Today's Must Read
Strong GPU Adoption in Gaming, Datacenter Aids NVIDIA (NVDA)
Decent Comps to Fuel Costco's (COST) Sales, Cost a Concern
Wednesday, August 5, 2020
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Alphabet (GOOGL), NVIDIA (NVDA) and Costco Wholesale (COST). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Alphabet shares have modestly lagged the Zacks Internet Services industry over the past year (+25.8% vs. +27.2%), reflecting the company's cyclical exposure to digital ad spending. That said, the Zacks analyst believes that expanding data centers will continue to bolster the company’s presence in the cloud space.
Alphabet reported strong second-quarter earnings. The cloud and YouTube businesses remained strong, while digital advertising growth slowed down in the quarter due to the pandemic. The company’s strengthening cloud unit aided substantial revenue growth. Further, major updates in the search segment are enhancing the search results, which is a major positive.
Moreover, Google’s robust mobile search is gaining solid momentum. Additionally, strong focus on innovation of AI techniques and the home automation space should aid business growth in the long term. However, the company’s growing litigation issues and increasing expenses might hurt profitability.
Shares of NVIDIA have gained +76.4% over the past six months against the Zacks General Semiconductor industry’s rise of +7.2%. The Zacks analyst believes that NVIDIA is benefiting from the coronavirus-induced work from home and learn-at-home wave.
The company is also benefiting from strong growth in GeForce desktop and notebook GPUs, which is boosting gaming revenues. Moreover, a surge in Hyperscale demand remains a tailwind for the company’s Data Center business. The company expanded NVIDIA GeForce NOW in the last quarter, which is expected to drive user base. Further, the solid uptake of AI-based smart cockpit infotainment solutions is a boon.
Additionally, its latest collaboration with Mercedes-Benz is expected to further strengthen NVIDIA’s presence in the autonomous vehicles and other automotive electronics space. However, in the near term, management expects a $100-million negative impact of the coronavirus menace on revenues. Moreover, the U.S.-China trade war remains a key concern.
Costco shares have gained +10.3% over the past three months against the Zacks Discount Retail industry’s rise of +11.2%. The Zacks analyst believes that Costco’s strategy to sell products at heavily discounted prices has helped it remain on a growth track as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities.
Notably, top line grew year over year and the company logged a decent comparable sales growth during third-quarter fiscal 2020. The company’s e-commerce sales surged during the quarter. Yet we note that Costco’s bottom line came under pressure. Management highlighted that incremental wage and sanitation costs owing to the coronavirus outbreak hurt the company’s quarterly earnings.
The company anticipates incremental expenses related to this catastrophe to exceed $100 million in the fourth quarter. Also, any higher investments or aggressive pricing strategy may hurt margins. Again, rising SG&A expenses and stiff competition pose concerns.
Other noteworthy reports we are featuring today include Chevron (CVX), Gilead Sciences (GILD) and Morgan Stanley (MS).
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Director of Research
Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>