Tag: Apple Inc. (AAPL)

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.

Investing Like a Billionaire: Everything Berkshire Hathaway Offers to Ordinary Investors

Posted on by The INO.com Team

With a $867.46 billion market cap, Berkshire Hathaway (BRK.A) (BRK.B), a diversified holding company, is led by Warren Edward Buffett, who is one of the world’s renowned investors with a long track record of successful capital allocation and value creation. As of May 8, 2024, he has a net worth of $133.50 billion, making him the eighth-richest person in the world.

Buffett’s substantial wealth primarily stems from his significant holdings in Berkshire Hathaway, a conglomerate with assets exceeding $1 trillion. Under Buffett’s expertise and exceptional leadership, Berkshire has historically delivered robust and consistent long-term growth, outperforming various other investment options.

From 1965, when Warren Buffett took control of the company, to 2023, Berkshire’s share price surged by a staggering 4,384,748%, surpassing the total return of the S&P 500 with dividends included of 31,223%. Additionally, Berkshire has continued its solid performance into 2024, with a double-digit percentage gain.

Berkshire’s Portfolio Reflects Buffett’s Investment Strategy

Known as the “Oracle of Omaha,” Warren Buffett stands out as one of the most accomplished investors of all time. He follows the Benjamin Graham school of value investing, seeking out securities with unreasonably low prices compared to their intrinsic worth. He often assesses the company’s long-term potential rather than short-term market trends.

Buffett considers company performance, profit margins, management team, and business model. He believes in investing in high-quality businesses with solid competitive advantages or “economic moats,” enabling them to maintain or expand their market share over time.

Sticking to his investment policy, Buffett’s holding company, Berkshire Hathaway, aims to “buy ably-managed businesses” possessing various characteristics, such as enduring competitive advantage, at extremely low prices.

For instance, the acquisition of See’s Candies in 1972 demonstrated Buffett’s strategy, as the company's robust brand and loyal customer base made it a highly profitable long-term investment. He favors companies with strong brands and business models that own their market niche, creating formidable barriers for competitors trying to enter and beat them at their game.

Berkshire Offers Diversification Across Industries

Berkshire Hathaway’s top holding is Apple Inc. (AAPL). Thanks to its strong brand and customer loyalty, it has remained one of Buffett’s favorite stocks for a long time. He has previously referred to AAPL as the “best business I know in the world.”

BRK.B recently disclosed that it had cut its stake in Apple by around 13% in the first quarter. It was reported that Berkshire’s Apple bet was worth $135.4 billion, implying nearly 790 million shares. Despite this trim, the iPhone maker is still Berkshire’s biggest holding by far, with a 39.8% weight in its publicly traded portfolio.

Another consumer goods company that Buffett loves is The Coca-Cola Company (KO). He recognized the company’s iconic brand, attractive dividends, and market advantages. Coca-Cola’s robust brand has enabled it to mitigate the impact of inflation by transferring higher costs to customers while still being able to generate growth.

At around 6.9%, KO is the fourth-largest holding in Berkshire’s portfolio. Berkshire owns a 9.3% stake in the company.

Meanwhile, Warren Buffett holds significant investments in the energy sector. During the fourth quarter of 2023, Buffett’s Berkshire increased its stakes in two major oil and gas companies, Chevron Corporation (CVX) and Occidental Petroleum Corporation (OXY).

Berkshire Hathaway owns about a 6.7% stake in CVX. According to Berkshire’s February shareholder letter, the firm also holds a 27.8% stake in OXY and has warrants to increase its ownership further at a fixed price.

Chevron (about 5.5% of the portfolio’s total weight) and Occidental (4.5%) provide investors with exceptionally good returns amid the inflationary periods and pay attractive dividends.

In addition, Buffett is fond of financial institutions and insurance companies, viewing them as a strategic bet on the long-term health of the U.S. economy. Berkshire's top two financial holdings are Bank of America Corporation (BAC) and American Express Company (AXP). These financial stocks comprise approximately 21% of the Berkshire portfolio’s total weight.

Outstanding First-Quarter Operating Earnings and Record Cash Hoard

For the first quarter that ended March 31, 2024, Berkshire’s total revenues increased 5.3% year-over-year to $89.87 billion. Revenues from Railroad, Utilities and Energy rose 11.2% year-over-year, and revenues from Insurance and Other grew 3.2%.

The Warren Buffett-led conglomerate reported first-quarter operating profit, which encompasses earnings from the company’s wholly-owned businesses, grew 39% from the year-ago period to $11.22 billion. This remarkable surge was led by a 185% year-over-year increase in insurance underwriting earnings to $2.60 billion. Insurance investment also soared 32% to over $2.50 billion.

However, net earnings attributable to Berkshire Hathaway shareholders declined by 64.2% year-over-year to $12.70 billion.

During the first quarter, the company’s cash pile reached a record high of $188.99 billion, up from $167.60 billion in the fourth quarter.

“We had much-improved earnings in insurance underwriting. And then our investment income was almost certain to increase,” Buffett said at Berkshire’s annual shareholder meeting in Omaha, Nebraska. “And I said that in the annual report because yields are so much higher than they were last year. And we have a lot of fixed, short-term investments that are very responsive to the changes in interest rates.”

Bottom Line

Berkshire Hathaway, led by a well-known investor, Warren Buffett, follows an intrinsic value investing approach, aiming at buying undervalued companies with solid fundamentals, competitive advantages, and long-term growth potential. Berkshire owns a diverse portfolio of businesses, including insurance, utilities, transportation, retail, and technology, among others.

Moreover, Berkshire’s top five holdings pay attractive dividends, which indicates Warren Buffett’s interest in stocks that offer a stable income stream.

Buffett’s conglomerate recently reported a significant surge in operating earnings in the first quarter of fiscal 2024, primarily driven by an increase in insurance underwriting earnings and a record cash pile that nears $200 billion.

USB analyst Brian Meredith maintained a Buy rating on Berkshire, citing the recent earnings beat and noting that Geico is on track to catch up to rivals Progressive and others on data analytics by 2025.

Berkshire Hathaway has historically delivered impressive and consistent returns. From 1965 to 2023, its share price skyrocketed 4,384,748%, more than 140 times the total return of the S&P 500, with dividends included. Moreover, Berkshire shares have already outperformed this year, with each share class having advanced more than 12%, while the S&P is up by nearly 8%.

Shares of BRK.B have gained approximately 16% over the past six months and more than 22% over the past year.

Looking ahead, analysts expect BRK.B’s EPS for the fiscal year (ending December 2024) to increase 14.6% year-over-year to $19.70. Further, the company’s EPS and revenue for the fiscal year 2025 are expected to grow 1.4% and 5.6% from the prior year to $19.97 and $376.61 billion, respectively.

Thus, by owning BRK.B shares, investors can gain exposure to Berkshire’s diversified portfolio of businesses, Buffett’s expertise, and stable growth and performance.

How Investors Can Seize Opportunities in NVDA Amid Market Volatility

Posted on by The INO.com Team

According to Todd Gordon, the founder of Inside Edge Capital, NVIDIA Corporation (NVDA) is a strong buy despite a recent pullback. The chart analyst also set a target price of $1,150 for the stock.

“I say that NVDA is just resting its legs gearing up for another move, but this time it's bringing more friends along for the run. There are quite a few different names in the semi-industry setup in a similar fashion telling me that once again the chips are ready to rip,” Gordon said.

Moreover, on March 13, Bank of America maintained its buy rating on NVDA and raised its price target from $925 to $1,100. As per BofA analyst Vivek Arya, Nvidia is expected to dominate the $90 billion accelerator market in 2024, unaffected by Google’s new CPU launch.

Last month, CNBC’s Jim Cramer suggested investors welcome an impending pullback. “I think people are right to expect a pullback here,” Cramer said. “But that’s not a reason to head for the hills. Instead, you want to raise a little cash, watch the market broaden — as it is doing — and then buy your favorite tech stocks when they come down.”

In Particular, Cramer said there may be an attractive opportunity to invest in one of his favorite stocks, NVDA. He hinted at his continued support for the tech giant over the years, even when the stock witnessed significant losses. While some on Wall Street might be growing weary of AI, Cramer emphasized that the future “runs on Nvidia.”

“If you don’t own Nvidia already, you know what? You’re about to get a sale,” he stated. “And if you do own it already, just stick with it, because it’s way too hard to swap out and then swap back in at the right level.”

Shares of NVDA have surged more than 75% year-to-date and nearly 223% over the past year. However, the stock has plunged around 3% over the past month.

Now, let’s discuss in detail factors that could influence NVDA’s performance in the near term:

Fourth-Quarter Beat on Revenue and Earnings

The chip giant reported fourth-quarter 2024 earnings that beat analysts’ expectations. For the quarter that ended January 28, 2024, NVDA’s non-GAAP revenue came in at $22.10 billion, surpassing analysts’ estimate of $20.55 billion. This compared to revenue of $6.05 billion in the same quarter of 2022.

The company posted a record revenue from the Data Center segment of $18.4 billion, up 409% from the year-ago value. NVIDIA achieved significant progress in this business segment. In collaboration with Google, NVDA launched optimizations across its data center and PC AI platforms for Gemma, Google’s groundbreaking open language models.

Further, the company expanded its partnership with Amazon Web Services (AWS) to host NVIDIA® DGX™ Cloud on AWS.

Regarding technological innovations, NVIDIA introduced several groundbreaking solutions, including NVIDIA NeMo™ Retriever. It is a generative AI microservice that enables enterprises to connect custom large language models with enterprise data, delivering highly accurate responses for various AI applications.

Additionally, NVIDIA launched NVIDIA MONAI™ cloud APIs, facilitating the seamless integration of AI into medical-imaging offerings for developers and platform providers.

The company’s Gaming revenue for the quarter was $2.90 billion, up 56% year-over-year. Talking about recent developments in the Gaming division, NVIDIA launched GeForce RTX™ 40 SUPER Series GPUs, starting at $599, featuring advanced RTX™ technologies such as DLSS 3.5 Ray Reconstruction and NVIDIA Reflex for enhanced gaming experiences.

The company also introduced microservices for the NVIDIA Avatar Cloud Engine, enabling game and application developers to integrate state-of-the-art generative AI models into non-playable characters, enhancing immersion and interactivity in virtual worlds.

NVIDIA’s non-GAAP operating income increased 563.2% year-over-year to $14.75 billion. Also, the company’s non-GAAP net income grew 490.6% from the previous year’s period to $12.84 billion. It reported non-GAAP earnings per share of $5.16, compared to the consensus estimate of $4.63, and up 486% year-over-year.

Furthermore, the company’s non-GAAP free cash flow was $11.22 billion, an increase of 546.1% from the previous year’s quarter. Its total current assets stood at $44.35 billion as of January 28, 2024, compared to $23.07 billion as of January 29, 2023.

During a call with analysts, Nvidia CEO Jensen Huang addressed investor concerns regarding the company's ability to sustain its current growth or sales levels throughout the year.

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

For the first quarter of fiscal 2025, NVIDIA expects revenue of $24 billion. The company’s non-GAAP gross margin is expected to be 77%.

Recent Announcement of AI Chips During Nvidia GTC AI Conference

NVDA announced a new generation of AI chips and software tailored for running AI models during its developer's conference at SAP Center on March 18 in San Jose, California. This announcement underscores the chipmaker’s efforts to solidify its position as the go-to supplier for AI companies.

The new generation of AI graphics processors is named Blackwell. The first Blackwell chip is the GB200 and is anticipated to ship later this year. It will also be available as an entire server called the GB200 NVLink 2, combining 72 Blackwell GPUs and other Nvidia parts designed to train AI models. NVIDIA is enticing customers by offering more powerful chips to spur new orders.

The announcement comes as companies and software makers still scramble to get their hands on the current “Hopper” H100s and similar chips.

“Hopper is fantastic, but we need bigger GPUs,” Nvidia CEO Jensen Huang said at the company’s developer conference.

Further, the tech giant unveiled revenue-generating software called NIM, which stands for Nvidia Inference Microservices, to its Nvidia enterprise software subscription. NIM simplifies using older Nvidia GPUs for inference or running AI software and will enable companies to leverage the hundreds of millions of Nvidia GPUs they already own.

According to Nvidia executives, the company is transitioning from primarily being a mercenary chip provider to becoming more of a platform provider, like Microsoft Corporation (MSFT) or Apple Inc. (AAPL), on which other firms can build software.

Analysts at Goldman Sachs retained a buy rating of NVDA stock and raised their price target to $1,000 from $875. They expressed “renewed appreciation” for Nvidia’s innovation, customer and partner relationships, and vital role in the generative AI space after the company’s keynote.

“Based on our recent industry conversations, we expect Blackwell to be the fastest ramping product in Nvidia’s history,” the analysts said. “Nvidia has played (and will continue to play) an instrumental role in democratizing AI across many industry verticals.”

Bottom Line

NVDA surpassed Wall Street’s estimates for earnings and sales in the fourth quarter of fiscal 2023. The chipmaker has significantly benefited from the recent technology industry obsession with large AI models, which are developed on its pricey graphics processors for servers.

Moreover, sales reported in the company’s Data Center business comprise most of its revenue. NVDA’s Data Center platform is driven by diverse drivers like demand for data processing, training and inference from large cloud-service providers, GPU-specialized ones, enterprise software, and consumer internet companies.

Further, vertical industries, led by automotive, financial services, and healthcare, are now at a multibillion-dollar level.

The data center GPU market is projected to be worth more than $63 billion by 2028, growing at a staggering CAGR of 34.6% during the forecast period (2024-2028). The increasing adoption of data center GPUs in enterprises should bode well for NVDA.

Analysts expect NVDA’s revenue and EPS for the fiscal 2025 first quarter (ending April 2024) to increase 237.7% and 405.9% year-over-year to $24.29 billion and $5.51, respectively. Moreover, the company has topped consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.

Furthermore, for the fiscal year ending January 2025, the company’s revenue and EPS are expected to grow 83% and 92.1% from the prior year to $111.49 billion and $24.89, respectively.

NVDA has achieved significant progress across its business divisions, and this year, it will bring new product cycles with exceptional innovations to help boost its industry forward.

Since the AI boom began in late 2022, catalyzed by OpenAI’s ChatGPT, Nvidia’s stock has been up fivefold, and its total sales have more than tripled. The company’s high-end server GPUs are essential for training and deploying large AI models. Notably, tech companies like MSFT and Meta Platforms, Inc. (META) have spent billions of dollars buying these chips.

Recently, the chipmaker announced a new generation of AI chips and software for running AI models, giving customers another reason to stick to Nvidia chips over a growing field of competitors, including Advanced Micro Devices, Inc. (AMD) and Intel Corporation (INTC).

While NVDA’s stock has declined nearly 3% over the past month, several analysts affirmed their bullish sentiment toward the stock and see a significant upside potential, owing to its booming AI business and new innovative launches to maintain its leading position in the face of rising competition.

Given these factors, investors could consider buying NVDA for potential gains.

Is Taiwan Semiconductor Manufacturing (TSM) The Backbone of AI Chip Manufacturing?

Posted on by The INO.com Team

The semiconductor industry is experiencing an unprecedented buzz at the moment. In March, KPMG unveiled its 2024 Global Semiconductor Industry Outlook after surveying 172 executives in the field. A staggering 85% of these individuals projected a double-digit increase in the industry’s revenue in 2024.

The automotive industry, artificial intelligence (AI), and microprocessors remain the primary catalysts for growth in the semiconductor sector. Notably, NVIDIA Corporation (NVDA), a leading vendor of graphics processing unit (GPU) components essential to powering cutting-edge AI systems, has emerged as a prominent beneficiary due to its strong market position.

Another tech stock, Taiwan Semiconductor Manufacturing Company Limited (TSM), also seems well-positioned to ride the AI wave. Also known as TSMC, the company is the largest contract semiconductor foundry globally, with a market cap of $705.69 billion. It oversees production for many renowned chip designers, such as NVDA, Apple Inc. (AAPL), and Advanced Micro Devices, Inc. (AMD).

TSM is dominant in the third-party chip manufacturing sector, claiming over 50% of the market share. This immense power grants the company significant influence within the semiconductor industry, particularly in the realm of AI chips. TSM takes charge of approximately 90% of advanced chip production for third-party companies, making its role crucial for AI models reliant on such technology.

Furthermore, TSM is currently overcoming a previous downturn in the semiconductor sector and experiencing an upturn in growth, aided by advancements in artificial intelligence. On March 8, the company disclosed a consolidated revenue of NT$181.65 billion ($5.68 billion) for February 2024, representing a rise of 11.3% from February 2023.

Moreover, TSM’s January through February 2024 revenue reached NT$397.43 billion ($12.43 billion), showcasing a noteworthy surge of 9.4% compared to the corresponding period in 2023.

In addition, as of December 31, 2023, the company's cash and cash equivalents amounted to $47.66 billion, up 9.1% year-over-year. Moreover, as of December 31, 2023, total assets grew 11.4% year-over-year to $179.93 billion. TSM’s strong liquidity position provides resilience, flexibility, and opportunities for growth and value creation, enhancing the company’s financial health and competitiveness in the market.

Strategic Investments and Expansion Plans

TSM has been actively investing in strategic initiatives to fortify its global dominance in producing cutting-edge semiconductor chips. It boasts a staggering 90% share in manufacturing these highly coveted chips, integral to the functionality of various devices, including smartphones and AI technology.

Although there may be a few geopolitical uncertainties impacting TSM, with the company having its headquarters in Taiwan, which China asserts as part of its territory, it is actively expanding its operations beyond Taiwanese borders.

Recently, TSM unveiled its inaugural fabrication plant in Kumamoto, Japan. Plans are also underway to inaugurate two $40 billion facilities dedicated to producing advanced microprocessors in Phoenix, Arizona. Additionally, TSM has committed $3.80 billion to establish a fabrication plant in Dresden, Germany, marking its first establishment in Europe.

Furthermore, NVDA plans to introduce advancements to its H100 and GH100 models in the second quarter of 2024 - the H200 and GH200. It has also debuted the B100/B200 and GB200 on its Blackwell platform during GTC. These chip offerings will significantly enhance operations for NVDA’s AI GPU’s sole maker -TSM.

AMD predicts that the market for AI GPUs will reach $400 billion by 2027, with a CAGR of 70%. TSM has already committed substantial capital expenditures to increase its production capacity and meet customer demands in this expanding market.

TSM’s management anticipates that the fiscal 2024 first-quarter revenue will range from $18.0 billion to $18.8 billion. The company’s gross profit margin could fall between 52% and 54%, while its operating profit margin is expected to range from 40% to 42%. Its 2024 CapEx guidance of $28 billion to $32 billion indicates a strategic shift where the rate of capital spending growth is stabilizing as TSMC capitalizes on its growth opportunities.

TSM plans to manage its capital with a focus on several key objectives: funding organic growth, ensuring profitability, maintaining financial flexibility, and delivering sustainable and increasing cash dividends to shareholders. Owing to diligent capital management, TSM's Board of Directors authorized in November 2023 to increase the cash dividend for the third quarter of 2023 from NT$3 ($0.09) to NT$3.50 ($0.11) per share.

From now on, this will be the new minimum quarterly dividend level. The cash dividend for the third quarter of 2023 will be paid out in April 2024.

Moreover, TSM’s shareholders received a cash dividend of NT$11.25 ($0.35) per share in 2023, and they will receive a minimum of NT$13.5 ($0.42) per share in 2024. In the coming years, the company anticipates a shift in its cash dividend policy, moving from maintaining sustainable dividends to steadily increasing cash dividends per share.

Bottom Line

Investors aiming to capitalize on the AI boom should prioritize investing in companies that play an indispensable role in developing and promoting AI technologies. Focusing on foundational players in the chip industry is crucial as these companies are well-positioned to drive and benefit from AI advancements in the long term. One such promising industry player is TSMC.

Though TSM does not immediately appear as an AI staple, its role in the AI pipeline is paramount and arguably on par with any other enterprise. Data centers rely heavily on GPUs, which serve as the neural center of AI computing systems. The process heavily relies on TSM's exceptional manufacturing processes and the semiconductors that it produces for its client companies.

TSMC’s chief executive officer, C.C. Wei, foresees the company’s AI-centric chip revenue to expand at a CAGR of 50%. By 2027, he projects AI chips to make up a high-teens portion of the company’s revenue.

With its operations well-suited to leverage the ongoing AI wave, TSM’s stock has surged more than 57% over the past six months. Positioned firmly with a proven track record of success, strategic investments, and a flourishing market for AI-based chips, TSM presents an appealing opportunity for investors seeking substantial returns.

Google’s AI Debacle: A Red Flag for Investors Eyeing Sell Signals?

Posted on by The INO.com Team

Since the debut of OpenAI’s ChatGPT in November 2022, numerous tech companies have been swiftly advancing to develop comparable, if not superior, versions of such conversational AI models. Among them, tech titan Alphabet Inc. (GOOGL) has emerged as a prominent player.

Utilizing its extensive resources and employing top-tier talent to explore the frontiers of AI capabilities, GOOGL unveiled its largest and most capable AI model, Gemini (formerly known as Bard), in December last year.

This expansive language model consists of three variants: Gemini Ultra, representing its largest and most proficient category; Gemini Pro, designed to address a wide range of tasks across various scales; and Gemini Nano, tailored for specific functionalities and compatibility with mobile devices.

GOOGL’s CEO Sundar Pichai said this new era of models signifies one of the company's most significant science and engineering endeavors. He expressed genuine excitement about the future and the opportunities Gemini will bring to individuals worldwide.

However, despite the CEO’s enthusiasm, Gemini failed to garner the same level of traction as ChatGPT. According to web analytics company Similarweb, Gemini currently ranks as the third most popular AI chatbot, trailing significantly behind ChatGPT in terms of traffic.

To make matters worse, Gemini has encountered multiple controversies over the last month, resulting in a notable downturn for GOOGL. According to the Gemini chatbot, one should never misgender a person, even if it could prevent a nuclear apocalypse.

This stance was revealed in response to a hypothetical question posed by a popular social media account, which asked if misgendering Caitlyn Jenner, a prominent transgender woman, could prevent such a catastrophe. Gemini’s “woke” response to the post received major criticism from social media users.

Additionally, the controversy surrounding Google’s Gemini intensified as its image-generating platform was slammed for producing racially inaccurate depictions of historical figures, occasionally substituting images of White individuals with those of Black, Native American, and Asian descent.

Tesla, Inc. (TSLA) CEO Elon Musk expressed concern over these “woke” responses, particularly emphasizing the widespread integration of Gemini across GOOGL’s products and YouTube.

Musk tweeted about a conversation with a senior GOOGL executive, who informed him it would take a few months to address the issue, contrary to earlier expectations of a quicker resolution.

While GOOGL has issued several apologies and halted the use of Gemini’s image-generating platform, a former GOOGL executive disclosed that investors are expressing profound frustration as the scandal involving the Gemini model evolves into a tangible threat to the tech company.

On the other hand, CEO Sundar Pichai reassured stakeholders, affirming that the company is actively working “around the clock” to address the issues with the AI model. Pichai condemned the generated images as “biased” and “completely unacceptable.”

Furthermore, GOOGL recently introduced an update to Gemini that allows users to modify inaccurate responses and provides them with increased control over the platform. Reportedly, GOOGL experienced a loss of approximately $90 billion in market value last month, fueled by the controversy surrounding Gemini.

Also, GOOGL made history as the first company to face a hefty fine for its AI training methods. French regulators imposed a penalty of approximately $270 million on the tech giant. The regulatory authority stated that the company breached a pledge by using content from news outlets in France to train its generative AI model, Gemini.

Bottom Line

As GOOGL grapples with the fallout from Gemini-related controversies, its reputation among investors has taken a significant blow. The company’s AI chatbot faced enhanced backlash from individuals and prominent public figures such as Elon Musk.

Sergey Brin, the co-founder of GOOGL, acknowledged Gemini's historical inaccuracies and questionable responses. He stated that Google “definitely messed up on the image generation” and attributed the issue to insufficient testing.

However, he highlighted that GOOGL is not alone in grappling with challenges. Various AI tools, including ChatGPT and Elon Musk’s Grok services, struggle to generate accurate results. He noted that these tools sometimes produce peculiar responses that may seem politically skewed.

Despite these challenges, Brin maintains confidence in GOOGL’s position, emphasizing his belief in the tech company’s capabilities to adapt and innovate its business models.

Furthermore, GOOGL continues to lead the way in the field of AI. Talks between GOOGL and Apple Inc. (AAPL) about integrating Gemini’s generative AI technology with iPhones have sparked a significant surge in the stock prices of both companies.

A partnership with AAPL would give GOOGL and Gemini a reassuring vote of confidence, particularly given the recent controversies surrounding its “woke” chatbot and the generation of inaccurate images.

Wedbush analyst Scott Devitt sees the potential deal as a validation moment for GOOGL’s generative AI positioning. The firm rates GOOGL “outperform” and has a 12-month price target of $160. Devitt emphasized that this collaboration represents a significant opportunity for GOOGL to integrate into the AAPL ecosystem.

In conclusion, while GOOGL faces challenges and scrutiny due to controversies surrounding Gemini, the company continues demonstrating determination to adapt and thrive.

Furthermore, talks with AAPL regarding the potential integration of Gemini's technology signal promising opportunities for GOOGL and its generative AI model. Consequently, in light of this significant development, adopting an entirely bearish stance on GOOGL might not be prudent. Thus, investors could closely monitor the stock for potential gains.