Tag: Inc. (AMZN)

Analyzing Microsoft’s (MSFT) Soaring Success – What’s Next?

Posted on by The INO.com Team

Shares of Microsoft Corporation (MSFT) have been performing exceptionally well lately, with the stock surging more than 12% over the past month. Moreover, it hit a new 52-week high of $376.35 in the previous session. The stock has gained more than 20% over the past six months and nearly 55% over the past year.

The rally in the stock kicked off a couple of days after Microsoft reported upbeat fiscal 2024 first-quarter results. Since then, the stock has added more than $350 billion to its market capitalization. MSFT is the second-largest component in the S&P 500 with a market cap of $2.796 trillion, behind only Apple Inc. (AAPL) at $2.951 trillion.

Market research firm Bespoke Investment said that MSFT has joined AAPL as the second individual company with a larger market cap than the companies that comprise the Russel 2000 index.

Now, let’s discuss the factors that could impact MSFT’s performance in the upcoming months:

Solid Financial Performance in the Last Reported Quarter

For the fiscal 2024 first quarter that ended September 30, 2023, MSFT reported revenue of $56.52 billion, beating analysts’ estimate of $54.55 billion. This compared to the revenue of $50.12 billion in the same quarter of 2022.

Microsoft’s Intelligent Cloud segment, which comprises Azure, public cloud, SQL Server, Visual Studio, Nuance, Windows Server, GitHub, and enterprise services, was up 19.4% year-over-year.

MSFT’s Productivity and Business Processes segment posted $18.59 billion, up 13% from the previous year’s period. This business unit comprises Microsoft 365 productivity app subscriptions, LinkedIn, and Dynamics enterprise software. The software company’s gross margin grew 16% year-over-year to $40.22 billion.

In addition, the software maker’s operating income came in at $26.90 billion, an increase of 25% year-over-year. Its net income rose 27% year-over-year to $22.29 billion. MSFT posted an EPS of $2.99 versus the consensus estimate of $2.65. This was up 27.2% from the same period last year.

As of September 30, 2023, the company’s cash and cash equivalents stood at $80.45 billion, compared to $34.70 billion as of June 30, 2023. Its total current assets totaled $207.59 billion, compared to $184.26 billion as of June 30, 2023.

For the fiscal 2024 second quarter, Amy Hood, MSFT’s finance chief, expects the company’s revenue to come in the range of $60.40 billion to $61.40 billion, which implies approximately 15% year-over-year growth.

Robust Historical Growth

Over the past three years, MSFT’s revenue grew at a CAGR of 14.1%. Its EBITDA and net income improved at CAGRs of 16.7% and 17.5%, respectively, over the past three years. Also, the company’s EPS increased at a CAGR of 18.5%. Its levered free cash flow improved at 15.9% CAGR over the same timeframe.

Further, the company’s tangible book value and total assets increased at CAGRs of 25.7% and 14% over the same period, respectively.

Rebound In Cloud Spending

Revenue from Microsoft’s Azure cloud business surged 29% year-over-year during the September quarter, compared with 26% growth in the fourth quarter. Moreover, Microsoft is pulling ahead of its major competitors, Amazon.com, Inc. (AMZN) and Google parent Alphabet Inc. (GOOGL), in the race to recover from a two-year slowdown in cloud spending.

When multi-decade inflation hit last year, the Fed hiked interest rates, and companies responded by lowering their tech spending as a part of their cost-reduction measures. The inflation has fallen sharply from its peak of 9.1% hit in June last year. The Consumer Price Index (CPI), the most widely used measure of inflation, further showed signs of easing in October.

The core CPI, excluding volatile food and energy prices, increased 0.2% for the month and 4% year-over-year, lower than the estimates of 0.3% and 4.1%, respectively. Also, the annual level was the lowest in nearly two years and down from 4.1% in September. With declining inflationary pressures, organizations’ cost-cutting efforts have begun to wane, which should bode well for MSFT.

According to the latest forecast from Gartner, worldwide end-user spending on public cloud is projected to grow by 20.4% to a total of $678.80 billion in 2024, up from $563.60 billion in 2023. Growing business needs and emerging technologies like GenAI drive cloud model innovation.

MSFT is “still helping customers use the Microsoft Cloud to get the most value out of their digital spend, and driving operating leverage,” CEO Satya Nadella said in the latest earnings release.

Significant Advancements in AI

MSFT has been making several initiatives to infuse generative AI into its software and services.

In January this year, Microsoft announced a multiyear, multibillion-dollar investment in ChatGPT-maker OpenAI. The agreement marked the third phase of the partnership between the two companies after MSFT’s prior investments in 2019 and 2021. The company is providing its Azure cloud computing infrastructure for OpenAI.

Also, Microsoft is adding OpenAI models to its consumer and enterprise software products.

In February, the company launched a new, AI-powered Bing search engine and Edge browser with built-in support for OpenAI’s ChatGPT. The new Bing search version could deliver better search, more accurate answers, a new chat experience, and the ability to generate content.

Further, on March 16, the software maker announced the addition of AI tools to its Office productivity applications and introduced a feature called Microsoft 365 Copilot. The Copilot feature uses next-gen AI to automate and simplify tasks and offer suggestions. MSFT announced that Microsoft 365 Copilot in Windows will be available on September 26.

Starting November 1, Microsoft 365 Copilot will be generally available for enterprise customers. In addition, this AI-powered Copilot is added to the company’s cybersecurity offerings and GitHub service for software developers.

On November 8, MSFT-owned GitHub introduced a Copilot assistant that can assist developers in working with their employers’ internal code, priced at $39 per person a month. The new launch might help the company boost revenue in its cloud business unit by taking enhanced advantage of partner OpenAI’s technology.

Recovery in the PC Market

MSFT reported a 4% growth in sales of Windows operating system licenses to device makers in the last reported quarter, putting an end to a streak of five quarters of year-over-year declines. Amy Hood stated that the PC market has started to stabilize.

As per the estimates from Gartner, worldwide PC shipments totaled 64.3 million units during the third quarter of 2023, a decline of 9% from the third quarter of 2022. A 9% decrease in the third quarter compared to a 30% decline in the first quarter.

After eight straight quarters of decline, the PC market is expected to begin recovery in the fourth quarter of this year. For 2024, Gartner projects the global PC market to witness 4.9% growth, driven by both the business and consumer segments.

“The good news for PC vendors is that the worst could be over by the end of 2023,” said Mikako Kitagawa, Director Analyst at Gartner. “The business PC market is ready for the next replacement cycle, driven by the Windows 11 upgrades. Consumer PC demand should also begin to recover as PCs purchased during the pandemic are entering the early stages of a refresh cycle.”

In September, MSFT introduced new Surface computers and revealed details about the release of this year’s version of Windows 11. The company unveiled the Surface Laptop Studio 2 and the Surface Laptop Go 3; both computers will have Microsoft’s revamped Windows 11 OS, which includes its Copilot software. The company could capitalize on the PC market’s expected recovery with these new launches.

Favorable Analyst Estimates

Analysts expect MSFT’s revenue for the second quarter (ending December 2023) to grow 15.6% year-over-year to $60.96 billion. The consensus EPS estimate of $2.75 for the ongoing quarter indicates an 18.7% year-over-year rise. Moreover, the company has topped the consensus revenue in three of the trailing four quarters and EPS estimates in all the trailing four quarters.

Additionally, for the fiscal year (ending June 2024), Street expects MSFT’s revenue and EPS to increase 14.5% and 14.1% year-over-year to $242.69 billion and $11.19, respectively. Also, the software company’s revenue and EPS for the fiscal year 2025 are expected to increase 13.8% and 15.1% from the previous year to $276.22 billion and $12.88, respectively.

Bottom Line

Microsoft’s revenue and earnings beat analysts’ expectations in the last reported quarter, fueled by its cloud business strength, with Microsoft Cloud revenue up a staggering 24% year-over-year. Further, the software giant continues to make numerous advancements in AI, helping it regain tech leadership.

"With copilots, we are making the age of AI real for people and businesses everywhere," said Satya Nadella. “We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers,” he added.

According to Brent Thill, Jefferies analyst, the tailwinds of AI have begun to kick in for MSFT.

MSFT’s stock notched a new 52-week high in the previous trading session. The software maker’s early dominance in the realm of AI has been the primary driver of the stock’s impressive gains so far this year, and the stock is expected to surge higher in the upcoming months.

According to Bloomberg Intelligence (BI) research, the generative AI market could grow at a CAGR of 42% to reach $1.3 trillion by 2032.

Given MSFT’s solid financials, high profitability, and optimistic growth outlook, it could be wise to invest in this software stock now.

4 Must-Have Holiday Stocks for Your Portfolio

Posted on by The INO.com Team

As the Christmas season approaches, traditionally marked by increased discretionary spending, retailers anticipate a much-needed boost. The consumer discretionary sector has faced considerable challenges in recent years, with many retailers depending on the festive season for over half of their annual sales.

Although post-Thanksgiving sales have evolved beyond their traditional one-day events, the closing weeks of the fourth quarter remain crucial for retailers seeking to improve their financial health. The National Retail Federation anticipates holiday spending this November and December to achieve record levels, projecting growth between 3% and 4% over 2022 to reach between $957.3 billion and $966.6 billion.

Deloitte's annual Holiday Retail Survey projects that 2023 consumer spending will exceed pre-pandemic levels for the first time, with the average consumer predicted to spend $1,652 on gifts, up 14% year-over-year.

Interestingly, there is a commonly observed "Santa Claus Rally" phenomenon in the financial market during this period – a seasonal surge in volume and trading that tends to last until Christmas. LPL Financial found that since 1950, a Santa Claus rally has occurred around 79% of the time.
Year-end holiday shopping, driving sales for retailers and related businesses, can increase stock prices. Investors are generally keen on a year-end rally that boosts their portfolios, while professional traders often consider it an influential factor in determining their year-end bonuses. The occurrence of a Santa Claus rally this year could be welcomed, given the sluggish behavior of stocks since August.

Investment focus is shifting toward stocks presenting the most significant opportunities now, with some manifesting more profitability potential than others if acquired before price surges. Many investors are identifying holiday stocks to capitalize on with the holiday shopping season looming.
Given this backdrop, let us delve into an in-depth analysis of consumer discretionary stocks Amazon.com, Inc. (AMZN), Walmart Inc. (WMT), Target Corporation (TGT), and Etsy, Inc. (ETSY) now.

Amazon.com, Inc. (AMZN)

As the winter holiday season draws near, e-commerce behemoth AMZN, with a market cap of over $1 trillion, is ramping into full festive gear. The Seattle-based firm hosted its recent Prime Day event on October 10 and 11, further revealing plans to enfold 250,000 additional personnel across its global operations in anticipation of the busy year-end shopping frenzy.

AMZN's biannual Prime Days are effective levers for amplifying revenue. The July event yielded over $12 billion worth of sales – a record-breaking feat that crowned it the most successful Prime Day ever. Striving to expand the holiday shopping duration, the company has been progressively ushering its secondary Prime Day event into the fourth quarter.

The impact extends beyond just the Prime Days. The company also greatly benefits from the surge in sales during the Black Friday and Cyber Monday promotions tied to the Thanksgiving holiday, offering substantial financial reinforcements. The company forecasted revenue between $160 billion and $167 billion for the current holiday quarter. However, analysts polled by LSEG were expecting revenue of $166.62 billion, at the higher end of AMZN's guidance.
AMZN has restructured its delivery network in its retail operations to strategically position goods closer to customers, allowing for faster, more cost-effective order fulfillment. The enhancement of its same-day delivery services has positively influenced its profit margins by encouraging shoppers to place orders more frequently and in larger quantities.

For the fiscal fourth quarter ending December 2023, its revenue is expected to increase 11.2% year-over-year to $165.86 billion, while EPS could reach $0.76, up significantly year-over-year.

On the stock market front, shares of AMZN have appreciated over 69% year-to-date and are trading above the 50-, 100-, and 200-day moving averages – an apparent sign of a bullish trend.

Echoing these encouraging prospects, Wall Street analysts expect the stock to reach $176.13 in the next 12 months, indicating a potential upside of 24%. The price target ranges from a low of $145 to a high of $230.

Walmart Inc. (WMT)

Initially established as a conventional brick-and-mortar retailer, WMT has become an influential omnichannel contender. The company’s strategic acquisitions of Bonobos, Moosejaw, and Parcel and its partnerships with industry giants Shopify and Goldman Sachs underscore this evolution. Further efforts, such as introducing delivery programs Walmart + and Express Delivery and investing in Flipkart – an acclaimed online e-commerce platform – exemplify these changes.

These mechanisms have strengthened the retail behemoth's position, allowing it to remain resilient within the dynamic landscape of the retail industry. The company's adaptive initiatives ensure continuous relevancy and competitiveness in this changing ecosystem.

The prominent discount retailer goes the extra mile for the holiday season, employing additional personnel and offering round-the-clock service from Thanksgiving to Christmas to accommodate last-minute shoppers. The company notably profits from Black Friday, Cyber Monday, and Boxing Day promotions, with attractive offers ranging from electronics and toys to clothing.

WMT's in-store and virtual purchases witnessed a substantial escalation during the holiday season, complemented by an upswing in the market.
WMT’s second-quarter financial performance exceeded Wall Street predictions, and the company elevated its full-year guidance. Propelled by robust grocery sales and enhanced online expenditure, the retailer registered a remarkable second-quarter earnings per share of $1.84, while revenue touched $161.63 billion.

The retail giant revealed a 24% year-over-year growth in its e-commerce sales during the second quarter of 2023, with same-store sales observing a 6.4% uptick. WMT anticipates a 4% to 4.5% overall surge in annual sales.

For the fiscal fourth quarter ending January 2024, its revenue is expected to increase 3.6% year-over-year to $158.42 billion, while EPS is anticipated to reach $1.66.

Shares of WMT have gained over 15% year-to-date and trade above the 50-, 100-, and 200-day moving averages, indicating an uptrend. Moreover, Wall Street analysts expect the stock to reach $180.46 in the next 12 months, indicating a potential upside of 9.8%. The price target ranges from a low of $165 to a high of $210.

Target Corporation (TGT)

Boasting a market cap exceeding $51 billion, TGT has demonstrated robust financial health in 2023, successfully safeguarding its profit margins amid a challenging retail environment. The firm maintained solid earnings and cash flow despite subdued consumer spending in fundamental areas like home décor.

As holiday shoppers navigate TGT’s illustrious aisles, they are presented with the retailer's holiday price match guarantee – a strategy aimed at streamlining shopping experiences while offering optimal pricing. Frequently running comprehensive sales on daily essentials and holiday requisites – from electronics to clothing and household goods, TGT facilitates economical purchases, countering rising inflationary pressures.

TGT adopts a strategic stance this festive season by emphasizing affordability in its holiday marketing schemes. Guided by the motto "However You Holiday, Do It For Less," TGT links everyday items within its seasonal collection, providing an affordable range for consumers facing economic challenges.
Recognizing that 75% of TGT customers initiate their digital shopping journeys on mobile platforms, the corporation has augmented its investment in digital channels by 20% in 2023, specifically focusing on media mix optimization throughout the holiday period. This concerted effort towards optimizing digital footprint hones in on social media.

Furthermore, TGT's innovative advertising campaigns encapsulate broad holiday themes like “Lights,” “Magic,” and “Style,” demonstrating their application across various product categories. These aspirational campaigns aim to inspire consumers as they prep for holiday social events, alongside fulfilling their routine shopping needs.

Enhancing its product offering, TGT has introduced thousands of new items this year, expanding from toys priced at $25 to affordable $1 stocking stuffers. The corporation spotlights partnerships with renowned brands, including Fenty Beauty, Kendra Scott, and Mattel and private label introductions like the recent Figmint kitchen range.

For the fiscal fourth quarter ending January 2024, its revenue and EPS are expected to increase 1.2% and 19.4% year-over-year to $31.77 billion and $2.26, respectively.

Wall Street analysts expect the stock to reach $145.03 in the next 12 months, indicating a potential upside of 32%. The price target ranges from a low of $105 to a high of $180.

Etsy, Inc. (ETSY)

Renowned as a premier online hub for handcrafted and vintage goods, ETSY is an ideal platform for consumers looking for inventive gift options, particularly during the bustling winter holiday season. The broad spectrum of products available on ETSY – from jewelry and clothing to toys and home décor – caters to the preferences of its 97.3 million active users offered by 8.8 million energetic sellers.

However, this year has posed significant challenges for ETSY. ETSY grapples with unfavorable financial outcomes, unlike its competitors, who have rebounded from pandemic-induced downturns. The company experienced another decline following the release of its third-quarter earnings report.

ETSY's unique business model – a marketplace that emphasizes handcrafted and vintage items and operates via network effects and switching costs – may be attractive, but ultimately, consistent growth is vital to sustain investor interest. While ETSY insists on its distinct positioning within a large potential market, its struggle to bolster gross merchandise sales (GMS) post-pandemic suggests that the demand for its products may be more limited than anticipated.

Growth in GMS was barely perceptible in the third quarter at just 1.2% year-over-year to $3 billion. GMS per active buyer was down 6% to $127, possibly reflecting the economic challenges.

Moreover, the company estimated GMS for the fourth quarter of 2023 to decline in the low-single-digit range year-over-year. This could deteriorate into a mid-single-digit drop if financial circumstances worsen and stabilize or marginally increase if conditions improve.

CEO Josh Silverman said, "There's no doubt that this is an incredibly challenging environment for spending on consumer discretionary items. It's therefore important to acknowledge that this volatile macro climate will make it challenging for us to grow this quarter."

Yet, amid this financial gloom, bright spots are visible for ETSY. For the fiscal third quarter that ended September 30, 2023, active buyers on the ETSY marketplace witnessed a 4% year-over-year increase, totaling 91.6 million, with growth in U.S. active buyer trends for the first time in seven quarters. The company has reactivated 6 million buyers, marking a 19% year-over-year uptick, and retention rates exceed pre-pandemic levels.

Simultaneously, ETSY's seller base surged 19% to 8.8 million overall. An additional 400,000 sellers have joined the Etsy marketplace in the quarter, bringing its total to 6.7 million. These sellers may use the platform to supplement their income amid inflationary and other economic strains.

However, it is crucial to point out that even though other discretionary retailers are grappling with the prevailing economic climate, ETSY continues to underperform compared to its e-commerce competitors. This inevitably prompts queries regarding when or whether we might witness a resurgence in ETSY’s growth on par with its peers.

For the fiscal fourth quarter ending December, its revenue and EPS are expected to increase 1.7% and 16.2% year-over-year to $820.69 million and $1.33, respectively. Wall Street analysts expect the stock to reach $74.39 in the next 12 months, indicating a potential upside of 16.3%. The price target ranges from a low of $50 to a high of $125.

Investor Alert: Are These 11 Back-to-School Stocks Making Big Moves?

Posted on by The INO.com Team

The end of summer and the onset of fall usually mean one thing in the United States — it’s time to replenish supplies and head back to school. This also translates to wardrobe refreshes and gadget upgrades. The average planned back-to-school spending per household in the United States has gradually increased year-over-year to $848.9 in 2021, with electronics or computer-related equipment emerging as the biggest category.

While stressed American consumers have been forced to go bargain hunting to squeeze out the maximum possible value from money for bare essentials so that more of it can be set aside in favor of outdoor experiences instead of manufactured goods, the trend is unlikely to be significantly impacted even by the seismic shifts in the consumption ecosystem.

In fact, since the supply chain disruptions in the aftermath of the pandemic, concern for stockouts has only pulled back-to-school sales have increasingly been pulled forward to the end of July, compared to the conventional peak during the beginning of August. Prime Week by Amazon.com, Inc. (AMZN) has also done its fair bit to catalyze that shift.

Given the above, we have shortlisted a few relevant apparel/fashion/luxury, grocery, and technology stocks below that are expected to benefit from back-to-school sales to determine if they are worth buying in the aftermath of the sales event and ahead of the holiday season.

Apple Inc. (AAPL)

The technology and consumer electronics giant, which has a history of revolutionizing products like the personal computer, smartphone, and tablet, has begun scripting the next key chapter in its success story with the announcement of its first product in the AR/VR market, the Apple Vision headset, which will sell for $3,499 when it is released early next year.

Despite its 7.9% dip during the past month, AAPL’s stock has gained 22.2% over the past six months. While the business boasts excellent profitability, in view of its stretched valuation in the face of frigid trade relations between the U.S. and China, AAPL’s manufacturing hub and key market, investors should wait for a better entry point.

Walmart Inc. (WMT)

Sam Walton, founder of the largest grocer in the world, built the company on a no-frills approach aimed at making groceries and other products more affordable. With 60% of its revenue in the U.S. coming from the grocery segment, the retail giant’s focus on value through “everyday low prices” has helped it become relatively immune to the seismic shifts in the consumption ecosystem.

WMT’s stock has dipped slightly over the past month but has gained 11.7% over the past six months. With core PCE at 4.3%, indicating stretched budgets and high borrowing costs in the foreseeable future, WMT is best positioned to capture the upside from “modest improvement” in sales of big-ticket and discretionary items like electronics during the Back-to-School season.

Target Corporation (TGT)

TGT sells an assortment of general merchandise and food items to its guests through its stores and digital channels. With product categories such as apparel and accessories, beauty and household essentials, food and beverage, and home furnishing and décor, the budget retailer has converted its 1900+ stores into mini-malls offering a range of “cheap chic” items.

Due to the recent miss in revenue and a not-so-optimistic outlook for the holiday season, TGT’s stock has lost 9.5% over the past month. However, the slump has also brought the stock to a more attractive valuation, which could protect investors from downside risks and a potential upside from a mid-term recovery in consumer confidence and market sentiment.

Ross Stores, Inc. (ROST)

ROST operates two brands of off-price retail apparel and home fashion stores, Ross Dress for Less (Ross) and dd’s DISCOUNTS, with the latter offering in-season, name-brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off department and discount store regular prices every day.

ROST’s shares have gained about 5% over the past month and 8.5% over the past six months. Given its healthy profitability, investors could consider buying the stock to capitalize on a rally during Back to School and the holiday season.

Dollar General Corporation (DG)

As a discount retailer, DG offers merchandise, including consumable items, seasonal items, home products, and apparel.

DG’s stock has plummeted 7.4% over the past month and 27.6% over the past six months. In view of its bleak prospects, investors are advised to stand by until sentiments improve before investing in the stock.

Logitech International S.A. (LOGI)

Headquartered in Lausanne, Switzerland, LOGI designs, manufactures, and markets products that connect people to working, creating, gaming, and streaming worldwide. The company offers accessories, such as mice, keyboards, webcams, and other accessories for mobile devices. The company sells its products under the Logitech, Logitech G, ASTRO Gaming, Streamlabs, Blue Microphones, and Ultimate Ears brands.

Despite a 4.3% dip in the past month, LOGI’s shares have gained 24.2% over the past six months. While the business boasts excellent profitability, investors could wait for the pendulum of personal consumption to swing from services back in favor of high-ticket discretionary goods before buying into it.

Crocs, Inc. (CROX)

CROX designs, develops, and markets casual lifestyle footwear and accessories for women, men, and children, containing Croslite material, a proprietary, molded footwear technology. The company’s segments include North America; Asia Pacific; Europe, the Middle East, Africa, and Latin America (EMEALA); and the HEYDUDE Brand.

CROX’s stock has lost 7.8% over the past month. While the decently profitable business is well-positioned to benefit from increased expenditure on outdoor expenses, investors could wait for further valuation comfort before taking a long position in the stock.

Dillard's, Inc. (DDS)

DDS is a fashion apparel, home furnishings, and cosmetics retailer. The company’s operating segments include its retail department stores and a general contracting construction company.

DDS’ stock has gained 5.6% over the past month. Despite the recent price gains, its excellent profitability at a decent valuation means that investors could benefit from further upside in the stock.

Levi Strauss & Co. (LEVI)

The well-known apparel company designs and markets jeans, casual wear, and related accessories for men, women, and children under the Levi's, Signature by Levi Strauss & Co., Denizen, Dockers, and Beyond Yoga brands.

LEVI’s stock has lost 5.9% over the past month and 22.4% over the past six months. While the sentiment has been improving lately, investors would be wise to wait for its valuation to improve before deciding to add the stock to their portfolio.

Abercrombie & Fitch Co. (ANF)

As an omnichannel specialty retailer of apparel, personal care products, and accessories for men, women, and kids, ANF sells its offerings primarily through its digital channels, company-owned stores, and various third-party arrangements.

ANF’s stock has surged 26.3% over the past month and 68.3% over the past six months. Given its excellent track record and profitability, investors could consider investing in the stock.

Shoe Carnival, Inc. (SCVL)

SCVL is an omnichannel family footwear retailer that offers customers an assortment of dress, casual, and athletic footwear for men, women, and children.
SCVL’s stock has plummeted 15.9% over the past month. While valuations have become more attractive, investors are advised to wait for the outlook to improve before acquiring a stake in the business.

NVIDIA (NVDA) vs. Advanced Micro Devices (AMD): Which Stock Is Proving to Be the Better Long-Term AI Buy

Posted on by The INO.com Team

After its earnings release on May 24, the Santa Clara-based graphics chip maker NVIDIA Corporation (NVDA) stole the thunder by becoming the first semiconductor company to hit a valuation of $1 trillion.

NVDA has also blown away Street expectations ahead of its quarterly earnings release on August 23, with profits for the current quarter expected to be at least 50% higher than analyst estimates and the momentum expected to continue in the foreseeable future.

On the other hand, since its humble beginnings as a supplier for Intel Corporation (INTC), Advanced Micro Devices, Inc. (AMD) has come a long way. During its earnings release for the second quarter, despite persistent weakness in the PC market, the company’s result topped analyst estimates.

While NVDA has carved its niche and cornered a significant share of the GPU domain through advancements in parallel (and consequently accelerated) computing which began back in 2006 with the release of a software toolkit called CUDA, Chair and CEO Dr. Lisa Su is widely credited with AMD’s turnaround and transition from being widely dismissed due to performance issues and delayed releases to being the only company in the world to design both CPUs and GPUs at scale.

The New (Perhaps Only) Game in Town

As a general-purpose technology, such as the steam engine and electricity, Artificial Intelligence (AI) that has already been touching and influencing all facets of our life, including how we shop, drive, date, entertain ourselves, manage our finances, take care of our health, and much more.

However, late in November of last year, when OpenAI opened its artificial intelligence chatbot, ChatGPT, to the general public, all hell broke loose. The application took the world by storm. It amassed 1 million users in five days and 100 million monthly active users only two months into its launch to become the fastest-growing application in history.

The generative AI-powered application’s capability to provide (surprisingly) human-like responses to user requests equally fascinated and concerned individuals, businesses, and institutions with the possibilities of the technology. A large language model or LLM powers ChatGPT. This gives the application the ability to understand human language and provide responses based on the large body of information on which the model has been trained.

NVDA is reaping the rewards for all that invisible work done in the field of parallel computing. Parallel computing was ideal for artificial neural networks' deep (machine) learning. As a result of that head start in the AI tech race, its A100 chips, which are powering LLMs like ChatGPT, have become indispensable for Silicon Valley tech giants.

To put things into context, the supercomputer behind OpenAI’s ChatGPT needed 10,000 of NVDA’s famous chips. With each chip costing $10,000, a single algorithm that’s fast becoming ubiquitous is powered by semiconductors worth $100 million.

However, AMD isn’t too far behind either. According to Dr. Su, Data Center is the most strategic piece of business as far as high-performance computing is concerned. AMD underscored this commitment with the recent acquisition of data center optimization startup Pensando for $1.9 billion.

At the premiere, AMD’s ambitions to capitalize on the AI boom were loud and clear, with the launch of MI300X (a GPU-only chip) as a direct competitor to NVDA’s H100. The chip includes 8 GPUs (5nm GPUs with 6nm I/O) with 192GB of HBM3 and 5.2TB/s of memory bandwidth.

AMD believes this will allow LLMs’ inference workloads that require substantial memory to be run using fewer GPUs, which could improve the TCO (Total Cost of Ownership) compared to the H100.

The Road Ahead

The optimism surrounding both companies is justified.

With NVDA’s presence in data centers, cloud computing, and AI, its chips are making their way into self-driving cars, engines that enable the creation of digital twins with omniverse that could be used to run simulations and train AI algorithms for various applications.

On the other hand, AMD has also been training its guns to exploit the burgeoning AI accelerator market, projected to be over $30 billion in 2023 and potentially exceed $150 billion in 2027.

AMD is one of the few companies making high-end GPUs needed for artificial intelligence. With AI being seen as a tailwind that could drive PC sales, the company announced plans to launch new Radeon 7000 desktop GPUs at its quarterly earnings release. It is being speculated that the GPU will come with two 8-pin PCIe power connectors and four video out ports, including three DisplayPort 2.1 and one HDMI 2.1.

Caveats

AMD existed as both a chip designer and manufacturer, at least until 2009. However,  significant capex requirements associated with manufacturing, amid financial troubles in the wake of the Great Recession, compelled the company to demerge and spin off its fab to form GlobalFoundries Inc. (GFS), which has been focused on manufacturing low-end chips ever since.

Today, both NVDA and AMD operate as fabless chip companies. Hence, both companies face risks of backward integration by companies such as Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), and Tesla Inc. (TSLA) with the wherewithal to develop the intellectual capital to design their own chips.

Moreover, almost all of the manufacturing has been outsourced to Taiwan Semiconductor Manufacturing Company Ltd. (TSM), which has yet to diversify significantly outside Taiwan and has become the bone of contention between the two leading superpowers.

With geopolitical risk being the potential Achilles heel for both companies, their efforts toward geographical diversification also receive much-needed political encouragement through the Chips and Science Act.

Dr. Su, who also serves on President Biden’s council of advisors on science and technology, pushed hard for the passage of the Act. It is aimed at on-shoring and de-risking semiconductor manufacturing in the interest of national security by setting aside $52 billion to incentivize companies to manufacture semiconductors domestically.

Bottom Line

Given its massive importance and cornucopia of applications, it’s hardly surprising that Zion Market Research forecasts the global AI industry to grow to $422.37 billion by 2028. Hence, this field has understandably garnered massive attention from investors who are reluctant to miss the bus on such a watershed development in the history of humankind.

Hence, in view of product diversification, increasing traction in the GPU segment, and relatively higher valuation comfort, investors in AMD could benefit from more sustained upside potential compared to NVDA.

Intel Corporation (INTC) Races to Dominate the AI Market – Will It Succeed?

Posted on by The INO.com Team

In our June 3 post, we concluded that the resurgent Intel Corporation (INTC), which had weathered back-to-back quarterly losses amid softening PC demand, consequent surplus inventory, and realignment toward GPU-heavy and AI-centered enterprise demand, could be worth more than what was being suggested by its market price at that time.

By announcing its return to profitability during last week’s earnings release, the pioneer of modern computing lived up to our expectations while exceeding the ones on the Street. INTC posted a net income of $1.5 billion, compared to a net loss of $454 million during the previous-year quarter. Its adjusted EPS came in at $0.13 compared to an adjusted loss of $0.3 per share expected by Wall Street.

While the Market greeted the news with a 7% surge in the stock price in extended trading and a further 5% gain the following morning, INTC’s revenue, despite exceeding low expectations, declined 15.7% year-over-year to $12.9 billion, marking the sixth consecutive quarter of sales decline.
In view of a subdued topline, much of the outperformance in the quarterly results can be attributed to the progress INTC had made in cutting $3 billion in costs this year.

In addition to exiting nine lines of business since CEO Pat Gelsinger rejoined INTC to achieve a combined annual savings of more than $1.7 billion, the company slashed its dividend and announced plans to save $10 billion per year by 2025, including through layoffs.

With INTC’s cloud computing group, which includes the company’s laptop and desktop processor shipments, and server chip division, which is reported as Data Center and AI, reporting year-over-year declines of 12% and 15%, respectively, Pat Gelsinger forecasted “persistent weakness” in all segments of its business through year-end, and that server chip sales won’t recover until the fourth quarter.

With upside through cost optimization capped and customers prioritizing GPUs over CPUs to handle ever-increasing AI/ML workloads, INTC is eager to join the race currently being led by NVIDIA Corporation (NVDA) and Advanced Micro Devices, Inc. (AMD). The company is working on the manufacturing front, for which it significantly depends on Taiwan Semiconductor Manufacturing Company Ltd. (TSM).

By doubling down on the fab business, INTC aims to match TSM’s chip-manufacturing capabilities by 2026, enabling it to bid to make the most advanced mobile processors for other companies, a strategy the company calls “five nodes in four years.”

To that end, INTC is pursuing an aggressive IDM 2.0 road map with new manufacturing facilities in Oregon, New Mexico, Arizona, Ireland, and Israel in the pipeline to augment the capabilities of 15 fabs worldwide and facilities to assemble and test the manufactured chips in Vietnam, Malaysia, Costa Rica, China, and the U.S.

Among those, Arizona's new facilities would be manufacturing chips for the company and customers such as Amazon, Qualcomm, and others as part of Intel Foundry Services. While the company still depends on TSMC for 5nm chips used for AI applications, it aims to take a quantum leap in that direction with even smaller 18 A chips.

While companies such as Amazon.com, Inc. (AMZN) are resorting to chips designed in-house to support their cloud infrastructure, INTC, in addition to being the manufacturer of both wafers and packaging of AI accelerators, is also present with its Gaudi chips.

The company’s efforts are also receiving much-needed political encouragement in the form of the Chips and Science Act, which is aimed at on-shoring and de-risking semiconductor manufacturing in the interest of national security.

Recently, Pat and his team at INTC upped the ante by unveiling its new ambitious plans to incorporate AI into every product it creates. This announcement comes as the company’s upcoming Meteor Lake chips are rumored to feature a built-in neural processor specifically designed for handling machine learning tasks.

With an objective to “democratize AI,” Pat was loud and clear about INTC’s plans to make it a ubiquitous and integral feature of its products designed to cater to all segments of the computing ecosystem, including “at the edge in the Client, in the enterprise, as well as in the cloud.”
The upbeat CEO forecasted that AI would permeate all business domains, including the client-facing consumer electronics market, enterprise data centers, and even manufacturing, and make its way into personal devices, such as hearing aids and personal computers. AI is already present as a co-pilot for Windows 11, allowing users to type questions and perform specific actions, and it could play a significant role in the next iteration of Windows.

Bottom Line

For the third quarter of the fiscal, INTC expects adjusted earnings of 20 cents per share on $13.4 billion revenue at the midpoint.
Whether or not INTC manages to meet or exceed the above target could go a long way in helping investors determine if its ambitious turnaround is on track to restore the company to its former glory.