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For Immediate Release
Chicago, IL – May 26, 2021 – Zacks Equity Research Shares of ASML Holding N.V. ASML as the Bull of the Day, Twilio Inc. TWLO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Uber Technologies, Inc. UBER and Lyft, Inc. LYFT.
Here is a synopsis of all four stocks:
Bull of the Day:
ASML Holding is the $275 billion maker of photolithography equipment for the laser etching of semiconductor integrated circuits (ICs).
Their customers include big IC foundries and fabs like Taiwan Semiconductor and Samsung, who make the chips and electronics that go in everything from smartphones to the world's top-selling cars and trucks. And their Extreme Ultraviolet Lithography (EUV) technology is essential for making the latest generation of sub-10 nanometer(nm) ICs.
NVIDIA is also a TSM customer (like the smartphone and auto supply chains), and since I am an NVDA investor, I try to keep up with their flood of innovation. Last year, DigiTimes reported how TSM was benefiting from a ramp-up in orders from NVIDIA and AMD, and apparently part of NVDA's demands pertain to a "mystery" 5nm chip.
Speculation now is around NVDA's next-gen GPU architecture (after Ampere and Lovelace), Hopper, named after the American computer scientist Grace Hopper.
You can learn more about ASML's biggest customer, Taiwan Semi, and the "nanoscale" world from these articles and videos I produced last year after Intel shocked the market with news they would not be ready to roll out 7nm technology as expected to deal with competition from AMD in PCs...
Release the Ryzen! AMD Roars in the Nanometer Wars
The Tech Analyst Who Screamed "Buy TSM at $50!"
Who Is ASML and What's a Nanometer?
Had I truly understood this tectonic shift -- measured in nanometers -- I would have been buying both TSM and ASML last year before they doubled.
As I type this on Tuesday morning 5/25, ASML shares are making new all-time highs above $675. That has it running a bit hot at 12.5X this year's sales consensus of $22 billion, but the current chip shortage sees demand and pricing-power supporting higher valuations in this industry growth surge.
Since ASML may be the biggest Semi industry giant you don't know that much about, I wanted to give some background on their nearly four decade journey to the pinnacle of precision for laser-crafted designs that are smaller than the coronavirus.
A quick review of "nanoscale" terminology in the microscopic universe of integrated circuitry may be in order: a micrometer, or micron, is equal to one millionth of a meter, while a nanometer (nm) is equal to one billionth of a meter.
A micron is thus bigger than a nanometer, but smaller than bacteria or the cells in your body.
ASML Holding N.V. was founded as Advanced Semiconductor Materials International in Eindhoven, the Netherlands. In 1984, electronics giant Philips and the young chip-machine manufacturer ASMI created a new company to develop lithography systems for the growing semiconductor market. Named ASM Lithography, they say "we began our days inauspiciously, located in a leaky shed next to a Philips office in Eindhoven."
Early success gave way to economic and competitive pressures, and the company almost didn't make it out of the 1980s. Here's how they describe a pivotal time...
By 1988, we had begun to make in-roads in the Asian market, after Philips established a joint-venture foundry in Taiwan. In the United States, we grew from a few employees to 84, spread over five office locations. But in a market of fierce competition and many suppliers, the small unknown company from the Netherlands couldn’t catch a break. ASML had few customers and was unable to stand on its own two feet. Making matters worse, shareholder ASMI was unable to maintain the high levels of investment with little return and decided to withdraw, while the global electronics industry took a turn for the worse, and Philips announced a vast cost-cutting program. The life of our young cash-devouring lithography company hung in the balance. Guided by a strong belief in the ongoing R&D and in desperate need of funds, ASML executives reached out to Philips board member Henk Bodt, who persuaded his colleagues to lend a final helping hand.
Now ASML is reaping the fruits of decades of tireless innovation as its sales have soared from a 2018 peak of $12.9B to a projected $21.85B this year. That represents 36% growth in 2021. Concurrently, this growth is translating to the bottom line with a projected 55% EPS advance to clear $15 this year.
And that's a large part of why the market cap doubled to $270B in the past year (other than valuation chasing).
ASML supplies lithography hardware and software systems to IC manufacturers throughout Asia, the United States and Europe and also provides its customers with a range of support services from advanced process and product applications knowledge to complete round-the-clock service support. Operating as a holding company, ASML's main wholly owned operating subsidiaries include ASML Netherlands B.V., ASML Hong Kong Limited and ASML US, Inc.
Semi Ecosystem and the Lightning Resurgence
In the past five years of investing in what I call The Technology Super Cycle, I have focused on owning and trading the wafer fabrication equipment (WFE) makers like Applied Materials and Lam Research, in addition to NVIDIA and Micron.
And while the Corona Crash of spring 2020 offered many bargains in the Semi space, the only stocks I felt confident owning were NVIDIA and Micron. I had no idea how fast the industry would recover from economic shutdowns and supply chain chaos.
Neither did most analysts. Because we were all missing the big picture of 2020: Semi+Industrial Growth Resurgence in my aforementioned Tech Super Cycle!
Micron reported a solid quarter and outlook in late September, but the current FY21 estimates (ends August) were still flat to down afterwards.
So I sold our Micron shares on 11/13 for a mere 20% gain. And you know what happened next.
While the company's big investor day presentation "Micron's Technology Roadmap & Strategy" was still two weeks away, they did a little thing with Bernstein (research and wealth advisory arm of AllianceBernstein with $700B AUM) on Monday Nov 16 that the i-bank calls their annual "Operational Decisions Conference."
And that's when MU jumped above $60 and never looked down again. Whatever MU CEO Sanjay Mehrotra said and showed there must have been a big preview of the coming Investor Day and industry outlook.
So MU shares took off ahead of the always enlightening Nov 30 presentation. But analyst estimates didn't kick in until the first week of December.
Now, the sales and EPS outlook for Micron is simply stunning...
FY21 (ends August): $26.75B in sales for 25% growth; $5.50 EPS for 94% growth
FY22 (begins Sep): $35.25B in sales for 31.75% growth; $10.80 EPS for 97% growth
And in Micron's most recent industry outlook, they see a strong capex spending cycle driving this continued growth. They remain a barometer for the industry.
Remember, Micron isn't just about "memory as commodity" for the PC market anymore. They are building custom DRAM and NAND flash solutions for 5G mobile, datacenter, industrial automation/IoT, and autonomous driving markets.
ASML in the Resurgence
I share the story of "missing Micron" upside because I think the same thing is happening with other members of the chip industry ecosystem. And investment bank analysts are cautious right now about modeling estimates for next year, so the current Zacks consensus is for only 9% growth to $24B in sales.
Investors may feel they've been left on their own with too few i-banks pounding the table, although I believe that Wells Fargo raised their estimates and price target to $750 following the company's Q1 report delivered April 21. I think the US analyst coverage is diffused because the company reports its financials in euros given their HQ. Even as analysts have no trouble modeling in euros, most US investors don't want to bother with the currency conversion.
Those investors who thought they should leave behind ASML at $500 and $200 billion (10X sales) may be chasing it higher now.
One investor who is "adding on the way up" (always better than adding on the way down) is Ken Fisher. I was just looking at the 13F filings of his $140 billion Fisher Asset Management Portfolio and was intrigued by this smart whale's continued investment as shares have doubled in the past 12 months to over $650.
In Q1, Fisher moved into the #5 spot of top holders, replacing Fidelity, after adding another 105K shares of ASML to bring his haul to 3.96 million. His average price for the 105K shares is somewhere between $500 and $600, given the Q1 trading range.
This puts Fisher just behind giants like Capital World and T. Rowe Price in ASML exposure (they each still have over 10M shares after taking some chips in Q1).
Gilder Goes Giga -- I mean, Nano -- for ASML
So who else in their right might would be buying ASML here after a doubling of its market cap in just 12 months -- a run from $325 per share to $650!
How about one of the best independent semiconductor analysts on the planet, George Gilder.
I just saw his latest newsletter and after doing 3 full pages on the history of semiconductor R&D, he introduces ASML as a leader of the "Nanocosm." You may recall, as I fondly do, his 1989 book Microcosm: The Quantum Revolution in Economics and Technology in which he tells a story from the early 80s where he showed Ronald Reagan a small device in his hand that he said would change the world. That was a semiconductor computer "chip," of course.
More broadly, Gilder's 1981 international bestseller, Wealth and Poverty, advanced a case for supply-side economics and capitalism during the early months of the Reagan administration.
I just wish I had listened to George better in the early 1990s when I read Microcosm. Of course, that might have meant buying and holding INTC and MSFT right through the "dot-com" bubble.
But I recently became reacquainted with the 81-year old futurist from his 2018 book Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy.
And boy he's as sharp as ever in that book. You learn something on every page, if not from every paragraph. It's almost as if he could see the big-data and blockchain eras coming over a decade ago (I'm sure he actually did), so he had read everything (and talked to everyone important) about them before, during, and after their evolution.
So why did he add ASML, at 13X sales, to his already very semi-heavy portfolio (including INTC, TXN, QRVO, QCOM)? Well, he thinks long-term. So he's not worried about the next Semi-cycle peak or global downturn. More importantly, he's focused on the emerging "nanocosm" where Moore's Law is getting an upgrade from chip innovators the likes of NVIDIA, Qualcomm, and maybe again Intel some day.
While putting on another 3-page clinic in describing some of the physics and limits of photolithography in IC design and manufacture, Gilder writes in his newsletter...
"Without Taiwan Semiconductor and crucially ASML, your iPhone 12's M-1 processor chip would not exist. Without ASML, TSM would not be able to make Huawei's 5G HiSilicon processors. The same is true for Samsung and your Galaxy phone.
"ASML is the key. ASML's technical lead in the field is so great, and growing, that it has essentially 100% market share of the photolithography market for single-digit-nanometer geometries."
That's why Gilder and Fisher are buyers of ASML up here in the stratosphere of the nanocosm.
Bear of the Day:
I last wrote about Twilio as the Bear of the Day on February 24 as I noted the "cloud darling for intelligent corporate comms has a bright future, but a temporary squall on EPS growth." That dual trend persists.
Shares were trading above $400 only a few days after their Q4 FY20 report, but I don't think the downward analyst estimate revisions that made it a Zacks #5 Rank Strong Sell really sunk in yet. The ongoing Nasdaq correction took TWLO down to $311 by March 5.
Here's what I wrote in late February that will help explain these trends...
TWLO is an exciting SaaS company that has more than quadrupled in the past year from a $15 billion provider of advanced corporate cloud communications to a $60B enterprise serving the top names in the Fortune 1000.
Twilio’s innovative Programmable Communications Cloud software allows developers to embed voice, messaging, video and authentication capabilities into any corporate "comms" platform. Plus, their API allows software developers to programmatically channel all these functions automatically for real-time customer engagement.
Twilio delivered better-than-anticipated fourth-quarter 2020 results last week as the company posted non-GAAP earnings of 4 cents per share for the quarter, while the Zacks Consensus Estimate was pegged at a loss of 8 cents. The non-GAAP bottom-line figure is flat, year on year.
Twilio’s quarterly revenues surged 65% year over year to $548.1 million, massively surpassing the Zacks Consensus Estimate of $454.6 million on an increase in clientele and the adoption of their Segment platform. The growing adoption of Twilio Flex is also a tailwind.
Twilio is benefiting from the accelerated digital-transformation across many industries, owing to the remote-working wave amid the COVID-19 pandemic. Organizations are reconfiguring their set-ups for a work-from-home operational environment and making "e-business" and "e-work" nearly majority realities.
So why, with the company on track to 30% growth and $3 billion in sales next year -- thus trading at only 20X sales in an overheated software market full of 40X sales wind-bags -- is TWLO in the cellar of the Zacks Rank?
The simple answer is always the same: because Wall Street analysts have lowered their growth forecasts in the medium term.
(end of excerpt from my 2/24 article on TWLO)
While analyst EPS estimates kept dropping in March, they just took another turn south after the company's Q2 report on May 5.
And that quarterly update was digested with a stock price plunge from $335 to $275 by the second week of May.
In just the past two weeks since the company report, the analyst consensus for TWLO EPS growth for 2021 has dropped from a loss of 13-cents per share to -19 cents.
That represents a turn of fortune from profitability in 2020 to a minus 180% annual loss.
As I wrote in Feb, "While average analyst price targets moved up to north of $500, the stock is probably due for a pause as earnings momentum decelerates."
So where are we now? TWLO remains a powerful player in a small-but-growing niche and their projected 43% revenue growth to top $2.5 billion this year verifies this.
Buying under $300 for the long term would seem to make some sense as it still trades under 20X next year's projected topline of $3.25 billion, representing 30% growth.
There will be a time to add and really ride the Twilio flying machine higher, and the Zacks Rank will let you know.
UBER Offers Free Covid Vaccine Rides Through July 4th
Uber Technologies has launched its previously announced free vaccination rides program in partnership with the White House and Lyft. The move is a step towards U.S. President Joe Biden’s goal of getting 70% of the U.S. adult population vaccinated by Jul 4.
The company is offering up to four free rides (up to $25 off each) to anyone taking a trip to get vaccinated. Customers can book a ride through the Uber app by tapping on Vaccine. The free rides are available between 6 a.m. and 8 p.m., through Jul 4, Uber said in a statement. The two roundtrips to get the shots should be three weeks apart between May 24 and Jul 4.
While riders are receiving a discount, drivers are being paid in full, the company said.
As for Lyft, people can get two free rides (up to $15 each) for traveling to and from vaccination sites, effective May 24. Customers can avail the rides after receiving a code through the Lyft app upon booking a trip. Users can book a trip on Lyft rideshare, bike or scooter between 6 a.m. and 8 p.m.
Both Uber and Lyft carry a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency have sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 3 crypto-related stocks now >>
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