In today’s briefing:
- Altman Allure at OpenAI: Where the Hunter Gets Hunted
- Memory Monitor: Micron Expects 2025E to Be Best-Ever for Memory; But Valuations Have Run Up a Lot
- Micron. The Rally Is Premature
- Nvidia’s China Problems, Applied Materials, and Microsoft’s Accelerators
- SDRL: Course for Free Cash Flow
- GES: 3Q Review: Guess Goes Conservative for 4Q; Reiterate Buy, $32.50 Pt
- EXPR: 3Q Review; Cleaning Up the Mess; Reiterate Buy, Lowering PT to $20
- EXPR: Snapping the Store: Remedying Issues of Xmas Past; Reiterate Buy, $40 PT
- Airbnb Inc.: The GamePlanner.AI Acquisition & Investments In AI – Major Drivers
- Amgen Inc.: Expansion Of Oncology Research & Other Major Drivers
Altman Allure at OpenAI: Where the Hunter Gets Hunted
- Sam returned as the CEO of OpenAI days after his surprise removal. Its board was overhauled with new members – Larry Summers and Bret Taylor.
- The surprise removal of Sam was driven by philosophical differences over AI safety. Fears of employee exodus to Microsoft is the primary driver of his return to OpenAI leadership.
- Recent events have solidified Microsoft’s partnership with OpenAI and Sam. Outcome from fallout suggests Microsoft will have a larger role in shaping OpenAI’s future.
Memory Monitor: Micron Expects 2025E to Be Best-Ever for Memory; But Valuations Have Run Up a Lot
- Memory names have rallied strongly, with Nanya Tech outperforming since the start of November.
- DRAM bottomed and NAND flash prices have jumped. Micron says that 2025E could be a record year for the Memory industry.
- High valuations make near-term upside for Memory names uncertain. For Long/Shorts one can consider Long Micron vs. Short SK Hynix or Long Micron vs. Short Nanya Tech.
Micron. The Rally Is Premature
- Improving outlook with Q1F24 revenue forecast slightly above the high end of the guided range
- 2024 is being positioned as a “recovery year”, helping reset investor expectations about the nature and speed of the recovery
- Micron’s share price typically rallies strongest into record revenue years. 2024 will not be a record revenue year. As such, we think the present rally is premature.
Nvidia’s China Problems, Applied Materials, and Microsoft’s Accelerators
- Nvidia’s quarter was surprising to me because it was boring. There were a few incremental pieces, but the big news was everything to do with China.
- As you know, there was another round of export restrictions with a myopic focus on AI Accelerators.
- This impacted results and the outlook.
SDRL: Course for Free Cash Flow
- SDRL reported third quarter results exceeding expectations and announcing slight extensions to when near-term contracts would expire.
- There had been minimal news from SDRL to expect contract extensions. SDRL’s peers had been reporting a slowing in contract activity.
- The free cash flow SDRL is generating is being used for stock buy backs with the authorization doubled to a total of $500 million.
GES: 3Q Review: Guess Goes Conservative for 4Q; Reiterate Buy, $32.50 Pt
- We are reiterating our Buy rating and $32.50 price target for Guess?, after the company reported mixed 3QFY24 (October) results, with EBITDA handily beating Street consensus, but EPS a miss, driven by a higher than expected tax rate and slightly weaker top line results, as Europe saw slowing traffic and the domestic stores remain negative.
- Jeans), the recapture of the company’s license for domestic outerwear and a normalization of the expense base.
- As such, we are reiterating our Buy rating and $32.50 price target on GES, which now translates to 6.5X our new FY25 EBITDA.
EXPR: 3Q Review; Cleaning Up the Mess; Reiterate Buy, Lowering PT to $20
- We are cutting our projections and price target for Express, but maintaining our Buy rating after the company missed 3Q projections and guided to a materially weaker than expected 4Q.
- Further, with inventories heavier than expected ahead of the Holiday season (up 14% YoY, or flat if Bonobos is excluded) we expect the season to remain aggressively promotional and, in the near term, offset any gains from cost savings and other S,G&A reductions (and probably spill over into Q1FY24).
- Our new price target of $20 (down from $40) translates to 8.2X our new, materially lowered FY24 EBITDA projection.
EXPR: Snapping the Store: Remedying Issues of Xmas Past; Reiterate Buy, $40 PT
- We are reiterating our Buy rating, projections and price target for Express after visiting stores in Long Island and Connecticut.
- We believe, after a tough Xmas last year, Express offerings are materially more versatile, priced better and more inline with the split between fashion and basics to create multiple exciting looks and outfits.
- As such, we reiterate our Buy rating and price target for EXPR.
Airbnb Inc.: The GamePlanner.AI Acquisition & Investments In AI – Major Drivers
- Airbnb delivered an all-around beat in the previous quarter, reporting a net income of $4.4 billion, including a one-time income tax benefit of $2.8 billion from releasing a valuation allowance.
- Excluding this benefit, adjusted net income reached a significant $1.6 billion, representing a historic adjusted net income margin of 47%.
- The quarter’s free cash flow amounted to $1.3 billion, with a trailing 12-month free cash flow hitting an all-time high of $4.2 billion.
Amgen Inc.: Expansion Of Oncology Research & Other Major Drivers
- Amgen delivered a mixed set of results for the previous quarter, with revenues well below analyst expectations but managed earnings beat.
- The company achieved significant quarterly sales for seven key brands and witnessed substantial volume growth across general medicine, inflammation, and hematology/oncology portfolios.
- In bone health, Prolia reported a 14% year-over-year sales increase in the third quarter, buoyed by a 7% volume growth and higher net selling prices.
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