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AI

Palantir (PLTR) Surges 18% to $19.61 Post-Earnings: A Long-Term Buy Opportunity

source:paltnir

*Palantir – $19.61 Post Earning pop of 18%!*

*One can start nibbling at around $19.60 BUT spread out purchases on declines, there should be declines after this post earnings bump and since this is a long term story I still anticipate 15-16% of annual gains over the next 5 years.*

The Reasons for the post earnings pop.

I think the trend of rewarding profitability as in the case of Meta last week seems to be working for Palantir as well. 

Investors are seeing that Palantir is serious about cost control and better margins. With revenue growth in the low 20’s overall, with the main catalyst being commercial customers, Palantir is doing the right thing by focusing on profitability.

Consider these metrics for Q4, which indicate a lot of progress since the days when Palantir didn’t care about profitability….I guess the drop to $6.35 at its low changed their perspective quite a bit

Fourth consecutive quarter of GAAP operating profitability. 11% Margin.

Adjusted free cash flow of $305 million; 50% margin; 731Mn for the year.

Adjusted operating margin of 34%; 28% for the year.

Fifth consecutive quarter of expanding adjusted operating margins 

Fifth consecutive quarter of GAAP profitability; 15% margin

Commercial customer count grew at a very impressive rate of 55% – higher than the revenue of 32%, this is mostly normal for Palantir, they usually land and expand.

While the revenue guidance is just 1-2% higher than the previous estimate, there is  guidance for GAAP profits in each quarter, 40% commercial business growth and adjusted profit margins of 32+% and cash flow of 33% – that is very good.

The AIP (Artificial Intelligence Platform) seems to be getting a lot of attention.

I also suspect multiples and targets will also move up considerably, growth can accelerate from here.

Categories
Technology

Alibaba (BABA) at $74 and JD.com (JD) at $24: Navigating Low Valuations Amidst China Risks

source:alibaba

Alibaba (BABA) $74, JD.com (JD) $24

At $74, Alibaba does seem like it’s at a rock bottom valuation with 7-8% earnings growth priced at only 8.5x earnings and sales growth of 7% priced at only 1.3x sales. Similarly, at $24, JD is even cheaper at 8x earnings for a 12% grower and 0.3x sales for a 4-5% grower, which is also below its historical average.

But, I suspect given the China risks in the future, low multiples are par for the course. For many, China’s authoritarian impulses such as Jack Ma’s treatment, clampdowns on businesses, on Hong Kong, during the pandemic to name a few, plus supply chain problems, are a strict no-no for further investments. Ironically, a real Chinese wall for investors.

Perhaps low multiples are the new normal for China, so not sure what yardstick or benchmarks to use – or what is the level of discount needed for country/political risk? The deflationary spiral, and decrease in demand is real and not transitory, with no easy fixes – extorting businesses and investors to invest or banks to lend never has good endings, and I’m not saying that with just a philosophical bias. I also cannot see government policies easing, either.

That said, both these businesses are doing all right and will continue to recover over time – I can’t figure out whether investors will re-enter or will give Chinese companies a better valuation. I don’t have any Chinese stocks, so can’t opine – that country/political risk call you’ll have to take.

Categories
Retail

BJ’s Wholesale Club (BJ) at $65: HOLD for Stability, But Look for Better Opportunities

source:bjs

BJ’s had been a decent performer, starting from the $40’s range in 2020, to $65. (A lot of it Covid outperformance)

That’s about 16% per year. Though in the past year, BJ’s has had a negative return of 10%.

Currently it’s priced at 15x earnings with forward estimates of 5-6% in earnings and 4-6% in revenues, so that’s a Price to Earnings Ratio (P/E) of 15, with growth of 5, that’s a PEG ratio (P/E to Growth) of 3, which is high. I normally try not to pay more than 2, unless there is really superior growth. Not likely in this sector.

Contrast that with closest competitor Costco, which has earnings growth of 10 to 11% but at a P/E of 35 and – that’s even more expensive!

That said, Costco is a far superior business, with more stable margins, operating efficiencies and scale, which attracts both high volume sellers and customers. Costco is about 10X BJ’s and both started out around the same time. BJ’s unlikely to take market share from Costco, 

Bottom line – If the stock becomes a bargain around $55 I could see it returning around 7-8% a year. On the other hand a company like this doesn’t fall as much in bad times, it’s a low risk stock.

Categories
Fintech

Upstart (UPST) at $32.50: Why It’s Best to Avoid for Now

source:upstart

From 2017 to 2021, Upstart grew at a frenetic pace of 70%, before higher interest rates, funding constraints and higher defaults led to a massive decline in revenue.

Upstart was supposed to be an agnostic “Fintech” marketplace without credit exposure, but they made the mistake of taking auto loans on their books, which completely negated the buying/bullish case.

Upstart has boosted its capital but even at its latest earnings call, management stated Upstart’s ability to approve borrowers is constrained due to a macroeconomic environment of low consumer savings and high credit default rates.

Right now revenue growth forecasts are low and there are no clear indications of a turnaround – sure lower interest rates and better participation from banks and other financial institutions could be tailwinds in the second half.

Interestingly, while researching this one, I looked at Sofi Technologies (SOFI) and Pagaya (PGY), which are in much better shape, much more resilient and could be winners. Pagaya has executed well in the high interest rate downturn. Both are on the riskier side, and I will update later today.

Categories
Semiconductors

Teradyne’s Weak 2024 Outlook Sparks Concerns, While Advantest Surges Ahead

source

Teradyne’s guidance was a big disappointment – they’re forecasting zero growth for 2024, mainly because the first two quarters will be lower but growth will pick up in Q3, Q4. Consensus estimates were for 10% growth in 2024.

Even as end clients like Cloud Service Providers and hyperscalers have bought more semiconductors in the last 6 months, capacity utilization of Teradyne’s testing equipment is still low and new buying of equipment will not be triggered till capacity is used up. This isn’t always a linear relationship, and often there are lags. Second – mobile and PC’s markets have also not increased demand and Teradyne will not get visibility till April for mobile phones demand (read Apple via TSM, which is their largest customer).

Management believes that there is little downside left, and they see utilization rates improving and unit growth in PC’s and smartphones could be a tailwind in the second half. They are still maintaining 2026 estimates of $4.3Mn and over $6 in EPS, but they have a lot of catching up to do.

Contrast this with closest competitor, Advantest (ATEYY), which surprised this morning and increased guidance by 2-3% for the next quarter.. They’re expecting a great second half as well.

I have more Advantest than Teradyne and it’s also done much better for me. If things don’t improve at Teradyne I may just focus on Advantest.

Categories
Semiconductors

Qualcomm Surpasses Q1 Earnings Expectations, Driven by Handset and Automotive Growth

source

Qualcomm (NASDAQ:QCOM) shares rose 2.7% in extended trading on Wednesday after the semiconductor company reported fiscal first-quarter results and guidance that topped expectations.

For the period ending Dec. 24, Qualcomm earned $2.75 per share on $9.92B V consensus estimates of $2.37 per share on $9.52B in revenue.

QCT revenue rose 7% year-over-year to $8.4B. 

Revenue from handsets rose 16% year-over-year to $6.69B 

Automotive sales jumped 31% to $598M. – this will be Qualcomm’s biggest growth catalyst.

Sales from IoT plunged 32% to $1.13B.

Licensing revenue fell 4% year-over-year to $1.46B.

Revenue and Earnings Midpoint Guidance is higher at$9.3Bn and $2.3 for the next quarter.

Qualcomm said it expects to earn between $2.20 and $2.40 per share, with revenue forecast between $8.9B and $9.7B. Analysts were expecting $2.25 per share in earnings and $9.28B in revenue.

Categories
Semiconductors

Teradyne (TER) Earnings Preview: BUY at $105-$107 Amid Strong Growth Prospects

source

Teradyne reports Q4-23 earnings after the market today.

TSM is Teradyne’s biggest customer for its semiconductor testing equipment, and its bullish guidance of 20-25% growth for 2024 is a big plus for Teradyne; especially after Teradyne’s two years of declining sales and earnings, a lot of which was pandemic indigestion and the slow rollout of the N3 process node from TSM in 2023. However,  N3 production and delivery is going to expand tremendously in 2024 and 2025 and will spur demand for  Teradyne’s testing equipment.

This probably will not be evident in 2023 Q4 results. Q4 expectations are low – only $0.67 in EPS and $675Mn in revenues, and for the full year 2023 are $2.70 in EPS and 2.67Bn in sales.  In my opinion, consensus earnings and revenues for 2024 are too low at $3.64 and $3Bn in sales – instead,  *I believe earnings will be between $4 to $4.25, and sales over $3.2Bn*. Teradyne has good operating leverage and earnings should grow to over $6 by 2025. *That’s over 40% earnings growth for the next two years.*

Categories
Cloud Service Providers

Microsoft (NASDAQ) Q2 Earnings Preview: AI Growth and Cloud Performance in Focus

surce

Microsoft (NASDAQ:MSFT) is scheduled to report its second-quarter results on Tuesday, January 30th, after market close, kicking off tech earnings.
Analysts expect a year-over-year increase in both the top and bottom lines, with earnings per share of $2.77 on revenues of $61.13 billion.

The Redmond, Washington-based company recently became the second tech giant, after Apple (AAPL), to cross the $3 trillion mark, buoyed by its artificial intelligence products. Its shares have surged nearly 63% in the last 12-months.

Microsoft (MSFT) has poured billions of dollars into OpenAI, making it the startup’s largest investor. This has let it get ahead of rivals Alphabet (GOOG)(GOOGL), Amazon.com (AMZN), and Meta Platforms (META) in the AI race.

The technology underlying OpenAI’s ChatGPT has become entwined in Microsoft (MSFT) products.

The Windows maker recently expanded access to its generative AI offering Copilot. The subscription plan is now offered to individuals and small businesses.

Copilot, which Microsoft (MSFT) dubs as an “everyday AI companion,” is intended to assist writers, programmers, creators, and designers.

According to investment firm Citi, a 5% adoption rate by its 77M customers using Microsoft 365 could add $925 million in revenue by fiscal year 2025. An adoption rate of 15% could add $2.7 billion in sales.

Analysts at Wedbush believe Microsoft (MSFT) will be the most important earnings report and conference call in all of earnings season.

The company is expected to handily beat expectations for the December quarter. Investors will be focusing on the Azure growth metric and the performance of its cloud business.

While AI be a dominant theme in 2024, analysts are of the opinion that 2025 will be the true inflection year.

Last week, Microsoft (MSFT) announced it was laying off 1,900 employees at its gaming division, primarily impacting employees at Activision Blizzard and Xbox.

Over the last three months, the company’s estimates have seen substantial upgrades. Its earnings per share estimates have been revised upwards seven times vs. one downward move, while revenue estimates have seen seven upward moves, compared to two downward revisions.

Seeking Alpha analysts at large consider MSFT a Buy. This compares with average Wall Street rating of Strong Buy and SA Quant rating of Hold.

Categories
Finance/banking

HDFC Bank (HDB) $55 – Hold: Evaluating Post-Merger Impact and Future Prospects

source

HDFC Bank (HDB) $55 – Hold

Its merger with HDFC decreases overall operating margins and valuation multiples a little bit; earlier it was one of India’s fastest growing banks mostly on consumer and retail strengths, now we have a giant which is less nimble and owns a lot of wholesale slower earning assets.

However, there are a lot of benefits such as cross selling and the combined entity gains from HDFC’s strong exposure to mortgages, which will continue to grow fast in India.

It’s expensive at 19x earnings, which is pretty high for a bank and for one with mid single digit growth. Overall HDB has returned 7-9% in the last 5 years, which is not bad, but given India’s great growth story it is much lower than even the Indian market (Sensex and Nifty)

I would take a second look below $50; let’s see another quarter of how the merger pans out.

I compared it with ICICI Bank (IBN), which has actually done a lot better as a return on Investment, however that too is expensive right now around $24.36, and could be worth buying if it came down about 10-15%.

Banks are cyclicals, don’t tend to outperform and are not usually fast growers, so entry prices are important.