How Investors Can Seize Opportunities in NVDA Amid Market Volatility

According to Todd Gordon, the founder of Inside Edge Capital, NVIDIA Corporation (NVDA) is a strong buy despite a recent pullback. The chart analyst also set a target price of $1,150 for the stock.

“I say that NVDA is just resting its legs gearing up for another move, but this time it's bringing more friends along for the run. There are quite a few different names in the semi-industry setup in a similar fashion telling me that once again the chips are ready to rip,” Gordon said.

Moreover, on March 13, Bank of America maintained its buy rating on NVDA and raised its price target from $925 to $1,100. As per BofA analyst Vivek Arya, Nvidia is expected to dominate the $90 billion accelerator market in 2024, unaffected by Google’s new CPU launch.

Last month, CNBC’s Jim Cramer suggested investors welcome an impending pullback. “I think people are right to expect a pullback here,” Cramer said. “But that’s not a reason to head for the hills. Instead, you want to raise a little cash, watch the market broaden — as it is doing — and then buy your favorite tech stocks when they come down.”

In Particular, Cramer said there may be an attractive opportunity to invest in one of his favorite stocks, NVDA. He hinted at his continued support for the tech giant over the years, even when the stock witnessed significant losses. While some on Wall Street might be growing weary of AI, Cramer emphasized that the future “runs on Nvidia.”

“If you don’t own Nvidia already, you know what? You’re about to get a sale,” he stated. “And if you do own it already, just stick with it, because it’s way too hard to swap out and then swap back in at the right level.”

Shares of NVDA have surged more than 75% year-to-date and nearly 223% over the past year. However, the stock has plunged around 3% over the past month.

Now, let’s discuss in detail factors that could influence NVDA’s performance in the near term:

Fourth-Quarter Beat on Revenue and Earnings

The chip giant reported fourth-quarter 2024 earnings that beat analysts’ expectations. For the quarter that ended January 28, 2024, NVDA’s non-GAAP revenue came in at $22.10 billion, surpassing analysts’ estimate of $20.55 billion. This compared to revenue of $6.05 billion in the same quarter of 2022.

The company posted a record revenue from the Data Center segment of $18.4 billion, up 409% from the year-ago value. NVIDIA achieved significant progress in this business segment. In collaboration with Google, NVDA launched optimizations across its data center and PC AI platforms for Gemma, Google’s groundbreaking open language models.

Further, the company expanded its partnership with Amazon Web Services (AWS) to host NVIDIA® DGX™ Cloud on AWS.

Regarding technological innovations, NVIDIA introduced several groundbreaking solutions, including NVIDIA NeMo™ Retriever. It is a generative AI microservice that enables enterprises to connect custom large language models with enterprise data, delivering highly accurate responses for various AI applications.

Additionally, NVIDIA launched NVIDIA MONAI™ cloud APIs, facilitating the seamless integration of AI into medical-imaging offerings for developers and platform providers.

The company’s Gaming revenue for the quarter was $2.90 billion, up 56% year-over-year. Talking about recent developments in the Gaming division, NVIDIA launched GeForce RTX™ 40 SUPER Series GPUs, starting at $599, featuring advanced RTX™ technologies such as DLSS 3.5 Ray Reconstruction and NVIDIA Reflex for enhanced gaming experiences.

The company also introduced microservices for the NVIDIA Avatar Cloud Engine, enabling game and application developers to integrate state-of-the-art generative AI models into non-playable characters, enhancing immersion and interactivity in virtual worlds.

NVIDIA’s non-GAAP operating income increased 563.2% year-over-year to $14.75 billion. Also, the company’s non-GAAP net income grew 490.6% from the previous year’s period to $12.84 billion. It reported non-GAAP earnings per share of $5.16, compared to the consensus estimate of $4.63, and up 486% year-over-year.

Furthermore, the company’s non-GAAP free cash flow was $11.22 billion, an increase of 546.1% from the previous year’s quarter. Its total current assets stood at $44.35 billion as of January 28, 2024, compared to $23.07 billion as of January 29, 2023.

During a call with analysts, Nvidia CEO Jensen Huang addressed investor concerns regarding the company's ability to sustain its current growth or sales levels throughout the year.

“Fundamentally, the conditions are excellent for continued growth” in 2025 and beyond, Huang told analysts. He added that the continued demand for the company’s GPUs would persist, driven by the adoption of generative AI and an industry-wide shift from central processors to Nvidia's accelerators.

For the first quarter of fiscal 2025, NVIDIA expects revenue of $24 billion. The company’s non-GAAP gross margin is expected to be 77%.

Recent Announcement of AI Chips During Nvidia GTC AI Conference

NVDA announced a new generation of AI chips and software tailored for running AI models during its developer's conference at SAP Center on March 18 in San Jose, California. This announcement underscores the chipmaker’s efforts to solidify its position as the go-to supplier for AI companies.

The new generation of AI graphics processors is named Blackwell. The first Blackwell chip is the GB200 and is anticipated to ship later this year. It will also be available as an entire server called the GB200 NVLink 2, combining 72 Blackwell GPUs and other Nvidia parts designed to train AI models. NVIDIA is enticing customers by offering more powerful chips to spur new orders.

The announcement comes as companies and software makers still scramble to get their hands on the current “Hopper” H100s and similar chips.

“Hopper is fantastic, but we need bigger GPUs,” Nvidia CEO Jensen Huang said at the company’s developer conference.

Further, the tech giant unveiled revenue-generating software called NIM, which stands for Nvidia Inference Microservices, to its Nvidia enterprise software subscription. NIM simplifies using older Nvidia GPUs for inference or running AI software and will enable companies to leverage the hundreds of millions of Nvidia GPUs they already own.

According to Nvidia executives, the company is transitioning from primarily being a mercenary chip provider to becoming more of a platform provider, like Microsoft Corporation (MSFT) or Apple Inc. (AAPL), on which other firms can build software.

Analysts at Goldman Sachs retained a buy rating of NVDA stock and raised their price target to $1,000 from $875. They expressed “renewed appreciation” for Nvidia’s innovation, customer and partner relationships, and vital role in the generative AI space after the company’s keynote.

“Based on our recent industry conversations, we expect Blackwell to be the fastest ramping product in Nvidia’s history,” the analysts said. “Nvidia has played (and will continue to play) an instrumental role in democratizing AI across many industry verticals.”

Bottom Line

NVDA surpassed Wall Street’s estimates for earnings and sales in the fourth quarter of fiscal 2023. The chipmaker has significantly benefited from the recent technology industry obsession with large AI models, which are developed on its pricey graphics processors for servers.

Moreover, sales reported in the company’s Data Center business comprise most of its revenue. NVDA’s Data Center platform is driven by diverse drivers like demand for data processing, training and inference from large cloud-service providers, GPU-specialized ones, enterprise software, and consumer internet companies.

Further, vertical industries, led by automotive, financial services, and healthcare, are now at a multibillion-dollar level.

The data center GPU market is projected to be worth more than $63 billion by 2028, growing at a staggering CAGR of 34.6% during the forecast period (2024-2028). The increasing adoption of data center GPUs in enterprises should bode well for NVDA.

Analysts expect NVDA’s revenue and EPS for the fiscal 2025 first quarter (ending April 2024) to increase 237.7% and 405.9% year-over-year to $24.29 billion and $5.51, respectively. Moreover, the company has topped consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.

Furthermore, for the fiscal year ending January 2025, the company’s revenue and EPS are expected to grow 83% and 92.1% from the prior year to $111.49 billion and $24.89, respectively.

NVDA has achieved significant progress across its business divisions, and this year, it will bring new product cycles with exceptional innovations to help boost its industry forward.

Since the AI boom began in late 2022, catalyzed by OpenAI’s ChatGPT, Nvidia’s stock has been up fivefold, and its total sales have more than tripled. The company’s high-end server GPUs are essential for training and deploying large AI models. Notably, tech companies like MSFT and Meta Platforms, Inc. (META) have spent billions of dollars buying these chips.

Recently, the chipmaker announced a new generation of AI chips and software for running AI models, giving customers another reason to stick to Nvidia chips over a growing field of competitors, including Advanced Micro Devices, Inc. (AMD) and Intel Corporation (INTC).

While NVDA’s stock has declined nearly 3% over the past month, several analysts affirmed their bullish sentiment toward the stock and see a significant upside potential, owing to its booming AI business and new innovative launches to maintain its leading position in the face of rising competition.

Given these factors, investors could consider buying NVDA for potential gains.

3 Stocks Benefiting From Rite Aid (RAD) Bankruptcy

The public health crisis has considerably reshaped the landscape of the retail pharmacies and drug store industry. Despite significant supply chain disruptions and staffing shortages, the industry has seen a surge in demand due to the increasing need for remote medical services and patient care.

Mail-order pharmacies are experiencing growth, driven mainly by the rising prevalence of telehealth and remote monitoring services. In response to these changes, many retail industry players utilize digital technology to diversify their offerings beyond traditional brick-and-mortar stores. This shift has presented unique opportunities for industry heavyweights, investing strategically to simplify patient access to prescription and maintenance medications.

However, numerous challenges have weighed down these positives, including inflation, labor shortages, unfavorable drug pricing, reimbursement issues, and lawsuits facing the industry.

Among those significantly impacted is pharmacy giant Rite Aid Corporation (RAD). The company is preparing to file for Chapter 11 bankruptcy due to its considerable $3.30 billion debt as of June 3, 2023, and repercussions arising from pending litigation accusing it of contributing to the opioid epidemic through relaxed prescription policies for potent painkillers.

The company also faces adversity from the United States Justice Department, which sued RAD in March for purportedly filling 'unlawful prescriptions for controlled substances.' Officials have criticized the pharmaceutical retailer for disregarding "obvious red flags" related to potential misuse of prescribed medicines, including oxycodone and fentanyl.

As of June 3, 2023, RAD operated 2,284 pharmacy locations, representing a decline from previous years. The company closed 239 outlets since 2021, of which 145 came in 2022 and the remaining 27 in the last quarter ending June 3, 2023.

In its bankruptcy proceedings, RAD considers closing 400 to 500 stores out of more than 2,100 and transferring the remainder to creditors or willing buyers. Notwithstanding, a group of bondholders has preferred an even higher number of store closures, with discussions ongoing on the final count.

The company has been struggling with challenges beyond the opioid lawsuits as it seeks a path to profitability. For the fiscal first quarter that ended June 3, 2023, its revenues dropped 6% year-over-year to $5.65 billion. Its net loss nearly tripled from $110.19 million in the prior year quarter to $306.72 million.

RAD’s pharmacy services segment, Elixir, contributed to the overall loss. The pharmacy services segment revenues stood at $1.20 billion for the quarter, a decrease of 30.7% compared to the prior-year quarter.

The decrease in revenues was primarily the result of a reduction in Elixir Individual Part D Insurance membership due to a change in the company’s pricing structure and loss of commercial clients, partially offset by increased utilization and higher drug costs.

Shares of RAD plunged by about 50% after reports unveiled that the drugstore chain is preparing to file for Chapter 11 bankruptcy. This marked its largest-ever intraday fall and the culmination of a significant decrease from over $26 at the beginning of 2021 to below $1, where it has remained for nearly a month. The stock has declined 81.1% year-to-date to close its last trading session at $0.59.

RAD’s poor financial health has pushed many institutional holders to adjust their RAD stock holdings. Institutions hold roughly 34.5% of RAD shares. Of the 163 institutional holders, 88 have decreased their positions in the stock. Moreover, 50 institutions have sold their positions (1,512,808 shares), reflecting dwindling confidence in the company.

Furthermore, for the fiscal year 2024, the company anticipates its net loss between $650 million and $680 million, while adjusted net loss per share is expected to be between $4.29 and $4.78.

Given this backdrop, let’s look at three other stocks which could benefit from RAD’s bankruptcy:

Walmart Inc. (WMT)

WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.

WMT was exploring the purchase of a majority stake in ChenMed, a value-based care organization of more than 125 primary care clinics in 15 states focused on treating older adults.

Given WMT’s ambitious growth goals for its healthcare operations, expanding its reach with value-based care makes sense. This could lead to greater engagement with patients, payers, and providers while broadening the payment models in which the companies participate.

WMT’s board of directors approved an annual dividend for the fiscal year 2024 of $2.28 per share. The annual dividend would be paid in four quarterly installments of $0.57 per share.

The annual dividend translates to a 1.40% yield on the current price. Its dividends have grown at 1.8% and 1.9% CAGRs over the past three and five years. Its four-year average dividend yield is 1.60%. WMT has increased its dividend in each of the past 49 years. This reflects its shareholder payment abilities.

WMT’s revenue grew at CAGRs of 5.2% and 4.3% over the past three and five years, respectively. Its EBITDA grew at 3.3% and 2.7% CAGRs over the same period. Also, its EBIT grew at CAGRs of 4.6% and 3.4% in the same time frame.

WMT’s trailing-12-month ROCE, ROTC, and ROTA of 17.87%, 10.60%, and 5.50% are 58.5%, 63.7%, and 28.1% higher than the industry averages of 11.28%, 6.48%, and 4.30%, respectively. Its trailing-12-month cash from operations of $37.80 billion is significantly higher than the $505 million industry average.

WMT’s total revenues for the fiscal second quarter that ended July 31, 2023, increased 5.7% year-over-year to $161.63 billion. The company’s adjusted operating income rose 8.1% over the prior-year quarter to $7.41 billion.

In addition, its consolidated net income attributable to WMT increased 53.3% over the prior-year quarter to $7.89 billion. Also, its adjusted EPS came in at $1.84, representing an increase of 4% year-over-year. As of July 31, 2023, its long-term debt stood at $2.90 billion, compared to $4.19 billion as of January 31, 2023.

Analysts expect WMT’s revenue and EPS for the fiscal third quarter ending October 2023 to increase 4.5% and 0.6% year-over-year to $158.28 billion and $1.51, respectively. The company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 14.5% year-to-date to close the last trading session at $162.35.

Moreover, ownership data indicates institutional holders have a significant interest in WMT, accounting for approximately 34% of WMT shares. Of the 3,041 institutional holders, 1,381 have increased their positions in the stock. Moreover, 168 institutions have taken new positions (4,947,591 shares), reflecting confidence in the company’s trajectory.

Walgreens Boots Alliance, Inc. (WBA)

The Illinois-headquartered integrated healthcare, pharmacy, and retailing company WBA has recently partnered with Pearl Health, a pioneering tech platform for primary care physicians within value-based care setups.

The collaborative endeavor aims to enable community-based primary care practitioners to oversee value-based care within ACO Reach, Medicare’s accountable care scheme. Beginning in 2024, the objective is to broaden the initiative to encompass Medicare Advantage, potentially including commercial payers and Medicare in the future.

Should this partnership flourish, WBA could reap substantial benefits of wider retail opportunities and reduced reliance on fee-for-service volumes. Furthermore, WBA's offering of ancillary services, such as prescription fulfillment, medication adherence, immunizations, care gap closure, and diagnostic testing, complement this collaboration. They will also work alongside providers to aid patients transitioning from hospital environments to home-based recuperation.

As such, WBA strategically positions itself as the preferred ally for healthcare providers and systems eager to transition to value-based care and bolster community well-being. It will be worthwhile to monitor the speed at which this alliance progresses and its effects on patient referrals and hospital partnerships.

On September 12, WBA paid a quarterly dividend to its shareholders of 48 cents per share. It pays an annual dividend of $1.92 that yields 9.09% on the current market price, higher than the 4-year average dividend yield of 4.54%.

WBA’s revenue grew at CAGRs of 2.7% and 1.2% over the past three and five years, respectively. Its total assets grew at CAGRs of 4.5% and 7.1% in the same time frame.

WBA’s trailing-12-month asset turnover ratio of 1.42x is 56.4% higher than the industry average of 0.91x. Its trailing-12-month cash from operations of $1.30 billion is 158.4% higher than the $505 million industry average.

For the fiscal third quarter that ended May 31, 2023, WBA’s sales rose 8.6% year-over-year to $35.42 billion, with its U.S. Retail Pharmacy segment sales increasing 4.4% from the year-ago quarter to $27.90 billion. Its net earnings attributable to WBA and net earnings per share came at $118 million and $0.14, respectively.

As of May 31, 2023, WBA’s long-term debt stood at $8.84 billion, compared to $10.62 billion as of August 31, 2022.

Analysts expect WBA’s revenue for the fiscal first quarter ending November 2023 to increase 6% year-over-year to $35.38 billion. Its EPS is expected to come at $0.92 for the same quarter. The company surpassed the consensus revenue estimates in each of the trailing four quarters and EPS in three of the trailing four quarters.

Moreover, ownership data indicates institutional holders have made changes in WBA stock holding. Institutional holdings account for approximately 58.4% of WBA shares. Of the 1,315 institutional holders, 554 have increased their positions in the stock. Moreover, 83 institutions have taken new positions (3,286,184 shares), reflecting confidence in the company’s trajectory.

Wag! Group Co. (PET)

PET develops and supports a proprietary marketplace technology platform available as a website and mobile app that enables independent pet caregivers to connect with pet parents. It offers on-demand access to 5-star pet care, pet insurance options, premium pet products, and expert pet advice.

PET’s trailing-12-month gross profit and levered FCF margins of 74.79% and 41.37% are 111% and 712% higher than the industry averages of 35.45% and 5.09%, respectively. Its asset turnover ratio of 1.93x is 92.4% higher than the industry average of 1x.

For the fiscal second quarter that ended June 30, 2023, PET’s sales rose 55% year-over-year to $19.82 million. Its adjusted EBITDA stood at $107 thousand, compared to negative $875 thousand in the prior year quarter. Moreover, its cash, cash equivalents, and restricted cash for the six months that ended June 30, 2023, stood at $ 24.79 million, up 916.9% year-over-year.

For the fiscal year 2023, PET expects its revenue from $80 million to $84 million.

Analysts expect PET’s revenue for the fiscal third quarter ending September 2023 to increase 27.5% year-over-year to $19.60 billion. The company surpassed the consensus revenue estimates in each of the trailing four quarters.

Changes have been observed concerning institutions' holdings of PET shares. Approximately 54.2% of PET shares are presently held by institutions. Of the 31 institutional holders, 12 have increased their positions in the stock. Moreover, five institutions have taken new positions (99,056 shares).

Bottom Line

The escalating incidence of chronic diseases is boosting demand for healthcare products and medications, propelling growth in the retail pharmacy market. Increasing reliance from individuals for long-term medication management and disease-focused solutions on retail pharmacies underpins this growth momentum.

Technological advancements are expected to improve retail pharmacies' efficiency while attracting more consumers and facilitating market expansion. The global retail pharmacy is expected to reach $1.22 trillion by 2032, growing at a CAGR of 7.1%.

Meanwhile, RAD finds itself in precarious financial straits. Fueled by the few earnings from its regular business operations, the company is grappling with a debt burden of approximately $3.30 billion as of June 3, 2023. With liabilities outstripping assets by roughly $1 billion and only around $135 million cash-in-hand, RAD is at a financial crossroads.

The most viable solution appears to be filing for bankruptcy, enabling management to restructure their debt portfolio and possibly address any pending opioid settlements within one unified process.

Nevertheless, given the industry tailwinds, RAD’s competitors – WMT, WBA, and PET, stand to benefit.