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Bet on These 3 Hot Tech Stocks Instead of NVIDIA (NVDA)
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NVIDIA Corporation (NVDA - Free Report) stock has been one of the worst performers in the tech space so far this year. Shares of the Graphic Processing Unit pioneer have plunged 54.2% year to date, underperforming the Zacks Semiconductor – General industry and the S&P 500 Index’s decline of 44.3% and 18.3%, respectively. Though the broader market sell-off has somewhat affected stock’s performance, the main reasons behind this slump are primarily company-specific.
NVIDIA impressed investors with its stellar financial performance and experienced robust top and bottom-line growth in the past several quarters. However, the weakening demand for its chips used in the gaming end market put a brake on its growth momentum during the second quarter of fiscal 2023. Its Gaming segment revenues plunged 33% in the quarter owing to a reduction in channel partner sales due to macroeconomic headwinds.
Furthermore, persistent supply-chain and logistic issues adversely impacted the company’s ability to meet the demand for chips used in the data center end market during the second quarter. As a result, the company reported revenues of $6.7 billion in the second quarter of fiscal 2023, way lower than its May 2022 forecast of $8.10 billion (+/-2%).
NVIDIA got another blow in late August after the U.S. government imposed a ban on selling the company’s top artificial intelligence chips to China and Russia. Though the company does not sell products to customers in Russia, the restrictions are going to significantly hurt its data center chip sales in China. It was expecting to generate $400 million in revenues from the sale of the banned chips in the third quarter of fiscal 2023.
Considering the current business environment, the company, during its second-quarter results, issued dim revenue guidance for the third quarter, wherein it expects to generate $5.9 billion (+/- 2%) in sales, approximately 17% lower than the year-ago quarter’s revenues. However, looking at the latest U.S. government’s restriction on chip sales, the company is likely to report third-quarter revenues way lower than its August 2022 guidance. It is therefore advisable to stay away from this Zacks Rank #5 (Strong Sell) stock in the near term.
Image Source: Zacks Investment Research
3 Tech Stocks to Buy Instead of NVIDIA
Though NVIDIA’s prospects might not appear appealing at the moment, there are several stocks in the technology sector that offer good investment opportunities right now. These stocks have a favorable combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per the Zacks proprietary methodology, stocks with this favorable combination offer good investment opportunities.
Fortinet (FTNT - Free Report) is benefiting from the increased adoption of its networking and security platforms, driven by a rise in the hybrid working policy among top-notch companies. The Zacks Rank #2 company continues to win back-to-back deals for offering unique cyber safety solutions, which ensure the blocking of attacks or malicious content. Its Fortinet Security Fabric, cloud and Software-defined Wide Area Network (SD-WAN) offerings are currently witnessing robust growth.
The growing adoption of SD-WAN solutions is a key growth driver for Fortinet in the long run. According to the latest Future Market Insights report, the market size for SD-WAN solutions is likely to reach $53.8 billion by 2032 from $3.4 billion in 2022, indicating a CAGR of 31.6% during the 2022-2032 forecast period. As only a few vendors offer security and SD-WAN solution, Fortinet is well-positioned to capitalize on the increasing opportunities in the market.
Fortinet has a Growth Score of A. The Zacks Consensus Estimate for 2022 earnings stands at $1.05 per share, having moved a penny north in the past 30 days. The long-term estimated earnings growth for the company is pegged at 18%, higher than the industry average of 14.2%.
Synopsys (SNPS - Free Report) is benefiting from strong design wins owing to a robust product portfolio. The company’s penetration into new and growing AI chip companies is a major growth driver. With the increasing need for enhanced security measures, considering the rising security threats in interconnected systems laden with software, demand for Synopsys’ solutions is shooting up. Robust growth in software-based verification at both traditional semiconductor and emerging system companies focused on their own in-house design is an upside.
Growth in the work-and-learn-from-home trend is driving demand for bandwidth. Synopsys Fusion Design Platform, launched last November, is witnessing high demand, helping it generate strong results. Growing demand for advanced technology, design, IP and security solutions is also creating solid prospects. The company’s Verification Continuum platform steadily witnesses excellent demand and competitive wins. Further, ZeBu Server 4 product is generating broad-based adoption by customers’ designing storage, networking and AI chips.
Synopsys, a Zacks Rank 2 company, has a Growth Score of B. The Zacks Consensus Estimate for fiscal 2022 earnings has increased 4.4% to $8.84 per share over the past 30 days. The long-term estimated earnings growth for the company is pegged at 16.2%, higher than the industry average of 13.7%.
Cadence Design Systems Inc.’s (CDNS - Free Report) performance is gaining from continued strength across all segments owing to healthy demand for the company’s diversified product portfolio. Frequent product launches and synergies from acquisitions are expected to help the company sustain top-line growth. Increased investments in emerging trends like the Internet of Things, augmented and virtual reality, and autonomous vehicle sub-systems present a significant growth opportunity for Cadence in the long haul.
In the second quarter, the company announced an agreement to acquire OpenEye Scientific Software for about $500 million in cash. The deal is expected to close in the third quarter of 2022. Cadence wants to expand its reach in the molecular modeling and simulation market as pharmaceutical and biotechnology companies leverage computational software solutions for drug discovery.
Cadence carries a Zacks Rank 2 and has a Growth Score of B. The Zacks Consensus Estimate for 2022 earnings has increased 22 cents to $4.11 per share over the past 60 days. The long-term estimated earnings growth for the company is pegged at 17.7%, higher than the industry average of 13.7%.
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Bet on These 3 Hot Tech Stocks Instead of NVIDIA (NVDA)
NVIDIA Corporation (NVDA - Free Report) stock has been one of the worst performers in the tech space so far this year. Shares of the Graphic Processing Unit pioneer have plunged 54.2% year to date, underperforming the Zacks Semiconductor – General industry and the S&P 500 Index’s decline of 44.3% and 18.3%, respectively. Though the broader market sell-off has somewhat affected stock’s performance, the main reasons behind this slump are primarily company-specific.
NVIDIA impressed investors with its stellar financial performance and experienced robust top and bottom-line growth in the past several quarters. However, the weakening demand for its chips used in the gaming end market put a brake on its growth momentum during the second quarter of fiscal 2023. Its Gaming segment revenues plunged 33% in the quarter owing to a reduction in channel partner sales due to macroeconomic headwinds.
Furthermore, persistent supply-chain and logistic issues adversely impacted the company’s ability to meet the demand for chips used in the data center end market during the second quarter. As a result, the company reported revenues of $6.7 billion in the second quarter of fiscal 2023, way lower than its May 2022 forecast of $8.10 billion (+/-2%).
NVIDIA got another blow in late August after the U.S. government imposed a ban on selling the company’s top artificial intelligence chips to China and Russia. Though the company does not sell products to customers in Russia, the restrictions are going to significantly hurt its data center chip sales in China. It was expecting to generate $400 million in revenues from the sale of the banned chips in the third quarter of fiscal 2023.
Considering the current business environment, the company, during its second-quarter results, issued dim revenue guidance for the third quarter, wherein it expects to generate $5.9 billion (+/- 2%) in sales, approximately 17% lower than the year-ago quarter’s revenues. However, looking at the latest U.S. government’s restriction on chip sales, the company is likely to report third-quarter revenues way lower than its August 2022 guidance. It is therefore advisable to stay away from this Zacks Rank #5 (Strong Sell) stock in the near term.
Image Source: Zacks Investment Research
3 Tech Stocks to Buy Instead of NVIDIA
Though NVIDIA’s prospects might not appear appealing at the moment, there are several stocks in the technology sector that offer good investment opportunities right now. These stocks have a favorable combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per the Zacks proprietary methodology, stocks with this favorable combination offer good investment opportunities.
Fortinet (FTNT - Free Report) is benefiting from the increased adoption of its networking and security platforms, driven by a rise in the hybrid working policy among top-notch companies. The Zacks Rank #2 company continues to win back-to-back deals for offering unique cyber safety solutions, which ensure the blocking of attacks or malicious content. Its Fortinet Security Fabric, cloud and Software-defined Wide Area Network (SD-WAN) offerings are currently witnessing robust growth.
The growing adoption of SD-WAN solutions is a key growth driver for Fortinet in the long run. According to the latest Future Market Insights report, the market size for SD-WAN solutions is likely to reach $53.8 billion by 2032 from $3.4 billion in 2022, indicating a CAGR of 31.6% during the 2022-2032 forecast period. As only a few vendors offer security and SD-WAN solution, Fortinet is well-positioned to capitalize on the increasing opportunities in the market.
Fortinet has a Growth Score of A. The Zacks Consensus Estimate for 2022 earnings stands at $1.05 per share, having moved a penny north in the past 30 days. The long-term estimated earnings growth for the company is pegged at 18%, higher than the industry average of 14.2%.
Synopsys (SNPS - Free Report) is benefiting from strong design wins owing to a robust product portfolio. The company’s penetration into new and growing AI chip companies is a major growth driver. With the increasing need for enhanced security measures, considering the rising security threats in interconnected systems laden with software, demand for Synopsys’ solutions is shooting up. Robust growth in software-based verification at both traditional semiconductor and emerging system companies focused on their own in-house design is an upside.
Growth in the work-and-learn-from-home trend is driving demand for bandwidth. Synopsys Fusion Design Platform, launched last November, is witnessing high demand, helping it generate strong results. Growing demand for advanced technology, design, IP and security solutions is also creating solid prospects. The company’s Verification Continuum platform steadily witnesses excellent demand and competitive wins. Further, ZeBu Server 4 product is generating broad-based adoption by customers’ designing storage, networking and AI chips.
Synopsys, a Zacks Rank 2 company, has a Growth Score of B. The Zacks Consensus Estimate for fiscal 2022 earnings has increased 4.4% to $8.84 per share over the past 30 days. The long-term estimated earnings growth for the company is pegged at 16.2%, higher than the industry average of 13.7%.
Cadence Design Systems Inc.’s (CDNS - Free Report) performance is gaining from continued strength across all segments owing to healthy demand for the company’s diversified product portfolio. Frequent product launches and synergies from acquisitions are expected to help the company sustain top-line growth. Increased investments in emerging trends like the Internet of Things, augmented and virtual reality, and autonomous vehicle sub-systems present a significant growth opportunity for Cadence in the long haul.
In the second quarter, the company announced an agreement to acquire OpenEye Scientific Software for about $500 million in cash. The deal is expected to close in the third quarter of 2022. Cadence wants to expand its reach in the molecular modeling and simulation market as pharmaceutical and biotechnology companies leverage computational software solutions for drug discovery.
Cadence carries a Zacks Rank 2 and has a Growth Score of B. The Zacks Consensus Estimate for 2022 earnings has increased 22 cents to $4.11 per share over the past 60 days. The long-term estimated earnings growth for the company is pegged at 17.7%, higher than the industry average of 13.7%.