Nasdaq NVDA Nvidia

Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel, one standout is the iShares Russell 1000 Growth ETF (Symbol: IWF) where we have detected an approximate $612.1 million dollar inflow -- that's a 1.0% increase week over

Data centers are the physical facilities that house networks of servers and storage systems. Enterprises rely on those facilities to safeguard data, run applications, and manage business workflows. In short, data centers are the heart of the modern information technology (IT) eco

When I became an institutional FX trader in 1999 at the introduction of the euro currency, there was much concern among respected economists that the US dollar would lose great favor as the Chinese sold their Treasury securities and sought the sounder money of European sh

In just a little over three weeks, Nvidia (NVDA) is due to report its Q1 2022 earnings. Perhaps in preparation for that big event, investment bank Morgan Stanley announced it is resuming coverage of the semiconductors giant -- and provided a few thoughts on the company ahead of earnings. 

"Nvidia," writes Morgan Stanley analyst Joseph Moore, "remains one of the best growth names in the semis space [and] is a core holding." For this reason, the analyst says Morgan Stanley's approach will be "to at least maintain a market weighting in the stock, and look for spots for an overweight." In other words, Moore appears to be saying here that under no circumstances would Morgan Stanley consider rating Nvidia a Sell.

Moore notes that Nvidia has built "a strong, differentiated cloud [artificial intelligence / machine learning] business and leading position in gaming." That being said, the gaming business does pose some concerns.

Near term gaming numbers look "solid," says Moore, and over the long term as well, the analyst says he's bullish on Nvidia's "prospects and market positioning." However, he does predict a deceleration in gaming revenues "that should result in a modestly challenging 2023" -- helped only partially by Nvidia's strength in selling server chips to data centers.

So much for the business. Now let's consider the stock price. Nvidia continues to grow both sales and earnings for now, but even so, "earnings growth will likely be partially offset by multiple compression," especially as inflation and interest rates rise and investors become less willing to pay large price tags for earnings far in the future. This could prove a problem for Nvidia stock, which sells for "a meaningful premium to everything else."

By Moore's calculation, Nvidia stock sells for 38 times current year earnings and 32 times forecasts for earnings in 2023. (Valued on trailing earnings, the stock has an even higher P/E of 48). Even the most generous measurement of earnings, therefore, would require Nvidia to achieve and maintain 32% long-term earnings growth to maintain a PEG ratio of 1.0 -- and 32% long-term growth could be problematic.

In part it's because these multiples are already so high that "the stock has traded sideways since the broader high-growth tech selloff that we saw to start the year." But a second reason for Nvidia's failure to outperform of late is because the gaming business is expected to decelerate this year.

As the pandemic winds down, government handouts dry up, and Americans head back to the office to work, there's going to be less time, and less money available to spend on gaming and on gaming hardware, depressing sales of the GPUs that have always been Nvidia's forte. Additionally, recent weakness in crypto prices is hurting demand for Nvidia GPUs that have been repurposed for cryptocurrency mining, putting at risk "about $800 mm per quarter [in sales of graphics chips] across the industry."

With these concerns in mind, Moore assigns Nvidia an equal-weight (i.e. Hold) rating for now, and a $217 price target. By the analyst's own admission, however, "equal-weight" is about as low a rating as Morgan Stanley is prepared to ever assign Nvidia. (To watch Moore's track record, click here)

The rest of the Street is more optimistic than Morgan Stanley. 21 Buys and 6 Holds have been issued in the last three months, making NVDA a Strong Buy. At $331.14, the average price target brings the upside potential to ~68%. (See NVDA stock forecast on TipRanks)

To find good ideas for tech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

What happened Shares of Nvidia (NASDAQ: NVDA) were sliding this morning, likely based on comments an analyst made about Nvidia and as the Federal Reserve is poised to raise interest rates at its meeting today.

Wall Street's main indexes fell on Wednesday as a rise in U.S. Treasury yields hit growth stocks ahead of a widely expected interest-rate hike that could be the biggest since 2000.

The S&P 500 and the Nasdaq slipped on Wednesday as growth stocks lost ground, while banks gained ahead of a Federal Reserve policy decision expected to result in the biggest interest rate hike since 2000.

What happened Shares of Advanced Micro Devices (NASDAQ: AMD) fell 21.8% in a rough April, according to data from S&P Global Market Intelligence. The semiconductor company was hit hard in a bad market for technology stocks, especially those that cater to consumer PCs.

Advanced Micro Devices (NASDAQ: AMD) reported earnings after the closing bell on Tuesday, and shares were up over 6% after hours on the news. The company reported 71% sales growth in the first quarter with a beat on both the top and bottom lines. AMD's earnings per share were $1.

U.S. stocks were set to open higher on Wednesday following positive earnings from companies including Starbucks and Advanced Micro Devices, while investors braced for the biggest U.S. interest rate hike since May 2000.

The market has beaten down the semiconductor sector over the past several months, as supply chain issues strain the industry's ability to keep up with demand. With shares of the top semiconductor players undervalued, here's why Micron Technology (NASDAQ: MU) may be too cheap to i

U.S. stock index futures rose on Wednesday helped by positive earnings updates from companies such as Starbucks and Advanced Micro Devices, with the Federal Reserve likely to deliver the biggest interest rate hike since May 2000.

If you like to buy stocks while they're on sale, there's certainly no shortage of choices right now. The S&P 500 (SNPINDEX: ^GSPC) fell almost 9% in April alone, with nearly 200 of its constituents down by double-digit percentages in April. A handful fell by more than 30%, ma

Stock markets may be falling left and right, but not every investor is upset about it. In fact, the first quarter of 2022 was the busiest buying season Berkshire Hathaway investors have seen from Warren Buffett and Charlie Munger since 2008.

In the latest trading session, Nvidia (NVDA) closed at $196.02, marking a +0.35% move from the previous day. The stock lagged the S&P 500's daily gain of 0.48%. Meanwhile, the Dow gained 0.2%, and the Nasdaq, a tech-heavy index, added 0.19%.

Among the underlying components of the Russell 3000 index, we saw noteworthy options trading volume today in Chemours Co (Symbol: CC), where a total of 7,220 contracts have traded so far, representing approximately 722,000 underlying shares. That amounts to about 50.7% of CC's

Tech shares have taken a beating in 2022 as higher interest rates decreased the present value of future earnings growth. Investors are thinking twice before paying above-market multiples, and are focusing on value stocks instead.

However a somewhat overlooked fact is that technology companies often have a very conservative capital structure. Most big technology companies, such as Apple (AAPL), are sitting on a net cash position. This is in contrast to utility and real estate companies, which often use leverage to juice up returns.

Avenues to Deploy Excess Capital

There are several different ways companies can deploy this excess cash. First, they can invest it in their core businesses and grow organically. Second, they can use it for acquisitions. Third, they can return it to shareholders via dividends and buybacks. Lastly, they can keep their options open, and keep the dry powder on their books.

The last option allows companies to exploit periods of market turmoil to boost returns. This is what Warren Buffet does at Berkshire Hathaway (BRK.B). Berkshire ended Q1 2022 with around $103 billion in cash, down from $144 billion at the end of Q4 2021. In essence, Berkshire deemed the opportunities in Q1 2022 worth deploying some 28% of its cash pile.

It is likely that dropping share prices will prompt corporate treasurers to deploy the excess cash reserves accumulated in the good days. Nevertheless, as we have seen at Berkshire, some of the cash will remain on the books.

In this article I will explore what effects rising rates will have on corporate profits for some of the tech companies sitting on the largest cash pile.

Apple

At the end of Q1 2022 -- which for Apple is Q2 given the September financial year -- the interest-sensitive portions of Apple's balance sheet were as follows:

Balance sheet item, USD billionAssetsLiabilitiesCash and equivalents$28.1Marketable securities$164.6Commercial Paper$7Term debt$113Total$192.7$120Selected Balance Sheet Items, Author's calculations based on Q1 2022 disclosure

In total, Apple is sitting on a net cash position of about $72.7 billion, which could fetch an extra $2 billion a year in pre-tax profits if reinvested at the 3% Fed funds rate currently expected by the market over the medium term.

The impact from the extra income largely depends on Apple's product cycle. I think the effect will be more noticeable in years without major product releases. Overall though the impact should be a boost to earnings by 2-3%.

Alphabet (GOOGL)

At the end of Q1 2022, the interest-sensitive portions of Google's balance sheet were as follows:

Balance sheet item, USD billionAssetsLiabilitiesCash and equivalents$20.9Marketable securities$113Long-term debt$14.8Total$133.9$14.8Selected Balance Sheet Items, Author's calculations based on Q1 2022 disclosure

Overall, Google has at its disposal some $119.1 billion net for reinvestments, which could boost pre-tax income by some $3.3 billion over the medium term. Given the more conservative balance sheet of Google as compared to Apple, the boost to earnings should be around 4%.

Meta Platforms (FB)

At the end of Q1 2022, the interest-sensitive portions of Facebook's balance sheet were as follows:

Balance sheet item, USD billionAssetsLiabilitiesCash and equivalents$14.9Marketable securities$29Total$43.9Selected Balance Sheet Items, Author's calculations based on Q1 2022 disclosure

Curiously, Facebook has no debts. As the company moves into a more mature phase, this may prompt the corporate treasurer to diversify the capital structure.

This should allow debt investors to have an allocation towards Facebook, and at the same time potentially lower the cost of capital.

As things stand, the net cash position of around $43.9 billion should bring an extra $1.2 billion in pre-tax income over the medium term. The overall boost to pre-tax income should be around 3%.

Amazon (AMZN)

At the end of Q1 2022, the interest-sensitive portions of Amazon's balance sheet were as follows:

Balance sheet item, USD billionAssetsLiabilitiesCash and equivalents$36.4Marketable securities$30Long-term debt$47.5Total$66.4$47.5Selected Balance Sheet Items, Author's calculations based on Q1 2022 disclosure

Amazon recorded a sharp drop in marketable securities in Q1 2022 to $30 billion, down from $59.8 billion in Q4 2021. This was partly the result of a $8.2 billion valuation loss, of which $7.6 billion was due to a writedown in the value of Rivian (RIVN).

As of the end of Q1 2022, Amazon held a circa 18% stake in the electric car maker. Overall, the benefit to pre-tax profit from the reinvestment of the spare cash would be in the 1%-2% range.

Microsoft (MSFT)

At the end of Q1 2022 -- which for Microsoft is Q3 given the June financial year -- the interest-sensitive portions of Microsoft's balance sheet were as follows:

Balance sheet item, USD billionAssetsLiabilitiesCash and equivalents$12.5Short-term investments$92.2Long-term debt$50Total$104.7$50Selected Balance Sheet Items, Author's calculations based on Q1 2022 disclosure

The reinvestment of the net cash position of Microsoft at circa $54.7 billion would results in a pre-tax earnings boots of close to 2%.

Intel (INTC)

At the end of Q1 2022, the interest-sensitive portions of Intel's balance sheet were as follows:

Balance sheet item, USD billionAssetsLiabilitiesCash and equivalents$6.2Short-term investments$32.5Debt$37.25Total$38.7$37.25Selected Balance Sheet Items, Author's calculations based on Q1 2022 disclosure

Despite boasting a large absolute cash pile, Intel's actual net cash position is negligible when the debt is taken into account.

Tesla (TSLA)

At the end of Q1 2022, the interest-sensitive portions of Tesla's balance sheet were as follows:

Balance sheet item, USD billionAssetsLiabilitiesCash and equivalents$17.5Short-term investments$0.5Debt and finance leases$4.8Total$18$4.8Selected Balance Sheet Items, Author's calculations based on Q1 2022 disclosure

Automakers have traditionally relied on having a sizable cash pile to ride out industry downturns. Tesla's $13.2-billion net cash position could boost pre-tax profits by $350 million, or 5%-6%, which is quite significant in percentage terms.

In absolute terms, however, given the market capitalization of the company, the effect would be negligible.

Nvidia (NVDA)

At the end of January 2022, the interest-sensitive portions of Nvidia's balance sheet were as follows:

Balance sheet item, USD billionAssetsLiabilitiesCash and equivalents$2Short-term investments$19.2Long-term debt$10.9Total$21.2$10.9Selected Balance Sheet Items, Author's calculations based on January 2022 Annual report

Nvidia boasts a net cash position of around $10.3 billion. A reinvestment at the expected 3% Fed funds rate could boost pre-tax returns by $275 million, or close to 3%.

Summary

When it comes to the cash pile of tech companies, the devil is in the details. Overall, the group will be a net beneficiary of higher rates.

Older tech companies, such as Intel, Microsoft, and Apple, have a more diversified capital structure, and a sizable debt component.

Over the short term, Tesla looks like the biggest winner of higher rates. However, this is the result of a small pre-tax profit relative to the net cash position.

I expect the effect to diminish as car production increases in the future, boosting pre-tax profits. Over the medium term, Google parent Alphabet should be the biggest beneficiary of higher rates, given its meaningful $119.1 billion net cash and cash equivalents position.

All in all, while higher rates will by no means be a main driver for tech earnings, most names should experience an earnings per share bump of several percentage points.

The effect may end up being slightly larger over the very short term. This is due to the fact that the debt companies have issued is usually with a fixed interest rate.

Eventually, these bonds will have to be refinanced at higher rates. In the meantime, however, their immediate cash reserves can be redeployed very quickly at the higher Fed funds rate.

Of course, this is offset by the fact that companies themselves have invested a portion of their marketable securities into longer-duration instruments.

At the end of the day, there is still a silver lining for tech shares when higher rates are concerned.

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U.S. stock indexes were mixed on Tuesday as financial shares rose and megacap growth stocks slid, with investors bracing for a big interest rate hike by the Federal Reserve this week to tame surging prices.

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