Category: General

Is Lockheed Martin a Buy as Global Defense Budgets Surge?

Posted on by The INO.com Team

Global defense spending has sharply risen in recent years, driven by escalating geopolitical tensions. The Russia-Ukraine war, concerns over China’s intentions in the Asia-Pacific, and the ongoing Israel-Gaza conflict have all contributed to a 5.4% annual increase in military budgets since 2021. This surge has pushed global defense spending to an impressive $2.3 trillion in 2024, up from $2 trillion just a few years ago.

With regional conflicts intensifying, especially involving Israel and Iran-backed forces, nations are boosting their military investments to ensure they’re prepared for any potential escalation. For instance, the U.S. alone has spent over $22 billion on military operations in the Middle East since the onset of the Israel-Gaza conflict in October 2023, including support for Israel, air defense systems, and combating Iranian-backed militants.

As a result, defense-related stocks have soared, with the S&P 500 Aerospace & Defense Industry Index up 20% this year. Moreover, investors’ interest in this sector is evident from the inflows of the iShares U.S. Aerospace & Defense ETF (ITA), which are nearing record highs. As global defense budgets continue to grow, the sector is expected to expand at a CAGR of 3.5%, reaching $3.08 trillion by 2032.

Is Lockheed Martin a Buy as Global Defense Budgets Surge?

With defense stocks in high demand, fundamentally robust companies like Lockheed Martin Corporation (LMT) seem well-positioned to capitalize on this long-term trend.

As the largest defense contractor in the United States, Lockheed benefits from its extensive presence in both domestic and international defense sectors. The company’s innovative products and solid financial standing have helped its stock soar more than 50% over the past year and almost 33% year-to-date. With such impressive gains, it’s no surprise that many investors are eager to add LMT to their portfolios.

However, before making any quick decisions, let’s take a closer look at what’s driving this surge and whether the stock’s growth prospects are worth the risks.

What’s Behind Lockheed’s Recent Surge?

The company’s reputation for delivering innovative, high-demand military technology enables it to enjoy a continuous flow of orders for its wide range of defense products, from stealth fighter aircraft and combat ships to military radars and lethal missiles. With the U.S. being the world’s top weapons exporter, LMT’s solid foothold in this market gives it a significant advantage over its peers.

The company recently announced a flurry of significant government contracts, securing deals worth hundreds of millions. These include $422 million for integrating the Czech Republic into the F-35 Joint Strike Fighter program, $3.23 billion for air-to-surface missiles, $358 million added to a $1.1 billion Foreign Military Sales missile procurement, and $3.9 billion for Trident II D5 missile production, along with $321 million for a U.S. Missile Defense contract. Impressive, isn’t it?

But that’s not it; the company’s bright prospects are reflected in its financials, too! LMT’s net sales increased 8.6% year-over-year to $18.12 billion in the fiscal 2024 second quarter (ended June 30). Its consolidated operating profit grew marginally from the year-ago value to $2.15 billion, while its non-GAAP net earnings amounted to $1.70 billion in the same period.

The company’s adjusted earnings for the quarter rose 5.6% year-over-year to $7.11 per share, beating analyst estimates by 10.2% due to strong sales and improved profits. Also, its free cash flow increased by 95.3% from the year-ago value to $1.51 billion.

As of June 30, 2024, the company’s cash and cash equivalents increased to $2.52 billion from $1.44 billion recorded as of December 31, 2023. Buoyed by this solid performance, LMT revised its full-year outlook, projecting EPS in the range of $26.10 to $26.60, with expected revenue between $70.50 billion and $71.50 billion.

While analysts predict a slight 4.6% drop in EPS for the year ending December 2024, its revenue is expected to grow by 5.4% year-over-year to $71.23 billion. For fiscal 2025, forecasts suggest revenue and EPS will hit $74.17 billion and $28.28, reflecting a year-over-year increase of 4.1% and 6.6%, respectively.

Investors Are in For a Treat

Lockheed’s strong financial position also allows it to reward shareholders generously. As of Jun 30, 2024, the company paid out dividends worth $1.53 billion, which substantially boosted shareholders’ pockets. Moreover, it recently increased its quarterly dividend by $0.15 to $3.30 per share, payable on December 27, 2024.

With 22 consecutive years of dividend growth, Lockheed is on track to join the Dividend Aristocrats soon. The company offers a stable dividend with a four-year average yield of 2.66% and a payout ratio of 44.3%. Its current annual dividend of $13.20 yields 2.18% at the prevailing share price, while its dividend payouts have grown at a CAGR of 6.6% over the past three years.

Additionally, its board has authorized an extra $3 billion for share repurchases, bringing the total authorization for buybacks to around $10 billion. This substantial buyback capacity reflects the company’s confidence in generating cash as it continues to turn its multi-year backlog into revenue.

Bottom Line

As geopolitical tensions rise, the defense industry continues to benefit from increased military spending worldwide, making companies like Lockheed Martin attractive investments. Moreover, the war in the Middle East and the broader global threat level have spurred greater urgency in defense budgets, particularly in the U.S., which could boost international sales for Lockheed.

Historically, defense stocks tend to outperform during periods of monetary easing, and with the recent Fed rate cuts, there’s potential for further positive momentum. RBC Capital Markets emphasizes that LMT could see positive sentiment continuing into 2025, driven by projected mid-single-digit growth in free cash flow and solid quarterly results.

Investors should keep an eye on Lockheed’s upcoming quarterly report, which will focus on F-35 fighter jet deliveries and initial guidance for 2025. With RBC raising its price target for LMT’s stock to $675, it’s clear that sentiment is improving due to better-than-expected sales growth.

While the outlook remains promising, it’s essential to consider both the rewards and potential risks. Market conditions and geopolitical shifts can affect defense stocks, and one should stay informed. However, given LMT’s strong financials, stable dividend payouts, and buyback program, we believe it could be a solid addition for investors seeking to gain defense sector exposure.

Is It Time to Buy the Dip in Oil Majors or Stay Cautious?

Posted on by The INO.com Team

Oil prices have been on a wild ride recently, dropping from $92 a barrel last year to around $70. Speculations have emerged that Saudi Arabia might aim to push prices down to $50 amid internal disagreements within OPEC+. However, rising tensions in the Middle East are shifting the narrative once again, with fears that a regional war could send crude prices soaring.

Just last week, U.S. crude oil surged over 3% as the market braced for potential Israeli strikes on Iran in retaliation for missile attacks. This anxiety led to a significant rally, with the U.S. benchmark West Texas Intermediate (WTI) climbing 9.09% (the largest weekly gain since March 2023), while Brent crude experienced an impressive rise of 8.43% (marking its biggest advance since January 2023). It’s clear that large swings in oil prices have profound effects on the U.S. economy, making investors increasingly cautious yet opportunistic.

Adding to the complexity, Saudi Arabia recently announced plans to ramp up its oil production starting in December, stepping away from its previous target of maintaining $100-per-barrel prices. This move, coupled with the resolution of a political dispute in Libya that could see an increase of 500,000 barrels per day in supply, temporarily lowered global oil prices.

Yet, the situation remains precarious, particularly with Iran’s involvement and the potential for further conflict. If the situation escalates, particularly if Israel targets Iran’s oil facilities, it could put as much as 4% of global supply at risk, which could send prices skyrocketing.

Despite the recent volatility, retail investors are increasingly diving into oil-linked products. While the market has been somewhat subdued in its reaction to the unfolding crisis, experts caution that complacency could be dangerous. Goldman Sachs suggests that a significant fall in Iranian output could boost oil prices by $20 per barrel, while others, like Swedish bank SEB, even warn that, in a worst-case scenario, prices could climb to over $200.

As we navigate this uncertain landscape, marked by fluctuating crude prices between $66 and $96 per barrel and weak demand from China alongside lackluster global economic data, the outlook for oil remains murky. However, the recent escalation in the Middle East has renewed fears of potential supply disruptions, especially if military conflicts escalate further. This leaves investors questioning: Is now the right time to buy the dip, or is it wiser to exercise caution?

Stock to Buy: Chevron Corporation (CVX)

Chevron Corporation (CVX) has long been a pure-play U.S.-based energy giant. However, the landscape of energy is shifting, and CVX is proactively adapting to the future of energy. The company understands that oil and gas won't be the only energy sources in the future, so it is moving into clean energy as part of its long-term strategy. It plans to invest $10 billion in lower-carbon projects by 2028.

The company is working on carbon capture projects, which help reduce harmful emissions, and, in this capacity, it operates one of the world’s largest integrated CCS projects, Gorgon. Additionally, Chevron is developing the Bayou Bend carbon capture hub and exploring renewable energy options like hydrogen and geothermal energy through projects like the Advanced Clean Energy Storage Delta in Utah, set to begin operations next year.

Moreover, its recent acquisition of Hess for $53 billion strengthens its portfolio, even amid regulatory challenges. Analysts suggest that Chevron's strategy of balancing traditional oil and gas with new growth areas, particularly in the Permian Basin, will enhance its profitability. The company aims to increase its production to nearly 4.0 million barrels of oil equivalent per day by 2027, driven by investments in the Permian Basin, Kazakhstan, the Gulf of Mexico, and new opportunities in Mexico and Brazil.

In the second quarter ended June 30, 2024, CVX’s total revenues and other income increased 4.7% year-over-year to $51.18 billion. The company’s attributable net income came in at $4.43 billion or $2.43 per share, down from $6.01 billion, or $3.08 per share, for the same quarter last year. Even though profits have dipped, Chevron still has $9 billion in cash and a low debt-to-equity ratio of 10.7%. During the quarter, the company returned $6 billion to shareholders, including $3 billion in dividends and $3 billion in share buybacks (marking the ninth consecutive quarter of over $5 billion returned to investors).

On September 10, demonstrating its commitment to returning value to shareholders, the company paid a quarterly dividend of $1.63 per share. CVX pays an annual dividend of $6.52, which translates to a yield of 4.33% at the current share price. It has a payout ratio of 52.4%. For the fiscal year 2025, its revenues are expected to increase marginally year-over-year to $198.58 billion, while its EPS estimate of $12.44 indicates a 14.1% growth from the prior year period. Moreover, the stock has gained over 6% in the past month. Considering these factors, it could be wise for investors to scoop up the shares of this stock.

Stock to Hold: Exxon Mobil Corporation (XOM)

Exxon Mobil Corporation (XOM) explores and produces crude oil and natural gas. It also manufactures, trades, transports, and sells crude oil, natural gas, petroleum products, petrochemicals, and specialty products. It operates through three segments: Upstream; Downstream; and Chemical.

In May, ExxonMobil bolstered its position in the Permian Basin by acquiring Pioneer Natural Resources Company, enhancing its upstream portfolio with a combined 1.4 million net acres and an estimated 16 billion barrels of oil equivalent resources. The company anticipates that production from the Permian will more than double to 1.3 million barrels of oil equivalent per day in 2023, aiming for 2 million barrels per day by 2027. Additionally, ExxonMobil has a strong project pipeline in offshore Guyana, where low production costs will allow it to generate substantial returns.

XOM’s total revenues and other income for the second quarter ended June 30, 2024, increased 12.2% year-over-year to $93.06 billion. Its net income rose 17.3% from the year-ago value to $9.24 billion, while its earnings per common share came in at $2.14, representing a 10.3% year-over-year growth.

Analysts expect XOM’s EPS for the fiscal third quarter (ended September 2024) to come in at $1.98, representing a 12.7% year-over-year decline. Likewise, the company’s revenue is expected to decrease marginally from the year-ago value to $90.72 billion. Over the past year, the stock has returned over 25%, which is impressive. However, we think that XOM could be watched for now and waited for an opportunity to enter and tap into its long-term growth prospects.

The October Effect: Why Microsoft’s Cloud Strength May Outperform Apple’s Consumer Reliance

Posted on by The INO.com Team

October has historically earned a reputation for market turbulence, with some of the most significant market crashes occurring during this month—the 1929 and 1987 crashes being the most infamous examples. This seasonal market phenomenon, often dubbed the "October Effect," is linked to increased volatility and sell-offs as investor sentiment becomes more cautious. For tech stocks, which are often traded at high valuations, this period can be particularly sensitive.

However, not all tech companies are affected equally. As the market braces for potential October volatility, Microsoft Corporation (MSFT) appears better positioned than Apple Inc. (AAPL). With its enterprise-driven model and dominance in the growing cloud computing sector, Microsoft has demonstrated resilience in uncertain times. On the other hand, Apple, with its consumer-focused product lines, could be more vulnerable to fluctuations in consumer spending, a key driver of its revenue.

Cloud Computing’s Predictability vs. Consumer Cyclicality

Microsoft's transformation over the last decade has given it a clear advantage in market volatility, thanks to its cloud computing dominance. In fiscal 2023, Microsoft’s cloud division, anchored by Azure, generated $110 billion in annual revenue, accounting for over 50% of its total sales. This marks a major shift from its earlier reliance on Windows and Office software sales. The company’s Azure platform alone saw a 26% year-over-year increase in revenue in the fourth quarter of 2023, reflecting sustained demand for cloud services from both businesses and government entities. This revenue stream is built on multi-year contracts, providing Microsoft with a predictable cash flow that is less influenced by short-term market movements or consumer sentiment.

Apple, in contrast, relies heavily on consumer product sales, with the iPhone being its crown jewel. In fiscal 2023, Apple reported about $383 billion in revenue, with more than 50%—approximately $200 billion—coming from iPhone sales. Despite the growth of its services division, which contributed 22% of revenue, Apple’s dependency on consumer hardware remains significant. When consumer spending dips, such as during recessions or periods of economic uncertainty, Apple’s revenues can feel the impact more directly.

Moreover, Microsoft’s software business—products like Office 365 and LinkedIn—adds further stability. Its productivity suite generates steady, recurring revenue through subscriptions, appealing to businesses and consumers alike. During economic downturns, businesses are unlikely to cut back on essential services like cloud infrastructure or productivity tools. In comparison, Apple’s high-end product lines, which include iPhones, MacBooks, and wearables, could see demand slow if consumer discretionary spending tightens.

Historical Performance During Downturns

When looking at past instances of market volatility, Microsoft’s stock has shown greater resilience than Apple’s. During the 2020 COVID-19 crash, Microsoft’s shares fell by about 20%, but the stock rebounded quickly due to strong demand for cloud services as businesses shifted to remote work. Apple's stock, by contrast, initially dropped by nearly 30% before recovering. The key difference lies in the nature of the revenue streams. Microsoft’s enterprise contracts provided a buffer, while Apple’s reliance on consumer spending made it more susceptible to the initial economic shock.

Even in 2022, a year defined by high inflation and aggressive rate hikes, Microsoft outperformed Apple during periods of heightened volatility. Microsoft's stock fell about 30% from peak to trough, while Apple experienced a steeper decline of approximately 34%. Though both companies rebounded later in the year, the defensive qualities of Microsoft's business model became apparent in these instances.

How October Volatility May Impact the Two Giants

The October Effect, though historically inconsistent, often signals an uptick in market volatility. This heightened uncertainty could lead to sell-offs, particularly in sectors like technology, where valuations are stretched. While Apple has weathered previous storms admirably, its dependence on high-ticket consumer products makes it more exposed to a potential downturn in consumer sentiment. If fears of economic slowdown or inflation drive down consumer spending, Apple's hardware sales could suffer. Moreover, the potential delay in launching new products due to supply chain issues, which has affected Apple in recent years, could add to its volatility in October.

On the other hand, Microsoft’s business model is more insulated. Even during periods of market stress, the demand for cloud infrastructure, cybersecurity, and productivity software remains robust. Enterprises are unlikely to cut back on these critical services, providing Microsoft with a layer of stability that few companies can match. With the global cloud market expected to grow at a CAGR of 21.2% from 2024 through 2030, according to Grand View Research, Microsoft’s dominant position in this sector ensures its long-term growth prospects remain intact, even if market turbulence continues.

What Should Investors Do?

For investors eyeing October with caution, Microsoft presents a more defensive investment option. Its diversified revenue streams, particularly its growing cloud division, make it less reliant on short-term consumer trends. Microsoft's strong cash position and lower exposure to consumer sentiment offer a buffer during times of market volatility, aligning it with investor preferences for safer assets during economic uncertainty.

Apple, while still a powerhouse in the tech world, faces a greater degree of risk if October brings about a downturn. Its consumer-driven model means that any decline in spending could directly impact its revenues. That said, Apple’s services business has been growing steadily, and its robust ecosystem ensures it will remain a strong contender in the long term. However, in the context of short-term market volatility, Microsoft’s enterprise-heavy model makes it a more attractive option for risk-averse investors.

While both Microsoft and Apple are titans of the tech world, the former’s cloud dominance and financial prudence offer greater stability during periods of market uncertainty. Investors seeking a more resilient portfolio amid potential October market volatility might consider increasing their allocation to Microsoft, while those with a higher risk tolerance may still see opportunity in Apple’s long-term innovation potential.

Tesla Falls Short on Q3 Deliveries: What It Means for EV Stocks

Posted on by The INO.com Team

Tesla, Inc. (TSLA) reported its third-quarter delivery numbers on October 2, falling short of what some analysts were expecting, causing the stock to drop over 6%. The EV maker delivered 462,890 vehicles between July and September, up 6.4% year-over-year. While this number marginally beat the average estimate of 462,000 vehicles, it didn’t quite meet higher expectations from Barclays and UBS, which had forecasted 470,000.

Tesla’s Q3 numbers were also ahead of the 435,059 vehicles delivered in the same period last year and slightly better than Q2’s total of 443,956 deliveries. Of the 462,890 deliveries, 439,975 were for Tesla’s popular Model 3 and Model Y vehicles, while the remaining 22,915 included the Model S, Model X, and Cybertruck.

Even though Tesla’s Q3 deliveries improved year over year and were better than the second quarter’s 443,956, the results still left some investors concerned. Tesla's share price dropped by around 4% shortly after the market opened on the day of the release of the delivery data.  

Moreover, it raises concerns about Tesla’s ability to maintain its rapid growth, especially as competition intensifies in the EV space. For Tesla to avoid its first-ever annual decline in deliveries, it will need to achieve a record-breaking 516,344 deliveries in the fourth quarter.

Speaking of competition, Tesla isn’t alone in the race for EV dominance. Rivals like Li Auto Inc. (LI), XPeng Inc. (XPEV), NIO Inc. (NIO), and BYD Company Limited (BYDDY) also reported record-breaking deliveries in September.

LI, for instance, hit a record of 53,709 deliveries, up 48.9% year-over-year, while XPEV’s EV figures surged by over 52% from August and 39.5% year-over-year. BYD, Tesla’s biggest competitor in the global EV market, delivered 443,426 battery-electric vehicles in the third quarter, putting them just behind Tesla in quarterly numbers. Meanwhile, NIO reported a 7.8% quarter-over-quarter rise with 61,855 EV deliveries.

What’s Next for Tesla?

Tesla has a busy October ahead. The company’s third-quarter earnings report is due on October 23, and investors are particularly eager to see how Tesla’s profit margins are holding up. Meanwhile, the carmaker’s upcoming Robotaxi event on October 10 has drawn significant attention as the company is expected to share updates on its full self-driving technology, AI, and autonomous driving advancements. Analysts from Wedbush and Deutsche Bank have flagged the event as a potential catalyst for Tesla stock, which has already surged 20% over the past month. Both firms maintain buy ratings, with price targets of $300 and $295, respectively.

Despite the shortfall in Q3 deliveries, TSLA continues to innovate and expand its footprint in the EV and autonomous driving markets. Its solid position in China, along with continuous improvements in AI, could provide the momentum needed to meet future targets. Thus, adding this stock to your portfolio could be profitable.

However, investors concerned about Tesla’s near-term outlook could keep an eye on potentially strong companies like  Rivian Automotive, Inc. (RIVN) and Lucid Group, Inc. (LCID) as alternatives. Let’s look at their fundamentals in detail:

Stocks to Hold:

Rivian Automotive, Inc. (RIVN)

Rivian has had a tough time in 2024, especially as an EV maker still working toward profitability in a challenging market. Even though its stock has recovered from April lows, it remains down nearly 55% year-to-date. However, there’s optimism as the company outperformed Wall Street’s top- and bottom-line expectations in the second quarter, reflecting its cost-cutting progress.

On August 6, RIVN reported a loss of $1.46 per share, which came in above analysts’ expectations, who had predicted a loss of $1.19 per share. Its revenue for the quarter came in at $1.16 billion (up 3.3% year-over-year), slightly surpassing analyst expectations of $1.15 billion. The company also earned $17 million in revenue from regulatory credits.

Although it posted a net loss of $1.46 billion for the quarter, RIVN’s cash position remains strong. The company ended the quarter with $7.87 billion in cash and investments, bolstered by a $1 billion unsecured convertible note from Volkswagen. Moreover, the company completed a retooling upgrade at its Normal, Illinois plant, producing 9,612 vehicles and delivering 13,790 units.

For 2024, Rivian has set a production target of 57,000 vehicles, incorporating necessary downtime for further upgrades and cost reductions. It aims for a 30% improvement in production line rate and a 20% reduction in material costs compared to its previous platform, reflecting its efforts to enhance efficiency and reduce expenses.

The company has also revamped its R1 pickup and SUV models with slight competitive price increases. These updates are expected to boost revenues and help Rivian achieve its goal of turning a profit on each vehicle by the end of the year. Overall, while Rivian continues to face challenges, its strategic initiatives and strong cash position provide a foundation for potential future growth.

Lucid Group, Inc. (LCID)

Luxury electric vehicle maker Lucid has recently gained attention after exceeding expectations in the second quarter and achieving a new delivery record. Over the past three months, LCID shares have gained more than 20%. The company delivered 2,394 vehicles in the quarter ended June 30, marking a solid 70.5% increase compared to the same period last year and a 22% rise from the first quarter. This performance beat analysts’ predictions of 1,889 vehicles, following a record-setting 1,967 deliveries in the first quarter.

Meanwhile, production is also on the rise, with the company building 2,110 EVs after its production dropped 27% year-over-year in the first quarter. Though production remains below its previous highs, the improvement signals a positive recovery for the company. Having produced 3,837 vehicles through the first half of 2024, Lucid aims to reach its target of 9,000 vehicles for the year, which would require 5,163 more units in the second half.

As Lucid’s production and deliveries rebound, the company reported a second-quarter revenue of $200.58 million, exceeding Wall Street’s forecast of $192.65 million. However, the company had an adjusted loss of $0.29 per share, slightly higher than the expected 26 cents. Nonetheless, the Ev maker ended the quarter with $4.28 billion in liquidity and even secured a $1.5 billion commitment from Ayar Third Investment Co, a partner of Saudi Arabia’s Public Investment Fund. This funding provides Lucid with a financial cushion through at least the fourth quarter of 2025.

Commenting on this, CEO Peter Rawlinson said he’s “very encouraged” by the momentum Lucid is gaining, especially with the anticipated launch of its first electric SUV, the Gravity, later this year. This new model is expected to help the company maintain its positive trajectory as it moves into the second half of 2024. With that in mind, investors could consider adding this stock to their watchlist.

AMD and GOOGL Pull Back from Highs—Here’s Why It’s Time to Buy

Posted on by The INO.com Team

The recent market volatility has created a golden opportunity for investors eyeing two tech giants: Alphabet Inc. (GOOGL) and Advanced Micro Devices, Inc. (AMD). Both companies have seen their stock prices fall considerably from their recent highs. While that might seem worrying, this dip offers an attractive entry point for investors, especially given the long-term growth potential of both companies, driven by advancements in artificial intelligence (AI) and data centers.

With that in mind, let’s explore the fundamentals of these stocks in detail:

Alphabet Inc. (GOOGL)

With a current market cap of $2.04 trillion, Google’s parent company is known for its pioneering internet-related services and products. While the stock has been weighed down by antitrust concerns, many investors are overlooking the company’s long-term growth prospects and strong financials. GOOGL’s valuation particularly looks quite attractive, when you consider its strong financial performance.

In the fiscal 2024 second quarter ended June 30, 2024, GOOGL reported revenues of $80.74 billion, up 13.6% year-over-year. Its income from operations grew 25.6% from the prior year’s quarter to $27.43 billion with a margin of 32%. The company’s biggest revenue driver continues to be its Google Advertising segment, which brought in $64.62 billion. But that’s not the only bright spot.

Google Cloud, which ranks as the third-largest cloud service provider, is expanding at a rapid pace. Cloud revenue surged 29% year-over-year to $10.3 billion, far outpacing the company’s overall growth. As more businesses adopt Google Cloud, particularly for AI-related purposes, this segment could become a larger piece of the pie over time. Furthermore, the company owns the two most popular websites: Google and YouTube, both of which are expected to fuel revenue growth over the long term.

On the bottom line, its net income and earnings per share came in at $23.62 billion and $1.89, representing increases of 28.6% and 31.3% year-over-year, respectively. Its EPS came above the analysts’ estimate of $1.84 by 2.5%. In addition, the tech company’s cash and cash equivalents amounted to $27.23 billion as of June 30, 2024, compared to $24.05 billion as of December 31, 2023.

Street expects GOOGL’s revenue and EPS for the fiscal third quarter (ended September 2024) to increase 12.5% and 18.7% year-over-year to $86.26 billion and $1.84, respectively. Also, the company has topped the consensus EPS and revenue estimates in all four trailing quarters.

GOOGL declined about 13% below its 52-week high. The stock is currently trading at a forward price-to-earnings (P/E) ratio of 21.72, which is a 15.2% discount to its own 5-year average. Besides, GOOGL’s trailing-12-month EBITDA margin of 35.18% is 93.2% higher than the 18.21% industry average. Likewise, the stock’s trailing-12-month net income margin, ROCE, and ROTC of 26.70%, 30.87%, and 20.34% compare to the industry averages of 3.08%, 3.44%, and 3.72%, respectively.

Despite the stock’s recent drop and ongoing regulatory concerns, the company’s long-term potential remains strong. Over the past year, the stock has climbed more than 23% and is up nearly 18% so far in 2024. With a projected upside of 21.8%, GOOGL currently has a consensus rating of “Strong Buy.” This dip offers a great opportunity for investors to scoop up shares at a discount ahead of the tech giant’s Q3 earnings report, expected in late October.

Advanced Micro Devices, Inc. (AMD)

Based in Santa Clara, California, Advanced Micro Devices has been at the forefront of innovation in high-performance computing, graphics, and visualization technologies. The company has firmly established itself as a formidable player in the GPU market, particularly excelling in chips tailored for AI workloads.

As AMD gains significant momentum in the data center space, there is strong potential for its current $262 billion valuation to grow even further. Despite the recent 25% dip in its stock price, AMD’s long-term growth prospects remain robust, offering a prime opportunity for investors to buy in at a discounted price.

AMD’s influence, however, extends beyond hardware. The company has been expanding its presence in AI software as well. In June, AMD introduced its groundbreaking Ryzen™ AI 300 Series processors, which are equipped with the world’s most powerful Neural Processing Unit (NPU). These processors are designed to bring AI capabilities directly to next-generation PCs, enabling AI-infused computing to seamlessly integrate into everyday tasks and applications. 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 has outlined a comprehensive roadmap for its Instinct accelerator series, promising to deliver cutting-edge AI performance and memory capabilities across each generation. With the imminent release of the AMD Instinct MI325X accelerator in Q4 2024 and the upcoming launch of the MI350 series, powered by AMD’s new 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 second quarter that ended June 30, 2024. AMD’s non-GAAP revenue increased 9% year-over-year to $5.84 billion. Its data center revenue surged 115% year-over-year to $2.83 billion, accounting for nearly half of its total revenue.

The Mi300 series brought in over $1 billion in quarterly revenue for the first time, with its customer base expanding as Microsoft became the first cloud provider to offer general availability for the Instinct Mi300X. As AI applications continue to drive demand for high-performance data center solutions, AMD is well-positioned to see its profitability climb, given the higher margins typically associated with this segment.

Moreover, the company’s non-GAAP operating income grew 18.4% from the year-ago value to $1.26 billion. AMD’s non-GAAP net income and EPS stood at $1.13 million and $0.69, up from $948 million and $0.58, respectively, recorded last year.

Analysts expect its revenue and EPS for the current year (ending December 2024) to increase 12.9% and 27.7% year-over-year to $25.61 billion and $3.38, respectively. If AMD can exceed expectations, the stock could experience significant gains in the coming months. Earlier this year, the company projected $4 billion in AI chip sales for 2024, representing about 15% of its expected revenue.

AMD’s trailing-12-month EBITDA and net income margins of 17.38% and 5.82% are 72.3% and 56.2% above their respective industry averages of 10.09% and 3.72%. After a nearly 30% decline from its 52-week high, AMD is trading at 47.21x forward non-GAAP P/E, which is reasonable considering its AI prospects. Moreover, with the stock already up 57% over the past year, there’s potential for even more significant gains in 2025 and beyond. Thus, investors looking for long-term growth might consider this as a strategic entry point before the market fully prices in its potential.