Tag: Inc. (AMZN)

The Magnificent 7 Earnings: How to Position Your Portfolio

Posted on by The INO.com Team

As earnings season ramps up, investors closely watch the “Magnificent Seven,” a group of high-profile tech companies that play a pivotal role in market dynamics. This week, three of these tech giants—Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), and Meta Platforms, Inc. (META)—are set to report their quarterly earnings.

On July 30, the Nasdaq Composite declined sharply ahead of Microsoft Corporation (MSFT) earnings. Microsoft shares fell nearly 7% in extended trading on Tuesday as disappointing cloud results overshadowed better-than-expected revenue and earnings.

For the fourth quarter that ended June 30, 2024, MSFT’s revenue increased 15% year-over-year to $64.70 billion. That slightly surpassed the consensus revenue estimate of $64.44 billion. The company’s top segment, Intelligent Cloud, which includes its Azure services, reported $28.52 billion in revenue. It was up around 19% but fell short of analysts’ expectations of $28.68 billion.

Microsoft’s cloud business holds significant importance for Wall Street, as the company competes with Amazon Web Services and Google for AI workloads. All three firms heavily invest in enhancing AI capabilities, aiming to attract startups and large corporations as generative AI models advance rapidly.

In addition, MSFT posted fourth-quarter net income and earnings per share of $22 billion and $2.95, up 10% year-over-year. That compared to analysts’ EPS estimate of $2.94.

Mega-cap tech stocks had surged tremendously on high hopes for growth driven by artificial intelligence (AI). The upcoming earnings reports from major tech giants, including AMZN, AAPL, and META, will have far-reaching implications for the market. Positive results could reinvigorate confidence in Big Tech, while disappointing numbers might accelerate the shift to underperforming sectors like mid- and small-cap stocks.

Moreover, the earnings season coincides with a pivotal Federal Reserve meeting. Fed officials are expected to hold rates steady but may signal a potential rate cut in September following better news on inflation and signs the labor market is cooling. This decision will add another layer of complexity to market dynamics, influencing investor sentiment and market movements.

Key Earnings Reports: What to Watch For

Amazon.com, Inc. (AMZN)

With a $1.89 trillion market cap, Amazon.com, Inc. (AMZN) engages in the retail sale of consumer products, advertising, and subscription services via online and physical stores. The company operates through North America, International, and Amazon Web Services (AWS) segments.

Amazon’s second-quarter earnings, scheduled to be released on August 1, will shed light on consumer spending and enterprise cloud adoption. Investors will be keen to see how AWS is performing, as it is a significant revenue driver for the company. In the last reported first quarter, AWS segment sales rose 17% year-over-year to $25 billion.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate); our Stores business continues to expand selection, provide everyday low prices, and accelerate delivery speed (setting another record on speed for Prime customers in Q1) while lowering our cost to serve; and, our Advertising efforts continue to benefit from the growth of our Stores and Prime Video businesses,” said Andy Jassy, AMZN’s President and CEO in first-quarter earnings release.

“It’s very early days in all of our businesses and we remain excited by how much more we can make customers’ lives better and easier moving forward,” Jassy added.

For the second quarter 2024 guidance, the tech giant’s net sales are expected to be between $144 billion and $149 billion, or grow between 7% and 11% compared to the second quarter of 2023. AMZN’s operating income is anticipated to be between $10 billion and $14 billion, compared with $7.7 billion in the second quarter of 2023.

Notably, on July 18, Amazon announced record-breaking sales for the 2024 Prime Day shopping event. During the 48-hour event, Prime members shopped millions of deals with over 35 categories and purchased more items than any prior Prime Day shopping event. Rufus, the company’s new AI-powered conversational shopping assistant, has assisted millions of customers quickly and easily navigating Amazon’s extensive selection.

Analysts appear bullish about the e-commerce giant’s prospects. Street expects AMZN’s revenue and EPS for the second quarter (ended June 2024) to increase 10.6% and 56.9% to $148.62 billion and $1.02, respectively. Moreover, the company topped consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.

Shares of AMZN have surged about 14% over the past six months and more than 19% year-to-date. However, the stock has plunged around 6% over the past month.

Solid AWS growth in the second quarter and resilient consumer spending might justify increasing exposure to Amazon. However, slowing growth or rising costs could suggest reducing positions or hedging.

Apple Inc. (AAPL)

Apple Inc. (AAPL), valued at a $3.36 trillion market cap, is a global leader in consumer electronics, software, and services. Apple is renowned for its innovative products, including the iPhone, its flagship product which accounts for a significant portion of the company’s revenue, Mac computers, iPad, Apple Watch, AirPods, and services like the App Store, Apple Music, iCloud, and more.

AAPL’s third-quarter earnings, scheduled for August 1, will reflect the performance of its key product lines. For the second quarter that ended March 30, 2024, the company posted revenue of $90.75 billion, down 4% year-over-year. However, the revenue surpassed analysts’ estimate of $90.45 billion. Also, iPhone sales fell 10% year-over-year during the quarter. The company realized $5 billion in delayed iPhone 14 sales from Covid-based supply issues.

Furthermore, the company’s net income was $23.64 billion for the third quarter, down 2% from the prior year’s quarter. Apple reported quarterly earnings per share of $1.53, compared to the consensus estimate of $1.51.

In the last quarter, the company announced that its Board of Directors authorized $110 billion in share repurchases, an impressive 22% rise from last year’s $90 billion share authorization. It’s the largest buyback in the company’s history.

Apple did not offer formal guidance, but CEO Tim Cook told CNBC’s Steve Kovach that overall sales are expected to grow in the “low single digits” for the June quarter.

During an earnings call with analysts, AAPL CFO Luca Maestri indicated that the company will deliver double-digit year-over-year growth in iPad sales for the to-be-reported quarter. Additionally, he noted that the Services division is projected to continue growing at the current high rate observed over the past two quarters.

Analysts expect AAPL’s revenue and EPS for the third quarter to increase 3.2% and 6.5% to $84.38 billion and $1.34, respectively. Additionally, Apple surpassed consensus EPS estimates in each of the trailing four quarters.

Over the past month, AAPL’s stock has soared more than 2.5%. Further, the stock climbed approximately 16% over the past six months and around 13% year-to-date. Robust sales across key product lines could indicate solid consumer demand, driving Apple’s shares. However, updates on supply chain challenges and mitigation strategies will be crucial in the upcoming earnings report.

Meta Platforms (META)

With a market cap of $1.18 trillion, Meta Platforms, Inc. (META), formerly known as Facebook, Inc., is a tech conglomerate with key products, such as Facebook, Instagram, WhatsApp, and Messenger. It operates in two segments: Family of Apps and Reality Labs.

META is expected to report its second-quarter 2024 earnings on July 31 after the market closes. Meta’s first-quarter revenue was $36.46 billion, compared to the consensus estimate of $36.22 billion. Its revenue was up 27.3% year-over-year. The company’s ad impressions delivered across its Family of Apps grew by 20% year-over-year, and the average price per ad grew by 6%.

Further, the company reported an EPS of $4.71 for the March quarter, exceeding analysts’ expectations of $4.36 and being up 114% year over year.

Meta Platforms no longer provide data on daily active users (DAUs) and monthly active users (MAUs). Instead, it reports a consolidated figure called family daily active people (DAP). DAP was 3.24 billion on average for March, an increase of 7% year-over-year.

In the last earnings release, Meta’s founder and CEO, Mark Zuckerberg, said, “It's been a good start to the year. The new version of Meta AI with Llama 3 is another step towards building the world's leading AI. We're seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.”

In April, META announced the latest version of Meta AI with Llama 3, one of the world’s leading AI assistants. This version is free and readily available in several countries. Meta AI is available across its apps, including Facebook, Instagram, WhatsApp, and Messenger, to get things done, learn, create, and access real-time information. The new advances in Meta AI with Llama 3 are expected to extend META’s market reach and boost its profitability.

For the second quarter of 2024, META expects sales between $36.50 billion to $39 billion. The midpoint of the range, $37.75 billion, will represent nearly 18% year-over-year growth. Meanwhile, analysts anticipate the company’s revenue for the June quarter to increase 19.7% year-over-year to $38.31 billion, and the consensus EPS estimate of $4.78 indicates an improvement of 60.5% year-over-year.

Meta has raised investor expectations due to its improved financial performance in recent quarters, leaving little room for error. The stock is up about 2% over the past five days and nearly 30% year-to-date. In February 2023, META CEO Mark Zuckerberg announced it would be the “year of efficiency,” which sparked the rally.

At that time, Zuckerberg stated that the company would focus on eliminating unnecessary projects and reducing bloat, aiming to transform Meta into a “stronger and more nimble organization.” Consequently, the company cut about 21,000 jobs in the first half of 2023, with Zuckerberg indicating in February this year that hiring would be “relatively minimal compared to historical levels.”

The headcount decreased by 10% in the first quarter of 2024 compared to the previous year, bringing it down to 69,329 employees.

Meta’s capital expenditures for fiscal 2024 are projected to be between $35 billion and $40 billion, up from a prior forecast of $30 billion to $37 billion. This increase is attributed to accelerated infrastructure investments to support the company’s artificial intelligence (AI) roadmap, META said.

Bottom Line

As earnings reports from tech giants, including META, AAPL, and AMZN, approach, investors should prepare for potential market shifts. Investors can better position their portfolios by closely monitoring these results and considering broader economic signals, such as the Federal Reserve’s actions. A balanced approach with diversification, sector rotation, and hedging can help manage risks and capitalize on opportunities in this critical earnings season.

Broadcom (AVGO) and Micron (MU): Top Picks for Data Center Investment Surge

Posted on by The INO.com Team

The expected record spending on infrastructure by cloud computing leaders such as Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN) this year highlights the escalating investments in artificial intelligence (AI) data centers, a trend likely to benefit chipmakers significantly.

Bank of America (BofA) analysts forecast that cloud service provider capital expenditures will reach $121 billion in the second half of 2024, bringing the total to a record $227 billion in 2024. This figure marks a 39% increase compared to the previous year.

c, Microsoft, and Meta Platforms, Inc. (META) are predicted to more than double their spending compared to 2020 levels, while Oracle Corporation (ORCL) is expected to increase its capital expenditure nearly sixfold. The proportion of this spending allocated to data centers is already around 55% and is anticipated to rise further, reflecting the critical role of data centers in supporting advanced AI applications.

While NVIDIA Corporation (NVDA) stands out as the dominant player in the AI GPU market, BofA analysts have highlighted Broadcom Inc. (AVGO) and Micron Technology, Inc. (MU) as compelling alternatives for investors seeking to benefit from this trend.

In this article, we will delve into why Broadcom and Micron are well-positioned to capitalize on growing investments by cloud service providers in AI data centers, evaluate their financial health and recent performance, and explore the potential headwinds and tailwinds they may encounter in the near future.

Broadcom Inc. (AVGO)

Valued at a $732.45 billion market cap, Broadcom Inc. (AVGO) is a global tech leader that designs, develops, and supplies semiconductor and infrastructure software solutions. Broadcom’s extensive portfolio of semiconductor solutions, including networking chips, storage adapters, and advanced optical components, makes it a critical supplier for data centers.

Moreover, Broadcom’s leadership in networking solutions, exemplified by its Tomahawk and Trident series of Ethernet switches, positions it as a critical beneficiary of increased AI data center spending.

In May, AVGO revolutionized the data center ecosystem with its latest portfolio of highly scalable, high-performing, low-power 400G PCIe Gen 5.0 Ethernet adapters. The latest products provide an improved, open, standards-based Ethernet NIC and switching solution to address connectivity bottlenecks caused by the rapid growth in XPU bandwidth and cluster sizes in AI data centers.

Further, Broadcom’s strategic acquisitions, such as the recent purchase of VMware, Inc., enhance its data center and cloud computing capabilities. With this acquisition, AVGO will bring together its engineering-first, innovation-centric teams as it takes another significant step forward in building the world’s leading infrastructure technology company. 

Broadcom’s solid second-quarter performance was primarily driven by AI demand and VMware. AVGO’s net revenue increased 43% year-over-year to $12.49 billion in the quarter that ended May 5, 2024. That exceeded the consensus revenue estimate of $12.01 billion. Revenue from its AI products hit a record of $3.10 billion for the quarter.

AVGO reported triple-digit revenue growth in the Infrastructure Software segment to $5.29 billion as enterprises increasingly adopted the VMware software stack to build their private clouds. Its gross margin rose 27.2% year-over-year to $7.78 billion. Its non-GAAP operating income grew 32% from the year-ago value to $7.15 billion. Its adjusted EBITDA was $7.43 billion, up 30.6% year-over-year.

Further, the company’s non-GAAP net income was $5.39 billion or $10.96 per share, up 20.2% and 6.2% from the prior year’s quarter, respectively. Cash from operations of $4.58 billion for the quarter, less capital expenditures of $132 million, resulted in free cash flow of $4.45 billion, or 36% of revenue.

When it posted solid earnings for its second quarter, Broadcom announced a ten-for-one stock split, which took effect on July 12, making stock ownership more affordable and accessible to investors.

Moreover, AVGO raised its fiscal year 2024 guidance. The tech company expects full-year revenue of nearly $51 billion. Broadcom anticipates $10 billion in revenue from chips related to AI this year. Its adjusted EBITDA is expected to be approximately 61% of projected revenue.

Analysts expect AVGO’s revenue for the third quarter (ending July 2024) to grow 45.9% year-over-year to $12.95 billion. The consensus EPS estimate of $1.20 for the ongoing quarter indicates a 14% year-over-year increase. Also, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

In addition, the company’s revenue and EPS for the fiscal year ending October 2024 are expected to increase 43.6% and 12.4% from the previous year to $51.44 billion and $4.75, respectively.

AVGO’s shares have gained more than 29% over the past six months and around 74% over the past year. Moreover, the stock is up nearly 40% year-to-date.

Micron Technology, Inc. (MU)

Another chipmaker that is well-poised to benefit from significant data center spending among enterprises is Micron Technology, Inc. (MU). With a $126.70 billion market cap, MU provides cutting-edge memory and storage products globally. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Embedded Business Unit; and Storage Business Unit.

Micron’s role as a leading provider of DRAM and NAND flash memory positions it to capitalize on the surging demand for high-performance memory solutions. The need for advanced memory products grows as data centers expand to support AI and machine learning workloads. The company’s innovation in memory technologies, such as the HBM2E, aligns well with the performance requirements of modern data centers.

Also, recently, MU announced sampling its next-generation GDDR7 graphics memory with the industry’s highest bit density. The best-in-class capabilities of Micro GDDR7 will optimize AI, gaming, and high-performance computing workloads. Notably, Micron reached an industry milestone as the first to validate and ship 128GB DDR5 32Gb server DRAM to address the increasing demands for rigorous speed and capacity of memory-intensive Gen AI applications.

Further, MU’s strategic partnerships with leading tech companies like Nvidia and Intel Corporation (INTC) position the chipmaker at the forefront of technology advancements. In February, Micron started mass production of its HBM2E solution for use in Nvidia’s latest AI chip. Micron’s 24GB 8H HBM3E will be part of NVIDIA H200 Tensor Core GPUs, expected to begin shipping in the second quarter.

For the third quarter, which ended May 30, 2024, MU posted revenue of $6.81 billion, surpassing analysts’ expectations of $6.67 billion. That compared to $5.82 billion in the prior quarter and $3.75 billion for the same period last year. Moreover, AI demand drove 50% sequential data center revenue growth and record-high data center revenue mix.

MU’s non-GAAP gross margin was $1.92 billion, versus $1.16 million in the prior quarter and negative $603 million for the previous year’s quarter. Its non-GAAP operating income came in at $941 million, compared to $204 million in the prior quarter and negative $1.47 billion for the same period in 2023.

Additionally, the chip company reported non-GAAP net income and earnings per share of $702 million and $0.62 for the third quarter, compared to non-GAAP net loss and loss per share of $1.57 billion and $1.43 a year ago, respectively. Its EPS beat the consensus estimate of $0.53. Its adjusted free cash flow was $425 million during the quarter, compared to a negative $1.36 billion in the prior year’s quarter.

For the fourth quarter of fiscal 2024, Micron expects non-GAAP revenue of $7.60 million ± $200 million, and its gross margin is anticipated to be 34.5% ± 1%. Also, the company expects its non-GAAP earnings per share to be $1.08 ± 0.08.

Analysts expect AVGO’s revenue for the fourth quarter (ending August 2024) to increase 91.4% year-over-year to $7.68 billion. The company is expected to report an EPS of $1.14 for the current quarter, compared to a loss per share of $1.07 in the prior year’s quarter. Further, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

MU’s shares have surged over 30% over the past six months and approximately 75% over the past year.

Bottom Line

The substantial surge in capital expenditures by cloud computing giants like Microsoft, Amazon, and Alphabet highlights the importance of AI and data centers in the tech industry’s landscape. Broadcom and Micron emerge as two of the most promising chip stocks for investors seeking to benefit from this trend. Both companies offer solid financial health, significant market positions, and exposure to the expanding data center and AI markets.

While Broadcom’s diverse semiconductor solutions and Micron’s leadership in memory technology make them attractive investment opportunities, investors must remain mindful of potential headwinds, including market competition and geopolitical risks. By evaluating these factors and understanding the growth potential of these companies, investors can make informed decisions in the rapidly evolving technology sector.

Amazon's Reinvestment Strategy: A Double-Edged Sword for Investors?

Posted on by The INO.com Team

With a market capitalization of $2.08 trillion, Amazon.com, Inc. (AMZN) is one of the most valuable companies on the Nasdaq. The e-commerce giant commands a premium valuation due to its consistent sales growth. However, it often appears significantly overvalued when analyzed through traditionally earnings-based valuation methods.

AMZN’s strategy has long been characterized by its aggressive reinvestment of the majority of its profits back into the business. This approach has played a pivotal role in Amazon’s rapid expansion while minimizing its tax burden. Yet, it also poses unique challenges when evaluating the company’s true worth.

Thus, it’s essential to consider several alternative valuation metrics to gauge the difference between market valuation and AMZN’s business fundamentals accurately.

Traditional Valuation Metrics: Beyond the P/E Ratio

Conventional valuation metrics like the price-to-earnings (P/E) ratio often fall short when evaluating AMZN due to its reinvestment strategy. As of July 5, the company’s forward non-GAAP P/E multiple is 44.01. Net income-based metrics such as P/E can be misleading as they don’t fully capture the company’s growth potential or the value created by its reinvested profits.

So, investors have turned to the price-to-sales (P/S) ratio, which is a company’s market value compared to its revenue, as a more reliable indicator.

Operating Income and Margin: A Clearer Picture

A more effective way to value Amazon is by looking at its P/S ratio within the context of its operating income and operating margin. These metrics provide a clearer view of the company’s profitability. AMZN’s trailing-12-month (TTM) operating income is approximately $100 billion, with its operating margin at a 10-year high. This improvement is primarily attributed to AWS’ growth and a rebound in its North America and International segments.

One scenario is paying a 3.26 P/S ratio for a business with high revenue growth but low-profit margins. However, paying the same ratio for a company that is not only increasing its revenue but also improving its profit margins is entirely different, making AMZN an attractive investment opportunity.

The Bull Case for Amazon

Undoubtedly, AMZN’s reinvestment strategy presents a double-edged sword for investors. On one hand, it has fueled tremendous growth and innovation, positioning the company at the forefront of several high-growth industries. On the other hand, it complicates traditional valuation methods, potentially leading to misinterpretations of the company’s financial health.

Despite these challenges, the bull case for Amazon remains strong. The company’s P/S ratio is close to its five-year average of 3.02, but the quality of its business is considerably improving. Amazon is growing its top line and expanding its margins, suggesting a path toward consistent profitability.

For the first quarter that ended March 31, 2024, Amazon’s net sales increased 13% year-over-year to $143.30 billion. Notably, the company’s Amazon Web Services (AWS), a leader in cloud infrastructure, segment sales rose 17% year-over-year to $25 billion. AWS contributed over 61% of AMZN’s operating income in the quarter. AWS’ operating income grew faster than AWS’ sales, indicating that margins are improving.

According to HG Insights, AWS captured around 50.1% of the Infrastructure as a Service (IaaS) market share among the ten leading providers.

Amazon’s International segment sales grew 10% from the prior year’s quarter, and the North America segment increased 12%. The company’s operating income was $15.30 billion, up 218.8% year-over-year. Its net income came in at $10.40 billion for the first quarter, or $0.98 per share, compared to $3.20 billion, or $0.31 per share, in the same quarter of 2023.

Furthermore, AMZN’s operating cash flow was $99.10 billion for the trailing twelve months versus $54.30 billion for the trailing twelve months ended March 31, 2023. Its free cash flow increased to an inflow of $50.10 billion for the trailing twelve months, compared with an outflow of $3.30 billion ended March 31, 2023.

“It was a good start to the year across the business, and you can see that in both our customer experience improvements and financial results,” said Andy Jassy, Amazon President and CEO.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate); our Stores business continues to expand selection, provide everyday low prices, and accelerate delivery speed (setting another record on speed for Prime customers in Q1) while lowering our cost to serve; and, our Advertising efforts continue to benefit from the growth of our Stores and Prime Video businesses,” Jassy added.

Looking forward, analysts expect Amazon’s revenue and EPS for the fiscal year (ending December 2024) to increase 11.1% and 56.7% year-over-year to $638.80 billion and $4.54, respectively. The company’s revenue and EPS for the fiscal year 2025 are expected to grow 11.2% and 26% from the prior year to $710.20 billion and $5.73, respectively.

Bottom Line

AMZN’s stock has had a record-breaking year, joining the $2 trillion club in June. The stock has surged nearly 37% over the past six months and more than 53% over the past year. While Amazon’s valuation may seem high at first glance, its improved business fundamentals and growth prospects justify the current stock price.

By continuously reinvesting profits back into its business, Amazon has managed to stay at the forefront of e-commerce and cloud computing, driving rapid expansion and innovation. While the company’s reinvestment strategy has undeniably been a catalyst for its success, it requires investors to adopt a more sophisticated approach to valuation, considering metrics beyond traditional net income-based ones.

By focusing on the P/S ratio within the context of operating income and margin, investors can gain a better understanding of the company’s financial trajectory and growth potential. Thus, while complicating traditional valuation methods, Amazon’s reinvestment strategy has laid the foundation for continued success and makes the company an attractive investment opportunity in the long term.

Legal Battles Could Affect Amazon's Bottom Line & What It Means for Investors

Posted on by The INO.com Team

Amazon.com, Inc. (AMZN), a global e-commerce giant, is navigating significant legal challenges that could impact its financial health and stock price. Earlier this month, more than 15,000 drivers contracted with Amazon Flex filed arbitration claims against the company, alleging their job positions were misclassified.

Lawyers representing the case confirm that the delivery drivers believe Amazon incorrectly classified them as independent contractors instead of employees. By classifying these drivers as independent contractors, AMZN has avoided the extra wages, benefits, overtime pay, and reimbursement for expenses they would be entitled to as full-time employees.

The legal claims have been submitted to the American Arbitration Association (AAA) in California, Illinois, and Massachusetts as laws about employee misclassification are “very clear” in these states, attorney Steven Tindall told CNN. This is the second batch of Amazon drivers to file arbitration claims, following a previous filing of 450 similar claims with the AAA.

Details of Arbitration Claims and Their Implications on Amazon’s Financial Health

Amazon Flex, introduced in 2015, enables independent contractors to sign up to deliver Amazon packages. Flex drivers handle Amazon Fresh grocery deliveries and same-day deliveries from the company’s warehouse hubs. However, drivers now claim that they are working full-time schedules without any significant benefits that being an employee entails.

In a statement, Tindall and another attorney, Joseph Sellers, said Amazon only pays the drivers for a pre-determined "block” of time. Flex drivers must select a time block beforehand, and they are only paid based on that ore-selected time regardless of how long it takes to complete the deliveries. For instance, if a driver selects a three-hour block on the app, he only gets paid for three hours, even if the delivery takes longer.

Although Amazon’s website states that Flex drivers earn between $18 and $25 per hour, this does not include the extra unpaid hours many drivers work due to longer-than-expected delivery times. Also, it does not cover drivers’ work-related expenses, such as mileage and cell phone usage, which considerably reduce their monthly pay.

Further, the complaint includes other grievances, such as Amazon’s failure to provide drivers with paid 10-minute rest breaks for deliveries taking more than 3.5 hours to complete. To this specific claim, Amazon representatives responded, telling reporters that “the majority of Amazon Flex delivery partners finish their delivery blocks early,” suggesting that rest breaks were largely unnecessary.

Additionally, grievances included a lack of 30-minute meal breaks for Flex drivers working more than 5 hours per day.

AMZN’s spokesperson Braden Baribeau addressed these claims, saying  Flex “gives individuals the opportunity to set their own schedule and be their own boss, while earning competitive pay. We hear from most of the Amazon Flex delivery partners that they love the flexibility of the program, and we’re proud of the work they do on behalf of customers every day.”

The arbitration claims recently filed by Amazon Flex drivers asking for overtime compensation and unpaid wages represent a significant legal challenge for the company. Legal experts suggest that successful claims could lead to hefty settlements, potentially costing AMZN hundreds of millions of dollars and impacting its upcoming quarterly earnings.

If Amazon is required to reclassify Flex drivers as full-time employees, it would fundamentally alter its cost structure. As a result, it could lead to increased labor costs due to the provision of benefits, minimum wage guarantees, and overtime pay. These operational changes might pressure Amazon’s profit margins in the long term.

Legal uncertainties and the potential for enormous settlements or operational overhauls can create volatility in AMZN’s stock. Investors typically react negatively to legal challenges, especially when the financial implications are significant and uncertain. The news of these arbitration claims could lead to a temporary dip in Amazon’s stock price as investors reassess the company’s risk profile.

Other Ongoing Legal Battles

A week before the arbitration claims came to light, a substantial billion-pound lawsuit (nearly $1.3 billion) was filed against AMZN from the British retailers who alleged that the online marketplace misused their retail data to enhance its market share and profits.

According to its lawyers, the British Independent Retailers Association (BIRA), representing a coalition of numerous small traders, submitted the lawsuit on behalf of approximately 35,000 retailers at the Competition Appeal Tribunal (CAT) in London.

BIRA’s case also claims that Amazon unfairly influenced the “Buy Box” feature on its website, displayed near the top of product pages, in a way that favored its interests. This “Buy Box” is the subject of a separate lawsuit filed on behalf of consumers, with potential damages estimated at up to 900 million pounds ($1.1 billion).

In another development, a judge has scheduled a June 2025 trial in the U.S. Federal Trade Commission’s (FTC) lawsuit against AMZN. The case accuses Amazon of deceptively enrolling millions of online shoppers into its Prime service without their consent and making it hard for them to leave.

Last year, the FTC alleged AMZN of using “manipulative, coercive or deceptive user-interface designs known as ‘dark patterns’ to trick consumers into enrolling in automatically renewing Prime subscriptions.”

The lawsuit is among several legal actions by federal and state governments challenging Amazon's business practices. Last year, the FTC accused Amazon in an antitrust lawsuit of abusing its market power by restricting sellers’ ability to offer better prices on competing platforms.

If the FTC’s claims are upheld, Amazon could face substantial fines and be required to change its business practices. These fines could reach the billions, significantly affecting the e-commerce titan’s financial health.

Bottom Line

AMZM’s ongoing legal challenges pose a multifaceted risk to its financial health and stock price. The arbitration claims by Flex drivers, a significant data abuse lawsuit from British retailers, and ongoing FTC lawsuits induce increased uncertainty around Amazon, typically eroding investor confidence. Negative headlines and the looming possibility of substantial financial penalties can lead to stock price volatility.

The resolution of these legal disputes is pivotal for the company. If Amazon successfully defends against the claims or reaches manageable settlements, investor confidence could rebound, stabilizing and potentially boosting the stock price.

Thus, investors should closely monitor these developments as they could have far-reaching implications for AMZN’s financial performance and market position.

How Micron Technology Is Poised to Benefit from AI Investments

Posted on by The INO.com Team

Artificial Intelligence (AI) continues revolutionizing industries worldwide, including healthcare, retail, finance, automotive, manufacturing, and logistics, driving demand for advanced technology and infrastructure. Among the companies set to benefit significantly from this AI boom is Micron Technology, Inc. (MU), a prominent manufacturer of memory and storage solutions.

MU’s shares have surged more than 70% over the past six months and nearly 104% over the past year. Moreover, the stock is up approximately 12% over the past month.

This piece delves into the broader market dynamics of AI investments and how MU is strategically positioned to capitalize on these trends, offering insights into how investors might act now.

Broader Market Dynamics of AI Investments

According to Grand View Research, the AI market is expected to exceed $1.81 trillion by 2030, growing at a CAGR of 36.6% from 2024 to 2030. This robust market growth is propelled by the rapid adoption of advanced technologies in numerous industry verticals, increased generation of data, developments in machine learning and deep learning, the introduction of big data, and substantial investments from government and private enterprises.

AI has emerged as a pivotal force in the modern digital era. Tech giants such as Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOGL), Apple Inc. (AAPL), Meta Platforms, Inc. (META), and Microsoft Corporation (MSFT) are heavily investing in research and development (R&D), thereby making AI more accessible for enterprise use cases.

Moreover, several companies have adopted AI technology to enhance customer experience and strengthen their presence in the AI industry 4.0.

Big Tech has spent billions of dollars in the AI revolution. So far, in 2024, Microsoft and Amazon have collectively allocated over $40 billion for investments in AI-related initiatives and data center projects worldwide.

DA Davidson analyst Gil Luria anticipates these companies will spend over $100 billion this year on AI infrastructure. According to Luria, spending will continue to rise in response to growing demand. Meanwhile, Wedbush analyst Daniel Ives projects continued investment in AI infrastructure by leading tech firms, “This is a $1 trillion spending jump ball over the next decade.”

Micron Technology’s Strategic Position

With a $156.54 billion market cap, MU is a crucial player in the AI ecosystem because it focuses on providing cutting-edge memory and storage products globally. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Embedded Business Unit; and Storage Business Unit.

Micron’s dynamic random-access memory (DRAM) and NAND flash memory are critical components in AI applications, offering the speed and efficiency required for high-performance computing. The company has consistently introduced innovative products, such as the HBM2E with the industry’s fastest, highest capacity high-bandwidth memory (HBM), designed to advance generative AI innovation.

This month, MU announced sampling its next-generation GDDR7 graphics memory with the industry’s highest bit density. With more than 1.5 TB/s of system bandwidth and four independent channels to optimize workloads, Micron GDDR7 memory allows faster response times, smoother gameplay, and reduced processing times. The best-in-class capabilities of Micro GDDR7 will optimize AI, gaming, and high-performance computing workloads.

Notably, Micron recently reached an industry milestone as the first to validate and ship 128GB DDR5 32Gb server DRAM to address the increasing demands for rigorous speed and capacity of memory-intensive Gen AI applications.

Furthermore, MU has forged strategic partnerships with prominent tech companies like NVIDIA Corporation (NVDA) and Intel Corporation (INTC), positioning the company at the forefront of AI technology advancements. In February this year, Micron started mass production of its HBM2E solution for use in Nvidia’s latest AI chip. Micron’s 24GB 8H HBM3E will be part of NVIDIA H200 Tensor Core GPUs, expected to begin shipping in the second quarter.

Also, Micron's 128GB RDIMMs are ready for deployment on the 4th and 5th Gen Intel® Xeon® platforms. In addition to Intel, Micron’s 128GB DDR5 RDIMM memory will be supported by a robust ecosystem, including Advanced Micro Devices, Inc. (AMD), Hewlett Packard Enterprise Company (HPE), and Supermicro, among many others.

Further, in April, MU qualified a full suite of its automotive-grade memory and storage solutions for Qualcomm Technologies Inc.’s Snapdragon Digital Chassis, a comprehensive set of cloud-connected platforms designed to power data-rich, intelligent automotive services. This partnership is aimed at helping the ecosystem build next-generation intelligent vehicles powered by sophisticated AI.

Robust Second-Quarter Financials and Upbeat Outlook

Solid AI demand and constrained supply accelerated Micron’s return to profitability in the second quarter of fiscal 2024, which ended February 29, 2024. MU reported revenue of $5.82 billion, beating analysts’ estimate of $5.35 billion. This revenue is compared to $4.74 billion for the previous quarter and $3.69 billion for the same period in 2023.

The company’s non-GAAP gross margin was $1.16 billion, versus $37 million in the prior quarter and negative $1.16 billion for the previous year’s quarter. Micron’s non-GAAP operating income came in at $204 million, compared to an operating loss of $955 million and $2.08 billion for the prior quarter and the same period last year, respectively.

MU posted non-GAAP net income and earnings per share of $476 million and $0.42 for the second quarter, compared to non-GAAP net loss and loss per share of $2.08 billion and $1.91 a year ago, respectively. The company’s EPS also surpassed the consensus loss per share estimate of $0.24. During the quarter, its operating cash flow was $1.22 billion versus $343 million for the same quarter of 2023.

“Micron delivered fiscal Q2 results with revenue, gross margin and EPS well above the high-end of our guidance range — a testament to our team’s excellent execution on pricing, products and operations,” said Sanjay Mehrotra, MU’s President and CEO. “Our preeminent product portfolio positions us well to deliver a strong fiscal second half of 2024. We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multi-year opportunity enabled by AI.”

For the third quarter of 2024, the company expects revenue of $6.60 million ± $200 million, and its gross margin is projected to be 26.5% ± 1.5%. Also, Micron expects its non-GAAP earnings per share to be $0.45 ± 0.07.

Bottom Line

MU is strategically positioned to benefit from the burgeoning AI market, driven by its diversified portfolio of advanced memory and storage solutions, strategic partnerships and investments, robust financial health characterized by solid revenue growth and profitability, and expanding market presence.

The company’s recent innovations, including HBM3E and DDR5 RDIMM memory, underscore the commitment to advancing its capabilities across AI and high-performance computing applications.

Moreover, the company’s second-quarter 2024 earnings beat analysts' expectations, supported by the AI boom. Also, Micron offered a rosy guidance for the third quarter of fiscal 2024. Investors eagerly await insights into MU’s financial performance, strategic updates, and outlook during the third-quarter earnings conference call scheduled for June 26, 2024.

Braid Senior Research Analyst Tristan Gerra upgraded MU stock from “Neutral” to “Outperform” and increased the price target from $115 to $150, citing that the company has meaningful upside opportunities. Gerra stated that DRAM chip pricing has been rising while supply is anticipated to slow. Also, Morgan Stanley raised their outlook for Micron from “Underweight” to “Equal-Weight.”

As AI investments from numerous sectors continue to grow, Micron stands to capture significant market share, making it an attractive option for investors seeking long-term growth in the semiconductor sector.