As the world embraces the “new normal,” dependence on technology will only increase. Many companies have developed innovative products and services through constant research and made a breakthrough in the market that have become a part of daily life for consumers and businesses.
It’s also possible that mega-cap tech stocks become less attractive if the regulatory environment becomes more stringent in the times to come and might call for diversification of the tech stocks in your portfolio. Most of the tech bellwethers that are exposed to the antitrust probe could lose their appeal in the market. This could result in investors adding smaller breakthrough tech stocks to their portfolios owing to their long-term growth potential.
November could be a slightly volatile month due to the Presidential Elections and uncertainty over the coronavirus aid package. The $2 trillion aid package has been adjourned until November 9th by the Republicans. Concerns over the second wave of coronavirus and a fragile economy will also weigh on investors.
NVIDIA Corporation (NVDA)
NVDA is one of the biggest manufacturers of graphics processing units (or GPUs) which are one of the most critical Components of gaming, AI, and autonomous vehicles. Besides GPUs, NVDA also allows scientists and researchers to conduct high-performance applications with higher efficiency through its parallel processing capabilities. In 2018, the company also ventured into mobile computing. It manufactures Tegra mobile processors for tablets, smartphones, entertainment systems, and automobile navigation.
NVDA believes in growing through the inorganic route and has been making strategic acquisitions to add capabilities to its data centers and AI platforms. On September 13th, NVIDIA and SoftBank Group Corporation announced that the former will acquire Arm Limited from SBG in a deal worth $40 billion. Arm specializes in designing smaller chips for an entire range of connected devices. NVDA aims to combine its world-class AI computing with Arm’s enormous ecosystem to create a cutting-edge AI company for larger, high-growth markets.
NVDA’s revenue for the second quarter ended July 2020 was $3.9 billion, up 50% from the same period a year ago. Its EPS also climbed 10% year-over-year to $0.99. NVDA also completed the acquisition of Mellanox Technologies during the quarter. The consensus estimate for NVDA’s revenue for the third quarter indicates a 46.4% increase year-over-year to $4.4 billion. EPS for the quarter is expected to grow 43.8% to $2.56.
On a year-to-date basis, NVDA surged 127.7% to close yesterday’s session at $505.08. The stock is trading 16.6% below its 52-week high of $589.07. Even as NVDA’s professional visualization and automotive platforms were hit by the pandemic, the company is well-placed to grow on the back of its strength in gaming, cloud computing, autonomous machines, and AI.
How does NVDA stack up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
B for Peer Grade
B for Industry Rank
B for Overall POWR Rating
NVDA is also ranked #5 out of 86 stocks in the Semiconductor & Wireless Chip industry
Adobe, Inc. (ADBE)
ADBE is a hi-end designing software and video editor. The company also offers a plethora of cloud-based products for web development, video editing designing, and photography. Illustrator, Photoshop, and After Effects are some of the major media editing tools offered by ADBE available via subscription.
On October 27, Microsoft Corporation (MSFT) launched C3 AI® CRM powered by Microsoft Dynamics 365 in association with ADBE and C3.ai. The service is the first enterprise-class, AI-first customer relationship management solution. The main objective of this solution is to drive customer-facing operations with predictive business insights. The collaborative force between ADBE and MSFT pits them against CRM, the market leader in customer solutions.
In the second quarter ended June, ADBE’s total revenue jumped 14% year-over-year to $3.1 billion. The Annualized Recurring Revenue or ARR for Digital Media jumped to $9.2 billion, while for Document Cloud, the ARR grew to $1.2 billion. The EPS for the second quarter was $2.27. Shantanu Narayen, President, and CEO of ADBE said. “The tectonic shift towards ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis.”
The EPS estimate for the third quarter indicates a 16.2% increase to $2.66, while the street estimates revenue to rise 12.3% to $3.4 billion. ADBE surged 45.1% year-to-date to close yesterday’s trading session at $456.97. In the past year, the stock has soared 76.6%.
It’s no surprise that ADBE is rated a “Buy” in our POWR Ratings system, with a grade of “B” in Trade Grade, Buy & Hold Grade, and Industry Rank. In the 96-stock Software – Application industry, it is ranked #11.
NOW is a cloud computing company that enables companies to manage digital workflows. Its software collects historical data of the IT departments and manages their services. It’s a self-use portal that enables company employees to access administrative and workflow tools. However, NOW has expanded its offerings beyond its core capabilities. It now provides software for human resources, customer service management, and security.
ServiceNow’s IT Service Management product is set to team up with an IBM Watson AI solution to analyze the historical data of the IT organizations and develop solutions for future problems. This is a huge opportunity for NOW to widen the reach of its hi-tech digital-workflow tools.
For the third quarter ended September 2020, NOW’s subscription revenues increased 31% year-over-year to $1.1 billion. The company’s revenue also topped the market estimate by a narrow margin. The company’s net new annual contract value indicated 41 transactions over $1 million. This totaled to 1,012 customers for the quarter, up 25% from the year-ago period. The buoyant performance during the quarter prompted the company to raise its full-year guidance for subscription revenue to $1.15 billion to $1.16 billion, indicating a 28% to 29% growth.
The street estimates NOW’s fourth-quarter revenue to be $1.2 billion, up 24.2% year-over-year. The EPS estimate for the quarter ending December 2020 is likely to be $1.11.
NOW rallied 77% year-to-date to close yesterday’s session at $484.05. During the past six months, the stock soared nearly 62%.
Hence, NOW is rated a “Buy” in the POWR Ratings. It holds an “A” in Trade Grade and Peer Grade and a “B” in Buy & Hold Grade and Industry Rank. It is the #4 ranked stock in the Software – Business industry.
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NVDA shares were trading at $525.85 per share on Thursday afternoon, up $20.77 (+4.11%). Year-to-date, NVDA has gained 123.78%, versus a 4.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...
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