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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.

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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.

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Technology

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

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.

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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.

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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.