Category: Stocks

Nvidia Is An Excellent Long Term Investment

Post author By Fountainhead
Post date November 18, 2024

source:nvdia

Hyperscaler Capex Shows Strong Demand For Nvidia’s (NVDA) GPUs.

I know there is excitement in the markets as Nvidia reports Q3-FY2025 earnings after the market on Wednesday 11/20. Nvidia earnings watch parties have become part of the Zeitgeist, and its quarterly earnings are one of the most closely watched events each quarter.

I, however, don’t believe in quarterly gyrations and have been a long-term investor in Nvidia since 2017, having recommended it more than two years ago and then in March 2023 and again in May 2023 as part of an industry article on auto-tech.

I believe the Blackwell ramp is going strong, and reports regarding rack heating issues are just noise in a program of this size.

Capex from hyperscalers will continue to fuel demand for Nvidia’s GPUs in the next year and beyond and even though it’s expensive it remains a great long-term investment.

Capex from hyperscalers – Nvidia’s biggest customers.

AI spending from the hyperscalers is expected to increase to $225Bn in 2024. Cumulatively in the first 9 months of the year, the key hyperscalers who are Nvidia’s biggest clients, have already spent $170Bn, on Capex — 56% higher than the previous year. Here are the estimates for the full year 2024,

Amazon (AMZN) $75Bn
Alphabet (GOOG) $50Bn
Meta (META) $38Bn to $40Bn
Microsoft (MSFT) $60Bn

On their earnings call, hyperscalers’ management committed to continued Capex spending in 2025, but not at the same pace of over 50% seen in 2024.

When quizzed by analysts, hyperscalers also talked about AI revenues, which though are still relatively small compared to the amount of Capex spent, it is growing and growing within their products. Amazon mentioned that its AI business through AWS is at a multibillion-dollar revenue run rate growing in triple-digits year, while Microsoft’s CEO stated that its AI business is on track to surpass $10 billion in annual revenue run rate in Q2-FY2025.

Meta and Alphabet had more indirect inferences about AI revenues. For example, Meta believes that its AI tools improve conversion rates for its advertisers, which creates more demand. On the consumer side, Meta believes that their AI has led to more time spent on Facebook and Instagram. Similarly, Alphabet also spoke about Gemini improving the user experience and its use of AI in search. Seven of the company’s major products—with more than two billion users—have incorporated Google’s AI Gemini model, While Capex from hyperscalers also goes towards infrastructure, and building, which take longer to show good returns, a fairly large chunk goes towards GPUs, which bodes well for Nvidia, which controls more than 80% of the AI-GPU market.

Besides Capex, I also believe in AI and there are several areas where AI has already shown promise.

Code Generation

The low-hanging fruit is being plucked: A quarter of new code at companies like Google is now initially generated by AI and then reviewed by staff. Similarly, GitLabs and GitHub, are providing Dev-Op teams similar offerings.

Parsing and synthesizing data for product usage:

Partha Ranganathan, a technical fellow at Google Cloud, says he’s seeing more customers using AI to synthesize and analyze a large amount of complex data using a conversational interface.

Other enterprise software companies see huge upsides in selecting a large-language model and fine-tuning the model with their own unique data applied to their own product needs.

I recommended Duolingo (DUOL) for the same reasons, their own AI strengths better their language app, creating a virtuous flywheel of data generation from their own users to create an even better product – data that exists within Duolingo, which is more powerful and useful than a generic ChatGPT product.

Using AI for medical breakthroughs

Pharmaceutical giants like Bristol Myers are using AI for drug discovery at a pace that was impossible before AI and LLMs became available. These are computational problems that need powerful GPUs to research, compute, and process for clinical trials.

Who is the indispensable, ubiquitous, and default option to turn their dreams into reality? – Nvidia and its revolutionary Blackwell GPUs – the GB200 NVL72 AI system, which incorporates 72 GPUs, linked together inside one server rack differentiating Nvidia from its lesser lights like AMD and Broadcom, which at a run rate of $5.5Bn and $11Bn, respectively are minnows compared to the $130Bn behemoth with 80% of that revenue from AI/Datacenter GPUs.

I believe we are in the first innings of AI and Nvidia will continue to lead the way. I continue to buy Nvidia on declines.

Tags #EquityInvestment, AI, Artificial Intelligence, Long-Term Investment, Nvidia, Nvidia GPUs, Semiconductor Industry, stock analysis

Stocks Technology

Shopify (SHOP) $113 Phenomenal Q3 -24 Results And Guidance

Post author By Fountainhead
Post date November 12, 2024

Source:The Realtime Report

11/12/2024

Shopify’s (SHOP) $113 phenomenal results and guidance propels the stock 25% higher to $113 by mid-morning.

I bought and recommended Shopify on 8/8 and 7/19 for around $66 and $63. I also recommended it on Seeking Alpha in July.

Even with the post-earnings bump, which has taken it to $113, I still think it would be worth buying once the euphoria settles. This company is firing on all cylinders and should continue growing for the next 3-5 years.

Shopify excelled on several metrics for the third quarter ended Sep 30th, 2024:

Gross merchandise volume rose 24% to $69.72 billion, beating the consensus estimate of $67.78 billion.

Its revenue rose 26% YoY to $2.16 billion, beating expectations by $50Mn, which was the sixth consecutive quarter of greater than 25% revenue growth for the e-commerce company, excluding logistics.

Monthly recurring revenue rose 28% to $175 million vs. the consensus estimate of $173.6 million. Monthly recurring revenue is a higher-margin subscription revenue business used by larger clients for more features and modules and multi-channel operations. This is Shopify’s growth catalyst for the future, and they’re focused on building and scaling this to differentiate from competitors.

Operating income was up 132% to $283 million, and free cash flow grew 53% to $421 million.

“We have grown free cash flow margin sequentially each quarter this year, consistent with what we delivered last year. These results demonstrate the durability of our business, our multiple avenues for growth, and continued discipline of balancing both future growth investment and operational leverage,” highlighted CFO Jeff Hoffmeister.

The biggest reason behind the 25% jump is the guidance and improving profitability, confirming my earlier thesis that Shopify’s strong focus on providing a rich, multi-channel platform is allowing it to gain market share from plain vanilla, single-feature vendors. Shopify’s management had cited client wins from SalesForce (CRM) earlier as testimonials of its progress.

Guidance

Looking ahead, Shopify sees Q4 revenue growing at a mid-to-high-twenties percentage rate on a year-over-year basis, which is a higher implied rate than the implied guidance. The earlier guidance was 23% so that is quite a large improvement.

Operating Profit Margin will continue to improve, as operating expense as a percentage of revenues decreases to 32% to 33% from an earlier average of 35%.

Free cash flow margin to be similar to Q4 2023 — Around 19.5%, another solid improvement from the previous year.

I plan to buy on declines and hold for the long term of 3-5 years.

Tags Earnings Report, Long-Term Investment, SHOP, Shopify, stock analysis, Tech Stocks

Enterprise Software Stocks

Klaviyo (KVYO) $33, Adding More Shares On Declines

Post author By Fountainhead
Post date November 8, 2024

Source: Klaviyo

Klaviyo beat earnings and revenue estimates for Q3-24, handily, but it wasn’t enough for the market, which punished the stock 12-15% after hours.

I would think that the short interest of 11% also had something to do with the fall, as I don’t believe that the stock is priced to perfection or that earnings “disappointed” investors. Klaviyo had been on a tear, rising from $22, at its low in August 2024, and the 80% rise to $40 needed a breather/correction to consolidate before it resumed rising again; The excellent progress in this quarter confirms the longer-term growth trajectory, and the high-quality business model of the company. I believe it is worth buying on declines, and I bought more at $33 this morning,

Sep 24 quarter results: Adjusted EPS beat by 4 cents or 40% coming in at 14 cents against the 10 cents forecast, and revenue of $235Mn beat by $8Mn or 4%.

Guidance for the next quarter and full year was also raised from the earlier estimate provided. Klaviyo now expects total revenues of $925Mn V $914 at the midpoint and an adjusted operating income of $105, in line with the earlier forecast of $107. Perhaps the market was expecting more here, but this lower operating income is because of an adjustment for higher cash compensation instead of shares, which will be charged in Q4, and going forward accrued in each quarter.

Management also mentioned that 2025 growth would decelerate slightly from Q3-24 growth of 28%, which is fine, consensus analysts’ estimates have pegged the next year’s growth at 24%, so it is likely that Klaviyo will outperform those estimates. Some of the lower growth projections can also be attributed to 2024 revenues coming higher at $924 than the earlier forecast of $895Mn — the growth projected is on a higher base.

I smoothened analysts’ estimates over 3 years from 2024 to 2026, I still get an annual estimated revenue growth of 27%. Klaviyo is valued at 9.5X 2025 sales. This is a P/S to Growth ratio of 0.35, (9.5/27%), which is relatively moderate. I get antsy when it goes above 0.4, and growth drops a lot. Clearly, that’s not anticipated in Klaviyo’s case. What’s remarkable is that an enterprise software company still grew over 30% in the SMB (Small and Medium Business) category.

Here are some Wall Street ratings.

“Klaviyo reported another solid sales quarter against a macro continuing to drive a soft sales environment that has been offset by strong up-market sales execution,” Needham analyst Scott Berg wrote in a note to clients. “Revenue outperformance of 3.9% was at the midpoint of its post-IPO results over the last five quarters. We expect modest share weakness after the company implements a new comp strategy, shifting some [stock-based compensation] to cash comp that will drive 4Q operating margins lower due to a catch-up accrual. We expect investors will ultimately like this change, as our math suggests it could drive somewhere around 8%-10% less annual share dilution.”

Berg kept his Buy rating on Klaviyo but upped his price target to $46 from $40.

Loop Capital analyst Yun Kim also upped his price target slightly, moving to $45 from $40, as he pointed out the results and its view of the business are “somewhat contrary to increasing signs of a weakening environment (especially for a marketing automation vendor).”

Morgan Stanley analyst Elizabeth Porter also upped her price target slightly, moving to $38 from $32, as she said the 34% revenue growth seen in the third quarter puts Klaviyo in “rare air amongst software vendors.”

Tags #GrowthStocks, #KVYO, Earnings Report, Klaviyo, stock analysis, Tech Stocks

AI Semiconductors Stocks

Qualcomm, (QCOM) Solid Beat On Turbocharged Auto Sales

Post author By Fountainhead
Post date November 7, 2024

Post earnings the stock was up 9% to $188, yesterday, but has given up most of its gains, today. I’m continuing to accumulate.

I’ve owned Qualcomm for a while now, and recommended it in July 2024, and earlier in September 2023, when I wrote a lengthy article on the auto-tech industry. I believe in its long-term strengths and plan to keep the investment for the next three to five years.

Key Strengths include:

The Crown Jewel – Its licensing business with its treasure trove of patents generating 70% margins.
Strong growth from autos – one of the market leaders with Nvidia and Mobile Eye.
Its partnership with Microsoft (MSFT) for AI PCs

Sep Q-2024 Results

QCT sales rose 18% year-over-year to $8.678B.

Within QCT, Auto was the best performer – sales jumped 68% to $899M. This was the biggest surprise as Qualcomm’s auto sales growth cadence is in the mid-thirties. Auto sales tend to be lumpy so this was a really big positive.

Revenue from handsets rose 12% year-over-year to $6.096B. Handsets tend to struggle sometimes – based on Apple’s fortunes and after drops in the previous year, this was a welcome return to growth.

Its IoT segment has been a slow grower – usually mid-single digits, but it grew 22% this quarter to $1.683Bn.

Licensing revenue rose 21% year-over-year to $1.521B. Licensing is its most lucrative segment with gross margins over 70% – pretty much its crown jewel.

Q1FY2025 Guidance:

Revenue of $10.5B-$11.3B vs $10.61B consensus. At the midpoint, that’s an increase of 3% Non-GAAP diluted EPS of $2.85-$3.05 vs $2.87 consensus, which at the midpoint is also an increase of 3%. from handsets rose 12% year-over-year to $6.096B.

The CEO, Cristiano Anon, had this to say about the quarter

“We are pleased to conclude the fiscal year with strong results in the fourth quarter, delivering greater than 30% year-over-year growth in EPS,” “We are excited about our recent product announcements at Snapdragon Summit and Embedded World, as they continue to extend our technology leadership and position us well across Handsets, PC, Automotive and Industrial IoT. We look forward to providing an update on our growth and diversification initiatives at our Investor Day on November 19.”

Analysts from UBS and J.P. Morgan upped their price targets, while Barclays analyst Tom O’Malley (who kept his Overweight rating and $200 price target) pointed out that there is now a “bifurcation in Android between the high and low end” and Qualcomm is benefiting both in units and average selling price.

At $180, Qualcomm is very reasonably priced at 16x next year’s estimated earnings and 4x next year’s forecasted sales.

Given its market leadership in auto-tech, AI PCs, and sustainable, and recurring high-margin licensing business, Qualcomm should be priced between 20-22x earnings. It spends a good 25% of its revenues on R&D, which will enable it to continue innovating and growing. Even after that, it still returned $1.6Bn to shareholders with $0.7Bn in share buybacks and $0.9Bn in dividends.

Tags AI, Artificial Intelligence, Earnings Report, Investment Strategy, Long-Term Investment, QCOM, Qualcomm, Semiconductor, stock analysis

Ad Tech Stocks

Applovin (APP) – What An Impressive Quarter!

Post author By Fountainhead
Post date November 7, 2024

Source:AppLovin.com

Applovin (APP) – What An Impressive Quarter! Shares +28% to $216! HOLDING NOW, Way Too Rich For Me.

I first bought and recommended AppLovin on July 5th, at $84, here’s a link to the first article on Seeking Alpha, and I continue to hold 70% after taking profits of around $150.

But hats off for an amazing quarter, Applovin’s Q3 GAAP EPS of $1.25 beats by $0.32 – This looks like some serious sandbagging.

Revenue of $1.2B (+38.8% Y/Y) beats by $70M. We forget that AppLovin is a $5Bn revenue company, and with these growth rates in a competitive Ad-Tech market, it is seriously behaving like a $1Bn start-up!

What is AppLovin’s secret sauce?: It introduced the new version of its AI-backed ad mediation platform AXON in q1-2023, and the results have been astounding since then. Advertising mediation platforms depend on the strength of the black box that matches targeted customers with relevant ads in real-time, with the best return on investment for the advertiser. It isn’t called performance marketing without reason. You’re only as good as the value that you executed immediately for the publisher or advertiser, which is vastly different from brand building. Clearly AXON has performed for its advertising clients, and this quarter’s outperformance was proof that AXON is the real deal.

From the CEO’s letter to shareholders:

“Our AXON models continue to improve through self-learning and, more importantly, this quarter, from technology enhancements by our engineering team. As we continue to improve our models our advertising partners are able to successfully spend at a greater scale. We’re proud to be a catalyst for reinvigorating growth in our industry.”

In Q3, AppLovin had these amazing metrics:

Revenue of $1.20 billion 39% YoY growth
Net income of $434 million 300% YoY growth at a net margin of 36%
Adjusted EBITDA of $722 million (+72% YoY) at an Adjusted EBITDA margin of 60%.
Net cash from operating activities of $551 million (+177% YoY)
Free Cash Flow of $545 million (+182% YoY).

Financial Guidance Summary 4Q – 24

Total Revenue $1,240 to $1,260 million – Previously $1,180 – At the midpoint that’s a very impressive upward revision of 6%.

Adjusted EBITDA $740 to $760 million

Adjusted EBITDA Margin 60%

AppLovin is sharing this wealth with its shareholders having bought back a total of 5.0 million shares for a total cost of $437Mn, last quarter. The board also authorized an incremental $2.0 billion for buybacks, increasing the total aggregate remaining authorization to $2.3 billion.

Tags #TechStocks, Ad-tech, APP, AppLovin, Earnings Report, stock analysis

AI Enterprise Software Stocks

Palantir Q3-24: Strikingly Good Results and Raised Guidance

Post author By Fountainhead
Post date November 4, 2024

Palantir Technologies (NYSE: PLTR): Q3 Non-GAAP EPS of $0.10 beats by $0.01.

Revenue of $725.52Mn (+30.0% Y/Y) beats by $21.83M. 30% growth is remarkable, the consensus was for 26-27%.

Big deals increased with Palantir closing 104 deals over $1 million as customer count grew 39% year-over-year and 6% quarter-over-quarter

Operating cash generation was also solid with $420Mn last quarter, at a 58% margin.

Palantir generated an adjusted free cash flow of $435 million, representing a 60% margin and over $1 billion on a trailing twelve-month basis.

Guidance

Q4 Outlook: Revenue of between $767 – $771 million vs. consensus of $744.04M.

At a midpoint of $769Mn, it is $25Mn over the consensus or 3.4% higher – another impressive feat.

Adjusted income from operations of between $298 – $302 million.

One of Palantir’s biggest strengths is its AIP (Artificial Intelligence Platform) Bootcamp sales strategy, which accelerates new customer acquisition, with conversions as fast as 16 days, boosting Palantir’s growth prospects. And from the last quarter’s excellent results, it has come through in spades.

I had recommended Palantir earlier in July 2023 at $17.

2024 Outlook: They raised their revenue guidance to $2.805 – $2.809 billion vs. the prior consensus of $2.76B. At the midpoint, that’s about 2% higher.

Palantir’s growth engine has been its commercial revenue segment, which was raised to more than $687 million, representing a growth rate of at least 50%.

They raised their adjusted income from operations guidance to between $1.054 and $1.058 billion and adjusted free cash flow guidance to more than $1 billion.

Cash Rich: Cash, cash equivalents, and short-term U.S. Treasury securities of $4.6 billion

They continue to expect GAAP operating income and net income in each quarter of this year. Clearly, the markets have been rewarding companies showing a healthy respect for profits over loss-making revenue growth at any cost, and Palantir has done an excellent job staying in the black for two years now.

Not surprisingly, shares are up 11% to $46

My biggest grouse has been Palantir’s valuation. I’ve already done well recommending and buying it for around $17. At a P/S multiple of 28X next year’s revenue of $3.4Bn, growing at 22% — this stock is way too rich for my liking and in the past quarter, I’ve sold twice. I will sell another 10% and hold on to the rest. It’s better to take profits.

Tags #GrowthStocks, AI, Artificial Intelligence, Palantir, PLTR, stock analysis, Tech Stocks

AI Cloud Service Providers Stocks

Alphabet Deserves A Better Valuation

Post author By Fountainhead
Post date October 31, 2024
2 Comments on Alphabet Deserves A Better Valuation

I had recommended Alphabet (GOOG) as a great long-term buy between $150 and $170 on several occasions.

Last evening, Google knocked it out of the park with really stellar results. I bought more shares this morning, and am reiterating a Buy.

I believe analysts’ consensus earnings are a bit conservative and Google will continue to beat estimates with better growth and operating margins.

Google’s earnings quality is better than several tech giants for the following reasons.

It has a near monopoly in Search
Market leadership in media with YouTube.
A strong first-mover advantage with Waymo.
A fast-growing Google Cloud business, third only to and catching up with Azure and AWS.

Its earnings and growth are sustainable, thus it deserves a better valuation and multiple.

Let’s take a closer look at Q3 earnings.

Q3 GAAP EPS came in at $2.12 per share, beating expectations of $1.85 per share $0.27, or 14% – This was a substantial beat.

Revenue of $88.3Bn (+14.9% Y/Y) beat by $2.05B or 3%.

Consolidated Alphabet revenues in Q3 2024 increased 15%, or 16% in constant currency, YoY to $88.3Bn reflecting strong momentum across the business.

Google Services revenues increased 13% to $76.5 billion, led by strength across Google Search & other, Google subscriptions, platforms, and YouTube ads.

Total operating income increased 34% and operating margin percent jumped a huge 4.5% to 32%.

Google Cloud revenues grew a whopping 35% to $11.4Bn led by accelerated growth in Google Cloud Platform (GCP) across AI Infrastructure, Generative AI Solutions, and core GCP products, with record operating margins of 17% as the cost per AI query decreased by 90% over the past 18 months.

Cloud titans Amazon (AWS) and Microsoft (Azure) have commanded huge valuations for their cloud computing businesses; with Google Cloud growing at 35%, it should continue to narrow the gap over the next 5 years. Also importantly, AWS and Azure have operating margins over 30%, and should Google continue to scale and leverage their existing fixed costs, they can reach the same margins. I also believe as they get better at AI, they should be able to charge more.

Based on consensus analysts’ estimates Alphabet’s EPS should grow to $11.60 in 2027 from $5.80 in 2023 – that’s an annual growth rate of 18%. Comparatively, Apple‘s estimated EPS growth through FY2027 is slower at 14%, and it sports a P/E of 33 compared to Google’s 22. Alphabet’s P/E is closer to the S&P 500’s P/E of 21!

I believe this is too low, and there is a lot of potential for its stock to appreciate just on the lower valuation.

Besides the strong EPS, a lot of Google’s expenses are noncash depreciation and amortization and their cash flow margins are strong. They generated operating cash of $31Bn on $88Bn last quarter, or a 35% cash flow margin.

The antitrust regulation will remain a possible negative on Alphabet, but the final decision is still years away as Alphabet vigorously appeals the decision.

I recommend Alphabet as a buy at $176

Tags #GrowthStocks, AI, Alphabet, Artificial Intelligence, Cloud, Cloud AI, Google, Growth Stocks, Investment Strategy, stock analysis

AI Semiconductors Stocks

Nvidia – The Blackwell Ramp

Post author By Fountainhead
Post date September 25, 2024

Nvidia (NVDA) $121 (AI) (Semiconductors)

And here we are ramping Blackwell, and it’s in full production,” said Nvidia CEO Jensen Huang, during the Goldman Sachs Communacopia + Technology Conference. “We’ll ship in Q4 and scale it — start scaling in Q4 and into next year. And the demand on it is so great … and so the intensity is really, really quite extraordinary.”

https://seekingalpha.com/news/4152814-nvidia-trends-up-as-blackwell-release-date-nears

“Blackwell chips are expected to see 450,000 units produced in the fourth quarter of 2024, translating into a potential revenue opportunity exceeding $10B for Nvidia,” according to a post today on X.

The estimate during the August conference call was for $3Bn Blackwell revenue in Q4, so this is a big change. Fundamentally there wasn’t any real difference, just the quarterly cadence from Q4 to Q1, but this does help the stock in the short term and more importantly should put to rest any rumors or doubts about Blackwell design flaws.

Tags AI, Artificial Intelligence, NVDA, Nvidia, Semiconductors