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Tesla, Inc. (TSLA) aims to sell 20 million EVs a year by the end of this decade. However, the company faces steep competition from other manufacturers as they launch their battery electric vehicles (BEVs) and invest in ramping up their EV manufacturing capabilities.
To ward off competition and economic uncertainty, TSLA has cut the prices of its vehicles this year. Recently, the company cut the prices for Model 3, Model S, and Model X in the United States. In China, TSLA reduced Model S and X prices. The company has been focusing on boosting volume growth by lowering prices, but it is affecting its gross margins.
Due to price cuts, discounts, and tax credits, the company reported delivering a record-setting 466,140 vehicles during the second quarter. However, Wall Street analysts have cut TSLA’s third-quarter delivery estimates by 2%. They expect the EV maker to deliver 462,000 vehicles during the third quarter.
TSLA CEO Elon Musk had said during the second-quarter earnings call that although it was sticking to its target of producing 1.8 million vehicles, third-quarter production would take a hit due to essential factory upgrades that would take place during the quarter.
Some analysts have forecasted that delivery numbers will be less than 460,000 units. Deutsche Bank analyst Emmanuel Rosner lowered his delivery expectations to 440,000, down from his previous forecast of 455,000. Baird analyst Ben Kallo has projected that the third quarter deliveries would be 439,200 units.
Rosner said, “Tesla’s 3Q 2023 deliveries and production could miss Street expectations, but more important, we see meaningful downside risk to 2024 consensus due to limited volume growth next year.” The analyst has cut its target price on TSLA to $285 from $300.
Amid the confusion over the third-quarter deliveries and production figures, many analysts are worried that TSLA’s production next year will be lower than the previous estimates. Deutsche Bank believes the EV maker’s earnings could face headwinds in 2024. In an investor meeting, they said that TSLA suggested that it was not looking to ramp up production at its Austin and Berlin factories to 10,000 units per week next year.
The bank has forecasted that TSLA will produce 2.1 million units next year, down from the previous consensus estimate of 2.3 million units. They also reduced the price target of TSLA to $285 per share from $300.
Moreover, TSLA is currently trading at an expensive valuation. In terms of forward EV/EBITDA, TSLA’s 42.58x is 364% higher than the 9.18x industry average. Likewise, its 7.47x forward EV/Sales is 564.3% higher than the 1.12x industry average. Its 70.97x forward non-GAAP P/E is 410.1% higher than the 13.91x industry average.
Given the uncertainty surrounding TSLA’s near-term prospects, it could be wise to buy fundamentally strong auto stocks Ferrari N.V. (RACE), General Motors Company (GM), Li Auto Inc. (LI), and NIO Inc. (NIO).
Let’s discuss these stocks in detail.
Ferrari N.V. (RACE)
Headquartered in Maranello, Italy, RACE designs, designs, produces, and sells luxury sports cars worldwide. The company offers a range, special series, Icona, and supercars; limited edition supercars and one-off cars; and track cars. It also provides racing cars, spare parts and engines, and after-sales, repair, maintenance, and restoration services for cars.
RACE’s revenue grew at a CAGR of 18.2% over the past three years. Its EBITDA grew at a CAGR of 24.2% over the past three years. In addition, its EPS grew at a CAGR of 29.1% in the same time frame.
In terms of the trailing-12-month net income margin, RACE’s 19.46% is 342.8% higher than the 4.40% industry average. Likewise, its 30.86% trailing-12-month EBITDA margin is 180.3% higher than the industry average of 11.01%. Furthermore, the stock’s 6.73% trailing-12-month Capex/Sales is 109.4% higher than the industry average of 3.22%.
RACE’s net revenues for the second quarter ended June 30, 2023, increased 14.2% year-over-year to €1.47 billion ($1.55 billion). Its adjusted EBITDA rose 32.1% over the prior-year quarter to €589 million ($620.54 million). The company’s adjusted EBIT increased 35.3% year-over-year to €437 million ($460.40 million).
Its adjusted net profit rose 33.1% year-over-year to €334 million ($351.89 million). Also, its adjusted EPS came in at €1.83, representing an increase of 34.6% year-over-year.
Analysts expect RACE’s revenue for the quarter ending September 30, 2023, to increase 25.8% year-over-year to $1.55 billion. Its EPS for the fiscal period ending March 2024 is expected to increase 8.8% year-over-year to $1.94. It surpassed the consensus EPS estimates in each of the trailing four quarters.
General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provides software-enabled services and subscriptions worldwide. The company operates through GM North America, GM International, Cruise, and GM Financial segments.
On August 16, 2023, GM invested $60 million in a Series B financing round of AI and battery materials innovator Mitra Chem. The company’s AI-powered platform and advanced research and development facility in Mountain View, California, will help accelerate GM’s commercialization of affordable EV batteries.
Gil Golan, GM vice president, Technology Acceleration and Commercialization, said, “This is a strategic investment that will further help reinforce GM’s efforts in EV efforts in EV batteries, accelerate our work on affordable battery chemistries like LMFP, and support our efforts to build a U.S.-focused battery supply chain.
On April 25, 2023, GM and Samsung SDI announced that they plan to invest more than $3 billion to build a new battery cell manufacturing plant in the United States, slated to start operations in 2026.
GM Chair and CEO Mary Barra said, “GM’s supply chain strategy for EVs is focused on scalability, resiliency, sustainability, and cost-competitiveness. Our new relationship with Samsung SDI will help us achieve all these objectives. The cells we will build together will help us scale our EV capacity in North America well beyond 1 million units annually.”
GM’s revenue grew at a CAGR of 13.6% over the past three years. Its EBIT grew at a CAGR of 46.6% over the past three years. In addition, its net income grew at a CAGR of 82.4% in the same time frame.
In terms of the trailing-12-month levered FCF margin, GM’s 7.27% is 42.3% higher than the 5.11% industry average. Likewise, its 15% trailing-12-month Return on Common Equity is 34.2% higher than the industry average of 11.17%. Furthermore, the stock’s 5.95% trailing-12-month Capex/Sales is 84.9% higher than the industry average of 3.22%.
For the second quarter ended June 30, 2023, GM’s total revenues increased 25.1% year-over-year to $44.75 billion. Its net income attributable to stockholders rose 51.7% year-over-year to $2.57 billion. The company’s adjusted EBIT rose 38% year-over-year to $3.23 billion. Also, its adjusted EPS came in at $1.91, representing a 67.5% increase year-over-year.
For the quarter ending September 30, 2023, GM’s revenue is expected to increase 3.9% year-over-year to $43.52 billion. Its EPS for fiscal 2023 is expected to increase 1.5% year-over-year to $7.70. It surpassed the consensus EPS estimates in each of the trailing four quarters.
Li Auto Inc. (LI)
Headquartered in Beijing, the People’s Republic of China, LI designs, develops, manufactures, and sells new energy vehicles in the People’s Republic of China. The company provides Li ONE and Li L series smart electric vehicles. It also offers sales and after-sales management, technology development, corporate management services, as well as purchases of manufacturing equipment.
LI’s revenue grew at a CAGR of 263.4% over the past three years. Its total assets grew at a CAGR of 115.8% over the past three years.
In terms of the trailing-12-month levered FCF margin, LI’s 23.51% is 360.2% higher than the 5.11% industry average. Likewise, the stock’s 7.69% trailing-12-month Capex/Sales is 139.2% higher than the industry average of 3.22%.
LI’s total revenues for the second quarter ended June 30, 2023, increased 228.1% year-over-year to RMB28.65 billion ($3.91 billion). Its gross profit rose 232% over the prior-year quarter to RMB6.24 billion ($853.63 million). The company’s non-GAAP income from operations came in at RMB2.04 billion ($279.07 million), compared to a non-GAAP loss from operations of RMB520.80 million ($71.25 million).
Also, its non-GAAP net income stood at RMB2.73 billion ($373.46 million), compared to a non-GAAP net loss of RMB183.40 million ($25.09 million).
Street expects LI’s revenue for the quarter ending September 30, 2023, to increase 245.3% year-over-year to $4.64 billion. Its EPS for the quarter ending December 31, 2023, is expected to increase 151.7% year-over-year to $0.34. It surpassed the Street EPS estimates in three of the trailing four quarters.
NIO Inc. (NIO)
Based in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles in China. It offers five- and six-seater electric SUVs and smart electric sedans. The company also offers power solutions, power chargers and destination chargers, power mobile, power map, and One Click for power valet service.
On July 12, 2023, NIO announced that it closed the $738.50 million strategic equity investment from CYVN Investments RSC Ltd, an affiliate of CYVN Holdings L.L.C., an investment vehicle majority owned by the Abu Dhabi Government with a focus on advanced and smart mobility. The NIO and CYVN entities would collaborate strategically in international business and technology cooperation.
NIO’s revenue grew at a CAGR of 70.6% over the past three years. Its total assets grew at a CAGR of 55.7% over the past three years.
In terms of the trailing-12-month Capex/Sales, NIO’s 17.62% is 447.9% higher than the 3.22% industry average.
For the second quarter ended June 30, 2023, NIO’s total revenues fell 14.8% year-over-year to RMB8.77 billion ($1.20 billion). Its adjusted loss from operations widened 132% year-over-year to RMB5.46 billion ($746.93 million). In addition, its adjusted net loss attributable to ordinary shareholders of NIO widened 140.2% year-over-year to RMB5.45 billion ($745.56 million).
Furthermore, its adjusted net loss per share attributable to ordinary shareholders widened 144.8% year-over-year to RMB3.28.
For the quarter ending September 30, 2023, NIO’s revenue is expected to increase 47.2% year-over-year to $2.66 billion.

McDonald’s Corporation (MCD) finds itself in hot water again as a new civil case was filed on September 14 at the San Francisco Superior Court. An elderly woman named Mable Childress alleged that she suffered severe burns on her stomach, groin, and leg after she spilled hot coffee on herself while drinking due to an improperly attached lid.
The plaintiff also alleged in the lawsuit that the restaurant employees refused to help her. According to Childress’ lawyer, they “didn’t give her the time of day.” The lawsuit alleged that the plaintiff was suffering from physical pains, emotional distress, and other damages. Also, it alleged that the restaurant’s negligence was a “substantial factor” for Childress’ injuries.
Peter Ou, the owner of the MCD drive-thru in San Francisco denied that the store manager and employees refused to help her. He said, “We take every customer complaint seriously and when Childress reported her experience to us later that day, our employees and management team spoke to her within a few minutes and offered assistance.”
“My restaurants have strict food safety protocols in place, including training crew to ensure lids on hot beverages are secure,” he added. He further stated that the company was reviewing this new legal claim in detail.
This latest lawsuit over spilled coffee might remind people of the much-talked-about hot coffee episode nearly thirty years ago where plaintiff Stella Liebeck suffered third-degree burns in her pelvic region when she accidentally spilled coffee on her lap while purchasing at an MCD restaurant. Liebeck had to undergo skin grafting and had to follow it up with two years of medical treatment.
Liebeck wanted $20,000 from MCD to settle the case, but the company refused to pay that amount. Instead, the company offered her $800, which was insufficient to cover her medical expenses. A suit was filed at the U.S. District Court for the District of New Mexico, accusing the company of gross negligence.
The jurors found that MCD’s coffee was 30 to 40 degrees hotter than what was served by other restaurants. The jurors also found that many people had gotten burnt before due to MCD’s hot coffee, but the company did not change its policy of keeping coffee between 180 – 190 degrees Fahrenheit.
According to a jury’s verdict in 1994, the victim was granted $200,000 in compensatory damages for her pain, suffering, and medical costs, but it was later reduced to $160,000 by the trial judge as they found her 20 percent responsible. She was also paid $2.7 million in punitive damages, which was reduced to $480,000. Later, the two warring parties settled for a confidential amount.
Earlier this year, MCD faced a lawsuit after a toddler received second-degree burns from a scalding hot chicken nugget dispensed at a Tamarac, Florida drive-thru restaurant. A Broward County jury found that MCD and franchise owner Upchurch Foods failed to warn or provide reasonable instructions over the harm that the hot McNuggets could possibly do.
The jury awarded the Florida family $800,000 for pain and suffering, disfigurement, mental anguish, inconvenience, and loss of capacity to enjoy life. Out of the $800,000, the jury determined that $400,000 is for the injuries sustained in the past and the rest for the damages that will be sustained in the future.
Going by the company’s history of dealing with similar lawsuits, I don’t see the recent ‘hot coffee’ lawsuit to have a material impact on MCD’s financials. Instead, here’s what could influence MCD’s performance in the upcoming months:
Robust Financials
MCD’s revenues from franchised restaurants increased 11.5% year-over-year to $3.93 billion for the second quarter ended June 30, 2023. Its total revenues increased 13.6% year-over-year to $6.50 billion. The company’s non-GAAP net income increased 22.7% year-over-year to $2.32 billion, and its non-GAAP EPS rose 24.3% year-over-year to $3.17.
Favorable Analyst Estimates
Analysts expect MCD’s EPS for fiscal 2023 and 2024 to increase 14.7% and 7.5% year-over-year to $11.59 and $12.45, respectively. Its fiscal 2023 and 2024 revenues are expected to increase 9.7% and 6.8% year-over-year to $25.42 billion and $27.14 billion, respectively.
High Profitability
In terms of the trailing-12-month gross profit margin, MCD’s 57.45% is 62.1% higher than the 35.45% industry average. Likewise, its 53.79% trailing-12-month EBITDA margin is 388.6% higher than the industry average of 11.01%. Furthermore, the stock’s 8.64% trailing-12-month Capex/Sales is 168.6% higher than the industry average of 3.22%.
Stretched Valuation
In terms of forward EV/EBITDA, MCD’s 17.80x is 91.6% higher than the 9.29x industry average. Likewise, its 9.58x forward EV/Sales is 749% higher than the 1.13x industry average. Its 23.28x forward non-GAAP P/E is 64.6% higher than the 14.15x industry average.
Solid Historical Growth
MCD’s EBIT grew at a CAGR of 15% over the past three years. Its EBITDA grew at a CAGR of 13.2% over the past three years. In addition, its EPS grew at a CAGR of 19.7% in the same time frame.
Bottom Line
MCD is no stranger to lawsuits as it had to pay $800,000 earlier this year due to the McNugget burn lawsuit. Moreover, this is not the first time MCD has faced a lawsuit over hot coffee. In the earlier cases, the victims had received third or second-degree burns, which are considered severe.
However, according to the lawyer of the current hot coffee spill case, the plaintiff wants her medical expenses to be paid for and is not looking for a payday. MCD is highly likely to get fined and will likely be asked by a jury to compensate the victim. This is unlikely to have any effect on MCD’s business prospects.
The company has bold expansion plans, likely to fuel its growth in the upcoming years. Therefore, despite its stretched valuation, it could be wise to buy the stock now, given its high profitability, robust financials, and solid historical growth.

In the aftermath of three regional banking collapses earlier this year, the U.S. banking sector has wrestled amid dwindling deposits with customers seeking higher yields, escalated deposit costs, low loan growth, and shrinking profit margins. However, the industry showcased a degree of stability.
This semblance of recovery emerged as the Federal Reserve raised the benchmark interest rates to the peak in over two decades, a trend anticipated to reverse in the upcoming year. Typically, increased interest rates produce gains for banks through elevated net interest income.
Nevertheless, the U.S. banking sector persists in hemorrhaging deposits. Deposits have declined for the fifth consecutive quarter ending June 30, 2023. During the second quarter alone, FDIC-insured banks witnessed a nearly $100 billion drop in deposits.
Furthermore, the industry’s net income saw a $9 billion reduction to $70.80 billion in the second quarter, and the average net interest margin shrank by three basis points to 3.28%.
The perceived stability was also questioned merely two weeks after Moody’s decided to downgrade the credit ratings of 10 mid-sized and smaller banks. Adding to the unease, bond rating agency Fitch has issued warnings, and subsequently, S&P Global Ratings cut the ratings of five American banks and put an extra two on alert, given the increasingly complex high-interest rate business climate.
Such a succession of downgrades from credit rating agencies could make obtaining loans more complex and costly for borrowers. Shares of the nation’s second-largest bank, Bank of America Corporation (BAC), suffered along with other bank stocks after Fitch’s warnings.
The Current Scenario
BAC has reported an increased number of its customers struggling with credit card payments, acknowledging that its credit card sector’s performance lags behind expectations. Rising charge-off rates delineate this underperformance.
In the second quarter of 2023, the bank saw consumer net charge-offs hit $869 million, up from $571 million from the prior year quarter. Concurrently, provisions for losses remained steady at $1.1 billion.
A surge in the net charge-off rate and the delinquency rate of BAC’s BA Master Credit Card Trust II were noted in August. Nevertheless, these rates are still below those recorded before 2019.
The net charge-off rate for the trust was 2.13% in August, up from 1.89% in July but significantly less than the 2.49% registered in August 2019. Likewise, BAC’s delinquency rate escalated to 1.26% in August, slightly higher than July’s figure of 1.24% but keeping under the 2019 benchmark of 1.57%. While these elevated rates might indicate stable consumer conditions, some may perceive them more pessimistically.
BAC’s principal receivables outstanding were valued at $13.8 billion in August, suggesting a nominal shift in lending activity relative to the preceding month. Until recently, consumers were predominantly focused on clearing their credit card and other loan debts. However, current macroeconomic instabilities might put this trend into reverse.
The Real Picture
U.S. consumers have demonstrated robust financial activity throughout this year, with persistent spending expected to catalyze a third-quarter GDP growth of up to 3.5%. Harnessing the ability of credit cards and buy-now-pay-later (BNPL) services, consumers continue to shop. Despite various cost-saving efforts, current consumption patterns still surpass the average consumer’s affordability.
Bank charge-offs and write-offs maintained a steady level until a shift occurred in July when the country’s six major banking institutions disclosed the highest loan loss rates since the onset of the pandemic. Credit card repayments were disproportionately affected. Credit card loans constitute nearly 25% of BAC’s total charge-offs.
These heightened charge-off rates signal potential challenges as more consumers default on their monthly payments. This trend is emerging in a financial landscape where consumers grapple with escalating costs and interest rates. Concurrently, wage stagnation lags behind inflation, and supplemental benefits have been reduced.
Current consumer spending reflects necessity instead of robustness. Consumers are compelled to spend more despite receiving marginally lower goods or services than before. Instances of arrears are recorded across multiple debt avenues, including credit cards, auto loans, mortgages, and student loans. The absence of immediate full payment has fostered a propensity toward overspending.
Unsustainable spending patterns may cause a downturn in consumer spending by early 2024, fueled by mounting credit card debts and dwindling pandemic-era surplus savings. The second quarter witnessed a 4.6% spike in consumer credit card debt, setting a record $1.03 trillion, as opposed to $986 billion in the first quarter.
As the burden of irrecoverable debt continues to strain lenders’ financial stability, net charge-offs for BAC will keep rising.
Investors might want to consider the following additional factors:
Recent Developments
BAC has been imposed with staggering financial penalties in the recent past, totaling $250 million, following a series of dubious practices that include overdraft fee manipulation, withholding credit card rewards, and the initiation of unauthorized accounts. While this may have short-term impacts on its financial performance for the upcoming quarter, it is not expected to cause substantial overall financial implications.
Furthermore, the bank ended the second quarter incurring over $100 billion in paper losses due to its aggressive investment in U.S. government bonds. This figure significantly surpasses the unrealized bond market losses of BAC’s competitors.
BAC’s investments in technology are evidently paying off. Its digitization efforts have successfully translated into an unprecedented increase in Zelle transactions by more than double since June 2020, along with a digital banking adoption rate of 74% among households. Engaging customers via online and mobile transactions is significantly less costly for the bank than traditional in-person interactions.
Over the past three years, the financial institution has conscientiously refined and modernized its financial centers nationwide. This integral enhancement enables the bank to bolster its digital services and effectively cross-market various products.
By 2026, it envisages expanding its financial center network into nine emergent markets. In conclusion, its investments in technology are expected to bolster the bank’s operating efficiency.
On August 29, BAC declared the introduction of its highly acclaimed Global Digital Disbursements platform to commercial clients who hold deposit accounts at the bank’s Canadian branch.
With this innovative solution, users can process an array of B2C payments and C2B collections using the client’s email address or mobile phone number as identifiers. This feature presents a cost-effective and user-friendly alternative for companies seeking to replace cash or cheque payments.
Robust Financials
For the second quarter ended June 30, 2023, BAC’s total revenue, net of interest expense, increased 11.1% year-over-year to $25.20 billion. Its net income applicable to common stockholders rose 19.7% year-over-year to $7.10 billion.
Additionally, its EPS came in at $0.88, representing an increase of 20.5% year-over-year. Also, its net interest income rose 13.8% over the prior-year quarter to $14.16 billion. In addition, its CET1 ratio came in at 11.6%, compared to 10.5% in the year-ago quarter.
Robust Growth
Over the past three and five years, BAC’s revenue grew at 8% and 2.5% CAGRs, respectively. Its net interest income for the same periods grew at CAGRs of 6.4% and 4.3%, respectively.
Net income and EPS grew at 13.6% and 18.8% over the past three years, whereas, over the past five years, these grew at 6.7% and 12.8%, respectively. The company’s total assets grew at 4.4% and 6.4% CAGRs over the past three and five years, respectively.
Mixed Valuation
In terms of forward non-GAAP P/E, BAC’s 8.67x is 4.4% lower than the 9.07x industry average. Likewise, its 0.87x forward Price/Book is 10.4% lower than the 0.97x industry average.
On the other hand, in terms of forward Price/Sales, BAC’s 2.32x is 2.1% higher than the 2.27x industry average.
Mixed Profitability
BAC’s trailing-12-month Return on Common Equity (ROCE) of 11.41% is 1% higher than the 11.30% industry average, whereas its trailing-12-month Return on Total Assets (ROTA) of 0.95% is 16.9% lower than the 1.15% industry average.
The stock’s trailing-12-month cash from operations of $44.64 billion is significantly higher than the industry average of $137.73 million.
Growing Institutional Ownership
BAC’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their BAC stock holdings.
Institutions hold roughly 69.7% of BAC shares. Of the 2,816 institutional holders, 1,226 have increased their positions in the stock. Moreover, 139 institutions have taken new positions (42,890,796 shares).
Price Performance
The stock has declined 13.5% year-to-date to close the last trading session at $28.65. However, over the past year, it lost 17.4%, whereas over the past six months, it gained 3%.
Shares of BAC have been making lower highs for the past 12 months, but they have not made a low since March. Its share price displayed upward and downward movement multiple times from January to September 2023. The overall value so far declined compared to the beginning of the year.
Moreover, BAC’s stock is trading below its 100-day and 200-day moving averages of $29.19 and $30.7, respectively, indicating a downtrend.
However, Wall Street analysts expect the stock to reach $35.13 in the next 12 months, indicating a potential upside of 22.6%. The price target ranges from a low of $27 to a high of $49.
Mixed Analyst Estimates
For the fiscal year ending December 2023, analysts expect both BAC’s revenue and EPS to increase 6.3% year-over-year to $100.91 billion and $3.39, respectively. Its revenue and EPS for fiscal 2024 are expected to decline 0.8% and 4.2% year-over-year to $100.13 billion and $3.25, respectively.
Moreover, for the quarter ending September 2023, its revenue is expected to surge 2.5% year-over-year to $25.12 billion, whereas its EPS is expected to decline marginally year-over-year to $0.80.
Bottom Line
The recent upturn in bank charge-offs marks a return to normalcy for the industry after an unprecedented period of low levels during the pandemic, attributed largely to decreased unemployment and substantial government financial relief initiatives.
However, this surge in 2023 introduces an anomaly in the banking sector. Several banking institutions have acquiesced under pressure, and financial experts caution that should unemployment rise above 7%, the industry could face significant complications.
Moreover, consumers will face the reinstatement of student debt payments throughout the latter half of the year, as the forbearance period concludes in October. This would force customers to navigate difficult choices regarding credit card and student debt payments, potentially causing a broader impact on delinquency rates nationwide.
Major banks maintain a positive front that there is little cause for concern moving forward. However, this optimism may rely heavily on steady unemployment rates around the 5% mark – a contingency for which plenty of banks have pre-prepared provisions. Yet, if unemployment rates deteriorate further, banks and consumers could encounter hardship during the latter half of 2023.
Despite the adversities presented, BAC continues to display a robust capacity for growth amidst a tumultuous climate. Notably, despite a downshift in revenues and net income for its Global Wealth and Investment Management unit during the second quarter, the bank still surpassed Wall Street’s top and bottom-line estimates.
Also, in the last reported quarter, when most finance firms recorded subdued Investment Banking business performance, BAC’s IB numbers were impressive. Its total IB fees of $1.21 billion increased 7.4% year-over-year, which boosted its global banking unit’s net income by 76% to $2.7 billion.
Nevertheless, considering the bank’s tepid price momentum, mixed analyst estimates, valuation, and profitability, it could be wise to wait for a better entry point in the stock.

A significant rebound in technology stocks was witnessed in 2023, with the Nasdaq Composite index soaring almost 31% year-to-date. This resurgence can be mainly attributed to the advancements in Artificial Intelligence (AI), notably the advent of large language model-based (LLM) chatbots, which acted as the primary catalyst. The burgeoning excitement around AI has led to the tech-rich Nasdaq surging about 32% during the first six months of the year, marking its best half-year performance since 1983.
The Santa Clara, California-based chipmaker NVIDIA Corporation (NVDA) plays an instrumental role in sparking the AI revolution. The company’s Graphic Processing Units (GPUs) are indispensable to Generative AI applications, powering their processing needs.
The company delivered outstanding earnings reports in the past quarters in a tremendous stride fueled by intense demand for AI chips. The surge in tech advancements and AI applications has driven NDVA’s market cap to top $1 trillion.
This notable achievement made it the sixth U.S. company to reach this significant milestone, besides being the inaugural chip manufacturer to enter the prestigious trillion-dollar club.
Owing to its powerful performance, NVDA reported an annual revenue of $4.28 billion in the fiscal year that ended January 27, 2013, which swelled to an impressive $26.97 billion in the fiscal year that ended January 29, 2023. Over the past decade, the chipmaker’s revenue spiraled more than six-fold.
NVDA’s executive, Manuvir Das, predicts a substantial growth opportunity in the AI space. He anticipates a total addressable market of $300 billion in chips and systems, complemented by $150 billion each in generative AI and omniverse enterprise software. This impressive $600 billion market potential in AI and the surging demand for transformative technologies will significantly propel NVDA’s sales and earnings growth.
The company registered remarkable revenue growth with a 22.7% CAGR over the past 10 years. Factors contributing to this rapid acceleration included dominance in PC gaming and professional visualization, along with a tenacious foothold in the data center sector. These sectors jointly accounted for 56% of the company’s total revenue in fiscal 2023.
However, during the same period, the contribution from gaming dwindled from 46% to 34%, and the contribution of the professional visualization segment declined from 8% to 6%.
Shares of NVDA commanded prominent attention from investors, evident from its extraordinary 200% year-to-date surge in stock price. Buoyed by the anticipation that the company will emerge as the chief benefactor of the burgeoning AI revolution, this surge is expected to persist.
Despite these bullish signs, NVDA’s co-founder and CEO Jensen Huang recently undertook an extensive sell-off of his shares in the company, triggering alarm bells for investors. According to Form 4 Filings submitted to the Securities and Exchange Commission (SEC), Mr. Huang unloaded 59,376 shares during trading sessions on September 12 and September 13, translating to a sale of $26.94 million worth of the company’s stock.
Notably, this was not the first instance of such an action by the CEO in recent weeks. Earlier in the month, Mr. Huang divested approximately $42.83 million worth of his shares after exercising his options, amounting to total sales of NVDA shares valued at $112 million thus far. Due to the ongoing correction, the stock has been down about 11% since the beginning of September 2023.
Should Investors Panic?
The CEO’s recently executed large-scale stock divestment has led some analysts to express concerns over NVDA’s stock price stability. The substantial shock to NVDA’s stock value, following his significant share sell-off in January 2022, fuels these apprehensions.
Investor wariness typically escalates when a company’s CEO offloads shares, a gesture often construed as a sign of dwindling confidence in the firm’s future trajectory.
Questions loom about whether AI stocks are experiencing an inflated bubble or are paving the way for a substantial and enduring bullish market trend. Given this speculation-riddled climate, it is plausible that the chip giant has emerged as a contested stock. With sky-rocketing performance expectations, investors are tethered to NVDA’s every move.
NVDA posted its second-quarter report on August 23, 2023, shattering projected earnings and sales figures. Analysts collectively predicted earnings per share of $2.07 and sales totaling $11.09 billion. NVDA outperformed these estimates, attaining $2.70 earnings per share and $13.51 billion in sales.
Adding shine to an already resplendent quarterly report, NVDA forecasted approximately $16 billion in revenue for the upcoming quarter, far outpacing average analyst predictions.
Despite these outstanding achievements, NVDA’s stock experienced a slight dip post-earnings disclosure.
While at first glance, Mr. Huang’s stock divestment may ring alarm bells, insight from NVDA’s latest DEF-14A filings detailing insider and institutional ownership stock holdings reveal otherwise. With these data, average shareholders should not be overly concerned about the CEO’s recent actions.
As evidenced in files provided to the SEC, reflecting holdings recorded on April 3, 2023, Mr. Huang held 86,878,193 shares of the company stock, attributing him a 3.5% ownership stake and qualifying him as the largest individual shareholder.
While his position is significant, heftier investment companies like Vanguard, BlackRock, and Fidelity Investments possess larger portions of 8.3%, 7.3%, and 5.6% of the company’s shares, respectively. The recent divestiture of stocks by Mr. Huang insignificantly makes up less than 1% of his overall holdings in the company.
Furthermore, it is pertinent to note that the stock sale originated from options awarded through his executive compensation plan; hence, his total ownership did not decline. These latest transactions only represent a minor fluctuation in an otherwise stable ownership portfolio.
Despite this month’s recent sale, the CEO remains significantly invested in the firm. His significant stake motivates him to adopt actions and strategies directly benefitting the wider shareholder community.
The decision of a CEO to dispose of company shares can be associated with various reasons. While it is vital to monitor insider activities, NVDA shareholders could also focus on the broader organizational performance rather than overanalyzing what is essentially a minor movement from Mr. Huang’s end.
Here are some other factors that could influence NVDA’s performance in the upcoming months:
Recent Developments
Understanding that strategic partnerships are key to their success, NVDA’s CEO is pursuing a cooperative collaboration strategy, gaining traction among tech leaders.
This month, NVDA joined forces with India’s Tata Group and Reliance Industries Limited to collaboratively build an AI computing infrastructure and platforms for producing AI solutions.
NVDA’s strategic move into India, the fastest growing economy, fortifies its global dominance in AI, deploying its design language to establish a benchmark enduring enough to make it challenging for rival chip manufacturers’ attempts to succeed.
Last month, NVDA announced a deal with Google Cloud, which would lead to a deeper integration of the two tech giants’ hardware and software products. Mr. Huang said, “We’re at an inflection point where accelerated computing and generative AI have come together to speed innovation at an unprecedented pace. Our expanded collaboration with Google Cloud will help developers accelerate their work with infrastructure, software, and services that supercharge energy efficiency and reduce costs.”
Moreover, the increased partnership of the U.S. with Vietnam, predominantly in fields like technology, semiconductors, and tourism, could serve as a boon for NVDA. The chip behemoth is partnering with Vietnamese firms FPT, Viettel, and VinGroup to bring AI to the cloud, automotive, and healthcare industries.
Mixed Financials
NVDA’s net revenue for the fiscal second quarter that ended July 30, 2023, increased 101.5% year-over-year to $13.51 billion. NVDA’s performance was driven by its data center business, which includes the A100 and H100 AI chips needed to build and run AI applications like ChatGPT.
The company reported $10.32 billion in data center revenue, up 171% year-over-year. Its non-GAAP operating income was $7.78 billion, up 486.9% year-over-year.
Its non-GAAP net income and non-GAAP net income per share stood at $6.74 million and $2.70, up 421.7% and 429.4% year-over-year, respectively. Also, its free cash flow grew 634% year-over-year to $6.05 billion.
However, for the same quarter, net cash used in investing activities stood at $447 million, compared to net cash provided by investing activities of $1.62 billion in the year-ago quarter. Also, net cash used in financing activities grew 35.5% year-over-year to $5.10 billion. Moreover, as of June 30, 2023, its total current liabilities stood at $10.33 billion, compared to $6.56 billion as of January 29, 2023.
Stretched Valuation
NVDA’s forward non-GAAP P/E and EV/Sales of 40.55x and 19.95x are 82.1% and 637.1% higher than the industry averages of 22.27x and 2.71x, respectively. Likewise, its forward EV/EBIT and Price/Sales multiples of 35.53 and 20.04 are 94.4% and 658.8% higher than the industry averages of 18.28 and 2.64, respectively.
Robust Growth
Over the past three and five years, NVDA’s revenue grew at 35.8% and 22.4% CAGRs. Its EBITDA, EBIT, and net income grew at 41%, 42.8%, and 45% over the past three years, whereas, over the past five years, these grew at 21.7%, 19.6%, and 19.1%, respectively. The company’s levered free cash flow has grown at 39.7% and 31.7% CAGRs over the past three and five years.
High Profitability
NVDA’s trailing-12-month net income margin of 31.60% is significantly higher than the industry average of 2.03%. Likewise, its trailing-12-month Return on Common Equity (ROCE) of 40.22% is significantly higher than the industry average of 1.01%. Its trailing-12-month cash from operations of $11.90 billion is significantly higher than the industry average of $60.08 million.
Growing Institutional Ownership
NVDA’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their NVDA stock holdings.
Institutions hold roughly 66.2% of NVDA shares. Of the 3,666 institutional holders, 1,562 have increased their positions in the stock. Moreover, 430 institutions have taken new positions (13,151,499 shares).
Price Performance
As a result of such increased attention, NVDA’s shares have gained 233.1% over the past year to close the last trading session at $439.66. Over the past six months, the stock gained 70.9%.
Moreover, NVDA’s stock is trading above its 100-day and 200-day moving averages of $406.55 and $309.93, respectively, indicating an uptrend.
Wall Street analysts expect the stock to reach $636.32 in the next 12 months, indicating a potential upside of 44.7%. The price target ranges from a low of $475 to a high of $1,100.
Favorable Analyst Estimates
For the fiscal third quarter ending October 2023, analysts expect NVDA’s revenue and EPS to increase 171% and 477.10% year-over-year to $16.07 billion and $3.35, respectively.
Moreover, for the fiscal year ending January 2024, its revenue and EPS are expected to come at $54.10 billion and $10.83, indicating increases of 100.6% and 224.1% year-over-year, respectively. Furthermore, it has surpassed the consensus revenue estimates in each of the trailing four quarters and EPS in three of the trailing four quarters, which is impressive.
Bottom Line
Rising apprehensions relating to inflation, soaring interest rates, and escalating bond yields may threaten NVDA’s stock price performance in the near future. The escalating geopolitical strain between the U.S. and China additionally muddles this precarious scenario.
Considering these dynamics, CEO Huang’s recent bout of stock sales might be misconstrued as another bearish pointer. However, upon closer examination, these actions appear far less alarming than initially presumed.
Furthermore, while some skeptics argue that NVDA’s shares have undergone a swift uptick, they seemingly overlook the dawn of the AI revolution. Consequently, it is feasible that NVDA could enjoy several more years of vigorous growth.
Strategic collaborations between countries are anticipated to spur AI adoption worldwide, amplifying the demand for NVDA’s chips, software, and services.
NVDA’s enthusiasm for AI has translated into an encouraging outlook for the third quarter. In addition to projecting revenue of $16 billion in the third quarter of fiscal year 2024, it also predicts a non-GAAP gross margin of 72.5%.
However, despite NVDA’s extensive potential, the stock has already witnessed nearly a 200% rally this year, placing it at a rather costly valuation. Acknowledging these elements, it could be wise to wait for a better entry point in the stock.