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Categories
AI Semiconductors Stocks

Taiwan Semiconductor  Manufacturing (TSM)  Hits It Out Of The Park

What a great start to the earnings season! 

TSM is up 5% premarket after a massive beat and terrific guidance for AI demand.

TSM, the indispensable chip producer and source for some of the world’s largest tech companies, including Apple (AAPL), Nvidia (NVDA), AMD (AMD), and other chipmakers produced outstanding results this morning.

Q4 Metrics

Sales up 37% YoY to $26.88B

Earnings per American Depositary Receipt $2.24, up 69% YoY compared to $1.44 

Both top and bottom line numbers surpassed analysts’ expectations.

“Our business in the fourth quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies,” said Wendell Huang, senior VP and CFO of TSM in the earnings press release.

Strong AI momentum

TSMC’s brilliant Q4 results beat management’s guidance, and confirmed the strong AI momentum for 2025, disproving any notions about reduced or waning demand. With $300Bn in planned Capex by just the hyperscalers, I believe investors’ concerns are misplaced.

Management highlighted TSM’s growing collaborations with the memory industry during the earnings call, reinforcing confidence in strong and accelerated HBM demand, which bodes well for HBM makers like Micron (MU).

Closer interaction with HBM makers also suggests a strong foundation for the potential ramp of TSM’s 3nm node and upcoming 2nm node, which would be essential for AI development.

TSM has de-risked geo-political issues with its overseas factories in Arizona and Kumamoto. It also noted that it could manage further export controls from the US government to China, besides only 11% of their sales were to China.

“Let me assure you that we have a very frank and open communication with the current government and with the future one also,” said Wei when asked about the current and next U.S. administrations.

Any de-risking is a tailwind for increasing multiples and valuation for the stock. I had recommended TSM earlier stating that the geo-political concerns shouldn’t devalue the crown jewel of the semiconductor industry.

Q4 Revenue by Technology

TSM said 3nm process technology contributed 26% of total wafer revenue in the fourth quarter, versus 15% in the year-ago period, and 20% in the third quarter of 2024.

The 5nm process technology accounted for 34% of total wafer revenue, compared to 35% in the same period a year ago, and 32% in the third quarter of 2024. Meanwhile, 7nm accounted for 14% of total wafer revenue in the fourth quarter versus 17% a year earlier, and in the third quarter of 2024.

Total 3nm+5nm = 26+34 = 60% – that’s a fantastic high-margin business.

Advanced technologies (7nm and below) accounted for 74% of wafer revenue.

Q4 Revenue by Platform

High Performance Computing represented 53% of net revenue, up from 43% in the fourth quarter of 2023. – Nvidia, AMD, Broadcom.

The company’s smartphone segment represented 35% of net revenue, versus 43% in the year-ago period. – Apple

Q4 Revenue by Geography

Revenue from China — Taiwan Semi’s second-biggest market by revenue — accounted for 9% of the total net revenue in the period, down from 11% in the year-ago period and in the third quarter of 2024.

North America accounted for 75% of total net revenue coming from it, compared to 72% a year earlier, and 71% in the third quarter of 2024.

Outlook

“Moving into the first quarter of 2025, we expect our business to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand,” said Huang.

TSM expects capital expenditure to be between $38B to $42B in 2025. The amount is up to 19% more than analysts’ expectations, according to a Bloomberg report.

In the first quarter of 2025, TSM expects revenue to be between $25B and $25.8B (midpoint at $25.4B), consensus of $24.75B. That’s a raise.

Categories
Enterprise Software Stocks

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

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.”

Categories
AI Enterprise Software Stocks

Palantir Q3-24: Strikingly Good Results and Raised Guidance

Source:Wikipedia

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.

Categories
AI Cloud Service Providers Stocks

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