Applied’s Dreadful 3Q Performance Leaves Investors Scratching Their Heads
If investors heard a racket in the market this past Friday, perhaps the sound was Applied Optoelectronics Inc (NASDAQ:AAOI) shares clattering down 20%. Analysts across the Street are sounding off on this challenged fiber optics maker, where even the biggest bulls are dialing down on their expectations after a sharp third quarter revenue blunder. Hearsay suggests Amazon is the whale of a customer that sank Applied’s third quarter performance down the tube.
Why does analyst buzz point to Amazon as responsible for the fiber optics makers’ massive underclass? The corporate team noting the biggest account had plunged from 47% to a mere 10% of sales, showing that AAOI’s 40G was much less sought after this past quarter.
Needham analyst Alex Henderson continues to stand by Applied, but acknowledges that after such a miss, this “leaves many questions unanswered.”
In reaction to the fiasco that has investor sentiment currently quashed in its wake, the analyst reiterates a Strong Buy rating on Applied stock while meaningfully lowering the price target from $115 to $75, which implies a 61% increase from where the stock is currently trading. (To watch Henderson’s track record, click here)
Some of the questions Henderson finds himself asking about what could have happened that led to Amazon running for the hills include the following: “Was it competition? Was it timing of builds that stalled? Was it the shift to 100G is going to another vendor and if so why? Has increased competition from Intel altered the landscape? Is this a temporary lull in demand as the customer transitions designs to the new speed products? If there was an inventory build does that imply future GM pressure as the inventory is worked off? If the inventory is 40G does that imply a continued disconnect between current capacity of 100G and 40G? Does the work down of this inventory imply future GM pressure?”
For now, Henderson opines, “it looks like AAOI lost share in this account. AAOI does appear to have increased sales of 100G and has broadened its customer base. The company also sustained its Gs and was able to cut OPEX to mitigate some of the damage.” Between a steep decline in 40G, but 100G “still ramping,” the analyst holds out hope, anticipating, “we still think better days are ahead for AAOI.”
In turn, BWS Financial analyst Hamed Khorsand finds even more reason to find fault with the tech player, anchored in his bearish stance as Applied is eating the dust of likely Amazon’s revenue gone far down the drain.
Doubtful of the company’s ability to rebound in a competitive atmosphere, the analyst maintains a Sell rating on AAOI stock without listing a price target. (To watch Khorsand’s track record, click here)
As far as Khorsand is concerned, “AAOI will have a difficult time in recovering lost revenue from AMZN at the 100G level because there are several competitors AMZN already uses for 100G, not just AAOI.”
Consider Intel as one rival that could lead to Applied’s further undoing, says the analyst, who underscores that Intel “started to ship competing CWDM4 transceivers in the third quarter. The product release from INTC poses a threat to 100G revenue AAOI has been generating from Facebook.”
Meanwhile, Raymond James analyst Simon Leopold drums from Henderson’s long-term optimistic, short-term disappointed corner, reiterating a Strong Buy rating while reducing the price target from $107 to $86, which implies a close to 85% increase from current levels. (To watch Leopold’s track record, click here)
For all those running scared in the opposite direction from Applied after the quarterly flop, Leopold makes a claim in the company’s favor: “this is not the time to sell.”
Keep in mind, Leopold writes, “Top customer Amazon is in a transition, while other customers are growing robustly, and that the market for data center optical transceivers remains healthy.”
In fact, the fiber optics maker could dare to be at an advantage “even with less share at 100G than it held in 40G,” Leopold concludes.
Initial word still looks promising for this tech stock, as TipRanks analytics showcase AAOI as a Buy. Out of 9 analysts polled by TipRanks in the last 3 months, 7 are bullish on Applied stock while 2 are bearish on the stock. With a return potential of nearly 65%, the stock’s consensus target price stands at $77.38.
Nvidia Is a Spinning Top Ready to Prosper
With NVIDIA Corporation (NASDAQ:NVDA) rumored to post its third fiscal quarter earnings for 2018 on November 9th, top analyst Vijay Rakesh at Mizuho is coming out with a new research note strongly backing this chip giant. Wagering the company’s data center opportunity could be looking at a total addressable market ranging between a whopping $20 to $30 billion, with automotive comprising of roughly $1.8 billion of that pool of multi-billions, Rakesh is cheering for a better guide this earnings season.
“Strong GPU and trends in China data center bode well,” notes the analyst, who ahead of the quarterly print reiterates a Buy rating on NVDA stock while boosting the price target from $180 to $220, which represents a 13% increase from where the shares last closed. (To watch Rakesh’s track record, click here)
Part of Nvidia’s robust standing points to its compelling automotive opportunity thanks to self-driving car hardware, Drive PX Pegasus: “Automotive with Drive PX likely a tailwind into 2018E. While Drive PX/ PX2 is still priced at a $1,000-1,200 premium, we believe an accelerating autonomous roadmap and new Pegasus Autonomous AI platform with Zoox and others positions NVDA well.”
Rakesh contends: “We believe NVDA continues to see strong underlying trends in cryptocurrency and gaming ahead of company expectations, even as GPU pricing remains stable post launch. Recent GTC in Beijing points to new wins at the China hyperscale OEMs Tencent, Alibaba, Baidu and also Huawei (with the Volta V100) which should point to a better data center outlook. NVDA is also seeing increased traction with Inferencing with 40-100x performance from Volta versus CPUs […] We believe INTC and AMD earnings should be positive precursors on GPU and DL trends into NVDA’s OctQ earnings in early November.”
For fiscal 2018, the analyst maintains his expectations, projecting revenue to hit $9.0 billion and EPS to reach $3.62. In fact, the analyst is even more enthusiastic on Nvidia’s prospects approaching fiscal 2019, keeping estimates of $10.0 billion in revenue and $3.96 in EPS.
Vijay Rakesh has a very good TipRanks score with a 76% success rate and a high ranking of #24 out of 4,697 analysts. Rakesh garners 27.6% in his yearly returns. When recommending NVDA, Rakesh gains 89.1% in average profits on the stock.
How does this top analyst’s bullish praise echo against the rest of analyst consensus? TipRanks analytics reveal NVDA as a Buy. Based on 25 analysts polled by TipRanks in the last 3 months, 15 rate a Buy on Nvidia stock, 7 maintain a Hold, while 3 are bearish on the stock. The 12-month average price target stands at $174.05, marking a nearly 11% downside from where the stock is currently trading.