Fountainheadinvesting

Fountainhead Investing

  • Objective Analysis: Research On High Quality Companies With Sustainable Moats
  • Tech Focused: 60% Allocated To AI, Semiconductors, Technology

5 Star Tech Analyst Focused On Excellent Companies With Sustainable Moats

Category: Technology

Categories
Technology

Apple, (AAPL), Still A Hold.

source:apple technology

Apple, (AAPL) – $170 Hold 

The recent drop, especially today, has been because of weak iPhone sales in China, which fell 24% year-over-year in the first six weeks of 2024, amid rising competition from Chinese rival Huawei Technologies, Counterpoint Research said. There’s a lack of consumer confidence in China, and several attempts to kickstart their economy have not succeeded; If it goes into a deflationary spiral, this problem could continue for a few quarters before bottoming out.

Getting out of the car project was a good idea, even if they wasted a decade and billions of dollars, but that’s no longer a drain, and diverting that to AI development is absolutely necessary, even if it is a little late.

The stock should remain sideways and sluggish for a while, but this is not a trading stock, it’s a long term investment, which doesn’t quite give blockbuster returns but is a steady performer. I’m not planning to sell any and will revisit if it falls further.

Categories
Technology

Apple (AAPL): A Steady Investment Amid Market Volatility

source:apple

Apple (AAPL)

Apple has been seeing dip buying and support around $170, as the safest port in the storm, given the overbought sentiment and volatility in semis/tech. 

There was a buy call from Evercore a couple of days back, which also supported it after seven straight days of it falling.

While I had hoped to see it drop to $160, and had recommended HOLD given the weakness in China; As a market leader, we may not see that price and given that Apple is a long term buy and hold, a few percentage points won’t make a large difference. 

If you don’t have it in the portfolio or are looking for something steadier you can start accumulating.

Categories
Semiconductors Technology

Evaluating SOXX, XLK, and VOO: Current Performance and Future Outlook

source

SOXX, The premier semiconductor ETF, naturally done very well with the AI, Nvidia boom. Up 62% in the last twelve months.  Solid for the long term, but I would wait for a lower entry point, 10-20% lower to get meaningful returns. Given the froth in the market for all things AI, we may not get that decline, though, I think patience is better.

XLK, Very similar to SOXX 48% up in the last 12- same thing wait for a better price, but again long term very solid. The big issue is so much of the future gains have already been priced in so going forward it’s going to be much lower than the 48% plus you have the risk of the ETF dropping or staying sideways.

VOO – follows the S&P 500, is about 28% up in the past year, and 8% YTD – not surprisingly because the S&P 500 has about a 30% technology influence, its a market capitalization weighted index so the big tech bellwethers like Nvidia, Microsoft dominate its movements. 

Many analysts have already crossed their S&P 500 targets for 2024, and just a few are revising it upwards, therefore not likely to see too many Buy Calls from these levels.

The longer-term average annual move in the S&P 500 is usually around 8%. We’ve already advanced 8% in the first two months, so the same story, currently overbought – would prefer a better entry point on a correction.

Categories
Technology

Rivian (RIVN), Still Has A Steep Climb

source

Rivian (RIVN) Good bit of a lifeline, and may get them cash following the R2 intro, which should get decent demand from a niche market. However, it’s not coming till 2026, and Tesla is itching to reduce prices of its Cybertruck (when it happens).

Unfortunately, the sales numbers are not likely to change the volume needed to get to any semblance of break even in the near future – the numbers are just too small.

At the last call Rivian’s management saw the current cash balance of $9.4B only lasting the business through the end of 2025. If they raise more cash following the R2 unveil I would use the upside as a chance to exit. 

and even though the new R2 vehicle will likely command a respectable, niche following, it will not come to market until 2026 per today’s announcement and I don’t expect the sales volume to be enough for the company’s downward trajectory to change. I recommend that investors sell the stock after today’s unveiling event.

Categories
Technology

Rivian (RIVN) Analysis: $11.30 – Avoid Until Signs of Stability Emerge

source:rivian

The situation is even worse than expected with only 57K vehicle production for 2024 – no growth, production cuts, workforce cuts, hardly breaking even at gross levels.

Here is the company’s outlook, which inspired no confidence.

“For 2024, we expect our total deliveries to be derived from our existing order bank as well as new orders generated during the year. Our full year targets rely on an improvement in order rate driven by our planned go-to-market strategies. The conversion of our existing order bank to sales can be impacted by several factors including delivery timing, location of order, monthly payments, and customer readiness. Our order bank has notably reduced over time as deliveries more than doubled in 2023 versus 2022, and we have incurred cancellations due to macro and customer factors.”

Conference call, filled with underwhelming guidance and management’s approach to addressing the current challenges, the business model was questioned – do they even need a new plant? The sheer magnitude of the projected shortfall and the apparent lack of more decisive action is also baffling.

There is a lot of risk in the current market environment, particularly given the required $5 billion investment in conjunction with the new Georgia plant to facilitate the production of Rivian’s mass-market R2 vehicles.

Categories
Technology

Rivian (RIVN) Analysis: Navigating Challenges Ahead of Earnings Call

source:rivians

Rivian – (RIVN) $16.15 HOLD. Going to wait till 2/21 Earnings call to make a better judgment, too many conflicting signals to take a position.

Several weaknesses abound

Economies of scale – With about 57,,000 vehicles sold annually (double the previous year), it needs at least double that to break even or drastically increase prices, which is impossible, given that Tesla has decreased prices. 

Inventory appears to be piling up.

GM and Ford have called out weakening EV demand and slowed production.

Amazon didn’t pick up as much last year.

Highly capital intensive – the chances of dilution and/or debt piling up are high.

On the other hand…it’s not curtains yet..

Amazon has a goal of deploying 100,000 EV trucks by 2030, and this is a huge under penetrated market.

Seems as though their potential competition is also weak and fading away. Lordstown (another EV pickup) and Arrival (another ”last mile” EV delivery van) faltered. 

There is likely to be consolidation in this space amongst non Tesla start ups. Tesla itself faces difficulties and could buy up their competitors to fill out the gaps in their global lineup.

Reduction in Lithium input costs and other critical metals needed for the batteries, which made up a large share of the production costs and as these savings could start to show up in the manufacturing lines.

The valuation is not terrible, but I would like to see some progress against the current demand headwinds before taking a call.

Categories
Technology

Amazon (AMZN) Analysis: Valuation Insights and Growth Potential

Amazon (AMZN) $173, A little overpriced – Buy below $160 – 3 Year Price Target $210 -245, 12-14% annual return.

Yes, it has become a bit expensive like everything else, but a lot of positives and growth is trending higher for the next 3 years.

There is an important focus on profits, and renewed emphasis on costs. As a result, I can see them growing earnings in the mid thirties to about $7 a share by 2026, so assigning a multiple of 30 to 35 gets us to $210 to $245, with a midpoint of $230.

AWS growth resumed to 14%, and forecasted cloud end-user growth worldwide to around 20%. Plus AWS contracted obligations grew faster than sales – over 25% so that will show up in higher revenues down the road. AWS is currently at a run rate of over $100 Bn, and remains the market leader. If AI has to succeed, the cloud has to play an important role and vital role, you need that kind of processing power.

I also like Anthropic collaboration with Amazon for AI – that could be a big winner down the road.

Categories
Technology

Tesla: Why I’m Buying on Declines Between $160 and $190 Despite Margin Pressures and Competition

source:tesla

Tesla (TSLA) Buy on declines $160-190

I own Tesla and have been holding it patiently.

Tesla has operating margin compression from 16% to 9% and there is no way they can continue to grow without sacrificing margins, otherwise, they get saddled with excess production capacity and inventory – which are equally bad problems. There’s far more competition, Chinese demand is lower, and suddenly you’re looking at it as an auto company with all its associated auto industry problems and a lower multiple.

I guess the main question is how much of it is already in the price – Tesla has dropped 33% from its 52 week high of $300, and rebounding from $182.

Earnings – Priced at 59x with 24% growth, about 10% overpriced.

Sales – 5.5X sales with 18% growth – also overpriced, because it doesn’t have the tech operating margins anymore and even in the best case will go to 15-16% of sales.

That said – it is far ahead in innovation and scale and very likely remain so in spite of the Musk personality and the various chemicals that go with it.

Categories
Technology

Indie Semiconductor: Why I’m Continuing to Buy Despite Short-Term Volatility

The S&P 500 should drop to 5,782

Indie (INDI) I have been continuing to buy in the past two weeks as the stock kept getting lower. The long term story is intact and very strong, but because it’s a loss-making tiny growth stock ($345Mn revenue in 2024), the stock tends to be volatile. Besides, there is a large short interest of over 13%.

Management’s guidance of $1Bn in revenues by 2028, implies a 5 year growth of 35% – they have the $6.4Bn pipeline so I suspect that’s a conservative estimate.

Qualcomm’s auto tech revenues grew over 30% so that’s reassuring but Mobile Eye’s was a disaster, they had too much inventory, so mixed bag there.

I’m very confident of the long term potential, but it is going to be a bumpy ride, as it often is with early stage growth stocks.

Indie reports on 2/22 – will update.

Categories
Technology

Synopsys, Inc (SNPS) at $558: A Hold on High Valuation Despite Strong Fundamentals

source

Chip Design. (Electronic Design Automation) Pick and Shovels semi and AI play.

I had looked at this company a couple of weeks ago and just checked my notes – “Where’s the growth for a P/E of 42 and a P/S ratio of 13?”

Yeah, it’s a 15% earnings grower, so that’s a PEG (Price Earning to Growth) of 3 and a 12% revenue grower, that sales multiple is also too rich.

It’s a solid company – no doubt, but likely paying a steep price for the ANSYS (ANSS)  acquisition, hoping for ambitious synergy targets, which often don’t happen. That said, its chip design simulation business is strong and with the AI buzz can get a boost – that’s why I was surprised to see only 12% revenue growth estimates. Operating margins of both companies are very high at 32% and 28% – that’s a big plus.

There’s another competitor in this space Cadence (CDNS) which is also very profitable at 30% operating margins – same problem – 50X earnings with 17% growth..and 17.6X sales!

I do want to keep this company under the radar for sure and let’s see what the next call reveals.