Starting a Fintech? Here’s What You Should and Shouldn’t Do
Check out this discussion at Fintech Deal Day with Ian Rosen, Coeli Ayres, Nelson Chu, John Foley, and David Dwumah.
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Nvidia Is Finally Worth a Look
In recent years, whenever there has been hype in the computing sector in recent years, the GPUs (graphic processing units) produced by Nvidia Corp. (NVDA) have been involved. GPUs underpin almost all of the most exciting computing developments, from artificial intelligence (AI) to data centers to autonomous driving to video gaming graphics.
No wonder then that, in 2021, near-zero interest rates, coupled with pandemic lockdown tailwinds, saw the stock bid up by 130%, to a peak valuation of 71 times forward earnings.
However, 2022 has been a completely different story for stocks, particularly technology stocks. Rising inflation and interest rates, as well as the war in Ukraine, sent technology stocks plunging.
Nvidia’s stock has fallen nearly 50% year-to-date and is now trading on a saner forward price/earnings ratio of around 50. Given the company’s explosive growth potential in the years ahead, this is an entry point worth looking into. So let’s look at where Nvidia stands.
Nvidia Today
Before the turn of the century, computers ran on central processing units (CPUs) that were first made commercially available by Intel in 1971. Although the power of CPUs improved rapidly in the first few decades after their widespread adoption, this progress had started to slow by the end of the century.
Then, in 1999, Nvidia invented the GPU, which allows for faster computing because it uses matrix calculations (parallel computing) rather than linear calculations. Nvidia began by designing GPUs for PCs to improve gaming graphics, but since then has expanded into data centers, professional visualization, and the automotive industry.
In the third quarter of 2021, data centers made up 65% of Nvidia’s sales, with gaming accounting for a further 26%, followed by automotive and professional visualization with around 4% and 3% respectively.
It is interesting to note that automotive revenue of $251 million rose 15% sequentially and 86% annually in the third quarter. Nvidia believes that the middle of the 2023 fiscal year was an “inflection point” for automotive, as its DRIVE Orin—the central computer for autonomous driving—has “great momentum.”
In fact, Morningstar said the following: “The firm has a first-mover advantage in the autonomous driving market that could lead to widespread adoption of its Drive PX self-driving platform.”
Data Center Dominance
Data centers have only recently surpassed gaming to become the dominant division in the business. It’s easy to see why…
The consumer-facing internet and cloud giants—Alphabet, Meta, Amazon, and Microsoft—have found GPUs to be very useful at accelerating cloud workloads that use deep learning techniques to achieve speech recognition (Siri, Alexa, etc.), photo recognition (identifying faces in pictures on Facebook, cat videos on YouTube), and recommendation engines on Netflix and Amazon.
In the third quarter of 2022, Nvidia’s data center revenue soared 31% from a year ago, to $3.83 billion. This was thanks in part to Amazon Web Services’ (AWS) growing use of the NVIDIA A100 Tensor Core processor in its servers.
Along these lines, Nvidia recently announced new two-year partnerships with Oracle Corp. (ORCL) and Microsoft Corp. (MSFT) during the quarter. The Microsoft deal consisted of a contract to “build an advanced cloud-based AI supercomputer to help enterprises train, deploy, and scale AI state-of-the art models.”
Nvidia is also developing HPC (high performance computing)-as-a-service offerings, including simulation and engineering software used across industries. The company’s GPUs are deployed in 72% of the top 500 supercomputers globally, and in 90% of the new computers on that list.
Perhaps the most important characteristic of Nvidia is that it is fabless: it outsources its GPU, mostly to Taiwan Semiconductor (TSM). While this business model does leave the company dependent on TSM, it also makes Nvidia a capital light, high margin, and highly cash generative business. In 2021, its operating margin stood at 40% and its free cash flow hit an impressive $8.13 billion from just $10.7 billion of operating profit.
Nvidia Outlook
Nvidia is sitting in the proverbial catbird seat.
The company has little competition in the GPU market. Intel Corp. (INTC) and Advanced Micro Devices Inc. (AMD) make CPUs for the cloud servers, but neither can yet challenge Nvidia in designing GPUs used for machine learning and AI. For instance, Intel only launched its first GPU for data centers in 2021.
I agree with Morningstar’s assessment that Nvidia’s the data center division will enjoy at a 25% compound annual growth rate (CAGR) through fiscal 2027. And its CAGR during the same period for the automotive segment could be around 50%.
However, there is more to the future of the GPU market than just greater corporate use of the cloud. Nvidia management has said that consumer-oriented AI applications—such as “large language models, recommendation systems and generative AI”—are already driving growth, alongside the major cloud players.
This could be huge. New technology is often first adopted by companies, but demand doesn’t really grow quickly until consumer applications appear. Go back a few decades and think about how computing didn’t really take off until the personal computer for consumers appeared.
The one big cloud on Nvidia’s horizon is geopolitics and the de-linking of the American and Chinese economies. During the third-quarter results conference call, Nvidia management said: “…sequential growth was impacted by softness in China,” although no direct link to the recently passed CHIPS and Science Act legislation in the U.S. was mentioned.
Keep in mind that in 2021, 26% of Nvidia’s revenue came from China, another 32% from Taiwan, and only 16% was from the U.S. To get around the current U.S. sanctions, Nvidia has already designed a less powerful GPU that can be sold to Chinese data center businesses, but that cannot be used in supercomputing. But it is always possible the U.S. could change the law again to prevent any GPUs designed in the U.S. from being shipped to China.
That is why we are seeing a multi-year discount in the market valuation for Nvidia, a business with seemingly endless potential.
NVDA stock will not be a huge upward mover until the macroeconomic environment is more settled. However, you can begin building your position now in Nvidia, anywhere in the low-to-mid $100s.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trading at massive discount, and pays an 8% yield. This is my top pick for income during a rough market.Click here for details.
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1 Fashion Stocks to Buy This Holiday and 1 to Avoid
Despite macro headwinds, the fashion and apparel industry continues to witness stable demand. According to Adobe, online shoppers spent a record $5.29 billion on Thanksgiving 2022, an increase of 2.9% year over year. They spent most on toys, apparel, grills, and outdoor equipment. “What we are seeing is the discounts being strong enough to entice
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1 Tech Stock That’s Safe And 1 That’s Not
Recent data suggests that the U.S. economy has been more resilient than expected, despite the Fed’s efforts to cool it down through monetary tightening. However, the market widely expects the central bank to implement a lower rate hike in its meeting this month.
However, many economists believe that the terminal interest rates will beat the earlier estimates. This might tighten fund availability for growing businesses while softening consumer demand in the year ahead.
Hence it would be safe to bet on stocks with an encouraging outlook while avoiding the weak ones.
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Given its strong trends, it could be wise to buy NVIDIA Corporation (NVDA) to capitalize on increased consumer spending on electronics during holidays. On the other hand, CrowdStrike Holdings, Inc. (CRWD) might be best avoided now, given its downtrend.
NVIDIA Corporation (NVDA)
NVDA is a global provider of graphics, computation, and networking solutions. The company operates through two segments: Graphics and Compute & Networking.
NVDA’s revenue has exhibited a 41.8% CAGR over the past three years. During the same time horizon, the company’s EBITDA and net income have also grown at 51.6% and 35.2% CAGRs, respectively.
For the fiscal third quarter, ended October 30, 2022, NVDA’s non-GAAP operating income increased 15.9% sequentially to $1.54 billion, while its non-GAAP net income came in at $1.46 billion, up 12.7% quarter-over-quarter. This resulted in a sequential increase of 13.7% in non-GAAP EPS to $0.59 during the same period.
Analysts expect NVDA’s revenue and EPS for the fiscal fourth quarter to increase 1.5% and 37.9% sequentially to $6.02 billion and $0.80, respectively. The company has surpassed consensus EPS estimates in two of the trailing four quarters.
Owing to its strong performance and solid growth prospects, NVDA is currently commanding a premium valuation compared to its peers. In terms of forward P/E, NVDA is currently trading at 48.89x compared to the industry average of 19.35x. Also, its forward EV/EBITDA multiple of 65.13 is higher than the industry average of 12.75.
The stock is currently trading above its 50-day and below its 200-day moving averages of $139.16 and $176.47, respectively, indicating an uptrend. It has gained 13.7% over the past month to close the last trading session at $159.87.
MarketClub’s Trade Triangles show that NVDA has been trending UP for two of the three-time horizons. Its long-term trend has been UP since December 1, 2022, while its intermediate-term trend has been UP since October 27, 2022.
Source: MarketClub
The Trade Triangles are our proprietary indicators, comprised of weighted factors that include (but are not necessarily limited to) price change, percentage change, moving averages, and new highs/lows. The Trade Triangles point in the direction of short-term, intermediate, and long-term trends, looking for periods of alignment and, therefore, strong swings in price.
In terms of the Chart Analysis Score, another MarketClub proprietary tool, NVDA scored +85 on a scale from -100 (strong downtrend) to +100 (strong uptrend), indicating that a longer-term bullish trend could resume. Traders should continue to monitor the trend score and utilize a stop order.
The Chart Analysis Score measures trend strength and direction based on five different timing thresholds. This tool takes into account intraday price action, new daily, weekly, and monthly highs and lows, and moving averages.
Click here to see the latest Score and Signals for NVDA.
CrowdStrike Holdings, Inc. (CRWD)
CRWD offers solutions and workload protection for endpoints over the cloud via a software-as-a-service (SaaS) subscription-based model. The company’s Falcon platform delivers integrated technologies that provide security and performance while reducing customer complexity.
For the third quarter of the fiscal year 2023, ended October 31, 2022, CRWD’s loss from operations widened 40.1% year-over-year to $56.42 million, while its net loss widened 8.3% year-over-year to $54.63 million. The company’s total liabilities stood at $3.13 billion as of October 31, 2022, compared to $2.58 billion as of January 31, 2022.
In terms of forward P/E, CRWD is currently trading at 75.67x, significantly higher than the industry average of 19.35x. The company’s forward EV/Sales multiple is 11.67, compared to the industry average of 2.63. Also, its forward Price/Sales multiple of 11.95 compares unfavorably to the industry average of 2.52.
Despite its frothy valuations, CRWD’s stock is currently trading below its 50-day and 200-day moving averages of $149.17 and $176.15, respectively, indicating a bearish trend. It has slumped 10% over the past month and 42.6% year-to-date to close the last trading session at $113.83.
MarketClub’s Trade Triangles show that CRWD has been trending DOWN for all three-time horizons. The long-term trend for CRWD has been DOWN since May 9, 2022. Its intermediate-term and short-term trends have been DOWN since August 31 and November 17, respectively.
Source: MarketClub
In terms of the Chart Analysis Score, CRWD scored -90 on a scale from -100 (strong downtrend) to +100 (strong uptrend), indicating a strong downtrend that is likely to continue. Traders should use caution and set stops.
Click here to see the latest Score and Signals for CRWD.
What’s Next for These Tech Stocks?
Remember, the markets move fast and things may quickly change for these stocks. Our MarketClub members have access to entry and exit signals so they’ll know when the trend starts to reverse.
Join MarketClub now to see the latest signals and scores, get alerts, and read member-exclusive analysis for over 350K stocks, futures, ETFs, forex pairs and mutual funds.
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Best,The MarketClub Team[email protected]
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As per the Labor Department’s report, November’s consumer price index rose just 0.1% from the previous month and 7.1% from a year ago. Economists surveyed by Dow Jones had expected a 0.3% monthly increase and a 7.3% 12-month rate. Moreover, the Producer Price Index (PPI) for final demand rose 7.4% in November year over year,
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USDJPY: Reversal or Setback?
Back in September, I shared with you my take on the USDJPY currency pair based on 360° view. A combination of fundamental factors and technical factors has supported the continued strength of the U.S. dollar relative to the Japanese yen.
However, the majority of readers predicted the opposite, as you can see in the screenshot below.
As the second largest vote played out the best, the USDJPY has soared more than six percent to reach a peak of ¥151.94. The previous time this level appeared on this chart was in the summer of distant 1990, two decades ago. That move was close to hit the CD=AB target at ¥152.89, however it has lost the momentum.
The pair has lost more than it gained in that call and there is a question, is that all or are we just in a large correction?
I prepared for you another bunch of visualizations below to answer that question.
Let’s start with the fundamentals first in the interest rate comparison below.
Source: TradingViewThe Federal Reserve is actively trying to control inflation by raising interest rates at each and every meeting. As a result, the real interest rate in the U.S. has soared from negative minus 8 percent this spring up to the current level of minus 3.7 percent.
It contrasts with the “let it be” approach of the Bank of Japan. Hence, the Japanese real interest rate has been sinking lower and lower to finally cross the U.S. real interest rate as shown in the chart above.
The margin is only 0.1 percent and it could probably rise by 0.5 percent this week at the Fed meeting. This makes U.S. assets more attractive, which will boost dollar demand.
The next chart shows the current market distortion that is clear as day.
Source: TradingView
Last time, we had the opposite situation – the USDJPY pair was above the real interest rate differential between the U.S. and Japan (red line) due to market forecasts of further Fed hikes. This indicator works perfectly, as we can see how USDJPY peaked right at the current maximum of the interest rate differential.
These days the market is far below the red line. The orange line highlights the area where the Fed could raise the differential this week. It corresponds to USDJPY levels between ¥155 and ¥156, which indicates significant growth potential of almost 14% for the pair.
Let us move to the technical chart below to complete 360° view.
Source: TradingView
This time I zoomed out the view enough to spot the huge Inverse Head & Shoulders pattern (blue) in the monthly chart above. It is a bullish reversal pattern and its magnitude is fortified by the up-sloping right shoulder.
This April the price had broken above the trigger of the Neckline around ¥127.5. The follow-up move to the upside was unstoppable until it reached the next black barrier of August 1998 close to ¥148. The USDJPY spiked above that level and then collapsed swiftly below it.
A target for this pattern is at the height of the Head added to the Neckline at ¥176. It should be a tremendous gain of almost 29 percent from last week’s close of ¥136.58.
The barriers to watch are located at the peak of 1998 above ¥147 (black) and at the maximum of 1990 around ¥160 (orange).
If the pair is to maintain bullish momentum, then it needs to stay above the Neckline around ¥127.
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Intelligent trades!
Aibek BurabayevINO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
USDJPY: Reversal or Setback? Read More »
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Rigel Pharmaceuticals (RIGL) surpassed EPS estimates by 18.5% for its 2022 third quarter. Moreover, the U.S. Food and Drug Administration approved its REZLIDHIA (olutasidenib) capsules for treating adult patients with relapsed or refractory (R/R) acute myeloid leukemia. REZLIDHIA is expected to be incredibly beneficial for patients with poor prognoses and is a solid addition to
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