by Todd Shaver | Feb 27, 2025 | Instant News Flash
High Technology Portfolio
Chipmaker Nvidia (NVDA: $131) continued its phenomenal streak with a blowout fourth-quarter performance, reporting $39.3 billion in revenue last night, up 78% YoY compared to $22.1 billion a year ago. Profits continued amazingly strong, coming in at $22.1 billion, or $0.89 per share, up from $12.8 billion, or $0.52 in the prior year, driven by growing sales and order backlogs across its AI offerings.
For the full year, it reported $130 billion in sales, up 117%, compared to $60 billion a year ago, with a profit of $74.3 billion, or $2.99 per share, against $32.3 billion, or $1.30. These are undeniably impressive figures, and to put things in perspective, just four years ago, Nvidia ended its fiscal year 2020 with total annual sales of $10 billion, which means this is a 13-fold growth in less than half a decade.
The company benefited from the significant ramp-up in the sales of its long-awaited AI chips, Blackwell. As you can expect, Nvidia’s data centers business led the way with $36 billion and $115 billion in sales, up 93% and 142% on a YoY basis, during the quarter and the full year, respectively. Gaming and AI PCs produced $2.5 billion, down 11% YoY.
The data center unit represents 91% of total revenue, and its new Blackwell chips are already at $11 billion in sales during the fourth quarter. In the future, the company’s performance will depend on how quickly it can make and ship this blockbuster new GPU since it already has order backlogs ranging from 12 to 18 months from some of the largest cloud service providers and AI companies – Microsoft, Amazon, Facebook, Google, xAI (Tesla), and OpenAI among many others, including the largest countries in the world.
Right now, the functioning of Artificial Intelligence remains incredibly simple. As Nvidia’s technology progresses, models will think and reason more deeply to develop novel insights. Nvidia believes that this will require at least 100x more computing power than the current models, meaning we will see substantially more demand for Nvidia’s GPUs, alongside other critical AI and networking infrastructure in the years ahead.
With this, all that hue and cry surrounding Deepseek’s efficiencies, or potential new tariffs by the Trump administration, which resulted in a $600 billion rout in the stock last month, the biggest one-day decline in history, can finally be laid to rest. While earnings calls in the weeks before the actual results were announced led to mixed stock reactions, including many pessimistic forecasts from analysts, this quarter’s results highlight the company’s critical role in the AI-driven market. The demand for AI chips continues to accelerate, driven by an insatiable need for advanced computing power. Moreover, the U.S. government has affirmed its commitment to policies that strengthen homegrown tech giants and uphold the country’s leadership in artificial intelligence.
We believe the $3.2 trillion company still has a long way to go upwards as it continues to unlock value for investors with generous stock buybacks - $34 billion last year. It has $43 billion in cash, just $10 billion in debt, and $64 billion in cash flow. Our Target is $210, one of the highest on the Street, and our SP is $100.
by Todd Shaver | Oct 31, 2024 | Instant News Flash
The earnings season is off to a flying start, with Meta Platforms (META: $572) being second in line among the Magnificent 7 with a phenomenal third-quarter performance last night. The company generated $41 billion in revenue, up 19% YoY, compared to $34 billion a year ago, with a profit of $15.7 billion, or $6.03 per share, surging 35% YoY, against $11.6 billion, or $4.39, topping estimates on the top and bottom lines along the way.
Unfortunately, the stock market is in a mode to knock down anything that is not 100% perfect. Meta was 99.9%. (Microsoft reported stellar earnings last night but is down almost 6% this morning.) The stock is down 3% today. This can mainly be attributed to user growth coming in below estimates, at 3.29 billion across its family of apps, up 5% YoY, but falling short of the expected 3.31 billion, alongside its rising capex on AI infrastructure, which is set to touch $40 billion this year.
This, of course, was nothing but an overreaction, especially considering its other core metrics, such as ad impressions growing 7% YoY and the average price per ad growing 11%. These figures are quite impressive, given that its user base already covers 40% of the world’s population, meaning that growth hereon is possible mainly by unlocking additional value across its landed base with the effective use of AI and Machine Learning. Meta is now focused on doing just that, with its ad targeting systems becoming increasingly precise and more refined, better than all other networks today, thanks to its advanced AI-enabled optimization systems. Apart from this, Llama AI and its flagship chatbot, Meta AI, which already has 500 million active users, are helping unlock value for advertisers while also better engaging and retaining its users.
Investors are concerned about rising expenses, mainly on AI infrastructure, especially when there is no clarity on how the company plans to monetize it. The company, however, is fully committed to this and would rather have the supply in place when the demand arrives than the other way around. It believes that all of its world-class products will rely heavily on its AI infrastructure going forward. We believe that what they are doing is the right thing. They have $58 billion in cash for just such an opportunity as AI. There is no better place to invest right now. This situation is not unlike its Reality Labs play, which a couple of quarters ago was a central sore point for investors. While the division continues to hemorrhage cash to this day, with $4.4 billion in operating losses during the quarter, its products, such as the Ray-Ban Meta smart glasses, have become a sleeper hit, becoming a top-selling product globally. However, the company hasn’t put out sales figures yet.
The stock has experienced a significant rally, gaining 70% so far this year. It has more than quintupled since its low point of $91 two years ago. With a $1.5 trillion market cap, it rewards investors generously with $8.9 billion in buybacks and $1.3 billion in dividends. It maintains a robust balance sheet with $58 billion in cash, $38 billion in debt, and $78 billion in cash flow. We believe in META, and any dip in the stock is an opportunity to add more. Our Target is $550, and our Sell Price is We Would Not Sell Meta. We are hereby raising our Target to an aggressive $700. You can’t own enough of this great company.
by Todd Shaver | Oct 30, 2024 | Instant News Flash
Shares of biopharmaceuticals giant Eli Lilly (LLY: $830) took a tumble following its third-quarter results this morning, with sales coming in below estimates at $11.4 billion, up 20% YoY, compared to $9.5 billion a year ago. It posted a profit of $1.1 billion, or $1.18 per share, against $100 million, or $0.10, resulting from a $3 billion charge related to an acquired in-process research and development project. Profits during the current year quarter were weighed down by $2.8 billion in charges from acquired in-process research and development. These are the result of its various acquisitions in recent years; without them, the company’s profits would have hit an impressive $3.9 billion. This led the company to lower its outlook for the full year.
The top-line miss was the consequence of lower-than-expected sales of its diabetes and obesity drugs, Mounjaro and Zepbound, at $3.1 billion and $1.3 billion, respectively, roughly flat compared to the prior quarter. Eli’s miss was owing to its inability to meet the demand for its GLP-1 drugs, leading to shortages and empty shelves. We can all agree that consumers not getting enough of Eli’s products is a good problem, especially as the company works to ramp up production, with as much as $18 billion invested in new capacity since 2020.Â
In the whole scheme of things, this is a $800 billion giant growing at 20% YoY, with a robust drug pipeline and a string of blockbuster products. The market has overreacted here. The low for the day is $769, so you can see that it has bounced back with strength.
Eli Lilly had a strong showing across most other products during the quarter, with Verzanio, its metastatic breast cancer drug, reaching $1.4 billion in sales, up 32% YoY, followed by Taltz for autoimmune diseases at $880 million, up 18% YoY, and Humalog at $530 million, an increase of 35% from the prior year. The only laggards were its type 2 diabetes drugs, Trulicity and Jardiance, down 22% and 2% YoY, respectively.Â
The company had several pipeline wins during the quarter, with FDA approval for its moderate-to-severe atopic dermatitis drug, Ebglyss, for children and adults 12 years and older. In addition, it won approval in Japan for Kisunla to treat early symptomatic Alzheimer's disease. These drugs are potentially worth multiple billions in sales each year once thoroughly commercialized.
The market for GLP-1 drugs will be worth $100 billion by the end of this decade, and Eli’s products are proven to be more effective than those of Novo Nordisk in this regard. The stock is up 42% YTD, and we firmly believe that buybacks and dividends are right around the corner, given Eli’s growing balance sheet with $3.4 billion in cash, $30 billion in debt, and $4.5 billion in cash flow. The stock hit $770 this morning but has bounced back strongly, with heavy buying from institutions and investors. Our Target is $1100, and We Would Not Sell Lilly. The stock reached $972 just last month. We fully expect to see new highs next year.
by Todd Shaver | Aug 1, 2024 | Instant News Flash
Facebook parent Meta Platforms (META: $515, up $40 in pre-market trading) released its second-quarter results last night, reporting $39 billion in revenue, up 22% YoY, compared to $32 billion a year ago. Profits were $13.5 billion, or $5.16 per share, compared to $7.8 billion, or $2.98, with a beat on consensus estimates on the top and bottom lines, coupled with an upbeat guidance for the third quarter, driven by robust advertising tailwinds.
The social networking giant posted strong performances across the board, starting with daily active users at 3.3 billion, up 7% YoY, across its family of apps, which includes WhatsApp, Facebook, Instagram, and Threads. Total ad impressions and the average price per ad similarly saw an uptick of 10% each on a YoY basis, following two years of headwinds with businesses pulling back on advertising spending.
Starting in 2022, the company embarked on extensive cost-cutting initiatives, eliminating over 21,000 jobs through multiple rounds of layoffs. This has resulted in an expansion in its operating margins at 38%, up from 29% a year ago, leaving more room for its growing capex spending, which stood at $8.5 billion during the quarter and is set to scale past $40 billion for the entire year. This is earmarked for building infrastructure to support its growing AI push, such as with its recently launched Llama 3.1, which uses a vast 405 billion parameters. The company’s recent splurge involves 350,000 Nvidia H100 graphics cards, which it hopes to have deployed by the end of 2024, putting it on par with peers such as Alphabet and OpenAI.
Meta’s growing AI prowess extends beyond bolstering its ad targeting and content recommendations engine. The Llama 3.1 Assistant is open source, allowing developers to build a wide range of applications on it. The company expects its newly introduced AI-enabled assistant, which is already integrated with Facebook, Instagram, and WhatsApp, to become the most used AI assistant by the end of the year.
The stock is up 37% YTD, putting the company firmly in the trillion-dollar club while still offering a relatively reasonable valuation of just 8 times sales and 24 times earnings. Meta Platforms returned $6.3 billion during the quarter through stock repurchases, plus $1.3 billion in dividends, made possible by its massive cash reserves at $58 billion, just $38 billion in debt, and $76 billion in cash flow. Our Target is $550, and We Would Not Sell Meta Platforms. As we write this, we are tempted to raise the Target to $600 or even $700, but we don’t want to get ahead of the overall market. By that, we mean that if the market stays strong, these numbers will be met, perhaps as early as this year, but if the market weakens, it will take longer.
by Todd Shaver | Jul 17, 2024 | Instant News Flash
The Financial Select Sector SPDR Fund (XLF: $44), a leading ETF with exposure to the Big Banks and some Financial Services industries, including retail banking, investment banking, payments processing, fintech, and more, has been on a stellar streak over the past year and a half. Following a rollercoaster beginning in 2023, it rallied by 40% starting in November, when the Fed’s hawkish stance finally ended.
It is showing no signs of slowing down, with leading banks emerging unscathed from last year's liquidity crisis and clearing the Fed’s recent stress tests with flying colors. The tests show that 31 of the largest banks in the country are well-positioned to withstand a severe recession, helping assuage various concerns that investors have been harboring regarding the industry over the past year.
The fund distributes its assets across a basket of 71 stocks, with the top 7, including JP Morgan, Goldman Sachs, Bank of America, Wells Fargo, and Berkshire Hathaway, making up nearly 50% of the assets. Thus, the resilience and outperformance showcased by the big banks in their recent quarterly figures have renewed interest in the sector and its most prominent ETF.
Last night, Goldman Sachs released its second-quarter results, posting a 17% YoY growth rate with $12.7 billion in revenue. With this, the company joins the ranks of JP Morgan, Wells Fargo, and Citigroup, all producing strong quarterly performances, often exceeding consensus estimates by wide margins and primarily driven by growth across investment banking, advisory, and wealth management divisions.
After a sluggish year, corporate mergers and acquisitions are experiencing a resurgence. This shift coincides with the Federal Reserve's change in interest rate policy, suggesting companies are more confident about future economic conditions with limited expectations for further rate hikes. Similarly, banks are benefiting from a renewed wave of activity. The return of IPOs, debt refinancing deals, and other financial transactions generate significant fee revenue. We anticipate a surge in the IPO market throughout the latter half of 2024, with continued growth in 2025 and 2026. This is partly driven by the emergence of numerous artificial intelligence companies, often called unicorns, due to their high valuations and desire to raise capital through public listings. Based in Silicon Valley and beyond, these AI pioneers are poised to be a significant force in the upcoming IPO wave.
The stock market, which hit new records in June, helped improve profitability across the asset and wealth management divisions of the big banks. Alongside their trading desks, which are raking in fat profits for the first time in years owing to rising volumes and volatility, these strong secular tailwinds are leading up to what is being termed one of the best years for the industry in the recent past.
Markets are riding on the increasing possibility of Trump 2.0, which means tax cuts, deregulations, and trade wars at the very least, all of which bodes well for the domestic US industry and the Banks. The Financial Select Sector SPDR Fund is undoubtedly one of the best vehicles to ride this trend, with its extensive track record going back 26 years and an incredibly low gross expense ratio of just 0.09%.
Our Target is $47, and our Sell Price is $35. The stock has rallied from the low of $32 in November to its current level, and we expect more of the same as this bull market continues. Yes, today is a rough day, and this, too, shall pass. With AI leading the parade, we believe the market will be higher at the end of the summer and year. We are raising the Target today to $52 and the SP to $39.
