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Stocks

Robin Hood (HOOD)

Robin Hood (HOOD) $17.73 HOLD – Its trading at a premium to its peers, will take another look if the price drops significantly. 

Positives

Has a decent strong hold with retail trading community, a preferred broker to those who started trading during the pandemic – First Mover advantage.

Wide offerings in crypto trading and services – crypto is the largest revenue stream.

Negatives

Cyclical, commodity, not much difference between brokerages, at one time commission rates used to be a differentiator, then it was ease of online trading, which was a a small differentiator for Robin Hood when it took of during the pandemic, now every one catering to retail seems to be on par.

  • Interest rates from the customers float drive a big chunk of revenue, and a large recessionary rate cut would likely erase most of that revenue segment.

Too much exposure to crypto volumes tank when crypto is down

Valuation

The stock is trading at a premium to its peers like Interactive Broking IBKR, which doesn’t seem justified.

Categories
Market Outlook

The Japanese Carry Trade Implosion 

The Japanese market dropped over 10% overnight over the collapse of the carry trade – basically for decades, traders and hedge funds would borrow cheaper in Yen (lower interest rates), deploy in USD (higher interest rates) and leverage their trades for maximum gain. As long as interest rates moved in the same direction in both countries it worked for the most part. However, last week the Japanese central bank raised interest rates – strengthening the Yen, but even as the Feds sat put, treasury yields crashed from around 4.25 to 3.75 in a short period, the biggest fall from 4.10 to 3.75 occurred in 3-4 days. 

US Futures are down over 2%, continuing the sell off from Friday. 

I don’t believe anyone in our group trades or trades on margin. However, I do want to reinforce some things we spoke about in the past two weeks. 

Not catching a falling knife. I had spoken about this last week and how the Doom Loop from algo traders could continue, the same principle goes for carry traders, and plenty will be shaken out today but we can’t predict when this will stop completely. The VIX (Volatility or Fear gauge) has risen to 52.  

Continue playing defense – In the past month, since I sold some 15-20%, the vast majority of recommendations have been holds and only buy on dips, so defense remains key. 

We’ll take a further look towards the end of the day. 

Categories
Stocks

Intuitive Surgical (ISRG)

Intuitive Surgical (ISRG) $449 – Good company, I would Hold for a better price.

The company’s primary product offering is the Da Vinci Surgical System, which enables complex surgery using a minimally invasive approach. 

Positives:

Recurring, and sustainable revenues – The majority of Intuitive Surgical’s revenue comes from instruments and accessories delivered to existing customers. These items are frequently replaced and provide a recurring revenue stream. Customers tend to be also “lifetime” customers of its instruments, accessories, and services, which includes maintenance, service contracts, and training provided to hospitals and surgical centers. This generates a flywheel effect. 

There is a long-term trend favoring minimally invasive surgeries, technological/AI advancements, and improved patient outcomes.

The new Da Vinci 5, their flagship product could jump start another major product upgrade/replacement cycle.

Market leadership, innovation, great cash flow and operating margins of over over 25%, because for the past 10 years there was little competition.

Negatives

Competition has picked up with Medtronic’s Hugo Surgical System and Johnson & Johnson’s Verb Surgical. Verb develops similar invasive surgical robots such as the Da Vinci robots. Verb developed the robot in collaboration with Verily, which is backed by Alphabet with its  enormous capital. Right now their surgical robots are currently still in development, but once approved, Intuitive Surgical could face significant headwinds.

Valuation – ISRG deserves a premium for market leadership, innovation, great cash generation and sustainable revenues but the big risk is the stretched valuation. We’re paying 19x sales for 16% growth, and ISRG’s past 10 year growth has been only 14%, even as a quasi monopoly in their field. The biggest gain has come since Nov 2023 when the stock was at $250, that’s an 80% run up. Getting in at this price means forward returns could be muted – it would make sense to wait for a decline.

Categories
Stocks

Japanese market drop and lower futures

Japanese market drop and lower futures.

The Japanese market dropped over 10% overnight over the collapse of the carry trade – basically for decades, traders and hedge funds would borrow cheaper in Yen (lower interest rates), deploy in USD (higher interest rates) and leverage their trades for maximum gain. As long as interest rates moved in the same direction in both countries it worked for the most part. However, last week the Japanese central bank raised interest rates – strengthening the Yen, but even as the Feds sat put, treasury yields crashed from around 4.25 to 3.75 in a short period, the biggest fall from 4.10 to 3.75 occurred in 3-4 days.

US Futures are down over 2%, continuing the sell off from Friday.

I don’t believe anyone in our group trades or trades on margin. However, I do want to reinforce some things we spoke about in the past two weeks.

Not catching a falling knife. I had spoken about this last week and how the Doom Loop from algo traders could continue, the same principle goes for carry traders, and plenty will be shaken out today but we can’t predict when this will stop completely. The VIX (Volatility or Fear gauge) has risen to 52. 

Continue playing defense – In the past month, since I sold some 15-20%, the vast majority of recommendations have been holds and only buy on dips, so defense remains key.

We’ll take a further look towards the end of the day.

Categories
Stocks

Reddit

Reddit – (RDDT) $57 Hold, till post lock up expires on 8/9, we might get it around $50 

Last week I had written on Reddit when the stock was in the mid 60’s suggesting a Hold till it dropped 20-25% to around $50-54. Their lock up period post IPO expires on 8/9 and there could be a lot of shares for sale. With the recent turmoil I want to wait longer.

Here’s the link.

https://seekingalpha.com/article/4706184-reddit-waiting-for-a-better-price

Summary

Reddit has an excellent business model of unique SubReddits.

Its user base is enthusiastic, passionate and sticky.

Reddit’s data licensing revenue stream is an excellent opportunity to grow – currently contracted for $203Mn for 2-3 years and a very profitable business.
Reddit turned cash flow positive for the first time last quarter with a margin of 12%.

The stock is expensive at 10X sales and could fall once the lock-up period post its 2024 IPO expires in August.

Its biggest weakness is a low Average Revenue Per User (ARPU) $4.77, even Pinterest and Snapchat earn almost double – around $8, and Facebook is in a different league at $68, but this should only grow from such a low base.

Categories
Stocks

Qualcomm (NASDAQ:QCOM

Qualcomm gains as handsets boost Q3 results, guidance – Up 7% to $192

Qualcomm (NASDAQ:QCOM) shares rose 4.5% in extended trading on Thursday after the chipmaker reported fiscal third-quarter results and guidance that topped expectations.

For the period ending June 23, Qualcomm said it earned an adjusted $2.33 per share as revenue rose 11.3% year-over-year to $9.39B. QCT sales rose 12% year-over-year to $8.07B. Revenue from handsets rose 12% year-over-year to $5.9B, while automotive sales jumped 87% to $811MM. Sales from its internet of things division fell 8.5% to $1.36B. Licensing revenue rose 3.5% year-over-year to $1.27B.

A consensus of analysts expected the company to earn $2.26 per share on $9.22B during its fiscal third quarter.

“We are excited about the launch of our Snapdragon X Series solutions for PCs that deliver leading performance, unmatched power efficiency and personalized AI experiences,” CEO Cristiano Amon said in a statement. “This launch represents a significant milestone in our transformation from a communications company to a leading intelligent computing company.”

Looking to the fourth-quarter, Qualcomm said it expects to earn between $2.45 and $2.65 per share on an adjusted basis, with revenue forecast between $9.5B and $10.3B.

Analysts were expecting $2.47 per share in earnings and $9.7B in revenue

Categories
Stocks

Qualcomm

Qualcomm (QCOM) $175 

Hold, waiting for a better price to add. Long Term story remains good.

Similar to Lam, there were a couple of weaknesses that erased yesterdays post market gains and then some.

Conservative commentary about the smartphone market for the rest of the year.

Lost its position in Huawei phones, it faces some challenges in the second half of CY24 as the Huawei loss will weigh on handset revenues.

Not enough visibility on AI PC’s revenue – there are 20 models launched, which may be positive surprise.

Management is conservative, which is a good thing.

Categories
Networking Stocks

Arista Networks Beats and Guides Above Expectations (ANET) $345 

Arista Networks (NYSE:ANET) on Tuesday announced a Q2 top – and bottom-line beat, while issuing current quarter revenue guidance that was largely above expectations. 

Arista’s two biggest clients are Microsoft and Meta for datacenter (over 35% of revenue) – now you know where Microsoft’s Capex went yesterday. 

EPS – $2.10 per share V $1.94 expected on an adjusted basis for Q2 on revenue of $1.69B V $1.65B expected.  

The EPS increase is 33% YoY because of strong revenue and better margins.  For the June quarter Arista’s operating margin was 41% and cash flow margin was 59%! Microsoft and Meta are supposed to be strong bargaining giants, right? Doesn’t look like it. 

Guidance is also higher – For Q3, Arista (ANET) sees revenue of $1.72B to $1.75B. V consensus revenue estimate of $1.72B. The Street has been raising long term estimates as well since morning. 

Arista’s (ANET) has been eating Cisco’s lunch for several years now, no easy task beating a giant,  working as partners with hyperscalers for AI. Ms Ullal, as many of you from Silicon Valley would know is absolutely top notch in executing projects of these large sizes and importance.  

“The collective nature of AI training models relies on a lossless, highly available network to seamlessly connect every GPU in the cluster to one another and enable peak performance. Networks also connect trained AI models to end users and other systems in the data center such as storage, allowing the system to become more than the sum of its parts,” Arista (ANET) top boss Jayshree Ullal said in a blog post in May. 

“As a result, data centers are evolving into new AI Centers where the networks become the epicenter of AI management,” Ullal added. 

Holding on to the 80% I have left of my ANET for the long term. This company is a winner. I would have loved to add more, hesitating only because even with the new estimates for 2026 earnings at $11 a share at 35x earnings (In 2025-2026, growth slows to mid-twenties) valued it at $385 in two years. 

More optimistic projections are for $12 EPS x 40 = $480 about 40% higher so that’s more interesting. Maybe I’m being conservative, but it would be very difficult to keep up these high margins and then there’s the customer concentration risk. 

Categories
Market Outlook

Rate cut could be on the table at the September meeting, Fed Chair Powell says 

  • A rate cut could be on the table as soon as September, if inflation continues to progress toward the Federal Reserve’s 2% goal, Federal Reserve Chair Jerome Powell said at his post-monetary policy decision press conference. 
  • In the labor market, supply and demand have come into better balance and have returned to about where they were before the pandemic — “strong, but not overheated,” he said. 
  • The second quarter’s data has strengthened confidence that inflation is heading sustainably toward the Fed’s 2% goal, he added. It’s waiting for additional data to further strengthen that confidence before the FOMC reduces the federal funds rate target range. 
  • “We have made no decisions about future meetings, and that includes the September meeting,” he said.
Categories
Stocks

Meta Platforms jumps

Meta Platforms jumps as it sees sales boost amid AI spending

Meta Platforms stock (NASDAQ:META) rose sharply postmarket immediately after posting second-quarter earnings where the company beat expectations on top and bottom lines, though it noted that its spending on tech (notably including artificial intelligence) would keep inching higher.

The company posted earnings per share of $5.16, easily topping views for $4.78, and revenue of $39.07B cleared the Street’s bar of $38.31B (20% growth).

It also guided to sales in the current quarter of $38.5B-$41B, vs an expected $39.2B.

Investors’ eyes were planted on Meta’s expense guidance after the company raised spending forecasts for the year in its first-quarter earnings — and indeed it bumped the bottom end of its range, now seeing 2024 capital expenditures coming in at $37B-$40B from a previous $35B-$40B (and vs. estimates compiled by Bloomberg for $37.6B).

The company also said it should see “significant” growth in capex for 2025.

“We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year,” said founder/CEO Mark Zuckerberg in his typically terse early reaction. “We’ve released the first frontier-level open source AI model, we continue to see good traction with our Ray-Ban Meta AI glasses, and we’re driving good growth across our apps.”