NVIDIA Corp

NVIDIA Corp (Nasdaq: NVDA) designs graphics processing units to improve the computing experience. It manufactures semiconductor chips that are used in gaming, data center, and automotive infotainment systems.

Investment Highlights – EXPENSIVE at USD 712.41

• The regulatory approval for NVIDIA’s Arm deal announced is still pending (British chip technology firm), the Company might not be able to meet its deadline of March 2022. It can pull back the stock’s overstretch stance.
• It also announced a four-for-one split of common stock in the form of stock dividend.
• From a technical standpoint, 14-day RSI (71.97) indicates an overbought stance at the current levels, share price retracement is expected in the short-term.
• All major valuation multiples (EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow) are overvalued against the Technology industry’s median.

Key Risks

• The regulatory block on US$40 billion bid of Arm Holdings can lead to a significant price retracement.
• The macro-economic disruption can also impact consumer confidence and their spending capacity.

Recent News

Acquisition: On 10 June 2021, NVIDIA announced the acquisition of DeepMap to strengthen its mapping products and expand self-drive expertise.

Q1 FY22 Financial Highlights (for three months ended 2 May 2021, as of 26 May 2021)

 (Source: Company website)

• During Q1 FY22, NVIDIA reported an 84% year-on-year hike in revenue, driven by 106% year-on-year growth in gaming revenue and 79% year-on-year growth in revenue from data center.
• Similarly, GAAP EPS for Q1 FY22 surged 106% on Q1 FY21 to US$3.03, driven by the record revenue supported by the boosted demand.
• For the first quarter of FY21, the Company also paid cash dividends of US$99 million.

Share Price Chart

 (Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

The stock price has topped its 52-week high in the current week, while there is a heightened level of macroeconomic uncertainties. NVIDIA is certainly well-positioned to capitalize on artificial intelligence driven market opportunities. However, the stock has already gained massive momentum and hovering at the overbought territory. Any softening in demand due to macroeconomic volatility can pull back the share price. Even the regulatory apprehension regarding the deal of Arm Holdings can impact the growth prospects. The stock made a 52-week High and Low of USD 752.20 and USD 356.00, respectively.

Based on an overblown stock position, macroeconomic instabilities, unfavourable valuation conducted above, we have given an “EXPENSIVE” stance on NVIDIA Corp at the closing price of USD 712.41 (as on 16 June 2021), while we look forward to reviewing the demand recovery.

Citigroup Inc

Citigroup Inc (NYSE: C) provides banking services globally and caters 200 million customer accounts in over 160 countries and jurisdictions.

On 14 July 2021, Citigroup has scheduled to release its Q2 FY21 results.

Investment Rationale – WATCH at USD 71.46

• Citigroup’s share price fell sharply yesterday ahead of the Federal Reserve statement, as its CFO cited a warning on trading revenue. Moreover, it anticipates a higher level of expenses in Q2 FY21.
• Economic instabilities, subdued card volumes, and lower cost of credit can continue to hamper the net income and value of investments.
• From a technical standpoint, 20-day EMA (USD 76.45) indicates a bearish momentum in the stock.
• Over the past four quarters, net interest margin, loan growth, and deposit growth have remained below the current industry median.

Risk Assessments

• Lower treasury yield can lead to a bearish momentum for the financial stocks.
• Increased expenses in Q2 FY21, as cited by the Chief financial officer (CFO) Mark Maso can impact the overall profitability.

Recent News

On 8 June 2021, Citigroup announced the redemption of 3.400% Notes of US$1.75 Billion and US$750 Million Redemption of Floating Rate Notes. Both the notes were due for July 2021.

Financial Highlights for the quarter ended 31 March 2021 (as on 15 April 2021)

 (Source: Company Website)

• During Q1 FY21, revenues declined 7% year-on-year due to lower rates.
• However, the lower cost on credit and higher revenues in Investment Banking and Equity Markets have driven the net income to US$7.9 billion, increased considerably year-on-year.
• The increase in net income and a slight decline in share outstanding surged the earnings per share to US$3.62 in Q1 FY21.

Share Price Chart

 (Analysis done by Kalkine Group)

Valuation Methodology: Price/Book Approach (FY21) (Illustrative)

Conclusion

Despite the pandemic led disruption, Citigroup has maintained stable and strong capital levels. However, lower interest rates and subdued card volumes across all regions impacted the sales of global consumer banking. Notwithstanding, the likelihood of higher interest rates can support the financial entities. Amid high volatilities and recent profit warning, the stock appears to be overstretched following the revenue decline in Q1 FY21. Therefore, we do not recommend investing in this stock presently; however, we are keeping a close watch over the Federal’s Interest Rate Decision and how things pan out for Citigroup. The stock made a 52 week High and Low of USD 80.29 and USD 40.49, respectively.

Based on rising cost, declining revenue, economic instabilities, unfavourable valuation conducted above, we have given a “WATCH” stance on Citigroup Inc at the closing price of USD 71.46 (as on 16 June 2021), while we look forward to reviewing the Q2 FY21 results. 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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