For Immediate Release
Chicago, IL – April 30, 2021 – Zacks Equity Research Shares of NVIDIA Corporation (
NVDA Quick Quote NVDA - Free Report) as the Bull of the Day, Quidel Corporation ( QDEL Quick Quote QDEL - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Amazon.com, Inc. ( AMZN Quick Quote AMZN - Free Report) , Alphabet Inc. ( GOOGL Quick Quote GOOGL - Free Report) and Apple Inc. ( AAPL Quick Quote AAPL - Free Report) . Here is a synopsis of all five stocks:
I recently profiled
NVIDIA for the Top Stock Picks video and after talking for over 9 minutes about the "Tesla of Semis" and all of its disruptive innovation, I quickly realized all the good stuff I forgot to say as my time expired.
So in this article, I will do greater justice to the company and its long-term growth trajectory, explaining why you can buy the dips looking for $700 this year and probably $750 next year.
I began the video addressing the elephant in the room:
valuation. With a $380 billion market cap and projected revenues in 2022 of $25 billion, the stock trades at a 15X price-to-sales multiple -- quite rich for a semiconductor player.
But NVIDIA isn't just any chip maker. They lead the field in multiple areas, from gaming, machine learning, and autonomous driving technology to artificial intelligence, medical imaging, and hyperscale computing for scientific research.
Gaming Drives GPU Innovation
Speaking of gaming, that's one area I didn't talk much about in this week's video because all the other areas are so exciting to me. But as I profiled nearly 3 years ago in
Who Cares NVIDIA Makes Great Gaming Graphics? the reason I've owned and recommended NVDA shares for several years is because their intense innovation with GPU architectures for gaming actually drives their R&D knowledge for machine learning, supercomputing, deep learning and, ultimately, AI.
CEO Jensen Huang gave computer gamers and developers more than they could ask for that August week of 2018 in Cologne, Germany at the Gamescom conference.
In fact, it's fair to say he
stunned the crowd with amazing views, stats and demos on NVIDIA's record-breaking new "deep learning" architecture called Turing, featuring RTX image and light reconstruction/simulation powers that enable computers to teach themselves to do in real-time what it takes a Hollywood CGI studio months to do.
The world beyond gaming and CGI got to learn new phrases like "ray tracing" and "rasterization." And NVDA shares made an all-time high today, by only a quarter or so, above $269.
(end of excerpt from Aug 2018 vlog Who Cares NVIDIA Makes Great Gaming Graphics?)
Not a Fanatic Gamer, But Fanatic About Gaming Technology
In that video and article presentation linked above, you'll hear me talk about the power of the NVIDIA "stack" known as CUDA, which stands for Compute Unified Device Architecture. This is the Hardware+Software power-stack that allows global corporations and scientific research institutions to do deep data mining that garners significant results.
We'll come back to "the stack" in a moment. First, let's flesh out the "gaming drives AI" thesis a bit more (in case you aren't convinced yet).
If you are not a gamer or NVDA investor, you might find it hard to care about all this. While I am not a gamer, I am an NVDA investor, and I'm here to give you the same two big reasons to care that I've given my followers since 2017...
1) NVIDIA gaming graphics R&D is giving them deep knowledge about the next frontier of human evolution: AI
2) AI is going to dramatically change the world as you know it
This is why we always buy the dips in NVDA, even if their Gaming segment remains the biggest source of revenues, with the Datacenter segment nipping at its heels.
Because that mix is about the shift dramatically over the next few years. Let's look at where the company is coming from with a review of their FY 2021 which just ended in January...
Gaming revenue for Q4 was a record $2.50 billion, up 10% from the previous quarter and up 67% from a year earlier. Full-year revenue was a record $7.76 billion, up 41%. NVIDIA also announced the company’s biggest-ever laptop launch, with 70+ new laptops for gamers and creators, powered by NVIDIA GeForce RTX™ 30 Series Laptop GPUs.
Datacenter Q4 revenue was a record $1.90 billion, slightly above the previous quarter and up 97% from a year earlier. Full-year revenue was a record $6.70 billion, up 124%. NVIDIA also announced that the world’s leading OEMs unveiled the first wave of NVIDIA-Certified Systems™ with NVIDIA A100 Tensor Core GPUs — the industry’s only accelerated servers tested for machine learning and data analytics workloads.
These two segments accounted for nearly 87% of the company's total revenue of $16.68 billion last year -- which was a 53% topline jump from the previous year!
Since the end of Q4 in January, analysts have steadily bumped EPS estimates for NVDA over 15% for both this year and next.
Datacenter > Gaming
But what I really want to note here is the shift that's going to occur as Datacenter grows faster than Gaming. Even before this blow-out quarter/year delivered on February 24 from NVIDA, Jefferies semiconductor analyst Mark Lipacis wrote a powerful research report in September that the former is growing at 40% CAGR vs just 10% for the latter.
Based on that math, this is the year that Datacenter (DC) takes over Gaming in revenues. And based on his 5-year projections, Lipacis sees Gaming growing to a nearly $12 billion business while DC blows the doors off to $34 billion.
For perspective, this year's total revenue is only expected to be in the neighborhood of $22.5 billion.
To be clear, Lipacis was inspired to write this new report after NVIDIA announced it had an agreement to buy UK-based ARM Holdings for $40 billion. That deal remains controversial -- for everyone but NVDA -- and also uncertain in terms of the probability of actually closing any time soon.
The primary issues revolve around ARM's technology for mobile devices which is licensed to everyone from Apple to Qualcomm.
ARM also deals in CPUs (serial processing), which is part of what made it attractive to NVIDIA's GPU (parallel processing) expertise. I covered some of the issues here on Sep 17:
NVIDIA Strikes an ARMs Deal to Take All the Chips. NVDA Will Take All the Smart Chips
Believe it or not, even though I published the above-linked vlog within days after the Jefferies report from Lipacis that same week, I didn't read his full analysis until this week.
And it's a shame I didn't because I would have been buying every dip under $500 and not selling any shares since then!
Thankfully I added to our NVDA position under $540 (we bought near $200 during the Corona Crash last year) but here's what I am finally understanding from an analyst with deep technology trend knowledge that allows him to make astonishingly bold forecasts...
Lipacis is modeling an adjacent category he calls Datacenter Ecosystem which will grow in tandem with the processor half -- also to hit $34 billion in 5 years at a 40% CAGR!
That's $67 billion in revenues -- under his bull case potential -- where NVIDIA tops $85 billion in total topline by 2026. Again, this is assuming the ARM deal goes through and gets past regulators and tech behemoth competitors on 3 continents.
Here's how he explains this growth and dominance...
"Consistent with the PC framework where Intel + Microsoft capture 80% of the industry profits, we estimate that NVDA could capture an additional $34 billion from its ecosystem. We believe a similar concept is playing out in handsets today."
I assume in that second sentence that Lipacis is referring to the dominance of Apple and Samsung. In another part of his September report, he explains the forecast...
"Using the Wintel PC framework, which shows that the processor accounts for 50% of the ecosystem value and the software accounts for the other 50%, we estimate that NVDA could capture another $34bn in revenues from the rest of its ecosystem, including CUDA, cuDNN and vertical market software it has created like CLARA, DRIVE, ISAAC, MERLIN and JARVIS."
It's easy to look at Amazon and Microsoft dominating the world of the cloud. But NVIDIA has the stack to make all that data storage meaningful with the best tools for mining and modeling.
Plus, the trends in industrial automation and robotics virtually guarantee that NVIDIA's tools will be in high demand for the factory floor of the future. Why? Because they make a workbench for developers that is highly efficient, productive and irresistable. More on the developer faithful coming up.
Jensen = Elon
I often compare Jensen Huang and Elon Musk -- even if their companies are not always comparable -- for this very simple reason: they both surround themselves with the top engineering talent on the planet.
If you doubt my assertion, then subscribe yourself to the NVIDIA Newsroom for just one or two quarters and witness the flood of innovation coming from this technology powerhouse.
And scroll back in the feed a couple of weeks because if you are not aware, you just missed the premier event of the spring, their annual GPU Tech Conference (GTC) where Jensen & Co. always have stunning new developments.
Until then, absorb the density of innovation from his quarterly remarks in February...
“Q4 was another record quarter, capping a breakout year for NVIDIA’s computing platforms,” said Jensen Huang, founder and CEO of NVIDIA. “Our pioneering work in accelerated computing has led to gaming becoming the world’s most popular entertainment, to supercomputing being democratized for all researchers, and to AI emerging as the most important force in technology.
“Demand for GeForce RTX 30 Series GPUs is incredible. NVIDIA RTX has started a major upgrade cycle as gamers jump to ray tracing, DLSS and AI.
“Our A100 universal AI data center GPUs are ramping strongly across cloud-service providers and vertical industries. Thousands of companies across the world are applying NVIDIA AI to create cloud-connected products with AI services that will transform the world’s largest industries. We are seeing the smartphone moment for every industry."
Developers: "Dip" for the Chips
My final word (for now): part of the keys to success for Jensen and his battalion of engineers is that they understand Hardware+Software stacks and they "get" what developers want.
They build a buffet of platforms, tools, and capabilities for any industry that keeps an Orc army of developers happily building the next generation of technologies and innovations the world will use and benefit from for decades.
Disclosure: I own NVDA shares for the Zacks TAZR Trader portfolio.
Quidel is a $5 billion maker of medical diagnostics that vaulted to unprecedented success during the height of demand for COVID-19 testing kits.
Quidel discovers, develops, manufactures and markets point-of-care, rapid diagnostic tests for detection of medical conditions and illnesses. These products provide accurate, rapid and cost-effective diagnostic information for acute and chronic conditions that affect women's health throughout the phases of their lives including reproductive status, pregnancy management and osteoporosis.
Quidel also provides point-of-care diagnostics for infectious diseases, including influenza A and B, strep throat, H. pylori infection, chlamydia and infectious mononucleosis.
Sales vaulted over $1 billion -- nearly 200% -- last year for their rapid COVID-19 test.
And I was one investor who was captivated by the story, believing that not only would such testing demand persist but also that the new influx of cash flow would enable this small company to expand many of its R&D and product avenues in diagnostics.
In fact, we took gains of 64% and 48% in the past few quarters riding the wave of demand for testing, and buying the dips when others doubted the sustainability of those sales.
But the fable would not last. And as much as I wanted to believe in the $5 billion company sustaining a new valuation above $10 billion, the revenue growth disappointments from the company and the downward estimate revisions from analysts kept coming in.
In the past few months, the EPS consensus among four Wall Street analysts covering the company has dropped 33% from $39 to $26.
And that's why QDEL is in the cellar of the Zacks Rank.
Here's what I told my followers as we let go of our last QDEL shares last week...
We had some nice winners here of +64% and +48%, and I really believed the innovator could become a $10+ billion powerhouse in diagnostics, or a prime take-over candidate. So I thought the sellers were wrong and setting up another big asymmetric win for us.
But now we retreat as the company's weak pre-announce kills the bull case...
Quidel price target lowered to $140 from $265 at Piper Sandler: Analyst Steven Mah kept his Overweight rating on QDEL after the company preannounced Q1 revenue of $374-$376 million, well below consensus of $466M, and guidance from March 10 of at least $450M.
The miss was driven by a continued lack of reorders of COVID-19 tests due to overstocking in Q4. Mah came away "disappointed with management continuing to count their chickens before they hatch" by including large events into guidance commentary despite limited visibility.
Bottom line: QDEL remains a diagnostics innovator to watch, especially with their rapid, massive, proven response to COVID-19 testing demand. While JPMorgan has a price target of $90, I might consider being a buyer before then if the estimates picture turns around. The Zacks Rank will let you know. Additional content: Amazon Crushes Q1 Earnings: 3x YOY to $15.79
In what is shaping up to be the strongest trading month since November of last year, on the second-to-last trading day in April, the S&P 500 has set another new record high closing price to 4211, +0.68% on the day. The Dow performed slightly better on the day, +0.72%, while the Nasdaq finished 0.22% in positive territory. The small-cap Russell 2000 made it a clean sweep for the indexes Thursday.
The final FAANG stock to report,
Amazon, put up similarly stellar numbers to its sister stocks Alphabet and Apple after the closing bell. It absolutely destroyed the bottom-line consensus of $9.75 per share with a headline of $15.79 — more than triple earnings from the year-ago quarter. Revenues of $108.5 billion swept past the $105.2 billion anticipated. Shares of the e-commerce staple popped 5% immediately after the release.
Further, revenue guidance for Q2 has been increased notably, from $108 billion expected in the Zacks consensus prior to this report to a range of $110-116 billion. Expect analyst revisions to commence right away. Almost everywhere you look — AWS, Amazon Prime, Advertising — outperformed expectations in the quarter. Only Physical Stores came in light of expectations. The company also noted expenses related to Covid contagion will continue to lessen in Q2.
Amazon, in the year-ago quarter, actually missed expectations on the bottom line, but with the subsequent three earnings reports had a 4-quarter trailing average beat of 160%. That’s right in line with this quarter’s earnings beat, as well.
While we have begun to see some waning among those companies best prepared to handle pandemic conditions, this does not seem to apply to Amazon. At all. This was a Zacks Rank #3 (Hold) company with a Value - Growth - Momentum grade of A before the earnings report.
Marquee tech names may be finished reporting, but Q1 earnings season is just getting revved up. If industries yet to report can come close to the mammoth beats we’ve seen in select Big Tech and Big Bank names so far, this may be the strongest reporting quarter in recent memory — with plenty of upside for the June quarter.
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