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These 7 Blunt Words Just Opened a Can of Worms For Pfizer's Stock

27.10.2024 by admin

Pfizer‘s (NYSE: PFE) burgeoning tiff with activist investor group Starboard Value looks like it’s escalating. Since the activist took a $1 billion stake in the drug developer, it’s been an open question as to what it wants changed and how it proposes to do so.

Now, after a presentation at the 13D Monitor Active-Passive Investor Summit by Starboard’s CEO Jeffrey Smith on Oct. 22, there’s a lot less ambiguity. In particular, Smith had seven simple and brutal words that shed light on his group’s perspective on Pfizer and its management.

If you’re a shareholder or thinking about investing in this stock, you need to know what he said and why it opened a can of worms.

“The track record here is not great,” quipped Smith, referring to Pfizer’s recent lack of new launches of blockbuster drugs capable of earning more than $1 billion per year in revenue.

Starboard’s criticism is targeted squarely at Pfizer CEO Albert Bourla, who has led the pharma juggernaut since early 2019. Though the activists applaud Bourla’s leadership during the coronavirus vaccine and therapeutics races, they allege that the business lost between roughly $20 billion and $60 billion in value under his tenure, depending on how the figure is calculated.

Starboard identifies four key issues with Pfizer:

Its recent internal research and development (R&D) efficiency
Its expected future returns on R&D investments
Its capital allocation strategy
Its forecasting and budgeting processes

On the first two issues, the group’s account is hard to dispute. Despite repeated glowing public reports from the CEO about the strength of the pipeline, and 10 potential blockbuster drugs teed up for launch between 2019 and 2022, a series of late-stage clinical trial failures and worse-than-anticipated sales performance of the approved medicines left shareholders with dashed hopes.

Furthermore, despite management’s optimism about the business’ ongoing attempt to develop a drug for treating obesity and type 2 diabetes — potentially opening the door to accessing a market that could be worth as much as $100 billion by 2030 — Starboard correctly points out that, so far, Pfizer’s efforts have not been successful.

Another issue is that for the programs currently in Pfizer’s pipeline, the anticipated return on R&D investment is just 15%, putting it far beneath practically all of its big pharma peers, which expect a median return of 38%. Part of the problem is that its top line is only estimated to grow by around 41% between now and 2030, excluding both its coronavirus products and the revenue it’ll lose when certain patents expire. The activists point to this problem as being the root cause of the pharma’s ongoing struggle.

But Starboard’s complaints don’t stop there. It says that the company overpaid for its recent acquisitions, like the $43.4 billion it spent on acquiring the oncology drug developer Seagen. It also claims that Pfizer’s sales and earnings forecasting capabilities are less accurate than its competitors’, leading to large shortfalls between the revenue guidances it has told investors and what it actually accomplished.

Pfizer’s management has yet to respond, but they’re likely to, and soon.

Starboard’s only publicly stated and explicit demand of Pfizer’s board of directors so far is that it needs to “hold management accountable to achieve the appropriate returns on capital.” The subtext appears to be that it wants the CEO swapped out for someone else who can make more prudent investments in R&D, via either internal work or through acquisitions and licensing deals. It likely has some concrete suggestions for how to go about accomplishing those priorities as well.

Are Starboard’s arguments valid, and are the claims it’s making accurate? In large part, the answer to both these questions is yes. Pfizer has indeed encountered a slew of clinical-stage stumbles in recent years, and it’s also true that many of management’s statements about expected sales performance have ultimately been overly optimistic.

Similarly, the struggles of its weight loss and diabetes program have been somewhat exacerbated by the company’s reluctance to accept mediocre efficacy data on its face, and start from scratch with a new attempt. And while it’s somewhat subjective, it’s very plausible that it overpaid for certain businesses or pharmaceutical assets amid its binge of acquisition activity over the last few years.

With the exception of the failed clinical trials, which are in large part an unpredictable and inevitable reality of the industry, the buck for most of those pitfalls stops with upper management.

But more important than Starboard’s claims is that it’s now ensuring that there will be public feuding with Pfizer’s management and major shareholders. This feuding will generate bad press, and it has a significant chance of hurting Pfizer’s share price. It could also push management to take ill-advised actions in an attempt to save face or address the activist’s concerns. The company’s strategy is now something that’s a contested issue, rather than a unified plan.

All this makes Pfizer a riskier stock to invest in today than it was a year ago.

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Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,154!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,777!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $406,992!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 21, 2024

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.

These 7 Blunt Words Just Opened a Can of Worms For Pfizer’s Stock was originally published by The Motley Fool

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Billionaire Jeff Yass Just Increased His Position In This Dirt Cheap Artificial Intelligence (AI) Stock By 148%. Here Are 3 Things Smart Investors Should Know.

27.10.2024 by admin

Every quarter, investment firms that manage more than $100 million file a form 13F with the Securities and Exchange Commission (SEC). I find the 13F to be a valuable tool because it breaks down in detail which stocks institutional investors are buying and selling, and it can be interesting to try and identify patterns among Wall Street’s biggest money managers.

One investor that I enjoy following is Jeff Yass, the co-founder of Susquehanna International Group (SIG). During the second quarter, SIG purchased roughly 5 million shares of artificial intelligence (AI) stock Super Micro Computer (NASDAQ: SMCI) — increasing its position in the company (also known as Supermicro) by 148%.

Below, I’m going to break down the mechanics of Supermicro’s place in the AI realm and address some important topics that should be considered when investing in the company.

Supermicro often comes up when semiconductor companies such as Nvidia or Advanced Micro Devices are mentioned. For this reason, many investors perceive Supermicro as another chip stock — but in reality, this isn’t exactly right.

Supermicro is an IT infrastructure business that specializes in designing storage architecture for Nvidia’s and AMD’s graphics processing units (GPU). So, while demand in the chip industry has direct influences on Supermicro’s operation, the company itself is not a true semiconductor stock.

Although Supermicro has undoubtedly benefited from AI tailwinds, the financial profile below paints a pretty sobering reality.

Namely, Supermicro’s gross profit margin is trending in the wrong direction. Despite consistent acceleration across the top line, Supermicro’s unit economics are pretty backward.

While management has said that these headwinds will be short-lived, the reality is that IT infrastructure is not a high-margin industry. This dynamic leads me to my next important topic: competition and the risk of commoditization.

While Supermicro has done a respectable job of fostering relationships with some of the world’s leading GPU producers, these relationships are by no means exclusive.

Supermicro competes with plenty of other businesses that offer IT architecture solutions, including Dell Technologies, Hewlett Packard Enterprise, Lenovo, and Cisco. These companies are much larger and more diverse than Supermicro, making them formidable rivals.

Broadly speaking, when the same solution is offered by many players within the same industry, companies become forced to compete on price. So, even though Supermicro’s management has been forecasting increasing operating profit, I question how profitable the company will ever become as competition heats up.

People working inside of a data center. — Image source: Getty Images.

I think the biggest topic investors need to be aware of when considering an investment in Supermicro is allegations made against the company by Hindenburg Research. Hindenburg is a short-seller, which means the firm has a financial interest in seeing a stock price decline.

Since Hindenburg published its short report on Aug. 27, shares of Supermicro had dropped by 16%.

To summarize, Hindenburg alleges that Supermicro’s financial controls and accounting practices may contain errors, perhaps intentionally. Considering Supermicro did wind up delaying its annual report, it’s clear why some investors sold the stock and moved on. Almost as concerning is a Wall Street Journal report that the U.S. Department of Justice is looking to Hindenburg’s claims.

With all of this said, nothing material has come from Hindenburg’s allegations yet, and it seems that the pronounced sell-off is rooted more in fear than anything concrete.

Supermicro currently trades at a forward price-to-earnings (P/E) multiple of about 13.5. As the chart below indicates, Supermicro’s valuation multiples have deteriorated in recent months as speculation rises over the company’s future.

I can see how the allegations against the company may spur some panic selling. Meanwhile, the packed competitive landscape does make Supermicro’s long-run profitability picture hard to forecast. Nevertheless, I see Supermicro remaining as an important business in the world of IT infrastructure.

In the near term, I think Supermicro’s most obvious catalyst is the planned launch of Nvidia’s Blackwell GPU architecture. Furthermore, as businesses continue pouring billions of dollars into AI infrastructure, such as data centers, network connectivity solutions, and GPUs, I’m hard-pressed to buy into the narrative that Supermicro isn’t well positioned for the long run.

While I understand the risks surrounding Supermicro, I see the decline in the company’s valuation as a rare opportunity to scoop up shares of a growth stock at a more reasonable price.

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,154!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,777!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $406,992!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 21, 2024

Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Cisco Systems, and Nvidia. The Motley Fool has a disclosure policy.

Billionaire Jeff Yass Just Increased His Position In This Dirt Cheap Artificial Intelligence (AI) Stock By 148%. Here Are 3 Things Smart Investors Should Know. was originally published by The Motley Fool

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Ask an Advisor: At 70+ With $3.5 Million in Stocks, Should We Rebalance to a 60/40 Portfolio?

27.10.2024 by admin

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.

I am 73 and my wife is 70 with one son. We have $235,000 in a savings account and we each have $250,000 in Roth IRAs. We also have $1.675 million in a brokerage account and $1.55 million in a 401(k). Everything other than the two Roths are invested solely in stocks and the two Roths are 60% stocks and 40% bonds. With Social Security and pensions, our monthly income is $11,000 and we save about $3,800 monthly. Should we change our brokerage and 401(k) accounts to a 60/40 mix and move some of our savings to money market accounts or bonds?

– Randy

Great question, Randy. It may make sense in your case to base this decision on what you want your money to do for you. Adjusting your asset allocation from 100% in stocks to 60% stocks and 40% bonds is a pretty standard move for typical retirees but I don’t think it’s necessary in your situation. Depending on your goals, your current asset allocation could have room for improvement, though. (And if you need additional help managing and investing your retirement savings, consider working with a financial advisor.)

The primary reason for holding a 60/40 portfolio in retirement is its balance between growth and stability. Ideally, the stock allocation powers the long-term growth of your portfolio so you don’t run out of money while the bond portion produces income for withdrawals.

This asset allocation may make sense for a lot of retirees who are taking regular withdrawals from their investments to cover retirement expenses. However, you don’t seem to be in that position.

If I read your question correctly, you have a guaranteed income of $11,000 per month and save almost $4,000 from that money. It sounds like you aren’t taking regular withdrawals from your savings and don’t need to. If you have $235,000 in a savings account and a total of $500,000 in Roth IRAs already in a 60/40 allocation, that adds up to $735,000 of relatively stable money. That’s a pretty substantial balance of readily accessible money, especially if you aren’t relying on it for regular cash flow. (And if you want an expert to evaluate your asset allocation or to manage your portfolio, this free matching tool can connect you with up to three financial advisors.)

A retired couple looks over their investments and decides whether to shift to a 60/40 portfolio.

You have several good options for the remaining money in your 401(k) and brokerage account. Depending on what you want to do with the money and the purpose it serves, I think you can either leave it invested aggressively or switch to a more conservative allocation such as 60/40 split.

If what I mentioned above about your cash flow is correct – that is, you and your spouse want to maximize growth with the remaining money – you could leave it invested as it is. You just have to be comfortable with potential market volatility. An aggressive stock-heavy asset allocation will provide a higher expected return that allows you to grow a larger balance over time but it will likely be much more sensitive to market swings.

However, long-term growth may not be your goal. If you would feel better with a larger balance dedicated to your potential spending needs, it would be perfectly fine to rebalance your portfolio and shift to a 60/40 split between stocks and bonds. Either way, I think you are choosing between two good options.

Of course, be mindful that your 401(k) is subject to required minimum distributions (RMDs). However, that doesn’t have to drive your asset allocation decision since you can simply take the distribution in-kind and transfer it to your taxable brokerage account if you want. (And if you need help managing your RMDs and limiting their tax impact, consider working with a financial advisor.)

A bond ladder or CD ladder is a strategy for investing in assets with different maturities.

As for your savings, think about where this money currently resides. If it’s in a regular savings account earning something near the national average of about 0.5%, then you’d likely be able to get a better interest rate if you move it to a high-yield savings or money market account at the least. You can easily find these accounts offer APYs between 4% and 5%. On a $235,000 deposit, an extra 4.5% would be $10,575 more per year. That’s meaningful to most people.

Remember that the rate you earn on a high-yield savings account may change at any point, so if you want to lock in rates for a little longer you may also want to consider short-term bonds or certificates of deposit (CDs). If you decide to go with bonds or CDs, I’d recommend looking into spreading it out over a few different maturities using what’s known as a bond ladder or CD ladder. That way, all of your money isn’t tied up for the same amount of time.

When a bond or CD within the ladder matures, you simply reinvest that money into a new one. For example, perhaps you have a six-month CD and a 12-month CD. When the six-month CD matures you can buy another 12-month CD. Your original 12-month CD will only have six months remaining before it matures. You just repeat the process until you need to spend the money. (A financial advisor can help you set up a CD or bond ladder, or simply help you figure out how much you should keep in savings.)

None of this is mandatory, however, especially if your money is already in something like a high-yield savings account. If that’s true, you may find that the hassle of shopping around and moving your money will likely only yield a small increase and may not be worth the hassle.

You seem to have sufficient cash flow from your Social Security and pensions, with an adequate savings balance to cover unplanned expenses. Either of the asset allocation moves you mentioned could potentially be appropriate depending on your goals for the money. If you want to bolster your retirement income for added security, then a 60/40 allocation would serve your needs better than your current 100% stock allocation, but your current allocation may lead to a larger balance over time.

Your portfolio’s asset allocation should typically align with your risk tolerance, goals and/or time horizon. SmartAsset’s asset allocation calculator can help you determine how much of your portfolio should be invested in stocks, bonds and cash based on your risk profile.
A financial advisor can help you make important decisions surrounding your retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column. Questions may be edited for clarity or length.

Please note that Brandon is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset, and he has been compensated for this article. Questions may be edited for clarity or length.

Photo credit: ©iStock.com/insta_photos, ©iStock.com/DNY59

The post Ask an Advisor: We’re in Our 70s With Nearly $3.5 Million Invested ‘Solely in Stocks.’ Should We Switch to a 60/40 Portfolio? appeared first on SmartReads by SmartAsset.

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How Much Will Nvidia Pay Out in Dividends in 2025?

27.10.2024 by admin

Investing in dividend-paying stocks is one of the easiest ways to start raking in passive income. The tricky part? Deciding which stocks to invest in and how long it’ll take to see some solid cash roll into your account.

One strategy is to start researching companies you are already familiar with, like Nvidia (NASDAQ: NVDA). The iconic chipmaker has a market cap of over $3 trillion and a spot among the “Magnificent Seven” stocks. Plus, Nvidia rewards loyal investors with a dividend.

All told, the dividend yield probably won’t have income investors jumping for joy — it’s a paltry 0.02%. However, paying dividends says something about the company’s confidence. It’s a small sign that they believe in their financial stability, which means those cash flows could keep coming in.

Brace yourself: Nvidia’s quarterly dividend payout is a mere $0.01 per share, adding up to just $0.04 annually. And unless the company cranks up the payout, we could be looking at the same amount in 2025. Not exactly a jackpot for income investors, but here’s some perspective:

Stock splits: Nvidia pulled off a 10-for-1 stock split back in June, which means each share got split into 10. Adjusted for this, that $0.01 per share is like getting $0.10 per share before the split. So, the payout appears smaller per share but is proportionate to the total value held.
Dividend increases: Companies can boost their dividends at any time, which can increase your payout. For example, back in May, Nvidia raised its quarterly cash dividend by 150%, from $0.04 to $0.10 per share.
Growth potential: Instead of paying out more in dividends, Nvidia funnels cash into research, development, and expansion in artificial intelligence and computing. If you can stomach the stock’s ups and downs, you might ride its long-term growth.

So, while Nvidia’s dividend is unimpressive, its growth story has investors drooling. If you’re hunting for a company focused on future gains rather than massive payouts today, Nvidia should definitely be on your watchlist.

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $867,372!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

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From Nvidia to nuclear power to extra spicy hot sauce

27.10.2024 by admin

This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

The earnings avalanche has commenced.

And what does that mean?

You’ve probably missed a lot of other stories that could impact your portfolio. After all, there’s more to one’s investing life than modeling out 2050 profits for Nvidia (NVDA) and wondering whether Tesla (TSLA) will haul in $10 billion in sales from humanoid robots.

In the spirit of this, here are a couple of convos I had this week that may leave you thinking (hopefully).

AI meets extra spicy hot sauce: I was at a CEO dinner this week where an analyst specializing in AI proceeded to share the deep impact to businesses as AI proliferates. I tend to agree the way business is done will change profoundly, and it’ll include a good bit of job loss.

An example of AI’s impact is in Cholula hot sauce. Its parent, spice maker McCormick (MKC), held an investor day this week.

“We have used generative AI to really understand where all the commentary was going [for hot sauce], we learned there were some Cholula lovers out there that wanted a hotter version. So in January, we are launching an extra-hot version of Cholula,” McCormick CEO Brendan Foley told me on Yahoo Finance’s Market Domination Overtime.

McCormick reiterated its long-term sales growth guidance of 4% to 6% and earnings growth of 9% to 11%. Shares are up 16% year to date compared to the 22% gain for the S&P 500.

You can catch that full spicy segment here.

Building a 21st-century media company: The traditional media industry continues to be disrupted by everything from new streaming networks to creators posting on YouTube. Why else do you think Disney (DIS) said this week its CEO Bob Iger was sticking around until 2026 (he was rumored to be leaving in 2025)? He has to leave the business in a much better place than his last exit.

One of these disrupters in the past 15 years has been Dude Perfect. The company was started by five friends who went to Texas A&M and rose to fame for viral trick-shot videos posted on YouTube. The company now boasts 60.5 million subscribers and churns out a steady, broader array of content.

Armed with a new $100 million capital infusion from Highmount Capital, Dude Perfect is gearing up for more unique programming and the build-out of a headquarters in Frisco, Texas. In charge of bringing that vision to life? Dude Perfect’s first-ever CEO Andrew Yaffe, who took the job several weeks ago.

“I think people underestimate how big YouTube is,” Yaffe told me of the Google-owned (GOOG) platform on Yahoo Finance’s Opening Bid podcast (video above; listen in here). “YouTube is the biggest media platform in the US in terms of consumption. Bigger than Netflix (NFLX). And that’s growing quickly. It’s also the biggest outside the US. It’s massive — it is how people under the age of 34 consume content.”

Not massive: Google’s stock price year to date. Shares have lagged the S&P 500’s 23% gain, rising only 16%.

Why leaders should think about DEI differently this presidential election season

Big Blue is a big AI player: So much gets lost on a company’s earnings day as traders zoom in on the numbers and a couple of trends on the earnings call. Ultimately this is why I think companies should be reporting twice a year, but that’s a discussion for a different day.

One number that got lost in IBM’s earnings release Wednesday (which led to a shellacking in the stock price as consulting sales missed estimates): $3 billion of AI-related project backing. IBM’s veteran CFO Jim Kavanaugh tells me the company is tracking toward adding $1 billion in AI project backlog a quarter.

That’s huge and aligns with what Kavanaugh thinks is a long runway for AI infrastructure buildout.

“In my personal opinion, I think it’s going to be the longest [adoption] curve that we’ll see also because it’ll play in many different industries and many different clients,” Kavanaugh said.

That bullish sentiment was echoed in a convo I had on Opening Bid with BofA analyst Vivek Arya this week, where he went into how AI’s buildout will require the use of nuclear power. More insight on that and how it will benefit market darling Nvidia here.

Our Morning Brief anchor Seana Smith will be diving into IBM’s AI future with chairman and CEO Arvind Krishna at our annual Invest conference on Nov. 12. Want to stop by and say hi and be in the room for some wealth-building chats? Register here!

There is still a Marriott running Marriott: Meet David S. Marriott, 50, who assumed the chairman role at Marriott (MAR) from his legendary father J.W. “Bill” Marriott, Jr., 92, in 2022. David’s father — who is chairman emeritus — served as chairman for 60 years and CEO for 40 years. Mind-blowing! Bill’s parents, Alice Marriott and J. Willard Marriott, founded the company as an A&W root beer stand in 1927.

Suffice it to say, the younger Marriott hardly does interviews (he travels a lot and has four children) — so it was a treat to spend time with him on Opening Bid.

“I spent several summers doing internships in the kitchen, learning how to prep food, hot food, cold food, and learning how to cook on the line. And, I spent a summer as a bellman and spent some time making beds and working behind the front desk,” Marriott told me of his on-the-job training.

The full pod drop of our chat is at 8:30 a.m. ET on Monday. Be sure to tune in on Yahoo Finance or listen in on your podcast platform of choice.

And since you were wondering: Shares of Marriott are up 111% in the last five years. Hilton (HLT) is up 155%.

David S. Marriott (left) prefers to be called David. His father is known inside the company as Mr. Marriott. · Yahoo Finance

Three times each week, I field insight-filled conversations with the biggest names in business and markets on Opening Bid. Find more episodes on our video hub. Watch on your preferred streaming service. Or listen and subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.

Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

Click here for in-depth analysis of the latest stock market news and events moving stock prices

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Super Micro Computer vs. Lumen Technologies: Wall Street Says to Sell One of These AI Stocks and Hold the Other

27.10.2024 by admin

The excitement behind artificial intelligence has driven the market to all-time highs. Any company that can tie its business to the future of artificial intelligence has seemingly done well, promising huge demand for its products or services from a new and untapped market.

But as valuations have soared, the short sellers have moved in, trying to find stocks that can’t live up to the promise or hype. Short sellers have honed in on the computer server and cloud provider Super Micro Computer (NASDAQ: SMCI) and the telecommunications company Lumen Technologies (NYSE: LUMN). Wall Street analysts are telling investors to sell one and hold the other. Let’s take a look.

Lumen Technologies runs one of the largest interconnected fiber-optic cable companies, which powers high-speed internet, cable television, and phone services for consumers and businesses. Lumen’s stock has shot up about 250% this year, largely due to the belief that its fiber-optic network will serve as critical infrastructure in connecting data centers needed to power artificial intelligence. Lumen in August reported that demand for AI has led to $5 billion of new business.

However, short sellers like Kerrisdale Capital have started to doubt the company’s valuation and how much it can truly benefit from the AI boom. In late August, Kerrisdale, in a short report, suggested that buying into the AI hype around Lumen is premature and that the $5 billion of new business is “a desperate bid to raise cash amid deteriorating revenues and growing liquidity concerns.” Furthermore, Kerrisdale states that Lumen’s future sales opportunities do not include leading tech firms that are leveraging AI but are to older, more antiquated businesses still in discovery mode when it comes to AI.

Wall Street seems to agree with Kerrisdale. Of the eight analysts cited by TipRanks, zero are telling investors to buy the stock; there are five holds and three sell ratings. On Wall Street, this might as well be a sell rating. The average analyst price target is $4.09, which implies about 38% downside. I suspect some of these hold ratings are from firms that may have a business relationship with Lumen or want to keep the possibility open.

Lumen also has a high debt of close to $20 billion. While the company is trying to engineer a turnaround, given the stock’s big run and questions surrounding its role in AI, I would also avoid the stock until the company provides more evidence of sales related to AI.

The computer server and storage maker Super Micro Computer is the most shorted stock in the S&P 500 (as of Oct. 21), with more than 21% of the company’s outstanding float sold short. The company has also benefited tremendously from AI because investors believe its products can be used as key infrastructure to store data that powers AI and machine learning. The stock has ripped 68% this year.

In late August, Hindenberg Research issued a short report, suggesting there is evidence of accounting malfeasance. The Securities and Exchange Commission charged Super Micro Computer with accounting violations in 2018 due to incorrect revenue recognition and understated expenses. Now, Hindenberg alleges that management and other employees have returned to incorrect accounting practices. The report says that three senior employees who left amid the scandal have been hired back.

According to TipRanks, three Wall Street analysts tell investors to buy the stock, 10 analysts recommend hold, and one suggests selling the stock. However, the average price target among them is $64, suggesting 34% upside from the current stock price.

Supermicro did delay the filing of its most recent annual report. However, CEO Charles Liang said in a filing the company doesn’t anticipate any material changes to its financials based on the work done so far. Liang also noted that the company created a committee to review internal controls and that he would address claims from the short report “in due course.”

Cases like this are risky because general investors will have difficulty obtaining or analyzing information needed to make a decision. While the company has potential, I wouldn’t recommend taking any significant position here until more is known, especially considering past violations.

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,154!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,777!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $406,992!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 21, 2024

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Super Micro Computer vs. Lumen Technologies: Wall Street Says to Sell One of These AI Stocks and Hold the Other was originally published by The Motley Fool

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Magnificent 7 shake-up: Why Wall Street is reassessing Tesla's position and looking toward Netflix

27.10.2024 by admin

Tesla (TSLA) has work to do if it wants to remain among tech elites.

Despite a surprising earnings report that sent the EV maker’s stock surging — resulting in its biggest intraday jump in over a decade — Wall Street is once again reevaluating its inclusion in the Magnificent Seven.

The group’s members — Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT), and Tesla — dominated markets in 2023 and have returned as a potential key driver as third quarter earnings season gets underway. The group is expected to lead with 18.1% year-over-year earnings growth in Q3, and four of the stocks — Nvidia, Alphabet, Amazon, and Meta — are projected to be in the top 10 contributors to S&P 500 earnings growth, according to FactSet.

The debate over Tesla has returned as concerns linger despite its earnings resurgence. Tesla’s third quarter profits jumped 17%, a dramatic turnaround after two quarters of declines.

That’s not enough for Wall Street: Strategists tell me it’s still at risk of falling behind the rest of Big Tech due to overhyped fundamentals.

Freedom Capital Markets chief global strategist Jay Woods likened Tesla to bitcoin, suggesting the stock trades more on “hopes and dreams” than fundamentals.

“Tesla had its moment in the sun … to me, it’s more like a Cisco or an Intel during the dot-com bubble, and now we’re moving on to other things,” Woods warned on Yahoo Finance’s Morning Brief.

While CEO Elon Musk has often categorized Tesla as a tech company, the firm’s AI and robotics bets will likely take years to pay off. In the meantime, Tesla must rely on improving its core auto business — a stark contrast to its Magnificent Seven peers.

“I’ve been in the tech sector since 1990, and I remember the Four Horsemen … We didn’t add an auto stock with Cisco, Intel, Dell, and Microsoft,” longtime tech investor Dan Morgan told me.

Tesla’s recent underperformance and high valuation further strain its standing among its Mag Seven peers. At nearly 73 times forward earnings, its forward price-to-earnings multiple far exceeds others in the group.

As of Friday afternoon, just over 40% of analysts covering Tesla rated the stock a Buy, according to Bloomberg data, making Tesla the least favored Magnificent Seven stock among analysts.

As far as Tesla’s replacement, Netflix has emerged as a strong contender.

Wealth Enhancement Group’s Ayako Yoshioka noted to me that Netflix “makes the most sense,” as shares of the original FAANG member recently hit an all-time high, buoyed by strong earnings and solid guidance.

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Why This Green Bitcoin Miner Could Be the Next Big AI Infrastructure Stock

27.10.2024 by admin

The artificial intelligence (AI) revolution is driving unprecedented demand for energy-intensive data centers. The International Energy Agency projects that data centers may account for up to one-third of the anticipated increase in U.S. electricity demand through 2026.

Major tech companies, like Microsoft, Amazon, and Alphabet, are racing to secure clean energy power sources, such as nuclear energy, to meet their mounting energy needs. One under-the-radar company with established renewable infrastructure is uniquely positioned to capitalize on this accelerating trend.

Digital oil rigs mining Bitcoin. — Image source: Getty Images.

TeraWulf (NASDAQ: WULF) operates Bitcoin (CRYPTO: BTC) mining facilities powered by approximately 95% zero-carbon energy sources, primarily hydroelectric power. The company’s revenue surged 130% year over year to $35.6 million in the second quarter of 2024, driven by an 80% increase in operational mining capacity and higher Bitcoin prices.

Moreover, TeraWulf has significantly strengthened its financial position by eliminating its debt ahead of schedule. This clean balance sheet positions TeraWulf to fund its ambitious expansion plans in both cryptocurrency mining and AI infrastructure.

TeraWulf is leveraging its existing clean energy infrastructure to enter the high-performance computing and AI market. The company has already completed a 2.5 megawatt (MW) proof-of-concept project designed for next-generation graphics processing unit (GPU) technology.

Additionally, construction is underway on a 20 MW colocation facility engineered to support AI workloads. The facility includes advanced features, like liquid cooling and redundant power systems typical of premium data centers. It is scheduled to kick off operations in Q1 2025, according to the company.

TeraWulf recently secured $425 million through a convertible note offering at a reasonable 2.75% interest rate, reflecting strong institutional investor confidence. The company plans to use these funds for strategic acquisitions and the expansion of data center infrastructure to support its AI computing initiatives.

Furthermore, TeraWulf’s board recently authorized a $200 million share repurchase program through December 2025, signaling management’s belief that the stock may be undervalued despite rising approximately 165% year to date.

TeraWulf’s clean energy resources give it a unique edge in the rapidly growing AI infrastructure market. Major tech companies are actively seeking sustainable power sources for their energy-intensive AI operations, making TeraWulf’s zero-carbon data centers particularly attractive.

Wall Street anticipates this strategic advantage will fuel TeraWulf’s growth, projecting revenue to increase 214% through 2025 as the company expands from Bitcoin mining into AI computing services. The timing appears ideal, as demand for sustainable data center capacity continues to outpace available supply.

TeraWulf’s core bitcoin mining business faces significant challenges, as evidenced by the April 2024 reward halving, which significantly impacted miners’ profitability. This vulnerability to cryptocurrency market dynamics highlights why the company is diversifying into AI infrastructure.

While promising, the pivot to AI computing comes with its own risks. TeraWulf must prove it can convert its Bitcoin mining expertise into successful partnerships with major tech companies. The company’s ability to operate reliable, high-performance data centers at scale is also a work in progress.

The case for buying TeraWulf largely rests on whether you believe the company can successfully transform its zero-carbon Bitcoin mining operations into a thriving AI infrastructure business. While the company has removed key investment risks by eliminating debt and raising substantial capital, it remains early in this transition.

For investors convinced that AI’s growing energy needs will drive demand for sustainable data centers, TeraWulf could offer a significant upside at current prices. However, given the execution risks in this transformation, any position should be sized as a speculative portion of a diversified portfolio.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. George Budwell has positions in Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Bitcoin, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Why This Green Bitcoin Miner Could Be the Next Big AI Infrastructure Stock was originally published by The Motley Fool

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