Year: 2024

Key Takeaways

• Morgan Stanley cut its price target for Micron Technology and warned about the future of the memory chip sector.

• The bank said it sees “chillier conditions from here” for the stock group.

• The analysts expect the sector’s growth to peak and reverse in the coming quarters.

Micron Technology (MU) stock was one of the biggest decliners in the S&P 500 Monday after Morgan Stanley slashed its price target to $100 from $140 and gave a downbeat assessment of the memory chip sector.

The bank warned that although it’s difficult to predict cyclical peaks, “both NAND and DRAM are losing steam, and our inflection signposts suggest chillier conditions from here.”

The analysts wrote in a report to clients that while memory chip demand is still moving up, “the rate of change is approaching a peak as supply catches up to demand.”

Morgan Stanley Sees Sector’s Earnings Growth Reversing

They added that they see the sector’s earnings growth reaching the top and then reversing in the coming quarters, with a nearly 30% price-to-book (P/B) ratio contraction, “and a higher chance of investors resetting positions.”

The analysts argued that even if valuations look good as stock prices fall, it doesn’t make sense to buy the dips because they anticipate “better entry points in the future.”

Shares of Micron Technology fell 4.5% Monday afternoon to $87.10. They are up about 2% in 2024.

Read the original article on Investopedia.

Five weeks ago, what can arguably be described as the most important data release of the third-quarter occurred — and I’m not talking about the July inflation report.

No later than 45 calendar days following the end to a quarter (Aug. 14 in the latest instance), institutional investors with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F provides a clear-cut rundown of which stocks Wall Street’s brightest, and often richest, investors bought and sold in the latest quarter. Even though these snapshots are up to 45 days old when filed, it offers invaluable insight into the stocks, industries, sectors, and trends have the attention of money managers.

However, 13F filings are a necessity for more than just investment institutions. Some of Wall Street’s largest and most-successful companies hold sizable stakes in other businesses, including Nvidia, and are required to file a 13F on a quarterly basis.

One such company, which has nearly $2 billion invested across 42 stocks, is Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), the parent of search engine Google, streaming platform YouTube, and autonomous ride-hailing service Waymo, among other ventures.

Alphabet is a search engine juggernaut… and much more!

Most investors are familiar with Alphabet because of its world-leading Google search engine.

In August, Google accounted for a mammoth 90.48% share of worldwide search, per GlobalStats. In fact, Google has held at least a 90% monthly share of global internet search dating back more than nine years. This makes it the undisputed go-to for businesses wanting to target users with their message(s) and affords parent Alphabet unbelievable ad-pricing power.

You’re probably also familiar with YouTube, the second most-visited social media site on the planet, with approximately 2.5 billion monthly active users. The launch of Shorts — short-form videos lasting 60 seconds or less — in the latter half of 2020 provided an additional opportunity for the company to capitalize on ad revenue.

I’d be remiss if I didn’t also mention that Alphabet’s Google Cloud is the world’s No. 3 cloud infrastructure service platform by spending, with 10% of the market, per Canalys, as of the June-ended quarter. Following years of losses, Google Cloud shifted to recurring profits in 2023 and hasn’t looked back. Since cloud-service margins often outpace advertising margins, this segment should be a key cash-flow driver for Alphabet throughout the remainder of the decade.

But Alphabet is also an investor. It has nearly a quarter of its portfolio invested in development, security, and operations software developer GitLab, and more than 16% of invested assets tied up in Arm Holdings. Arm generates its revenue via licenses and royalties from chipmakers that use its designs to produce central processing units, graphics processing units, and other hardware.

However, it’s not what Alphabet holds that’s raising eyebrows. Rather, it’s the two core artificial intelligence (AI) stocks it’s been selling in consecutive quarters.

CrowdStrike Holdings

The first AI stock Alphabet’s investment managers have shown the door in back-to-back quarters is cybersecurity solutions provider CrowdStrike Holdings (NASDAQ: CRWD). After reducing its stake in CrowdStrike by a third during the March-ended quarter, Alphabet slashed its remaining position by another 50% (427,894 shares) in the June-ended quarter. CrowdStrike is now Alphabet’s fourth-largest position, down from No. 2, where it began 2024.

Valuation is the likely culprit behind this selling activity. Even though CrowdStrike has blown the door off of Wall Street’s consensus growth forecasts for years, it was trading at nosebleed price-to-sales (P/S) and forward price-to-earnings (P/E) ratios. Locking in gains was likely deemed a prudent move.

The more recent concern with CrowdStrike — albeit one that occurred in July, which wouldn’t be detailed by the latest round of Form 13Fs — is a botched update to its Falcon security platform that caused significant downtime for select industries and customers. It’s not uncommon for these snafus to cost cybersecurity companies revenue in the short run.

On the bright side, CrowdStrike’s error was self-inflicted and had nothing to do with a cyberattack. Prior to this July outage, businesses had demonstrated a willingness to pay a premium for CrowdStrike’s services given its history of protecting against breaches.

What’s more, CrowdStrike has mastered the art of the add-on sale within the cybersecurity arena. In less than seven years, it went from a single-digit percentage of its customers purchasing four or more cloud-module subscriptions to 65% of its clients using five or more cloud modules, as of the July ended quarter.

The cherry on top for CrowdStrike is that cybersecurity solutions have evolved into a basic need service. No matter how well or poorly the U.S. economy is performing, businesses with an online or cloud-based presence need to protect their data.

With the cloud-native Falcon platform only growing more effective over time, thanks to AI, Alphabet’s brightest investment minds may regret their decision to sell a collective two-thirds of their stake in CrowdStrike.

DexCom

The other AI stock that Alphabet’s investment team has been dumping for two straight quarters is medical-device giant DexCom (NASDAQ: DXCM). After shedding slightly north of 51% of its stake in the maker of continuous glucose monitoring systems (CGMs) in the first quarter, Alphabet sold another 42.1% of its position (753,836 shares) in the second quarter. This former No. 1 holding of Alphabet has slipped to No. 6 and now accounts for about 6% of invested assets.

Similar to CrowdStrike, valuation has long been the glaring red flag with DexCom. Although it’s been growing sales at a relatively steady rate of around 20% for years, DexCom’s P/S and forward P/E ratios have always been eyebrow-raising.

The more-pressing concern of late for DexCom is what might happen to its business as a result of glucagon-like peptide-1 (GLP-1) agonist drugs hitting the market. GLP-1 therapies have been shown to reduce weight in patients taking them, and obesity is a common co-morbidity for people with diabetes. Although studies have shown that patients on GLP-1 drugs are more likely to use CGMs, DexCom’s second-quarter operating results, which were reported in July (i.e., after 13Fs were filed), did little to quell these concerns.

DexCom lost 40% of its value in the blink of an eye after lowering the midpoint of its full-year sales guidance by about $250 million and highlighting a laundry list of challenges during the quarter. CEO Kevin Sayer pointed to lower revenue per user and the company restructuring its sales team as key reasons for this shortfall. In particular, Sayer believes a lack of sales team coverage in select geographic areas led to the company’s new patient count coming up short.

If there’s a silver lining here, it’s that DexCom is one of the two leading providers of CGM devices, and should, in theory, benefit from the sheer number of people diagnosed with diabetes in the U.S. and worldwide climbing.

DexCom can also lean on its various AI solutions to differentiate itself and provide value to its users. This includes everything from glucose control for its infusion pumps to helping users with dietary assessments to optimize their blood glucose levels.

But the nature of DexCom’s earnings miss is concerning, to say the least. Color me not surprised if Alphabet continues to purge DexCom from its investment portfolio in the September-ended quarter.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, CrowdStrike, GitLab, and Nvidia. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.

Uh-Oh! Alphabet Is Selling Its Stake in 2 Historically High-Flying Artificial Intelligence (AI) Stocks was originally published by The Motley Fool

Shares Surged Nearly 8% in Extended Trading on Monday

Key Takeaways

• Intel shares surged nearly 8% in extended trading on Monday, adding to big gains during regular trading, after the embattled chipmaker’s CEO Pat Gelsinger provided an update on the company’s plans to slash costs and turn around its business.

• Although the shares hit a new multi-year low this month, they have made a partial recovery to currently trade near their September high, potentially forming a hammer, a candlestick pattern that suggests a bullish reversal.

• Investors should monitor important support levels on Intel’s monthly chart at $20, $17, and $14, while watching key resistance areas at $25 and $35.

Intel (INTC) shares surged in extended trading on Monday after the embattled chipmaker’s CEO Pat Gelsinger provided an update on the company’s plans to slash costs and turn around its business.

Gelsinger said in a note to employees released after the closing bell that Intel has made progress in lowering costs through layoffs, trimming its real estate footprint, and selling part of its stake in its Altera programmable chip unit, among other steps.  The company also plans to turn its chipmaking arm into a separate subsidiary and said it would produce chips for Amazon (AMZN), as well as the U.S. military.

Intel shares rose 7.9% in after-hours trading to $22.56. The stock had risen more than 6% during regular trading hours following a report from Bloomberg on the contract to produce custom chips for the military. Even with Monday’s gains, the stock has shed more than half its value since the start of the year.

Below, we’ll take a closer look at Intel’s monthly chart and use technical analysis to identify key historical price levels worth watching.

Potential Hammer Candlestick Forming

After encountering significant selling pressure at the closely watched 50-day moving average (MA) in December last year, Intel shares have trended sharply lower, falling as much as 64% since that time. Importantly, trading volumes have increased during the stock’s sell-off, indicating conviction behind the move.

Although the shares hit a new multi-year low this month, they have made a partial recovery to currently trade near their September high, potentially forming a hammer—a candlestick pattern that suggests a bullish reversal.

Looking ahead, investors should monitor several key price levels on Intel’s chart that will likely gain close attention.

Important Support Levels to Watch

Firstly, it’s worth keeping a close eye on the $20 area, a price level the stock reclaimed on Monday. This location on the chart finds a confluence of support from the psychological round number and a horizontal line that connects a range of historical trading levels in the chipmaker’s stock from 1997 to 2012. Confirmation of a September hammer pattern at this key level would register a significant win for the bulls.

Story continues

However, a continuation of Intel’s downtrend could see the shares fall to around $17, where they would likely find support from a period of consolidation in the stock between 1997 and 1998, an area that also closely aligns with troughs in 2006 and 2010.

Longer-term weakness may bring the $14 region into play, an area on the chart where buy-and-hold investors would likely seek entry points near prominent swing lows that formed during the dotcom bubble correction of 2002 and great recession in 2009.

Key Overhead Levels to Monitor

If an upside reversal takes place in Intel shares, investors should initially keep an eye on the $25 level, a key overhead area where the stock could run into resistance from a horizontal line linking multiple peaks and troughs between 1997 and February last year.

A move above this area could see the shares climb to $35, where they may encounter selling pressure near a trendline joining a series of price action from 1999 to October 2023 with the closely-aligned 200-day moving average.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own any of the above securities.

Read the original article on Investopedia.

Key Takeaways

• Intel shares surged in extended trading Monday after CEO Pat Gelsinger offered an update on the company’s turnaround plans.

• Gelsinger said Intel has made progress in lowering costs through layoffs, trimming its real estate footprint, and selling part of its stake in Altera, among other moves.

• The company also plans to turn its chipmaking arm into a separate subsidiary and said it would produce chips for Amazon, as well as the U.S. military.

Intel (INTC) shares surged in extended trading Monday after CEO Pat Gelsinger offered an update on the chipmaker’s plans to cut costs and bolster its business, with investors awaiting signs of a turnaround for its stock.

Shares were up over 8% shortly after the closing bell, after gaining 6% during the regular trading session. Even with those gains, though, Intel’s shares have lost more than half their value since the start of the year.

Intel Plans To Turn Intel Foundry Into Separate Subsidiary

Gelsinger said Intel has made progress in lowering expenses through layoffs, trimming its real estate footprint, and selling part of its stake in its Altera programmable chip unit, among other steps to cut costs.

The company also said it plans to turn Intel Foundry, which makes chips for other companies, into a separate subsidiary, a move that Intel said will give it greater independence, allow it to seek financing independently, and help Intel “optimize the capital structure of each business.” Recent reports had suggested that Intel might sell the operation.

Intel To Make Chips for Amazon, US Military

Intel also announced multibillion-dollar agreements to produce custom chips for Amazon (AMZN), as well as the U.S. military. The Pentagon news was first reported by Bloomberg.

“This news, combined with our [Amazon Web Services] announcement, demonstrates the continued progress we are making to build a world-class foundry business,” Gelsinger said in a release.

Gelsinger added the chipmaker will still be moving forward with projects in Arizona, Oregon, New Mexico and Ohio, adding that Intel remains “well-positioned to scale up production around the world based on market demand.”

Read the original article on Investopedia.

It’s no secret that Nvidia‘s (NASDAQ: NVDA) stock price has surged in recent years thanks largely to its association with artificial intelligence (AI), particularly the massive spending being done to expand data center computing power. Along with the price surge has come a surge in valuation for the stock.

If you are the type of investor who doesn’t like buying hot stocks at hefty valuations but still wants some exposure to the spending jump related to AI and data centers, Johnson Controls (NYSE: JCI) might be the answer. Here’s why this heating, ventilation, and air-conditioning (HVAC) specialist offers a great AI-related alternative to high-priced Nvidia.

Wall Street upgrades Johnson Controls

Johnson Controls stock received some positive ratings from heavyweight Wall Street investment companies recently. Bank of America analysts upgraded the stock to a buy rating and increased the price target to $80 (from $76), while Morgan Stanley analysts initiated coverage on Johnson Controls with an $85 price target and an overweight rating.

Analysts at both firms mentioned positive indicators involving end-market exposure for Johnson Controls. Bank of America’s analyst asserted that Johnson Controls will generate 14% of its revenue from data centers this year. At the same time, Morgan Stanley’s analyst said the company’s solutions help building owners create efficiency gains — a good theme as property owners seek to cut costs.

The AI/data center angle is relevant to the HVAC sector. Robust HVAC solutions are needed to maintain a controlled environment in data centers so equipment can perform optimally.

That’s one reason why HVAC companies’ shares have generally outperformed this year. However, Johnson Controls has underperformed its immediate peers, Trane Technologies (NYSE: TT) and Carrier Global (NYSE: CARR).

It also trades at a valuation discount to its peers.

Opportunities for a new CEO

One reason the stock underperformed the competition was management’s patchy record with guidance. Johnson Controls missed its own estimates on earnings in 2022 and sales in 2023. That pattern continued in its fiscal 2024 (which ended Sept. 30, 2024). During its fiscal Q2 earnings call in May, management maintained its guidance for full-year organic sales growth in the mid-single-digit range, only to cut it to approximately 3% in its Q3 report released on July 31.

It’s unclear if the company’s disappointing execution is why activist hedge funds are taking positions in the stock. Still, we know George Oliver announced he would retire as CEO in conjunction with that same third-quarter report. Hopefully, its next leader will be able to take advantage of the company’s significant growth opportunities.

Story continues

Why Johnson Controls can outperform

While organic sales growth of 3% isn’t what investors expected this year, the company’s orders and backlog continue to grow. Oliver noted “strong demand for our data center solutions,” and asserted, “We have built a leading position in data centers in North America, due to a unique and compelling customer value proposition.”

Alongside the growth in data center demand to support the computing power needs of AI, Johnson Controls has an excellent growth opportunity coming from the trend of retrofitting buildings as owners strive to cut costs and reduce their carbon footprint. These efficiency gains are also being driven by the increasing use of digital technology in buildings, and the company continues to see strong adoption of its OpenBlue digital platform.

Restructuring to focus on its core business

A third catalyst that could lift its stock price comes from the company restructuring to focus on its core commercial and industrial HVAC business, not least by agreeing to sell its residential and light commercial HVAC business to Bosch in a transaction valued at $8.1 billion. (Johnson Controls will receive $6.7 billion.)

Alongside the sale of its air distribution technologies business, Johnson Controls will divest businesses responsible for about 20% of its overall sales, becoming a much more focused company in the process.

A stock to buy

After those divestitures, an even larger share of the company’s revenue will come from data centers and AI, while the underlying growth from the race to net zero will continue to support order and backlog growth.

Johnson Controls may not be as exciting a stock as Nvidia, but the company looks undervalued given its potential. Investors can expect good returns from the stock if management delivers on the opportunities outlined above.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool recommends Johnson Controls International. The Motley Fool has a disclosure policy.

Forget Nvidia, Buy This Magnificent Stock Instead was originally published by The Motley Fool