NVIDIA and Taiwan Semiconductor have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – September 7, 2023 – Zacks Equity Research shares NVIDIA NVDA as the Bull of the Day and Taiwan Semiconductor TSM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Evolution Petroleum EPM, Northern Oil and Gas NOG and Barrick Gold GOLD.
Here is a synopsis of all five stocks:
Bull of the Day:
I last wrote about NVIDIA as the Bull of the Day in early August to preview their Q2 report and to explain why I thought investors should be buying any dips back toward $425.
I surmised "Shares have ramped, but analysts still underestimate the King of AI and its new paradigm."
Then in the weeks leading up to the company's August 23 report, I kept encouraging my TAZR Trader members to buy the dip while they had the chance because I expected a bigger beat-and-raise quarter than most of Wall Street was imagining.
Here were 3 points I highlighted in an August 22 note...
The big story Monday (8/21) was the monster +8.5% rally in NVDA, after HSBC raised their PT to $780.
The problem is that the analyst, Frank Lee, was the same guy who said "Sell" in November at $120 and then stayed at Sell in March when we were saying "BUY MOAR!"
So this is really just one of those "I was way wrong so now I'm gonna steal the headlines" calls.
Don't get me wrong -- I see $750 in the next 18 months if the demand train keeps rolling.
But it will be a somewhat bumpy ride.
Case in point, this morning, we saw another gap open to nearly $482 (new highs by a buck) and a quick fade as last week's smart bulls cashed some quick gains. From $475 to $405 and back in a month is pretty volatile.
So all this frenzy means it's time to talk a bit about what to expect.
First, we were right in June about planning for a big beat and raise quarter, and why you should still buy at $425.
My thesis was that the Street was way-underestimating what was coming with another big beat-and-raise due to off-the-charts demand for DGX systems built with Hopper and Ampere cards -- and anything else left in inventory.
The past two months have been all about analysts catching up to that reality.
Second, the flurry of volatility here is largely psychological (good ole greed and fear), but also large firms getting better positioned in options ahead of tomorrow.
Third, there is a possibility that lots -- not all -- of the coming good news is priced-in at $475.
You see, as analysts wrapped their spreadsheets around demand, supply, pricing, and what those smoothed trajectories look like over the next 2-4 quarters, they can't extrapolate that blow-out beat-and-raise numbers will continue into CY '25.
Some of course will do that. But what matters is what the majority do.
As I talked about last week, I expect a beat to Q2's guide of $11B by at least $1B. And the Q3 guide could be $14B or higher (consensus $12B).
Most of the Street isn't as optimistic. So if we get this kind of beat-raise on the topline, the stock should go to new highs above $500.
But I can't know what Q4 looks like, let alone next year. And maybe that's what matters most right now.
Also worth noting is that next year's topline consensus just crept up another $5B to $60B, for 38% growth.
Either way, I'm glad to have kept you aboard the Jensen Huang AI Starship and deciding whether we take some profits at $500 or wait until $550 is a good problem to have.
(end of TAZR 8/22 commentary excerpts)
I share this to show you some good and proven ways to always think about NVIDIA as an investor moreso than a trader.
Because look what happened with the Starship Jensen's results and guidance: They blew the roof off with a roughly $2 billion beat on the Q2 top line and then forecasted almost a $4 billion beat for the current Q3.
This means that the crowd of spreadsheet jockeys (Wall Street analysts), who have been underestimating NVIDIA's growth in hyper-scale accelerated computing, have spent the last two weeks punching new, much more bullish assumptions into their models that keep NVDA a Zacks #1 Rank.
Here are where their consensus revenue projections stand now on the Zacks Detailed Estimates page...
FY'24 (ends January): $53 billion for 97% growth
FY'25 (begins in Feb): $76 billion for 43% growth
And there's profit optimism too...
FY'24 EPS consensus just moved from $7.79 to $10.46
FY'25 EPS consensus just moved from $10.77 to $15.48 (48% annual growth after the current year's 210%+ advance!)
Based on these revenue and profit estimates for next year, NVDA trades at 30X EPS and only 16X sales. As I described in my June video and article, NVDA should continue to trade at a premium of 20X sales as it progresses to $100 billion in annual revenue...
Nvidia DGX: Workhorse of AI Will Drive NVDA to $2 Trillion
For the past seven years since I first learned about what Jensen was creating from GPU gaming cards, I've said that the key to NVIDIA innovation dominating the world of hyperscale accelerated computing revolved around three factors...
1) The capabilities of GPU stacks creating "massively parallel architectures" for harnessing big-data with modeling, automation, and simulation
2) The CUDA hardware + software stack that enables fast training and deployment of machine learning and deep learning models
3) The evangelism of thousand of developers who get ingrained in the platform tools and never want to leave that ecosystem
Long-time Apple evangelist Gene Munster recently said the same thing...
"CUDA has created a moat around Nvidia's chip business. It would be difficult to get developers to switch to a different platform."
And that's why observers like me and Dan Ives of Wedbush think that this is the iPhone moment for NVIDIA and its AI tools.
In conclusion, let's hear from the AI wizard himself, Jensen Huang...
"The world has something along the lines of about a trillion dollars' worth of data centers installed in the cloud and enterprise. And that trillion dollars of data centers is in the process of transitioning into accelerated computing and generative AI."
I think this translates into NVIDIA hitting $100 billion per year in revenue much sooner than my 2026 projection in June. So don't miss your chance to buy NVDA under $450 again. I'm pretty sure you won't see it below $400 ever again.
Bear of the Day:
Taiwan Semiconductor, the giant $500 billion microchip foundry for Apple (AAPL) and NVIDIA (NVDA), has slipped into the cellar of the Zacks Rank as analysts ratcheted down EPS estimates in the past two months.
Despite TSM's importance as the premier "fab" for the world's top technology companies, the current year profit consensus has fallen from $5.32 to $4.82, representing a -26% annual drop.
And next year has also been taken down from $6.26 to $5.79. At the same time, the 2024 revenue consensus of $79.6 billion would only represent a 4.6% advance over the 2022 sales.
Has Semiconductor Demand or Production Peaked?
This might be a really important question for technology investors as TSM is the key foundry for Apple and NVIDIA.
But the other underlying issues involve both geopolitics and economic trade barriers as chip designers seek to reduce their exposure to the China-Taiwan conflicts and supply chain disruptions by building significant silicon wafer fabrication equipment (WFE) capabilities on domestic shores like the US.
I recently touched on these dynamics in my Bear of the Day article on GlobalFoundries (GFS) where I discussed how this US-based Semi fabricator fights to draw new business in a global nanometer AI-chip war.
Big Picture for TSM: Honey, I Shrunk the Kids!
The article linked above has significant insights from one of my favorite Semi analysts, Mark Lipacis of Jefferies, where he describes the landscape of "trailing node" in the semi supply chain.
I'm going to provide an excerpt here but I want to emphasize that what makes TSM special is their virtual monopoly on technological capabilities to fabricate sub-10 nanometer architectures that give Apple and NVIDIA the "honey I shrunk the kids" compact power they crave.
WFE Demand Historically Driven By Leading Edge and Memory
Lipacis describes 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."
But Trailing Node is a New Driver of WFE, Driven by an IoT Computing Era
"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 GlobalFoundries article excerpt)
Bottom line on TSM: They have the premier foundry for sub-10nm chipsets and NVIDIA's Jensen Huang has a close relationship since he is also from Taiwan. As long as international tensions don't hurt Taiwan's capacity to produce, the stock should trough soon.
Additional content:
3 Stocks to Make the Most of the Surge in Crude Oil Prices
Oil prices are at present trending higher as Saudi Arabia and Russia extend output cuts. Improvement in China's economic condition coupled with hopes that the Federal Reserve will pause interest rate hikes soon also triggered a rally in crude prices.
This means stocks such as Evolution Petroleum, Northern Oil and Gas and Barrick Gold are poised to gain.
Oil Prices Scale Upward
The West Texas Intermediate (WTI) crude increased 1.3% to $86.69 a barrel on Sep 5, its highest level since Nov 15, 2022.
When it comes to the global oil benchmark, Brent crude jumped almost 3.6% to more than $90 a barrel in its last trading session and settled at its highest level since Nov 18, 2022.
Oil prices moved northward following bullish technical patterns. On Aug 17, the prices of WTI and Brent crude formed golden crosses, a tell-tale sign that oil prices are poised to rise sharply across the globe.
Many analysts are now expecting oil prices to break several resistance levels and rally to $100-102 a barrel shortly.
What Led to the Rise in Oil Prices?
The tightening of supply through production cuts by major oil producers boosted the price of oil lately. Saudi Arabia recently said that the country is willing to extend its voluntary production cut of 1 million barrels per day for another three months till the end of this year.
Similarly, Alexander Novak, Russia's Deputy Prime Minister categorically said the country is willing to curb its oil exports by 300,000 barrels a day until the end of December 2023.
China's lackluster economic growth for more than a year, meanwhile, didn't bode well for global oil prices. However, an unexpected expansion in the world's biggest oil importer's manufacturing activity in August boosted oil prices as well. After all, any economic expansion will provide China the wherewithal to import oil and perk up demand.
At the same time, the likelihood of a pause in interest rate hikes by the Fed also lifted global oil prices. This is because higher interest rates generally tend to elevate costs and slow down the economy, which translates to less demand for oil.
Nonetheless, the Fed seems largely done with its aggressive monetary tightening measures as the labor market cooled down last month (read more: 3 Winners as Cooling Jobs Market Lifts Rate Hike Pause Hopes).
How to Play Oil's Northward Journey
It's quite apparent that major oil producers and explorers, pipeline owners, and rig operators will witness an improvement in their profit margins as oil prices move northward. Prominent among them are Evolution Petroleum, and Northern Oil and Gas.
Evolution Petroleum acquires and develops oil and gas fields. The company has a Zacks Rank #2 (Buy). The company's expected earnings growth rate for the current year is 15.6%. EPM shares have gained 31.1% over the past five years. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here.
Northern Oil and Gas is also engaged in the acquisition, exploration, development, and production of oil and natural gas properties. The company has a Zacks Rank #3 (Hold). The company's expected earnings growth rate for the current year is 12.3%. NOG shares have gained 15.9% over the past five-year period.
It's also worth mentioning that the prices of indispensable commodities increase as crude oil prices move north. This, in turn, leads to a rise in the price of gold as it acts as a hedge against inflation.
As the bullion metal glitters, shares of gold mining companies like Barrick Gold are well-positioned to gain traction.
Barrick Gold is the largest gold mining company in the world and has mining operations in the United States. The company has a Zacks Rank #3. The company's expected earnings growth rate for the current year is 18.7%. Its estimated earnings growth rate for the next year is 28.1%. GOLD shares have gained 4.6% over the past five years.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
Evolution Petroleum Corporation, Inc. (EPM) : Free Stock Analysis Report
Northern Oil and Gas, Inc. (NOG) : Free Stock Analysis Report
