Tag: said

Why Super Micro Computer (SMCI) Could Be a Hidden Gem for Growth Investors

Posted on by The INO.com Team

In March 2024, Super Micro Computer, Inc. (SMCI) became the latest artificial intelligence (AI) company to join the S&P 500 index, just a little more than a year after joining the S&P MidCap 400 in December 2022. Shares of SMCI jumped by more than 2,000% in the past two years, driven by robust demand for its AI computing products, which led to rapid sales growth.

Moreover, SMCI’s stock has surged nearly 205% over the past six months and more than 520% over the past year. A historic rally in the stock has pushed the company’s market cap past $48 billion.

SMCI is a leading manufacturer of IT solutions and computing products, including storage and servers tailored for enterprise and cloud data centers, purpose-built for use cases such as AI, cloud computing, big data, and 5G applications. The company has significantly benefited from the ongoing AI boom in the technology sector.

According to ResearchAndMarkets.com’s report, the global AI server market is expected to reach $50.65 billion by 2029, growing at a CAGR of 26.5% during the forecast period (2024-2029).

Specializing in servers and computer infrastructure, SMCI maintains long-term alliances with major tech companies, including Nvidia Corporation (NVDA), Intel Corporation (INTC), and Advanced Micro Devices, Inc. (AMD), which have fueled the company’s profitability and growth.

Let’s discuss Super Micro Computer’s fundamentals and growth prospects in detail:

Recent Strategic Developments

On April 9, SMCI announced its X14 server portfolio with future support for the Intel® Xeon® 6 processor with early access programs. Supermicro’s Building Block Architecture, rack plug-and-play, and liquid cooling solutions, along with the breadth of the new Intel Xeon 6 processor family, enables the delivery of optimized solutions for any workload and at any scale, offering superior performance and efficiency.

The upcoming processor family will be available with Efficient-core (E-core) SKUs rising performance-per-watt for cloud, networking, analytics, and scale-out workloads, and Performance-core (P-core) SKUs increasing performance-per-core for AI, HPC, Storage and Edge workloads. 

Also, the upcoming processor portfolio will feature built-in Intel Accelerator Engines with new support for FP16 on Intel Advanced Matrix Extensions.

In the same month, SMCI expanded its edge compute portfolio to accelerate IoT and edge AI workloads with a new generation of embedded solutions.

“We continue to expand our system product line, which now includes servers that are optimized for the edge and can handle the demanding workloads where massive amounts of data are generated,” said Charles Liang, president and CEO of SMCI.

“Our building block architecture allows us to design and deliver a wide range of AI servers that give enterprises the solutions they need, from the edge to the cloud. Our new Intel Atom-based edge systems contain up to 16GB of memory, dual 2.5 GbE LAN ports, and a NANO SIM card slot, which enables AI inferencing at the edge where most of the world's data is generated,” Liang added.

Also, on March 19, Supermicro unveiled its newest lineup aimed at accelerating the deployment of generative AI. The Supermicro SuperCluster solutions offer foundational building blocks for the present and the future large language model (LLM) infrastructure.

The full-stack SuperClusters include air- and liquid-cooled training and cloud-scale inference rack configurations with the latest NVIDIA Tensor Core GPUs, Networking, and NVIDIA AI Enterprise software.

Further, SMCI announced new AI systems for large-scale generative AI featuring NVIDIA's next-generation of data center products, such as the latest NVIDIA GB200 Grace™ Blackwell Superchip, the NVIDIA B200 Tensor Core, and B100 Tensor Core GPUs.

Supermicro is upgrading its existing NVIDIA HGX™ H100/H200 8-GPU systems for seamless integration with the NVIDIA HGX™ B100 8-GPU, thus reducing time to delivery. Also, the company strengthens its broad NVIDIA MGX™ systems range with new offerings featuring the NVIDIA GB200, including the NVIDIA GB200 NVL72, a comprehensive rack-level solution equipped with 72 NVIDIA Blackwell GPUs.

Additionally, Supermicro is introducing new systems to its portfolio, including the 4U NVIDIA HGX B200 8-GPU liquid-cooled system.

Solid Third-Quarter 2024 Results

For the third quarter that ended March 31, 2024, SMCI’s revenue increased 200.8% year-over-year to $3.85 billion. Its non-GAAP gross profit grew 163.9% from the year-ago value to $600.59 million. Its non-GAAP income from operations was $434.42 million, up 290.7% year-over-year.

The server assembler’s non-GAAP net income rose 340% from the prior year’s quarter to $411.54 million. Its non-GAAP net income per common share came in at $6.65, an increase of 308% year-over-year.

As of March 31, 2024, Super Micro Computer’s cash and cash equivalents stood at $2.12 billion, compared to $440.46 million as of June 30, 2023. The company’s total current assets were $8.06 billion versus $3.18 billion as of June 30, 2023.

Charles Liang, President and CEO of Supermicro, said, “Strong demand for AI rack scale PnP solutions, along with our team’s ability to develop innovative DLC designs, enabled us to expand our market leadership in AI infrastructure. As new solutions ramp, including fully production ready DLC, we expect to continue gaining market share.”

Raised Full-Year Revenue Outlook

SMCI expects net sales of $5.10 billion to $5.50 billion for the fourth quarter of fiscal year 2024 ending June 30, 2024. The company’s non-GAAP net income per share is anticipated to be between $7.62 and $8.42.

For the fiscal year 2024, Supermicro raised its guidance for revenues from a range of $14.30 billion to $14.70 billion to a range of $14.70 billion to $15.10 billion. Its non-GAAP net income per share is expected to be from $23.29 to $24.09.

CEO Charles Liang said he expects AI growth to remain solid for several quarters, if not years, to come. To support this rapid growth, the company had to raise capital through a secondary offering this year, Liang added.

Meanwhile, finance chief David Weigand said that the company’s supply chain continues to improve.

Bottom Line

SMCI’s fiscal 2024 third-quarter results were exceptional, with a record revenue of $3.85 billion and a non-GAAP EPS of $6.65. This year-over-year revenue growth of 200% and year-over-year non-GAAP EPS growth of 308% significantly outpaced its industry peers.

After reporting outstanding financial performance, the company raised its full-year revenue forecast as it points to solid AI demand.

Super Micro Computer, which joined the S&P 500 in March, has a unique edge among server manufacturers aiming to capitalize on the generative AI boom. Notably, the server maker’s close ties with Nvidia allow it to launch products superior to competitors, including Dell Technologies Inc. (DELL) and Hewlett Packard Enterprise Company (HPE).

The company has a history of being among the first to receive AI chips from NVDA and AMD as it assists them in checking server prototypes, giving it a head start over rivals. This has positioned SMCI as a key supplier of servers crucial for generative AI applications, leading to a remarkable 192% surge in shares so far this year.

According to an analyst at Rosenblatt Securities, Hans Mosesmann, “Super Micro has developed a model that is very, very quick to market. They usually have the widest portfolio of products when a new product comes out from Nvidia or AMD or Intel.”

Moreover, analysts at Bank of America project that SMCI’s share of the AI server market will expand to around 17% in 2026 from 10% in 2023. Argus analyst Jim Kelleher also seems bullish about SMCI. Kelleher maintained a Buy rating on SMCI’s stock.

According to the analyst, Super Micro Computer is a leading server provider for the era of generative AI. Alongside a comprehensive range of rack and blade servers for cloud, enterprise, data center, and other applications, SMCI offers GPU-based systems for deep learning, high-performance computing, and various other applications.

Given solid financials, accelerating profitability, and robust near-term growth outlook, investors could consider buying this stock for substantial gains.

Alibaba's (BABA) Valuation: Uncovering Opportunities in a Discounted Market

Posted on by The INO.com Team

With a $187.28 billion market cap, Alibaba Group Holding Limited (BABA) is a China-based technology company that provides infrastructure and marketing reach to help merchants, brands, and other businesses engage with their users internationally. Last Friday, BABA’s stock notched the seventh consecutive session of gains, marking the longest winning streak in a year.

The e-commerce giant's shares surged more than 3% over the past month, compared to the S&P 500’s nearly 3.3% loss. Also, the stock has soared approximately 1% over the past five days, beating the S&P’s marginal loss.

From a valuation perspective, BABA is trading at a forward non-GAAP P/E multiple of 9.03, 41% lower than the industry average of 15.32. Likewise, the stock’s forward EV/EBITDA and EV/EBIT of 5.46x and 8.79x are favorably compared to the industry averages of 9.42x and 13.57x, respectively.

In addition, in terms of forward Price/Book, the stock is trading at 1.33x, 43.2% lower than the industry average of 2.34x.

Alibaba’s stock trading at a discount compared to its peers can be an intriguing opportunity for value-oriented investors. However, analyzing several quantitative and qualitative factors is crucial before making investment decisions.

Now, let’s discuss BABA’s fundamentals and growth prospects in detail:

Financial Performance Overview

For the fiscal 2024 fourth quarter that ended December 31, 2023, BABA’s revenue increased 5.1% year-over-year to $36.67 billion. Revenue from the Alibaba International Digital Commerce Group grew 43.8% year-over-year, while Cainiao Smart Logistics Network Limited and Digital Media and Entertainment Group rose 23.7% and 18.3%, respectively.

The tech giant’s adjusted EBITA came in at $7.44 billion, up 1.5% from the prior year’s quarter. However, its non-GAAP net income for the quarter declined 4.1% year-over-year to $6.75 billion. It posted non-GAAP earnings per share of $0.33, down 2% year-over-year.

Alibaba’s total assets stand at $256.80 billion, with significant holdings in cash, investments, and operational assets. The company reported cash and cash equivalents of $35.89 billion and short-term investments of $42.31 billion.

“We delivered a solid quarter as we are executing our focused strategies across the organization. Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing. We will step up investment to improve users’ core experiences to drive growth in Taobao and Tmall Group and strengthen market leadership in the coming year,” said Eddie Wu, Chief Executive Officer of Alibaba Group.

“We will also focus our resources on developing public cloud products and sustaining the strong growth momentum in international commerce business,” Wu added.

Upsize of Share Buyback Program

BABA announced that its board of directors approved an increase of $25 billion to its share repurchase program through the end of March 2027. During the quarter that ended March 31, 2024, the company repurchased a total of 524 million ordinary shares for a total of $4.80 billion.

For the fiscal year that ended March 2024, Alibaba repurchased around 1,249 million ordinary shares for a total of $12.50 billion. As of March 31, 2024, the Chinese e-commerce firm had 19,469 million ordinary shares outstanding, a net decrease of 520 million ordinary shares versus December 31, 2023, or a net reduction of 2.6% in its outstanding shares after accounting for shares issued under its ESOP.

As of March 31, 2024, the company has $31.90 billion available under its share repurchase program, effective through March 2027.

The increase in BABA’s share repurchase program demonstrates its confidence in the outlook for its business and cash flow.

“Our consistent share repurchase has also reduced outstanding share count while achieving EPS and cash flow per share accretion,” said Toby Xu, Chief Financial Officer of Alibaba Group.

Reorganization

Over the past year, Alibaba underwent significant changes, including restructuring efforts.

Daniel Zhang, the previous CEO of Alibaba Group, who became acting head of the cloud business in December 2022, unexpectedly resigned in September last year.

In March 2023, BABA announced plans to split its business into six separate units in a move to unlock shareholder value and advance competitiveness. The company’s restructuring resulted in the creation of six distinct business units, some of which will be able to go public and raise external funding.

Among those being touted for initial public offerings (IPOs) were Alibaba’s cloud unit, Cainiao logistics arm, and Freshippo grocery arm. However, Alibaba decided to cancel the highly anticipated spinoff of its cloud computing business last year.

Joe Tsai, chairman of BABA, mentioned during the last earnings call that while the company will explore separate financing options, generating synergies within the Alibaba ecosystem remains a priority to reflect the group's overall value. Tsai also emphasized that Alibaba is not rushing into these transactions and will consider market conditions before proceeding.

Strategic Initiatives

On April 17, 2024, Alibaba.com, a leading platform for global business-to-business (B2B) e-commerce, introduced its affordable, customizable Logistics Marketplace, offering U.S. small and medium-sized enterprises (SMEs) access to affordable and customizable logistics services to streamline their supply chains and gain global reach with more ease.

On January 9, Alibaba.com introduced its latest Smart Assistant features powered by AI at CES in Las Vegas, NV. The Smart Assistant is an AI-powered sourcing tool that caters to newcomers and seasoned entrepreneurs in the dynamic world of global commerce, helping them discover new opportunities, stay up-to-date on trends, seamlessly track orders, and more.

Also, in the same month, Alibaba Cloud unveiled its new generation of elastic computing instance specification family ECS g8i. ECS g8i instances will offer high-quality and efficient computing services for customers in industries like games, e-commerce, finance, medical care, and enterprise services to meet their performance needs in application scenarios, including in-depth learning, AI reasoning training, and big data.

On October 31 last year, Alibaba Cloud announced its latest large language model (LLM), Tongyi Qianwen 2.0. This is a substantial upgrade from its predecessor, launched in April. Tongyi Qianwen 2.0 demonstrates outstanding capabilities in understanding complex instructions, copywriting, memorizing, reasoning, and preventing hallucinations.

With this upgraded version of its AI model, the company looks to compete with U.S. rivals such as Amazon.com, Inc. (AMZN) and Microsoft Corporation (MSFT).

Alibaba also unveiled the GenAI Service Platform, which allows companies to build their own generative AI applications using their data.

Bottom Line

While BABA reported mixed financials in the last quarter, it announced an increase in the size of its share buyback program by $25 billion, creating a greater value for its shareholders. The boost to the buyback program demonstrates the company’s confidence in its business outlook and cash flow.

Moreover, AliExpress order volume rose by 60% year-over-year for the third quarter. This solid performance contributed to a staggering 44% year-over-year growth in Alibaba International Digital Commerce Group’s revenue, surpassing market expectations for the sixth straight quarter. AliExpress’ Choice, a premium service launched in March 2023, is the catalyst behind this strong growth.

Alibaba’s Cainiao Smart Logistics Network Limited and Digital Media and Entertainment Group further grew by around 23% and 18%, respectively.

Over the past five years, BABA’s revenue and EBITDA grew at CAGRs of 21.9% and 16%, respectively. The company’s net income and EPS rose at respective CAGRs of 7.6% and 7.8% over the same timeframe. Its total assets increased at 14.7% CAGR over the same period.

Besides, BABA’s trailing-12-month EBIT margin of 13.74% is 79.8% higher than the 7.64% industry average. Moreover, the stock’s trailing-12-month net income margin and levered FCF margin of 10.81% and 15.77% are significantly higher than the industry averages of 4.57% and 5.53%, respectively.

The Chinese internet giant is set to report its financial results for the quarter and fiscal year ended March 31, 2024, before the market opens on May 14, 2024. Analysts expect BABA’s revenue for the fourth quarter to increase 2.6% year-over-year to $30.37 billion. However, the company’s EPS for the same period is expected to decline by 6.3% year-over-year to $1.43.

For the fiscal year 2024, Street expects BABA’s revenue and EPS to grow 5.4% and 9.1% from the prior year to $130.09 billion and $8.46, respectively.

Moving forward, the China-based tech company’s primary focus is on revitalizing the growth of its core businesses, mainly e-commerce and cloud computing. The company will increase its investments to enhance users’ core experiences, boost growth in Taobao and Tmall Group, and solidify its market leadership in the upcoming year.

Alibaba has a substantial amount of net cash and investments on its balance sheet, providing investors with a safety cushion. This solid cash position can be used for strategic investments, acquisitions, and business expansion, enhancing the company's growth prospects in the long term.

In conclusion, BABA’s current discounted market position presents an attractive opportunity for value-oriented investors. Conducting a thorough analysis of the company's financial health, growth prospects, and competitive landscape can help investors make informed investment decisions and benefit from the long-term upside potential of the stock.

Top China Stock Picks to Buy Amid Economic Boom

Posted on by The INO.com Team

China's economy surged beyond projections at the start of 2024, with the Gross Domestic Product (GDP) escalating by 5.3% in the first quarter, an increase from the previous quarter's 5.2%, as the National Bureau of Statistics reported. The world's second-largest economy embraced a familiar strategy: significant investment in its manufacturing domain to invigorate growth.

This included a spree of new factories, propelling global sales of solar panels, electric vehicles, and various other products. Industrial production saw a 6.1% leap in the first quarter compared to the previous year, driven by robust expansion in high-tech manufacturing.

Notably, the production of 3D printing equipment, electric vehicle charging stations, and electronic components surged by approximately 40% year-on-year. Moreover, last month, the manufacturing purchasing managers' index (PMI) expanded for the first time in six months, while the Caixin/S&P PMI reached its highest level in over a year, buoyed by increased overseas demand.

That said, China has established an annual growth target of approximately 5% for 2024. Additionally, authorities have implemented interest rate cuts to stimulate bank lending and expedited central government spending to bolster infrastructure investment.

Given this backdrop, investors can leverage the economy's solid momentum by considering buying fundamentally robust Chinese stocks poised to deliver substantial returns.

PDD Holdings Inc. (PDD)

PDD Holdings Inc. (PDD), the e-commerce operator behind Pinduoduo and Temu, has rocked both the Chinese and U.S. e-commerce sectors with outstanding earnings and upbeat long-term prospects. The company primarily focuses on bringing businesses and people into the digital economy. Its market capitalization stands at $164.93 billion.

For the fourth quarter that ended December 31, 2023, PDD’s total revenues increased 123.2% year-over-year to $12.52 billion. Its non-GAAP operating profit rose 146% from the year-ago value to $3.46 billion. Its non-GAAP net income attributable to ordinary shareholders and non-GAAP earnings per ADS were $3.59 billion and $2.40, up 110.4% and 71.7% year-over-year, respectively.

Furthermore, cash inflows from operating activities for the quarter came in at $5.20 billion, an increase of 38.9% from the prior year’s quarter, primarily due to the surge in net income. Such financial prowess solidifies the company’s position in the market and sets a high bar for competitors.

Lei Chen, co-CEO of PDD, hailed 2023 as a “pivotal chapter,” attributing Pinduoduo's resilience in a sluggish Chinese economy and Temu’s burgeoning popularity in the U.S. to the company's strategic prowess. As Pinduoduo's affordable offerings resonate with value-conscious consumers amid economic uncertainties, the company's trajectory is becoming even more compelling.

Looking ahead, analysts expect PDD’s revenue to increase 97.8% year-over-year to $10.54 billion for the first quarter ended March 2024, and its EPS is expected to grow 47.8% year-over-year to $1.45. Moreover, the company has an impressive earnings surprise history as it surpassed consensus revenue and EPS estimates in all four trailing quarters.

Furthermore, for the fiscal year 2024, Street expects PDD’s revenue and EPS to increase 49.4% and 30.9% from the prior year to $51.37 billion and $8.45, respectively.

Baidu, Inc. (BIDU)

Baidu, Inc. (BIDU), a Chinese tech company specializing in Internet-related services, products, and artificial intelligence (AI), recently unveiled an array of cutting-edge AI models and toolkits. These advancements democratize AI development, empowering individuals of all skill levels to create transformative applications, a move poised to elevate BIDU's standing in the AI arena significantly.

One standout is ERNIE, BIDU's flagship AI model, renowned for its versatility across various applications. ERNIE Bot, a conversational AI bot built on this framework, has swiftly garnered 200 million users since its launch in March 2023, handling a staggering 200 million daily queries.

Baidu Comate, another innovation powered by ERNIE, has catalyzed innovation by contributing to 27% of new code within BIDU, serving over 10,000 companies, with an impressive 46% adoption rate. Additionally, Qianfan, BIDU AI Cloud's FM platform, has enabled over 85,000 enterprises to develop 190,000 AI applications, showcasing BIDU's wide-reaching impact in the industry.

BIDU's financial performance mirrors these technological triumphs. In the fourth quarter of fiscal 2023, the company’s revenue grew 5.7% year-over-year to $4.92 billion. Its non-GAAP operating income surged by 8.9% from the year-ago value to $996 million, and its non-GAAP net income experienced a 44.4% year-over-year growth, reaching $1.09 billion.

Moreover, BIDU’s adjusted EBITDA showed significant improvement, increasing by 10% year-over-year to $1.28 billion.

Analysts foresee a promising growth trajectory for BIDU. Wall Street expects the company’s revenue to increase 6.3% year-over-year to $19.87 billion for the fiscal year ending in December 2024, accompanied by an estimated EPS of $10.74. Furthermore, BIDU surpassed consensus EPS estimates in all four trailing quarters, which is remarkable.

For the fiscal year 2025, the company’s revenue and EPS are anticipated to grow 7.9% and 10% year-over-year to $21.43 billion and $11.82, respectively. These optimistic projections underscore BIDU's unwavering commitment to innovation and its potential for sustained success in the dynamic landscape of AI technology.

Baozun Inc. (BZUN)

Baozun Inc. (BZUN), a premier brand e-commerce solution provider and digital commerce enabler, has fortified omnichannel capabilities and expanded core product categories through high-level engagements. Collaborating with brand partners and key marketplaces, the company has crafted effective go-to-market strategies, acquiring over 50 new brands in 2023.

Implementing a new store concept transitioning from large-scale to boutique formats, BZUN enhances brand DNA and fosters immersive brand experiences beyond mere commercial transactions. In-store pop-ups and campaigns are further amplifying social engagement, enriching consumer experiences.

In addition, in January, the company authorized a new share repurchase program, allowing the repurchase of up to $20 million worth of outstanding American depositary shares (ADSs) and Class A ordinary shares over the ensuing 12 months, starting January 24, 2024.

During the fiscal 2023 fourth-quarter earnings call, BZUN unveiled the inauguration of 10 new stores, including a flagship in Guangzhou, alongside expansions in Shantou, Shenzhen, and Beijing. Notably, square meter efficiency surged 50% for newly opened stores, with existing ones witnessing a remarkable 19% spike in same-store sales.

For the fourth quarter that ended December 31, 2023, BZUN reported an 8.9% year-over-year surge in total net revenues to $391.61 million, marking a significant turnaround from the previous year's loss. The company posted an adjusted operating profit for E-Commerce of $16.60 million for the quarter.

Mr. Vincent Qiu, BZUN’s Chairman and CEO, said, “In 2023, we started our transformation journey, expanding into three business divisions. Throughout the year, we solidified our leadership in the digital commerce industry, and further enhanced operational efficiency. I am grateful for the resilience and adaptability demonstrated by the Baozun team amid the ever-changing market environment.”

“Looking ahead to 2024, despite macro uncertainties, we remain committed to sustainably executing our plans with diligence and patience. The improved health of our business fundamentals gives us confidence to enhance value proposition to our brand partners,” he added.

For the fiscal year ending December 2024, Street expects BZUN’s revenue to increase 3.2% year-over-year to $1.26 billion. Similarly, the company’s revenue for the fiscal year 2025 is estimated to grow 6.9% from the previous year to $1.35 billion.

Bottom Line

While U.S. stocks may offer stability in tumultuous times, diversifying into international stocks can yield significant benefits, especially in terms of portfolio risk management and solid returns. Financial advisors often advocate for familiarity with American companies, yet venturing into global markets, particularly China, can broaden investment horizons and unlock new opportunities.

This is because China is poised to reclaim its global significance, as per Bloomberg's analysis of IMF forecasts. Projections suggest China's economic resurgence will surpass the combined growth of the G-7 nations. China is anticipated to lead with an estimated 21% contribution to global economic growth from now through 2029.

In comparison, the G-7 nations are expected to contribute approximately 20%, while the U.S. falls short with 12%, nearly half of China's projected growth. Remarkably, 75% of global growth will originate from only 20 countries, with China, India, the U.S., and Indonesia accounting for over half of this expansion.

Investors can capitalize on this dynamic economic landscape by exploring fundamentally strong Chinese stocks poised for substantial returns. Among these, PDD, with its meteoric rise in e-commerce, BIDU, leveraging cutting-edge AI innovations, and BZUN, a leading brand e-commerce solution provider, stand out.

These stocks’ impressive financial performances, strategic initiatives, and optimistic growth projections make them compelling investment options for investors seeking exposure to the thriving Chinese economy.

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.

Rivian (RIVN) vs. Tesla (TSLA): Can the EV Underdog Match the Giant's Success Story?

Posted on by The INO.com Team

Tesla, Inc. (TSLA) accomplished what many believed to be an impossible feat by establishing itself as a prominent electric vehicle (EV) manufacturer entirely from scratch. This achievement positioned Tesla to challenge and compete with major players in the automotive industry.

Rivian Automotive, Inc. (RIVN) shares similar aspirations, aspiring to emulate TSLA’s success. However, investors eagerly anticipating Rivian’s potential to replicate Tesla’s trajectory must closely monitor whether Rivian can address significant challenges in 2024.

Establishing an automobile manufacturing company is particularly challenging due to its capital-intensive nature. This endeavor involves building extensive manufacturing facilities, procuring expensive materials, hiring a substantial workforce, and investing significant time in coordination.

Moreover, navigating regulatory requirements, especially concerning vehicle safety, adds another layer of complexity, as obtaining approvals for road-ready automobiles necessitates stringent compliance measures. Thus, the process of building an automobile manufacturer is not only laborious but also requires substantial financial resources and regulatory adherence.

It took TSLA several years before it could generate consistent profits, a milestone the company reached in 2020. Starting in 2014, Tesla experienced a notable increase in net losses, accompanied by a rise in research and development (R&D) expenses. The electric carmaker, founded in 2003, finally posted its first full year of net income of $721 million in 2020, in contrast to prior losses.

However, during this period, Tesla didn’t face significant competition in the EV market, making it the primary choice for consumers interested in EVs. This relatively unchallenged position allowed Tesla to focus on building its brand and technology without immediate pressure from its dominant peers.

In contrast, RIVN faces a more daunting challenge as it strives to achieve profitability in a market with more players and a competitive landscape different from TSLA’s early years. This means that Rivan’s journey to success is not only challenging and costly but also happening in a market environment that demands strategic adaptation and innovation.

Is Rivian on the Path to Becoming the Next Tesla?

RIVN has made significant strides toward establishing itself as a major player in the EV industry, boasting infrastructure capable of supporting its planned 2024 production target of approximately 57,000 vehicles. For the full year 2023, the company produced 57,232 vehicles and delivered 50,122, surpassing the management’s 2023 production guidance of 54,000 vehicles.

As Rivian’s production and manufacturing progress improved throughout the last year, it showcased its capacity as a legitimate automaker. Moreover, on March 7, 2024, the auto company introduced R2, R3, and R3X product lines built on its new midsize platform.

The launch of new products, including R2 and R3, designed to embody the company’s performance, capability, usability, and affordability, can bring it an expanded market reach, drive higher sales volumes, and offer a competitive edge. Rivian’s design and engineering teams are highly focused on innovating not just the product features but also its approach to manufacturing to achieve substantially reduced costs.

Despite this, Rivian still lags far behind Tesla in a critical investor metric: profitability. Rivian is far from achieving profitability, with its losses significantly exceeding those incurred by Tesla during its initial stages of developing its EV business.

In 2023, while generating substantial revenue of $4.40 billion, Rivian incurred a staggering cost of sales totaling $6.40 billion. This means that Rivian incurred losses for every EV it sold, highlighting an unsustainable business model that requires addressing for long-term viability.

The company reported a net loss of $1.52 billion for the fourth quarter that ended December 31, 2023. The last quarter of 2023 reflected a greater discrepancy between production and deliveries compared to previous quarters and recorded a 10% fall in deliveries.

Also, the company has been burning through cash to ramp up production of its product lines. As of December 31, 2023, RIVN’s cash and cash equivalents stood at $7.86 billion, compared to $11.57 billion as of December 31, 2022. Its cash burn comes at a time when demand for EVs has slowed, with Tesla CEO Elon Musk warning that high interest rates are making cars unaffordable.

“We firmly believe in the full electrification of the automotive industry, but recognize in the short-term, the challenging macro-economic condition,” said RJ Scaringe, Founder and CEO of Rivian.

Elon Musk further made remarks about RIVN’s product design, acknowledging its merit but emphasizing the company’s challenge of scaling up production while maintaining positive cash flow. He pointed out that his rival could face the risk of bankruptcy within six quarters unless significant cost reductions are implemented.

Musk emphasized the urgent need for massive cost-cutting measures to ensure the RIVN’s survival in the competitive automotive market.

Challenges Lie Ahead for Rivian in 2024

RIVN’s outlook for 2024 is influenced by economic and geopolitical uncertainties, particularly the impact of exceptionally high-interest rates. The company plans to maintain its production target at 57,000 vehicles, consistent with 2023 levels. For the full year, Rivian anticipates significant capital expenditures of $1.75 billion and an adjusted EBITDA loss of $2.70 billion.

Amid mounting losses and an increasingly competitive EV market, RIVN announced in February that it would lay off 10% of its salaried workers. Previously, on two different occasions, the EV maker laid off about 6% of its workforce in an effort to reduce its losses.

“Our business is facing a challenging macroeconomic environment — including historically high interest rates and geopolitical uncertainty — and we need to make purposeful changes now to ensure our promising future,” chief executive RJ Scaringe wrote in an email to employees.

Rivian’s cash burn is one of the primary challenges for the company. Its cash burn is unsustainable as it expands R2 and R3 capacity, prompting management to announce a reduction in capital expenditures, specifically in Georgia. Last month, Rivian announced that it would be pausing the construction of its $5 billion manufacturing plant in Georgia to cut down costs.

CEO RJ Scaringe said that production of the R2 will begin at RIVN’s existing plant in Normal, Illinois. While presented as a cost-saving initiative, the decision raises concerns regarding the company's ability to manage its operations effectively.

Bottom Line

RIVN has made significant strides in establishing itself as a major player in the EV industry. The company’s infrastructure supports its ambitious production targets, and the introduction of new product lines like R2 and R3 showcases its commitment to innovation and market expansion. These moves can potentially drive higher sales volumes and enhance its competitive edge.

However, Rivian faces substantial challenges, particularly in achieving profitability. Despite generating decent revenue, the company’s cost of sales has resulted in significant losses, raising questions about the sustainability of its business model. The company’s cash burn is a pressing concern.

While Rivian has shown promise in its technological advancements and product offerings, its path to profitability and long-term viability hinges on its ability to address its cost structure, manage cash flow effectively, and navigate a challenging macroeconomic environment in the EV industry, including high interest rates, supply chain disruptions, and intensified competition.

So, it’s crucial to emphasize that investors should focus on Rivian’s execution toward profitability in 2024. While a shift from losses to profits is significant, consistent progress toward that turning point will determine Rivian’s potential to match Tesla’s success. Investors should also closely monitor Rivian’s efforts to improve operational efficiency and manage costs effectively.

If Rivian can demonstrate steady progress toward profitability, there’s still a chance it could match its rival Tesla’s some of the success achieved. However, given its massive losses, alarming cash burn, and an uncertain outlook, it could be wise to approach RIVN with caution for now.