Tag: AI

Palantir Q3-24: Strikingly Good Results and Raised Guidance

Post author By Fountainhead
Post date 11/04/2024
No Comments on Palantir Q3-24: Strikingly Good Results and Raised Guidance

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 10/31/2024
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 Industry Semiconductors

ASML (ASML) AT $690 Is A Bargain

Post author By Fountainhead
Post date 10/27/2024
No Comments on ASML (ASML) AT $690 Is A Bargain

ASML

Sure it could stay sluggish, range-bound, or fall till there’s some improvement in bookings, export controls to China, etc. Perhaps, that may not even happen for a while.
I think that’s an acceptable risk, now I’m getting a monopoly at a 37% drop from its 52-week high of $1,110, still growing revenue at 12% and EPS at 22%, selling for 8x sales and 25x earnings.
With TSM’s results, we saw how strong AI semiconductor demand still is and there was absolutely no let-up in their guidance.

A monopoly for AI chip production – an essential cog, without which AI is not possible – is definitely worth the risk

Tags AI, Artificial Intelligence, ASML, EUV Lithography, Long-Term Investment, Semiconductor

AI Alternative Energy Cloud Service Providers Industry Power and Utilities Stocks

NextEra: The Green Energy Leader Can Benefit From Data Center

Post author By Fountainhead
Post date 10/16/2024
1 Comment on NextEra: The Green Energy Leader Can Benefit From Data Center

NextEra Energy

NextEra Energy (NEE) $84 has a huge scale of operations. It is the largest green energy producer in the world and the largest player in the U.S. market with more than 20% market share. Long-term revenue of at least 10% a year and dividend growth seem assured, but I would wait for a better entry price.

The U.S. is forecast to experience a significant growth in electricity demand in the coming years, fuelled by the growth in data centers and AI, the proliferation of electric vehicles, the increased use of energy in the home, and the increasing number of extreme weather events, especially prolonged heat spells.

Estimates vary, but NEE is expecting a 38% growth in power demand over the next 20 years (Statistica says 27%); that growth is 4 times higher than the growth seen in the previous 20 years. Clearly, data center demand will outstrip decades of growth, given the hyper scaler Capex.

NEE has a solid balance sheet with an A- credit rating and its unprecedented scale allows it to access huge amounts of capital. Its operating margins are more than 30% – This is a huge competitive advantage especially if data center power generation pans out. The long-term nature of their business and proven ability to generate cash over a long period de-risks the high level of debt.

The stock is up 55% in the past year but is definitely interesting to buy on a pullback.

Tags AI, Artificial Intelligence, data center, NEE, NextEra, Nuclear Energy

AI Alternative Energy Cloud Service Providers Power and Utilities Stocks

Constellation Energy Could Be Interesting To Buy On A Dip

Post author By Fountainhead
Post date 10/16/2024
No Comments on Constellation Energy Could Be Interesting To Buy On A Dip

Constellation Energy (CEG) has surged over 130% in the past year to $280 – I would wait for a pullback.

Constellation Energy (CEG) and NextEra Energy (EEE) are the largest carbon-free / nuclear energy companies in the US today. It’s important to note here that a nuclear power generator can operate cheaper than other energy sources but only if it’s already in commission.

New nuclear plants will take a huge amount of government help, subsidies, permissions, and cost overruns. Future profitability and cash generation will take a long time, so existing players like Constellation and Next Era who have a large nuclear/carbon-free energy share of total power generation have definite competitive advantages.

Microsoft’s deal with Constellation should be accretive to earnings from 2028. (Assuming that the govt okays the deal and it gets on track).

However, analyst haven’t added this to their forecasts, so there is a great deal of skepticism there. Constellation, by itself, is not a very efficient company, with operating margins at 8-12%, much lower than Next Era’s.

AI needs power: With the renewed focus on nuclear energy power generation, investors likely expect the AI-driven surge to carry on as AI infrastructure investments enter the next scaling stage. OpenAI’s ability to raise more funds at a much higher valuation than the previous year has strengthened the AI growth thesis. Nvidia’s (NVDA) commentary suggests its new Blackwell chips are already sold out over the next twelve months has renewed the market’s interest in the AI theme, potentially benefiting nuclear power generators like CEG.

Money talks: Huge data center operators and hyperscalers have demonstrated their willingness to pay a substantial premium to secure their power requirements. Unless the AI monetization opportunities fail to pan out convincingly over the next few years, it seems reasonable to expect CEG’s much more robust profitability outlook to play out in the medium term.

Regulations remain tight: Possible market structure changes and regulatory hurdles could affect a more robust outlook moving ahead. Despite that, the government seems keen to restart nuclear plants, corroborating the fervor in CEG and its leading nuclear peers.

In addition, Constellation’s ability to obtain a federal loan guarantee (cleared initial review stage) to help finance the restart of the Three Mile Island nuclear plant is expected to provide more confidence to investors. However, investors could consider buying CEG at a dip, and not chase the stock, with so many uncertainties.

Tags AI, Artificial Intelligence, CEG, Constellation Energy, data center, Nuclear Energy, stock analysis

AI Alternative Energy Cloud Service Providers Stocks Utilities

The Nuclear Comeback Needs Careful Consideration

Post author By Fountainhead
Post date 10/16/2024
No Comments on The Nuclear Comeback Needs Careful Consideration

Small Modular Reactors

10/16/2024

Small Modular Reactors, (SMR) companies are going to be high-risk / high-reward stocks with such large jumps (40% in a day); and on Cloud Service Providers’ involvement, the risks got even higher. Besides Oklo and NuScale, I’ve included a couple of other much larger nuclear power and clean energy companies that could ride the boom if it materializes.

Oklo Inc (OKLO) $16.55 is up 42% today on the Amazon announcement!!

It’s a Sam Altman (OpenAI) back SPAC, a nuclear power company or, more precisely, a fast-fission clean power technology and nuclear fuel recycling company. MIT graduates Jacob DeWitte and Caroline Cochran co-founded Oklo in 2013.

The growing demand for electricity globally and renewable energy policies will favor Oklo, but it would be prudent to see more progress before making an investment, these are really early stage companies in highly regulated environments.

The Nuclear Comeback:

Nuclear power provides ~9% of total and ~25% of low-carbon electricity globally, making it a major and clean energy source. 22 countries (including the US, the UK, France, Japan, and other influential countries) agreed and declared they would work towards tripling nuclear energy capacity by 2050 during the last COP28 meeting on December 2023, recognizing the key role of nuclear power in the green transition and the global net-zero emissions goal. Hence, we could experience a nuclear power boom, after decades of stalling. The ADVANCE Act also points in that direction regarding the US. Nuclear power rejuvenation could be unfolded from existing and new players in the coming years. Nuclear fission advanced technologies and small modular reactors will play an important role in achieving this goal. Commercialization of nuclear fusion is also expected to debut by the end of the decade.

For the coming quarters/years, the company is expected to burn cash ($40M-$50M 2024 expected operating loss) while revenue should start flowing in 2027 and profits even later.

Key Risks

Regulatory, environmental, political, and application-related issues will cause delays.
Additional funding will be needed along the way, and Oklo will dilute shareholders or issue debt.
Oklo is an emerging growth, pre-production, unprofitable company; this could result in stock price volatility.

If you have some funds set aside for speculative/high-risk investment, you could allocate a small amount towards it, though I would wait for a pullback.

NuScale Power Corporation (SMR)

NuScale – at $19, just like competitor OKLO is up 40% in a week and 220% in the past year!
A baby – it is a pre-commercialisation technology company designing a Small Modular Nuclear reactor, which could become very succesful.
It has US government support, and strategic partnerships, but faces intense competition from larger, more established players like Vistra, and better-funded startups with next-generation nuclear technology, like OKLO.
A very risky play at this stage

Positives:

Samsung’s subsidiary, Korea’s No.1 private utility company, will lead the construction and engineering of the new plant.

Negatives:

Competition is intense; they are up against established large-scale companies like Westinghouse Electric, which built a nuclear reactor over 60 years ago, TerraPower formed by Bill Gates, and BWX Technologies (BWXT) is another major competitor in the US, a second company with more than 100 years of operation and established nuclear divisions.

The Short Seller Report

NuScale was hit by a short seller report update from Iceberg Research last month, claiming that it has no serious customers. Given the charges, it would make sense for the dust to settle, before investing.

Besides the valuation is extremely high. This needs further analysis and investigation.

Tags AI, Artificial Intelligence, data center, Nuclear Energy, Small Modular Reactors, SMR, stock analysis

AI Alternative Energy Stocks Utilities

Vistra (VST)-A Strong Utility With A Big Focus On Clean energy.

Post author By Fountainhead
Post date 10/16/2024
No Comments on Vistra (VST)-A Strong Utility With A Big Focus On Clean energy.

Clean Energy Vistra

Vistra (VST) $137 One of the better utilities with good operating margins and a big focus on clean energy – worth buying on declines.

As data centers hunger for power and nuclear energy gathers steam, Vistra has already benefited from a 200% YTD rise. Its focus on nuclear energy and clean energy partnerships makes it a strong contender, but a short-term correction should make it more attractive.

Vistra’s biggest source of power generation is still hydrocarbons like natural gas, LNG, and coal, accounting for 56% of its total generation as of the first half of 2024 (H1 2024).

However, with the completion of its acquisition of Ohio based nuclear energy utility Energy Harbor in March this year, its focus on nuclear energy in particular and clean energy in general has increased.

As of H1 2024, nuclear energy accounted for 22.9% of its total energy generation, up from 12.3% in H1 2023. The acquisition also made Vistra the second-biggest nuclear energy generator after CEG. Further, with nuclear energy eligible for production tax credits under the US’s Inflation Reduction Act, Vistra’s earnings can be positively impacted with increased focus on nuclear energy.

The stock’s forward EV/EBITDA at 12.38x is also running higher than its five-year average of 7.95x. VST’s forward non-GAAP price-to-earnings (P/E) ratio at 22.84x is similarly higher than the five-year average of 15.17x and as per analysts’ estimates, will remain so next year as well.

As such, a correction would be better for it in the short term, which should give investors a better buying opportunity.

Vistra is not a pure-play nuclear energy company, and that is perhaps to its advantage – it has the cash cow from traditional energy sources to balance out the volatility from nuclear buildout, safety compliance, and regulations.

Tags AI, Data Centers, Long-Term Investment, Nuclear Energy, Utilities, Vistra, VST

AI Semiconductors Stocks

Nvidia – The Blackwell Ramp

Post author By Fountainhead
Post date 09/25/2024
No Comments on Nvidia – The Blackwell Ramp

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