Tag: $1 trillion

Rocket Lab's Meteoric Rise: Still Room to Grow or Time to Watch?

Posted on by The INO.com Team

Rocket Lab USA, Inc. (RKLB), a leader in small satellite launch services, has seen its stock soar by more than 180% over the past six months. This dramatic rise was driven by several key developments in both its contract wins and advancements in the space sector. As the company enters its next growth phase, investors are wondering whether there’s still room to grow or if the stock has reached a peak after this recent rally.

On the one hand, Rocket Lab’s proven track record and leadership in the small launch market position it as a pivotal player in the expanding space economy. However, the sector’s volatility and long-term uncertainties leave room for caution. Here’s a closer look at what’s behind Rocket Lab’s meteoric rise and what it could mean for investors.

Competitive Edge in a Rapidly Evolving Market

Rocket Lab has carved out a niche for itself by offering small satellite launch services, which have become increasingly essential for government and commercial customers alike. With its Electron rocket, the company has successfully completed over 50 launches, positioning itself as the second-most frequently launched U.S. rocket, behind only SpaceX. As of August 8, 2024, Electron accounted for 64% of all non-SpaceX orbital launches in the U.S.

What sets Rocket Lab apart is not just its launch cadence but its ability to provide tailored, precise orbital deployments. For example, the company achieved an impressive deployment accuracy of within 8 meters, much tighter than the industry standard of 15 kilometers. This capability is particularly appealing for complex and time-sensitive missions, which could explain the growing demand. Rocket Lab has signed 17 new launch contracts in the first half of 2024 alone, including a landmark 10-launch deal with Japanese company Synspective.

Beyond launches, Rocket Lab’s space systems business has become a significant growth driver, contributing to record revenues. The company reported a 71% year-over-year increase in revenue for Q2 2024, reaching $106 million. This includes contracts for manufacturing satellites for NASA’s Mars mission and constellations for global communications.

Financial Performance: Strong Growth, But at a Cost

Rocket Lab’s financials reflect its expanding role in the space sector, but they also reveal some challenges. The company posted its highest revenue ever in Q2 2024, but it continues to operate at a loss, with a net loss of $41.6 million for the quarter. Despite the impressive 71% growth in revenue, operating expenses remain high, particularly in research and development (R&D), as the company ramps up its next big project—the Neutron rocket.

Neutron, Rocket Lab’s medium-lift rocket, is designed to serve the burgeoning market for larger satellite constellations and space station resupply missions. Development milestones were hit in Q2 2024, with the successful hot-fire testing of its Archimedes engine. While Neutron could unlock new revenue streams, it also requires significant upfront investment, contributing to the company’s negative cash flow and ongoing losses.

Rocket Lab’s management expects Q3 2024 revenue to fall slightly, projected between $100 million and $105 million. However, with a backlog of $1.07 billion, including $720 million in spacecraft under contract, the company’s long-term revenue pipeline looks robust.

The Long-Term Space Economy: Rocket Lab’s Potential Role

The space economy is projected to reach $1 trillion by 2040, according to Morgan Stanley. As the demand for satellite launches, space-based data services, and space exploration grows, Rocket Lab is well-positioned to capture a slice of this rapidly expanding market. The company’s focus on vertical integration—from manufacturing launch vehicles and spacecraft components to managing on-orbit operations—gives it a competitive advantage.

Rocket Lab is already making strategic moves to expand its capabilities. The company is working to establish itself as an end-to-end space solutions provider. This vision includes not only launching payloads but also developing its own space data services and infrastructure. For investors, this positions Rocket Lab as a diversified space company that could capture value across the entire space supply chain.

Investment Risks: High Volatility and Speculative Nature

While Rocket Lab’s growth story is compelling, it’s important to remember that the space sector remains highly speculative and prone to volatility. Rocket Lab’s stock has been volatile in the past, and space exploration companies face inherent risks, such as launch failures, delays, and technological uncertainties.

Moreover, the company’s reliance on a small number of key customers—like the U.S. government and large commercial satellite operators—leaves it vulnerable to shifts in government policies and funding, as well as customer financial health. Its R&D spending on Neutron, while promising, is a long-term bet, and any delays in its development could weigh on the stock.

What Should Investors Do?

Rocket Lab stock’s skyrocketing rally certainly reflects optimism about its future, but investors should weigh that against the risks. For those with a high-risk tolerance and a long-term outlook, Rocket Lab could be an attractive investment as it continues to innovate and expand its offerings in the space sector. Its growing backlog and leadership in the small satellite market provide a solid foundation for future growth.

However, for more cautious investors, it may be worth waiting for the stock to cool off after its recent surge. The speculative nature of space stocks, combined with Rocket Lab’s ongoing cash burn and R&D costs, suggests that the stock could be volatile in the short term.

Nvidia (NVDA) Surges 200% YTD While CEO Dumps Shares – Buy or Sell?

Posted on by The INO.com Team

A significant rebound in technology stocks was witnessed in 2023, with the Nasdaq Composite index soaring almost 31% year-to-date. This resurgence can be mainly attributed to the advancements in Artificial Intelligence (AI), notably the advent of large language model-based (LLM) chatbots, which acted as the primary catalyst. The burgeoning excitement around AI has led to the tech-rich Nasdaq surging about 32% during the first six months of the year, marking its best half-year performance since 1983.

The Santa Clara, California-based chipmaker NVIDIA Corporation (NVDA) plays an instrumental role in sparking the AI revolution. The company's Graphic Processing Units (GPUs) are indispensable to Generative AI applications, powering their processing needs.

The company delivered outstanding earnings reports in the past quarters in a tremendous stride fueled by intense demand for AI chips. The surge in tech advancements and AI applications has driven NDVA's market cap to top $1 trillion.

This notable achievement made it the sixth U.S. company to reach this significant milestone, besides being the inaugural chip manufacturer to enter the prestigious trillion-dollar club.

Owing to its powerful performance, NVDA reported an annual revenue of $4.28 billion in the fiscal year that ended January 27, 2013, which swelled to an impressive $26.97 billion in the fiscal year that ended January 29, 2023. Over the past decade, the chipmaker's revenue spiraled more than six-fold.

NVDA's executive, Manuvir Das, predicts a substantial growth opportunity in the AI space. He anticipates a total addressable market of $300 billion in chips and systems, complemented by $150 billion each in generative AI and omniverse enterprise software. This impressive $600 billion market potential in AI and the surging demand for transformative technologies will significantly propel NVDA's sales and earnings growth.

The company registered remarkable revenue growth with a 22.7% CAGR over the past 10 years. Factors contributing to this rapid acceleration included dominance in PC gaming and professional visualization, along with a tenacious foothold in the data center sector. These sectors jointly accounted for 56% of the company's total revenue in fiscal 2023.

However, during the same period, the contribution from gaming dwindled from 46% to 34%, and the contribution of the professional visualization segment declined from 8% to 6%.

Shares of NVDA commanded prominent attention from investors, evident from its extraordinary 200% year-to-date surge in stock price. Buoyed by the anticipation that the company will emerge as the chief benefactor of the burgeoning AI revolution, this surge is expected to persist.

Despite these bullish signs, NVDA’s co-founder and CEO Jensen Huang recently undertook an extensive sell-off of his shares in the company, triggering alarm bells for investors. According to Form 4 Filings submitted to the Securities and Exchange Commission (SEC), Mr. Huang unloaded 59,376 shares during trading sessions on September 12 and September 13, translating to a sale of $26.94 million worth of the company's stock.

Notably, this was not the first instance of such an action by the CEO in recent weeks. Earlier in the month, Mr. Huang divested approximately $42.83 million worth of his shares after exercising his options, amounting to total sales of NVDA shares valued at $112 million thus far. Due to the ongoing correction, the stock has been down about 11% since the beginning of September 2023.

Should Investors Panic?

The CEO's recently executed large-scale stock divestment has led some analysts to express concerns over NVDA's stock price stability. The substantial shock to NVDA's stock value, following his significant share sell-off in January 2022, fuels these apprehensions.

Investor wariness typically escalates when a company's CEO offloads shares, a gesture often construed as a sign of dwindling confidence in the firm's future trajectory.

Questions loom about whether AI stocks are experiencing an inflated bubble or are paving the way for a substantial and enduring bullish market trend. Given this speculation-riddled climate, it is plausible that the chip giant has emerged as a contested stock. With sky-rocketing performance expectations, investors are tethered to NVDA's every move.

NVDA posted its second-quarter report on August 23, 2023, shattering projected earnings and sales figures. Analysts collectively predicted earnings per share of $2.07 and sales totaling $11.09 billion. NVDA outperformed these estimates, attaining $2.70 earnings per share and $13.51 billion in sales.

Adding shine to an already resplendent quarterly report, NVDA forecasted approximately $16 billion in revenue for the upcoming quarter, far outpacing average analyst predictions.

Despite these outstanding achievements, NVDA's stock experienced a slight dip post-earnings disclosure.

While at first glance, Mr. Huang's stock divestment may ring alarm bells, insight from NVDA's latest DEF-14A filings detailing insider and institutional ownership stock holdings reveal otherwise. With these data, average shareholders should not be overly concerned about the CEO's recent actions.

As evidenced in files provided to the SEC, reflecting holdings recorded on April 3, 2023, Mr. Huang held 86,878,193 shares of the company stock, attributing him a 3.5% ownership stake and qualifying him as the largest individual shareholder.

While his position is significant, heftier investment companies like Vanguard, BlackRock, and Fidelity Investments possess larger portions of 8.3%, 7.3%, and 5.6% of the company's shares, respectively. The recent divestiture of stocks by Mr. Huang insignificantly makes up less than 1% of his overall holdings in the company.

Furthermore, it is pertinent to note that the stock sale originated from options awarded through his executive compensation plan; hence, his total ownership did not decline. These latest transactions only represent a minor fluctuation in an otherwise stable ownership portfolio.

Despite this month's recent sale, the CEO remains significantly invested in the firm. His significant stake motivates him to adopt actions and strategies directly benefitting the wider shareholder community.

The decision of a CEO to dispose of company shares can be associated with various reasons. While it is vital to monitor insider activities, NVDA shareholders could also focus on the broader organizational performance rather than overanalyzing what is essentially a minor movement from Mr. Huang's end.

Here are some other factors that could influence NVDA’s performance in the upcoming months:

Recent Developments

Understanding that strategic partnerships are key to their success, NVDA’s CEO is pursuing a cooperative collaboration strategy, gaining traction among tech leaders.

This month, NVDA joined forces with India’s Tata Group and Reliance Industries Limited to collaboratively build an AI computing infrastructure and platforms for producing AI solutions.

NVDA's strategic move into India, the fastest growing economy, fortifies its global dominance in AI, deploying its design language to establish a benchmark enduring enough to make it challenging for rival chip manufacturers' attempts to succeed.

Last month, NVDA announced a deal with Google Cloud, which would lead to a deeper integration of the two tech giants' hardware and software products. Mr. Huang said, “We’re at an inflection point where accelerated computing and generative AI have come together to speed innovation at an unprecedented pace. Our expanded collaboration with Google Cloud will help developers accelerate their work with infrastructure, software, and services that supercharge energy efficiency and reduce costs.”

Moreover, the increased partnership of the U.S. with Vietnam, predominantly in fields like technology, semiconductors, and tourism, could serve as a boon for NVDA. The chip behemoth is partnering with Vietnamese firms FPT, Viettel, and VinGroup to bring AI to the cloud, automotive, and healthcare industries.

Mixed Financials

NVDA’s net revenue for the fiscal second quarter that ended July 30, 2023, increased 101.5% year-over-year to $13.51 billion. NVDA's performance was driven by its data center business, which includes the A100 and H100 AI chips needed to build and run AI applications like ChatGPT.

The company reported $10.32 billion in data center revenue, up 171% year-over-year. Its non-GAAP operating income was $7.78 billion, up 486.9% year-over-year.

Its non-GAAP net income and non-GAAP net income per share stood at $6.74 million and $2.70, up 421.7% and 429.4% year-over-year, respectively. Also, its free cash flow grew 634% year-over-year to $6.05 billion.

However, for the same quarter, net cash used in investing activities stood at $447 million, compared to net cash provided by investing activities of $1.62 billion in the year-ago quarter. Also, net cash used in financing activities grew 35.5% year-over-year to $5.10 billion. Moreover, as of June 30, 2023, its total current liabilities stood at $10.33 billion, compared to $6.56 billion as of January 29, 2023.

Stretched Valuation

NVDA’s forward non-GAAP P/E and EV/Sales of 40.55x and 19.95x are 82.1% and 637.1% higher than the industry averages of 22.27x and 2.71x, respectively. Likewise, its forward EV/EBIT and Price/Sales multiples of 35.53 and 20.04 are 94.4% and 658.8% higher than the industry averages of 18.28 and 2.64, respectively.

Robust Growth

Over the past three and five years, NVDA’s revenue grew at 35.8% and 22.4% CAGRs. Its EBITDA, EBIT, and net income grew at 41%, 42.8%, and 45% over the past three years, whereas, over the past five years, these grew at 21.7%, 19.6%, and 19.1%, respectively. The company’s levered free cash flow has grown at 39.7% and 31.7% CAGRs over the past three and five years.

High Profitability

NVDA’s trailing-12-month net income margin of 31.60% is significantly higher than the industry average of 2.03%. Likewise, its trailing-12-month Return on Common Equity (ROCE) of 40.22% is significantly higher than the industry average of 1.01%. Its trailing-12-month cash from operations of $11.90 billion is significantly higher than the industry average of $60.08 million.

Growing Institutional Ownership

NVDA’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their NVDA stock holdings.

Institutions hold roughly 66.2% of NVDA shares. Of the 3,666 institutional holders, 1,562 have increased their positions in the stock. Moreover, 430 institutions have taken new positions (13,151,499 shares).

Price Performance

As a result of such increased attention, NVDA’s shares have gained 233.1% over the past year to close the last trading session at $439.66. Over the past six months, the stock gained 70.9%.

Moreover, NVDA’s stock is trading above its 100-day and 200-day moving averages of $406.55 and $309.93, respectively, indicating an uptrend.

Wall Street analysts expect the stock to reach $636.32 in the next 12 months, indicating a potential upside of 44.7%. The price target ranges from a low of $475 to a high of $1,100.

Favorable Analyst Estimates

For the fiscal third quarter ending October 2023, analysts expect NVDA’s revenue and EPS to increase 171% and 477.10% year-over-year to $16.07 billion and $3.35, respectively.

Moreover, for the fiscal year ending January 2024, its revenue and EPS are expected to come at $54.10 billion and $10.83, indicating increases of 100.6% and 224.1% year-over-year, respectively. Furthermore, it has surpassed the consensus revenue estimates in each of the trailing four quarters and EPS in three of the trailing four quarters, which is impressive.

Bottom Line

Rising apprehensions relating to inflation, soaring interest rates, and escalating bond yields may threaten NVDA’s stock price performance in the near future. The escalating geopolitical strain between the U.S. and China additionally muddles this precarious scenario.

Considering these dynamics, CEO Huang's recent bout of stock sales might be misconstrued as another bearish pointer. However, upon closer examination, these actions appear far less alarming than initially presumed.

Furthermore, while some skeptics argue that NVDA's shares have undergone a swift uptick, they seemingly overlook the dawn of the AI revolution. Consequently, it is feasible that NVDA could enjoy several more years of vigorous growth.

Strategic collaborations between countries are anticipated to spur AI adoption worldwide, amplifying the demand for NVDA's chips, software, and services.

NVDA's enthusiasm for AI has translated into an encouraging outlook for the third quarter. In addition to projecting revenue of $16 billion in the third quarter of fiscal year 2024, it also predicts a non-GAAP gross margin of 72.5%.

However, despite NVDA's extensive potential, the stock has already witnessed nearly a 200% rally this year, placing it at a rather costly valuation. Acknowledging these elements, it could be wise to wait for a better entry point in the stock.

NVIDIA (NVDA) vs. Advanced Micro Devices (AMD): Which Stock Is Proving to Be the Better Long-Term AI Buy

Posted on by The INO.com Team

After its earnings release on May 24, the Santa Clara-based graphics chip maker NVIDIA Corporation (NVDA) stole the thunder by becoming the first semiconductor company to hit a valuation of $1 trillion.

NVDA has also blown away Street expectations ahead of its quarterly earnings release on August 23, with profits for the current quarter expected to be at least 50% higher than analyst estimates and the momentum expected to continue in the foreseeable future.

On the other hand, since its humble beginnings as a supplier for Intel Corporation (INTC), Advanced Micro Devices, Inc. (AMD) has come a long way. During its earnings release for the second quarter, despite persistent weakness in the PC market, the company’s result topped analyst estimates.

While NVDA has carved its niche and cornered a significant share of the GPU domain through advancements in parallel (and consequently accelerated) computing which began back in 2006 with the release of a software toolkit called CUDA, Chair and CEO Dr. Lisa Su is widely credited with AMD’s turnaround and transition from being widely dismissed due to performance issues and delayed releases to being the only company in the world to design both CPUs and GPUs at scale.

The New (Perhaps Only) Game in Town

As a general-purpose technology, such as the steam engine and electricity, Artificial Intelligence (AI) that has already been touching and influencing all facets of our life, including how we shop, drive, date, entertain ourselves, manage our finances, take care of our health, and much more.

However, late in November of last year, when OpenAI opened its artificial intelligence chatbot, ChatGPT, to the general public, all hell broke loose. The application took the world by storm. It amassed 1 million users in five days and 100 million monthly active users only two months into its launch to become the fastest-growing application in history.

The generative AI-powered application’s capability to provide (surprisingly) human-like responses to user requests equally fascinated and concerned individuals, businesses, and institutions with the possibilities of the technology. A large language model or LLM powers ChatGPT. This gives the application the ability to understand human language and provide responses based on the large body of information on which the model has been trained.

NVDA is reaping the rewards for all that invisible work done in the field of parallel computing. Parallel computing was ideal for artificial neural networks' deep (machine) learning. As a result of that head start in the AI tech race, its A100 chips, which are powering LLMs like ChatGPT, have become indispensable for Silicon Valley tech giants.

To put things into context, the supercomputer behind OpenAI’s ChatGPT needed 10,000 of NVDA’s famous chips. With each chip costing $10,000, a single algorithm that’s fast becoming ubiquitous is powered by semiconductors worth $100 million.

However, AMD isn’t too far behind either. According to Dr. Su, Data Center is the most strategic piece of business as far as high-performance computing is concerned. AMD underscored this commitment with the recent acquisition of data center optimization startup Pensando for $1.9 billion.

At the premiere, AMD’s ambitions to capitalize on the AI boom were loud and clear, with the launch of MI300X (a GPU-only chip) as a direct competitor to NVDA’s H100. The chip includes 8 GPUs (5nm GPUs with 6nm I/O) with 192GB of HBM3 and 5.2TB/s of memory bandwidth.

AMD believes this will allow LLMs’ inference workloads that require substantial memory to be run using fewer GPUs, which could improve the TCO (Total Cost of Ownership) compared to the H100.

The Road Ahead

The optimism surrounding both companies is justified.

With NVDA’s presence in data centers, cloud computing, and AI, its chips are making their way into self-driving cars, engines that enable the creation of digital twins with omniverse that could be used to run simulations and train AI algorithms for various applications.

On the other hand, AMD has also been training its guns to exploit the burgeoning AI accelerator market, projected to be over $30 billion in 2023 and potentially exceed $150 billion in 2027.

AMD is one of the few companies making high-end GPUs needed for artificial intelligence. With AI being seen as a tailwind that could drive PC sales, the company announced plans to launch new Radeon 7000 desktop GPUs at its quarterly earnings release. It is being speculated that the GPU will come with two 8-pin PCIe power connectors and four video out ports, including three DisplayPort 2.1 and one HDMI 2.1.

Caveats

AMD existed as both a chip designer and manufacturer, at least until 2009. However,  significant capex requirements associated with manufacturing, amid financial troubles in the wake of the Great Recession, compelled the company to demerge and spin off its fab to form GlobalFoundries Inc. (GFS), which has been focused on manufacturing low-end chips ever since.

Today, both NVDA and AMD operate as fabless chip companies. Hence, both companies face risks of backward integration by companies such as Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), and Tesla Inc. (TSLA) with the wherewithal to develop the intellectual capital to design their own chips.

Moreover, almost all of the manufacturing has been outsourced to Taiwan Semiconductor Manufacturing Company Ltd. (TSM), which has yet to diversify significantly outside Taiwan and has become the bone of contention between the two leading superpowers.

With geopolitical risk being the potential Achilles heel for both companies, their efforts toward geographical diversification also receive much-needed political encouragement through the Chips and Science Act.

Dr. Su, who also serves on President Biden’s council of advisors on science and technology, pushed hard for the passage of the Act. It is aimed at on-shoring and de-risking semiconductor manufacturing in the interest of national security by setting aside $52 billion to incentivize companies to manufacture semiconductors domestically.

Bottom Line

Given its massive importance and cornucopia of applications, it’s hardly surprising that Zion Market Research forecasts the global AI industry to grow to $422.37 billion by 2028. Hence, this field has understandably garnered massive attention from investors who are reluctant to miss the bus on such a watershed development in the history of humankind.

Hence, in view of product diversification, increasing traction in the GPU segment, and relatively higher valuation comfort, investors in AMD could benefit from more sustained upside potential compared to NVDA.