported a record revenue from the Data Center segment of $18.40 billion, up 409% from the prior year’s period.

“Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations,” said Jensen Huang.

He added, “Our Data Center platform is powered by increasingly diverse drivers — demand for data processing, training and inference from large cloud-service providers and GPU-specialized ones, as well as from enterprise software and consumer internet companies. Vertical industries — led by auto, financial services and healthcare — are now at a multibillion-dollar level.

The chipmaker’s gross profit was $16.79 billion, an increase of 338.1% year-over-year. Its non-GAAP operating income rose 563.2% year-over-year to $14.75 billion. Its non-GAAP net income grew 490.6% from the previous year’s quarter to $12.84 billion.

Also, Nvidia posted non-GAAP earnings per share of $5.16, compared to the analysts’ estimate of $4.63, and up 486% year-over-year.

NVDA’s non-GAAP free cash flow was $11.22 billion, up 546.1% from the previous year’s period. The company’s total current assets were $44.35 billion as of January 28, 2024, compared to $23.07 billion as of January 29, 2023.

“Fundamentally, the conditions are excellent for continued growth” in 2025 and beyond, Huang told analysts. He noted that the robust demand for the company’s GPUs is expected to persist, fueled by the adoption of generative AI and an industry-wide shift from central processors to Nvidia’s accelerators.

Further, NVIDIA predicts revenue of $24 billion for the first quarter of fiscal 2025. The company’s non-GAAP gross margin is anticipated to be 77%.

Potential for Increased Dividend Payouts

As Nvidia's revenue and profits soar significantly, the company will likely consider increasing its dividend payouts, benefiting long-term investors. NVIDIA paid its quarterly cash dividend of $0.04 per share on March 27 to shareholders of record on March 6. The company’s annual dividend of $0.16 translates to a yield of 0.02% at the current share price.

Currently, Nvidia's dividend yield is modest compared to its tech peers, but its substantial cash flow and strong balance sheet provide ample room for growth. By increasing dividends, the company can attract a broader base of income-focused investors, further supporting its stock price.

Bottom Line

NVDA’s remarkable rise so far this year can be attributed to its dominance in the AI and data center markets, fueled by the growing demand for its chips from tech giants such as Amazon, Google, Meta, Microsoft, and more.

Moreover, Nvidia’s recent announcement of its next-generation chip architecture, Blackwell, and related products demonstrates its commitment to innovation and maintaining its competitive edge. With Blackwell's superior performance, Nvidia aims to consolidate its dominance in the data center GPU market.

Analysts are highly optimistic about the chipmaker’s prospects. Analysts expect NVDA’s revenue and EPS for the fiscal 2025 first quarter (ended April 2024) to increase 242% and 411.9%year-over-year to $24.59 billion and $5.58, respectively. Also, the company topped consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

As NVDA continues to expand its market share and generate higher revenue and profit, the company naturally accumulates more cash reserves. With ample cash in hand, it can increase its dividend payouts without compromising its ability to fund ongoing operations or invest in future growth opportunities.

Increased dividends will be a positive signal to the market, reflecting Nvidia’s confidence in its long-term prospects and its commitment to returning value to shareholders. This move can also enhance investor sentiment, particularly among those looking for stable income streams in addition to capital appreciation.

In conclusion, NVDA stands at the forefront of the tech industry, driving innovation and shaping the future of AI. Given its outstanding financial performance, technological leadership, and potential for dividend growth, Nvidia is an attractive investment opportunity for long-term investors.