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Intel Corporation (INTC), a world leader in the design and manufacturing of computing and other related products, reported fiscal 2023 third-quarter results, surpassing analysts’ expectations on the top and bottom lines. Also, the company provided strong fourth-quarter guidance, implying revenue growth for the first time since 2020.
After posting better-than-expected earnings, INTC’s shares surged more than 9% on Friday. Moreover, the stock crossed the 50-day and 200-day moving averages of $35.58 and $32.07, respectively, indicating an uptrend.
The chipmaker posted third-quarter adjusted EPS of $0.41, beating analysts’ estimate of $0.22. INTC’s revenue was $14.16 billion, above the consensus estimate of $13.60 billion. However, it dropped nearly 7.7% year-over-year, marking the seventh consecutive quarter of declining sales.
But INTC told investors last Thursday that it expects revenue to grow again in the current quarter.
The boost to Intel’s earnings was mainly due to gains made by its foundry business and growing interest in AI, signs of a recovery in the PC market, and management’s ability to stay on course for several initiatives it had previously laid out for the company.
“We delivered a standout third quarter, underscored by across-the-board progress on our process and product roadmaps, agreements with new foundry customers, and momentum as we bring AI everywhere,” said Pat Gelsinger, Intel CEO.
“We continue to make meaningful progress on our IDM 2.0 transformation by relentlessly advancing our strategy, rebuilding our execution engine and delivering on our commitments to our customers,” he added.
Gelsinger told analysts on a call that the company would slash costs by about $3 billion this year. CFO David Zinsner said that Intel’s EPS benefitted from controlling expenses, with operating expenses decreasing 15% from a year ago. INTC said it has 120,300 employees, a decline from 131,500 last year.
Now, let’s discuss several factors that could impact INTC’s performance in the upcoming months:
Positive Recent Developments
On October 30, Intel announced its intent to operate Programmable Solutions Group (PSG) as a standalone business. This move will give PSG the flexibility and autonomy to fully accelerate its growth and effectively compete in the FPGA industry, which serves various markets like the data center, communications, industrial, automotive, aerospace and defense sectors. 
“Our intention to establish PSG as a standalone business and pursue an IPO is another example of how we are consistently unlocking more value for our stakeholders. This will give PSG the independence it needs to keep growing share in the FPGA market, differentiating itself with capacity and supply resilience from IFS, and allowing Intel product teams to focus on our core business and long-term strategy,” said Pat Gelsinger.
On September 29, INTC’s new Fabin Ireland began high-volume production of Intel 4 technology, which uses extreme ultraviolet (EUV) technology. With its Fab 34 production milestone, Intel executes its plan to users in the future for products such as INTC’s upcoming Intel® Core™ Ultra processors, which will pave the way for AI PCs and future-generation Intel® Xeon® processors coming in 2024.
The company’s rising investments in Ireland and existing and planned investments in Germany and Poland create a first-of-its-kind end-to-end leading-edge semiconductor manufacturing value chain in Europe. They serve as a catalyst for additional ecosystem investments and innovations across the European Union (EU).
Mixed Performance in the Last Reported Quarter
For the third quarter that ended September 30, 2023, INTC’s net revenue decreased 7.7% year-over-year to $14.16 billion. Sales in its Client Computing group, including laptop and PC processor shipments, declined 3% from the year-ago value to $7.90 billion. Intel’s Data Center and AI division, which offers server chips, witnessed a sales drop of 10% year-over-year to $3.81 billion.
The company said it has been seeing competitive pressure and a smaller overall market for server processors. Also, Intel’s Network and Edge segment’s revenue was $1.45 billion, down 32% year-over-year.
INTC’s gross margin came in at $6.02 billion, a decline of 7.9% from the prior year’s quarter. However, the company’s non-GAAP operating income grew 16.3% year-over-year to $1.92 billion. Also, non-GAAP net income attributable to Intel was $1.74 billion or $0.41 per share, compared to $1.53 billion or $0.37 in the previous year’s period, respectively.
As of September 30, 2023, the company’s cash and cash equivalents stood at $7.62 billion versus $11.14 billion as of December 31, 2022.
Mixed Historical Performance
INTC’s revenue has declined at a CAGR of 12.2% over the past three years. Its EBITDA has decreased at a 39.3% CAGR over the same period. However, the company’s tangible book value and total assets have improved at respective CAGRs of 22.5% and 9.1% over the same timeframe.
PC Market Showing Signs of Recovery
After two years of steady declines due to COVID-related slowdowns, inflationary pressures, and higher interest rates, the PC industry appears to be showing signs of life, which would be a boon for INTC.
“There is evidence that the PC market’s decline has finally bottomed out,” said Mikako Kitagawa, Research Director at Gartner.
“Seasonal demand from the education market boosted shipments in the third quarter, although enterprise PC demand remained weak, offsetting some growth. Vendors also made consistent progress towards reducing PC inventory, with inventory expected to return to normal by the end of 2023, as long as holiday sales do not collapse,” she added.
According to preliminary results by Gartner, worldwide PC shipments totaled 64.3 million units in the third quarter of 2023, down 9% year-over-year. While the third quarter’s results marked the eighth consecutive quarter of decline for the global PC market, Gartner expects the market to begin recovery in the fourth quarter of 2023.
Furthermore, the agency projects 4.9% growth for the global PC market for next year, with growth expected in both the enterprise and consumer segments.
Solid Fourth-Quarter Guidance
The company’s fiscal 2024 fourth-quarter guidance implies revenue growth for the first time since 2020. Intel expects revenue to come between $14.60 and $15.60 billion. Non-GAAP EPS attributable to Intel is expected to be $0.44 for the fourth quarter.
Mixed Analyst Estimates  
Analysts expect INTC’s revenue to increase 7.5% year-over-year to $15.09 billion for the fourth quarter ending December 2023. The consensus earnings per share estimate of $0.45 for the ongoing quarter indicates a 346.7% year-over-year improvement. Moreover, the company has topped the consensus revenue estimates in three of the trailing four quarters.
However, the company’s revenue and EPS for fiscal year 2023 are expected to decline 14.7% and 48.5% year-over-year to $53.76 billion and $0.95, respectively.
For 2024, Street expects INTC’s revenue and EPS to grow 13% and 98.8% year-over-year to $60.73 billion and $1.89, respectively.
Bottom Line
Although INTC’s third-quarter earnings and revenue beat analyst estimates, its revenue declined from the year-ago period. After reporting better-than-expected earnings, primarily driven by growth in its foundry business, rising interest in AI, and signs of a recovery in the PC market, the chipmaker expects revenue to grow in the fourth quarter.
While the PC market is recovering after two years of sales declines, there could be a delay in the full recovery of demand for PCs due to prevailing macroeconomic uncertainties. Also, Intel continues to grapple with increased competition and production challenges that could limit the potential for gains in its stock in the near term.
Given its mixed financials and uncertain near-term prospects, it could be wise to wait for a better entry point in the stock.

Inflation accelerated significantly last year, hitting a four-decade high of 9.1% in June 2022, pushing food prices higher. This led to many retailers experiencing consumers pulling back on spending. While inflation has fallen sharply from its peak, it is still higher than the Fed’s target.
According to a Labor Department report, the Consumer Price Index (CPI), a closely followed inflation gauge, grew 0.4% in September and 3.7% year-over-year, beating respective Dow Jones estimates of 0.3% and 3.6%. Food costs were up 0.2% for the third quarter in a row. On a 12-month basis, food costs jumped 3.7%, including a 6% surge for food away from home.
Walmart Cuts Grocery Prices Amid Inflation
With persistent inflation in mind, popular grocery chains are trying to help customers save with new deals. Walmart Inc. (WMT), the country’s largest grocer, recently announced that it would be “removing inflation” on some of its grocery prices starting next month.
“This year, finally, we are able to have the Thanksgiving basket that the prices are coming down versus a year ago — we are really proud to say that the price of a Thanksgiving meal is going to come down,” Walmart U.S. President and CEO John Furner said during an exclusive interview on “Good Morning America.”
Last year, during a period of historically high inflation, WMT sold Thanksgiving ingredients at the same price as 2021. This year, the Thanksgiving basket from Walmart includes ingredients to make a meal for up to 10 people, which the company will “sell for around $2 less than last year” at just over $70.
Furner added that this move of cutting prices comes on the heels of consumer feedback: About 92% of its shoppers have expressed “some level of concern about inflation and how it will impact holiday celebrations.”
Like Walmart, fast-growing discounter Aldi expressed a similar sentiment about “high food prices” and announced price cuts of up to 50% starting November 1 and running through the year-end on more than 70 Thanksgiving favorites.
With food retailers offering temporary discounts on select items during peak seasons, including the holidays, a high volume of customers would drive into their stores and online for substantial savings. This is an effective way to boost sales, build customer loyalty, and have a competitive edge over peers.
Overall, holiday sales in November and December have averaged approximately 19% of total retail sales over the last five years, and the figure can be higher for some retailers, according to the National Retail Federation. 
Strong sales during the holiday season should give a solid boost to WMT’s stock. Shares of the retailer have gained nearly 6% over the past six months and 17% over the past year.
Let’s look at several other factors that could influence WMT’s performance in the upcoming months.
Robust Financial Performance
For the fiscal 2024 second quarter that ended July 31, 2023, WMT reported revenue of $161.63 billion, beating analysts’ estimates of $160.27 billion. This represents a 5.7% year-over-year increase. Its adjusted operating income rose 8.1% from the prior-year quarter to $7.40 billion. The company’s consolidated net income was $8.05 billion, an increase of 56.5% year-over-year.
Furthermore, the retailer’s adjusted EPS came in at $1.84, compared to $1.77 in the previous year’s period and the $1.71 expected by analysts. Its free cash flow for the six months ended July 31, 2023, was $9 billion, representing an increase of $7.20 billion compared to the same period in 2022.
“We had another strong quarter. Around the world, our customers and members are prioritizing value and convenience. They’re shopping with us across channels — in stores, Sam’s Clubs, and they’re driving eCommerce, which was up 24% globally. Food is a strength, but we’re also encouraged by our results in general merchandise versus our expectations when we started the quarter,” said Doug McMillon, WMT’s President and CEO.
“Our associates helped deliver increases in transaction counts and units sold, and profit is growing faster than sales. We’re in good shape with inventory, and we like our position for the back half of the year,” McMillon added.
Walmart’s CFO, John David Rainey, said he feels better about spending patterns than he did three months earlier, yet he described the consumer as “choiceful or discerning.” He added that seasonal moments like the Fourth of July holiday and back-to-school have helped drive sales during the second quarter.
Upbeat Full-Year Guidance
WMT raised its full-year 2024 forecast as the retailer stays committed to its low-price strategy to draw grocery customers and boost online spending. The big-box retailer now expects full-year consolidated net sales to grow by about 4% to 4.5%, compared with its prior guidance for consolidated net sales gains of 3.5%.
Further, Walmart said that its adjusted EPS for the year will range between $6.36 and $6.46, above its previous guidance of $6.10-$6.20. The company anticipates its consolidated operating income to increase approximately 7% to 7.5%.  
Impressive Historical Growth
Over the past three years, WMT’s revenue and EBIT grew at CAGRs of 5.2% and 4.6%, respectively. The company’s normalized net income increased at a CAGR of 5.8% over the same time frame, while its tangible book value grew at a CAGR of 3.9%.
Favorable Analyst Estimates
Analysts expect WMT’s revenue for the third quarter (ending October 2023) to come in at $158.30 billion, indicating an increase of 4.5% year-over-year. The consensus EPS estimate of $1.51 for the same period reflects a 0.6% year-over-year improvement. Moreover, the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
In addition, Street expects WMT’s revenue and EPS for the fiscal year (ending January 2024) to increase 5.5% and 2.9% from the previous year to $639.22 billion and $6.47, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to grow 3.6% and 10% year-over-year to $661.94 billion and $7.11, respectively.
Attractive Dividend
Earlier this year, WMT’s Board of Directors approved an annual cash dividend for fiscal year 2024 of $2.28 per share, up nearly 2% from the $2.24 per share paid for the last year 2023. The final quarterly installment of $0.57 per share would be paid on January 2, 2024, to shareholders as of record on December 8, 2023.
WMT’s annual dividend translates to a yield of 1.40% on the current price level, and its four-year average yield is 1.60%. Its dividend payouts have grown at a 1.8% CAGR over the past three years. The company has raised its dividend for 49 consecutive years.
Bottom Line
WMT’s second-quarter earnings beat analysts’ expectations as more Americans turned to the retailer for groceries and to shop online. Further, the company raised guidance for the fiscal year 2024 to reflect the second quarter upside, confidence in continued business momentum, and ongoing customer response to its value proposition.
As it sticks to its low-price reputation to draw grocery shoppers and boost online spending, the big-box retailer recently announced slashing grocery prices amid elevated inflation and help customers save more money with new deals for the holiday season, starting November.
In the previously reported quarter, seasonal moments such as the Fourth of July holiday and back-to-school have helped drive sales significantly. These sales trends typically signal patterns for the months ahead, including the holiday season.
Given its robust financials, attractive dividends, and promising growth outlook, WMT could be an ideal investment now.  

Ford Motor Company (F) has been dealing with the United Auto Workers (UAW) strikes. Now, another difficulty confronts the automaker — it recently issued two separate recalls, affecting 273,127 vehicles across the United States. The two models impacted are the 2020-22 Ford Explorer and the Ford Mustang Mach-E.
The larger recall applies to 238,364 Ford Explorers produced between 2020 and 2022. According to filings with the National Highway Traffic Safety Administration (NHTSA) from Ford, a defectively manufactured mounting bolt in the rear axle might snap, potentially resulting in vehicle roll-aways even when parked. The issue stems from this bolt enduring constant bending forces during acceleration, resulting from torque transmission.
If the bolt fails after sufficient vehicular launches, the axle might shift, disconnecting the driveshafts or half-shafts from the integrated powertrain system. If complete separation occurs, the transmission becomes unlinked from the car’s wheels, paving the way for possible roll-aways as engaging the park gear would no longer prevent wheel spin.
According to a Ford report, 396 customers reported incidents linked to this problem, often signaled by loud clunking or grinding sounds. Less than 5% of these cases resulted in vehicle roll-away or impaired vehicular control. However, as a remedial measure, F will replace the faulty bolt and implement a re-engineered subframe bushing to ensure correct axle positioning.
The second recall targets 34,763 Mustang Mach-E models fitted with extended-range batteries. This rectification is due to an overheating battery contactor potentially causing a loss of motive power when driving. As per F, this can occur when the vehicle has experienced fast DC charging followed by intense acceleration.
This is the second recall to involve battery contactors on the Mustang Mach-E. Last year, a similar complication led the company to recall 48,924 Mach-E models and replace a diagnostic control module with an alternate model capable of monitoring the battery contactor’s temperature. Unfortunately, the initiative did not successfully nullify the issue.
Hence, in this latest recall, F will replace the high-voltage battery junction box at no expense to its customers. The car manufacturer has confirmed that the previous recall has adequately addressed power loss issues affecting standard-range Mach-E units; hence, this recall targets only extended-range versions.
The recall follows an investigation initiated by the auto safety regulator, assessing whether F adequately addressed the issues during the June 2022 recall of about 49,000 Mach-E vehicles.
Implications
F is already grappling with UAW strikes, with predicted impacts of $120 million being realized in the upcoming quarter. As per industry experts, F is losing $44 million daily. Additionally, cuts to F’s future product investments could come if the UAW deal turns out unfavorable. Further, potential reductions in F’s future product investment could follow if the UAW deal proves less favorable.
A challenge no company wants to find itself dealing with is product recalls. Recalls can significantly reshape a company’s financial landscape, have far-reaching effects on its market performance and negatively impact its reputation.
Under consumer protection laws, manufacturing and supplying companies are required to shoulder full responsibility for the cost of recalling products and any associated costs. Though insurance may cover some costs for defective product replacement, many product recalls result in lawsuits. Considering the accumulated costs from lost sales, replacing faulty units, government sanctions, and legal proceedings, a large recall can quickly escalate into a daunting, multi-billion-dollar predicament.
For example, F’s recall of 169,000 vehicles in the United States to replace faulty rear-view cameras and perform software upgrades would take a $270 million toll on the company’s finances.
Large-scale organizations such as F can recover relatively quickly from such short-term financial loss. However, diminishing confidence among shareholders and consumers could lead to more severe long-term consequences, such as a marked drop in stock prices. Hence, it would be prudent for F to take measured steps swiftly toward addressing vehicular recalls and safeguard their reputation.
Despite the second-quarter earnings surpassing expectations, these unforeseen expenses could affect the upcoming quarter earnings.
During the second quarter, F’s revenues rose 11.9% year-over-year to $44.95 billion, and automotive revenues peaked at $42.43 billion, surpassing the $40.38 billion estimate. The net income almost tripled to $1.92 billion, marking an 187.4% year-over-year increase.
The automaker anticipates its full-year adjusted EBIT guidance between $11 billion and $12 billion, while its adjusted free cash flow is projected to come between $6.5 billion and $7 billion. The company anticipates to hit an 8% EBIT target by 2026.
Investors’ apprehension arises from multiple aspects of the company’s earnings and projections. The EV segment of the business, recently rebranded as Model E, reported a pre-tax loss of $1.08 billion. The firm anticipates losses for this segment could mount to $4.5 billion in 2023, a staggering 50% surge on prior predictions.
Additionally, the company has publicly acknowledged the sluggish uptake of EVs, which has led to a scaling back of their previously ambitious production objectives for EVs. The company now expects to hit an annual production capacity of 600,000 vehicles by 2024 instead of 2023 while being “flexible” about the goal of 2 million vehicles it previously forecast by 2026.
Analysts expect F’s revenue and EPS in the fiscal third quarter (ending September 2023) to be $42.51 billion and $0.46, registering 14.3% and 53.8% year-over-year growths, respectively.
Considering these developments, F’s shares have been facing pressures, sending its stock down to May 2023 levels. Over the past year, the stock declined 5% and 8.2% over the past month to close the last trading session at $11.53.
Institutions hold roughly 54.6% of F shares. Of the 1,765 institutional holders, 797 have decreased their positions in the stock. Moreover, 128 institutions have taken new positions (11,202,366 shares), while 132 have sold positions in the stock (10,742,511 shares).
Bottom Line
F has unveiled a bold scheme to invest billions in the advancement of EVs while also returning capital to its shareholders. This plan is predicated on robust revenue streams from its traditional combustion-engine trucks and SUVs portfolio. Given the increasing costs associated with UAW strikes, contract resolutions, and vehicular recalls, these plans seem to be in considerable peril.
To counteract these losses, the automaker could reduce capital spending, delay EV targets, increase cost-sharing initiatives, and make other alterations to its corporate portfolio.
The company experienced negative free cash flow in 2022 and forecasts a similar scenario for this year owing to lofty capital expenditure commitments.
While the company continues offering its shareholders dividends, its history is somewhat mottled. Given the ongoing difficulties, there is an elevated risk of dividend discontinuation or minimization. This eventuality was seen during the pandemic in 2020 and was resumed at the tail-end of 2021. A previous incident occurred before the Green Financial Crisis, with reinstatement happening three years later. This inconsistency may dissuade shareholders from seeking stability in their dividend returns.
Compounding the issues at F is their escalating debt load, which jumped from $105.06 billion in 2012 to nearly $139 billion in 2022. Simultaneously, the firm increased its cash holdings to boost liquidity.
One factor that could entice investors is the relatively low valuation of F. Its forward non-GAAP Price/Earnings of 5.78x is 59.7% lower than the industry average of 14.33%. Also, its forward Price/Sales multiple of 0.28 is 66% lower than the industry average of 0.83.
However, considering the automaker’s tepid price momentum and mixed profitability, it could be wise to wait for a better entry point in the stock.

QUALCOMM Incorporated (QCOM), valued at over $124 billion, specializes in wireless technology development, licensing, and smartphone chip design. The firm’s key patents are focused on CDMA and OFDMA technologies, fundamental to all 3G, 4G, and 5G networks. As the world’s principal wireless chips supplier, it furnishes high-end handset manufacturers with cutting-edge processors.
Canalys’ figures indicate the global smartphone market’s persistent decline, marking its sixth consecutive quarter of reduction as of June 2023. Even while cautious optimism for a potential market resurgence remains, this downturn has tangible impacts on QCOM, a significant player in smartphone chip supply. The shrinkage, intensified by soaring competition from Chinese chipmakers, has notably impacted the firm’s revenue and profit margins last quarter.
The company experienced its sharpest stock dip in September, consequent to turmoil in China, which disrupted QCOM’s sales in a critical market. The company faces manifold risks, amplified by the imminent wave of layoffs that has stirred public apprehension. The timing of this layoff news has coincided with persisting trade tensions between the U.S. and China and Beijing’s enactment of a partial ban on using iPhones by government personnel.
According to recent filings with the California Employment Development Department, the semiconductor behemoth will eliminate approximately 1,258 jobs in San Diego and Santa Clara, California, to accommodate dwindling demand for its primary product.
The layoffs are a part of “restructuring actions” aimed at channeling resources towards “investments in key growth and diversification opportunities.” Although the loss of 1,258 employees will be felt, this figure represents less than 2.5% of QCOM’s total workforce of 51,000 employees.
Concurrent with these measures, the company anticipates incurring substantial additional restructuring charges, most of which are expected to be borne in the fourth quarter of fiscal 2023. The company forecasts the successful completion of these additional actions by the first half of fiscal 2024.
Impact of the Layoffs
Potential layoffs at QCOM could be a strategic move to mitigate operating costs and bolster profitability and cash flow. This action can amplify the company’s earnings per share and future dividend payouts and refocus its direction toward the core business and strategically significant growth sectors such as 5G technology, automotive tech, and IoT.
The latest data suggests that over 750 members of QCOM’s workforce facing possible layoffs belong to engineering cadres, with positions ranging from directors to technicians. The remaining reductions will impact various roles, encompassing accounting and internal technical staff.
These substantial reductions in the workforce might slow down QCOM’s manufacturing capacity, along with their research and development activities, which could stifle innovation in the long term. This scenario could pave the way for QCOM’s competitors in the microchip manufacturing industry to seize a higher market share by providing more competitive products and services.
Given QCOM’s ongoing challenges, investors may watch fundamentally sound stocks Apple Inc. (AAPL), Advanced Micro Devices, Inc. (AMD), and Intel Corporation (INTC).
Let’s discuss these stocks in detail.
Apple Inc. (AAPL)
Tech giant AAPL has continuously enhanced its capabilities by designing custom chips for hallmark products such as iPhones, iPads, and iPods over many years. The initiative to design these crucial components in-house significantly boosts the overall device performance and optimizes power efficiency.
To strive for a self-reliant development strategy, AAPL has gilded significant resources to produce its modem chips to reduce dependence on external suppliers like QCOM. However, the mission is yet to be fully accomplished.
AAPL has been integrating QCOM’s and home-grown chips in the technology behind its flagship iPhones. Despite intense challenges faced by AAPL’s ambitious Sinope project, which has yet to result in a standalone ability to produce a 5G modem chip, the spirit of innovation and the quest for excellence remains unscathed within the company.
This ambivalent situation was recently accentuated when AAPL extended its contract with QCOM to supply ‘5G modem chips’, a deal set to last through 2026.
Indeed, developing a standalone 5G modem chip is arduous, though certainly not beyond the realms of possibility. With resilience and commitment to navigating challenges, it is undoubtedly just a matter of time before AAPL actualizes its dream of rolling out its home-grown 5G modem.
Considering AAPL’s staunch determination and its record of technological advancements, realizing this ambitious objective seems attainable. It’s plausible that we might witness the introduction of AAPL’s modem even before the ongoing QCOM deal concludes in 2026.
Shares of AAPL have gained over 35% year-to-date. Wall Street analysts expect the stock to reach $207.51 in the upcoming 12 months, indicating a potential upside of 18.3%. The price target ranges from a low of $167 to a high of $240.
Advanced Micro Devices, Inc. (AMD)
Semiconductor giant AMD, which currently boasts a market cap of over $165 billion, is strategically positioned to meet the potential demands spurred by chip shortages that may result from QCOM’s proactive cost-cutting strategy.
Recovering convincingly from being on the verge of bankruptcy, AMD has seen its stock value increase from a dismal $3 per share. The remarkable turnaround can be attributed to the flourishing success of its Ryzen line of central processing units (CPU), launched in 2017.
Now, AMD sets its sights on the lucrative AI market, unveiling the latest iteration of its MI300 chips, which the company hails as its most powerful GPU. As the market yearns for fiercer competition, the new chip, set to commence shipping in 2024, feeds this demand.
Over the past three and five years, its revenue increased at 42% and 28.2% CAGRs, while its levered free cash flow grew at CAGRs of 83.7% and 103.7% over the same periods. AMD has massive potential over the long term, making its stock worthy to be monitored.
Shares of AMD have gained over 58% year-to-date. Wall Street analysts expect the stock to reach $137.48 in the upcoming 12 months, indicating a potential upside of 34.3%. The price target ranges from a low of $95 to a high of $160.
Intel Corporation (INTC)
QCOM leads in the Android industry but faces stiff competition from chipmaker INTC in the PC market.
With a commendable market cap of over $150 billion, INTC plans to capitalize on the burgeoning AI market and presented a strategic vision last month to position itself as a pivotal architect of AI-integrated personal computers.
INTC recently debuted its glass substrates, designed to give the advanced packaging of chips a significant edge over traditional substrates. The innovation is expected to have positively impacted revenues in the third quarter.
In the same period, a critical alliance was formed between INTC and Tower Semiconductor Ltd., which could significantly impact the broader semiconductor ecosystem. The alliance showcases INTC’s unwavering commitment to broadening its foundry services and manufacturing prowess.
Moreover, a significant breakthrough came when Ericsson chose INTC’s 18A process and manufacturing technology to advance its next-generation 5G network. INTC was enlisted to produce custom 5G SoCs for Ericsson, projected to have fortified the company’s top line in the third quarter.
Shares of INTC have gained over 34% year-to-date. Wall Street analysts expect the stock to reach $36.67 in the upcoming 12 months, indicating a potential upside of 2.8%. The price target ranges from a low of $17 to a high of $56.
 

Global technology powerhouse Microsoft Corporation (MSFT), worth nearly $2.47 trillion, concluded its $69 billion acquisition of renowned game developer Activision Blizzard, Inc. last week, pulling off history’s most prominent tech deal after two years of regulatory scrutiny and significant resistance from multiple stakeholders in the gaming industry.
The conclusion of this prolonged deal dispels the lingering uncertainty concerning the Microsoft-Activision partnership. However, the key question on everyone’s mind is: What follows this grand acquisition?
The Acquisition and Its Potential Impact
MSFT CEO Satya Nadella, who took the helm in 2014, aims to broaden the company’s business beyond its core operating systems and productivity software domains. ATVI, a partner and competitor to MSFT, stands out among large companies for releasing top-rated games with production values reaching the hundreds of millions.
At the peak of the metaverse trend, the announcement of MSFT’s acquisition of ATVI in January 2022 signaled the grandest deal in historical records. The strategy behind the acquisition was to bolster MSFT’s presence in gaming and the metaverse and establish itself as the unrivaled leader in cloud gaming.
Yet, its fruition faced hurdles due to antitrust concerns. Regulators globally analyzed whether the acquisition might result in excessive market control for MSFT. Eventually, the deal received official clearance last week following approval from the U.K. regulators, marking it the largest deal in MSFT’s 48-year history.
But there is a significant condition accompanying this clearance. For the next 15 years, MSFT has agreed to surrender cloud-streaming rights for all ATVI games outside the European Economic Area (EEA), including 27 European Union member states along with Iceland, Liechtenstein, and Norway.
Ubisoft, a French game publisher, secured exclusive global streaming rights outside the EEA, while within the EEA, it will share these rights with other competitors, including MSFT/ATVI. This marked a pivotal concession from MSFT, which contributed to aligning with UK regulatory standards.
ATVI enjoyed the title of the largest game publisher in North America, hosting various popular games under its belt, ranging from “Call of Duty” to “Diablo” and “World of Warcraft,” amongst others.
MSFT’s acquisition will expand the tech giant’s ownership to include all developers under the acquired banner, ranging from Activision Publishing to King, the creator of “Candy Crush.”  This strategic addition is expected to enhance MSFT’s foothold in the booming mobile gaming industry through synergies with its franchises, such as “Halo” and “Forza,” which could generate significant revenue in the coming years.
With a vast list of ATVI’s titles under MSFT’s umbrella and its robust platforms like Xbox, Game Pass, and Xbox Live, the company is poised to become an even greater force in the gaming sphere. With this, few competitors could rival MSFT’s arsenal, enriched further by access to ATVI’s renowned studios, including Treyarch and Infinity Ward.
Xbox head Phil Spencer has consistently championed a transformation of Xbox from a console-centric brand to a content-first platform, focusing on player engagement rather than console sales. The self-disruption philosophy is expected to be further cemented post-acquisition, fortifying the strategy to build a prolific portfolio of games and IPs.
This monumental acquisition could propel MSFT to become the third biggest gaming giant globally in revenue, trailing behind Tencent and Sony.
MSFT’s leap into the mobile gaming industry could experience a considerable boost from this deal. As of June 30, 2023, ATVI reported a monthly active user base of 356 million. In the second quarter of 2023, the company posted consolidated revenue of $2.21 billion, with an impressive $943 million derived from the mobile gaming segment. ATVI’s prominence in mobile gaming will inevitably contribute to MSFT’s anticipated growth in this segment.
Projecting ahead, estimated future cash flows pertaining to this deal, when adjusted to their present value, may surpass the acquisition cost of $69 billion, thereby positioning this alliance as an advantageous venture for MSFT.
Moreover, MSFT can potentially accelerate the growth of the acquired assets using its large-scale resources, including AI-driven initiatives – an added advantage. The acquisition is also fiscally beneficial for MSFT, which secured a high-margin business of Activision at 23.55x forward P/E compared to its 30.15x forward P/E.
Moreover, tech behemoth MSFT is on a promising growth trajectory as it branches out across several tech sectors and could present significant potential to investors over the long term.
Institutional investors have recently made changes to their MSFT stock holdings. Institutions hold roughly 70.6% of MSFT shares. Of the 4,862 institutional holders, 2,038 have increased their positions in the stock. Moreover, 197 institutions have taken new positions in the stock with 19,638,556 shares, reflecting signs of bullishness.
MSFT’s workspace communication tool, Teams, has seen substantial growth and is expected to contribute significantly on the backs of expanding customer base and features. This has benefited MSFT in winning shares in the enterprise communication industry. Teams’ user growth is attributable to the increasing shift towards hybrid and flexible working models. This trend could boost the fiscal first-quarter financial report to be released on October 24.
Furthermore, MSFT broadened the availability of its Microsoft 365 Copilot feature to a larger customer base during this quarter – which is also anticipated to boost revenue growth. The high adoption rates for Dynamics 365 software are additional factors projected to spur top-line growth in the to-be-reported quarter.
For the fiscal first quarter ending September 2023, MSFT’s revenue and EPS are expected to increase 8.8% and 12.7% year-over-year to $54.53 billion and $2.65, respectively.
Moreover, Wall Street analysts expect the stock to reach $398.24 in the next 12 months, indicating a potential upside of 19.9%. The price targets range from a low of $298.10 to a high of $440.
Bottom Line
The global video game market continues to be dynamic and transformative and is expected to reach $583.69 billion, growing at a CAGR of 13.4% by 2030. With the full integration of the two companies, a significant change in the video game industry could be witnessed. The deal will boost MSFT’s gaming revenues and offer benefits to consumers.
Prudent investment decisions necessitate strong consideration of a stock’s valuation. MSFT’s forward non-GAAP P/E of 30.15x is 36.4% higher than the industry average of 22.10x, while its forward Price/Sales multiple of 10.46 is 310.1% higher than the industry average of 2.55.
Despite trading at a premium over its industry peers, MSFT’s robust financial standing, well-strategized acquisitions, compelling growth trajectory, and optimistic analyst projections position it as an attractive investment opportunity. The stock’s upside potential justifies the premium it demands.
Further bolstering this standpoint is MSFT’s impressive history of shareholder returns. In the fourth quarter of fiscal 2023, it paid dividends and repurchased shares worth $9.7 billion. The company has maintained a steady dividend payment trend for 18 years.
Furthermore, the successful execution of a $60 billion share buyback initiated in 2022, typically renewed by MSFT every few years, is projected to extend through 2025. This highlights MSFT’s another pivotal step in continuing to augment shareholder value.

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

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

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

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

The landscape of television has dynamically evolved in recent years, marked by an accelerated launch of various streaming TV options. A vast selection of subscription-based internet TV services are now at consumers’ fingertips, making streaming entertainment a commonplace fixture in American households.
As consumers devote an ever-increasing proportion of their time to streaming media, TV providers rapidly shift their advertising onto these digital platforms.
The leading streaming platform provider, Roku, Inc. (ROKU), witnessed an upsurge in engagement metrics, such as active accounts and streaming hours, over the past few years. This heightened engagement has significantly echoed in the company’s financial performance.
The company has seen a remarkable surge in stock prices, which have doubled since the year’s onset. This uptick has notably surpassed gains in the S&P 500 and outstripped the year-to-date returns recorded by streaming giant Netflix, Inc. (NFLX).
To fully understand the factors underpinning ROKU’s stellar performance in recent months, it’s essential to analyze its progress comprehensively. Understanding the factors that catalyzed this growth will provide us with a more informed perspective for predicting potential future directions for ROKU, both as a company and in terms of its stock-price performance.
Recent History
The COVID-19 pandemic significantly boosted the adoption of digital streaming services. As millions of households worldwide had to spend the majority of their time indoors, there was a surge in first-time subscriptions to streaming platforms in 2020.
In July 2021, ROKU’s shares soared to a remarkable peak near $480, predominantly driven by an escalating demand for video-on-demand platforms, a trend amplified by pandemic-enforced home isolation. However, following this zenith, ROKU has experienced a slowdown in momentum, contributing to the company’s stock price diving to roughly $39 by the close of 2022.
In 2020, ROKU’s users streamed nearly 59 billion hours of content, marking a 55% surge over 2019. This success solidified ROKU’s position as the custodian of streaming content within the U.S. market.
Unlike other streaming service providers, the company witnessed an upsurge in active subscribers. For instance, in the second quarter ended June 30, 2020, active accounts reached 43 million, and streaming hours totaled 14.6 billion.
Despite this success, the company is battling to hold its place in the fiercely competitive digital streaming arena. Although sales skyrocketed early in the pandemic and the company briefly entered profitability, the ongoing hurdles of intensifying competition, a saturated market, audiences gradually emerging from lockdown, and inflation strains its once robust performance.
Current Status
At the end of the first quarter of 2023, ROKU unveiled its new in-house television line and rolled out significant updates across its operating system, enhancing features and expanding channel partnerships.
The TVs come in 11 diverse models ranging from 24-inch to 75-inch screens, spanning two different lineups and reasonably priced from $150 to $1,200. This strategy is expected to have aided TV sales, boosting top-line growth in the second quarter of 2023.
For the fiscal second quarter that ended June 30, 2023, ROKU’s total net revenue soared 10.8% year-over-year to $847.19 million with platform revenue, which is mostly ad sales, gaining 11.1% from the year-ago quarter and reached $743.84 million. Device earnings, hitherto hampered by supply chain and inflation issues, rebounded with an 8.6% year-over-year gain to $103.35 million.
In addition, there has been an uptick in ROKU’s engagement metrics as active accounts and streaming hours reached 73.5 million and 25.1 billion, indicating 16.5% and 21.3% year-over-year increases, respectively. This was driven primarily by the domestic and international success of the ROKU TV licensing program, coinciding with a predicted 40% drop by the end of 2023 in U.S. households availing cable TV packages from what was a decade earlier.
The popularity of ROKU’s proprietary Operating System (OS) further bodes well for the company, claiming the crown as the best-selling TV OS in the U.S. for the quarter, outperforming some major competing systems combined.
It is also worth mentioning that as of June 2023, ROKU boasts an impressive cash and cash equivalents of $1.76 billion, without any debt.
However, there remain areas of concern for the streaming service provider. Average revenue per user (ARPU) declined 7.2% from the prior year quarter. It was steady with the first quarter of 2023, which also declined year-over-year. Advertisers reducing their budgeting amid an inflationary economic environment dealt a harsh blow to the company’s operations.
For the second quarter of 2023, ROKU’s loss from operations stood at $125.96 million, a distressing 14% increase from the year-ago quarter. Its net loss stood at $107.60 million, while the net loss per share reached $0.76. However, it was much better than the past three quarters.
In ROKU’s second-quarter results, brand advertising remained pressured as total U.S. advertising came in flat year over year. Spending on traditional TV fell 9.4% year-over-year, while traditional TV ad scatter sank 17.2% year-over-year.
Considering the promising top-line projections unveiled by the company, ROKU’s share prices rose 31.4% to $89.61 as of July 28, 2023, the highest daily percentile expansion since November 2017, which has more than doubled this year. This expansion resulted in an approximate $3 billion upswell in the company’s market cap.
Recently, ROKU announced a layoff of 10% of its workforce, about 360 people, to cut costs. This action marks the third round of staff reductions within the past year, following its decision to slash 6% of its workforce (roughly 200 employees) in March and another 200 last November.
To trim expenses further, ROKU is planning several organizational changes. It might slow the hiring rate, consolidate office space, reduce its outside services, and conduct “a strategic review of its content portfolio” to save money. Following the announcement of these cost-cutting measures, ROKU’s shares spiked almost 10%.
Despite these financial strategies, the stock is trading at a premium to its industry peers. ROKU’s forward EV/Sales multiple of 2.96 is 58.1% higher than the industry average of 1.88. Also, its forward Price/Sales and Price/Book multiples of 3.29 and 4.95 are 188.1% and 161.9% higher than the industry averages of 1.14 and 1.89, respectively.
Within a year, ROKU’s overall price performance presented a decelerating trend until the end of 2022, then transitioned to a stable growth phase at the beginning of 2023. This followed a significant mid-year acceleration, followed again by slight deceleration. A comparison of the current share price with that of a year ago indicates long-term growth.
Yet the stock remains significantly below its zenith recorded two years prior, echoing broader pressure on the streaming category in general to establish profitable business models.
Furthermore, changes have been observed concerning institutions’ holdings of ROKU shares. Even though approximately 80.8% of ROKU shares are presently held by institutions, of the 599 institutional holders, 264 have decreased their positions in the stock. Moreover, 81 institutions have sold their positions (1,306,808 shares), reflecting declining confidence in the company’s trajectory.
Future Prospects
ROKU has raised its third-quarter net revenue forecast between $835 million and $875 million, putting aside charges related to severance and removing certain content from its streaming platform. This exceeds the earlier third-quarter estimate of approximately $815 million in revenue.
The entertainment giant also anticipates its adjusted EBITDA to conclude between a loss of $40 million to $20 million, which shows improvement from an earlier prediction of a negative $50 million. The Hollywood double strike is anticipated to influence media and entertainment spending adversely for the rest of the year. This scenario poses a relatively severe challenge, given ROKU’s extensive promotions provided for content.
ROKU has noted some recovery hints within specific advertising sectors, including CPG and health and wellness. Yet, the spending on M&E, already facing challenges across the industry, will likely face additional pressure due to limited fall release schedules. Despite these odds, the company remains determined to deliver positive adjusted EBITDA for 2024 with continued improvements.
For the fiscal third quarter ending September 2023, Street expects ROKU’s revenue to increase 11.3% year-over-year to $847.54 million, while its EPS is expected to decline 105.1% to negative $1.81.
Moreover, for the current fiscal year (ending December 2023), the company’s revenue is expected to increase 7.9% year-over-year to $3.37 billion. However, its EPS is expected to come at negative $5.04, indicating a decline of 39.4% year-over-year.
Bottom Line
Streaming service provider ROKU is poised to capitalize on the escalating digital streaming and cord-cutting trend in the upcoming years. This positions the temporary slump it experienced in 2022 as a trifle hiccup rather than an enduring setback.
However, affirming that the company has fully rebounded and is back on its consistent growth path may be premature. Further confirmation of continuous revenue augmentation, ideally substantiated by several successive quarters of enhanced performance, is still needed.
Risk-averse investors would want to keenly observe ROKU for more tangible indications of renewed profitability over the ensuing quarters. There is a potential for the company to continue generating substantial returns, provided it can add persistent value to its platform for users, content producers, and advertisers.
The persistent issue pestering ROKU is its inability to yield regular profits. Furthermore, the company’s ad-supported sales infrastructure is stretching back into profitable territory. Yet its recently instituted cost-reduction measures should alleviate some of these financial burdens from 2023 onward.
Seeing ROKU deliver on its projected outcomes would be encouraging. Considering this, all attention will be on the company’s performance over the subsequent quarters.