For Immediate Release
Chicago, IL – June 11, 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 Volkswagen AG ( VWAGY Quick Quote VWAGY - Free Report) , Daimler AG ( DDAIF Quick Quote DDAIF - Free Report) and Bayerische Motoren Werke Aktiengesellschaft ( BAMXF Quick Quote BAMXF - Free Report) . Here is a synopsis of all five stocks:
I last wrote about
NVIDIA as the Bull of the Day in late April after their annual GPU Tech Conference (GTC).
I started by addressing the elephant in the room:
valuation. Here's some of what I wrote... 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.
In that April 29 report, I highlight how
Gaming Drives GPU Innovation for NVIDIA and why that matters so much. I also raised my price target on NVDA shares, which were trading near $600, to $700 for this year and $750 in the next 12 months.
Since then -- and another stellar beat-and-raise quarter reported on May 26 -- the majority of Wall Street analysts have followed my lead.
Datacenter > Gaming
In this report, I want to focus on the shift that's going to occur as the Datacenter segment grows faster than Gaming. Last fall, Jefferies semiconductor analyst Mark Lipacis wrote a powerful research report where he described 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 $25 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 and 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 irresistible.
This is why software developers love NVIDIA and never want to leave their tech funhouse of tools.
NVIDIA Storms Into Q2 with Guidance 14% Above the Street
NVDA reported solid beats on May 26, and more importantly, current quarter sales guidance of $6.3 billion when the consensus was $5.5B.
Here's what I wrote to my TAZR Trader members, where we hold NVDA shares...
The only reason the beats weren't bigger is because Jensen gave such clear pre-announce guides at GTC last month. Now, it's all about a slow & steady climb to 3X datacenter revs in the next 5 years, as DC overtakes gaming with a higher CAGR.
As GTC got rolling, I wrote to you on April 13 that "NVDA Lights the Way." Well, now we know more about the core manufacturing laser-based technology -- photolithography from ASML -- that let's NVDA dive into the "nanocosm."
Thus, connecting NVDA to ASML is easy. It's all about Taiwan Semi as the premier foundry that uses ASML photolithography to get NVDA circuitry down to 5nm. You'll see all the Semi Ecosystem connections in my recent article and video
Bitcoin Investing vs. Invisible Hardware of the Nanocosm.
Immediately after the NVDA report, we saw lots of price target bumps for NVDA over $700 by several analysts and I share a few of the i-bank notes here...
NVIDIA price target raised to $775 from $700 at KeyBanc: Analyst John Vinh commented that NVDA's strong beat and raise results were consistent with the company's positive preannouncement at its analyst day. Upside in the quarter was due to strength in hyperscale data center demand, gaming, and crypto. In Q2, all segments are expected to grow quarter-over-quarter, with the majority of growth led by crypto, data center, and gaming. NVIDIA price target raised to $740 from $680 at Jefferies: Analyst Mark Lipacis upgraded his outlook after the company's April quarter EPS and its July quarter EPS outlook both beat consensus forecasts. Data center revenues are expected to accelerate in the the second half and he thinks the probability of "a bust" in gaming revenues is mitigated by the RTX product cycle. Lipacis also thinks the risk to Nvidia's gaming GPU business from crypto-miners is lower today than in 2018. NVIDIA price target raised to $750 from $675 at Evercore ISI: Analyst C.J. Muse observed the company once again posted a strong beat and raise with its quarterly report, led by strength across its data center and gaming segments. He is less worried around a "crypto fall-off" in the gaming segment through the year and thinks such fears are overdone. On the data center side, Muse believes Nvidia's commentary was "exceptionally positive." NVIDIA price target raised to $768 from $700 at Truist: Analyst William Stein noted the company posted a good Q1 but its guidance for Q2 was even more impressive, adding that while its crypto upside portends some future volatility, he is "embracing" Nvidia's broadening datacenter growth trends.
Stein is probably my favorite Semi analyst and he echoes what I talked about with Lipacis: datacenter is on pace to overtake gaming this year and grow much faster for the next 5 years.
It's why my PT for NVDA went to $750 in April after GTC and we added more shares under $540.
Disclosure: Author Kevin Cook owns NVDA shares for the Zacks TAZR Trader portfolio.
I last wrote about
Quidel as the Bear of the Day on April 30 right before their quarterly report on May 6 that may have helped put a bottom in shares near $100.
But the reason that QDEL remains a Zacks #5 Rank is due to the new round of downward EPS revisions by Wall Street analysts.
In just the past few weeks since that report, the full-year consensus for 2021 has dropped a whopping 30% from $23.22 to $16.28.
And prior to the company's Q1 earnings miss and reality-check, that profit projection stood at $28.15.
Why Were Investors and Analysts So Surprised?
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.
Here's what I wrote in April...
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.
(end of excerpt from my April article)
While many investors (myself included) believed that COVID-19 testing would be a constant part of our lives as travel and shopping attempted a return to normal this spring, the spike in QDEL sales led to a hard reversal.
Current top-line estimates are for an 11% drop to $1.5 billion this year and another 23.5% decline to $1.13B next year.
QDEL remains an innovative diagnostics company with BIG potential for M&A/partnership interest from Big Pharma. But until the estimates stop going down, and start heading back up, the stock is still untouchable.
The Zacks Rank will let you know.
Additional content: German Auto Market: Devastating Crash to Great Revival
Germany’s automotive industry is the biggest industry sector in the country, with a turnover of 379.3 billion euros in 2020, which is around 20% of total German industry revenues.
In fact, per Germany Trade & Invest, Germany is Europe’s number one automotive market, accounting for approximately 25% of all passenger cars manufactured (3.5 million) and roughly 20% of all new car registrations (2.9 million) in 2020.
Germany shares space with the United States, China and Japan as one of the four biggest automotive manufacturers in the world. German auto industry’s reputation for quality, reliability, efficiency and innovation in world-leading car brands is globally unparalleled. The country’s leading R&D infrastructure, end-to-end value-chain integration and highly skilled workforce together create an undefeatable international automotive domain.
2020: A Look Back at German Auto Industry
The year 2020 has been a turbulent year for the global auto industry. The coronavirus mayhem wreaked havoc in the German auto industry in the latter half of the first, second and third quarters of 2020 amid factory closures, low footfall at dealerships and supply-chain distortions. In fact, in April 2020, nearly the entire production of passenger cars was at a standstill in the country.
Apart from the pandemic, other factors which caused catastrophe in the German automotive sector in 2020 include structural factors such as the transition to electric powertrains, an unfavorable segment mix and production site conditions, resulting in a further rollback in production. In fact, the rising frenzy of electric mobility worldwide hit the German auto sector hard due to its dominant position in diesel-powered vehicles.
Reportedly, new passenger-car registrations in Germany came in at 2.9 million in 2020, dipping 19% year on year, being the lowest since German reunification. Also, the domestic production of passenger cars of 3.5 million in 2020 marked a 25% plunge year on year, reaching the trough since 1975.
Moreover, the German automotive industry, which is highly dependent on exports, witnessed a decline of 24% year on year in passenger-car exports in 2020.
Nonetheless, the stimulus package enacted in Europe in June 2020, which included a temporary lowering of the VAT rate until the end of the year and an increase in the government's share of the environmental bonus, expedited the recovery of the German auto sector. This turned out to be a ray of hope in the otherwise gloomy scenario in the German auto industry. Resultantly, a positive result was achieved in the fourth quarter of 2020, with the month of December being the strongest December of all time for the German passenger-car market.
Moreover, last November, the German government offered Germany’s embattled auto industry 5 billion euros ($5.9 billion) in order to help tame the coronavirus crisis and foster the transition to electric cars. Also, the cash bonus for purchasing EVs was extended till 2025 in the country.
This further accelerated the transition to electric powertrains in the economy. While new registrations of electric passenger cars (battery EVs, plug-in hybrid EVs and fuel-cell cars) jumped 97% in the first half of 2020, the metric skyrocketed 392% in the second half of the year.
Present State of Affairs
Bidding farewell to a year of unprecedented obstacles, Germany's auto industry managed to rebound in 2021.
Encouragingly, in May 2021, surging sales of plug-in hybrid and full-electric cars triggered momentum in German vehicle sales. Per the KBA federal motor transport authority, approximately 26,800 passenger cars with battery-powered electric vehicles (EVs) were newly registered, representing an astonishing 380% year-on-year rise, and roughly 27,200 new plug-in hybrids were sold, jumping 300%.
New passenger car registrations in Germany totaled 230,635 during the month, up 37% from May 2020. Also, registrations grew 13% to 1.12 million in the first five months of 2021.
German carmakers, once world leaders in automotive innovation, have been lately revving up their electrification strides, taking cues from the EV behemoth Tesla. In March 2021,
Volkswagen unveiled its roadmap to longer range EVs, cheaper batteries, and better charging during its Power Day presentation.
This highlighted the Zacks Rank #2 (Buy) company’s ambitious EV plans, and made clear that the company will leave no stone unturned in becoming the undisputed leader in the EV landscape. In fact, in April, Volkswagen’s ID.4 reached 7,565 registrations, topping the plug-in car sales in Europe for the month. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recently, the German government issued a green signal to the use of fully autonomous robotaxis, allowing driverless vehicles to operate, without a human safety operator behind the wheel, on public roads by 2022. With this, Germany is set to become the world’s first major economy to legalize the commercial use of fully autonomous vehicles, beating the United States and China.
However, amid this improving scenario, the global upheaval of the pandemic prompted a supply-chain crisis in the economy, resulting in a worldwide crunch in the supply of semiconductor chips.
In fact, the massive shortage in semiconductors threatened to cripple production in one of Germany’s biggest industries— the auto industry. This forced major auto companies in the nation, such as Volkswagen,
Daimler and BMW, to trim vehicle production in recent months. Moreover, the deficit in the semiconductor market delayed the economic rebound after the coronavirus pandemic.
As a major sigh of relief, German technology company, Bosch, opened a 1-billion-euro ($1.2 billion) chip factory in the city of Dresden, last week, to cater to the rising demand for semiconductors. The factory marks the largest single investment in Bosch’s 130-year track record.
The state-of-the-art plant, which received a 200-million-euro ($243million) aid under an EU investment scheme, will start making chips for power tools in July, with output of chips to begin from September. This, in turn, will support the revival of the European semiconductor industry.
The automotive industry is the backbone of German industries. The year 2020 will be etched as a doomed year in the history of Germany’s automotive sector, with the pandemic-enforced shutdown taking its toll. In fact, the economic rebound in 2021 has also been shaky due to the supply-chain woes.
Nonetheless, as we look through the second half of 2021, the German auto sector remains cautiously optimistic, given the nation’s fueled transition to electric mobility, thanks to the government’s stimulus package.
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