Nova and MicroStrategy have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 22, 2023 – Zacks Equity Research shares Nova NVMI as the Bull of the Day and MicroStrategy MSTR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on General Motors GM, Ford (F) and Stellantis STLA.
Here is a synopsis of all five stocks:
Bull of the Day:
I last wrote about Nova as the Bull of the Day in June after a strong beat-and-raise quarter lifted shares from $90 to $110 in two weeks.
Once I saw the return to growth, I was happy to jump in at $110 in late May for my TAZR Trader group. Shares rallied above $125 in July and then came off into their Q2 report on August 3.
But analysts were compelled to raise estimates again, pushing the stock back to a Zacks #1 Rank (Strong Buy) this month. The Rank may slip to #2 (Buy) this week, but it's right on the cusp of the top 5% strata in what I like to call the daily "bell curve cage match" that is the Zacks Rank quantitative model.
What's Ahead for NOVA as Semiconductor Lieutenant?
Since semiconductor general NVIDIA reports earnings on Wednesday -- and I expect a nice beat-and-raise from Jensen "the Godfather of AI" Huang -- you can bet Nova will reach for its highs again very soon.
While I've been calling NVIDIA the "King of AI" and CEO Jensen "The Wizard" for years, the "Godfather" label came from Dan Ives of Wedbush on Monday morning, who added...
"We expect a bullish outlook from Nvidia that should be the fuel in the engine to continue this tech rally into the rest of the year despite the tough talking Fed with Jackson Hole/Powell speech around the corner this week..."
For some background on why Wall Street analysts are (now finally) climbing over the top of one another this month to raise estimates and price targets for NVIDIA, see my June article and video...
Nvidia DGX: Workhorse of AI Will Drive NVDA to $2 Trillion
We'll look at the growth opportunities for NOVA in an area called the "trailing node" right after we get to understand their core evolution.
NOVA LTD, formerly known as Nova Measuring Instruments, is based in Rehovot, Israel.
Here's how the company describes their mission...
Nova's advanced multidisciplinary dimensional metrology technologies combine complex opto-mechanical hardware with advanced optics and cutting-edge algorithms to continuously innovate for effective process control throughout the semiconductor fabrication life cycle.
And here's what I wrote in my early June article on NOVA...
Where Does NVMI Fit In the Semi/AI Ecology?
Metrology is the science of measurement and nowhere is precision more needed than in the "nanosphere" of chip manufacture. A nanometer (nm) is one billionth of a meter, and this is the distance of measurement for engineering transistors onto an integrated circuit (IC) board or card.
Chips have been plunging below 10nm for the past few years as Moore's Law gets new life from GPU pioneers like NVIDIA. For comparison, the coronavirus is about 50nm.
I explained some of this in my Top Stock Picks video about Nova on Tuesday, where I also suggested that this little engineer of Semi precision and purity may be an acquisition target for larger wafer fabrication equipment (WFE) companies like Applied Materials, Lam Research or KLA.
For less than $10 billion, any of these $50-100 billion Semi engineers could "bolt-on" Nova and secure their dominance in precision purity manufacturing.
You Can't Spell Innovation Sans NOVA
Be sure to watch the video I made Tuesday (link here from May 29) to see inside the world of precision Semi manufacture.
Until you do, here was a recent press release from NOVA that highlights their expertise...
Rehovot, Israel, December 20, 2022 – Nova (Nasdaq: NVMI) announced today that a leading global logic manufacturer recently selected Nova ELIPSON™ for next-generation integrated circuit (IC) development.
Nova ELIPSON™ was chosen for its ability to perform in-die characterization of stress, strain, and defectivity in next-generation devices, rapidly and with unparalleled sensitivity. The solution utilizes advanced Raman spectroscopy technology to extract materials properties of in-die structures, by fast and non-destructive means. The platform has consistently proven its ability to solve a wide range of materials metrology challenges in various segments and steps.
"This selection by one of the world's leading semiconductor logic manufacturers demonstrates the growing value of Nova's innovative materials metrology portfolio," stated Eitan Oppenhaim, Nova's president and CEO. "The increasing complexity of device architecture demands solutions that push the envelope and address the unique challenges our customers are facing. In this complex process fabrication environment, Nova's unique materials portfolio is becoming critical to the successful manufacturing of next-generation devices."
This is one example of how sales growth is returning for this small player in the $10 trillion market for AI.
What Is the Trailing Node?
In early July, I wrote an article on Global Foundries (GFS), the US-based semi "fab" operator. Ironically, the creation of GFS was borne in 2008 of a spin-off where Advanced Micro Devices decided it didn't want to do the foundry work anymore on its own chip designs.
Here's an important excerpt relevant to NOVA...
Nodes in semiconductor manufacturing indicate the features that a node production line can create on an integrated circuit, such as interconnect pitch, transistor density, transistor type, and other new technology.
This is especially important as the "leading edge" of chip design focuses on the sub-10 nanometer transistor architecture that also places new demands on the "trailing edge" that has to be able to "connect and keep up!"
In May of 2021, as supply chain issues were intensified by the pandemic shutdown, Tim Bajarin wrote this in Forbes...
"In the last few months, much has been said about the shortage of chips developed on leading edge manufacturing nodes of 7nm, 5nm, etc. While there are some shortages in chips using these advanced manufacturing processes, it turns out the semiconductor industry's other issue is at the trailing edge. The leading edge gets all the attention because it is the most exciting."
Bajarin had a good grasp at the time that the "leading edge" of chips powers the supercomputers in the cloud, advanced servers, desktops, and laptops, and even the computers in our pockets. But he explained that computing devices are not just made up of leading edge microprocessors...
"The vast majority of other components are made up using legacy nodes. Quite often many mainstream processors, especially those created for the autos, medical monitoring equipment, and a multitude of other products are created using much larger nodes in what is called the trailing edge."
These are the semiconductors chips and systems that still need to be able to "talk" to each other regardless of proprietary platforms, sub-10nm, or AI integrations on the "leading edge."
The Foundry-WFE Landscape
One of my favorite semiconductor analysts is Mark Lipacis from Jefferies. He helped me see in 2016 the potential for NVIDIA gaming GPUs to be supplanted by the data-center demand for those same workhorses of "massively parallel architectures."
In March of 2017 as I continued to gobble up information on how GPUs were creating the foundations of Artificial Intelligence -- even before the landmark victories over Chinese Go and Texas Hold'em that I described in October of 2017 -- I wrote the following piece and quoted Jensen the Wizard...
Get Your "MPA" in Deep Learning
"DGX-1 is like a time-machine for AI researchers," said Jen-Hsun Huang, founder and CEO of NVIDIA. "Enterprises, research centers and universities worldwide are adopting DGX-1 to ride the wave of deep learning — the technology breakthrough at the center of the AI revolution."
Here's what Lipacis wrote this spring as he saw the new upward momentum in foundry WFE (wafer fabrication equipment) demands...
"We revise our 2023 WFE to $81bn vs. prior $75bn as we layer in spending of Analog and MCU players in our bottom-up model. We think the Street is underestimating demand for Trailing Node capacity, which we estimate will account for 46% of 2023 WFE spend. We forecast a WFE recovery in 2024 as semi company revenues snap back after shipping below consumption in 2023 to clear the channel of excess inventories. AMAT, NVMI and ONTO are our top Trailing Node plays."
WFE Demand Historically Driven By Leading Edge and Memory
Lipacis goes on to describe the industry dynamics, even in the midst of AI-GPU mania that exceeded his expectations (but not mine, where we were heavy buyers of NVDA near $120 during the October bear market nadir)...
"Historically, WFE demand was primarily driven by leading-edge logic chips like CPUs in PCs, processors used in datacenters or application processors and modems used in cellphones, led by most advanced logic and increasingly smaller and cheaper memory solutions. Consequently, ~80% of WFE spend was driven by leading edge logic and memory."
Trailing Node as a New Driver of WFE, Driven by an IoT Computing Era
Lipacis continues...
"We've argued that the industry has entered the '4th Tectonic Shift to an IoT Computing Era,' where for the first time in history, the volume computing device, IoT, requires trailing node instead of the leading-edge chips required by previous computing eras, like handsets and PCs."
The Lipacis team estimates that this IoT Computing Era is rapidly growing to 10s of billions of devices annually, which is driving demand for trailing node WFE. They estimate that trailing node CapEx will increase from 22% of WFE historically to 46% of WFE spend in 2023 and believe the Street is underestimating the importance of Trailing Node CapEx.
They also believe that increased tensions between the US and China will lead US and European-based semiconductor companies and OEMs will shift sourcing to domestic players, ultimately translating to faster revenue growth. This works for GFS as they have EU fabs too.
(end of TAZR member commentary on NOVA from early July)
Bottom line: Buy NOVA (NVMI) before NVDA earnings. You might thank me later.
Bear of the Day:
Even though I wrote about MicroStrategy as the Bear of the Day just two weeks ago, I think it's worth revisiting the crime scene -- especially since the company's primary "liquid" asset, Bitcoin, just tumbled 10% last week.
While MSTR dropped an even bigger 14.5% last week -- a possible indicator of its perceived "excess leverage" to the King Crypto innovation -- it's also interesting to note how it dumped 13% in the first week of August within days after announcing (in their Q2 report) how it had acquired another 450+ Bitcoins in July.
It's almost as if the MSTRmonster 50% rally in just 3 weeks from late June to early July -- from $300 to $450 -- was all about the Bitcoin recovery back above $30,000.
And then when investors found out they bought more of the perceived digital "precious," their eyes went wide with alarm.
Examining the Strategy
To help investors understand the connection between MSTR, and its heroic ship captain Michael Saylor, to the paradigm-shifting crypto world, here are some excerpts from my August 7 piece on MicroStrategy...
MSTR reported its Q2 results on August 1 and got the cryptosphere buzzing as usual with the announcement of another big buy of Bitcoin.
Founder and Chairman Michael Saylor tweeted this...
"In July, @MicroStrategy acquired an additional 467 BTC for $14.4 million and now holds 152,800 BTC. Please join us at 5pm ET as we discuss our Q2 2023 financial results and answer questions about the outlook for Business Intelligence and Bitcoin."
Therein lies the problem for many Wall Street analysts trying to model the company's business and estimate revenues and earnings.
Since Saylor and MSTR are essentially "all-in" on BTC, the company's market cap at $4.9 billion is only about $300 million (6%) higher than the value of its crypto -- using a price of $30,000 for BTC, as the 50-day moving average in only $100 away.
The Big Pain
Last year, I wrote about how MSTR, whose original business model is still enterprise software design and consulting, had to takebig multi-billion dollar write-downs in the value of its holdings.
That took their EPS big negative for a $93 loss in the June quarter as BTC dropped from $50,000 to $20,000 in the first half of 2022.
The volatility and uncertainty of a business strategy built around this still-young digital asset class has caused some Wall Street analysts to move on from trying to model the company's outlook and growth in the software realm.
This lack of analyst coverage makes it even harder for investors to gauge where the company's sales and profits might land in the coming quarters.
Big Swings
Clearly, if you are a big believer in BTC just like Mike, you might also be all-in for the ride back to $50,000 and beyond.
But Wall Street analysts need more visibility on the core business to make recommendations to their investment bank clients and set price targets.
And while this year's profits are expected to bounce back to +$31, revenue is projected by 2 analysts to just inch across the $500 million mark for 0.63% annual growth.
Meanwhile, next year's topline is forecast to get near $520 million for an over 3% advance. But profits are projected to plunge again back toward $2 EPS. And that comes from an analyst who just took their numbers down 22% from $2.70 after last week's report.
Q2 Reaction from a Veteran Software Analyst
This pessimism comes even after MicroStrategy delivered a huge EPS beat for the June quarter, with $2.35 vs. $0.72 equating to a positive earnings surprise of 226%.
Brent Thill of Jefferies issued a research note to clients last week where he described some of the issues that he saw and explained why he took estimates down and reiterated his $210 price target for MSTR shares.
His comments were summarized as "continued subpar execution valued at a premium."
Thill noted that the only bright spot for him was that subscription revenue, which made up ~17% of total revenues, grew +42% during the quarter, above Street estimates at 22%.
Meanwhile, the analyst wrote that "80% of MSTR's top-line shrank." This is an issue vs. many software peers who are growing faster.
MSTR management called out a tough macro environment, citing elongated deal cycles and worsening headwinds vs. 1Q. But Thill noted "We will keep our eye on MSTR's AI offering, which could come as early as Q4."
The company also announced a $750 million equity issuance. And if you've been following their moves for the past 2 years when they do this, it's usually to buy more Bitcoin.
But if they are serious about a new AI offering, it's also very likely that this capital raise will be used to fund that business development as well.
(end of Bear of Day article excerpt from 8/7)
Bottom line: MSTR has been taken behind the proverbial woodshed for its BTC excesses, but at these discounted levels it will probably be a buy if BTC can stabilize and rally back above $31,000 and sustain new highs.
Additional content:
Canada Powers EV Push, Auto Giants Fuel Battery Boom
Amid heightening climate concerns, countries worldwide are fast transitioning to electric vehicles (EVs) in the pursuit of a greener and sustainable future. To this end, Canada—home to abundant natural resources and committed to reducing greenhouse gas emissions— is making significant strides in the EV battery manufacturing domain. Also, as auto giants like General Motors, Ford and Stellantis are fast changing their gears to electric and planning to introduce a lineup of green cars in the coming years, they are actively ensuring that the future models don't get held up amid a shortfall of batteries.
In another indication of a new wave of investment related to EV battery production underway in Canada, U.S. legacy automaker Ford, along with its South-Korean partners EcoProBM and SK On, recently announced plans to invest C$1.2 billion to build an EV battery plant in Quebec.
Canada's Rise as an EV Battery Powerhouse
Most of the battery cells for green vehicles are produced in Asia (primarily in China, Japan and South Korea). China leads battery technology and automakers are heavily reliant on the country for EV batteries. And if there's one thing that COVID-19 has taught the auto industry is that it should not be overdependent on one region. Automakers are working toward reducing foreign reliance and localizing battery production. In a bid to take advantage of the growing EV popularity, Canada is fast emerging as a battery supply chain hub for EVs, thereby challenging China's dependence.
Canada boasts rich reserves of essential raw materials for EV battery production, such as lithium, nickel, cobalt and graphite. These resources, coupled with a strong mining sector and advanced extraction techniques, form a strong foundation for Canada's battery manufacturing ambitions. To attract investment and bolster the EV industry, Canada has introduced enticing measures such as tax incentives and clean energy subsidies.
According to Sarah Houde from the economic development agency Propulsion Quebec, Canada is one of the few countries with the remarkable advantage of possessing all the essential minerals required for battery production. Moreover, Canada's geographic proximity to major markets like the United States bolsters its competitiveness by streamlining supply chain logistics.
The region's surplus of clean and affordable hydroelectricity amplifies its attractiveness for battery manufacturing. Driving towards e-mobility, Ottawa's plan includes substantial incentives, totaling around C$80 billion, to propel investments in non-emitting electricity generation, green technologies and mining over the next decade. The drive to establish a circular supply chain by recycling electric batteries also underscores Canada's commitment to sustainability and resource efficiency.
Impressively, Canada has surged from the fifth to the second place worldwide in battery supply, a feat highlighted by Prime Minister Justin Trudeau. BloombergNEF's latest rankings placed Canada just behind China, a testament to the nation's significant progress. The Canada battery market is expected to witness a CAGR of more than 18% over 2022-2028 timeframe, according to MarketResearch.com.
As the world anticipates a substantial surge in demand for minerals critical to battery production, Canada's strategic vision, resource wealth and sustainable energy foundation position it as a prominent battery hub on the global stage.
A Glimpse Into Major Investments and Collaborations
In March 2022, Stellantis and LG Energy Solution announced a C$5 billion investment for the establishment of lithium-ion battery production plant in Ontario, Canada. However, tensions arose a few months later when the U.S. enacted the Inflation Reduction Act (IRA), a comprehensive package of incentives promoting clean technology for corporations. Construction of the plant was halted as the companies demanded Canada to provide similar support and incentives that were available in the United States under the newly enacted IRA.
Fast-forward to July 2023, Stellantis and LG Energy announced their decision to recommence construction of the EV battery plant in Ontario after the federal government and the province of Ontario increased subsidies for the project. With this renewed momentum, the battery plant is now scheduled to commence production in 2024. The project is set to generate around 2,500 new jobs and is poised to achieve an annual production capacity exceeding 45-gigawatt hours.
In May 2022, General Motors and POSCO Chemical announced plans to build a plant in Becancour, Canada, for the production of high-nickel cathode active materials (CAM) for EV batteries. Per the contract, the plant will produce 30,000 tons of CAM per year to be used by 220,000 EVs. The plant is expected to become operational by 2025.
In May 2023, the Ministry of Industry in Canada announced that both the federal government and the Quebec province would contribute approximately C$150 million each for the GM-POSCO Chemical joint venture, which is anticipated to generate approximately 200 employment opportunities. The companies also stated that they would expand the production capacity at the chemical battery materials facility.The increased production capacity will support the manufacturing of approximately 360,000 Chevrolet, Cadillac, GMC, Buick, and BrightDrop vehicles annually in the 2025-2030 timeframe in North America.
Last Thursday, Ford in association with SK On, EcoProBM announced plans to construct a C$1.2 billion plant in Becancour for producing EV battery materials. This move aims to establish Becancour as a key hub in the EV supply chain. The factory will manufacture 45,000 tonnes of CAM annually for Ford's EVs, particularly high-quality nickel cobalt manganese for improved performance and range. Canada's federal government and Quebec will each provide C$322 million as conditional and partially forgivable loans. Operational by the first half of 2026, the facility is set to create over 345 jobs. This endeavor represents Ford's first foray into investment in Quebec.
F currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.
Last Words
The abovementioned investments reaffirm Canada's role as the preferred green strategic partner for global automotive leaders. Vertical integration is becoming crucial for automakers with each passing day to support the production of their zero-emissions vehicles. Canada's rich resources, research advancements and collaborative approach position it as a key player in the EV battery industry. With the Canadian government committed to fostering a thriving EV battery industry as reflected in its supportive policies and incentives, investments in the country will only gain traction as automakers prepare to meet the soaring demand for environmentally friendly vehicles.
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