Analyzing Microsoft’s (MSFT) Soaring Success – What’s Next?

Shares of Microsoft Corporation (MSFT) have been performing exceptionally well lately, with the stock surging more than 12% over the past month. Moreover, it hit a new 52-week high of $376.35 in the previous session. The stock has gained more than 20% over the past six months and nearly 55% over the past year.

The rally in the stock kicked off a couple of days after Microsoft reported upbeat fiscal 2024 first-quarter results. Since then, the stock has added more than $350 billion to its market capitalization. MSFT is the second-largest component in the S&P 500 with a market cap of $2.796 trillion, behind only Apple Inc. (AAPL) at $2.951 trillion.

Market research firm Bespoke Investment said that MSFT has joined AAPL as the second individual company with a larger market cap than the companies that comprise the Russel 2000 index.

Now, let’s discuss the factors that could impact MSFT’s performance in the upcoming months:

Solid Financial Performance in the Last Reported Quarter

For the fiscal 2024 first quarter that ended September 30, 2023, MSFT reported revenue of $56.52 billion, beating analysts’ estimate of $54.55 billion. This compared to the revenue of $50.12 billion in the same quarter of 2022.

Microsoft’s Intelligent Cloud segment, which comprises Azure, public cloud, SQL Server, Visual Studio, Nuance, Windows Server, GitHub, and enterprise services, was up 19.4% year-over-year.

MSFT’s Productivity and Business Processes segment posted $18.59 billion, up 13% from the previous year’s period. This business unit comprises Microsoft 365 productivity app subscriptions, LinkedIn, and Dynamics enterprise software. The software company’s gross margin grew 16% year-over-year to $40.22 billion.

In addition, the software maker’s operating income came in at $26.90 billion, an increase of 25% year-over-year. Its net income rose 27% year-over-year to $22.29 billion. MSFT posted an EPS of $2.99 versus the consensus estimate of $2.65. This was up 27.2% from the same period last year.

As of September 30, 2023, the company’s cash and cash equivalents stood at $80.45 billion, compared to $34.70 billion as of June 30, 2023. Its total current assets totaled $207.59 billion, compared to $184.26 billion as of June 30, 2023.

For the fiscal 2024 second quarter, Amy Hood, MSFT’s finance chief, expects the company’s revenue to come in the range of $60.40 billion to $61.40 billion, which implies approximately 15% year-over-year growth.

Robust Historical Growth

Over the past three years, MSFT’s revenue grew at a CAGR of 14.1%. Its EBITDA and net income improved at CAGRs of 16.7% and 17.5%, respectively, over the past three years. Also, the company’s EPS increased at a CAGR of 18.5%. Its levered free cash flow improved at 15.9% CAGR over the same timeframe.

Further, the company’s tangible book value and total assets increased at CAGRs of 25.7% and 14% over the same period, respectively.

Rebound In Cloud Spending

Revenue from Microsoft’s Azure cloud business surged 29% year-over-year during the September quarter, compared with 26% growth in the fourth quarter. Moreover, Microsoft is pulling ahead of its major competitors,, Inc. (AMZN) and Google parent Alphabet Inc. (GOOGL), in the race to recover from a two-year slowdown in cloud spending.

When multi-decade inflation hit last year, the Fed hiked interest rates, and companies responded by lowering their tech spending as a part of their cost-reduction measures. The inflation has fallen sharply from its peak of 9.1% hit in June last year. The Consumer Price Index (CPI), the most widely used measure of inflation, further showed signs of easing in October.

The core CPI, excluding volatile food and energy prices, increased 0.2% for the month and 4% year-over-year, lower than the estimates of 0.3% and 4.1%, respectively. Also, the annual level was the lowest in nearly two years and down from 4.1% in September. With declining inflationary pressures, organizations’ cost-cutting efforts have begun to wane, which should bode well for MSFT.

According to the latest forecast from Gartner, worldwide end-user spending on public cloud is projected to grow by 20.4% to a total of $678.80 billion in 2024, up from $563.60 billion in 2023. Growing business needs and emerging technologies like GenAI drive cloud model innovation.

MSFT is “still helping customers use the Microsoft Cloud to get the most value out of their digital spend, and driving operating leverage,” CEO Satya Nadella said in the latest earnings release.

Significant Advancements in AI

MSFT has been making several initiatives to infuse generative AI into its software and services.

In January this year, Microsoft announced a multiyear, multibillion-dollar investment in ChatGPT-maker OpenAI. The agreement marked the third phase of the partnership between the two companies after MSFT’s prior investments in 2019 and 2021. The company is providing its Azure cloud computing infrastructure for OpenAI.

Also, Microsoft is adding OpenAI models to its consumer and enterprise software products.

In February, the company launched a new, AI-powered Bing search engine and Edge browser with built-in support for OpenAI’s ChatGPT. The new Bing search version could deliver better search, more accurate answers, a new chat experience, and the ability to generate content.

Further, on March 16, the software maker announced the addition of AI tools to its Office productivity applications and introduced a feature called Microsoft 365 Copilot. The Copilot feature uses next-gen AI to automate and simplify tasks and offer suggestions. MSFT announced that Microsoft 365 Copilot in Windows will be available on September 26.

Starting November 1, Microsoft 365 Copilot will be generally available for enterprise customers. In addition, this AI-powered Copilot is added to the company’s cybersecurity offerings and GitHub service for software developers.

On November 8, MSFT-owned GitHub introduced a Copilot assistant that can assist developers in working with their employers’ internal code, priced at $39 per person a month. The new launch might help the company boost revenue in its cloud business unit by taking enhanced advantage of partner OpenAI’s technology.

Recovery in the PC Market

MSFT reported a 4% growth in sales of Windows operating system licenses to device makers in the last reported quarter, putting an end to a streak of five quarters of year-over-year declines. Amy Hood stated that the PC market has started to stabilize.

As per the estimates from Gartner, worldwide PC shipments totaled 64.3 million units during the third quarter of 2023, a decline of 9% from the third quarter of 2022. A 9% decrease in the third quarter compared to a 30% decline in the first quarter.

After eight straight quarters of decline, the PC market is expected to begin recovery in the fourth quarter of this year. For 2024, Gartner projects the global PC market to witness 4.9% growth, driven by both the business and consumer segments.

“The good news for PC vendors is that the worst could be over by the end of 2023,” said Mikako Kitagawa, Director Analyst at Gartner. “The business PC market is ready for the next replacement cycle, driven by the Windows 11 upgrades. Consumer PC demand should also begin to recover as PCs purchased during the pandemic are entering the early stages of a refresh cycle.”

In September, MSFT introduced new Surface computers and revealed details about the release of this year’s version of Windows 11. The company unveiled the Surface Laptop Studio 2 and the Surface Laptop Go 3; both computers will have Microsoft’s revamped Windows 11 OS, which includes its Copilot software. The company could capitalize on the PC market’s expected recovery with these new launches.

Favorable Analyst Estimates

Analysts expect MSFT’s revenue for the second quarter (ending December 2023) to grow 15.6% year-over-year to $60.96 billion. The consensus EPS estimate of $2.75 for the ongoing quarter indicates an 18.7% year-over-year rise. Moreover, the company has topped the consensus revenue in three of the trailing four quarters and EPS estimates in all the trailing four quarters.

Additionally, for the fiscal year (ending June 2024), Street expects MSFT’s revenue and EPS to increase 14.5% and 14.1% year-over-year to $242.69 billion and $11.19, respectively. Also, the software company’s revenue and EPS for the fiscal year 2025 are expected to increase 13.8% and 15.1% from the previous year to $276.22 billion and $12.88, respectively.

Bottom Line

Microsoft’s revenue and earnings beat analysts’ expectations in the last reported quarter, fueled by its cloud business strength, with Microsoft Cloud revenue up a staggering 24% year-over-year. Further, the software giant continues to make numerous advancements in AI, helping it regain tech leadership.

"With copilots, we are making the age of AI real for people and businesses everywhere," said Satya Nadella. “We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers,” he added.

According to Brent Thill, Jefferies analyst, the tailwinds of AI have begun to kick in for MSFT.

MSFT’s stock notched a new 52-week high in the previous trading session. The software maker’s early dominance in the realm of AI has been the primary driver of the stock’s impressive gains so far this year, and the stock is expected to surge higher in the upcoming months.

According to Bloomberg Intelligence (BI) research, the generative AI market could grow at a CAGR of 42% to reach $1.3 trillion by 2032.

Given MSFT’s solid financials, high profitability, and optimistic growth outlook, it could be wise to invest in this software stock now.

Bypassing Qualcomm (QCOM) Turmoil: 3 Alternative Stocks to Add to Your Portfolio Now

QUALCOMM Incorporated (QCOM), valued at over $124 billion, specializes in wireless technology development, licensing, and smartphone chip design. The firm's key patents are focused on CDMA and OFDMA technologies, fundamental to all 3G, 4G, and 5G networks. As the world's principal wireless chips supplier, it furnishes high-end handset manufacturers with cutting-edge processors.

Canalys’ figures indicate the global smartphone market's persistent decline, marking its sixth consecutive quarter of reduction as of June 2023. Even while cautious optimism for a potential market resurgence remains, this downturn has tangible impacts on QCOM, a significant player in smartphone chip supply. The shrinkage, intensified by soaring competition from Chinese chipmakers, has notably impacted the firm’s revenue and profit margins last quarter.

The company experienced its sharpest stock dip in September, consequent to turmoil in China, which disrupted QCOM's sales in a critical market. The company faces manifold risks, amplified by the imminent wave of layoffs that has stirred public apprehension. The timing of this layoff news has coincided with persisting trade tensions between the U.S. and China and Beijing's enactment of a partial ban on using iPhones by government personnel.

According to recent filings with the California Employment Development Department, the semiconductor behemoth will eliminate approximately 1,258 jobs in San Diego and Santa Clara, California, to accommodate dwindling demand for its primary product.

The layoffs are a part of “restructuring actionsaimed at channeling resources towards “investments in key growth and diversification opportunities.” Although the loss of 1,258 employees will be felt, this figure represents less than 2.5% of QCOM's total workforce of 51,000 employees.

Concurrent with these measures, the company anticipates incurring substantial additional restructuring charges, most of which are expected to be borne in the fourth quarter of fiscal 2023. The company forecasts the successful completion of these additional actions by the first half of fiscal 2024.

Impact of the Layoffs

Potential layoffs at QCOM could be a strategic move to mitigate operating costs and bolster profitability and cash flow. This action can amplify the company's earnings per share and future dividend payouts and refocus its direction toward the core business and strategically significant growth sectors such as 5G technology, automotive tech, and IoT.

The latest data suggests that over 750 members of QCOM's workforce facing possible layoffs belong to engineering cadres, with positions ranging from directors to technicians. The remaining reductions will impact various roles, encompassing accounting and internal technical staff.

These substantial reductions in the workforce might slow down QCOM's manufacturing capacity, along with their research and development activities, which could stifle innovation in the long term. This scenario could pave the way for QCOM's competitors in the microchip manufacturing industry to seize a higher market share by providing more competitive products and services.

Given QCOM's ongoing challenges, investors may watch fundamentally sound stocks Apple Inc. (AAPL), Advanced Micro Devices, Inc. (AMD), and Intel Corporation (INTC).

Let’s discuss these stocks in detail.

Apple Inc. (AAPL)

Tech giant AAPL has continuously enhanced its capabilities by designing custom chips for hallmark products such as iPhones, iPads, and iPods over many years. The initiative to design these crucial components in-house significantly boosts the overall device performance and optimizes power efficiency.

To strive for a self-reliant development strategy, AAPL has gilded significant resources to produce its modem chips to reduce dependence on external suppliers like QCOM. However, the mission is yet to be fully accomplished.

AAPL has been integrating QCOM's and home-grown chips in the technology behind its flagship iPhones. Despite intense challenges faced by AAPL's ambitious Sinope project, which has yet to result in a standalone ability to produce a 5G modem chip, the spirit of innovation and the quest for excellence remains unscathed within the company.

This ambivalent situation was recently accentuated when AAPL extended its contract with QCOM to supply '5G modem chips', a deal set to last through 2026.

Indeed, developing a standalone 5G modem chip is arduous, though certainly not beyond the realms of possibility. With resilience and commitment to navigating challenges, it is undoubtedly just a matter of time before AAPL actualizes its dream of rolling out its home-grown 5G modem.

Considering AAPL's staunch determination and its record of technological advancements, realizing this ambitious objective seems attainable. It’s plausible that we might witness the introduction of AAPL’s modem even before the ongoing QCOM deal concludes in 2026.

Shares of AAPL have gained over 35% year-to-date. Wall Street analysts expect the stock to reach $207.51 in the upcoming 12 months, indicating a potential upside of 18.3%. The price target ranges from a low of $167 to a high of $240.

Advanced Micro Devices, Inc. (AMD)

Semiconductor giant AMD, which currently boasts a market cap of over $165 billion, is strategically positioned to meet the potential demands spurred by chip shortages that may result from QCOM’s proactive cost-cutting strategy.

Recovering convincingly from being on the verge of bankruptcy, AMD has seen its stock value increase from a dismal $3 per share. The remarkable turnaround can be attributed to the flourishing success of its Ryzen line of central processing units (CPU), launched in 2017.

Now, AMD sets its sights on the lucrative AI market, unveiling the latest iteration of its MI300 chips, which the company hails as its most powerful GPU. As the market yearns for fiercer competition, the new chip, set to commence shipping in 2024, feeds this demand.

Over the past three and five years, its revenue increased at 42% and 28.2% CAGRs, while its levered free cash flow grew at CAGRs of 83.7% and 103.7% over the same periods. AMD has massive potential over the long term, making its stock worthy to be monitored.

Shares of AMD have gained over 58% year-to-date. Wall Street analysts expect the stock to reach $137.48 in the upcoming 12 months, indicating a potential upside of 34.3%. The price target ranges from a low of $95 to a high of $160.

Intel Corporation (INTC)

QCOM leads in the Android industry but faces stiff competition from chipmaker INTC in the PC market.

With a commendable market cap of over $150 billion, INTC plans to capitalize on the burgeoning AI market and presented a strategic vision last month to position itself as a pivotal architect of AI-integrated personal computers.

INTC recently debuted its glass substrates, designed to give the advanced packaging of chips a significant edge over traditional substrates. The innovation is expected to have positively impacted revenues in the third quarter.

In the same period, a critical alliance was formed between INTC and Tower Semiconductor Ltd., which could significantly impact the broader semiconductor ecosystem. The alliance showcases INTC's unwavering commitment to broadening its foundry services and manufacturing prowess.

Moreover, a significant breakthrough came when Ericsson chose INTC's 18A process and manufacturing technology to advance its next-generation 5G network. INTC was enlisted to produce custom 5G SoCs for Ericsson, projected to have fortified the company's top line in the third quarter.

Shares of INTC have gained over 34% year-to-date. Wall Street analysts expect the stock to reach $36.67 in the upcoming 12 months, indicating a potential upside of 2.8%. The price target ranges from a low of $17 to a high of $56.


PayPal (PYPL) Struggles to Rebound Means Opportunity for 3 Stocks

Leading fintech company PayPal Holdings, Inc. (PYPL) has underperformed the market, with its stock declining more than 30% over the past year. Investor interest in the digital payments company has declined due to rising competition and innovative disruptions brought by its peers.

The pandemic was a good period for fintech companies like PYPL. The fintech companies commanded high valuations as investors’ interest in the sector rose with accelerated digital technology adoption. Fintech companies played a vital role in supporting businesses and consumers during the crisis.

However, the high-interest rate environment and growing competition within the fintech sector have hit PYPL’s fortunes lately. Competition from the likes of tech giant Apple Inc. (AAPL), which has entered the sector with financial services such as the savings account from Goldman Sachs, which offers a 4.15% APY, Buy Now Pay Later Service, contactless payments through Tap to Pay on iPhone, Apple Card, and Apple Pay have affected PYPL’s market share.

Earlier this year, PYPL announced that it would lay off 2,000 people, or 7% of its workforce, to reduce costs and focus its resources on core strategic priorities. Although PYPL surpassed the consensus revenue estimate in the second quarter, it failed to top analysts’ earnings estimates.

Its EPS was 0.3% below the consensus estimate, while its revenue beat analyst estimates by 0.2% in the second quarter. Its net revenues for the second quarter ended June 30, 2023, rose 7% year-over-year to $7.30 billion. Its non-GAAP EPS came in at $1.16, representing an increase of 24% year-over-year. Also, its total payment volume increased 11% year-over-year to $376.50 billion.

However, PYPL ended the second quarter with 431 million users on its platform, declining 2 million sequentially and 4 million year-over-year. This was the second consecutive quarterly decline in its users. The decline in users is alarming as it affects PYPL’s revenue and earnings. For the third quarter, PYPL forecasted its revenues to grow approximately 8% to reach $7.40 billion.

Also, its non-GAAP EPS is expected to grow between 13% and 14% to $1.22 and $1.24. For fiscal 2023, the company expects non-GAAP EPS to grow approximately 20% year-over-year to $4.95.

SVB MoffettNathanson analyst Lisa Ellis downgraded PYPL to ‘market perform.’ Ellis said, “Looking forward, unfortunately, we expect PayPal’s gross profit growth to remain lackluster, in the low-to mid-single digits. We see the potential for further downside to our estimates, particularly given the strong momentum of Apple Pay, which we worry will begin to benefit from the powerful network effects in payments.”

Alex Chriss is expected to take over as the company’s new CEO from September 27. The change in leadership comes during a challenging period for the company. Although the appointment holds promise, whether the new CEO can turn PYPL’s fortunes around has to be seen.

Although the global digital payments and financial services ecosystem remains well-positioned to register strong long-term growth, PYPL faces several headwinds. Amid PYPL’s current challenges, fundamentally stable financial services stocks Visa Inc. (V), Mastercard Incorporated (MA), and American Express Company (AXP) might benefit.

Let’s discuss these stocks in detail.

Visa Inc. (V)

V is a global payments technology company that enables digital payments between customers, merchants, financial institutions, enterprises, strategic partners, and government agencies. It also administers VisaNet, a transaction processing network that allows for the authorization, clearing, and settlement of payment transactions.

On June 28, 2023, V announced that it signed a definitive agreement to acquire Pismo, a cloud-native issuer processing and core banking platform with operations in Latin America, Asia Pacific, and Europe. V’s Chief Product and Strategy Officer Jack Forestell said, “Through the acquisition of Pismo, Visa can better serve our financial institution and fintech clients with more differentiated core banking and issuer solutions they can offer their customers.”

V’s revenue grew at a CAGR of 11.6% over the past three years. Its EBITDA grew at a CAGR of 12.1% over the past three years. In addition, its EPS grew at a CAGR of 14.4% in the same time frame.

V’s 51.94% trailing-12-month net income margin is 101.4% higher than the 25.78% industry average. Likewise, its 67.09% trailing-12-month EBIT margin is 238.7% higher than the 19.81% industry average. Furthermore, the stock’s 51.61% trailing-12-month levered FCF margin is 252.3% higher than the 14.65% industry average.

V’s net revenues for the third quarter ended June 30, 2023, increased 12% year-over-year to $8.12 billion. Its non-GAAP net income rose 7% year-over-year to $4.50 billion. The company’s operating income increased 21.1% over the prior-year quarter to $5.02 billion. Its non-GAAP EPS came in at $2.16, representing an increase of 9.1% year-over-year.

Analysts expect V’s EPS and revenue for the quarter ending September 30, 2023, to increase 16.3% and 9.9% year-over-year to $2.24 and $8.56 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters.

Mastercard Incorporated (MA)

MA is a technology company that provides transaction processing and other payment-related products and services. It facilitates the processing of payment transactions, including authorization, clearing, and settlement, as well as delivers other payment-related products and services. The company offers integrated products and value-added services for account holders, merchants, financial institutions, and businesses.

On May 26, 2023, MA and UniCredit announced the expansion of their payment partnership. The multi-year partnership will provide the necessary resources to achieve the shared ambition to increase the speed of innovation within the payments space and put customers at the center.

On April 5, 2023, MA announced that it was accelerating efforts to remove first-use PVC plastics from payment cards on its networks by 2028. This move reinforces the company’s sustainable efforts.

MA’s revenue grew at a CAGR of 13.3% over the past three years. Its levered FCF grew at a CAGR of 15.2% over the past three years. In addition, its net income grew at a CAGR of 11.8% in the same time frame.

MA’s 100% trailing-12-month gross profit margin is 67.9% higher than the 59.55% industry average. Likewise, its 57.14% trailing-12-month EBIT margin is 188.5% higher than the 19.81% industry average. Furthermore, the stock’s 0.63x trailing-12-month asset turnover ratio is 198.7% higher than the 0.21x industry average.

For the fiscal second quarter ended June 30, 2023, MA’s net revenue increased 14% year-over-year to $6.27 billion. Its non-GAAP net income rose 9.8% over the prior-year quarter to $2.74 billion. Its non-GAAP operating margin came in at 58.6%, compared to a non-GAAP operating margin of 57.9% in the year-ago quarter. Also, its non-GAAP EPS came in at $2.89, representing an increase of 12.9% year-over-year.

For the quarter ending September 30, 2023, MA’s EPS and revenue are expected to increase 20% and 13.4% year-over-year to $3.22 and $6.53 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters.

American Express Company (AXP)

AXP provides charge and credit payment card products and travel-related services. The company operates through three segments: Global Consumer Services Group, Global Commercial Services, and Global Merchant and Network Services. Its products and services include payment and financing products; network services; accounts payable expense management products and services; and travel and lifestyle services.

AXP’s revenue grew at a CAGR of 15.7% over the past three years. Its EPS grew at a CAGR of 26.5% over the past three years. In addition, its net income grew at a CAGR of 22.3% in the same time frame.

AXP’s 3.19% trailing-12-month Capex/Sales is 59.3% higher than the 2.01% industry average. Likewise, its 29.34% trailing-12-month Return on Common Equity is 159.7% higher than the 11.30% industry average. Furthermore, the stock’s 0.24x trailing-12-month asset turnover ratio is 12.2% higher than the 0.21x industry average.

AXP’s total revenues net of interest expense for the second quarter ended June 30, 2023, increased 12.4% year-over-year to $15.05 billion. Its net interest income rose 31.6% over the prior-year quarter to $3.11 billion. The company’s net income increased 10.7% year-over-year to $2.17 billion. Also, its EPS came in at $2.89, representing an increase of 12.5% year-over-year.

Street expects AXP’s EPS and revenue for the quarter ending September 30, 2023, to increase 19.7% and 13.6% year-over-year to $2.96 and $15.40 billion, respectively.

TSM’s Demand Woes May Benefit 3 Chip Stocks

Semiconductor sales reached their highest level last year despite witnessing a slowdown during the year's second half. The slowdown was primarily due to the decline in demand from the end-user markets because of macroeconomic headwinds.

According to Gartner, global semiconductor revenues will decline 11.2% in 2023. Popular chipmaker Taiwan Semiconductor Manufacturing Company Limited (TSM) is also witnessing a slowdown in demand. According to sources, the company, to control costs, has asked its major suppliers to delay the delivery of chipmaking equipment.

Although the long-term growth prospects of the semiconductor industry look bright, the near-term headwinds will continue to put pressure on the chip industry in the short term. Gartner’s Practice VP Richard Gordon said, “As economic headwinds persist, weak end-market electronics demand is spreading from consumers to businesses, creating an uncertain investment environment.”

“In addition, an oversupply of chips, which is elevating inventories and reducing chip prices, is accelerating the decline of the semiconductor market this year,” he added. In July, TSM, a major supplier to smartphone giant Apple Inc. (AAPL), forecasted that it would witness a 10% drop in sales in 2023, and its investment spending would be at the lower end of its estimate of $32 billion and $36 billion.

TSM CEO C.C. Wei highlighted that the decline in demand would be mostly due to a tepid recovery in China, soft demand in the end market, and a weak global economic scenario. Although the demand for artificial intelligence (AI) chips is likely to remain strong, it is unlikely to offset the softer demand in the end markets due to declining sales of smartphones, personal computers, laptops, etc.

Degroof Petercam’s analyst Michael Roeg said, “There has been a lot of excitement about artificial intelligence and the implications for the semiconductor industry. However, the strength in demand for AI chips is not strong enough to compensate (for) what is happening in other segments.”

After global demand for consumer electronics spiked during the pandemic, companies had stockpiled chips to meet the high demand. However, as the demand slowed down in the end markets due to high inflation, companies were stuck with excess inventories, and this led to a fall in the demand for chips, followed by a decline in their prices.

TSM’s CFO Wendell Huang said, “Moving into the third quarter 2023, we expect our business to be supported by the strong ramp of our 3-nanomenter technologies, partially offset by customers’ continued inventory adjustment.”

AAPL, a major TSM customer, announced its latest iPhone series with the cutting-edge 3-nanometer chip but did not raise prices, indicating softness in the smartphone market. AAPL is currently facing trouble in a key market like China as the Chinese government banned some government employees from using iPhones at work.

Furthermore, smartphone maker Huawei came up with the Mate 60 series, which utilizes an advanced chip made by Chinese chipmaker SMIC. All these factors might put pressure on iPhone sales this year, piling further pressure on TSM.

Moreover, TSM is facing delays at its Arizona plant. The company was forced to push back production at the plant by a year to 2025 as it faced difficulty recruiting workers and pushback from unions due to its efforts to bring workers from Taiwan. After investing heavily in expanding its capacity, the company is looking at a slower increase in capital expenditure in the coming years.

As TSM’s headwinds are expected to continue, fundamentally stable chip stocks Infineon Technologies AG (IFNNY), STMicroelectronics N.V. (STM), and ChipMOS TECHNOLOGIES INC. (IMOS) might benefit.

Let’s discuss these stocks in detail.

Infineon Technologies AG (IFNNY)

Headquartered in Neubiberg, Germany, IFNNY designs, develops, manufactures, and markets semiconductors and related system solutions worldwide.

On August 3, 2023, IFNNY announced its decision to expand its Kulim fab over and above the original investment announced in February 2022. The company will build the world’s largest 200-millimeter SiC (silicon carbide) Power Fab. The expansion is backed by new design wins in automotive and industrial applications for about five billion euros and about one billion euros in pre-payments.

The company will additionally invest up to €5 billion in Kulim during the second construction phase for Module Three. The investment will lead to an annual SiC revenue potential of about €7 billion by the end of the decade, together with the planned 200-millimeter SiC conversion of Villach and Kulim.

IFNNY’s CEO Jochen Hanebeck said, “The market for silicon carbide shows accelerating growth, not only in automotive but also in a broad range of industrial applications such as solar, energy storage, and high-power EV charging. With the Kulim expansion, we will secure our leadership position in this market.”

IFNNY’s revenue grew at a CAGR of 26.1% over the past three years. Its EBITDA grew at a CAGR of 45.7% over the past three years. In addition, its EPS grew at a CAGR of 96% in the same time frame.

In terms of trailing-12-month net income margin, IFNNY’s 19.13% is 840.7% higher than the 2.03% industry average. Likewise, its 35.32% trailing-12-month EBITDA margin is 285.9% higher than the industry average of 9.15%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 15.52%, compared to the industry average of 2.42%.

For the third quarter ended June 30, 2023, IFNNY’s revenue increased 13% year-over-year to €4.09 billion ($4.37 billion). Its adjusted gross margin came in at 46.2%, compared to 45.4% in the prior-year quarter. The company’s profit for the period rose 60.7% year-over-year to €831 million ($887.97 million). Also, its adjusted EPS came in at €0.68, representing an increase of 38.8% year-over-year.

Analysts expect IFNNY’s revenue for the quarter ending September 30, 2023, to increase 2% year-over-year to $4.37 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters.

STMicroelectronics N.V. (STM)

Based in Geneva, Switzerland, STM designs, develops, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group, Analog, MEMS, and Sensors Group; and Microcontrollers and Digital ICs Group segments.

STM’s revenue grew at a CAGR of 21.6% over the past three years. Its EBIT grew at a CAGR of 65.7% over the past three years. In addition, its net income grew at a CAGR of 69.5% in the same time frame.

In terms of trailing-12-month net income margin, STM’s 27.45% is significantly higher than the 2.03% industry average. Likewise, its 29.78% trailing-12-month EBIT margin is 559.7% higher than the industry average of 4.51%. Furthermore, the stock’s trailing-12-month asset turnover ratio came in at 0.88x, compared to the industry average of 0.62x.

STM’s net revenues for the second quarter ended July 1, 2023, increased 12.7% year-over-year to $4.33 billion. Its net cash from operating activities rose 24.1% year-over-year to $1.31 billion. The company’s net income rose 15.5% year-over-year to $1 billion. Also, its EPS came in at $1.06, representing an increase of 15.2% year-over-year.

Street expects STM’s revenue for the quarter ending September 30, 2023, to increase 1.7% year-over-year to $4.38 billion. Its EPS for fiscal 2023 is expected to increase 3.3% year-over-year to $4.33. It surpassed the Street EPS estimates in three of the trailing four quarters.


Headquartered in Hsinchu, Taiwan, IMOS researches, develops, manufactures, and sells high-integration and high-precision integrated circuits and related assembly and testing services. It operates through Testing, Assembly, Testing, and Assembly for LCD, OLED, and Other Display Panel Driver Semiconductors, Bumping; and Others segments.

IMOS’s total assets grew at a CAGR of 8.7% over the past three years. Its Tang Book Value grew at a CAGR of 6.8% over the past three years. In addition, its revenue grew at a CAGR of 2.9% over the past five years.

In terms of trailing-12-month net income margin, IMOS’ 8.63% is 324.4% higher than the 2.03% industry average. Likewise, its 29.37% trailing-12-month EBITDA margin is 220.9% higher than the industry average of 9.15%. Furthermore, the stock’s trailing-12-month Capex/Sales is 15.32%, higher than the industry average of 2.42%.

For the fiscal second quarter ended June 30, 2023, IMOS’ revenue came in at NT$5.44 billion ($169.84 million). Its net non-operating income came in at NT$222.40 million ($6.94 million. The company’s net profit attributable to equity holders of the company came in at NT$628.50 million ($19.62 million). Also, its EPS came in at NT$0.86.

For the quarter ending September 30, 2023, IMOS’ revenue is expected to increase 6.9% year-over-year to $176.86 million.

Breaking Down Sony (SONY) Stock's 2023 Performance - The Ups, Downs, and Trends

Sony Group Corporation (SONY), the Japanese tech giant, recently confirmed raising the prices of its PlayStation Plus (PS Plus) subscription service by more than 30% across all benefit plans.

Implemented on September 6, 2023, the PS Plus Essential tier has gone up to $72-$80/year depending on where you’re located, with the PS Plus Extra increasing to a whopping $134/year. The most significant bump is for the Premium tier, which has increased by $40 to $159 for a year of access. This move has, predictably, not gone down well with the gaming fraternity.

SONY justified this decision, suggesting that the price adjustment is pivotal to ensure that the company can “continue bringing high-quality games and value-added benefits to your PlayStation Plus subscription service.”

Adding to its stance, the Tokyo-based company emphasizes the cost efficiency of its 12-month subscription plan, stating it provides a significant discount when compared to the cumulative cost of purchasing several one- or three-month plans during the same period.

After the PlayStation Plus price hike announcement, SONY’s stock has risen the most since July. According to CLSA’s analyst Amit Garg, Sony’s move could cause a series of regular price increases from other subscription service providers.

This “steep” increase is expected to boost the company’s annual net sales by ¥100 billion, which is nearly $680.50 million. It could also add ¥55 billion (approximately $374.27 million) of operating profit annually. However, Amit Garg warned that there may be a fallout for gamer spending amid the challenging macroeconomic conditions.

Shares of SONY have gained nearly 2.5% over the past month and more than 10% year-to-date.

Although Sony’s rising stock price will benefit shareholders in the short term, gamers may be contemplating their PS Plus subscriptions, potentially leading to declined revenue in the long term.

Now, let’s review in detail what has happened over the year and discuss several factors that could impact SONY’s performance in the upcoming months:

Positive Recent Developments

On August 29, 2023, SONY’s subsidiary, Sony Electronics Inc., launched the wide-angle zoom lens G-Master™ FE 16-35mm F2.8 GM II, a 35mm full-frame α™ (Alpha™) E-mount lens that covers focal lengths from 16mm to 35mm with a maximum aperture of F2.8 over the entire zoom range.

The new launch FE 16-35mm F2.8 GM II satisfies the needs of photographers and videographers looking for high-performance lenses, with the descriptive power and high-speed AF (autofocus) unique to G Master.

Also, in the same month, the company unveiled two new additions to the Alpha 7C series of compact full-frame interchangeable lens cameras, the Alpha 7C II (model ILCE- 7CM2) and Alpha 7C R (model ILCE-7CR). These additions ensure top-tier imagery and visual performance across Sony’s state-of-the-art imaging devices and respond to the wide range of image expressions creators seek.

These fresh additions to the company’s product portfolio are expected to extend its market reach and drive its revenue stream and growth.

On June 6, Sony Electronics announced its partnership with SQUARE ENIX® on the latest standalone title in the esteemed FINAL FANTASY game franchise, FINAL FANTASY® XVI, available exclusively on PlayStation®5 (PS5™).

Deteriorating Financials

For the first quarter that ended June 30, 2023, SONY’s total sales and financial services revenue increased 32.9% year-over-year to ¥2.96 trillion ($20.14 billion). However, its operating income declined 30.1% year-over-year to ¥253.04 billion ($1.72 billion). The sharp drop in operating income was due to decreased profits in the company’s financial services and movie businesses.

Furthermore, the company’s adjusted EBITDA was ¥406.20 billion ($2.76 billion), down 18.3% year-over-year. Its net income decreased 16.6% from the year-ago value to ¥217.94 billion ($1.48 billion). Also, net income attributable to SONY’s stockholders came in at ¥175.67 per share, a decline of 16.2% year-over-year.

As of June 30, 2023, SONY’s cash and cash equivalents stood at ¥1.53 trillion ($10.41 billion), compared to ¥2.05 trillion ($13.95 billion) as of April 1, 2022.

Solid Historical Growth

Over the past three years, SONY’s revenue and EBIT grew at CAGRs of 13.9% and 8.1%, respectively. The company’s net income increased at a CAGR of 12.7% over the same time frame, while its EPS and total assets grew at 13.2% and 11.6% CAGRs, respectively.

Improved Full-Year Sales Forecast

Despite a disappointing financial performance in the last reported quarter, SONY raised its revenue forecast for the full year ending March 31, 2024, by 6.1% from the April forecast to ¥12.20 trillion ($83.02 billion), thanks to strength in its PlayStation gaming unit. The company made a 7% upward revision to its sales forecast for the Games & Network Services unit to ¥4.20 trillion ($28.58 billion).

Net income attributable to SONY’s stockholders is forecasted to be ¥860 billion ($5.85 billion), compared to its April forecast of ¥840 billion ($5.72 billion). The company’s August forecast for operating income remained unchanged at ¥270 billion ($1.84 billion). It expects full-year adjusted EBITDA of ¥1.75 trillion ($11.91 billion), which is also unchanged from the April forecast.

SONY is expecting a great year for its PlayStation gaming business. The company previously said it expects to sell a record 25 million PlayStation 5 units in the ongoing fiscal year 2024, compared with 19.1 million units in the prior year.

Moreover, the company sold 3.3 million units of the PlayStation 5 in its April-June quarter, an increase of 38% year-over-year. Although the numbers are softer compared with the December quarter, when consumer electronics tend to do well thanks to the holiday shopping period, it is still a solid result, given the macroeconomic weakness that has caused consumers to cut back their spending.

Piers Harding-Rolls, analyst at Ampere Analysis, said that Sony’s strong PlayStation results reflected its “much healthier position with regards to console availability.”

Warning About Delays in Smartphone Market Rebound

Last month, SONY warned about delays in the smartphone market recovery. The key supplier of image sensors, which are vital semiconductor components for smartphone photography and used by Apple Inc. (AAPL) and other device markers, said that it doesn’t expect demand in the smartphone market to bounce back until 2024 at the earliest due to sluggish demand in China and the U.S.

The entertainment and electronics group earlier said it expected a rebound in global smartphone sales in the second half of this year.

As a result, SONY expects its imaging sensors business to perform weaker than anticipated. For the full year 2024, the company’s operating income for the imaging sensors unit is projected to be ¥180 billion ($1.22 billion), down from an earlier forecast of ¥200 billion ($1.36 billion).  

Mixed Analyst Estimates

Analysts expect SONY’s EPS to decline 21.9% year-over-year to $1.13 for the fiscal 2024 second quarter ending September 2023. However, the company’s revenue for the ongoing quarter is estimated to increase 5.1% year-over-year to $19.53 billion. Moreover, it surpassed the consensus EPS estimates in all four trailing quarters and consensus revenue estimates in three of the trailing four quarters.

For the fiscal year 2024, the company’s EPS and revenue are expected to decrease 9.6% and increase 2,172.5% year-over-year to $5.04 and $81.88 billion, respectively. Analysts expect its EPS and revenue for the fiscal year 2025 to grow 12.1% and 2.2% from the previous year to $5.64 and $83.67 billion, respectively.

Bottom Line

SONY reported a nearly 31% decline in operating income in the fiscal 2024 first quarter as its life insurance and movies units dragged on its bottom line. Nevertheless, the company raised its full-year 2024 sales forecast due to an anticipated strength for its PlayStation gaming business.

While expecting strength in the PlayStation gaming business, SONY’s key image sensor business will likely get hit by the uncertainties associated with the smartphone market this year. Sony, last month, pushed back expectations for a smartphone market recovery to 2024 at the earliest following gauging worsening demand from China and the U.S.

After falling for most of this year due to smartphone market weakness, eroding gamer spending, and other macro headwinds, SONY’s stock rose its most in more than a month after the company hiked the price of its core gaming PlayStation Plus (PS Plus) subscription service by nearly a third, potentially boosting its bottom line.

While Sony already seems to be benefitting from the PS Plus price hike, some analysts warn that the increasing stock and revenue will only last for the short term as it may cause gamers to consider canceling their subscription, leading to declined sales in the long run.

Given this backdrop, waiting for a better entry point in this stock might be prudent.