NVIDIA and MicroStrategy have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 7, 2023 – Zacks Equity Research shares NVIDIA NVDA as the Bull of the Day and MicroStrategy MSTR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Electronic Arts EA, Corsair Gaming, Inc. CRSR and Light & Wonder, Inc. LNW.
Here is a synopsis of all five stocks.
Bull of the Day:
As a big fan of NVIDIA, the leading driver of AI technologies and data-driven scientific discovery, I try to write substantive and meaningful reports about the company every few weeks.
I guided my TAZR Trader portfolio members to buy NVDA shares near the October lows of $120 and we proudly enjoy gains of over 250% hence.
But more important than timing buys and sells, which involve both luck and conviction in a UFC octagon cage-match, is my persistent research into the AI phenomena and what it means for a technological civilization expanding exponentially.
My NVIDIA-AI Research
In March, I published a special report for Zacks Confidential members titled ChatGPT: Time to Become an AI Conversationalist -- when investors still had a great opportunity to buy NVDA shares near $250.
Then in late June, I did a deep dive to explain the huge 40%+ jump in sales growth projections for this year and next after the company's announcement in May of the new Grace Hopper GPU chip-sets that giant tech customers like Google, Microsoft and Meta were lining up for...
Nvidia DGX: Workhorse of AI Will Drive NVDA to $2 Trillion
My reasoning to continue to buy NVDA shares at supposedly "nose-bleed 20X sales valuations" (not our first rodeo here) was that the AI fuse had been lit and if those 3 giants were buying massive quantities of DGX-CUDA stacks -- at $100K to $150K each -- then the entire Fortune 1000 was lining up too, so as not to be left behind in the Generative AI arms race of super-intelligent data systems and models.
Then on July 10, I did a special presentation for our exclusive Zacks Ultimate Members where I I explained the AI revolution that so few understood, especially in light of typical headlines like...
"The NVDA-AI Bubble Makes the Stock Trade for 200 Times Earnings!"
These types of "rear-view" mirror headlines were, of course, ridiculous and so on the following day, I made part of my presentation public in the weekly Zacks Top Stock Picks video which is still available.
You had about one more day to buy NVDA shares at $425 before the big beat-and-raise quarter I expected on August 23. Alas, NVDA shares launched the next day toward $475!
If you want access to the deeper dives from March on ChatGPT or the June "$2 Trillion" path, just email Ultimate@Zacks.com and tell 'em Cooker sent you.
Where Goes NVDA Now Before Earnings?
So if I told clients and investors to definitely buy NVDA at $425 before earnings -- now less than 2 weeks away -- how do I feel now?
Well, with the pullback to $450, my signals are full green-lit for the coming beat-and-raise to push shares toward all-time highs of $500.
And since Wall Street analyst estimates just pushed next year's topline revenue another $2 billion higher to $57B in the past few weeks -- representing 33.7% growth -- I think they are still catching up to this story, just like when I said they were behind in December and March.
Meanwhile, EPS projections for next year just moved 5.7% higher in the past few weeks from $10.19 to $10.77, representing 38.3% growth.
Even expert spreadsheet jockeys who focus on this company for a living don't yet fully understand the scale of NVIDIA AI architectures that will create tremendous demand and add trillions in economic value for every sector and industry. They finally, yet timidly, have stuck their necks out this year with $500 price targets.
If you read and watch the content deep dives I've linked above, you will understand what they are missing.
And then you will see why you want to buy NVDA, and its satellites like Cadence Design Systems, in the next 2 weeks. Additionally, AMD just confirmed their #2 position behind NVDA in GPU "massively parallel architectures" for AI deployment.
If you can't stomach NVDA at 18-20X sales, buy AMD at 7-8X. It trades at a big discount for several reasons, but quality engineering, execution, demand, and talent from Lisa Su isn't one of them.
Disclosure: I own NVDA, CDNS, and AMD shares for the Zacks TAZR Trader portfolio.
Bear of the Day:
MicroStrategy 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 take big 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.
This lack of 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.
For more background on the MSTR love affair with BTC, see this article from my colleague Andrew Rocco right before earnings...
MSTR & COIN: A Preview of Crypto Earnings in a Booming Market
Additional content:
3 Video Game Stocks to Buy as Sales Make Solid Rebound
The U.S. video game industry suffered last year following a solid 2020 and 2021. The Fed’s aggressive interest rate hike policy to curb inflation compelled consumers to spend cautiously, which saw them cut down on purchases of discretionary items.
Also, robust demand for video games during the peak of the pandemic fizzled out as consumers once again started opting for outdoor entertainment. However, the industry is trying to bounce back to its earlier highs, thanks to multiple new title releases that are once again driving sales of both video gaming content and hardware.
Videogame Sales Rebounding
The U.S. video game market grew 9% year over year in June, driven by robust sales of a host of new titles, according to the latest data from Circana. Sales also got a boost from the solid success of PlayStation 5. PS5 emerged as the best-selling console in terms of both the number of units sold and total dollar sales in June.
This significant achievement coincided with a notable increase in consumer spending on PlayStation hardware, hitting a new record high. Total spending on video game content, hardware and accessories was $4.7 billion in June. This was also the second-best June ever recorded.
Moreover, spending on video games totaled $26.6 billion in the first half, a 2% jump from the previous year.
According to Circana, Diablo 4 claimed the top spot as the best-selling game in the United States in June. This action role-playing game developed by Blizzard Entertainment has now secured the position of the third best-selling game of the year, falling behind Hogwarts Legacy and The Legend of Zelda: Tears of the Kingdom.
Video game sales are trying to make a slow but steady rebound. Higher prices saw people spending less on discretionary items like video games last year. Instead, consumers limited their spending to staples.
Also, a dearth of new title releases impacted sales last year. However, this year has been good for the videogame industry. Inflation has declined sharply to 4.8% from the 40-year-high of 9.1% in June 2022. Although the Fed increased interest rates by 25 basis points in July, it now believes that the economy is going to have a softer landing than expected earlier.
This has raised hopes that the central bank may finally end its monetary tightening policy soon. Lower interest rates will help boost purchasing power. Also, personal income and spending have been on the rise. This bodes well for the video game industry.
Our Choices
The video game industry is making a steady rebound and is expected to grow as more new titles are released in the second half of the year. Given this scenario, it would be ideal to invest in these three video game stocks.
Electronic Arts is a leading developer, marketer, publisher and distributor of interactive games (video game software and content). EA distributes gaming content and services through multiple distribution channels as well as directly to consumers (online and wirelessly) through its online portals. EA’s games can be played on video consoles, personal computers, mobile devices, tablets and electronic readers.
Electronic Arts’ expected earnings growth rate for the current year is 25%. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the past 60 days. Currently, EA holds a Zacks Rank 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Corsair Gaming, Inc. designs, markets and distributes gaming and streaming peripherals, components and systems principally in the United States and internationally. CRSR’s offerings include gaming keyboards, mice, headsets, and controllers, along with capture cards, stream decks, USB microphones, studio accessories, and EpocCam software.
Corsair Gaming’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the past 60 days. CRSR presently has a Zacks Rank 2.
Light & Wonder, Inc. is a leading developer of technology-based products and services and associated content for the gaming, social and digital gaming industries globally. LNW operates under three operating segments – Gaming, SciPlay and iGaming.
Light & Wonder’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days. LNW presently has a Zacks Rank 2.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Electronic Arts Inc. (EA) : Free Stock Analysis Report
MicroStrategy Incorporated (MSTR) : Free Stock Analysis Report
Corsair Gaming, Inc. (CRSR) : Free Stock Analysis Report
Light & Wonder, Inc. (LNW) : Free Stock Analysis Report
