Bitcoin ETF Approval: A Catalyst or a Headwind for Market Players?

Posted on by The INO.com Team

The U.S. Securities and Exchange Commission (SEC) gave its approval to 11 spot bitcoin exchange-traded funds (ETFs) on January 10 after months of speculations. These newly approved ETFs diverge from previously dubbed "Bitcoin ETFs," which were tied only to future contracts or shares of Bitcoin-entwined corporations. The current batch of sanctioned funds directly hold Bitcoins, aligning more accurately with the spot price of Bitcoin over time and offering a relatively simplified means of investment in the cryptocurrency compared to independent crypto wallets.

This endorsement by the SEC can be seen as a significant validation of Bitcoin's prospective mainstream status. Cryptocurrency optimists are considering this regulatory green light as a potential booster for BTC's price, possibly catapulting it to a six-figure high.

Since October's end, with the growing buzz around the SEC's decision, BTC has climbed over 60% and is currently trading at an almost two-year peak. Despite much anticipation, the market response post-approval remained muted, with the large-cap token witnessing a marginal rise on the following day – a pattern typically observed when investors 'buy the rumor and sell the news.'

In the aftermath of the first wave of ETFs commencing trading on January 11, BTC's price plunged, falling nearly 8% in just five days, estimating a value of roughly $42,700.

Predicting the volatility of BTC's price remains challenging. Its historical best stands at approximately $69,000 during the apex of the crypto surge in November 2021, yet it plummeted to a mere $16,000 by 2022 end. Factors such as increasing interest rates deterring speculative investments, failure of various high-profile tokens and exchanges, and rising apprehensions over stricter crypto regulations largely contributed to this plunge.

However, 2023 witnessed BTC's price soaring over 150% to over $42,000, spurred on by slower rate hikes and renewed market interest in cryptocurrency. This resurgence was also fueled by the anticipation of the SEC's approval of Bitcoin's maiden spot-price ETFs.

Consequently, the recent setback only wiped out BTC's gains earned at the onset of 2024. The dip suggests quick-profit short-term traders possibly inflating the digital currency's price in anticipation of recent ETF approvals, only to capitalize on the profits following the initial excitement.

Market observation currently highlights a heated contest between bullish and bearish forces. A significant recovery appears elusive for buyers of the currency, hinting at sustained pressure from bearish influences. Moreover, BTC is trading below the 10-day and 50-day moving averages, indicating a downturn and reassertion of control by bearish forces.

Typically, if BTC dips below the $42,000 threshold, accelerated selling could follow, potentially driving its value further down. As for those bullish on the asset, they will need to push BTC above the 10- and 50-day EMA to avert a negative outcome.

Moreover, Bloomberg ETF analyst Eric Balchunas said that the newly launched ETFs witnessed inflows of $1.4 billion. On the contrary, the Grayscale Bitcoin Trust (GBTC) saw an outflow of $579 million. However, the net inflows in two trading sessions across the ETFs were $819 million.

This initial flurry of activity aligns with James Seyffart's earlier forecasts. He projects that Bitcoin ETFs could succeed in drawing in around $10 billion within their inaugural year on the market.

But are there any long-term catalysts?

While BTC's price adjusts in response to the pressure of recent ETF approvals, prospects indicate a significant potential for the cryptocurrency's growth.

The primary outcome of the ETF approvals is to enhance accessibility for large-scale institutional investors to accumulate Bitcoin in an open market setting. Investment powerhouse Fidelity, already having launched the Fidelity Wise Origin Bitcoin Fund (FBTC), has projected a soaring Bitcoin value, with expectations of a $1 billion valuation by 2038.

A similarly bullish stance lives within Standard Chartered, whose strategists postulate that spot ETFs could generate between $50 billion and $100 billion in inflows for Bitcoin within this year alone. They further predict a stunning price peak of $200,000 by the close of 2025.

Ark Investment's Cathie Wood, managing the recently approved Ark 21Shares Bitcoin ETF (ARKB), anticipates that the price of Bitcoin could hit $1.5 million by 2030. But why such astronomical levels? Her projections stem from a belief in BTC's value growing with increased institutional adoption, positioning it not merely as a preferred choice for encryption enthusiasts but also acting as a pivotal tool in robust, institutional-grade risk diversification.

The fixed supply cap on Bitcoin at 21 million coins sharply contrasts the inflating supply of fiat currencies, thus potentially amplifying its appeal as a deflationary asset.

The projected trajectory primarily hinges on the pronounced network effect within BTC, where its value heightens with an increase in blockchain users and transactions – supported by ongoing technological advancements and enhanced accessibility.

While certain aspects of these long-term forecasts may appear overly optimistic, it is logical to conclude that Bitcoin ETF approvals will introduce a modicum of stability to its volatile pricing structure. This stabilization could prompt return investment from larger entities and propel BTC prices closer to their historical peak levels.

Also, past trends hint toward any halving year being a catalyst for a bullish surge, traditionally followed by a bull run in the succeeding year. This pattern, chiefly attributed to expanding public interest, augmented risk activity, and heightened discourse surrounding digital currency futures, places Bitcoin squarely at a vantage point. Potential factors such as reduced Bitcoin supply due to halving and the prospects of fresh investments via ETFs could introduce unprecedented market dynamics.

Moreover, anticipation of interest rate reductions in the U.S. intensifies predictions for bullish BTC pricing in 2024. Furthermore, the looming shadows of sticky inflation may steer a wave of investors toward acquiring Bitcoin as safeguards against the devaluation of their fiat currencies.

Bottom Line

Pre-launch speculation surrounding Bitcoin spot ETFs had heightened anticipation. However, when regulatory approval did not spur an upward reaction, traders may have chosen to capitalize on profits, leading to a substantial market recoil.

Not all of the financial world is swayed by optimistic BTC price targets. For instance, former PIMCO CEO Mohamed El-Erian indicated in a recent post that although the SEC's approval could be a pivotal moment for cryptocurrency, it would unlikely broaden Bitcoin's utilization. The outlook remains more constrained.

The SEC itself voices reservations about BTC's investment potential. In a separate announcement, Chair Gary Gensler dubbed Bitcoin as "primarily a speculative, volatile asset that's also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing."

While the markets can be unpredictable, lower price points might draw in long-term investors who keep a close watch on the Bitcoin halving and institutional influx into Bitcoin spot ETFs over the forthcoming weeks.

Despite the prevailing belief that institutional monetary allocation will take time to transpire, it is argued that the subsequent price dip wasn't exactly favorable to capital inflows. Agreeingly, there was substantial conjecture around the concept of selling the fact, so maybe there would be a twist when or if Bitcoin prices begin to ascend again. But at this juncture, one would need to see it to believe it!

The ETFs have yet to gather steam in terms of trading volume fully. Investment giant  BlackRock has reportedly bought a staggering 11,500 BTC from the available supply during the latest dip since the launch of its spot Bitcoin ETF. This amount is significant, considering that only 900 BTCs are issued daily. BlackRock’s purchase effectively represents about 13 days’ worth of Bitcoin production taken on by a single entity, creating speculation of supply concerns.

The presumption pointed toward an immediate and dramatic financial inflow into the Bitcoin ETF may be misguided. There has always been the potential for Bitcoin to experience consistent – even if relatively slow – capital inflows.

The circumstance represents a quintessential pattern of overestimating short-term impacts while concurrently underestimating long-term potentials. The situation underscores a transition phase in market realignment, signaling a need for cautious optimism.

Given the current landscape, investors should proceed with caution venturing into this space.

How Boeing (BA) Regulatory Challenges Might Affect Shareholders

Posted on by The INO.com Team

Boeing Company's (BA) best-selling MAX 737 aircraft experienced yet another setback last Friday as an Alaska Airlines-operated flight was forced to make an emergency landing. With 177 passengers onboard, the incident took place shortly after departed from Portland, Oregon. A cabin panel in the newly-minted 737 MAX 9 aircraft unexpectedly detached, resulting in a wide opening in the airplane's side. Despite the distressing circumstances, no serious injuries or fatalities were recorded. Digital clips documenting the alarming mishap made their rounds online.

The 737 MAX 9 is one of four variants of the renowned aircraft model; many of its kind were subsequently grounded in response to the incident. This move was triggered by an earlier ordered inspection that had unveiled missing components in two variants.

In 2023, the U.S. aircraft manufacturer had an impressive run as it delivered 528 aircraft and booked 1,314 net new orders after allowing for cancellations, up from 480 deliveries and 774 net new orders in 2022, which was its third-best year.

When it came to dispatching the narrow-bodied 737 jets, BA met its revised target by delivering 396 units – accomplishing its adjusted objective of at least 375 single-aisle planes. However, it fell slightly short of its initial target of delivering between 400 to 450 jet units.

So far, the U.S. is the top recipient of 737 MAX, with most orders still to be fulfilled. Given the U.S.'s significant reliance on these planes, particularly the 737 MAX 9 variant, the fallout from this recent event is expected to affect the region severely.

Amid increasing scrutiny, regulators from the Federal Aviation Administration (FAA) have ordered a temporary grounding of most 737 MAX 9 planes awaiting an investigation into the incident. The directive, which primarily affects around 171 airplanes, resulted in scores of flight cancellations, notably from domestic U.S. operators Alaska Airlines and United Airlines.

Both carriers have discovered "loose bolts" on the doors of the MAX 9 models following a global inspection organized by BA in December. With each having a sizeable fleet of the same – Alaska Airlines owns 65, and United Airlines owns 78 – they have since halted all aircraft flights.

On the issue, BA's CEO, Dave Calhoun, admitted to a "quality escape," whereby the compromised plane somehow managed to pass all checks and validations. Despite the possible origins being traced back to aviation supplier Spirit Aerosystems, Mr. Calhoun segregated no details stating that the issue arose under BA's purview, too; he maintained a collective responsibility toward rectifying this lapse.

Further emphasizing the seriousness of this quality lapse, Jennifer Homendy, the Chairwoman for the National Transportation Safety Board (NTSB), firmly recommended withholding these aircraft from service until the root cause is ascertained completely. This, she stated, would dictate the necessary inspections and repairs to prevent any such mishap from reoccurring.

It is not the first time BA’s MAX 737 aircraft encountered issues…

Over the past five years, BA has been contending with persistent quality and safety challenges, resulting in the prolonged grounding of certain aircraft and the suspension of deliveries.

Before the pandemic, catastrophic airplane crashes ripped the cover off a scandalous situation within the company. The 737 Max design was involved in two tragic accidents. The first took place in Indonesia in late 2018, and the second occurred in Ethiopia in March 2019. These combined incidents resulted in the loss of 346 passengers and crew members across both flights, which consequently led to a 20-month suspension of the company's best-selling jets, costing BA upwards of $21 billion.

This chain of events sparked one of the most expensive corporate scandals in history, as subsequent investigations and publications, such as 'Flying Blind: The 737 Max Tragedy and the Fall of Boeing', laid bare BA’s close ties with the FAA.

Late last month, BA urged airlines to carry out inspections on 737 Max fleets due to a potentially loose bolt found in the rudder system, discovered after potential issues with a key aircraft part were raised by an airline.

However, BA's issues extend beyond the troubled 737. The company found it necessary to suspend deliveries of its 787 Dreamliner twice: once for about a year starting in 2021 and again in 2023, attributed to concerns regarding quality as identified by the FAA.

Adding salt to the wound was the forced grounding of BA's 777 jet following an engine failure during a United flight, resulting in debris from the engine raining onto residential areas and the ground below.

The Impact…

The aerospace titan continues to command a valuation of over $134 billion, which, albeit impressive, signifies a decline of over $100 billion since its all-time high valuation of $248 billion in 2019, a stark consequence of the fatal scenarios before the pandemic.

 

BA’s stock fell victim to the recent issues and wiped out over $9 billion in market value.

CEO Dave Calhoun is striving to execute a plan to make a strong comeback by 2024, fighting the tide of reputational damage that ensued from the Max scandal. The Alaska Airlines incident poses another significant threat to BA's reputation, further straining relationships with airlines. However, it is crucial to note that BA shares a duopoly with Airbus in the marketplace worldwide, which would likely act as a buffer for the enterprise.

Bank of America analysts led by Ronald Epstein expressed their concern about what they describe as a “worrying start to the new year.” They anticipate that the recent incident will likely chip away at the precarious confidence surrounding the 737 Max. However, they predict that the impact on BA's performance this year won't be significant, given the duopoly held by BA and its European counterpart, Airbus SE, in commercial aircraft.

BA and Airbus SE have cornered about 90% of the total global commercial aircraft market share and occupy similar roles in both American and European economies. This situation leaves airlines, notably those in America, with limited alternatives to BA's aircraft, with Airbus already operating at full capacity. Industry experts are confident that the recent Alaska incident will not drastically impact 737 Max orders due to the duopolistic structure of the industry.

BA, though currently in short supply, is making gradual yet consistent progress in addressing the internal shortcomings that contributed to its present state.

The recent Alaska mishap presents a formidable risk of disrupting the delivery of Max 9 to China and influencing the certification process of BA's newest Max 7 and Max 10 aircraft. This incident could trigger reduced demand and further cancellations for BA's 737 MAX planes as airlines and consumers question their safety and reliability.

Beyond tarnishing BA's reputation and credibility, the Alaska flight debacle could also prompt lawsuits and inquests from passengers, airlines, regulatory bodies, and shareholders alike. Consequently, the company may come under increased scrutiny, escalating the pressure to ensure the safety and superior quality of its fleet.

Investors are advised to take note of two crucial military contracts recently landed by Boeing, which predict a prosperous outlook for the company. On November 28, the United States Air Force (USAF) commissioned an order for 15 Boeing KC-46A Pegasus Tankers — modeled on the Boeing 767 — with the contract valued at approximately $2.3 billion.

Adding to this, BA has been presented with a Foreign Military Sales Letter of Offer and Acceptance from the Canadian government for an undisclosed number of Boeing P-8A Poseidons. These aircraft are based on the next-generation Boeing 737-800 model. Though BA did not disclose the cost of the contract, the Canadian government estimates it to lie around CAD10.4 billion ($7.7 billion).

This acquisition, as spotlighted by BA, is projected to stimulate benefits amounting to almost 3,000 jobs and $358 million per annum in economic output for Canada, following an independent study conducted by the Ottawa-based Doyletech Corporation in 2023.

Bottom Line

The subsequent impact of the Alaska Airlines incident on the delivery of BA's 737 Max 9 aircraft largely hinges on the outcome of ongoing investigations by the FAA, the NTSB, and international regulatory bodies.

The predicament poses a potential reputational threat for BA, emphasizing a need for caution and prudence in its actions. If the 737 Max series continues to face complications, this could trigger a loss of faith among aviation customers, adversely affecting sales.

Aircraft manufacturing, being a capital-intensive sector necessitating specialized technical expertise, possesses strategic importance for the U.S. government. The commercial sector is expected to grow at a pace surpassing global GDP, as per BA. Leading manufacturing entities, BA and Airbus, enjoy booked manufacturing capacities spanning several years. Their customer base displays a reluctance to alter preferences due to potential waits for newer models and the additional operational expenses arising from handling a diverse fleet.

Indeed, despite grappling with issues, BA continues to experience robust demand for its aircraft. Additionally, it sustains a thriving space and defense enterprise. The recent groundings might not inflict extensive damage, given that BA and its supplier Spirit AeroSystems may be able to confirm that these incidents don't signal broader systemic problems.

Furthermore, BA has a backlog of over 5,100 planes, valued at $469 billion, at the third quarter's end, with MAXs constituting a major portion of these undelivered aircraft.

Still, crises have detrimentally impacted BA's standing. Although revenues are on an upswing, analysts forecast that the firm's top line for fiscal 2023 and 2024 of $76.69 billion and $91.08 billion, respectively, will fall short of 2018's remarkable $101.1 billion. Similarly, loss per share is projected at $6.21 for the fiscal year 2023, while EPS for the fiscal year ending December 2024 is anticipated to hit $4.06.

The company's shares have experienced a downturn, with investors losing over 14% year-to-date and about 37% on their investment over the past five years. Moreover, the company's debt as of September 30, 2023, exceeded $47 billion, nearly 4.7 times higher than five years back. This drags BA into an unfavorable paradox where it stands to gain largely yet continues a downward trajectory.

Under these circumstances, investors are advised to wait for a better entry point in the stock.

How Alibaba's 3% Reduction in Outstanding Shares Affects the Stock's Future

Posted on by The INO.com Team

During the 12 months ended December 31, 2023, Alibaba Group Holding Limited (BABA) repurchased a total of 897.9 million ordinary shares for $9.5 billion. This includes the purchase of 292.7 million ordinary shares for a total of $2.9 billion during the fourth quarter.

The shares were purchased in both the U.S. and Hong Kong markets under its share repurchase program, the company said in a filing.

The Chinese e-commerce giant said that it had 20 billion ordinary shares outstanding as of December 31, 2023, compared to 20.7 billion ordinary shares from December 31, 2022. This indicates a net reduction of 3.3% in its outstanding shares.

The remaining amount that the company’s Board had authorized for its share repurchase program, which is effective through March 2025, was $11.7 billion as of December 31, 2023.

When a company buys back its own shares from the marketplace, it reduces the total number of shares outstanding. As a result, the value of the remaining shares increases. The company’s Board may feel that its shares are undervalued, making it a favorable time to purchase them. Meanwhile, investors often perceive a buyback as an expression of confidence by the management.

Therefore, in the case of Alibaba, a more than 3% reduction in outstanding shares will positively impact its shareholder value and give a significant boost to the stock’s performance this year.

Now, let’s review several other factors that could influence BABA’s performance in the near term:

Strategic Reorganization

Last year in March, BABA announced plans to split its business into six independent units in a strategic move to unlock shareholder value and advance competitiveness.

“This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes,” said Daniel Zhang, former CEO and chairman of Alibaba Group.

Under the restructuring, Alibaba will be split up into six newly formed business units: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics, International Digital Commerce Group, and Digital Media and Entertainment Group.

Each business unit will be overseen by its own chief executive and board of directors. Five of the new business clusters “will also have the flexibility to raise outside capital and potentially to seek its own IPO,” the company said.

As per the latest update on business group spin-offs and capital raisings, the recent expansion of U.S. restrictions on the export of advanced computing chips has created uncertainties for the Cloud Intelligence Group’s prospects.

The company believes that a complete spin-off of Cloud Intelligence Group may not achieve the intended effect of shareholder value enhancement. Correspondingly, it decided not to proceed with a full spin-off and instead will focus on developing a sustainable growth model for Cloud Intelligence Group under fluid circumstances.

In terms of Alibaba International Digital Commerce Group, it is in preparation for external fundraising. Further, Cainiao Smart Logistics Network Limited applied for an initial public offering in Hong Kong and submitted its AI filing to the Hong Kong Stock Exchange.

Capitalizing on the AI Boom

BABA’s newly appointed CEO, Eddie Wu, stressed putting AI and user experience at the top of the company’s priorities to reclaim customers and market share in an immensely competitive arena.

“Over the next decade, the most significant change agent will be the disruptions brought about by AI across all sectors,” Wu said in his note, reviewed by Bloomberg News. “If we don’t keep up with the changes of the AI era, we will be displaced.”

Wu added that Alibaba will reinforce strategic investments in the areas of AI-driven tech businesses, internet platforms, and its global commerce network.

On January 9, 2024, Alibaba.com, a leading platform for global B2B e-commerce and part of Alibaba International Digital Commerce Group, introduced its latest Smart Assistant features powered by AI at CES in Las Vegas, NV.

The Smart Assistant is an AI-powered sourcing tool that caters to newcomers and seasoned entrepreneurs in the dynamic world of global commerce, helping them discover new opportunities, stay up-to-date on trends, seamlessly track orders and more in a single, efficient touchpoint.

Also, in October 2023, Alibaba launched an upgraded version of its AI model as the Chinese tech giant looks to challenge its U.S. rivals, including Amazon.com, Inc. (AMZN) and Microsoft Corporation (MSFT).

BABA launched Tongyi Qianwen 2.0, its latest large language model (LLM). Tongyi Qianwen 2.0 “demonstrates remarkable capabilities in understanding complex instructions, copywriting, reasoning, memorizing, and preventing hallucinations,” the company said. 

Alibaba stated that Tongyi Qianwen 2.0 is a “substantial upgrade from its predecessor,” which was introduced in April. Also, the Hangzhou-based company announced the GenAI Service Platform, which allows companies to build their own generative AI applications using their own data.  

Solid Last Reported Financials

For the fiscal 2024 second quarter that ended September 30, 2023, BABA reported revenue of $31.04 billion, an increase of 8.5% year-over-year. The revenue slightly surpassed analysts’ estimate of $30.84 billion. Alibaba International Digital Commerce Group rose 53% year-over-year, while Cainiao Smart Logistics Network Limited and Local Services Group grew 25% and 16%, respectively.

Alibaba’s income from operations increased 33.6% from the year-ago value to $4.60 billion. The company’s adjusted EBITDA came in at $6.75 billion, up 13.7% from the prior year’s quarter. Also, its adjusted EBITA rose 18% year-over-year to $5.87 billion, primarily contributed by revenue growth and improved operating efficiency.

Furthermore, the Chinese tech giant’s non-GAAP net income for the quarter came in at $5.51 billion, an increase of 18.8% from the prior year’s period. It posted non-GAAP net income per share of $2.16, compared to the consensus estimate of $2.09, and up 21% year-over-year.

As of September 30, 2023, Alibaba’s cash and cash equivalents, short-term investments and other treasury investments, included in equity securities and other investments on the consolidated balance sheets, were $85.60 billion. During the quarter ended September 30, 2023, cash inflows from operating activities were $6.75 billion, up 4% from the same quarter of 2022.

Also, the company’s free cash flow was $6.20 billion, an increase of 27% year-over-year.

Impressive Historical Growth

Over the past five years, BABA’s revenue and EBITDA grew at CAGRs of 24.1% and 15.5%, respectively. The company’s net income and EPS rose at respective CAGRs of 17% and 17.3% over the same timeframe. Its levered free cash flow improved at 8.2% CAGR over the same period.

Moreover, the company’s tangible book value and total assets increased at CAGRs of 34.2% and 17% over the same timeframe, respectively.

Favorable Analyst Estimates

Analysts expect BABA’s revenue for the fiscal year (ending March 2024) to grow 8% year-over-year to $133.38 billion. The consensus EPS estimate of $9.20 for the ongoing year indicates an 18.6% year-over-year increase. Moreover, Alibaba has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year 2025, the company’s revenue and EPS are expected to increase 8.9% and 7.8% from the previous year to $145.27 billion and $9.92, respectively.

Low Valuation

In terms of forward non-GAAP P/E, BABA is currently trading at 7.83x, 50.1% lower than the industry average of 15.68x. The stock’s forward EV/Sales of 1.11x is 10.7% lower than the industry average of 1.24x. Likewise, its forward EV/EBITDA of 5.17x is 48.2% lower than the industry average of 9.99x.

In addition, the stock’s forward Price/Book multiple of 1.18 is 53.8% lower than the industry average of 2.55. Also, its forward Price/Cash Flow of 7.20x is 27.2% lower than the industry average of 9.88x.

Robust Profitability

BABA’s trailing-12-month EBIT margin of 14.66% is 92.9% higher than the 7.60% industry average. Moreover, the stock’s trailing-12-month levered FCF margin and net income margin of 14.17% and 56.87% are considerably higher than the industry averages of 5.37% and 4.52%, respectively.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 13.35%, 6.34% and 7.32% favorably compared to the respective industry averages of 11.40%, 6.05%, and 4%. Also, its trailing-12-month gross profit margin of 37.73% is 6.6% higher than the industry average of 35.38%.

Stock Upgrades

On November 24, 2023, Goldman Sachs analyst Ronald Keung maintained a Buy rating on BABA shares, with a price target of $134, suggesting that shares are anticipated to surge by nearly 73% over the coming year. The analyst stated that its FCF generation will fund ongoing buybacks and dividends. Also, he continues to view the stock’s valuation as attractive.

Bottom Line

BABA beat second-quarter analyst expectations for earnings and revenue. Revenue grew approximately 9% year-over-year in the last reported quarter, and the company posted expanded margins as its income from operations rose an impressive 24%. Also, the stock’s valuation is extremely attractive.

Alibaba further pleased its investors with last year’s announcement of plans to split its business into six separate units in a move to unlock more shareholder value and foster competitiveness. Also, the company continues to leverage AI across its operations. Its AI-powered systems optimize its pricing, marketing, and logistics, ultimately resulting in enhanced user experience.

As per Statista, the AI market in China is projected to reach a staggering $38.89 billion in 2024. In global comparison, the largest market will be in the U.S. ($106.50 billion this year). China’s AI market is further expected to show a CAGR of 18%, resulting in a market volume of $104.70 billion by 2030.

Alibaba’s AI leadership positions it to capitalize on the significant growth potential of the Chinese AI market. Also, the company has introduced its upgraded AI model to compete with its U.S. rivals, such as AMZN and MSFT.

“Through a more flexible organizational governance mechanism, we aim to capture brand new opportunities from the ongoing AI technological transformation and create more value for our customers,” said CEO Eddie Wu in BABA’s latest earnings release.

Notably, Alibaba’s 3.3% reduction in its outstanding shares because of a share buyback program will further create a greater value for its shareholders. Given BABA’s solid financials, accelerating profitability, attractive valuation, and bright growth prospects, this tech stock appears an ideal buy now.

2024 Crypto Investments: Breakdown of Coinbase's MiFID License

Posted on by The INO.com Team

Coinbase Global, Inc. (COIN) claims to be mobilizing efforts to enhance economic liberty for more than a billion individuals worldwide. As part of this monumental undertaking, COIN is steadfastly focused on the creation and global expansion of trusted, fully compliant products and services.

In adhering to its "Go Broad, Go Deep" strategy, COIN is forging a pathway grounded in regulatory clarity, licensure, and registration to facilitate its international growth. Its Five-point Global Compliance Standard reinforces the company's pledge to make its products and services the most trustworthy in the market.

In its continuous bid for optimal regulatory compliance, COIN ensures that each entity fulfills its Five-point Global Compliance Standard before any license gets operationalized or any customer is served. This standard encompasses critical elements like Know Your Customer (KYC) processes, anti-money laundering measures, governance best practices, and ongoing monitoring and reporting procedures.

The application of this bespoke compliance standard and furthering strategic inputs have coalesced to yield significant progress for COIN in the past year. The company rapidly expanded, launching new operations in critical markets and initiating a range of derivative products. Yet, it begs the question – why is COIN so assertive in broadening its reach beyond American shores?

In the past year, COIN has aggressively pursued expansion globally, contending with increasing difficulties domestically. The firm is currently embroiled in a lawsuit instigated by the U.S. Securities and Exchange Commission, accusing it of securities law violations.

In October, the company chose Ireland as its primary regulatory base within the European Union in anticipation of impending crypto regulations denoted as the Markets in Crypto-Assets (MiCA). It also applied for a single MiCA license, which is expected to be granted by December 2024. Additionally, COIN recently procured a virtual asset service provider license from France, giving them clearance to offer crypto trading and custody services in the country.

Continuing its global expansion, COIN hopes to acquire a Cyprus-based entity with a European Union MiFID (Markets in Financial Instruments Directive) license. This acquisition would potentially widen access to its derivative products and extend services to qualified customers in selected EU countries, and it is contingent on regulatory approval. The closure of this deal is anticipated later in 2024.

COIN does not currently extend its crypto derivative offerings to the UK due to a January 2020 ban by the Financial Conduct Authority, which declared these products as "ill-suited" for retail consumers because of their inherent risks. However, in the U.S. and other international markets, COIN offers trading in bitcoin futures and ether futures, including "nano" ether futures and West Texas Intermediate crude oil futures.

The EU’s MiFID is one of the world’s most highly regarded licensing regimes regulating investment services and activities. MiFID has established a comprehensive single rulebook across the EU and is a central pillar in the EU’s Capital Markets Union strategy.

Could it be a critical battlefield for COIN?

In recent years, digital currencies have revolutionized the financial industry, challenging traditional economic systems by gaining appeal both as investment assets and transactional mediums. A particularly dynamic and swiftly growing segment within the cryptocurrency market is that of crypto derivatives, which experienced significant expansion and shows no signs of abating.

Derivatives are financial instruments that derive their value from the performance of an underlying asset. In traditional financial markets, derivatives are linked to assets like stocks, bonds, commodities, and fiat currencies. Within the cryptocurrency world, these financial instruments derive their value from digital assets like Bitcoin and Ethereum.

Crypto derivatives operate on principles similar to traditional derivatives, involving a contractual agreement between a buyer and a seller to exchange an underlying asset at a predetermined time and price. Unlike owning the actual asset, derivative traders do not possess the underlying cryptocurrency.

According to COIN, derivatives constitute over 75% of the global cryptocurrency market, highlighting their significant contribution to broadening the spectrum of investment possibilities in the Bitcoin sector.

This acquisition bodes the potential to usher in a substantial revenue source for the exchange in Europe. Impressively, regulators have given COIN the green light to provide derivative products to non-US retail consumers and qualified U.S. customers.

COIN marked its entry into the derivatives market in May with the initiation of an international derivatives exchange in Bermuda. Subsequently, it extended its provision of crypto derivatives to U.S. customers in November upon securing regulatory clearance from the National Futures Association.

However, despite its proactive strides, COIN is grappling with robust competition from entrenched market participants in the derivatives sector. Predominantly, COIN must face off with its primary adversary, Binance – a behemoth in the crypto-linked derivatives market, along with other players, including Bybit, OKX, and Deribit.

According to CoinGecko data, Binance recorded a whopping $61.39 billion in futures contract trading volume in just the preceding 24 hours – a stark contrast to COIN's much smaller volume of $299.48 million on its international derivatives exchange.

Even though a derivative's value depends on the performance of an underlying asset, index, or rate, it can significantly influence the market dynamics and investment strategies. Consequently, it can be an effective tool for capitalizing on market fluctuations and managing risk within the financial sphere.

Bottom Line

COIN, a leading cryptocurrency exchange with a whopping market cap of over $38 billion, is making strides with its MiFID pursuit – a move that bodes well for investor confidence. This demonstrates the firm’s growing ambition to expand its global footprint and compete with notable players in the market. Equally important, it underlines COIN's commitment to meet the stringent compliance standards that the EU upholds.

Furthermore, the MiFID pursuit could enhance COIN's reputation and boost its valuation as it aims to harness the potential of crypto derivatives in establishing a more equitable, accessible, efficient, and transparent financial system fortified by cryptocurrency.

A formative player in the financial sphere, COIN has spent the last 12 years curating its robust offerings to institutions such as hedge funds and high-frequency trading firms. This bid to benefit from larger transaction volumes these traders bring could revolutionize the company. Should COIN finalize the deal, this would mark the company's inaugural launch of derivatives trading in the EU.

Moreover, crypto derivatives play a pivotal role in enhancing market liquidity, acting as an essential tool for risk management in the volatile crypto market. They also offer traders opportunities to diversify investment portfolios across various crypto assets while employing advanced trading strategies like arbitrage and short-selling.

In November, derivative trading volumes on centralized exchanges saw an unprecedented surge, marking their highest levels since March 2023. The potential growth in derivatives trading is unequivocal, paving the way specifically for COIN to capitalize on its stellar reputation and appeal to institutional clients.

Moving forward, investors could keep an eye on COIN for better entry opportunities.

Top 3 AI Stocks for 2024's Golden Year

Posted on by The INO.com Team

Over the past year, generative artificial intelligence (GenAI) advancement has emerged as a key transformation within the tech industry. While conventional applications of AI continue to influence day-to-day activities like facial recognition, voice assistant technology, and e-commerce recommendations, GenAI presents breakthroughs in generating original content. This innovation transcends mere data analysis and interpretation.

The surge in GenAI technology is reinvigorating the tech industry following a period of reduced growth due to rising interest rates and the fallout from the pandemic boom. The industry grappled with lower earnings and layoffs throughout 2023.

Despite economic challenges, the industry saw unprecedented investments in GenAI startups – a stellar $10 billion globally in 2023, exhibiting a significant 110% surge as compared to 2021. The launch of OpenAI’s ChatGPT tool has particularly stimulated this growth, inciting an influx of venture capital funds into the groundbreaking sector.

Despite grappling with IT challenges in 2023, companies worldwide have actively been seeking opportunities to leverage GenAI for business transformation. According to the International Data Corporation, companies invested over $19.4 billion in GenAI solutions. As related infrastructural hardware, software, and IT and business services spending is set to double in 2024, estimates suggest an exponential rise to $151.1 billion by 2027, growing at an 86.1% CAGR.

Nevertheless, the widespread adoption and execution of GenAI remain weighed down by unanticipated complexities and concerns. The disruption of conventional operational structures and anxieties around employee and enterprise adaptability represent significant hurdles. Given geopolitical considerations, apprehensions around the potential misuse of technology are also prevalent. Nevertheless, these challenges do not obscure several opportunities that lie ahead.

As the world stands on the brink of an AI-driven transformation, the investment world is abuzz, anticipating the robust AI stocks poised to generate substantial wealth in 2024. As we delve deeper to discuss the AI behemoths, the investment potential of these enterprises can be deciphered from the intricate narratives of market dominance and innovative feats enshrined in their quarterly reports and strategic trajectories.

Some insights into each company's AI initiatives and growth potential are discussed below:

Microsoft Corporation (MSFT)

MSFT has been leading the charge in the GenAI revolution, largely credited to its substantial investment into OpenAI – the developer of ChatGPT. The integration of AI into a broad cross-section of its products and services has also played a significant role. The company had an excellent operational year in 2023, with anticipations for growth rate acceleration extending into 2024.

During the fiscal year of 2023, MSFT made extensive investments in GenAI and Azure cloud deployment, with predictions indicating a similar trend for this year. With easing macroeconomic challenges and increased focus on AI cloud services, CEO Satya Nadela remains optimistic about the long-term growth driven by OpenAI, the AI-backed startup.

MSFT's AI strategy is seeing fruition, with its intelligent cloud sector experiencing robust double-digit growth. This growth is largely attributed to AI advancements, contributing to a 21% increase in server products and cloud services in the fiscal first quarter of 2024.

The future for MSFT looks promising as AI integrations are only beginning to emerge. Marking one of the most significant shifts in the past three decades, MSFT commenced the new year with a major announcement reflecting the increasing influence of AI in daily life.

The tech giant launched Copilot, a suite of AI protocols to enhance productivity while using its products and services. The company's first quarter (ended September 30) financial results for fiscal 2024 revealed that 40% of Fortune 100 companies had adopted Copilot through MSFT's early access program.

With Copilot now available to its enterprise customers, investors are anticipating the manifold impacts of AI on MSFT's results. Further expanding MSFT's AI footprint, the "Copilot" key will be incorporated into the Windows PC keyboard, allowing users to launch Copilot instantly.

Furthermore, CFO Amy Hood suggests that the next-GenAI business could potentially be the swiftest-growing $10 billion business in history, with a bulk of this growth propelled by cloud technology.

During MSFT's fiscal first quarter of 2024, Azure's revenue saw a 29% year-over-year growth, surpassing some of its competitors. MSFT attributed "roughly three points" of Azure's growth to the increased demand for AI services.

Research firm Canalys reported that before the recent uptick, Azure's cloud growth had observed seven consecutive quarters of slower year-over-year growth. The report also indicated an increased demand following the debut of Copilot in September, reaffirming MSFT's stance that AI is driving its current growth surge.

Analysts expect MSFT's revenue and EPS to increase 15.2% and 5.8% year-over-year to $60.87 billion and $2.59, respectively, in the fiscal third quarter ending March 2024.

NVIDIA Corporation (NVDA)

The semiconductor industry leader NVDA’s considerable recognition for its AI advancements was evident when Microsoft-backed OpenAI's ChatGPT seized global attention in late 2022 – a tool reportedly trained using 30,000 of NVDA's A100 data center GPUs. Not surprisingly, the demand for NVDA's AI chips increased dramatically, with its flagship product, H100 data center GPU – achieving considerable success by 2023.

NVDA has been capitalizing on AI’s substantial growth, high-performance computing, and accelerated computing, which have effectively bolstered its Compute & Networking revenues. The surge in demand for GenAI and large language models using GPUs based on NVDA's Hopper and Ampere architectures is forecasted to enhance its data center end-market business.

NVDA witnessed an upsurge in Hyperscale demand while also noticing a robust uptake of AI-based smart cockpit infotainment solutions. Its strategic collaborations, particularly with Mercedes-Benz and Audi, are projected to essentially drive NVDA's knack in autonomous vehicles and other automotive electronics spaces.

NVDA would be working with the Foxconn Group in a pioneering move toward the inception of modern factories and industries, with an emphasis on leveraging AI in manufacturing processes.

NVDA anticipates a shipment of 2 million units of the H100 model by 2024. The current fiscal year foresees the company securing revenues of $58.80 billion, suggesting that H100 could be a significant revenue catalyst in the upcoming fiscal year.

Nevertheless, NVDA has the potential to substantially increase its H100 shipments in the coming year due to the supportive efforts of its supply chain partners alongside the introduction of upgraded chips. Reinforcing this optimism, the semiconductor maker projects fourth-quarter fiscal 2024 revenues to hit $20 billion.

However, investors must remain aware of the potential impact geopolitical tensions may have on NVDA's ability to maintain its powerful performance. Historically, China has been a major customer for NVDA, holding over 90% of China’s $7 billion worth AI chip market. U.S. export restrictions on high-end chips to China puts approximately $5 billion worth of orders at risk.

Also, NVDA currently trades at a forward non-GAAP P/E ratio of 40.09, illustrating that investors are paying a significant premium, potentially valuing the company’s stock. The forward PEG ratio of 0.95 can appear deceptively enticing, as though the stock is fairly valued; it simultaneously intimates that any downward revisions to the EPS might precipitate a substantial drop in stock value. So far, analysts have revised EPS estimates upwards. However, it should be noted that this trend may take a U-turn if these predictions fail to materialize fully.

UiPath Inc. (PATH)

PATH, identified as a forerunner in the workflow automation and process optimization space, effectively helps streamline manual operations via a user interface (UI) and application programming interface (API)-based automation.

PATH continues to incite discussion around its potential affiliation with GenAI and the implications this could have on its business growth or reduction. On the one hand, the prospective integration of gen AI into PATH's pre-existing platform is considerable. Equally compelling, however, is the suggestion that such AI technology could simplify some of PATH's specialist offerings.

The company announced the implementation of several AI-powered services to spur significant growth in its revenue by 2024. These advancements include enhanced features for their existing AutoPilot services and augmented cross-platform connectivity capabilities.

AutoPilot for Assistant, an AI auxiliary tool, is tasked with facilitating daily to-do lists. It employs cutting-edge GenAI alongside Specialized AI to ensure secure interaction with various systems and documents. Moreover, AutoPilot for Studio could augment productivity among seasoned professionals and novice developers by allowing them to integrate natural language into their projects.

The firm's PATH Clipboard AI achieved notable recognition in November 2023 when it was awarded a place amongst TIME's Best Inventions of 2023 in the Productivity segment. This notable AI tool eradicates the need for labor-intensive manual copy-pasting tasks, significantly streamlining productivity.

Longer-term projections see PATH well positioned to develop a foundational model designed to comprehend processes, tasks, screens, and documents – a method that drives automation.

Moreover, the software enterprise reported a robust fiscal result in its third quarter that ended November 30, 2023, leading it to achieve significant expansion in December. The dollar-based net retention rate during this period was an impressive 121%, indicating that existing customers had increased their purchases from PATH by 21% compared to the year-ago quarter – a testament to PATH's beneficial automation suite.

Initial indications suggest that GenAI may not overcome more potent task-specific platforms such as PATH just yet. Meanwhile, PATH stands to direct GenAI toward a positive rather than negative impact. Long-term certainty is still elusive, necessitating continuous innovation from PATH. Investors would do well to remain informed about the evolving AI narrative as it concerns PATH and other enterprise Software as a Service (SaaS) companies.

William Blair analysts initiated research coverage on PATH with an 'outperform’ rating. PATH focuses on complex, enterprise-grade processes, making its platform indispensable for its clientele. This is reflected by its high gross retention rate of 97%.

Analyst forecasts indicate a strong showing for PATH over the following years with continued growth and margin expansion. Furthermore, analyst Jake Roberge predicts an increase in the company's EBITDA from $84 million in 2023 to a staggering $223 million in 2024 and up to $280 million by 2025.