Tag: third quarter

AI Surge Fuels Nvidia & Broadcom Stocks: Buy Now or Wait for a Dip?

Posted on by The INO.com Team

Artificial intelligence (AI) has been a red-hot investment theme over the past two years, with its ability to learn and improve without much human input, making it valuable across nearly every industry. PwC predicts that AI could boost the global economy by $15.7 trillion by 2030.

With AI adoption on the rise, chip stocks like NVIDIA Corporation (NVDA) and Broadcom Inc. (AVGO) are well-positioned for long-term growth. But with these stocks hovering near their 52-week highs, is now the right time to buy, or should you wait for a potential dip? Let’s find out.

Stock to Buy: NVIDIA Corporation (NVDA)

Nvidia has been one of the most talked-about stocks this year, and for good reason. As one of the hottest large-cap stocks this year, the Wall Street darling is up nearly 14% in just the past week and more than 190% over the past year. It is trading just 5.6% below its 52-week high of $140.76. Much of this excitement is fueled by the company’s new Blackwell platform, which has both investors and customers eagerly watching its next moves.

Several analysts remain bullish on NVDA, and it’s easy to see why. KeyBanc recently raised its fiscal 2025 sales forecast to $130.60 billion, driven in part by Nvidia’s new AI chips, which are expected to contribute around $7 billion to fourth-quarter revenues.

Additionally, the company’s collaboration with Foxconn to build Taiwan’s largest supercomputer, along with a massive manufacturing facility in Mexico, underscores Nvidia’s commitment to scaling its operations while also minimizing supply chain risks.

In the second quarter that ended July 28, 2024, Nvidia’s revenue increased 122% year-over-year to $30.04 billion, and 15% from the first quarter. This robust growth exceeded analysts’ expectations, who had forecasted around $28.75 billion. Its AI-driven Data Center Group generated $26.30 billion in revenue, resulting in a 16% sequential gain and a triple-digit growth of 154% over the same period last year.

On the bottom line, its operating income surged 174% from the year-ago value to $18.64 billion. NVDA’s non-GAAP net income amounted to $16.95 billion or $0.68 per share, compared to $6.74 billion or $0.27 per share in the previous year’s quarter, respectively. The chipmaker is now gearing up for new AI hardware releases based on the Blackwell architecture, which could boost demand in the coming years.

Moreover, it forecasted a revenue of $32.50 billion, plus or minus 2%, for its fiscal third quarter, representing an 81.6% growth from the year-ago quarter. However, this slightly falls short of the analysts’ estimates of $32.90 billion. Nvidia’s business continues to thrive and will likely report another blowout quarter next month.

In addition to its strong financials, the company has approved a massive $50 billion share buyback program, which could boost investor returns over time. This, combined with surging demand for AI platforms and upcoming product launches, makes NVDA a stock worth considering for long-term investors looking to buy on any significant dip.

Stock to Hold: Broadcom Inc. (AVGO)

Thanks to the escalating demand for its AI products, Broadcom delivered a better-than-expected earnings report with double-digit top-line growth, comfortably surpassing Wall Street’s estimates. The demand for AVGO’s products, essential for building Data Centers, has soared due to the extensive adoption of AI-powered applications, particularly within the enterprise sector.

The semiconductor division, which makes up 56% of its total revenue, has been the company’s primary growth driver, while the remaining 44% falls into the industrial software segment. To keep pace with the surge in demand for AI technology, Broadcom is investing heavily in its product lineup, aiming to solidify its foothold in the booming AI chip market.

This frenzy for AI chips, driven by hefty investments in AI models, has significantly boosted the company’s topline growth. For the third quarter that ended on August 4, 2024, AVGO’s net revenue increased 47% year-over-year to $13.07 billion, with triple-digit revenue growth in the Infrastructure Software segment to $5.79 billion. Its revenues came in slightly above the analysts’ estimate of $12.96 billion.

AVGO’s gross margin grew 7.5% from the year-ago value to $8.36 billion, while its non-GAAP operating income came in at $7.95 billion, up 11.2% year-over-year. On top of it, the company’s non-GAAP net income came in at $6.12 billion or $1.24 per share, up 33.2% and 18.1% year-over-year, respectively. Also, its adjusted EBITDA increased 41.7% from the prior year’s quarter to $8.22 billion.

Looking ahead, management anticipates the revenue for the fourth quarter to be around $14 billion (in line with analysts’ consensus estimates) and adjusted EBITDA to be approximately 64% of revenue, translating to about $9 billion. For the full year, Broadcom projects revenue of $51.50 billion, up from its previous forecast of $51 billion.

Moreover, its robust free cash flow of $4.79 billion enabled it to pay a quarterly dividend of $0.53 per share on September 19, 2024. With 13 consecutive years of dividend growth, AVGO stands out among semiconductor-focused enterprises due to its consistent and significant cash flow distributions to shareholders.

The company pays an annual dividend of $2.12 per share, yielding 1.21% on the current share price, with a four-year dividend yield of 2.50%. Over the past three and five years, its dividend payouts have grown at CAGRs of 13.5% and 14.7%, respectively.

When it comes to price performance, shares of AVGO have soared over 110% over the past year and returned nearly 62% year-to-date. The stock is trading just 2.4% below its 52-week high of $185.16. With accelerating revenue, robust profit margins, and significant exposure to the AI chip industry, AVGO has garnered immense investor interest. However, the stock’s current valuation might burn a hole in one’s pocket.

In terms of forward non-GAAP P/E, AVGO is trading at 36.11x, 50.8% higher than the industry average of 23.94x. Its forward EV/EBITDA and Price/Cash Flow of 27.77x and 37.69x are 92.6% and 66.7% higher than the respective industry averages of 14.42x and 22.61x. Furthermore, the stock’s forward Price/Sales multiple of 15.85 compares with the industry average of 2.85.

Hence, given the lofty valuation levels, it may be prudent for investors to await a more opportune entry point into the stock.

How China’s Stimulus Could Affect Tech Stocks Globally

Posted on by The INO.com Team

After months of sluggish economic growth and fears of missing its growth targets, China has unveiled a sweeping set of stimulus measures aimed at reviving its economy. These policies included cuts to interest rates, loans to investors and companies for stock buybacks, and promises of substantial fiscal support. The People’s Bank of China’s (PBOC) coordinated efforts are aimed at reducing borrowing costs and boosting confidence in an economy struggling with issues like the ongoing property crisis and high youth unemployment.

Despite some analysts questioning the long-term sustainability of the stimulus, the market has responded with enthusiasm. Mainland China's CSI 300 Index surged 8.5%, marking its best performance since 2008, while Hong Kong's Hang Seng Index rose by 4.2%.

As these aggressive policies aim to jump-start the struggling economy, the impact could reach far beyond China's borders, with global tech stocks poised to benefit significantly. Companies like Apple Inc. (AAPL), NVIDIA Corporation (NVDA), Taiwan Semiconductor Manufacturing Company Limited (TSM), and QUALCOMM Incorporated (QCOM) rely on China not only for manufacturing but also as a major consumer market. With lower interest rates and improved liquidity in China, demand for tech products could surge, directly benefiting these tech giants.

Furthermore, the PBOC’s promise of potential fiscal stimulus adds another layer of optimism. If China follows through on its hints of trillion yuan-level spending, particularly in infrastructure and technology sectors, it could further boost global tech companies that provide critical components for these developments.

Many are drawing parallels to 2008 when China’s swift and massive stimulus response to the global financial crisis jump-started not only its economy but also helped boost global demand. However, that stimulus left China with long-term challenges, including local government debt, overcapacity, and excess housing.

While some investors remain cautious after past false starts, the current stimulus package has injected new optimism into the market. Tech stocks, in particular, offer an attractive opportunity as lower interest rates make them more appealing for investors seeking higher returns. Therefore, fundamentally sound stocks like AAPL, NVDA, TSM, and QCOM could be worth considering for those looking to tap into the potential upside driven by China’s recovery efforts.

Stock to Hold:

Apple Inc. (AAPL)

With China being one of Apple's largest markets for premium tech products, the country’s economic recovery could stimulate demand for iPhones, MacBooks, and other high-end devices. Lower interest rates and improved liquidity might encourage consumers to invest in Apple’s premium offerings, further driving the company's revenue in this region.

For the third quarter of fiscal 2024, which ended June 29, 2024, AAPL’s total net sales increased 4.9% year-over-year to $85.78 billion, with $14.73 billion in sales from Greater China. Its gross margin rose 8.9% from the year-ago value to $39.68 billion, while its operating income came in at $25.35 billion, up 10.2% year-over-year. On the bottom line, AAPL’s net income and EPS amounted to $21.45 billion and $1.40, representing increases of 7.9% and 11.1%, respectively, from the prior year’s quarter.

Street expects AAPL’s revenue for the current year (ended September 2024) to increase marginally from the prior year to $390.52 billion, while its EPS is expected to grow by 9.2% year-over-year to $6.69. For the fiscal year 2025, both revenue and EPS are anticipated to reach $419.84 billion and $7.41, indicating a 7.5% and 10.7% year-over-year growth, respectively.

Shares of the dominant tech player have surged more than 36% over the past year and approximately 21% year-to-date. Also, its 12-month price target of $248.07 reflects a 6.5% potential upside.

However, while the outlook is promising, investors should remain cautious of geopolitical tensions that could affect production and sales. Ongoing U.S.-China trade disputes may disrupt Apple’s supply chain, leading to increased costs or delays. As Apple relies heavily on Chinese manufacturing, any escalation in tensions could pose risks to its market performance.

Stocks to Buy:

NVIDIA Corporation (NVDA)

With the frenzy around Artificial intelligence (AI) in the stock market, the AI darling Nvidia has been on an impressive run this year. The stock has surged over 145% year-to-date and nearly 179% in the past 12 months, thanks to the robust demand for its graphics processing units (GPUs), which help run and train AI algorithms.

Nvidia’s revenue for the second quarter that ended July 28, 2024, increased 122% year-over-year to $30.04 billion and exceeded the analysts’ expectations of $28.75 billion. The company's bottom line also remained buoyant, with operating income surging 174% from the year-ago value to $18.64 billion. NVDA’s non-GAAP net income amounted to $16.95 billion or $0.68 per share, compared to $6.74 billion or $0.27 per share in the previous year’s quarter, respectively.

Moreover, analysts remain bullish on the chipmaker’s long-term prospects. For the fiscal year ending January 2025, NVDA’s revenue and EPS are expected to grow by 106.1% and 119.2% from the prior year to $125.54 billion and $2.84, respectively.

Furthermore, out of 42 analysts that rated NVDA, 39 rated it Buy, while three rated it Hold. The 12-month median price target of $152.44 indicates a 25.5% upside potential from the last closing price. As China accelerates its focus on artificial intelligence (AI) and high-performance computing, this stock could boost your portfolio returns significantly.

Taiwan Semiconductor Manufacturing Company Limited (TSM)

As China's tech sector surges, demand for semiconductors is set to soar, potentially contributing nearly 19% to the country’s GDP by 2026. Headquartered in Hsinchu City, Taiwan, TSM manufactures, tests, and markets integrated circuits and other semiconductor products globally. Its products are used in automotive electronics, high-performance computing, and mobile device markets.

TSM’s net sales increased 40.1% year-over-year to NT$673.51 billion ($21.25 billion) in the second quarter that ended June 30, 2024. Its gross profit grew 37.6% from the prior year’s quarter to NT$358.13 billion ($11.29 billion), while its income from operations came in at NT$286.56 billion ($9.04 billion), up 41.9% year-over-year. In addition, the company’s net income and EPS increased 36.3% year-over-year to NT$247.85 billion ($7.82 billion) and NT$9.56, respectively.

The consensus EPS estimate of $6.60 for the current year ending December 2024 represents a 27.4% improvement year-over-year. The consensus revenue estimate of $88.40 billion for the same period indicates a 29.1% increase from the prior year.

Moreover, the stock has gained more than 99% over the past year, which is impressive. Its 12-month price target of $205 reflects an 18.4% potential upside.

QUALCOMM Incorporated (QCOM)

QCOM specializes in foundational technologies for the wireless industry. The company operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives.

QCOM’s revenue increased marginally year-over-year to $9.39 billion in the fiscal second quarter (ended March 24, 2024). Its non-GAAP net income grew 14.1% from the year-ago value to $2.76 billion, while its EBIT rose 31.8% year-over-year to $2.49 billion over the period. The company’s non-GAAP EPS increased 13.5% from the year-ago value to $2.44.

Buoyed by its strong financial performance, the company paid a quarterly dividend of $0.85 per common share to its shareholders on September 26, 2024. QCOM pays an annual dividend of $3.40, which translates to a 2% yield on the current price. Plus, it has a payout ratio of 34.1%.

Street expects QCOM’s revenue for the fourth quarter (ended September 2024) to increase 13.8% from the prior year to $9.86 billion. Its EPS for the same period is expected to grow by 26.1% year-over-year to $2.55. It is no surprise that the company has topped the revenue and EPS estimates in each of the trailing four quarters.

Over the past year, the stock has returned nearly 50%. Moreover, out of 21 analysts that rated QCOM, 13 rated it Buy, while seven rated it Hold. The 12-month median price target of $218.25 indicates a 31.3% upside potential from the last closing price.

Is It Time to Buy SBUX After August’s Surge?

Posted on by The INO.com Team

Starbucks Corporation (SBUX) has been brewing up lately, with its stock appreciating over 24% in the past month. But what’s fueling this caffeinated surge, and is it a good time for investors to jump in?

The Brian Niccol Effect

The recent rally was ignited by the announcement that Brian Niccol, currently CEO of Chipotle Mexican Grill Inc. (CMG), will take over as Starbucks’ new chief executive on September 9. This news came after a challenging period for the coffee retailer under the leadership of Laxman Narasimhan.

Narasimhan's tenure saw a dip in same-store sales in the U.S., complaints about store staffing and long wait times, and increased competition in China. His strategy of focusing on non-coffee drinks and technology improvements diverged from former CEO Howard Schultz’s emphasis on coffee and customer experience, contributing to his departure.

Moreover, this leadership change has been met with enthusiasm by investors, causing the stock to jump 23% on August 13. Niccol is seen as a game-changer for Starbucks. Under his leadership, Chipotle managed to bounce back from food safety issues and maintain strong sales. His knack for integrating technology, automation, and improving customer experiences is just what Starbucks needs right now.

Niccol’s experience with streamlining operations and enhancing customer engagement could help address SBUX’s current issues, from fixing staffing problems to speeding up service. While it's still early to see the impact of Niccol’s leadership, his track record suggests that Starbucks might be in good hands. Given his success at Chipotle and his focus on technology and efficiency, there’s a lot of hope that he could turn things around for Starbucks.

Starbucks' Financial Resilience and Turnaround Efforts

Starbucks may have hit some rough patches recently, but it's still brewing a solid business with robust fundamentals. Despite a dip in sales, it continues to build a loyal customer base that keeps the coffee flowing. In the fiscal third quarter, SBUX's rewards program grew to 33.8 million active members in the United States, indicating a 7% increase year-over-year and 3% sequentially. This growing membership translates to $1.8 billion in deferred revenue on Starbucks payment cards as of June 30, effectively giving the company a handy interest-free loan.

However, the retailer struggled in its major markets: the U.S. and China. In the U.S., same-store sales dipped 2% compared to a 7% increase the previous year. Store traffic fell by 6%, though the average ticket price rose by 4%.

Moreover, due to the competitive landscape and cautious consumer spending in the Chinese market, its comparable-store sales plummeted 14%, down from a 46% increase last year, with both traffic and average ticket price dropping by 7%. However, Starbucks’ Rewards program in China grew by 1.6 million, reaching a record 22 million active members.

Overall, SBUX’s revenue dipped 1% to $9.11 billion, with global comparable-store sales falling by 3%. The company expanded its footprint by opening 526 new stores, ending the quarter with a total of 39,477 locations. The company reported a net income of $1.05 billion, or $0.93 per share, compared to $1.14 billion, or $0.99 per share, from the same period last year.

While these figures could disappoint some investors, Starbucks is brewing up a comeback with a three-part action plan designed to revitalize its business. First, the company is fine-tuning store operations to meet new demand, which includes improving partner scheduling, turnover, and inventory management across nearly 10,000 U.S. stores. New systems, like the Siren Craft, are already showing positive results, helping to speed up service and enhance performance metrics. Starbucks is also accelerating new store openings and renovations in key growth markets to drive expansion.

Moreover, in response to China’s wobbling economy, where competitors are aggressively undercutting prices, Starbucks is exploring ‘strategic partnerships’ to stay competitive. Meanwhile, activist investor Elliott Investment Management’s involvement could potentially push for significant changes like a slower investment pace in China, more aggressive share buybacks, or a faster rollout of new systems. BTIG analyst Peter Saleh believes Elliott’s involvement with Starbucks could accelerate ‘bigger changes’ and impact SBUX’s market strategy.

Additionally, Starbucks is focusing on faster service through new espresso machines and software updates and capitalizing on successful product launches like the Summer-Berry Refreshers. The company also plans to open dozens of delivery-only kitchens in the U.S. and is eyeing growth in smaller cities and suburban areas. With these moves, the retailer aims to boost customer engagement and drive growth, making its stock an exciting option for investors watching its turnaround.

Bottom line

While analysts expect Starbucks to show little to no sales growth this year, expectations are for a return to high-single-digit growth in the future. For the fiscal year ending September 2026, Wall Street forecasts its revenue and EPS to grow by 7.2% and 11.7% year-over-year, respectively. 

In terms of valuation, with a forward non-GAAP P/E ratio of 26.55, the stock remains reasonably valued for such a renowned brand. Although it isn't a bargain as it was a month ago, long-term investors might still find it attractive, especially with potential interest rate cuts on the horizon. With Federal Reserve Chair Jerome Powell signaling the likelihood of lower rates, Starbucks could benefit from a favorable economic environment, making it a stock worth considering for those looking to invest in its potential turnaround.

Broadcom (AVGO) and Micron (MU): Top Picks for Data Center Investment Surge

Posted on by The INO.com Team

The expected record spending on infrastructure by cloud computing leaders such as Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN) this year highlights the escalating investments in artificial intelligence (AI) data centers, a trend likely to benefit chipmakers significantly.

Bank of America (BofA) analysts forecast that cloud service provider capital expenditures will reach $121 billion in the second half of 2024, bringing the total to a record $227 billion in 2024. This figure marks a 39% increase compared to the previous year.

c, Microsoft, and Meta Platforms, Inc. (META) are predicted to more than double their spending compared to 2020 levels, while Oracle Corporation (ORCL) is expected to increase its capital expenditure nearly sixfold. The proportion of this spending allocated to data centers is already around 55% and is anticipated to rise further, reflecting the critical role of data centers in supporting advanced AI applications.

While NVIDIA Corporation (NVDA) stands out as the dominant player in the AI GPU market, BofA analysts have highlighted Broadcom Inc. (AVGO) and Micron Technology, Inc. (MU) as compelling alternatives for investors seeking to benefit from this trend.

In this article, we will delve into why Broadcom and Micron are well-positioned to capitalize on growing investments by cloud service providers in AI data centers, evaluate their financial health and recent performance, and explore the potential headwinds and tailwinds they may encounter in the near future.

Broadcom Inc. (AVGO)

Valued at a $732.45 billion market cap, Broadcom Inc. (AVGO) is a global tech leader that designs, develops, and supplies semiconductor and infrastructure software solutions. Broadcom’s extensive portfolio of semiconductor solutions, including networking chips, storage adapters, and advanced optical components, makes it a critical supplier for data centers.

Moreover, Broadcom’s leadership in networking solutions, exemplified by its Tomahawk and Trident series of Ethernet switches, positions it as a critical beneficiary of increased AI data center spending.

In May, AVGO revolutionized the data center ecosystem with its latest portfolio of highly scalable, high-performing, low-power 400G PCIe Gen 5.0 Ethernet adapters. The latest products provide an improved, open, standards-based Ethernet NIC and switching solution to address connectivity bottlenecks caused by the rapid growth in XPU bandwidth and cluster sizes in AI data centers.

Further, Broadcom’s strategic acquisitions, such as the recent purchase of VMware, Inc., enhance its data center and cloud computing capabilities. With this acquisition, AVGO will bring together its engineering-first, innovation-centric teams as it takes another significant step forward in building the world’s leading infrastructure technology company. 

Broadcom’s solid second-quarter performance was primarily driven by AI demand and VMware. AVGO’s net revenue increased 43% year-over-year to $12.49 billion in the quarter that ended May 5, 2024. That exceeded the consensus revenue estimate of $12.01 billion. Revenue from its AI products hit a record of $3.10 billion for the quarter.

AVGO reported triple-digit revenue growth in the Infrastructure Software segment to $5.29 billion as enterprises increasingly adopted the VMware software stack to build their private clouds. Its gross margin rose 27.2% year-over-year to $7.78 billion. Its non-GAAP operating income grew 32% from the year-ago value to $7.15 billion. Its adjusted EBITDA was $7.43 billion, up 30.6% year-over-year.

Further, the company’s non-GAAP net income was $5.39 billion or $10.96 per share, up 20.2% and 6.2% from the prior year’s quarter, respectively. Cash from operations of $4.58 billion for the quarter, less capital expenditures of $132 million, resulted in free cash flow of $4.45 billion, or 36% of revenue.

When it posted solid earnings for its second quarter, Broadcom announced a ten-for-one stock split, which took effect on July 12, making stock ownership more affordable and accessible to investors.

Moreover, AVGO raised its fiscal year 2024 guidance. The tech company expects full-year revenue of nearly $51 billion. Broadcom anticipates $10 billion in revenue from chips related to AI this year. Its adjusted EBITDA is expected to be approximately 61% of projected revenue.

Analysts expect AVGO’s revenue for the third quarter (ending July 2024) to grow 45.9% year-over-year to $12.95 billion. The consensus EPS estimate of $1.20 for the ongoing quarter indicates a 14% year-over-year increase. Also, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

In addition, the company’s revenue and EPS for the fiscal year ending October 2024 are expected to increase 43.6% and 12.4% from the previous year to $51.44 billion and $4.75, respectively.

AVGO’s shares have gained more than 29% over the past six months and around 74% over the past year. Moreover, the stock is up nearly 40% year-to-date.

Micron Technology, Inc. (MU)

Another chipmaker that is well-poised to benefit from significant data center spending among enterprises is Micron Technology, Inc. (MU). With a $126.70 billion market cap, MU provides cutting-edge memory and storage products globally. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Embedded Business Unit; and Storage Business Unit.

Micron’s role as a leading provider of DRAM and NAND flash memory positions it to capitalize on the surging demand for high-performance memory solutions. The need for advanced memory products grows as data centers expand to support AI and machine learning workloads. The company’s innovation in memory technologies, such as the HBM2E, aligns well with the performance requirements of modern data centers.

Also, recently, MU announced sampling its next-generation GDDR7 graphics memory with the industry’s highest bit density. The best-in-class capabilities of Micro GDDR7 will optimize AI, gaming, and high-performance computing workloads. Notably, Micron reached an industry milestone as the first to validate and ship 128GB DDR5 32Gb server DRAM to address the increasing demands for rigorous speed and capacity of memory-intensive Gen AI applications.

Further, MU’s strategic partnerships with leading tech companies like Nvidia and Intel Corporation (INTC) position the chipmaker at the forefront of technology advancements. In February, Micron started mass production of its HBM2E solution for use in Nvidia’s latest AI chip. Micron’s 24GB 8H HBM3E will be part of NVIDIA H200 Tensor Core GPUs, expected to begin shipping in the second quarter.

For the third quarter, which ended May 30, 2024, MU posted revenue of $6.81 billion, surpassing analysts’ expectations of $6.67 billion. That compared to $5.82 billion in the prior quarter and $3.75 billion for the same period last year. Moreover, AI demand drove 50% sequential data center revenue growth and record-high data center revenue mix.

MU’s non-GAAP gross margin was $1.92 billion, versus $1.16 million in the prior quarter and negative $603 million for the previous year’s quarter. Its non-GAAP operating income came in at $941 million, compared to $204 million in the prior quarter and negative $1.47 billion for the same period in 2023.

Additionally, the chip company reported non-GAAP net income and earnings per share of $702 million and $0.62 for the third quarter, compared to non-GAAP net loss and loss per share of $1.57 billion and $1.43 a year ago, respectively. Its EPS beat the consensus estimate of $0.53. Its adjusted free cash flow was $425 million during the quarter, compared to a negative $1.36 billion in the prior year’s quarter.

For the fourth quarter of fiscal 2024, Micron expects non-GAAP revenue of $7.60 million ± $200 million, and its gross margin is anticipated to be 34.5% ± 1%. Also, the company expects its non-GAAP earnings per share to be $1.08 ± 0.08.

Analysts expect AVGO’s revenue for the fourth quarter (ending August 2024) to increase 91.4% year-over-year to $7.68 billion. The company is expected to report an EPS of $1.14 for the current quarter, compared to a loss per share of $1.07 in the prior year’s quarter. Further, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

MU’s shares have surged over 30% over the past six months and approximately 75% over the past year.

Bottom Line

The substantial surge in capital expenditures by cloud computing giants like Microsoft, Amazon, and Alphabet highlights the importance of AI and data centers in the tech industry’s landscape. Broadcom and Micron emerge as two of the most promising chip stocks for investors seeking to benefit from this trend. Both companies offer solid financial health, significant market positions, and exposure to the expanding data center and AI markets.

While Broadcom’s diverse semiconductor solutions and Micron’s leadership in memory technology make them attractive investment opportunities, investors must remain mindful of potential headwinds, including market competition and geopolitical risks. By evaluating these factors and understanding the growth potential of these companies, investors can make informed decisions in the rapidly evolving technology sector.

Coherent's Quantum Leap: Capitalizing on the AI Boom

Posted on by The INO.com Team

Formerly known as II-VI Incorporated, Coherent Corp. (COHR) has established itself as a critical supplier of materials, photonics, and laser technologies to a wide array of target markets. This company emerged from the merger of two leading laser industry giants and has since forged strong partnerships to extend its market reach and diversify its product offerings.

Substantial investments in research and development (R&D) and a laser-sharp focus on artificial intelligence (AI) products drive the company’s growth strategy. With a diverse portfolio ranging from engineered materials to optoelectronic components, COHR is setting its sights on dominating lucrative markets such as semiconductor manufacturing equipment and life sciences.

The laser maker's shares have doubled in recent months, benefiting from the burgeoning demand for AI and a boost in investor confidence following significant leadership changes. On June 3, the stock jumped more than 22% after Jim Anderson, who took over from the retiring Vincent Mattera Jr., was named the new CEO.

Anderson’s impressive stint at Lattice Semiconductor Corporation (LSCC), where he drove remarkable revenue and earnings growth, has investors dreaming big. They’re betting his leadership could propel Coherent to new heights, especially with AI's potential. Moreover, COHR’s stock has gained nearly 70% year-to-date and more than 130% over the past nine months.

In addition to leadership changes, Coherent has unveiled innovative products. On May 30, 2024, the company introduced a new laser power sensor, the PM10K+, designed to accelerate power output measurements by up to 500%. This new sensor is tailored for high-power applications, a growing sector in the industry.

Further, COHR launched a new single-mode, polarization-maintaining optical fiber. This product, the first of its kind in the market, is designed to support high-power 1550 nm amplifiers with over 20 watts of average power. Such developments highlight Coherent Corp's ongoing commitment to innovation, addressing market needs, and positioning itself as a leader in pushing the boundaries of laser technology capabilities.

How Did COHR Perform Financially and What Lies Ahead?

In the third quarter ended March 31, 2024, COHR posted revenue of $1.21 billion, exceeding the Wall Street estimates of $1.17 billion by 3.5%. Within its Networking segment, revenue amounted to $619 million, reflecting an 18% increase sequentially and a 12% rise year-over-year. This growth was driven by a significant, nearly 80% sequential rise in AI-related 800G Datacom transceiver revenue, which reached around $200 million.

Further, COHR saw an 11% increase in orders year-over-year, boosting its backlog to over $2.74 billion (up over $100 million from the previous year). The company’s non-GAAP operating income and attributable net earnings amounted to $182.20 million and $113.20 million, registering sequential growth of 6.2% and 31%, respectively.

Also, the company’s third-quarter non-GAAP EPS came in at $0.53, above the high end of its guidance. Moreover, Coherent surpassed the consensus EPS estimate of $0.42 by 27.3%.

Looking ahead, COHR anticipates sequential revenue growth in the remaining quarters of fiscal 2024, driven by solid demand in AI and other favorable end-markets. In addition, management lifted the lower end of its revenue outlook for the fiscal year 2024 by $70 million. It expects full-year revenue from $4.62 to $4.70 billion. Also, Coherent raised the non-GAAP EPS guidance to $1.56 to 1.73, a moderate increase from the previously guided $1.30 to $1.70.

Furthermore, Analysts expect COHR’s revenue for the fourth quarter (ending June 2024) to increase 5.8% year-over-year to $1.28 billion. The company is estimated to post an earnings per share of $0.60 in the current quarter, indicating a 46.5% improvement from the prior year’s period.

Is Coherent Poised to Capitalize on the AI Boom?

COHR is strategically well-positioned to capitalize on the burgeoning demand for AI-related technologies, mainly through its robust datacom portfolio enhancements. Analysts from JPMorgan highlighted Coherent among the companies poised to benefit from the expanding AI market.

Leveraging its specialized transceivers designed for AI and machine learning applications, which support key protocols like Ethernet and NVIDIA's NVLink, Coherent is reinforcing its commitment to innovation at the intersection of networking, lasers, and advanced materials.

Beyond its core strengths, the company is seeing significant momentum across its AI/ML portfolio. Revenue from 800G transceivers surged nearly 80% sequentially, nearing the $200 million mark in the last reported quarter. Looking forward, Coherent is gearing up for the commercial launch of 1.6T transceivers later this calendar year, anticipating continued strong demand driven by advancements in AI technology.

Meanwhile, management is optimistic about the future and anticipates that 50% of Datacom transceiver revenue for fiscal 2024 will be driven by AI-related revenue. It expects this robust demand environment to persist into the next fiscal year and beyond.

Given the expectations of continued market strength and a projected 21% CAGR in the Datacom transceiver market until 2028, Coherent remains well-positioned to capitalize on the accelerating demand for AI-driven technologies and data center expansions.

Bottom Line

As Coherent continues to navigate the AI boom, its ability to stay ahead of market trends and technological advancements will be crucial. With new leadership and a strong foundation in R&D, Coherent is well-positioned to maintain its momentum and achieve sustained growth in the competitive tech industry.

Meanwhile, the global AI in hardware market is poised to grow from $23.50 billion in 2023 to $84.90 billion by 2031, growing at a CAGR of 15.5%. COHR is expected to benefit significantly from the booming AI market due to its expertise in laser and photonics technologies, which are integral to AI hardware development and applications.

While the recent surge in COHR’s stock price following the announcement of the new CEO has brought it close to bullish expectations, this optimism warrants caution until more evidence of financial performance aligns with these high expectations. Hence, investors should stay vigilant and track the company’s progress in its key markets and ability to deliver on its growth promises.