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AI Stocks

Microsoft’s Azure Revenue Could Reach $200Bn By FY2028

Forbes has an excellent article on Microsoft and Azure with the author making a strong case for $200Bn Azure revenue by FY2028 (June 2028).

The crux of the article is a) Microsoft embedding AI features into its software offerings vis co-pilots or AI solutions b) Azure growing significantly bundled with several enterprise offerings.

Azure’s growth – Microsoft has been proactive in providing more detail than the others on Cloud and AI and AI’s contribution to Azure. The report suggests an annual revenue growth from $90Bn to $200Bn in 3 years – that is an annual growth rate of 30%. Currently, AI contributes 11% to Azure’s growth and 85% of Fortune 500 companies use Azure today.

Growth is constrained by supply shortgages of GPUs. For Azure to achieve these growth levels they will need Nvidia and I don’t expect much competition for at least two years.

Categories
Fintech Stocks

Paypal Is A Solid GARP

Paypal (PYPL) $69.50 (Fintech)

This is great for Paypal, we had a Buy maintained on the group on a couple of occasions. Paypal is a reasonable value, GARP (Growth At a Reasonable Price) company, will keep chugging along with a limited downside and steady appreciation.

Shopify adds Paypal as payment processor along with Stripe.

I’ve been bullish on Shopify and its two other investments Klaviyo and Affirm, and Shopify has a lot of growth potential as it keeps adding larger customers with muti channel operations. Paypal will definitely benefit from this.

Categories
Enterprise Software Stocks

Taking Profits In Palantir (PLTR)

Palantir (PLTR) (Enterprise Software) $32.50 to $33 Sell or take profit. 

Overpriced and the 8% jump on S&P inclusion is over done and unjustified: sell or take profit.

Enterprise software is a tough market as we’ve seen with the likes of Snowflake, and Palantir is completely overpriced at 25 x sales at 22% growth – that cannot sustain.

The enterprise software sector is seeing macro uncertainty. Palantir is an excellent company and perhaps one of the few that is showing AI monetization. Its commercial segment is growing very fast and has an impressive pipeline, however PLTR trades at incredible valuations that are difficult to support even using aggressive assumptions.

I had recommended and bought the stock in the $16-$17 range and don’t see good returns at these levels for the next three years. Even given a generous P/S ratio of 14 for 2028 sales of $6Bn, we get a market cap of $78Bn, just $10Bn more than the current $68Bn – implying a total gain of just 14% in 4 years. Not worth the risk.

Categories
Market Outlook

A Steep Fall on weaker PMI???

The big drop of 2% in the S&P and 3% in the Nasdaq Comp was ostensibly on the weaker manufacturing PMI number, which came in below expectations at 47.2 v 47.5, and was the weakest in 7 months. However, looking at the broader picture the same manufacturing index has been below 50 for 21/22 months – we have been in a factory recession for a while now. The American economy is 70% services and consumption so by itself manufacturing indices are not a great indicator of the overall economy. The only silver lining was the employment index, which is part of the same study – that was slightly better for August at 46, compared to 43.4 for July. 

Why did the market fall so steeply then – there were declines across the board, no industry/sector spared – the rout was complete. The advance decline ratio was terrible at 770 to 2,029 for the NYSE and and a worse 963-3,346 for the Nasdaq. 

Besides the PMI I suspect there were other techical forces at play.

We opened after a long break and thin volumes due to summer vacation and thinnly manned trading desks.

Now that interest rate cuts are confirmed the health of the economy will the prime focus.

Computerized, algo trading was a huge factor yesterday – the VVIX, which simply put is a derivative of the VIX (Volatility index) shot up to 137.64, triggering and escalating selling in a doom loop. The exposure was very high in semis and M7 dominated ETF’s, and given Nvidia’s relative small beat and subsequent poor stock performance after earnings exaggerated the situation. The leveraged product rebalance, was especially painful [given] the concentration of the assets, with semi and big-tech vehicles selling into the lows of the day.

The VVIX outperformance compared to spot was as high as August 5th – the day of the Japanse carry trade crash….

Given that we’re only two days away from the payrolls report on Friday Sep 6th, I suspect that we could see a further drop till there is some vindication that the economy is not going to hell. Traders, and investors are understandably worried about a possible recession and the market has been stretched for a while. There’s no point being caught in algo trading/volatility trading crossfire.

We’ll take a look at unemployment claims and the ADP report tomorrow, I’ll update after that.

Categories
AI Stocks

Alphabet Antitrust Ruling

Alphabet (GOOG) (AI) $164

Yes, I did recommend Buying around $140-160. I own some and last bought in the mid $150s. 

The anti-trust judgement has hurt but lets look at some possible outcomes. The judge is still deciding about remedies and this in my opinion a Behavioral Remedy is a likely one. 

  1. He would ban the The Internet Services Agreement (ISA) between Google and Apple, wherein Google pays Apple a share of its search ads revenue in exchange for Apple preloading Google as the exclusive, out-of-the-box default GSE on its mobile and desktop browser. 
  2. There will likely also be restrictions on auction pricing, since this was clearly abusive.
  3. The proposal that Google not prefer its own services in search results will also likely be adopted.

This cost Apple roughly $20Bn in 2022. But as Eddie Cue from Apple stated” “No price that Microsoft could ever offer Apple to make the switch, because of Bing’s inferior quality and the associated business risk of making a change. I don’t believe there’s a price in the world that Microsoft could offer us. They offered to give us Bing for free. They could give us the whole company.”

Pretty strong words! We would end choosing Google Search anyway….

This cost Apple roughly $20Bn in 2022, but Google saves this money on Traffic Acquisition Costs. In the near term, I think Google comes out ahead, although the top line could see some decline as some folks choose another Search Engine. Loosing the search monopoly but still being a more profitable market leader.

If the judge suggest breaking up the company – then yes, its not so straightforward, and it will likely tank on the day of the news, and we’ll have analyze it from a different angle – simply because Search is the cornerstone of their entire business. But then there are the inevitable appeals.

I’m holding for now.

Categories
Aerospace Stocks

Joby Aviation (JOBY)

Joby Aviation (JOBY) Aerospace

This is good news for JOBY.

https://seekingalpha.com/news/4145245-joby-aviation-pops-after-report-of-a-deal-with-virgin-atlantic?mailingid=36570770&messageid=2900&serial=36570770.7928&source=email_2900&utm_campaign=rta-stock-news&utm_content=link-1&utm_medium=email&utm_source=seeking_alpha&utm_term=36570770.7928

Categories
Alternative Energy Stocks

Canandian Solar (CSIQ)

Canandian Solar (CSIQ) 13.50 Hold – solar will see some benefits from lower interest rates as a sector, but it may be better to look at stonger US based companies, though.

Revenues have grown every year at single digits and it has ben profitable 2.96 to 7.61, profitable every year. The stock is down over 40% in the past 12 months and  negative in the last 5-10 years. 

Positives

Interest burden will come down with lower rates, after Powell signalled a lower interest rate regime from the next meeting.

They have a decent enough presence in the US markets and should there be more emphasis on renewable energy this will benefit.

Negatives

Solar panel producers face a glut from Chinese suppliers and this year was no different, plus Canadian was selling to the Chinese market, which was slow. It is a Chinese company even though the name is Canadian –  I suspect valuations will tend to be lower. 

80% of CSIQ’s solar manufacturing capacities are based in China and ~15% in Southeast Asia, with CSIQ already facing additional import duties beginning June 2024, attributed to the ongoing EU and US trade ban surrounding Chinese-made polysilicon products.

Lot of debt like most solar panel producers.

Customers struggle with financing of solar panels at their homes because of  high interest rates, particularly in the U.S. Solar loans are now around 9% after being around 4% for many years.

Categories
Biotech Stocks

Crisper Therapeutics (CRSP)

Crisper Therapeutics (CRSP) (Biotech) $48 High Risk/High Reward, 

Buy if you have the appetite for gene therapies or biotech companies.

  • Among the gene therapy/biotech companies, Crisper started with the most promise even reaching $199 at its peak. In a risky segment, Crisper has a better chance than most of its peers.
  • Positives
  • Cautious optimism following FDA approval for gene therapy targeting sickle cell disease.
  • Financial health of CRISPR is strong, with over 5 years of cash runway, but stock performance has lagged behind S&P 500 returns – stagnant, but in this industry its usually negative.
  • CRISPR’s partnership with Vertex Pharmaceuticals mitigates some operational risks associated with gene therapy.
  • Extensive pipeline including regenerative medicines (e.g., diabetes), in vivo approaches, immuno-oncology, and autoimmune targets 
  • Negatives
  • Given the uncertainties, CRISPR Therapeutics stock may not get a decent valuation till commercial success is evident.
  • Establishing niches in chronic and complex indications such as lupus appears to be a challenging task. 
  • Q2 2024 earnings revealed slow commercialization of Casgevy, with revenues significantly below expectations.
Categories
Enterprise Software Stocks

Intuit (INTU)

Intuit (INTU) $620 (Enterprise Software)

Buy on declines and hold, its expensive now but pays off in the longer term.

Intuit has never been cheap, always commanded a premium, so if you don’t get a decent return in the first year, the 5 and 10 year returns have been excellent at 142% and 706%, that’s around 19% and 23% per year.

I owned it for several years before cashing out and didn’t get a chance to buy back

Good growth, solid product line 80+% share of small and medium business accounting with QuickBooks. TurboTax is another market leader with 50% market share in their category.

Credit Karma and Mailchimp round out syngertistic product lines.

They will continue to grow revenues around 12% and earnings around 14% for the next 5 years.

Categories
Stocks

Lumen Tech (LUMN)

Lumen Tech (LUMN) $5.50 Cyclical,

Stock has appreciated a lot this year, 220%, but 5 year and 10 year stock returns were negative, because as a a Fiber Network Telco – it was a cyclical, commodity, capital intensive, high debt, low margin business. Sales have declined in the last 10 years by 21%.

What is different now – Corning and Microsoft has help it stave off bankruptcy, its debt load was too high for it to sustain its business, otherwise.

  • Lumen’s partnership with Corning for fiber network expansion will support business growth and increased free cash flow forecast for 2024; this may lead to debt rating upgrade and improved growth. Markets responded enthusiastically to the news, since Lumen significantly increased its capacity to key cloud data centers. AI has heavy workloads and uses high bandwidth applications since it involves massive amounts of data.
  • They have a similar customer supply deal with Microsoft.

I tend to avoid commodity cyclicals because they don’t have sustainable, recurring growth, you have to constantly watch over your shoulder, and in Telecom and Networks capital requirements are usually very high. Plus in Lumen’s case the stock has jumped for a bottom of $1, so much of the good news is in the price. If you decide to buy on a dip you may get a solid bump for a year or two, but not a long term great company. High Risk/High Reward for a year. If they continue to get more deals and AI network expansion continues yes this could be a good deal, but this industry is intensely competitive and price sensitive.