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Super Micro Computer and GameStop have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – May 17, 2024 – Zacks Equity Research shares Super Micro Computer (SMCI - Free Report) as the Bull of the Day and GameStop (GME - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Technology Select Sector SPDR Fund (XLK - Free Report) , Utilities Select Sector SPDR Fund (XLU - Free Report) and Schwab U.S. REIT ETF (SCHH - Free Report) .
Super Micro Computer reported their March quarterly earnings on April 30 and inspired analysts to once again boost growth estimates for the provider of key datacenter infrastructure in the early innings of the AI boom.
After SMCI delivered strong numbers and guidance, the Zacks Consensus EPS estimate for the current fiscal year (ends June) rose 6% from $22.15 to $23.51, representing 99% annual growth.
And next fiscal year jumped over 17% from $28.95 to $34, which would equate to a 44.6% advance.
These rising profits are being drawn from equally impressive growth on the topline, with the current year approaching a 110% leap to nearly $15 billion and next year's projections are stalking $24 billion for another 60% surge.
I Remember Ye Yay High
As a devoted NVIDIA investor, I like to remind others that "as goes GPU demand, so goes datacenter build-out." And just as investors continue to doubt NVIDIA's growth as having any sustainability, so too they miss its little satellites profiting from the boom.
It seems it was only a few months ago when SMCI was a $300 stock. That's because it was only 4 months ago when, in late January, the company pre-announced December quarter results and the stock launched 36% the next day.
I first wrote about the "shock and awe" of a datacenter architect most investors had never heard of in my Bull of the Day from January 28. Here's some of what I shared...
They call themselves "Supermicro" and describe their business simply and powerfully...
Supermicro is a global technology leader committed to delivering first-to-market innovation for Enterprise, Cloud, AI, Metaverse, and 5G Telco/Edge IT Infrastructure. We are a Rack-Scale Total IT Solutions provider that designs and builds an environmentally-friendly and energy-saving portfolio of servers, storage systems, switches, software, along with global support services.
And on January 19 they stunned Wall Street with preliminary revenue of $3.6 billion, which tore through prior guidance of $2.7-2.9 billion, representing 100% year-over-year growth for the company's fiscal Q2.
Earnings for the quarter are projected to spike to $5.55 a share, topping analysts estimates of $4.50 EPS.
The company cited strong market and end customer demand for its rack-scale, AI and Total IT Solutions.
For its current fiscal year which ends in June, Supermicro is on pace to deliver 53% topline growth to nearly $11 billion and 40% EPS growth to cross $16.50.
And even after the huge rally in SMCI shares this month, with projected 15% revenue growth to cross $12.5 billion next year the stock still trades at only 2 times sales!
(end of excerpt from my Jan 28 article)
AI Boom, or AI Bubble?
What should jump out is that less than four months ago we were talking about $11 billion and $12.5 billion on the Supermicro toplines for this year and next. Now those numbers are $15 billion and $24 billion!
And the stock still trades for 2X sales as I talked about in my video from May 7, where I also discuss SMCI volatility since the surge to $1,200 as investors debate whether or not this is all just an "AI bubble."
In that video, I explain why SMCI dropped 23% on April 19. The reason revolves around expectations for another stunner preannouncement (like in January) that didn't come. So expectations and fears clashed as hopes were dashed.
But I also said the storm is over, estimates are still rising, and investors should be looking to buy under $800. You got two more chances this week.
Be sure to watch the 7-minute video to see the key price support level that held after earnings and gave way to a 16% rally on May 15 to $950.
With NVIDIA earnings on deck May 22, we can look forward to another set of data points about the AI debate. My bet is that both NVDA and SMCI will be trading above $1,000 very soon as the boom continues and the bulls win.
Disclosure: I own shares of NVDA and SMCI for the Zacks TAZR Trader portfolio.
GameStop delivered weak sales and profits in late March for their Q4 fiscal 2024 (ended January) and shares subsequently declined by over one-third from above $15 to $10.
Of course that's nothing compared to the moon launch the stock saw this week to $60, but we'll cover that mania after we look at the fundamentals.
The Q4 numbers propelled analysts to further lower growth estimates, with the Zacks Consensus for both top and bottom lines turning negative on an annual basis for fiscal 2025 (began February).
At last read, revenues are expected to drop 12.75% to $4.6 billion, while EPS is projected to fall 83% to just a penny.
For a review of the deteriorating business dynamics for GameStop, see this article from March 27...
GameStop Q4 Earnings Miss Estimates, Sales Decline Y/Y
Meme Stock Cage Match
The great thing about free markets like we've built and maintained in the United States is that just about anyone can raise money to start a company and just about anyone can invest their hard-earned dollars in those companies.
The downside is that hype, hucksters, and hysteria are everywhere and never sleep. And our regulatory bodies like the SEC can no more protect us than they can catch all the crooks.
This past week has been a classic drama of a stock getting renewed hype from believers, fraudsters, and short-squeeze armies. While it may be entertaining to watch as short-sellers cover for big losses and "apes" (or kitties) have their day on the field of victory, in the end, very few are getting rich on the mania.
I tried to explain how this all works three years ago with another infamous meme stock, AMC Entertainment, in this article and video from 2021 when the Ape Army was trying to teach the "evil" hedge funds a lesson...
Years ago on a site called StockTwits, I realized that immature traders often blamed others for "bashing" their favorite equities. As if they thought that retail traders saying something good or bad about a stock could impact the flow of money toward or away from it -- in a gigantic forest of institutional capital that dwarfed them.
One day I described the scene thus...
"StockTwits is a crazy lil kindergarten where all the kids believe their voices move the trees."
The real lessons about how capital markets work are still valuable. Hopefully, some folks who either bought GME shares above $40 this week (or even thought about it), were reminded that if you bring your dollars to a silly kitten fight on Wall Street, you better not be after justice (or profits) without super-strict risk control.
Additional content:
3 Sector ETFs to Play on Renewed Fed Rate Cut Hopes
In April, inflationary pressures showed signs of easing, with the Consumer Price Index (CPI) on a "core" basis rising 3.6% year over year, in line with expectations. This marked a cooling from the 3.8% increase observed in March. Monthly core price increases also aligned with expectations at 0.3%, down from 0.4% in the previous three months.
Despite the moderation in inflation, analysts suggest that the Federal Reserve is unlikely to rush into cutting interest rates. Bank of America Securities economist Stephen Juneau stated that while the April data is a positive step, it may not be sufficient to prompt significant action from the Fed just yet, as quoted on Yahoo Finance. Fed Chair Jerome Powell emphasized the need for sustained data before making any decisions regarding interest rates.
But then, retail sales in April remained unchanged, contrasting with a 0.6% increase in March and defying the 0.4% rise anticipated by economists, as reported by Bloomberg, quoted on Yahoo Finance. This unexpected stagnation in consumer spending indicates a possible shift in consumer behavior amidst persistent inflation and higher interest rates. This somber economic data might force the Fed to reconsider its tough stance on monetary policy in the near term.
Return of Fed Rate Cut Bets
We would like to note that following the CPI release, market expectations regarding rate cuts shifted slightly, with a modest increase in the probability of a rate cut in September according to the CME FedWatch Tool. Following the release of data, there was a 52.7% chance of a 25-bps worth of September rate cut, down from 50.5% chance recorded a day earlier.
However, Powell suggested that the process of bringing inflation back down to the 2% target might take longer and could potentially be more challenging than anticipated. The U.S. benchmark treasury yield was 4.36% on May 15, 2024, down from 4.45% recorded a day earlier.
Sector ETFs to Win
Against this backdrop, below we highlight a few sectors and its ETFs that could perform better in the near term.
Technology – Technology Select Sector SPDR Fund
Tech companies, particularly those in growth phases, often rely on external financing to fund research and development, expand operations, and acquire other businesses. With chances of lower borrowing costs taking shape following softer inflation print, these companies can fund innovations with cheaper capital.
Technology stocks are often valued based on future earnings potential rather than current profitability. When interest rates are low, the discounted cash flow used to value these companies yield higher present values for future earnings. In a nutshell, the lower the rate, the higher the value of tech companies’ future cash flows. The fund added 2.3% on May 15.
Utilities – Utilities Select Sector SPDR Fund
The utilities sector is a rate sensitive sector as it requires huge infrastructure which places a massive debt burden and the resultant interest obligation on its operators. This leaves the sector with no scope of outperformance in a rising rate environment. As a result, a weak inflation print is good news for the utilities space. In any case, utilities stocks have been in great shape currently due to better demand-supply fundamentals. The fund, which added 1.5% on May 15, yields 3.04% annually.
Real Estate – Schwab U.S. REIT ETF
This is yet another sector that performs well in a low-rate environment. These stocks often rely on borrowing to finance property acquisitions and developments. Low interest rates reduce the cost of this debt, which can enhance profitability and cash flow.
Moreover, since REITs pay higher dividends, lower interest rates can lead to better cash flows and potentially higher and more stable dividend payouts. This is an attractive phenomenon to income-focused investors. The fund, which gained 1.4% on May 15, yields 3.33% annually.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Super Micro Computer and GameStop have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – May 17, 2024 – Zacks Equity Research shares Super Micro Computer (SMCI - Free Report) as the Bull of the Day and GameStop (GME - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Technology Select Sector SPDR Fund (XLK - Free Report) , Utilities Select Sector SPDR Fund (XLU - Free Report) and Schwab U.S. REIT ETF (SCHH - Free Report) .
Here is a synopsis of all five stocks.
Bull of the Day:
Super Micro Computer reported their March quarterly earnings on April 30 and inspired analysts to once again boost growth estimates for the provider of key datacenter infrastructure in the early innings of the AI boom.
After SMCI delivered strong numbers and guidance, the Zacks Consensus EPS estimate for the current fiscal year (ends June) rose 6% from $22.15 to $23.51, representing 99% annual growth.
And next fiscal year jumped over 17% from $28.95 to $34, which would equate to a 44.6% advance.
These rising profits are being drawn from equally impressive growth on the topline, with the current year approaching a 110% leap to nearly $15 billion and next year's projections are stalking $24 billion for another 60% surge.
I Remember Ye Yay High
As a devoted NVIDIA investor, I like to remind others that "as goes GPU demand, so goes datacenter build-out." And just as investors continue to doubt NVIDIA's growth as having any sustainability, so too they miss its little satellites profiting from the boom.
It seems it was only a few months ago when SMCI was a $300 stock. That's because it was only 4 months ago when, in late January, the company pre-announced December quarter results and the stock launched 36% the next day.
I first wrote about the "shock and awe" of a datacenter architect most investors had never heard of in my Bull of the Day from January 28. Here's some of what I shared...
They call themselves "Supermicro" and describe their business simply and powerfully...
Supermicro is a global technology leader committed to delivering first-to-market innovation for Enterprise, Cloud, AI, Metaverse, and 5G Telco/Edge IT Infrastructure. We are a Rack-Scale Total IT Solutions provider that designs and builds an environmentally-friendly and energy-saving portfolio of servers, storage systems, switches, software, along with global support services.
And on January 19 they stunned Wall Street with preliminary revenue of $3.6 billion, which tore through prior guidance of $2.7-2.9 billion, representing 100% year-over-year growth for the company's fiscal Q2.
Earnings for the quarter are projected to spike to $5.55 a share, topping analysts estimates of $4.50 EPS.
The company cited strong market and end customer demand for its rack-scale, AI and Total IT Solutions.
For its current fiscal year which ends in June, Supermicro is on pace to deliver 53% topline growth to nearly $11 billion and 40% EPS growth to cross $16.50.
And even after the huge rally in SMCI shares this month, with projected 15% revenue growth to cross $12.5 billion next year the stock still trades at only 2 times sales!
(end of excerpt from my Jan 28 article)
AI Boom, or AI Bubble?
What should jump out is that less than four months ago we were talking about $11 billion and $12.5 billion on the Supermicro toplines for this year and next. Now those numbers are $15 billion and $24 billion!
And the stock still trades for 2X sales as I talked about in my video from May 7, where I also discuss SMCI volatility since the surge to $1,200 as investors debate whether or not this is all just an "AI bubble."
In that video, I explain why SMCI dropped 23% on April 19. The reason revolves around expectations for another stunner preannouncement (like in January) that didn't come. So expectations and fears clashed as hopes were dashed.
But I also said the storm is over, estimates are still rising, and investors should be looking to buy under $800. You got two more chances this week.
Be sure to watch the 7-minute video to see the key price support level that held after earnings and gave way to a 16% rally on May 15 to $950.
With NVIDIA earnings on deck May 22, we can look forward to another set of data points about the AI debate. My bet is that both NVDA and SMCI will be trading above $1,000 very soon as the boom continues and the bulls win.
Disclosure: I own shares of NVDA and SMCI for the Zacks TAZR Trader portfolio.
Bear of the Day:
GameStop delivered weak sales and profits in late March for their Q4 fiscal 2024 (ended January) and shares subsequently declined by over one-third from above $15 to $10.
Of course that's nothing compared to the moon launch the stock saw this week to $60, but we'll cover that mania after we look at the fundamentals.
The Q4 numbers propelled analysts to further lower growth estimates, with the Zacks Consensus for both top and bottom lines turning negative on an annual basis for fiscal 2025 (began February).
At last read, revenues are expected to drop 12.75% to $4.6 billion, while EPS is projected to fall 83% to just a penny.
For a review of the deteriorating business dynamics for GameStop, see this article from March 27...
GameStop Q4 Earnings Miss Estimates, Sales Decline Y/Y
Meme Stock Cage Match
The great thing about free markets like we've built and maintained in the United States is that just about anyone can raise money to start a company and just about anyone can invest their hard-earned dollars in those companies.
The downside is that hype, hucksters, and hysteria are everywhere and never sleep. And our regulatory bodies like the SEC can no more protect us than they can catch all the crooks.
This past week has been a classic drama of a stock getting renewed hype from believers, fraudsters, and short-squeeze armies. While it may be entertaining to watch as short-sellers cover for big losses and "apes" (or kitties) have their day on the field of victory, in the end, very few are getting rich on the mania.
I tried to explain how this all works three years ago with another infamous meme stock, AMC Entertainment, in this article and video from 2021 when the Ape Army was trying to teach the "evil" hedge funds a lesson...
AMC FUD Runneth Over: Panic at the Casino!
Years ago on a site called StockTwits, I realized that immature traders often blamed others for "bashing" their favorite equities. As if they thought that retail traders saying something good or bad about a stock could impact the flow of money toward or away from it -- in a gigantic forest of institutional capital that dwarfed them.
One day I described the scene thus...
"StockTwits is a crazy lil kindergarten where all the kids believe their voices move the trees."
The real lessons about how capital markets work are still valuable. Hopefully, some folks who either bought GME shares above $40 this week (or even thought about it), were reminded that if you bring your dollars to a silly kitten fight on Wall Street, you better not be after justice (or profits) without super-strict risk control.
Additional content:
3 Sector ETFs to Play on Renewed Fed Rate Cut Hopes
In April, inflationary pressures showed signs of easing, with the Consumer Price Index (CPI) on a "core" basis rising 3.6% year over year, in line with expectations. This marked a cooling from the 3.8% increase observed in March. Monthly core price increases also aligned with expectations at 0.3%, down from 0.4% in the previous three months.
Despite the moderation in inflation, analysts suggest that the Federal Reserve is unlikely to rush into cutting interest rates. Bank of America Securities economist Stephen Juneau stated that while the April data is a positive step, it may not be sufficient to prompt significant action from the Fed just yet, as quoted on Yahoo Finance. Fed Chair Jerome Powell emphasized the need for sustained data before making any decisions regarding interest rates.
But then, retail sales in April remained unchanged, contrasting with a 0.6% increase in March and defying the 0.4% rise anticipated by economists, as reported by Bloomberg, quoted on Yahoo Finance. This unexpected stagnation in consumer spending indicates a possible shift in consumer behavior amidst persistent inflation and higher interest rates. This somber economic data might force the Fed to reconsider its tough stance on monetary policy in the near term.
Return of Fed Rate Cut Bets
We would like to note that following the CPI release, market expectations regarding rate cuts shifted slightly, with a modest increase in the probability of a rate cut in September according to the CME FedWatch Tool. Following the release of data, there was a 52.7% chance of a 25-bps worth of September rate cut, down from 50.5% chance recorded a day earlier.
However, Powell suggested that the process of bringing inflation back down to the 2% target might take longer and could potentially be more challenging than anticipated. The U.S. benchmark treasury yield was 4.36% on May 15, 2024, down from 4.45% recorded a day earlier.
Sector ETFs to Win
Against this backdrop, below we highlight a few sectors and its ETFs that could perform better in the near term.
Technology – Technology Select Sector SPDR Fund
Tech companies, particularly those in growth phases, often rely on external financing to fund research and development, expand operations, and acquire other businesses. With chances of lower borrowing costs taking shape following softer inflation print, these companies can fund innovations with cheaper capital.
Technology stocks are often valued based on future earnings potential rather than current profitability. When interest rates are low, the discounted cash flow used to value these companies yield higher present values for future earnings. In a nutshell, the lower the rate, the higher the value of tech companies’ future cash flows. The fund added 2.3% on May 15.
Utilities – Utilities Select Sector SPDR Fund
The utilities sector is a rate sensitive sector as it requires huge infrastructure which places a massive debt burden and the resultant interest obligation on its operators. This leaves the sector with no scope of outperformance in a rising rate environment. As a result, a weak inflation print is good news for the utilities space. In any case, utilities stocks have been in great shape currently due to better demand-supply fundamentals. The fund, which added 1.5% on May 15, yields 3.04% annually.
Real Estate – Schwab U.S. REIT ETF
This is yet another sector that performs well in a low-rate environment. These stocks often rely on borrowing to finance property acquisitions and developments. Low interest rates reduce the cost of this debt, which can enhance profitability and cash flow.
Moreover, since REITs pay higher dividends, lower interest rates can lead to better cash flows and potentially higher and more stable dividend payouts. This is an attractive phenomenon to income-focused investors. The fund, which gained 1.4% on May 15, yields 3.33% annually.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
https://www.zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.