Ticker Reports for December 13th
Broadcom: Turning the Mag 7 Into 8 Trillion-Dollar Tech Giants
Broadcom (NASDAQ: AVGO) is on the verge of turning the Magnificent Seven into Eight. The Mag Seven are the top U.S. stocks by market cap, all tech names, and the only United States stocks with trillion-dollar market caps. Broadcom was about 17% below that target going into the FQ1 2025 earnings report; coming out, the stock price surge went off the charts, rising nearly 17% to tickle the critical level and set a new all-time high. Because the results are driven by fundamental strengths, including high demand for AI-related products and AI's budding, multi-generational upgrade cycle drive, Broadcom stock will likely continue moving higher, enter the trillion-dollar market cap zone, and turn the Mag Seven into Eight.
Broadcom: An Intelligent Play on Artificial Intelligence
Broadcom reported mixed results; however, the bar was set high, revenue growth accelerated, and it topped 50%, so the expected top-line figure is much stronger than it may appear. The company’s growth is driven by strength in both segments, led by a 196% increase in Infrastructure Software. Its software products are critical to building and scaling AI. They are used by the leading hyperscalers and the businesses that use them, including Apple (NASDAQ: AAPL), Google (NASDAQ: GOOGL), and Meta Platforms (NASDAQ: META). Semiconductors, the largest business segment, grew by 12%.
Margin is another area of strength. Broadcom sustained its margin and drove better-than-expected cash flow despite the impact of restructuring, allowing the board to increase the dividend significantly. Cash flow came in at $5.604 billion, up from the prior year, with $5.482 billion in free cash flow or about 39% of the revenue. The net result is adjusted earnings of $1.42, up 28% year over year and $0.03 better than MarketBeat’s reported consensus.
The company's guidance is also good. It issued strong guidance for Q1, forecasting 22% year-over-year growth in addition to the 34% posted last year and a wider margin. The EBITDA margin is expected to widen sequentially by 100 basis points and 600 compared to the previous year, driving leveraged cash flow and FCF gains. The guidance is also above the consensus forecasts, leading analysts to raise their results and stock price estimates.
Analysts Lift Targets for AVGO Stock, Point to the $250 Level
The analysts' response to Broadcom’s results is solid, with more than one dozen tracked by MarketBeat raising their stock price target. All fresh targets are above $200, and most, about 60%, put the market in the $240 to $250 range. Takeaways from the chatter are that Broadcom increased confidence in the outlook for established business and impressed the market with long-term guidance for custom AI work. The company forecasted $90 billion in custom business by 2027, which is equal to 150% of the 2024 business, and it may be cautious in its estimates. With this in play and robust business, the analysts will likely continue to lift targets as 2025 progresses.
Broadcom’s balance sheet and capital return will also lift the stock price over time. Despite acquisitions, the company sustains a fortress balance sheet and significantly increased shareholder equity in F2024. Highlights include assets that have more than doubled on acquired intangibles and goodwill relating to the VMWare acquisition, only partially offset by increased liability. Equity is up nearly 3x compared to the prior year, leaving its long-term debt leverage at roughly 1x and the business healthy. Regarding the capital return, the company increased its dividend by 11% for 2025, about 35% of the expected earnings, and will likely be increased by double digits again at the end of the year.
Broadcom Stock Price Goes Off The Charts
Broadcom's stock price surged more than 15% on the news and analysts' response, rising to a new all-time high. The move put the market near the $212 level, where it may experience some volatility. At this level, the market is at an all-time high, and a significant gap has been created, which may lead to profit-taking. The market could pull back as deep as the previous day's close in this scenario before moving up to set new highs.
Nvidia is Pivoting to Solve Big Tech's $1 Trillion Problem
Taiwan Semiconductor, a partner of Nvidia's for more than two decades, has seen its shares explode as much as 4,744%.
Now, if you're like everybody else, you want to know what Nvidia's doing next … and who they're going to partner with …
SoundHound AI: Can Its Meteoric Rise Sustain Into 2025?
SoundHound AI (NASDAQ: SOUN) has been on a tear, with its stock surging 80% in the past month and nearly 200% this quarter. This explosive rally underscores the market’s speculative fervor, with capital pouring into small- to mid-cap stocks in hot themes like AI, nuclear energy, and quantum computing. The big question now is whether SoundHound can sustain its gains after breaking out above its previous 52-week high near $10 or if the stock is destined for a pullback as 2025 approaches.
SoundHound: A Leader in Sound and Audio Technology
SoundHound AI is a pioneer in voice-enabled artificial intelligence (AI) solutions, developing cutting-edge technology for devices and applications. Founded in 2005, the company’s flagship product, the SoundHound app, has amassed over 315 million downloads worldwide. Additionally, SoundHound has partnered with several prominent automakers to integrate its voice AI technology into vehicles.
Operating within the highly competitive AI sector, which is expected to grow exponentially in the coming decade, SoundHound faces stiff competition from giants like Google and Microsoft and emerging startups. The regulatory and political pressures surrounding AI technology worldwide further complicate the landscape.
While Business Grows, So Do Losses
SoundHound reported its Q3 2024 earnings on November 12, posting an EPS of -$0.06, which beat the consensus estimate of -$0.07. Revenue for the quarter surged 88.7% year-over-year to $25.1 million, exceeding analysts' expectations of $23.02 million. The company’s software-as-a-service (SaaS) business model generates stable, recurring revenue and has attracted high-profile clients, including Grupo Aeroméxico, BNP Paribas, and Aveanna Healthcare Holdings.
SoundHound is also expanding through strategic acquisitions, such as its $80 million purchase of Amelia AI, which adds a robust AI agent for backend business tasks. Amelia AI is expected to bring in $45 million in revenue, contributing to SoundHound’s 2025 projections of $150 million.
Despite these growth metrics, the company’s financial health is concerning. Operating losses soared 132% year-over-year in Q3 to $33.7 million, and the company shows no clear path to profitability. With losses escalating, SoundHound will likely burn cash for the foreseeable future, raising questions about its sustainability.
Growing Skepticism Amid Insider Selling
Investor skepticism is mounting, as reflected by the company’s elevated short interest of 25.22% as of November 30. This high short interest signals widespread doubt about SoundHound’s valuation and its ability to achieve profitability or meet capital demands.
Adding to the bearish sentiment is the significant insider selling. Over the past 12 months, insiders have sold $32.59 million worth of stock, with no insider purchases during this period. Recent insider activity is even more concerning: during Q4 alone, $25 million in stock has been sold, including nearly $12 million by the CEO in December.
Analyst Sentiment and Valuation Concerns
Analysts maintain a consensus Moderate Buy rating on SOUN, but the average price target of $7.64 suggests a potential downside of nearly 44% from current levels. While the company continues to grow its client base and revenue, these red flags, insider selling, lack of profitability, and rising short interest, cast doubt on its ability to sustain its current valuation.
Conclusion: A High-Risk Play
SoundHound AI has undoubtedly captured the market’s imagination with its growth potential and alignment with the AI megatrend. However, its escalating losses, significant insider selling, and bearish sentiment make it a risky bet for 2025. Investors with a high-risk tolerance may find opportunities in the stock’s speculative appeal, but caution might be warranted given the many challenges ahead.
I was wrong. Dead wrong.
I thought what happened 25 years ago was a once- in-a-lifetime event… but how wrong I was.
Because here we are, a quarter of a century later, almost to the exact day, and it's happening again.
3 Consumer Discretionary Stocks Ready for a Comeback in 2025
A clear sign that consumer confidence is returning is the post-election rally in consumer discretionary stocks. The Consumer Discretionary Select Sector SPDR Fund (NASDAQ: XLY), one of the leading consumer discretionary exchange-traded funds (ETFs), is up 24.7% in the last three months. That’s pushed the fund to a gain of over 31% in 2024, outpacing the S&P 500.
This is one time when investors may be better off investing in the sector ETF as opposed to investing in individual stocks. That’s because while many of the top names in the sector are participating in the current rally, they still have some catching up to do.
The good news is that 2025 is shaping up to be a good year for stocks in general. If consumer confidence results in growing incomes, discretionary dollars may start to shake loose. In that scenario, investors have several stocks that were beaten down in 2024 but look poised for a comeback in lockstep with the consumer. Here are three names to consider.
The Fundamentals Are Aligning for This Athleisure Giant
Despite being up over 57% in the three months ending December 11, 2024, Lululemon Athletica Inc. (NASDAQ: LULU) stock is still down over 21% for the year. However, trading at around $400 per share as of this writing, it appears that the market has done its work in setting more reasonable expectations for LULU stock.
The reason for the drop in the stock price is attributed to some inventory discrepancies in the United States and a slowdown in China. Both of those are true, but even though U.S. comparable sales have fallen 2% year-over-year (YoY) in the last two quarters, the company has still delivered higher YoY revenue and earnings in each of the last four quarters.
But what may have been good enough a couple of years ago wasn’t good enough in 2024. And once the sell-off started, investors didn’t need a reason to look for other opportunities. That said, with the company projecting about $16 in full-year earnings and with a forward price-to-earnings ratio of around 28x, the stock looks undervalued with a price target of around $451, which looks reasonable.
There’s Still Room to Slide Into CROX Stock
Crocs Inc. (NASDAQ: CROX) stock is up about 19% in 2024, but unlike other consumer discretionary stocks, the iconic footwear company’s shares are down about 13% in the last three months. And that’s a continuation of a trend that started earlier in the year.
Like Lululemon, the issue weighing on the stock isn’t about declining revenue and earnings. The company continues to beat on the top and bottom lines on a YoY basis. However, at the midpoint of the company’s fourth-quarter guidance, the company will generate $12.87 in earnings per share (EPS) for the full year. Combined with a forward P/E of 8.62, you get a price of around $110, which is right about where the stock is trading.
However, analysts have been bidding CROX stock higher since its quarterly earnings report in October. That’s likely due to the company’s dual priorities of paying down debt and buying back shares. Regarding the latter, the company has already repurchased $1.1 million in shares in 2024 and has $549 million left on its existing repurchase authorization.
YETI Stock May Be a Great Gift to Give Yourself
Yeti Holdings Inc. (NYSE: YETI) is a premium lifestyle brand known for its iconic coolers and drinkware. The stock has only been trading publicly since 2019, but that’s notable because the company offered the right products for the right time, as many consumers discovered (or tolerated) a love for the outdoors in 2020 and 2021.
However, driven by investor optimism and market sentiment—often referred to as "animal spirits"—YETI's stock price surged beyond its fundamentals. While revenue and earnings remain up year-over-year, such rapid growth was unsustainable after the boom of 2020 and 2021.
Nevertheless, the stock remains down 13% in 2024 despite a run-up of 19.7% in the last three months. At $44.80 per share as of the market close on December 11, YETI stock is right around the consensus average. However, the forecast for earnings and the company’s forward P/E suggest a gain of about 10%. However, that takes into account the company’s plans for a 9% increase in revenue for the full year 2024. That may be too low. And that gain may move higher if the company makes good on its plans to buy back about $200 million worth of its shares.
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