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Qualcomm, GoPro, NVIDIA, Microsoft and Micro Devices highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – November 13, 2019 – Zacks Equity Research Shares of Qualcomm QCOM as the Bull of the Day, GoPro GPRO asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on NVIDIA NVDA, Microsoft MSFT and Micro Devices AMD.

Here is a synopsis of all five stocks:

Bull of the Day:

After a fantastic Q3 earnings season, chipmakers are back in the limelight. The semiconductor industry has illustrated significant gains since the beginning of October, with the iShare Semiconductor ETF up over 12%.

The world’s largest chip players, Intel and TSMC, have finally thrust their toplines back into growth after the cyclical downturn the sector had been experiencing for the past year or so. These chip powerhouses are driving the whole industry towards new highs.

Wireless chip producing leader Qualcomm has surged over 20% since the beginning of October, and this is attributed to more than just a sector rally.

Qualcomm’s September quarter (fiscal Q4) earnings were released last week, and the markets were very excited about a top and bottom-line beat. The firm also guided higher for its December quarter (fiscal Q1) as smartphone demand begins to return with holiday shopping being a key catalyst.

Qualcomm’s Primary Drivers

Qualcomm is the largest supplier of mobile chips helping to support smartphones and the internet of things (IoT) devices. The firm has 3 primary segments:

QTC: supplies wireless chips and software to consumers for devices like smartphones, tablets, laptops, and other wireless devices.

QTL: this segment holds an extensive portfolio of intellectual property that the company allows other enterprises to use by paying them a licensing fee.

QSI: this is the firm’s strategic investment unit. The Qualcomm Ventures arm keeps the firm’s eye on the future, always looking for new opportunities and the next groundbreaking technologies.

Qualcomm’s primary profit driver is derived from licensing (QTL). The firm is an innovative machine that creates state of the art technology, patents it, and then sells the technology through licensing. This gives them a consistent revenue with very little operational overhead. The company commits about 20% of its annual revenue to R&D to continue pushing out cutting edge technology.

The company has recently resolved licensing disputes with Apple (AAPL) and Samsung, though they are still in negotiations with Huawei. Qualcomm is well-positioned for the next wave of mobile technology to propel the smartphone industry back into growth.

The Next Big Thing

5G is the next big thing for wireless technology and expected to drive this business back to robust double-digit growth. 5G is going to start a resurgence in not just smartphone sales but sales in IoT devices like smartwatches, tablets, and other wireless devices. This is all good news for Qualcomm as it will be the technology powering a lot of these.

Qualcomm’s CEO Steven Mollenkopf said that its 5G technology is now expected to be in 230 devices, which is up 47% from the figure quoted last quarter of 150 devices.

Take Away

Qualcomm is an innovations machine that has a diverse portfolio of wireless capabilities that are a necessity in the tech market today. They are well-positioned for the 5G revolution, and I expect this stock to take off once 5G is fully unveiled. Analysts are increasingly optimistic about the future profitability of this firm, propelling this stock into a Zacks Rank #1 (Strong Buy).

Bear of the Day:

It looks like the GoPro fad may be coming to an end. Over the last 5 years, these shares have plummeted over 94%, and any sign of a comeback seems to be dwindling, with its most recent earning report illustrating a 54% year-over-year decline in sales. Sell-side analysts are increasingly pessimistic about this dying brand pushing this stock into a Zacks Rank #5 (Strong Sell).

GoPro is a video camera company meant for active individuals, whether you are in extreme sports, or just an adventurer. This company is known for its fantastic video advertisements on YouTube that people watch for entertainment, and they really are entertaining.

The problem with the business model is that there is no reoccurring revenue, and consumers that have one of GoPro's devices don't have an incentive to get another. Filming action shots are fun, but unless you are making a living from doing so, there is no reason to keep getting the latest GoPro model if the one you own works just fine.

Financials

There was an initial boom in sales when the company first went public in 2014, and expectations were huge for this exciting new retailer. I know quite a few people who bought a GoPro when it first got big.

GoPro was even able to turn a profit in its first two years as a publicly-traded company, but since then, its operational performance has gone south along with its stock price. 

My friends who purchased them had some fun with the devices but were not extreme sports professionals and had no need to upgrade to the company's latest tech. The iPhone/smartphone camera more than suffices for the needs of the average Joe. GoPro's core consumers are just too niche.

GoPro has been losing money annually since 2016, and its cash reserves are dwindling. If this firm isn't able to substantially restructure its business model and push its topline, I fear the company may not exist for much longer.

Take Away

GoPro is trading at extremely low multiples leaving room for opportunity if this company can make systemic changes in its operations, but I wouldn't get my hopes up. I wouldn't recommend any position on GPRO.

Additional content:

Will the Gaming Segment Drive Nvidia (NVDA) in Q3 Earnings?

NVIDIAis slated to report third-quarter fiscal 2020 results on Nov 14.

The company’s fortunes are tied to its gaming segment, which accounted for 50% of the total revenues in the last reported quarter.

The segment, which has been witnessing sluggish performance from past few quarters due to slowdown in gaming desktop GPU shipment, is likely to have recovered in third-quarter fiscal 2020.

Management had expected gaming revenues to normalize between the fiscal second and third quarter.

The Zacks Consensus Estimate for Gaming revenues in fiscal third quarter is pegged at $1.5 billion, which indicates a decline of 13.1% year over year and sequential improvement of 16.7%.

Click here to know how NVIDIA’s overall Q3 performance is likely to be.

NVIDIA Corporation revenue-ttm | NVIDIA Corporation Quote

Strengthening Gaming Business

NVIDIA’s strength in ray tracing technology, Turing GPUs and advanced graphic cards are expected to have driven Gaming revenues in the fiscal third quarter.

The company is likely to have benefited from solid momentum of its real-time ray tracing technology in the fiscal third quarter. Further, ray tracing backup in several GeForce GTX GPUs is expected to have aided the company in gaining traction among game developers.

Additionally, GeForce RTX SUPER GPUs, which deliver power efficiency and ray tracing are expected to have strengthened the company’s footprint in the high-end market. Moreover, the company is likely to have won AAA title deals backed by these Turing-powered GPUs in the fiscal third quarter.

NVIDIA’s partnership with Microsoft for ray tracing technology for Minecraft is testament to the same.

Further, strong demand for NVIDIA GeForce RTX graphic cards are likely to have driven the company’s laptop business in the fiscal third quarter.

Moreover, NVIDIA RTX Studio laptops that are capable of delivering photorealistic ray tracing, AI image enhancement and ultra-high-resolution video, is a key catalyst.

Notably, the company’s major partners have released 10 new NVIDIA RTX Studio laptops and professional-grade mobile workstations in the fiscal third quarter, which in turn is likely to have aided the company in capitalizing on growing demand for gaming laptops.

Additionally, we note that management sounded optimistic regarding the console business on the last earnings call. Consequently, increasing production of Nintendo Switch gaming consoles is likely to have acted as a tailwind for NVIDIA in the fiscal third quarter.

However, NVIDIA’s fiscal third-quarter results are likely to reflect risks related to intensifying competition from Advanced Micro Devices whose expanding GPU portfolio is catering to every price point.

Currently, NVIDIA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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