It’s not goodbye, it’s hello Magnifi!

You are now leaving a Magnifi Communities’ website and are going to a website that is not operated by Magnifi Communities. This website is operated by Magnifi LLC, an SEC registered investment adviser affiliated with Magnifi Communities.

Magnifi Communities does not endorse this website, its sponsor, or any of the policies, activities, products, or services offered on the site. We are not responsible for the content or availability of linked site.

Take Me To Magnifi


INO.com by TIFIN

Investing in Love: 4 Stocks That Capture Valentine’s Day Sentiment

Valentine’s Day is a time to celebrate love and romance, whereby people express their affection by exchanging candy, cards, flowers, jewelry, and other gifts with their special ones. This annual Lover’s Day has become extremely popular, and creative retailers are preparing to cash in on this event.
Americans really like to spend on their loved ones for Valentine’s Day. According to the annual survey released by the National Retail Federation (NRF) and Prosper Insights & Analytics, total spending on Valentine’s Day is expected to reach a new high of $14.20 billion in 2024, or a record $101.84 per person.
“Retailers are ready to help customers this Valentine’s Day with meaningful and memorable gifts,” said Matthew Shay, NRF President and CEO. “With consumers prioritizing their spouse or significant other this year, retailers expect to see a shift in spending for certain gifting categories.”
The top gift categories include candy (57%), greeting cards (40%), flowers (39%), an evening out (32%), jewelry (22%), clothing (21%) and gift cards (19%). New spending records are anticipated for jewelry (around $6.4 billion), flowers ($2.6 billion), clothing ($3 billion) and an evening out ($4.9 billion).
More than half of customers (nearly 53%) plan to celebrate Valentine’s Day this year, on par with 52% in 2023. Overall, consumers plan to spend a total of $25.8 billion to celebrate Valentine’s Day, on par with the previous year’s spending and the third highest in the survey’s history.
Now, let’s take a close look at the fundamentals of four key stocks that might thrive this Valentine’s Day:
Berkshire Hathaway Inc. (BRK.B)
Warren Buffett is widely considered one of the greatest investors of all time. One way to share in his success is by investing in his holding company, Berkshire Hathaway Inc. (BRK.B)v, whose market capitalization stands at $861.40 billion.
BRK.B owns a mix of businesses across several industries. The profits from these businesses accumulate on Berkshire Hathaway’s balance sheet, and Warren Buffett and his team use these funds to expand the company, make new investments, and so on.
Since 1972, Buffett’s leading conglomerate owns See’s Candies, a beloved brand for candies, particularly chocolates. Today, more than 50 years later, this candy brand has grown into a testament to the power of brand loyalty, high-quality products, and intelligent management.
With its steady growth, See’s Candies provided BRK.B with an income of nearly $2 billion, representing an impressive return of more than 8,000%, or approximately 160% a year. Beyond its financial triumphs, this brand holds a special place in Buffett’s heart as it embodies his investment philosophy, which prioritizes businesses with competitive advantage, reliable cash flows, and a focus on customer satisfaction.
For most people, chocolate and candy are the perfect way to celebrate Valentine’s Day as they associate them with emotional connections, primarily driving See’s Candies sales and ultimately giving a significant boost to BRK.B’s stock.
BRK.B’s trailing-12-month EBITDA margin of 31.46% is 49.4% higher than the 21.05% industry average. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 15.63%, 9.86%, and 7.52% are higher than the industry averages of 10.67%, 6.41%, and 1.09%, respectively.
For the first nine months that ended September 30, 2023, BRK.B’s total revenues increased 21.1% year-over-year to $271.11 billion. Its earnings before income taxes were $73.23 billion versus a loss before income taxes of $52.61 billion in the prior year’s period. Its net earnings came in at $59.39 billion, compared to a loss of $40.24 billion in the same quarter of 2022.
Analysts expect Berkshire Hathaway’s revenue and EPS for the fiscal year (ended December 2023) to increase 4.1% and 24.4% year-over-year to $314.42 billion and $17.39, respectively. Moreover, the company topped the consensus EPS estimates in three of the trailing four quarters.
BRK.B’s stock is already up nearly 11% over the past six months and has gained more than 28% over the past year. Further gains could come with a Valentine’s Day rally.
PayPal Holdings, Inc. (PYPL)
Another stock that could capture Valentine’s Day sentiment is PayPal Holdings, Inc. (PYPL). With a $63.14 billion market cap, PYPL operates as a technology platform enabling digital payments on behalf of merchants and consumers. As digital payments continue to rise across the globe, PayPal remains a strong player in the fintech industry.
Valentine’s Day might cause an influx of online transactions. Spending surges as consumers celebrate Valentine’s Day with memorable gifts for their friends and loved ones, propelling digital payments worldwide and benefiting PYPL considerably.
On January 25, 2024, PYPL announced six innovations to revolutionize commerce through artificial intelligence (AI) driven personalization for merchants and consumers. During the PayPal First Look keynote, President and CEO Alex Chriss introduced a completely new PayPal checkout experience; Fastlane by PayPal, a faster guest checkout experience; and Smart Receipts, giving customers AI-personalized recommendations from merchants.
Further, the company introduced the PayPal advanced offers platform so merchants can provide personalized, real-time offers to consumers and drive sales; a reinvented PayPal consumer app offering shoppers new ways to earn cash back; and Venmo’s enhanced business profiles so that small businesses can find and engage new customers and grow their businesses.
PYPL’s trailing-12-month ROCE, ROTC, and ROTA of 20.55%, 9.43%, and 5.17% favorably compared to the industry averages of 10.76%, 6.44%, and 1.08%, respectively. Also, the stock’s 18.40% trailing-12-month levered FCF margin is 3.2% higher than the industry average of 17.83%.
During the fourth quarter that ended December 31, 2023, PYPL’s non-GAAP net revenues increased 8.7% year-over-year to $8.03 billion. Its non-GAAP operating income grew 10.6% from the prior year’s quarter to $1.87 billion. Its non-GAAP net income and non-GAAP EPS came in at $1.60 billion and $1.48, up 13.2% and 19.4% year-over-year, respectively.
Furthermore, the company’s free cash flow was $2.47 billion, an increase of 72.3% year-over-year. Its fourth-quarter total payment volume (TPV) grew 15% from the year-ago value to $409.80 billion. Its payment transactions rose 13% year-over-year to $6.80 billion.
As per its financial guidance, PayPal expects net revenue to increase by nearly 6.5% and 7% on a foreign-currency neutral basis (FXN) for the first quarter of fiscal 2024. Its non-GAAP earnings per share are expected to grow in mid-single digits compared to $1.17 in the previous year’s period.
For the full year 2024, the company’s non-GAAP earnings per share are expected to be in line with $5.10 in the previous year.
Analysts expect PYPL’s revenue and EPS for the first quarter (ending March 2024) to increase 6.7% and 4% year-over-year to $7.51 billion and $1.22, respectively. Additionally, the company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
PYPL’s stock has surged more than 8% over the past three months.
Movado Group, Inc. (MOV)
With a $616.47 million market cap, Movado Group, Inc. (MOV) designs, markets, and distributes watches worldwide. The company offers its watches under the Movado, Concord, Ebel, Olivia Burton, and MVMT brands, along with licensed brands like Coach, Tommy Hilfiger, HUGO BOSS, Lacoste, and Calvin Klein. If your loved one appreciates luxury watches, Movado could be an exciting pick this Valentine’s.
The company has a robust capital allocation strategy. MOV paid a cash dividend of $0.35 for each share of the company’s outstanding common stock and class A common stock held by shareholders of record as of the close of business on December 12, 2023. Its annual dividend of $1.40 translates to a yield of 4.95% on the current share price. Its four-year average dividend is 4.22%.
Moreover, the company’s dividend payouts have increased at an 11.8% CAGR over the past five years.
Also, during the third quarter of fiscal 2024, Movado Group repurchased around 69,700 shares under its November 23, 2021, share repurchase program. As of October 31, 2023, the company had $18.60 million remaining available under the share repurchase program.
MOV’s trailing-12-month gross profit margin of 55.71% is 57% higher than the 35.48% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 9.86% and 8.34% are higher than the industry averages of 7.53% and 4.74%, respectively.
In terms of forward P/E, MOV is currently trading at 14.8x, 12% lower than the industry average of 16.83x. The stock’s forward EV/Sales of 0.78x is 36.7% lower than the industry average of 1.23x. Also, its forward EV/EBITDA of 7.36x is 27.3% lower than the industry average of 10.13x.
MOV’s reported net sales of $187.69 million for the fiscal 2024 third quarter ended October 31, 2023. Its net income came in at $17.67 million, or $0.77 per share, respectively. As of October 31, 2023, the company’s cash and cash equivalents were $200.97 million, compared to $186.67 million as of October 31, 2022.
Street expects MOV’s revenue and EPS for the fiscal year (ending January 2025) to increase 3.3% and 7.9% year-over-year to $689.90 million and $2.06, respectively. Also, the company has topped the consensus EPS estimates in all four trailing quarters.
Shares of MOV have surged more than 4% over the past three months and approximately 12.7% over the past nine months.
Signet Jewelers Limited (SIG)
The last stock, Signet Jewelers Limited (SIG), also tends to shine around Valentine’s Day. For those who want to go beyond chocolates, jewelry is a classic Valentine’s Day gift. Signet Jewelers, with a market cap of $4.56 billion, owns brands like Key Jewelers, Zales Jewelers, Diamonds Direct, James Allen, and Banter by Piercing Pagoda and could benefit from a surge in sales.
After all, SIG’s trailing-12-month EBIT margin and net income margin of 8.49% and 6.29% are higher than the respective industry averages of 12.73% and 32.77%. Similarly, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 29.14%, 11.39%, and 7.61% are significantly higher than the industry averages of 11.43%, 6.08%, and 4.08%, respectively.
In terms of forward non-GAAP P/E, SIG is currently trading at 10.29x, 36.4% lower than the industry average of 16.17x. The stock’s forward EV/Sales of 0.81x is 34.1% lower than the industry average of 1.23x. Moreover, its forward Price/Sales of 0.63x is 31.9% lower than the industry average of 0.93x.
In the fiscal 2024 third quarter ended October 28, 2023, SIG’s reported sales of $1.39 billion. The company reported non-GAAP operating income and non-GAAP EPS of $23.90 million and $0.24, respectively. Its cash and cash equivalents totaled $643.80 million as of October 28, 2023, compared to $327.30 million as of October 29, 2022.
“We’re reaffirming guidance for FY2024 with the full year outlook updated for the profitable and strategic sale of 15 primarily luxury watch stores in the U.K. We continue to make progress expanding gross margin through merchandise and sourcing strategies and growth in services revenue,” said Joan Hilson, Chief Financial, Strategy & Services Officer.
“Cost savings initiatives are on track and healthy inventory enables product newness as we enter the holiday season and improved free cash flow, allowing Signet to return nearly $160 million to shareholders already this year,” he added.
For the fiscal year 2024, Signet expects total sales to be in the range of $7.07 billion-$7.27 billion. The company’s operating income and EPS are expected to be $397-$437 million and $9.55-$10.18, respectively.
SIG’s stock has climbed more than 28% over the past six months and is up nearly 34% over the past year.
Bottom Line
Every year on February 14, people celebrate love with their “valentine,” and most will break the bank by buying flowers, chocolates, jewelry, and other gifts for their beloveds. Today, this event is a big business. NRF survey shows that Valentine’s Day is returning to its romantic traditions, with total spending on significant others reaching a new record of $14.20 billion this year.
Therefore, it could be wise to add the featured stocks to one’s watchlist ahead of Valentine’s Day.

Investing in Love: 4 Stocks That Capture Valentine’s Day Sentiment Read More »

INO.com by TIFIN

Is Walmart (WMT) Stock Split a Catalyst for Growth?

Consumers have long relied on Walmart Inc. (WMT) for affordable goods, a key feature of the retail chain’s offerings. Now, the company’s investors will also be offered ‘value deals’ as WMT initiates steps to make its equity more accessible.
On January 30, the retail giant declared its intention to effectuate its shares’ affordability in line with increasing store managers’ salaries and providing annual grants of up to $20,000.
The corporation announced a share-splitting strategy that awards shareholders in possession of WMT stock as of February 22 with three shares for each one owned. This move marks the first of its kind since 1999.
Stock splits often garner significant media attention, particularly when happening at corporations like WMT. The common stock volume would be increased from approximately 2.7 billion to roughly 8.1 billion. As a result, each share will hold a smaller percentage of the company, decreasing its nominal value.
Although this may give an impression of cheaper stock, it’s important to note that the size of the overall business, whether calculated by earnings, cash flow, or revenue, remains constant. The stock splitting will not affect any valuation but will divide the company’s metaphorical share pie into additional pieces. Hence, investors will maintain the same business percentage ownership as prior to the split.
This does not necessarily imply irrelevant implications for investors concerning WMT’s 3-for-1 stock split; rather, it piques interest in the company’s motivations for such a move.
WMT proposed that the stock split aims to incentivize employees to invest in their corporation’s shares. The company highlighted that over 400,000 employees participate in its established Associate Stock Purchase Plan, enabling them to buy stocks through payroll deductions and benefit from a 15% match on the first $1,800 contributed annually. Regardless, how this split will impact the company’s future trajectory and investor sentiment remains to be seen.
CEO Doug McMillon said of the decision: “Sam Walton believed it was important to keep our share price in a range where purchasing whole shares, rather than fractions, was accessible to all of our associates. Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come.”
The stock market’s stellar performance in 2023, coupled with better-than-expected January job figures, has triggered a surge in retail investor activity. GenZ investors, having limited trading funds, could be attracted by WMT’s strategic decision to split its shares.
There seems to be a correlation between stock splits and an outperforming stock. This trend may be attributable to the momentum leading up to the split, as such occurrences often follow substantial price gains or heightened investor interest. WMT anticipates that this move will spur increased purchasing among its employees, potentially driving the stock price upwards.
However, certain additional factors could also contribute to the surge in WMT’s stock price:
WMT’s retail segment epitomizes stability, boasting over 10,000 stores and achieving a same-store sales growth (U.S. segment) of 4.9% in 2023’s third quarter, resulting in a new record for its trailing-12-month revenue of $638.79 billion.
On top of this, WMT is pursuing overlooked growth opportunities, notably in the realm of advertising. In partnership with The Trade Desk, a leading advertising technology firm, WMT has seen swift progression in its advertising endeavors, a promising venture given e-commerce competitors’ significant advertising revenue over the past year.
Over the past year, WMT’s stock climbed approximately 20% as the company enhanced its online shopping services and offered higher employee remuneration. E-commerce continues to thrive for WMT, demonstrated by a 24% year-on-year increase in U.S. online sales for the quarter that ended October 31, 2023. This boom can be seen throughout the year with similar growth across preceding quarters. WMT’s U.S. e-commerce sales grew 27.2% year-over-year in the first quarter and 24% year-over-year in the second quarter.
Moreover, WMT has announced plans to launch 12 additional stores and upgrade a smaller location to a Supercenter – an indicator of imminent growth.
Furthermore, WMT is set to publish its fiscal fourth-quarter earnings on February 20. Analysts anticipate its EPS to come at $1.63 and revenue at $169.24 billion. The fiscal fourth quarter that ended January of 2023 saw the company report quarterly earnings of $1.71 per share, and net sales reached $162.74 billion. If WMT reports another resilient quarter, it is likely to provoke a further increase in its stock price.
WMT shares sit slightly below $170 and trades above the 50-, 100-, and 200-day moving averages of $159.06, $160.27, and $157.91, respectively, indicating an uptrend.
Jefferies raised WMT’s stock price target to $195 from $190, thereby affirming a buy rating on the shares ahead of the earnings report. It anticipates a modest sales beat for WMT, with cautious guidance for fiscal 2025, factoring in the continued slowdown in inflation.
Bottom Line
WMT is a notable player on Wall Street, and its distinctive position is fueled by not only its status as one of the world’s most extensive retail chains but also its resilience during diverse market situations. WMT has been considered a recession-proof stock due to the consistency of its revenues and sales, even amid various economic upheavals. People put away their discretionary purchases during tough times but continue filling their grocery baskets, often seeking cost-effective options, a specialty of WMT.
WMT’s history also boasts of 11 two-for-one stock splits, which have created attractive entry points for investors previously unable to access the stocks due to high prices, potentially driving up stock costs with their participation. Employees, too, may find the affordability appealing for their Employee Stock Ownership Plan (ESOP) benefits, prompting additional stock procurement.
Investing in WMT the day after its last stock split in 1999 would have yielded a price return of approximately 268%, comparable with S&P’s 274% return. With the inclusion of the dividend, this could have surpassed S&P over an equivalent duration.
Particularly for long-term investors seeking both growth and income, WMT can be a favorable bet, considering its global brand recognition and historically robust financial positioning. This is crucial as the company continually expands its operations.
Moreover, WMT has reliably paid dividends over 50 consecutive years, pointing toward dependable shareholder value creation. The annual dividend stands at $2.28 per share, which translates to a dividend yield of 1.35%, given the existing share prices. Its four-year average dividend yield is 1.57%. WMT’s dividend payments have grown at a CAGR of 1.8% and 1.9% over the past three and five years, respectively.
WMT’s anticipated stock split will not affect these dividends. Considering a 3-for-1 split, this would adjust the quarterly dividend to $0.19 per share (current $0.57 per share), equating to an annual return of $0.76 per share. With approximately 8.1 billion shares outstanding, WMT would need an annual free cash flow of nearly $6.16 billion for the yearly return. Based on free cash flow of $4.34 billion and net cash provided by operating activities of $19.01 billion for the nine months that ended October 31, 2023, it appears plausible that the dividends will remain adequately covered after the split.
Usually, a business opts for a stock split when the cost of its shares becomes high, creating a psychological barrier for retail investors who may find it impossible to purchase a single share. Nevertheless, almost every brokerage, including WMT’s Associate Stock Purchase Plan, now offers the opportunity to buy fractional shares, rendering the nominal value of a single share less significant than before. However, post-split, the attraction lies in owning a larger number of shares at an equivalent total investment rather than a fractional portion.
Moreover, when WMT employees purchase company stock, they essentially become part owners. As such, their personal financial standing becomes interwoven with the company’s long-term success, potentially sparking a profound investment in the company’s future.
WMT’s impending stock split could potentially foster an ‘ownership mentality’ among its workforce. Investors are advised to bear in mind insider ownership when researching stocks. While insider ownership does not guarantee successful investments, it can imply an alignment of interests between insiders and common shareholders. However, investors should always remember to prioritize the business’s underlying health.
Nonetheless, WMT’s recent stock split – the first in 25 years – may raise eyebrows. Considering that the last split in 1999 coincided with the dot-com burst, could it be possible that WMT is employing the split as a defensive strategy, ideally ensuring sufficient operational capital to weather potential storms? Hence, a certain level of unease may accompany the news of the split taking place at the current low price.

Is Walmart (WMT) Stock Split a Catalyst for Growth? Read More »

INO.com by TIFIN

Is There Surprising Money to Be Made in Mobileye Global (MBLY)?

Intel Corporation (INTC) CEO Pat Gelsinger acquired 3,600 shares of Mobileye Global Inc. (MBLY) stock at an average per share price of $27.75 on January 29, according to Form 4 filing dated January 31. The transaction was worth $99,915 in total. After this purchase, Gelsinger now owns around 129,095 shares through his trust.
Pat Gelsinger has purchased MBLY’s shares four times separately since the company became publicly traded in October 2022. Excluding the most recent one, his last purchase was on October 27, 2023, when he acquired 2,845 shares at an average per-share price of $35.18.
Meanwhile, Director Saf Yeboah-Amankwah recently reported an insider buy. As per Form 4 filling, on February 1, Yeboah-Amankwah bought 940 shares at an average per-share price of $25.67, bringing his total stake in MBLY to 48,459 shares. The recent transaction marks Yeboah-Amankwah’s second purchase of MBLY stock since it started trading publicly.
On October 28, 2022, Yeboah-Amankwah acquired 47,519 MBLY shares at an average per share price of $21.
Overall, during the past year, Mobileye insiders have sold $1.57 billion worth of shares while purchasing $1.32 million worth of shares. In June 2023, Intel sold about $1.5 billion from its MBLY stake. Even after the sale, Intel owned 98.7% of Mobileye’s voting shares, a decline from 99.3%.
Market participants closely watch insider activity, as the transactions can reflect existing sentiment around the prospect of the business. Typically, investors get a confidence boost in the stock when there are signs of solid insider buying. Even Mobileye’s short-term challenges didn’t stop Pat Gelsinger from making the recent purchase, as he could be confident about the company’s long-term outlook.
Moreover, Goldman Sachs analyst Mark Delaney has maintained his bullish stance on MBLY stock, giving it a Buy rating despite the company’s bleak 2024 guidance. He pointed out that management’s lower outlook for 2024 is due to supply chain-related customer inventory adjustments and specific production levels from Original Equipment Manufacturers (OEMs).
Delaney looks beyond the near-term challenges and focuses on Mobileye’s long-term potential. He remains optimistic about future growth and cash generation prospects. The shift toward high-value solutions such as SuperVison and Chauffeur would position MBLY for growth in the long run.
However, despite attractive insider buying lately, MBLY’s shares are down more than 15% over the past month and have declined nearly 31% over the past six months.
Now, let’s take a closer look at several factors that could impact the stock’s performance in the near term:
Latest Developments
On January 22, 2024, HiRain Technologies, a system provider of intelligent driving solutions to automakers in China, announced the mass production of the first Mobileye EyeQ™6 Lite-based ADAS system, scheduled to debut in China in the second quarter of this year.
The newest member of MBLY’s systems-on-chip portfolio, EyeQ6, is engineered to redefine performance and efficiency in core and premium ADAS offerings. EyeQ6 Lite features Mobileye’s vision-based sensing technology and excels in real-time detection and analysis of its surroundings. The company’s partnership with HiRain reflects its shared vision for high-quality automotive innovations.
Also, on January 9, MBLY expanded its existing relationship with Mahindra & Mahindra Ltd. (M&M), an Indian-based leader in automotive, farm and services businesses. Mobileye will collaborate with M&M to introduce several solutions based on Mobileye’s next-gen EyeQ™6 systems-on-chip and sensing and mapping software, including an intent to develop a full-stack autonomous driving system.
“As more advanced models emerge, we see great opportunities for growth in India and look forward to executing with Mahindra to bring Mobileye SuperVision-based services to one of the most challenging driving environments in the world,” said Mobileye CEO Prof. Amnon Shashua.
Robust Last Reported Financial Results
For the fourth quarter that ended December 31, 2023, MBLY reported revenue of $637 million, beating analysts’ estimate of $633.79 million. This compared to the revenue of $565 million in the same quarter of 2022. The company’s adjusted gross profit was $439 million, an increase of 5.5% year-over-year.
The company’s adjusted operating income rose 13.8% from the prior year’s quarter to $247 million. Its adjusted net income rose 260.3% year-over-year to $228 million. It posted adjusted earnings per share of $0.28, compared to the consensus estimate of $0.27, and up 3.7% year-over-year.
Furthermore, Mobileye’s cash and cash equivalents stood at $1.21 billion as of December 30, 2023, compared to $1.02 billion as of December 31, 2022. The company’s current assets were $2.07 billion versus $1.52 billion as of December 31, 2022.
“Our fourth quarter performance was very strong across the board but is understandably overshadowed by the inventory build-up at our customers which will impact our growth in 2024,” said MBLY’s CEO Amnon Shashua.
Inventory Issues Prompt Revenue Warning
Mobileye, an Israel-based autonomous driving technology company, warned that customer orders for auto chips would fall dramatically short of the prior year’s quarter.
The company said that automakers built up on Mobileye’s chips to avoid part shortages after the global supply glut crisis that persisted through 2021 and 2022 hampered manufacturing.
“As supply chain concerns have eased, we expect that our customers will use the vast majority of this excess inventory in the first quarter of the year,” MBLY said in its preliminary full-year outlook. The excess inventory reflects a pullback in demand from so-called Tier 1 customers, as they will not be placing orders for new chips at the same level they did in last year’s quarter.
For the first quarter of 2024, MBLY expects revenue to be down about 50%, as compared to the 459 million of revenue reported in the first quarter of 2023. Also, the company currently thinks that over the remainder of the year, the revenue will be impacted by inventory drawdowns to a much lesser extent.
The self-driving technology company anticipates lower-than-expected volumes in the EyeQ® SoC business, which will temporarily impact its profitability. Like revenue, MBLY’s first-quarter profit levels are expected to be considerably below the subsequent quarters.
Mobileye expects its first-quarter 2024 operating loss to be in the range of $257 million to $242 million. Excluding amortization of intangible assets and stock-based compensation, the company’s adjusted operating loss is projected to be in the range of $80 million to 65 million.
For the fiscal year 2024, MBLY expects revenue to be between $1.83 billion and $1.96 billion. Its full-year operating loss is anticipated to be in the range of $468 million to $378 million. Also, the company’s adjusted operating income will be in the range of $270 million to $360 million.
Mixed Analyst Estimates
Analysts expect MBLY’s revenue for the first quarter (ending March 2024) to decline 49.6% year-over-year to $230.71 million. The company is expected to report a loss per share of $0.06 for the ongoing quarter. However, Mobileye has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
For the fiscal year ending December 2024, Street expects Mobileye’s revenue and EPS to decrease 8.5% and 51.9% year-over-year to $1.90 billion and $0.39, respectively. However, the company’s revenue and EPS for the fiscal year 2024 are expected to increase 42.4% and 102.6% from the previous year to $2.71 billion and $0.80, respectively.
Extremely Stretched Valuation
In terms of forward non-GAAP P/E, MBLY is currently trading at 69.15x, 337% higher than the industry average of 15.82x. The stock’s forward EV/Sales of 10.90x is 793.5% higher than the industry average of 1.22x. Similarly, its forward EV/EBITDA of 53.76x is 444.2% higher than the industry average of 9.88x.
Moreover, the stock’s forward Price/Sales multiple of 11.52 is significantly higher than the industry average of 0.90. Also, its forward Price/Cash Flow of 47.56x is 367.8% higher than the industry average of 10.17x.
Decelerating Profitability
MBLY’s trailing-12-month gross profit margin of 50.36% is 42.1% higher than the 35.44% industry average. However, the stock’s trailing-12-month EBIT margin and net income margin are negative 1.59% and negative 1.30% compared to the industry averages of 7.68% and 4.66%, respectively.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 0.18%, negative 0.14% and negative 0.17% unfavorably compared to the respective industry averages of 11.73%, 6.15%, and 4.12%. Also, its trailing-12-month asset turnover ratio of 0.13x is 86.4% lower than the industry average of 0.99x.
Bottom Line
MBLY beat earnings and revenue analysts’ estimates in the fourth quarter of fiscal 2023. However, the self-driving technology company issued a revenue warning as it deals with excess inventory.
As per the company, its Tier 1 customers stocked up on chips following the global supply chain crisis that persisted in 2021 and 2022 and are now opting to work with excess inventory, resulting in a significant pullback in demand for its Advanced Driver Assistance Systems (ADAS) products.
Mobileye forecasted first-quarter 2024 revenue to be down nearly 50%, although the company believes inventory drawdowns will impact the revenue to a lesser extent over the balance of the year.
The near-term concerns didn’t stop Intel CEO Pat Gelsinger from purchasing around 3,600 shares of MBLY stock, with Mobileye Director Saf Yeboah-Amankwah joining along. When we notice any attractive insider activity, we shouldn’t react by impulsively buying the stock.
Given MBLY’s significantly elevated valuation, declining profitability, and bleak near-term prospects, as excess inventory concerns would cause declining revenue, it could be wise to avoid this stock for now.

Is There Surprising Money to Be Made in Mobileye Global (MBLY)? Read More »

INO.com by TIFIN

Understanding Meta’s 0.4% Yield and Its Growth Potential

Dividend-loving investors worldwide woke up with exciting news on Friday, as Facebook parent Meta Platforms, Inc. (META) announced its first-ever quarterly dividend and authorized a $50 billion share buyback program.
The company will pay a cash dividend of 50 cents per share on March 26 to shareholders of record as of February 22, joining other peers, including Apple Inc. (AAPL), Microsoft Corporation (MSFT), and Oracle Corporation (ORCL), which have regular payouts. META’s board intends to issue a cash dividend on a quarterly basis.
“Introducing a dividend just gives us a more balanced capital return program and some added flexibility in how we return capital in the future,” Meta’s Chief Financial Officer Susan Li told analysts on its earnings call.
META’s annual dividend of $2 translates to a yield of 0.4% at the prevailing share price. The stock finished nearly 20% higher to $474.99 on Friday after reporting better-than-expected fourth-quarter and full-year 2023 earnings.
The average yield for a dividend-paying stock in the S&P 500 is nearly 2%. Meta’s dividend payout is lower than that rate; however, companies generally start small. Now, investors can look forward to its dividend growth and stock gains.
Looking at Microsoft, the company initiated its cash dividend on January 16, 2003. Its annual dividend was $0.08 per share, which resulted in a yield of about 0.3%. A year following the dividend declaration, MSFT’s stock was up 10%, and the annual dividend for 2024 was raised to $0.16. Currently, the company pays a quarterly dividend of $0.75.
Talking about Apple, it stopped paying cash dividends in 1995 but then declared again in January 2013. Adjusting for all the splits, cash dividends in 2013 translated to an annualized yield of nearly 1.4%. A year after the dividend restart, AAPL’s stock was approximately 24% up as the company continued payouts. Since the restart, Apple has paid a total of around $34 per share.
Dividends are typically welcomed by shareholders and signal management’s confidence about the company’s future growth. Moreover, initial dividend payouts open up to investors who only hold stock in dividend payers.
Further, Meta’s recently released report marked the fourth quarter of the company’s self-described “year of efficiency,” which founder and CEO Mark Zuckerberg announced in February 2023. The company’s turnaround strategy involved layoffs and other cuts to spending, which in turn ended up being a successful effort to reverse the previous year’s revenue declines and share price weakness.
Outstanding Last Reported Financials
For the fourth quarter that ended December 31, 2023, META reported revenue of $39.17 billion, an increase of 24.7% year-over-year. The revenue surpassed analysts’ estimate of $40.11 billion. The company’s revenue from the Advertising segment grew 23.8% year-over-year, and its revenue from the Family of Apps segment rose 24.2%.
Meanwhile, META’s total costs and expenses reduced by 7.9% year-over-year to $23.73 billion. Its operating margin more than doubled to 41%, a clear sign that several cost-cutting measures are boosting profitability.
Facebook parent Meta’s income from operations rose 156% from the prior year’s period to $16.38 billion. Its net income increased 201.3% from the year-ago value to $14.02 billion. The company posted earnings per share attributable to Class A and Class B common stockholders of $5.33, compared to the consensus estimate of $1.76, and up 202.8% year-over-year.
As of December 31, 2023, META’s cash and cash equivalents stood at $41.86 billion, compared to $14.68 billion as of December 31, 2022. The company’s total assets were $229.62 billion versus $185.73 billion as of December 31, 2022.
Family daily active people (DAP) came in at 3.19 billion on average for December 2023, up 8% year-over-year. Family monthly activity people (MAP) was 3.98 billion as of December 31, 2023, an increase of 6% year-over-year.
Also, Facebook daily active users (DAUs) and Facebook monthly active users (MAUs) were 2.11 billion on average and 3.07 billion as of December 31, 2023, up 6% and 3% year-over-year, respectively.
As of December 31, 2023, the tech giant completed the data center initiatives and the employee layoffs, along with the facilities consolidation initiatives. META’s headcount was 67,317 at the end of the year 2023, a decline of 22% year-over-year.
“We had a good quarter as our community and business continue to grow,” said CEO Zuckerberg. “We’ve made a lot of progress on our vision for advancing AI and the metaverse.”
Fiscal 2024 Outlook
For the first quarter of 2024, META expects total revenue to be in the range of $34.50-37 billion. For the full year 2024, the management expects total expenses to be in the range of $94-99 billion, unchanged from the previous outlook.
The company anticipates full-year capital expenditures to be in the range of $30-37 billion, an increase of $2 billion in the high end of its prior range. Meta expects growth to be driven by investments in servers, including AI and non-AI hardware and data centers, and it plans to ramp up construction on sites with its previously announced new data center architecture.
META’s updated outlook reflects its evolving understanding of its AI capacity demands as the company anticipates what will be needed for the next generations of foundational research and product development.
Ramping up Efforts in AI and Metaverse
Meta is making consistent efforts to secure its place in the increasing AI arms race. Last month, CEO Mark Zuckerberg announced that META plans to build its own artificial general intelligence, known as AGI, which is artificial intelligence that meets or exceeds human intelligence in almost every area. He added that the company further plans to open it up to developers.
In a video posted to Meta’s social network Threads, Zuckerberg said building the best AI for chatbots, creators, and businesses requires enhanced advancement in AI across the board. “Our long term vision is to build general intelligence, open source it responsibly, and make it widely available so everyone can benefit,” he said in a post on Threads.
The tech giant announced building out its infrastructure to accommodate this push to get AI into products, and it planned to have about 350,000 H100 GPUs (graphics processing units) from chip designer NVIDIA Corporation (NVDA) by the end of this year. In combination with equivalent chips from other suppliers, Meta will have around 600,000 total GPUs by the end of the year, Zuckerberg said.
He added that the company plans to grow and bring its two major AI research groups – FAIR and GenAI – together to accelerate its work. He further said he believes that Meta’s vision for AI and the AR/VR-driven metaverse are connected.
“By the end of the decade, I think lots of people will talk to AIs frequently throughout the day using smart glasses like what we’re building with Ray Ban Meta.”
Mark Zuckerberg’s recent announcement is one of the company’s biggest pledges to double down on AI. Earlier last year, after the viral success of OpenAI’s ChatGPT, Zuckerberg announced that Meta is creating a new “top-level product group” to “turbocharge” the company’s work on AI tools.
Since then, Meta has introduced tools and information aimed at assisting users understand how AI influences what they see on its apps. The company has launched a commercial version of its Llama large language model (LLM), ad tools that can generate image backgrounds from text prompts, and a “Meta AI” chatbot that can be accessed directly via its Ray-Ban smart glasses.
In his posts last month, Meta CEO said the company is currently training a third version of the Liama model.
Impressive Historical Growth
Over the past three years, META’s revenue and EBITDA grew at CAGRs of 16.2% and 15%, respectively. The company’s net income and EPS rose at respective CAGRs of 10.3% and 13.8% over the same timeframe. Its levered free cash flow improved at 25.6% CAGR over the same period.
Moreover, the social networking company’s total assets increased at a CAGR of 13% over the same timeframe.
Favorable Analyst Estimates
Analysts expect META’s revenue for the first quarter (ending March 2024) to grow 25.3% year-over-year to $35.88 billion. The consensus EPS estimate of $4.25 for the ongoing quarter indicates a 93.3% year-over-year increase. Moreover, Meta has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.
Furthermore, Street expects Meta’s revenue and EPS for the fiscal year (ending December 2024) to grow 17.3% and 32.4% year-over-year to $158.20 billion and $19.69, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to increase 11.2% and 15.3% from the previous year to $175.98 billion and $22.70, respectively.
Solid Profitability
META’s trailing-12-month gross profit margin of 80.72% is 64.5% higher than the 49.07% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 36.33% and 28.98% are considerably higher than the industry averages of 8.47% and 3.50%, respectively.
In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 28.04%, 17.84% and 17.03% favorably compared to the respective industry averages of 4.09%, 3.52%, and 1.43%. Also, its trailing-12-month levered FCF margin of 23.52% is 202.7% higher than the industry average of 7.77%.
Bottom Line
Facebook parent META recently reported a big beat on earnings and revenue for the fourth quarter of fiscal 2023. The company, which owns Facebook, Instagram, and WhatsApp, also announced its first-ever dividend of $0.50 per share and authorized a $50 billion share buyback program. Dividends generally signal management’s confidence about the company’s future growth.
Moreover, Meta’s market capitalization last month surpassed $1 trillion. The company last exceeded this mark in the market cap in 2021, when it was still known as Facebook.
Meta’s “year of efficiency” and several cost-cutting measures paid off in a significant way and offered a sweetener for investors, sending its shares higher. The stock is up nearly 38% over the past month and has gained more than 150% over the past year.
2023 was a pivotal year for the social networking giant, where it raised its operating discipline, delivered solid execution across its product priorities, and significantly improved ad performance for the businesses that rely on its services. In 2024, the company further seems well-positioned to build on its progress in each of these areas while advancing its ambitious efforts in AI and Reality Labs.
Given META’s robust financials, accelerating profitability, dividend initiation, and solid growth outlook, primarily as it seeks to strengthen its position in AI, it could be wise to invest in this stock now.

Understanding Meta’s 0.4% Yield and Its Growth Potential Read More »

INO.com by TIFIN

Buy Alert: Merck’s AI Revolution and the Role of Generative AI in Drug Research

Advancements in Artificial Intelligence (AI) have yielded remarkable progress in technological and operational efficiencies across various sectors. Yet, AI’s noteworthy penetration into the healthcare field is raising propositions of transformation.
Pharmaceutical companies have been capitalizing on AI long before the recent surge in interest – the utilization of intricate AI models to decipher disease mechanisms serving as a prime example. AI-facilitated applications like AlphaFold2, ESMFold, and MoLeR offer novel insights into protein structures that unravel numerous diseases.
While the most advanced AI-centric medicine entities have Phase 2 clinical trial drugs, the unlocking of AI-healthcare collaboration power, especially in fashioning potential cures for lethal diseases, will witness compelling progression in the upcoming years.
Researchers today regard AI as a pioneering tool offering an expedited analysis of vast data quantities, surpassing human capabilities. Presently, drug development demands a decade or more in research and development, compounded by the escalating production costs over the past decade – a conundrum existing despite technological advancement.
With AI’s intervention, the feasibility of expediting this process, slashing developmental timeframes and drug production costs by up to 30%, emerges. There is also a reduction in failure risk, given the current approximately 90% attrition rate, depending on the therapeutic domain.
GenAI (a subset of deep learning) embarks on a fresh leap in AI evolution and imbues computers with transformative abilities. Its arrival challenges us to envision its implications within the healthcare sphere, particularly drug discovery.
While most ongoing projects are in their infancy stages, the merger of GenAI and drug discovery might instigate not only novel treatments but also breakthroughs potentially outpacing nature. GenAI is revolutionizing several facets of the pharmaceutical realm, from speeding up drug discovery, enhancing procedural efficiency in clinical trials, accelerating regulatory approvals, and ultra-targeting marketing to facilitating in-house medical materials production. GenAI’s potential to unlock billions in industry value is imminent.
By expediting drug compound identification processes and their corresponding development, approval, and efficient marketing, this technology could generate an economic value between $60 to $110 billion annually for the pharma and medical-product industries.
The looming GenAI-steered transformation in life sciences lends immeasurable advancements to human health and quality of life. An accelerated drug discovery process, for instance, aids in combating diseases swiftly, freeing up resources for underserved areas such as orphan diseases.
GenAI’s capability to derive patterns and insights from extensive patient data will ignite more personalized treatments, hence improving patient outcomes and streamlining patient care by minimizing discrepancies in therapeutic manufacture and delivery.
Lastly, by automating mundane tasks like document creation and record-keeping, GenAI carries significant potential to augment productivity within the medical research field and enables researchers and medical liaisons to devote more time to patient-centered tasks. In turn, this holds promise for improved service to both clinicians and patients.
Pharmaceutical powerhouse Merck & Co., Inc. (MRK) has set sights on exploring GenAI platforms. The company’s interest comes on the heels of the Merck Research Labs collaboration announcement with Variational AI, supported by the CQDM Quantum Leap program.
At the core of this innovation is Variational AI, a trailblazer in optimizing drug discovery and development through the efficient employment of GenAI. This potent technology called Enki offers a novel approach to drug discovery. Drawing parallels with AI software like DALL-E and Midjourney, which can translate text prompts into visual images, Enki generates small molecular structures in response to target product profiles (TPPs). The user picks the desirable attributes, selecting the targets they aim to affect alongside those they seek to avoid; then, Enki produces molecules tailored to meet the TPP specifications.
Constructed as a fundamental model for small molecule drug discovery, Enki serves to hasten and mitigate risks attached to the early stages of discovery. The startup believes that a series of prompts about the TPP is all that stands between users and innovative, selective, and lead-like structures ready for synthesis. Utilizing experimental data, Variational trained Enki to generate molecules based on TPPs, thereby handing researchers the tool to canvas a broader scope of chemical space.
Thanks to the Enki Platform, chemists can bypass the complex process of developing their own GenAI models. They can input their TPP and receive an array of innovative, diverse, selective, and synthesizable lead-like structures within days, facilitating a swift transition into lead optimization. With this dynamic start, it is evident that MRK, the leading purveyor of pharmaceuticals, aims to make a significant splash in the new year.
Several other factors present an optimistic outlook for MRK in 2024.
MRK’s flagship oncology drug, Keytruda – the highest-grossing prescription medication worldwide – is slated to gain approval for additional uses. In 2023 alone, Keytruda grossed a remarkable $25.01 billion, equating to 45.2% of MRK’s fourth-quarter sales. Forecasters project Keytruda to yield over $30 billion in sales by 2026.
MRK has already seen the tangible effects of its 2023 transactions, substantially boosting the company’s future revenue projections. The pharma giant now anticipates garnering $20 billion from fresh oncology products in development by the mid-2030s, almost doubling its earlier pipeline forecast of just over $10 billion.
However, as Keytruda approaches its patent expiration in 2028, MRK is already searching for strategic acquisitions within $15 billion, preparing to weather the ensuing patent erosion. This effort is to ensure continuous growth through novel lucrative ventures, replacing the revenue stream provided by Keytruda upon losing its exclusiveness.
MRK’s proactive approach comes on the heels of its recent $680 million acquisition of Harpoon Therapeutics, following the larger purchases of Prometheus Bio ($10.8 billion) and Acceleron Pharma ($11.5 billion).
MRK, buoyed by solid fourth-quarter performances backed by strong Keytruda sales, has secured several deals over the past year. Notably, this includes a notable $5.5 billion agreement with Japan’s Daiichi Sankyo, granting co-development rights for three antibody-drug conjugate cancer treatments. This partnership has contributed to MRK’s non-GAAP R&D expenses, increasing them to $9.63 billion in the fourth quarter of 2023 and $30.53 billion for fiscal 2023.
Aside from its dominant presence in the oncology sphere, MRK is also targeting the weight loss medication market. The company is developing Efinopegdutide, a GLP-1 class drug for weight management that has demonstrated promising trial results.
After securing only 1% year-over-year sales growth in fiscal year 2023, analysts project a 5.3% year-over-year increase in the fiscal year ending December 2024. This predicted growth is expected to propel the company’s EPS to $8.49, a 462.1% year-on-year increase.
MRK estimates its global sales between $62.70 billion and $64, while non-GAAP EPS is expected to be between $8.44 and $8.59.
Furthermore, MRK boasts an impeccable dividend history, with the annual dividend currently at $3.08 per share, yielding 2.55%. In an impressive display of consistency, MRK has increased its dividend for 13 consecutive years and holds a four-year average yield of 2.97%. Also, over the past three and five years, its dividend grew at a CAGR of 7.8% and 9.3%, respectively.
MRK’s shares have gained over 15% year-to-date to close the last trading session at $126.38. Moreover, it trades above the 50-, 100-, and 200-day moving averages of $110.53, $107.39, and $109.24, respectively. If this upward trajectory persists, the company is poised for a notable performance in 2024.
Bottom Line
With the employment of GenAI, the pharma industry has made a considerable stride forward, leading to significant operational enhancements and quicker benefit realization, especially in drug discovery. The GenAI in drug discovery market is projected to surpass around $1.13 billion by 2032, growing at a CAGR of 27.1%.
MRK has swiftly evaluated and addressed the potential impact of GenAI, demonstrating commendable adaptability in deploying the most appropriate tool for each specific use case. This technology holds great promise for MRK’s research, trials, manufacturing, and commercialization endeavors.
Partnerships formed between MRK, AI technology firms, and research institutions could catalyze innovation in GenAI for drug discovery and bolster the company’s product pipeline in the future. MRK, with an abundant oncology pipeline, is utilizing advanced technology for drug research. Furthermore, MRK shares are compelling due to robust shareholder returns, growth prospects, solid profitability, and an optimistic outlook.
However, the stock is priced at a premium compared to its competitors. In addition, despite displaying consistency in its dividend payment, its yield of 2.55% sits not only below the U.S. consumer inflation rate but also under that of its healthcare counterparts, potentially rendering MRK a less appealing proposition for conservative investors.
Further complicating matters, government regulations and the Inflation Reduction Act might unfavorably affect MRK’s operations. Modifications such as negotiations with Medicare, implementation of medication discounts covered under Medicare Part B and D, and enforced penalties for escalating drug prices pose potential financial risks. MRK’s Januvia ended up on this list, jeopardizing the financial stability of MRK’s diabetes franchise.
Sales for the Januvia/Janumet (diabetes) franchise declined 13% year-on-year to $787 million in the fiscal fourth quarter of 2023. The drug’s sales suffered due to dwindling demand in the U.S. and generic competition in certain international markets. Such regulatory restraints could decelerate MRK’s future revenue growth, pressuring management to reassess its R&D approach.
Therefore, investors are advised to weigh both the positive and negative factors prudently before investing in this stock.

Buy Alert: Merck’s AI Revolution and the Role of Generative AI in Drug Research Read More »

INO.com by TIFIN

ASML vs. Nvidia: The Battle for AI Dominance Heats Up

For the first half of the 20th century, artificial intelligence (AI) remained a subject of intrigue, primarily among science fiction enthusiasts. Characters like sentient machines and androids, frequently depicted in various literary and cinematic masterpieces, embodied the concept of AI at its most imaginative peak. In the second half of the century, scientists and technologists began their diligent pursuit to make AI a reality.
By 2023, the world managed to get an up-close and personal view of the stunning advancements in the field of AI technology. This rapidly evolving innovation is crucial in sculpting the future of humanity across diverse industries. At present, it plays a pivotal role as an impetus behind the emergence of new technologies such as big data, robotics, and the Internet of Things (IoT), to name a few.
Additionally, GenAI, with tools like ChatGPT and AI art generators, is gaining widespread attention. This momentum is anticipated to reaffirm AI’s position as a technological trailblazer for the foreseeable future.
AI has its influence across machine learning, large language models, intelligent applications and appliances, digital assistants, synthetic media software, and autonomous vehicles. Corporations that neglect to invest in AI services and products may face the threat of obsolescence. Company executives project an increase in their expenditure for the year 2024 to modernize data infrastructure and adopt AI.
As AI continues its growth, semiconductors and their components have emerged as key topics of debate in the 2023 business landscape. This technological boom has often drawn parallels to the American Gold Rush of the nineteenth century, with the lucrative vantage point proving not to be the gold miners but the shovel manufacturers. Today, it’s NVIDIA Corporation (NVDA) that positions itself as a prominent “shovel seller” by producing chips; these are rare yet vital resources in the realm of AI development.
Based in Veldhoven, Netherlands, ASML Holding N.V. (ASML) is poised to reap substantial benefits from the swift incorporation of GenAI and machine learning technologies. It is projected that AI will initiate significant growth in leading-edge logic wafer capacity through increased volumes of GPU, CPU, and connectivity chips and escalating die sizes.
ASML holds the unique position of being the sole provider of extreme ultraviolet lithography machines, crucial for generating advanced process nodes, including TSMC’s 5nm and 3nm parts.
This positions chipmakers – who create the bulk of the chips exploited for powering AI training, machine learning, and inference workloads – as dependent on this European equipment supplier.
Before we delve into a comparative analysis of NVDA and ASML to determine a better long-term buy, let’s first individually look at the companies:
NVIDIA Corporation (NVDA)
NVDA, widely acknowledged as the leading U.S. manufacturer of chips and graphics processing units tailored for AI applications, celebrated a banner fiscal year in 2023. The company’s stock skyrocketed over the year, tripling in value, propelled by the introduction of innovative products and a surge in reliance on AI technology. Its third-quarter revenue stood at $18.12 billion, with profits surging nearly fourteenfold from the year-ago quarter to $9.24 billion and pushing the company’s market cap above $1.5 trillion.
NVDA’s reputation for delivering high-quality, AI-ready hardware solutions has earned it a favored status among numerous companies. As a testament to NVDA’s relationship with various multinational corporations, META, a member of the “Magnificent Seven” tech giants, has plans to employ NVDA’s GPUs. With the aim of constructing a “massive compute infrastructure” to meet its ambitious AI objectives, META will integrate 350,000 NVDA H100 GPUs and nearly 600,000 H100 compute-equivalent GPUs into its system by 2024.
Investors’ exuberance for AI can be traced back to OpenAI’s launch of ChatGPT on November 30, 2022. Following this event, NVDA’s shares soared by more than 250%, solidifying the company’s position as an industry frontrunner in semiconductor manufacturing. This upswing guided the S&P 500 Semiconductor stock price index toward a gain of 108%.
As for what’s ahead, NVDA is expanding its production capability for the much-coveted H100 chip.
Further proof of NVDA’s dynamism lies in its net income and EBIT margins of 42.10% and 45.94%, which vastly outperform industry averages of 2% and 4.79%, respectively. Likewise, its trailing-12-months ROCE, ROTC, and ROTA of 69.17%, 33.23%, and 34.88% are also significantly higher than the industry averages of 1.48%, 2.82%, and 0.41%, respectively.
As NVDA gears up for its next earnings announcement on February 21, 2024, anticipation is mounting among investors. Revenue and EPS are projected to be $20.21 billion and $4.52, denoting year-over-year increases of 234.1% and 413.2%, respectively.
That said, investors should stay mindful of potential geopolitical tensions. As history indicates, China is crucial to NVDA, contributing to over 90% of the country’s $7 billion AI chip market. Should the U.S. impose restrictions on high-end chip exports to China, billions of orders could be placed under threat.
Furthermore, with NVDA trading at a forward non-GAAP price-to-earnings (P/E) ratio of 50.82x, it can be inferred that investors are paying a considerable premium, potentially influencing the valuation of the company’s stock. The forward price/earnings-to-growth (PEG) ratio of 0.37, which may seem attractively balanced at first glance, also suggests that any downward revisions to the EPS could trigger a significant decline in stock value. So far, analysts have revised EPS estimates upward. Nonetheless, it should be noted that this trend could reverse if these estimations fail to materialize.
ASML Holding N.V. (ASML)
ASML develops, produces, markets, sells, and services advanced semiconductor equipment systems. Its key product line is high-end, extremely expensive, and intricate systems for semiconductor manufacturing that employ extreme-ultraviolet (EUV) light to print features at a resolution of 13 nm – outpacing the reach of deep-ultraviolet (DUV) lithography, used in another product line that ASML also offers.
The EUV systems, exclusive to ASML, have been tremendously successful, enhancing the company’s profit margins and its stock performance over the past five years. In fact, ASML had emerged as the third most valuable publicly listed firm in European stock markets as of late January.
AI system architecture necessitates the inclusion of chips specifically designed to process substantial quantities of data. High-performance memory chips are crucial to achieving the full potential of AI. The criticality of these chips has prompted chip manufacturers to invest in EUV lithography systems, essential elements of advanced chip manufacturing, made available by ASML. Under normal conditions, the delivery time for ASML’s flagship EUV system ranges from 12 to 18 months.
ASML’s critical tools are required by Taiwan Semiconductor Manufacturing (TSM), Intel (INTC), and Samsung to produce advanced AI chips for both their clients and their own needs. This dependence on ASML’s equipment underscores the company’s pivotal role in the ongoing AI revolution.
In 2023, a lethargic order pace from customers and harsh market circumstances posed challenges for ASML. However, during the same year, the company made a resilient recovery. Its resurgence in orders coincides with the continued competition among top-tier chip manufacturers striving to develop 2-nanometer chips, thus enhancing the computing speed of AI algorithms. The imminent inauguration of several chipmaking facilities is also projected to amplify the demand for ASML machines further.
ASML disclosed solid earnings for the fiscal fourth quarter of 2023. Driven by the demand for the specific equipment necessary for AI chip production, net booking reached €9.19 billion ($9.95 billion), of which €5.6 billion ($5.85 billion) is EUV. Sales escalated to €7.24 billion ($7.84 billion), generating €2.05 billion ($2.22 billion) in profits representing an 8.2% year-over-year increase.
ASML’s order lead time of 12 months to 18 months indicates that customers placing an order now can anticipate delivery during the initial half of 2025. It is projected that the order backlog will maintain its swift growth in subsequent quarters, reinforcing management’s narrative of future growth and market stability at the bottom of the cycle.
ASML was highly profitable last year, with shares peaking in the first half of 2023 before briefly declining and then rebounding to approach historic levels unseen since late 2021. This surge can be attributed to ASML’s well-received earnings report for the fiscal fourth quarter of 2023. However, the company’s current premium valuation and tempered outlook for its 2024 financial performance raise some concerns.
ASML’s non-GAAP P/E ratio of 43.16x suggests a high valuation, indicating the potential for ASML to face some financial pressures. The firm will also need to navigate potential challenges ahead, particularly regarding Chinese chipmakers impacted by export restrictions. Nevertheless, ASML foresees continued robust demand despite potential volatility in this market.
Despite these immediate challenges, ASML remains bullish for the long term about the industry it serves. The company views 2024 as a “transitional” year, predicting that its semiconductor clients are on their way through the bottom of their business cycles and will, therefore, increase demand for its systems significantly in the latter half of 2024 and even more so in 2025. In preparation for this predicted uptick in demand, ASML is actively investing in capacity ramping and technological advancement.
Financial analysis firm Jefferies further supports ASML’s optimistic outlook, declaring that ASML is well-positioned to capitalize on an anticipated surge in AI demand. Based on this projection, it forecasts ASML’s revenue to grow at a 21% CAGR between 2022 and 2025.
The Winner
Peter Lynch once said, “Everybody is a long-term investor until the market goes down.” During a market crash, plenty of investors retreat hastily, potentially missing out on substantial long-term gains. Therefore, a more prudent strategy would be to stay the course throughout downturns or even increase share purchases via dollar-cost averaging.
Nonetheless, this tactic is only applicable to robust, sustainable companies. Two firms fitting these parameters are NVDA and ASML – both undoubtedly presenting compelling long-term retirement investment opportunities.
However, there are certain factors one should consider. NVDA’s trailing-12-month gross profit margin of 69.85% is higher than ASML’s 51.29%. In addition, NVDA’s trailing-12-month cash from operations of $18.84 billion is higher than ASML’s $6.01 billion. Thus, NVDA seems more profitable.
Turning to growth, NVDA has exhibited an impressive revenue increase at a 44.8% CAGR over the past three years, while ASML trails with a still respectable growth at a 25.4% CAGR. During the same period, NVDA’s net income grew at a 70.3% CAGR compared to ASML’s 30.2% CAGR.
However, NVDA carries a heavy price tag reflected by its forward EV/EBITDA multiple of 47.34, higher than ASML’s 33.05. Similarly, NVDA’s high forward EV/Sales of 26.22x, compared to ASML’s 11.31x, further emphasizes the costliness of NVDA stocks.
NVDA possesses an astounding 90% stake in the AI chip market, which, when coupled with its astounding profitability and growth, underscores its industry dominance despite its lofty valuation.
The unprecedented demand surge for ASML machines, prompted by the burgeoning need for AI infrastructure, signifies the pivotal role the company plays in revolutionizing AI technologies. Notably, specialized AI chips, such as those fabricated by NVDA using ASML’s architecture, perpetually dominate the field, stressing the substantial weight ASML carries within the AI sphere.
However, growing production capacity due to ASML’s record orders could produce potential price dips, impacting the industry negatively. The massive investment influx in semiconductor production may reduce pricing power and, contract margins and profits.
Turning a keen eye on dividends, NVDA pays an annual dividend of $0.16 per share, equating to a yield of 0.03%. Meanwhile, ASML offers a substantial dividend of $6.12 per share, yielding 0.70%. Also, ASML’s dividend grew at CAGRs of 34.9% and 30.7% over the past three and five years. Hence, investors aiming for dependable, long-term returns could consider allocating their resources toward incorporating ASML into their portfolios.
Undeniably, NVDA’s robust expansion is praiseworthy, with management consistently portraying an optimistic outlook for the company’s future. However, the firm is not without risk. With NVDA’s shares currently trading at 26.2x sales and 50.8x earnings, these valuations indicate that any slight mishap has the potential to jolt the company’s market standing significantly. Given the prevailing market irregularities, potential hazards, and sluggish price momentum, exercising caution and waiting for a better entry point on the stock may be a sensible strategy.

ASML vs. Nvidia: The Battle for AI Dominance Heats Up Read More »

INO.com by TIFIN

Salesforce (CRM) vs. Alphabet (GOOGL): AI’s Role in Tech Layoffs Unveiled

Since the launch of ChatGPT in November 2022, GenAI has been reshaping the future of work. From automating routine tasks to transforming entire job roles, generative AI is making a significant impact across multiple industries. A rapid acceleration of task automation could assist organizations in driving labor cost savings and boosting productivity.
If generative AI delivers on its promised capabilities, the labor market could face considerable disruption. Using data on occupational tasks in the U.S. and Europe, Godman Sachs Global Investment Research finds that about two-thirds of today’s jobs are exposed to some degree of AI automation. And this technology could substitute up to one-fourth of current work.
Goldman Sachs estimates that GenAI will eventually automate nearly 300 million of today’s full-time jobs globally.
AI’s Role in Latest Tech Layoffs
With just a month into the new year, tech layoffs are starting to pile up; however, analysts consider this a new normal for Silicon Valley in a considerable pivot to AI. The job cuts are not on the same scale as in late 2022 and early 2023 when tech companies got rid of thousands of employees, a blowback from the frenzied hiring that took place during the pandemic when everyday life turned digital.
According to layoffs.fyi, a California-based website that tracks the tech sector, the industry lost around 160,000 jobs last year. So far this year, tech layoffs are at nearly 24,584, the site showed, from 93 companies.
Layoffs.fyi estimates that approximately 20% of job cuts are brought on by AI and restructuring associated with it. Moreover, Silicon Valley jobs are on the front line, with some coding tasks primarily carried out by generative AI.
Cloud-based software provider Salesforce, Inc. (CRM) announced that it will be laying off about 700 employees, roughly 1% of its global workforce, adding to a brutal string of tech layoffs at the start of 2024. This move comes amid ongoing cost-cutting pressures from investors, including activist shareholders like Elliott Management, to boost its profit margins.
A year ago, CRM lowered its headcount by 10% as a part of its rebalancing efforts after a pandemic-era hiring boom.
Despite the recent cuts, Salesforce is still reportedly hiring for 1,000 open roles across the company, indicating that these layoffs could be a part of an adjustment in its workforce. The company’s focus is directing spending toward growth.
An unnamed source cited in the Wall Street Journal report that the latest round of layoffs could be more of a routine adjustment to the company’s headcount rather than a reactive measure to ongoing economic challenges.
Earlier this month, another tech company, Alphabet Inc. (GOOGL), laid off hundreds of employees across the company as it continues to push for efficiency and focus on its biggest product priorities and significant opportunities ahead.
According to the company, the job cuts will impact employees within Google’s hardware, voice assistance, and central engineering teams. Also, other parts of the tech company were affected.
This layoff announcement marks the latest cost-cutting effort at Google as it continues to work to rein in the drastic headcount growth that took place during the pandemic. In January last year, Google cut its workforce by 12,000 employees or nearly 6% of its employee count. Later in the year, the company made other cuts to its recruiting and news divisions.
Moreover, Google shifted its focus to prioritize developments in AI, launching products such as chatbot Bard and the large language model (LLM) Gemini as it aims to keep up with rivals, including Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN).
This season’s tech layoffs are being framed more as restructuring rather than cutting down from prior over-hiring efforts; suggesting that even if employees lose their jobs, there could be some security within the industry more broadly. So, investors shouldn’t worry much about the recent job cuts.
Shares of CRM have gained nearly 27% over the past six months and more than 74% over the past year. Meanwhile, GOOGL’s stock has surged more than 14% over the past six months and approximately 55% over the past year.
Now, let’s review the fundamentals of CRM and GOOGL in detail:
Latest Developments
On January 14, 2024, CRM, at NRF 2024, announced new data and AI-powered tools for retail to help businesses drive efficiency and deliver connected shopping experiences. The Einstein 1 Platform will power these new retail innovations.
With generative AI built into Commerce Cloud and Marketing Cloud, retail merchandisers and marketers can tap into these generative tools with a real-time understanding of customer behavior and preferences to optimize every customer interaction — enhancing loyalty, boosting revenue, and driving employee productivity.
Also, on December 14, 2023, Salesforce unveiled major updates to its Einstein 1 Platform, adding the Data Cloud Vector Database and Einstein Copilot Search. Data Cloud Vector Database will unify all business data, including unstructured data like PDFs, emails, and transcripts, with CRM data to allow the grounding of AI prompts and Einstein Copilot.
Einstein Copilot Search will offer AI search capabilities to deliver accurate answers from Data Cloud instantly in a conversational AI experience, thereby driving productivity for all business users.
For GOOGL, 2023 was a remarkable year of significant advances in AI and computing. On December 6, Google launched its largest and ‘most capable’ AI model, Gemini, which will be in three different sizes: Ultra, Pro, and Nano.
Enterprises could use Gemini for advanced customer service engagement through chatbots and product recommendations and identifying trends for companies looking to advertise their products. Also, it could be used for content creation.
In November, Google further announced a new DeepMind model, Lyria, in partnership with YouTube. Lyria is an advanced AI music generative model that will create vocals, lyrics, and background tracks mimicking the style of famous artists. This model is available on YouTube through two distinct AI experiments – DreamTrack for Shorts and Music AI tools.
Last Reported Quarterly Results
CRM’s total revenues increased 11.3% year-over-year to $8.72 billion for the fiscal third quarter that ended on October 31, 2023. Its gross profit was $6.57 billion, up 14.2% from the year-ago value. Its income from operations rose 226.3% from the prior year’s quarter to $1.50 billion. The company’s free cash flow came in at $1.37 billion, an increase of 1,088% year-over-year.
In addition, Salesforce’s non-GAAP net income grew 47.9% from the previous year’s period to $2.09 billion. Its non-GAAP EPS came in at $2.11, surpassing the consensus estimate of $2.06 and up 50.7% year-over-year.
For the third quarter that ended September 30, 2023, GOOGL reported revenue of $76.69 billion, compared to analysts’ estimate of $75.73 billion and up 11% year-over-year. Its income from operations grew 24.6% from the prior year’s quarter to $21.34 billion. Its income before income taxes rose 30.6% year-over-year to $21.20 billion.
Google parent Alphabet’s net income increased 41.5% year-over-year to $19.69 billion. It posted net income per share of $1.55, compared to the consensus estimate of $1.45, and an increase of 46.2% year-over-year. Further, as of September 30, 2023, the company’s cash and cash equivalents stood at $30.70 billion, compared to $21.88 billion as of December 31, 2022.
Past And Expected Financial Performance
Over the past three years, CRM’s revenue has increased at a CAGR of 18.7%, and its EBITDA has grown at a 43.4% CAGR. The company’s normalized net income has increased at a CAGR of 188.3% over the same time frame, and its levered free cash flow and total assets have improved at CAGRs of 24.8% and 15.5%, respectively.
Analysts expect CRM’s revenue for the current year (ending January 2024) to increase 11% and 56.5% year-over-year to $34.79 billion and $8.20, respectively. For the fiscal year ending January 2025, the company’s revenue and EPS are expected to grow 10.9% and 16.5% year-over-year to $38.57 million and $9.55, respectively.
GOOGL’s revenue and EBITDA have grown at CAGRs of 20.1% and 26% over the past three years, respectively. Its net income and EPS have improved at respective CAGRs of 23.2% and 26.3% over the same timeframe. Also, the company’s levered free cash flow has increased at a CAGR of 36% over the same period.
For the fiscal year ending December 2024, GOOGL’s revenue and EPS are estimated to increase 10.8% and 15.4% year-over-year to $340.50 billion and $6.69, respectively. Likewise, Street expects the company’s revenue and EPS for the fiscal year 2025 to grow 10.5% and 15.6% from the prior year to $376.34 billion and $7.73, respectively. 
In terms of the trailing-12-month EBIT margin, CRM’s 15.87% is 243.7% higher than the industry average of 4.62%. Its trailing-12-month gross profit margin of 74.99% is 54.8% higher than the 48.43% industry average. Moreover, the stock’s trailing-12-month net income margin of 7.63% is significantly higher than the 2.04% industry average.
GOOGL’s trailing-12-month gross profit margin of 56.12% is 15% higher than the 48.81% industry average. Its trailing-12-month EBIT margin of 27.42% is 226.8% higher than the 18.39% industry average. Likewise, the stock’s trailing-12-month net income margin of 22.46% is 541.4% higher than the industry average of 3.50%.
Bottom Line
The tech industry remains focused on trimming costs via job cuts. More than 20,000 tech employees have been laid off so far in 2024. CRM is the latest tech company to announce about 700 layoffs. However, the company still has plenty of job openings, roughly 1000, suggesting that these cuts might not be a drastic strategy shift but a routine labor force adjustment.
Similarly, tech giant Google signaled layoffs this month. Google CEO Sundar Pichai warned employees of more job cuts this year as the company continues to shift investments toward areas like AI. In a memo titled “2024 priorities and the year ahead,” Pichai stated that the company has ambitious goals and will be investing in its big priorities in 2024.
“The reality is that to create the capacity for this investment, we have to make tough choices,” Pichai said. For some teams, that means eliminating roles, which includes “removing layers to simplify execution and drive velocity,” he added.
Many fear that these job cuts could be related to Google’s rollout of AI across its advertisement department, effectively witnessing the technology replace humans. Also, given Salesforce’s heavy investments in AI, people can’t help but wonder if the technology could be threatening its workforce.
In today’s digital era, AI undoubtedly stands out as one of the most influential forces shaping the future of work. AI technology is making its dramatic impact felt, especially across the tech industry, from automating business operations to transforming entire job roles.
While some tasks/jobs are being automated, replacing humans, new roles are emerging with AI integration. Tech companies’ increased focus on AI is leading to a hiring surge in this area while other sectors face layoffs.
This season’s job cuts in the tech industry are viewed more as restructuring efforts rather than navigating economic challenges or cutting down from previous over-hiring during the pandemic. So, the latest tech layoffs should be the least of investors’ worries, and they can continue to hold CRM and GOOGL shares. 

Salesforce (CRM) vs. Alphabet (GOOGL): AI’s Role in Tech Layoffs Unveiled Read More »

INO.com by TIFIN

Examining AMD as a High-Growth, Long-Duration Asset Amid Chip Optimism

Since the inception of civilization, humanity has perpetually sought the next groundbreaking advancement, extending across diverse fields, including entertainment, fashion, and technology. It is the forecasters, with one foot in the present and the other steering toward the future, whose evolutionary visions brought about automobiles, airplanes, and the internet.
While such visionaries may not always accurately predict the future, their ambitions fuel our relentless quest for innovation. In the spotlight recently has been Artificial Intelligence (AI), notably after OpenAI unveiled ChatGPT, a comprehensive language model that millions employ for diverse purposes such as searching, parsing, and content creation.
In the current digital era, the significance of semiconductors is evident. Powering an extensive array of devices from smartphones to aircraft, these components enhance the utility of modern electronics and act as technological accelerators, driving advancements in AI, machine learning, and quantum computing.
The semiconductor industry displays robust growth and is expected to expand at a CAGR of 9.18% by 2030, reaching $1.03 trillion.
The surge in demand for AI applications across different sectors for effective big data management serves as a key factor propelling the worldwide AI chip market’s growth. Consequently, the market is anticipated to reach about $372.01 billion in 10 years.
Additionally, the rising requirement for quantum computing, especially for handling mammoth datasets linked to operational efficiency, is gaining increased prominence, which is forecasted to drive substantial market expansion.
Chip giant Advanced Micro Devices, Inc. (AMD) is set to officially join the AI chip competition in 2024. At the beginning of the second half of 2023, the tech titan announced the forthcoming MI300x GPU chipset.
According to AMD, the AI chip market, valued at $45 billion, is predicted to soar nearly tenfold to $400 billion by 2027. With an eye on this lucrative landscape, AMD’s newly developed MI300X chipset is designed to vie with the AI-darling Nvidia Corporation’s (NVDA) flagship H100 for AI data center clientele.
According to AMD’s forecasts, the new chips will generate an additional $2 billion in sales in 2024 – a figure some deem conservative considering the immense potential of the total addressable market. In contrast, analysts at Barclays project a figure closer to $4 billion – translating to roughly 18% growth rate based on AMD’s trailing-12-month revenue, assuming all other business operations remain steady.
Over the past three and five years, AMD’s revenue grew at CAGRs of 36.8% and 28.2%, respectively, while its levered FCF grew at 68.2% and 84.4% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, AMD delivered strong revenue and earnings growth fueled by rising demand for its Ryzen 7000 series PC chips and an all-time high in server processor sales. Its revenue for the quarter stood at $5.80 billion, up 4.2% year-over-year.
AMD’s data center business is on a significant growth trajectory, rooted in the strength of its EPYC CPU portfolio and the accelerated shipments of Instinct MI300 accelerators. These factors have fortified multiple deployments across hyper-scale, enterprise, and AI customer frameworks.
Moreover, its non-GAAP net income and net income per share increased 3.7% and 4.5% from the year-ago quarter to $1.14 billion and $0.70, respectively.
AMD is scheduled to report fourth-quarter earnings on January 30, 2024. AMD EVP, CFO and Treasurer Jean Hu said, “In the fourth quarter, we expect to see strong growth in Data Center and continued momentum in Client, partially offset by lower sales in the Gaming segment and additional softening of demand in the embedded markets.”
Wall Street expects AMD’s revenue and EPS for the fiscal fourth quarter ending December 2023 to be $6.14 billion and 77 cents, up 9.6% and 11.6% year-over-year, respectively. If it delivers on those estimates, it will mark the fastest sales growth in one year. The company has surpassed the consensus revenue and EPS estimates in all of the trailing four quarters, which is impressive.
Shares of AMD jumped 5.9% on January 24, soaring above 140% over the past year. Since October, AMD has seen an approximate increase of 65%, comfortably outperforming the AI darling NVDA and the Philadelphia Semiconductor Index during this period. The S&P 500 registered just a 15% uptick.
This week alone, AMD surged above 12%, trouncing NVDA’s increase. The significant leap in AMD shares is attributed mainly to the burgeoning potential to secure a prominent slice of this year’s AI chip market.
Additionally, this week saw a significant boost when several notable analytics firms – including Barclays Plc, Susquehanna Financial, and TD Cowen – elevated their price targets for AMD.
Barclays emerged with the loftiest target at $200 per share, surging from $120. This optimistic adjustment primarily stems from high expectations for artificial intelligence as a key growth stimulant. Notably, over 70% of analysts monitoring AMD are recommending a buy-equivalent rating.
However, Wall Street analysts expect the stock to reach about $156 in the next 12 months, indicating a potential downside of 12.6%. The price target ranges from a low of $105 to a high of $215.
Bottom Line
Growth projections from AMD’s MI300X chip family are a lot to receive from one type of product. Should AMD’s ambitious forecasts regarding AI chip demand materialize, investors could anticipate a considerable escalation in sales in a couple of years.
Investors should remain aware that the AI sector does not exclusively entail a winner-take-all scenario. The market’s rapid expansion could allow multiple companies to carve out their successes. Although entering the market later than others, AMD may establish a competitive edge through cost-effectiveness, nurturing an esteemed standing within a balanced and diversified investment portfolio.
The early adopters of the MI300A/X are unlikely to obtain high profits initially – they will enjoy competitive pricing until demand gains traction. By nature, building momentum takes time, and if AMD stays true to its usual course of action, it will focus on long-term progress rather than immediate financial gain.
AMD’s stock price could fluctuate significantly, and despite positive reports and guidance, it may take several estimated returns to invoke a maximum increase. This is because AMD must substantiate its guidance, requiring, at a minimum, another quarter to validate and replicate its success.
Moreover, there are significant issues like demonstrating market competitiveness, particularly concerning software adoption. Some investors view AMD’s rival, NVDA, as a dominant player in the GPU space. For AMD to make its mark, it must prove its ability to lead on its terms, complementing its other endeavors. This validation process will require time and consistency.
While waiting, macroeconomic risks persist, ranging from ongoing wars to the potential of economic recession and fluctuating interest rates. Staying the course involves maintaining progress amid potentially adverse circumstances.
From an investment standpoint, it is critical to acknowledge AMD’s forward non-GAAP P/E multiple of 67.17, signaling that AMD’s stock is substantially more expensive than the industry average.
Furthermore, AMD’s 12.71x forward P/S is 330% greater than the industry average of 2.95x. Its revenue has increased at a modest CAGR over the past three years, and analysts predict a 15% annual growth rate for the next three years. However, these projections are less robust than the industry average, suggesting a potential shortfall in expected revenue for AMD. It is thus concerning that AMD’s P/S supersedes most within the same industry.
The disquieting underperformance in its revenue projections spells potential risk for AMD’s elevated P/S. If the anticipated revenue trend doesn’t take an upward turn, it could negatively impact the already high P/S. Given the current market prices, it would be prudent for investors to exercise caution, particularly if the situation fails to enhance.
Therefore, investors could wait for a better entry point in the stock.

Examining AMD as a High-Growth, Long-Duration Asset Amid Chip Optimism Read More »

INO.com by TIFIN

Short Squeeze Alert: Analyzing the Impact of JetBlue’s Blocked Acquisition on SAVE Stock

The past few days have proven to be quite turbulent for Spirit Airlines, Inc. (SAVE), with notable fluctuations in its market value. From a federal judge opposing a proposed merger, sending SAVE stock into a nosedive, to David Portnoy investing in and promoting the company on January 18, resulting in SAVE’s share price surge – the airline stock garnered significant attention.
The initial blow to the ultra-low-cost carrier’s stock unfolded last week when JetBlue Airways Corporation’s (JBLU) $3.8 billion bid to takeover SAVE was thwarted by court intervention. This resulted in a sharp drop of as much as 74% over three days, throwing the fate of the previously secure deal into uncertainty. This drew attention to the mounting question about the survival prospects for SAVE.
Navigating the airline industry presents several complications. The inevitable costs associated with acquiring aircraft and employing relevant staff mount up, especially considering the volatile nature of jet fuel prices. This renders the sector vulnerable to bankruptcy, as demonstrated by prominent airlines, such as Pan Am, and countless smaller entities. Occasionally, airlines can re-emerge post-Chapter 11 restructuring, emulating the revival of American Airlines in 2013.
In other instances, they vanish indefinitely, leaving travelers in the lurch. According to TD Cowen analyst Helene Becker, SAVE may also be at risk.
Additionally, there is fervor among the investment community fueled by a return to bullish attitudes and a robust performance by S&P 500 and Nasdaq in the past year. Such success encourages “get rich quick” mentalities, evidenced by a flood of social media messages advocating for SAVE shares to skyrocket imminently without any factual basis.
Despite this, some analysts do not predict either a bankruptcy or a dramatic escalation for SAVE. Furthermore, the company reaching a book value of $12.06 per share is also not anticipated.
This article sheds light on the latest updates, evaluates SAVE’s fundamentals, and provides prospective investors with guidance regarding SAVE’s future value.
The Merger
The proposed merger would position JBLU as the fifth-largest airline in the U.S., vigorously contesting long-standing dominators Southwest, American, Delta and United Airlines. With an estimated domestic market share of 10%, it promised to diversify flight options and stimulate industry competition.
The acquisition was conjectured to enhance JBLU’s cancellation policy through the planned substitution of SAVE’s non-refundable fares with JBLU’s Passenger Bill of Rights, which ensures an automatic reassessment upon inevitable delays and cancellations. The resultant entity could minimize flight delays and cancellations due to the availability of an expanded fleet and heightened pilot workforce following the merge.
Furthermore, JBLU’s route network was expected to broaden, encompassing SAVE’s reach in Central and South America and the Caribbean, supplementing its existing local and international destinations.
A federal judge, however, recently blocked the merger, arguing that SAVE’s cost-sensitive customer base could be harmed. The court determined that the consolidation would infringe on antitrust law, which is designed to prevent anti-competitive harm to consumers. The decision highlighted a potential decrease in affordable ticket options for price-conscious travelers nationwide.
Concerns were voiced about escalating ticket prices, particularly for low-cost seekers, considering JBLU’s previous estimation of a 30% price hike in the absence of SAVE as a competitor.
A surge in SAVE’s market value triggered by the proposed merger piqued the interest of arbitrage investors looking to capitalize on price gaps between company equity and the offer price. However, the merger’s block prompted investors to withdraw, subsequently depreciating SAVE’s stock value.
A joint appeal by JBLU and SAVE against the ruling in hopes of reviving the merger is another interesting twist in the carriers’ merger attempt. SAVE’s stock price experienced a slight rebound in response to this move.
SAVE’s stock witnessed an upward trend after Barstool Sports founder Dave Portnoy took to Twitter and openly commended SAVE’s value. His proclamation of SAVE as a “mega buy” sparked a late-week rally.
Despite these developments, it seems improbable that the judicial verdict will be overturned. The merger blockage is anticipated to persist. Potential investors should assess SAVE on individual merit and without expectations for the completion of such a corporative action.
Let’s delve deeper into the fundamentals of SAVE.
The airline, with a market cap of approximately $898 million, boasts an extensive workforce numbering over 11,000 employees. The ownership structure of the company shows a mix of roughly 0.5% insiders and about 67.7% institutional holders.
Since the onset of the COVID-19 pandemic, SAVE has grappled with financial sustainability. Their ticket sales have not seen recovery at the pace anticipated, and several of its planes are being temporarily grounded due to engine problems necessitating inspection and possible replacements. SAVE anticipates an average of 26 grounded aircraft, over 10% of its fleet, during 2024. As a result, Pratt & Whitney engines on numerous Airbus jets could drastically hamper immediate growth predictions for the company.
SAVE raised $419 million through the mortgage of many of its airplanes. However, the future options for raising liquidity seem limited. As per results for the fiscal third quarter that ended September 30, 2023, SAVE’s overall operating revenue stood at $1.26 billion, a 6.3% year-over-year decline. The net loss for the quarter was reported at $157.55 million, a 333% rise year-over-year, while net loss per share surged by 336.4% from the year-ago quarter to $1.44.
The precarious liquidity situation at SAVE is hinted at by its quick ratio of 0.69. Its Total Debt/Equity ratio exceeding 500% indicates that for every dollar of equity, the company holds five dollars in debt. This high leverage exposes the company to greater risk while settling its debt.
On December 31, 2023, SAVE’s liquidity stood at $1.3 billion, including unrestricted cash and equivalents, short-term investment securities, and $300 million under a revolving credit facility. The company is currently in talks with Pratt & Whitney to negotiate compensation for the geared turbofan engine faults that may provide significant liquidity in the next few years.
While SAVE is not bankrupt and still commands liquidity, they are not without challenges. Their $1.3 billion is barely above their debt due in 2025 – amounting to $1.1 billion, which is slated for restructuring next year.
Given that higher risk-free rates have led to a cooling of corporate debt markets, creating an unfavorable environment for debt refinancing, SAVE’s management team must explore severe measures to ensure the corporation’s ongoing viability, especially when the likelihood of the merger being off the table is high.
Credit rating company Fitch has issued a warning regarding the “significant refinancing risk” SAVE is expected to encounter in the coming year due to the $1.1 billion debt owed by its loyalty program, which is due for repayment in September 2025. Although Fitch has maintained a B/Negative credit rating for SAVE’s debt, it has encouraged the airline to formulate a near-term strategy to increase liquidity, reduce refinancing risk, and boost profitability to prevent further negative ratings.
Details concerning this scenario are expected to emerge on February 8, 2024, when the company will disclose its 2023 fourth-quarter results.
Despite the challenges, SAVE is optimistic about its future earnings – projecting that total revenue will surpass prior estimations. The airline anticipates its fourth-quarter revenue to come at $1.32 billion, which exceeds the higher benchmarks established in its prior projection. This optimistic outlook is primarily attributed to the robust bookings received during the 2023 year-end travel peak.
The airline also forecasts a fuel cost reduction that would help relieve some revenue pressure and enable increased earnings. Operational costs for the quarter are expected to be lower than predicted, primarily due to decreased fuel expenses driven by improved fuel efficiency, reduced airport costs, and other factors. Additionally, SAVE predicts a significant contraction in its negative margin, foreseeing it to shrink down to between 12% and 13% from the previously anticipated negative margin of up to 19%.
Is SAVE a Worthy Investment?
When a stock encounters difficulties as notable as those faced by SAVE, the conversation invariably turns toward short-squeeze speculation. Despite recent losses, SAVE’s share trajectory appears to have rebounded. However, it’s plausible that this upward momentum results in more from short-squeeze speculation among retail investors than it does from positive news about the airline itself.
The current high level of short interest in SAVE stock further buttresses this theory. Data pulled from the short analysis platform Fintel corroborates this, showing that the short interest is 19.75%. Short sellers presently only have a minuscule 0.27-day window to cover their positions.
Considering SAVE’s shaky foothold, Citi’s analyst, Stephen Trent, has downgraded the company from a Hold to a Sell, simultaneously lowering the price target from $13 to $4.
While there remains the possibility of an appeal, Trent questions its logic, stating, “…it is unclear why JetBlue wouldn’t cut its losses here and recognize that it avoided a risky bid on a highly levered carrier with steep losses.”
He further predicts that SAVE’s EBITDA isn’t likely to turn positive until 2025. A bond yield surpassing 40% augments the hurdles SAVE faces in securing another merger proposal.
Bottom Line
Undoubtedly, the previous week proved to be a stormy period for SAVE. However, some observers are optimistic that the company may recover and could potentially regain its value.
The future now hinges on the appeal filed jointly by SAVE and JBLU; its potential impact on the stock price in the coming weeks remains unknown.
Given the various challenges currently plaguing SAVE, the trend of short selling seems almost unavoidable. Indeed, SAVE presents a distinct possibility for a short squeeze, given its bleak future, which might include bankruptcy or liquidation. It’s feasible that investors could identify it as their subsequent target. Nevertheless, this offers no guarantee of sustained squeeze or any significant profits.
It becomes crucial for investors to closely monitor SAVE’s overall performance moving forward. Unlike its competitors, the company hasn’t been able to recover due to a host of difficulties. This includes the availability of pilots, engine malfunctioning, saturation in certain domestic markets, and pronounced exposure to regions impacted by air traffic control adversities.
Considering the broader context, investors are advised to exercise caution and look for more favorable entry points in the stock.

Short Squeeze Alert: Analyzing the Impact of JetBlue’s Blocked Acquisition on SAVE Stock Read More »

INO.com by TIFIN

Bitcoin’s Performance Amid ETF Flux – a Closer Look at Fidelity and BlackRock

On January 10, 2024, the Securities and Exchange Commission (SEC) authorized 11 U.S.-listed exchange-traded funds (ETFs) focused on Bitcoin investments, subsequently unlocking a new asset class for a broad spectrum of investors and simplifying the path to gaining direct exposure to the digital currency.
This highly anticipated decision garnered significant participation from institutional and retail investors in the cryptocurrency market, spurring substantial inflows. Notably, new U.S. spot Bitcoin ETFs witnessed $4.6 billion in volume on their inaugural trading day, as per data from the London Stock Exchange Group.
A week after the launch of these ETFs, intriguing patterns began to materialize. Spot Bitcoin ETFs currently command more than 100,000 Bitcoin, which implies an Asset Under Management (AUM) estimated at approximately $4 billion. This important revelation signifies the escalating amalgamation of Bitcoin into traditional financial systems and underlines the amplified role of cryptocurrency within the investment community.
Grayscale, leading the pack as the largest Bitcoin holder in the ETF segment, remains at the cutting edge of this Bitcoin acquisition drive. Its holdings reached an impressive tally of 552,681.2268 BTC. This substantial investment further solidifies Grayscale’s standing as a major contributor in the crypto sphere and hoists Bitcoin ETFs above Silver to rank them as the second-largest commodity ETF based on holding size.
Following Grayscale’s lead, BlackRock’s ishares Bitcoin Trust (IBIT) secures its position as the runner-up in terms of Bitcoin holdings with an impressive 39,925 BTC in its vault. Fidelity Wise Origin Bitcoin Fund (FBTC) continues to hold robust with 34,126 BTC. These figures exhibit significant engagement from leading financial institutions in the expanding cryptocurrency market, marking a considerable shift toward digital assets in investment strategies.
Upon winning ETF approval, Bitcoin’s price momentarily soared to $48,000, only to face a subsequent downturn. This volatility alludes to an unpredictable market where current selling pressures seem to outweigh buying activities.
Adding to the uncertainty is BitMEX founder Arthur Hayes foreseeing a further dip in Bitcoin’s value below the $40,000 mark, a prediction affirmed by acquiring 29Mar $35k strike puts. Hayes’ cautious approach mirrors his acquisition, amounting to 5 BTC, revealing a reserved perspective for the immediate future of this cryptocurrency.
The existing market landscape, combined with expert evaluations and forecasts, hints at a potential slump for Bitcoin in the near term. While the approval of spot Bitcoin ETFs stands as a critical step in Bitcoin’s mainstream acceptance, the path ahead presents an element of vagueness.
U.S. Spot Bitcoin ETF fluctuations could be rooted in various factors apart from Bitcoin’s price oscillations. The spot Bitcoin ETFs depend on Authorized Participants (APs) to create and redeem ETF shares in return for Bitcoin. These APs procure Bitcoin from varied platforms, which might differ in liquidity levels, fees, and risks; these variations can impact the price of the ETF and the NAV of funds. Furthermore, management fees could also have an impact on the returns on ETFs.
Of the 11 freshly introduced spot ETFs, two funds particularly stood out in terms of net inflows: BlackRock’s ishares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC).
BlackRock and Fidelity commanded the investors’ attention, jointly netting 68% of all inflows during the first week (IBIT accounting for 37% and FBTC for 31%). IBIT swiftly amassed $1 billion in assets within four days of trading, while FBTC achieved the same feat on the fifth trading day. The two funds have each generated over $2 billion in trading volumes since inception.
The regulatory nod sparked intense competition for market share among the issuers. The issuers have deployed strategies to cut expense ratios and offer fee waivers. For instance, the FBTC underwent an initial proposal of a 0.39% fee, which was later reduced to 0.25%, coupled with a fee waiver effective until July 2024. Meanwhile, IBIT charges a 0.12% fee for the first 12 months for assets up to $5 billion. Both IBIT and FBTC charge 25 basis points in fees.
Investors considering a Bitcoin ETF should bear in mind that although these ETFs generally operate in a similar fashion with minor disparities, the expense ratio remains a pivotal factor in the decision-making process.
Let’s delve deeper into the Bitcoin ETFs leading the pack now.
ishares Bitcoin Trust (IBIT)
IBIT, the BlackRock-owned Bitcoin ETF, emerges as a leading choice for retail investors due to its superior liquidity and affordable expense ratio. As a titan in the financial world, BlackRock remains unparalleled in its position as the most extensive ETF manager globally, with an AUM of $3.5 trillion across its portfolio of global ETF investment vehicles as of December 31, 2023. This powerhouse backing makes IBIT an assured choice for those seeking Bitcoin offerings buttressed by a sophisticated and large-scale financial structure.
The planning is such that IBIT vows an accessible expense ratio of 0.12% for the fund’s initial $5 billion in assets over the ensuing year. An annual expense ratio of 0.25% is projected to kick in from January 2025.
Standing true to its promise of liquidity, IBIT has already amassed over $1 billion worth of Bitcoin in its reserves, a feat rivaled only by the SPDR Gold Trust (GLD), which impressed the markets by garnering $1 billion in assets within three days of its inauguration in 2004.
As of January 22, IBIT had $1.34 billion in AUM and an impressive NAV of $22.86. It registered net inflows of $1.12 billion over the past five days. IBIT holds about 39,925 BTC, valued at roughly $1.62 billion.
Despite experiencing a dip of 7.2% over the last five days, closing the last trading session at $22.95, IBIT maintains its allure among investors. Its swift popularity underscores it as an ideal option for those looking to diversify their portfolio with cryptocurrency and cultivate growth over time.
Fidelity Wise Origin Bitcoin Fund (FBTC)
FBTC, another notable name in Bitcoin ETFs, boasts a low expense ratio. However, investors with significant capital ready for deployment into Bitcoin ETFs are in luck, as FBTC has decided to waive even these modest fees until August 1, 2024. After this date, it will implement an expense ratio of 25 basis points.
Notably, Fidelity serves as the largest 401(k) plan and service provider in the nation. This development positions both individual investors and asset managers to seamlessly incorporate Bitcoin into comprehensive retirement strategies.
Crypto bears might argue against such a move, but it’s worth considering: Would a competent asset manager willingly forsake prospective gains by excluding a Bitcoin ETF from their client portfolio? Allocating even a small portion toward this asset could potentially yield substantial returns in relation to the total investment, given Bitcoin’s impressive performance trajectory over the past decade. Concurrently, with individuals reevaluating their 401(k) strategies leading up to 2024, a surge of capital directed toward FBTC is predictable.
As of January 22, FBTC had $1.21 billion in AUM and an NAV of $35.08. Its net inflows were $1.07 billion over the past five days. FBTC holds about 34,126 BTC, valued at roughly $1.37 billion.
Despite these positive indicators, FBTC plunged 7.3% over the past five days, closing its last trading session at $35.18.
Bottom Line
With the advent of Bitcoin ETFs, investing in this unique asset class has become less complex, potentially elevating its position within the financial industry. These recently launched ETFs provide a broad spectrum of investors with a simpler approach to gaining exposure to the crypto asset.
Shortly before the SEC approved the ETFs, it re-emphasized its previous “no FOMO” cautionary message to investors. Aimed at highlighting the volatility of digital assets, the warning underlines how investments tied to current popular trends like cryptocurrencies can experience periods of severe fluctuations, translating into drastic changes in value both positively and negatively.
The SEC’s approval brings much-needed standardization and regulatory supervision to digital asset investment. However, experts are advising mainstream investors to proceed with caution, pointing out that Bitcoin still distinguishes itself as a speculative asset.
News of Bitcoin ETFs has made headlines, even though their trading results may not meet the initial hopes of crypto bulls. Nevertheless, many see brighter days closing in. Potential future record cash inflows into these funds might be on the horizon as financial advisors and wealth managers consider incorporating them into their clients’ diversified portfolios.
Bitcoin’s primary utility arises from its function as a form of value storage akin to gold. The day that central banks initiate the acquisition and storage of Bitcoin will signify its arrival at the forefront of the financial world. The price is now around $39,000, and it appears to be headed lower. After the establishment of a true base, a progressive increase in its price over time could be projected as governments devalue their fiat currencies.
With the introduction of spot ETFs, we’re starting to see the beginnings of real price discovery. This process could further develop in a couple of months.
Prestigious investment managers such as Fidelity and BlackRock’s iShares should not be overlooked in this space. Their competitive edge in the traditional ETF fees arena may eventually give them an advantage over smaller rivals. Considering the slight disparity in fees between these funds and market leaders, long-term Bitcoin ETF investors might consider opting for these established alternatives.
Although the issuer’s role is arguably minor, ETFs governed by larger asset managers could be more resistant to liquidity issues arising from insufficient demand.
As an example, the IBIT ETF concluded January 22 trading at a 0.41% premium to its net asset value, indicating high demand. On the other hand, the FBTC traded at a 0.30% discount relative to its net asset value, suggesting weaker demand.
In view of the overall market situation, adopting a strategic position in IBIT and FBTC once the price stabilizes would be prudent.

Bitcoin’s Performance Amid ETF Flux – a Closer Look at Fidelity and BlackRock Read More »