Could Babcock & Wilcox (BWXT) Benefit from China's Nuclear Revolution?

Posted on by The INO.com Team

Thorium, a slightly radioactive, silvery metal, is found abundantly in nature: three to four times more than uranium. Despite its abundance, thorium has seen limited use in industry or power generation because it isn't directly a nuclear fuel. However, its potential to create fissile material makes it a promising candidate for long-term energy solutions.

Upon recognizing this potential, China has been quietly working on developing a molten salt nuclear power plant fueled by thorium. The project has been in the works for years, with a prototype reactor unveiled in 2021. Now, China aims to bring the world’s first thorium-fueled molten salt reactor online by 2025 in the Gobi Desert, promising a safer and greener alternative to traditional nuclear power. Experts estimate that China’s thorium reserves could power the nation for 20,000 years.

By 2029, China plans to make the Gobi Desert reactor fully operational, generating 60 megawatts of power, with commercial reactors potentially following by 2030. Moreover, the country aims to have 150 advanced reactors in operation by 2035, far outpacing the United States, which currently has 93 reactors. According to a study by the Information Technology & Innovation Foundation, the U.S. could lag China by up to 15 years in developing advanced nuclear technologies.

The global energy landscape is shifting as China races to establish itself as a leader in next-generation nuclear technology. One company well-positioned to benefit from this nuclear revolution is BWX Technologies, Inc. (BWXT).

With a history dating back to the 1850s and a legacy of innovation in the nuclear industry, BWXT is well-positioned to capitalize on the growing interest in thorium reactors. In 2015, BWXT sharpened its focus on government and nuclear operations by spinning off its power generation business, allowing it to zero in on opportunities like those emerging from China's ambitious plans.

BWXT’s Strategic Moves in the Nuclear Landscape

Over the past few months, Babcock & Wilcox has been actively capitalizing on the rising interest in nuclear technology, driven by global security needs, clean energy initiatives, and medical advancements.

The company's subsidiary, Nuclear Fuel Services, Inc., recently secured a contract with the National Nuclear Security Administration (NNSA) to conduct a yearlong engineering study to explore deploying a centrifuge pilot plant to establish a domestic uranium enrichment capability for national security purposes. Given BWXT's specialized infrastructure and expertise in handling uranium, this aligns perfectly with their strategic focus on strengthening the nuclear fuel cycle for defense purposes.

On the medical front, BWXT Medical Ltd., another subsidiary, has entered into a Master Services Agreement (MSA) with NorthStar Medical Radioisotopes, LLC. This partnership focuses on producing actinium-225 (Ac-225), a vital medical isotope in targeted cancer therapies. The collaboration underscores BWXT's commitment to advancing medical technologies, particularly cancer treatment and diagnostic imaging.

Moreover, on June 6, the company was awarded the second phase of a contract with the Wyoming Energy Authority to evaluate the feasibility of deploying small-scale nuclear reactors in Wyoming to bolster the state’s energy resilience. Further expanding its technological reach, BWXT, in collaboration with Rolls-Royce, secured funding from the UK Space Agency’s International Bilateral Fund (IBF). This $1.5 million award supports joint efforts to advance nuclear fission systems for space missions, a venture that could benefit both UK and U.S. space programs.

Earlier this year, Babcock & Wilcox made a significant investment in expanding its Cambridge manufacturing plant in Canada. The C$80 million ($59.28 million) expansion is expected to increase the facility’s footprint by 25%, enhancing its capacity to meet the growing demand for nuclear components, including those for Small Modular Reactors and advanced reactors.

Together, these developments demonstrate the increasing appetite for nuclear solutions across the global security, clean energy, and medical markets, ultimately driving growth opportunities for BWXT.

Bottom Line: Should You Invest in BWXT?

Financially, Babcock & Wilcox is on a solid footing. In the second quarter of 2024, the company reported a revenue of $681.50 million, up 11% year-over-year and above the analysts’ expectations of $639.19 million. On the bottom line, its non-GAAP attributable net income amounted to $75.40 million or $0.82 per share, indicating an increase of 26% from the prior year. It also surpassed the consensus EPS estimate of $0.74 per share, which is impressive.

Buoyed by this performance, BWXT raised its EPS guidance for 2024 from $3.05 - $3.20 to $3.10 - $3.20, signaling confidence in its trajectory. The company’s diverse footprint across nuclear technology sectors gives it a broad runway for growth. It is well-positioned to capitalize on major trends, such as extending reactor lifespans, securing nuclear fuel processing contracts, and leading clinical trials for cancer treatment radioisotopes.

Positioned as a leader in nuclear technology, BWXT benefits from trends in defense, energy, and medicine. Its strong presence in defense, particularly in submarine construction, aligns with the growing need for green energy and medical radioisotopes. Analysts remain optimistic about BWXT's long-term prospects, citing robust demand in naval shipbuilding, nuclear propulsion, and potential government contracts, supporting a Buy rating with price targets around $113-$115.

With BWXT outpacing the market with gains of over 32% so far this year and nearly 40% over the past 12 months, now could be an opportune time to consider adding this stock to your portfolio.

NVDA’ Blackwell Delay: Is It Time to Rotate Into AMD?

Posted on by The INO.com Team

NVIDIA Corporation (NVDA), the AI darling, recently hit a rough patch. A report from The Information revealed that Nvidia’s highly anticipated Blackwell series chips are delayed due to design flaws, causing a sharp 15% drop in the stock over the past week. Even with this dip, the stock is still up more than 170% over the past year, but as we know, past performance isn’t a guarantee of future returns.

So, what’s going on with Nvidia? And more importantly, is it time to consider alternatives?

Dark Clouds Are Looming Over the Future of Nvidia

Back in March, NVDA announced its Blackwell series, boasting capabilities that promised to build and operate real-time generative AI on trillion-parameter large language models at a fraction of the cost and energy consumption of its predecessor. But fast forward a few months, and the picture isn't as rosy.

According to the report, the company has informed major customers, including tech giants like Alphabet Inc. (GOOGL) and Microsoft Corporation (MSFT), that shipments of its Blackwell AI accelerator will be delayed by at least three months due to design flaws. It appears to involve Taiwan Semiconductor Manufacturing's new packaging technology, which NVDA is one of the first to use, and issues with the placement of bridge dies connecting two GPUs.

This isn’t just a minor hiccup. The delay could throw off the plans of customers such as Microsoft and Meta Platforms, Inc. (META), who have invested billions in Nvidia’s new GPUs to drive their AI services. The worry is that these delays might prevent these companies from deploying large clusters of the new chips in their data centers by the first quarter of 2025, as they had hoped.

Design flaws aren’t something that can be fixed overnight, which explains the significant delay. Nvidia, for its part, hasn’t outright confirmed or denied the delays but did say that “production is on track to ramp later in 2024.” However, with only a few months left in the year, this sounds more like an early 2025 release.

The delay has led tech companies to look for alternatives from NVDA’s competitors, such as Advanced Micro Devices, Inc. (AMD). MSFT and GOOGL, for example, are already working on next-generation products with AMD.

While Nvidia still dominates the data center GPU market, the Blackwell delay could weigh on its stock price and reputation. It’s arguably the most significant setback NVDA has faced since the AI boom began, and it might just be the moment for AMD to shine.

The Future of Advanced Micro Devices

With a market cap of $3.18 trillion, NVDA’s growth prospects seem more limited compared to AMD, which could see its valuation double from its current $250 billion as it gains momentum in the data center space.

In the second quarter, AMD’s data center revenue surged 115% year-over-year to $2.83 billion, accounting for nearly half of its total revenue. The Mi300 series brought in over $1 billion in quarterly revenue for the first time, with its customer base expanding as Microsoft became the first cloud provider to offer general availability for the Instinct Mi300X.

The significant increase in AMD’s data center sales, driven by AI applications, is expected to boost profits further, as this segment typically yields higher margins. Additionally, the company's recent acquisition of Silo AI, Europe's largest private AI lab, will enhance its capabilities in generative AI, including inference, training, and large language models.

Furthermore, Advanced Micro Devices’ client revenue rose 49% year-over-year to $1.49 billion, though with slimmer margins than its data center business. The recent drop in the gaming and embedded segments will likely bottom out soon, potentially lifting overall results. Even modest gains could significantly boost AMD's bottom line. The company reported net income of $265 million or $0.16 per share, up from $27 million or $0.20 per share recorded last year.

Investors are keen to see AMD challenge NVDA with its MI300X AI chip and demonstrate growth in its data center AI business. On the other hand, Street expects its revenue and EPS for the current year (ending December 2024) to increase 12.9% and 27.6% year-over-year to $25.62 billion and $3.38, respectively. If AMD can exceed expectations, the stock could experience significant gains in the coming months. Earlier this year, the company projected $4 billion in AI chip sales for 2024, representing about 15% of its expected revenue.

Is It Time to Ditch NVDA and Buy AMD?

Delays in Blackwell chip could impact NVDA’s market share and growth. If the delay is short, the stock might have minimal impact on its fiscal 2025 results. However, if it extends beyond three months, it could weigh heavily on the stock, especially as some analysts were anticipating a quicker resolution.

Additionally, concerns about whether the design flaw could lead to chip failures or affect production yields add to the uncertainty. Nvidia's decision to pause production and address the issue is a smart move, but it highlights the risks of its aggressive development timeline, which has been shortened from two years to one. While this strategy could pay off, it also increases the risk of errors or delays.

On the other hand, AMD is well-positioned to benefit from NVDA's ongoing headwinds. With its MI300X AI chip gaining traction and strong data center growth, Advanced Micro Devices could capture some market share from Nvidia. Given this backdrop, it might be the right time to consider rotating out of NVDA and into AMD, especially for investors looking to capitalize on the AI-driven growth in the semiconductor sector.

China's Naval Expansion: Why Defense Stocks Like NOC & LMT Are Poised for Growth

Posted on by The INO.com Team

In the first half of 2024, China's shipbuilding industry secured nearly 75% of new global orders, demonstrating the nation's expanding manufacturing power. Ship completions surged by 18.4% year-over-year to 25.02 million deadweight tons (dwt), which represents 55% of the global total during this period. Moreover, the industry's order backlogs increased by 38.6% to 171.55 million dwt. China’s dominance is no fluke, the country leads in 14 out of 18 major ship types for new orders.

But what’s driving this rapid ascent? It’s a mix of cutting-edge technology, surging global demand, and the unmatched efficiency of Chinese shipyards. By adopting advanced construction techniques and digital tools, China has managed to build ships faster and better, which has translated into booming profits. In fact, the industry’s profits for the first five months of 2024 came in at 16 billion yuan ($2.24 billion), up 187.5% year-over-year.

China's defense industry is rapidly advancing, producing increasingly larger and more capable warships at an impressive pace. For instance, the construction of the Yulan-class landing helicopter assault (LHA) ship, also known as the Type 076, at the Changxing Island Shipbuilding Base. This vessel is set to be a game-changer, poised to become the largest amphibious assault ship in the world.

Satellite images from July 4 show the vessel's flight deck spans over 13,500 square meters, which is nearly the size of three American football fields. That’s significantly larger than the U.S. America-class LHAs and Japan’s Izumo-class carriers and much bigger than its Chinese predecessor, the Type 075.

The Type 076 isn’t just about size; it’s about capability. With room for dozens of aircraft, drones, and amphibious landing craft, plus accommodations for over 1,000 marines, this ship is set to revolutionize the People’s Liberation Army’s (PLA) power projection. Its expansive flight deck and roomy internal hangar will offer enhanced capacity and flexibility, making it a formidable addition to China’s naval arsenal.

Images also reveal that the drydock where the new 076 class is being constructed opened only in October as part of a new port expansion. This rapid production is giving Beijing a significant edge, with the potential to outpace its rivals like the United States.

Since 2019, China has launched four Type 075 vessels, with two now combat-ready and four more on order. Although the U.S. Navy leads in total warship tonnage, China has surpassed the U.S. in the number of warships over 1,000 tons, and in combat logistics and support vessels.

The real worry for U.S. officials is China's shipbuilding capacity. According to U.S. Naval Intelligence, China’s shipbuilding capacity is now 632 times greater than the U.S., supported by a vast network of efficient shipyards.

In the past decade, China has launched 23 destroyers and eight guided-missile cruisers, while the U.S. has launched only 11 destroyers and none of the cruisers. This booming production capability, backed by a robust civilian shipbuilding industry, is raising serious concerns in Washington.

As nations respond to China’s expanding naval prowess, there is likely to be increased demand for advanced defense technologies and military solutions. This heightened demand could drive growth in defense stocks, reflecting the broader trends in global military strategy and procurement.

Therefore, investors and defense analysts are turning their attention to how companies like Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC) are positioned to capitalize on these developments. With that in mind, let’s dig deeper into the fundamental strength of the featured stocks in detail.

Lockheed Martin Corporation (LMT)

Security and aerospace company LMT focuses on research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.

LMT’s net sales increased 8.6% year-over-year to $18.12 billion in the fiscal 2024 second quarter (ended June 30). Its consolidated operating profit grew marginally from the year-ago value to $2.04 billion, while its non-GAAP net earnings amounted to $1.64 billion in the same period. Also, the company’s EPS came in at $6.65, up 3.3% year-over-year.

While analysts predict a slight 4.6% drop in EPS for the year ending December 2024, its revenue is expected to grow by 5.5% year-over-year to $71.25 billion. For fiscal 2025, forecasts suggest revenue and EPS will hit $74.16 billion and $28.01, respectively.

Regarding rewarding shareholders, Lockheed Martin offers a stable dividend with a four-year average yield of 2.66% and a payout ratio of 44.3%. LMT’s current annual dividend of $12.60 translates to a 2.26% yield at the prevailing share price. Moreover, the company has increased its dividend payouts at a CAGR of 6.9% over the past three years.

In terms of price performance, the stock has gained nearly 30% over the past six months. As defense budgets rise globally, driven by geopolitical tensions, Lockheed Martin is well-positioned to benefit and deliver stable returns to your portfolio.

Northrop Grumman Corporation (NOC)

NOC operates as a global aerospace and defense technology company through four segments: Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems. The company leads in satellite manufacturing and space technology, contributing to missions like NASA’s Artemis program.

Recently, the company declared a quarterly dividend of $2.06 per share on the common stock, in consistent with its 10% increase announced on May 14. This dividend is payable to its shareholders on September 18, 2024. With a forward annual dividend of $8.24 per share and a yield of 1.62%, Northrop not only rewards shareholders but also boasts 21 years of consecutive dividend growth.

Financially, NOC is on a solid footing. In the second quarter (ended June 30, 2024), its total sales increased 6.7% year-over-year to $10.22 billion, while its total operating income rose 12.7% from the year-ago value to $1.09 billion. Net earnings for the quarter came in at $940 million and $6.36 per share, reflecting an increase of 15.8% and 19.1% from the same period last year, respectively. Also, its free cash flow improved by 79.7% from the prior-year quarter to $1.10 billion.

Street expects NOC’s revenue to increase 5.2% year-over-year in the current year (ending December 2024) to $41.34 billion, while its EPS is expected to grow by 8.2% from the prior year to $25.20 in the same period. For the fiscal year 2025, its revenue and EPS are expected to reach $42.92 billion and $27.69, registering an increase of 3.8% and 9.8%, respectively.

Moreover, NOC’s shares have gained more than 16% over the past month and nearly 9% year-to-date, making it a compelling option in a rapidly evolving defense landscape.

eBay’s Revenue Boost: Will Dropping AmEx Lead to Lower Costs & Higher Margins?

Posted on by The INO.com Team

Imagine logging into eBay, excited to use your American Express card to grab that coveted item, only to find out eBay no longer accepts AmEx. This scenario became a reality on August 17, 2024, when eBay Inc. (EBAY) officially stopped accepting American Express Company’s (AXP) credit cards due to what they call “unacceptably high” processing fees.

eBay made this move after months of criticism over rising credit card transaction fees. According to eBay, despite technological advancements and increased investment in fraud protection, fees for processing transactions have only increased. They argue that this trend is due to a lack of competition among credit card issuers, which keeps costs high. This decision was made public over two months ago, giving users time to prepare for the switch.

With $10.11 billion in revenue last year, EBAY is pushing for stricter regulations to encourage competition and “help reduce transaction processing costs for merchants and their customers.” Credit card processing, or swipe fees, are what businesses pay every time a customer uses a card. These fees can range from just over 2% of each transaction to as high as 4% for premium cards. These fees are among the highest operating costs for businesses, often leading to higher consumer prices and reduced sales.

American Express is known for its high fees, which is why eBay decided to cut ties. EBAY’s decision came after negotiations between the two companies broke down. Despite the move, AXP downplayed the impact, stating that “eBay represents less than 0.2%” of its total network volume. They expressed disappointment but insisted that eBay’s decision limits customer payment options and “take away the service, security, and rewards that customers value when paying with American Express.”.

Is It a Big Hit to Either Company?

Surprisingly, while EBAY and AXP part ways, Amex isn’t too worried. The company’s fiscal 2024 first quarter report revealed that over 60% of new account openings came from Millennials and Gen Z, two demographics they’re keen to keep growing. But the big question is, are these youngsters spending their money on eBay?

Last month, eBay adjusted its sales forecast to $2.50-$2.56 billion, compared to $2.57 billion recorded in the second quarter (ended June 30, 2024), hinting that sales might be slipping. However, the company’s stock has been on an upward trend this year. EBAY shares have gained more than 35% year-to-date and nearly 12% over the past three months.

According to eBay, most customers are “willing to use alternative payment options,” like Visa, Mastercard, and Discover. So, while ditching Amex might be inconvenient for some, most eBay shoppers are likely to switch to another payment method without much fuss.

Despite inconsistent consumer spending, the company managed to squeeze out profits with a 1.2% year-over-year increase in its net revenue of $2.57 billion. It wasn’t a huge leap, but it was enough to exceed analyst expectations of $2.53 billion. Its gross merchandise volume (GMV) also inched up by just 1% from the prior year to $18.42 billion. In the earnings release, eBay cited “an uneven discretionary demand environment in our major markets” as a reason for the sluggish figures.

On the bottom line, EBAY reported a non-GAAP net income of $602 million and $1.18 per share, up 8.5% and 14.6% year-over-year, respectively. It also surpassed the consensus EPS estimate of $1.12 per share, which is impressive.

Analysts seem to expect this trend of modest revenue growth and stronger earnings to continue. They anticipate EBAY’s full-year revenue to increase by just 1.9% year-over-year to $10.31 billion. However, its earnings per share is forecasted to grow by 13.5% this year to $4.81 and 7% in 2025 to $5.14.

Could This Be a Tipping Point for Amex?

Amex has been riding high in 2024, but eBay’s decision to cut ties with the credit card giant could be a sign of a broader shift. That raises the question: Will other companies follow suit, or is this just a one-time loss?

For large retailers, credit card processing fees are significant, typically ranging from 1.5% to 3.5% per transaction. These fees quickly add up, turning into billions in profit for credit card companies each year. Amex, however, tends to charge about 1% more per transaction compared to competitors like Visa, Mastercard, or Discover. Because of this, some local businesses and select merchants have stopped accepting Amex cards altogether. That’s a bummer for loyal Amex users.

Shares of AXP took a hit recently after Bank of America Securities analysts raised concerns that the stock might be overvalued, with limited room for further growth. The investment firm downgraded Amex from a “Buy” to a “Neutral” rating, maintaining a price target of $263 per share, signaling caution about the company’s future potential.

eBay’s Cost-Saving Strategy in a Volatile Market

As the Federal Reserve considers lowering interchange fees, eBay’s decision to drop American Express highlights a broader effort to reduce costs amid economic uncertainties. With inconsistent consumer spending and inflationary pressures, particularly in markets like the U.K. and Germany, eBay is strategically reducing costs to bolster profitability.

By cutting high transaction fees, eBay could reduce overhead and better position itself in the fiercely competitive eCommerce market. While the initial reaction might include some pushback from loyal Amex users, the long-term impact on EBAY’s marketplace could be decidedly positive. As the payments landscape continues to evolve, this decision may signal the start of broader changes designed to create a more competitive, cost-effective, and user-friendly environment for both consumers and merchants.

 

 

BYD Partners with HUBC: A Strategic Move or Risky Bet?

Posted on by The INO.com Team

The China-Pakistan Economic Corridor (CPEC) has been a major project under China’s Belt and Road Initiative (BRI), channeling billions of dollars into Pakistan’s infrastructure, especially its power sector. Over the past decade, these investments have resulted in the installation of numerous power plants, raising Pakistan’s total power capacity to a significant 42,000 MW.

However, Pakistan’s economic slowdown has kept power usage far below this level, often only reaching around 20,000 MW. This mismatch means the country is stuck paying for all that unused capacity, straining its finances.

Recently, Finance Minister Aurangzeb managed to renegotiate some of the hefty debts owed to Chinese power companies, providing short-term relief. Still, the core issue of overcapacity remains unresolved, leaving Pakistan with a tricky financial balancing act.

BYD’s Entry: A New Chapter in Pakistan-China Relations?

As the country grapples with its energy dilemma, China seems to seize an opportunity to further expand its economic influence. BYD Company Limited (BYDDY), a global leader in electric vehicles (EVs), is set to launch its vehicles in Pakistan, marking a significant milestone in the country’s automotive industry. That isn’t just about introducing new cars; it's a strategic move to use Pakistan’s surplus energy capacity.

BYDDY is teaming up with Hub Power Company Limited (HUBC) for its launch in Pakistan. HUBC (through its subsidiary Mega Motors Limited) has a solid history of collaborating with Chinese companies on power projects, including partnerships with China Power Hub Generation Company and China National Machinery Industry Corp (Sinomach). The details on whether BYD will build an assembly or manufacturing plant are still under wraps, but China's extensive involvement in Pakistan’s power sector means energy won't be a stumbling block.

The Chinese EV giant recently unveiled its plans to expand its operations in Pakistan. The company is set to launch its own car production facility in the country, marking a major step as the first significant player in the electric vehicle sector to enter the Pakistani market. Partnering with Mega Motors, BYDDY will introduce three of its models, including two SUVs and a sedan, starting in the fourth quarter of 2024.

The company also revealed that it will open three flagship stores in major cities like Karachi, Lahore, and Islamabad. While Pakistan currently lacks a robust EV charging infrastructure, BYD’s move includes plans for Hubco to establish fast-charging stations across major cities, motorways, and highways when the new assembly plant opens in 2026.

Hubco’s CEO, Kamran Kamal, hailed this venture as a “landmark investment,” emphasizing its role in boosting Pakistan’s green transportation options.

This strategic entry not only addresses the country's air pollution and greenhouse gas emissions but also promises to offer cleaner, more efficient alternatives to traditional gasoline and diesel vehicles. With BYD’s innovative EVs hitting the market, Pakistan is poised for a significant shift towards sustainable transportation.

Bottom Line

BYD’s partnership with HUBC and its entry into the Pakistani market is a bold strategic move underpinned by China’s extensive investments in Pakistan’s power sector. This collaboration aims to capitalize on Pakistan’s excess energy capacity and introduce a new wave of electric vehicles to a market ripe for innovation. On the surface, it appears to be a well-calculated move to drive industrial growth and enhance economic activity in Pakistan.

However, the venture is not without its risks. The increased dependency on Chinese investments could deepen Pakistan’s financial obligations and impact its economic sovereignty. As BYD rolls out its vehicles and infrastructure projects, the real challenge will be balancing the potential economic boost against the risks of heightened dependency and financial strain. Whether this partnership will ultimately prove to be a shrewd strategic play or a precarious gamble remains to be seen.