Understanding the Bearish Signals in This Chipmaker's Stock Chart

Intel Corporation’s (INTC) shares plunged nearly 31% in April, marking their worst month in more than two decades, as the prominent chipmaker continues to grapple with executing a turnaround. Moreover, the stock has dropped approximately 40% year-to-date.

Most of INTC’s sell-off occurred after its recent financial results, which included a bleak forecast, indicating that the company’s turnaround efforts will require more time and investment. Further, Intel’s factory operations faced challenges in March, adding to investor concerns.

Mixed First-Quarter Earnings and Weak Forecast

During the first quarter that ended March 30, 2024, INTC’s net revenue increased 8.6% year-over-year to $12.72 billion. However, that missed analysts’ estimate of $12.78 billion. Also, the company’s Foundry business reported $4.40 billion in revenue, down 10% year-over-year.

The chipmaker’s gross margin rose 30.2% from the prior year’s quarter to $5.22 billion. Its operating loss was $1.07 billion, compared to $1.47 billion in the previous year’s period. However, Intel Foundry posted a $2.50 billion operating loss during the quarter. In 2023, this unit reported a hefty operating loss of $7 billion.

Furthermore, INTC’s net income came in at $437 million versus $2.77 billion in the same quarter of 2023. Also, the loss per share attributable to Intel was $0.09, compared to $0.66 in the prior year’s quarter. That surpassed the consensus loss per share estimate of $0.15.

Intel’s primary business remains manufacturing chips for PCs and laptops, categorized as Client Computing Group (CCG). This business unit revenue amounted to $7.50 billion, a 31% increase year-over-year.

In addition, Intel produces central processors for servers and other components and software, which are classified under its Data Center and AI business segment. Sales in this segment rose by 5% year-over-year to $3 billion. However, the chipmaker faces stiff competition in the server market, particularly against AI chips from companies like NVIDIA Corporation (NVDA).

In addition, for the second quarter of fiscal 2024, the company expects its revenue to come between $12.5 billion and $13.5 billion. It projects a loss per share of $0.05 for the current quarter, and its non-GAAP earnings per share are expected to be $0.10.

INTC recently revised its current-quarter revenue guidance after the U.S. Department of Commerce revoked certain export licenses intended to send its chips to the Chinese tech company Huawei.

On May 7, the chipmaker said in an 8-K filing with the SEC that it had received a notification from federal regulators that they were “revoking certain licenses for exports of consumer-related items to a customer in China, effective immediately.”

On Wednesday, Intel announced that due to the Commerce Department's directive, it expects revenue for the second quarter to fall below the midpoint of the original range of $12.5 billion to $13.5 billion. However, the company continues to expect full-year revenue and earnings to be higher than in 2023.

Intel Faces Fierce Competition

INTC, a longstanding leader in the semiconductor industry, has been facing rigid competition from rivals, including Advanced Micro Devices, Inc. (AMD) and Nvidia. Intel remains dominant in the PC chip market, but AMD is gaining ground in server, desktop, and mobile segments, as per the latest figures from Mercury Research.

Intel remains the leading player in the server CPU segment, with a market share of 79.2% during the first quarter; however, this is down from 82% in the year-ago quarter, indicating some erosion in its market share. On the other hand, AMD made gains in this segment, rising from just 18% a year ago to 23.6% in the first quarter of 2024.

Also, Intel's market share in the mobile CPU segment was 80.7% in the first quarter of 2024, compared to 83.8% in the prior year’s quarter. However, AMD’s 19.3% market share in the first quarter was 3.1% up from the same period in 2023. Further, AMD gained on Intel, with its 23.9% desktop share in the fiscal 2024 first quarter, up 4.7% a year ago.

Besides, INTC continues to fight for server market share against competitor NVDA, particularly in AI chips. Nvidia commands around 80% of the AI chip market with its graphics processors (GPUs), which AI builders have favored over the past year.

Earlier in April, Intel introduced its latest AI chip, Gaudi 3, as competition from NVDA intensified. The company claimed the new Gaudi 3 chip is over twice as power-efficient and can run AI models 1.5 times faster than Nvidia’s H100 GPU. Also, it is available in various configurations, such as a bundle of eight Gaudi 3 chips on a single motherboard or a card designed to fit into existing systems.

Intel tested the chip on models like Meta's open-source Llama and Falcon, backed by Abu Dhabi. It highlighted that Gaudi 3 could be instrumental in training or deploying models, including Stable Diffusion and OpenAI’s Whisper model for speech recognition.

Also, Intel is losing market share to rivals such as Arm Holdings PLC (ARM), Samsung Electronics, and Taiwan Semiconductor Manufacturing Ltd. (TSM).

Analysts Lowered Price Targets for Intel Shares

Goldman Sachs analysts slashed their price target for INTC stock from $39 to $34 and lowered their adjusted EPS estimates for the 2024-2026 period by an average of 18%. Also, they reaffirmed their “Sell” rating for the stock, which has been in effect since July 2020.

“We worry the company will continue to cede wallet share within the overall Data Center Compute market to the likes of Nvidia and Arm,” Goldman analysts said.

Meanwhile, Bank of America Corporation (BAC) cut its price objective to $40 from $44, citing higher costs, lower growth, and fierce competition. According to BofA analysts, the bleak second-quarter revenue guidance highlights that “topline growth remains lukewarm on limited AI exposure, while underutilized manufacturing and elevated costs.”

They added that Intel’s “enterprise incumbency, US-based manufacturing assets and weak investor sentiment provide turnaround potential.”

Bottom Line

INTC’s first-quarter 2024 earnings surpassed Wall Street’s expectations for EPS but fell short on sales. The chipmaker also provided a weak forecast for the current quarter.

After the U.S. Department of Commerce recently revoked certain licenses for exports of chips to Huawei in a bid to curb China’s tech power, Intel revised its second-quarter revenue guidance, anticipating below the initial range of $12.5 billion to $13.5 billion.

INTC’s stock fell more than 30% in April, making its biggest decline since June 2002. Moreover, the stock is trading below its 50-day and 200-day moving averages of $38.33 and $39.74, respectively, indicating a downtrend.

Despite INTC’s more than 50 years of dominance in the semiconductor industry, it now faces intense competition from competitors like AMD, NVDA, TSM, Samsung, ARM, and more. Also, the ongoing AI boom has caused a shift in enterprise spending away from Intel’s traditional data center chips.

With limited AI exposure, the intensifying competition raises doubts about Intel’s future dominance in the semiconductor industry.

INTC’s CEO Pat Gelsinger told investors on an earnings call to focus on the company’s long-term potential.

Analysts expect INTC’s revenue to increase marginally year-over-year to $13.06 billion for the second quarter ending June 2024. However, its EPS for the current quarter is expected to decline 18.2% year-over-year to $0.11. For the fiscal year 2024, the chipmaker’s revenue and EPS are expected to grow 3.3% and 4.8% year-over-year to $55.99 billion and $1.10, respectively.

“While 2024 should mark a bottom in many aspects of the business, the pace of the climb back up is unlikely to remain unclear,” Stifel stated in a note to clients.

Given INTC’s disappointing revenue guidance, regulatory issues, and fierce competition, it could be wise to avoid investing in this stock now.

Investing Like a Billionaire: Everything Berkshire Hathaway Offers to Ordinary Investors

With a $867.46 billion market cap, Berkshire Hathaway (BRK.A) (BRK.B), a diversified holding company, is led by Warren Edward Buffett, who is one of the world’s renowned investors with a long track record of successful capital allocation and value creation. As of May 8, 2024, he has a net worth of $133.50 billion, making him the eighth-richest person in the world.

Buffett’s substantial wealth primarily stems from his significant holdings in Berkshire Hathaway, a conglomerate with assets exceeding $1 trillion. Under Buffett’s expertise and exceptional leadership, Berkshire has historically delivered robust and consistent long-term growth, outperforming various other investment options.

From 1965, when Warren Buffett took control of the company, to 2023, Berkshire’s share price surged by a staggering 4,384,748%, surpassing the total return of the S&P 500 with dividends included of 31,223%. Additionally, Berkshire has continued its solid performance into 2024, with a double-digit percentage gain.

Berkshire’s Portfolio Reflects Buffett’s Investment Strategy

Known as the “Oracle of Omaha,” Warren Buffett stands out as one of the most accomplished investors of all time. He follows the Benjamin Graham school of value investing, seeking out securities with unreasonably low prices compared to their intrinsic worth. He often assesses the company’s long-term potential rather than short-term market trends.

Buffett considers company performance, profit margins, management team, and business model. He believes in investing in high-quality businesses with solid competitive advantages or “economic moats,” enabling them to maintain or expand their market share over time.

Sticking to his investment policy, Buffett’s holding company, Berkshire Hathaway, aims to “buy ably-managed businesses” possessing various characteristics, such as enduring competitive advantage, at extremely low prices.

For instance, the acquisition of See’s Candies in 1972 demonstrated Buffett’s strategy, as the company's robust brand and loyal customer base made it a highly profitable long-term investment. He favors companies with strong brands and business models that own their market niche, creating formidable barriers for competitors trying to enter and beat them at their game.

Berkshire Offers Diversification Across Industries

Berkshire Hathaway’s top holding is Apple Inc. (AAPL). Thanks to its strong brand and customer loyalty, it has remained one of Buffett’s favorite stocks for a long time. He has previously referred to AAPL as the “best business I know in the world.”

BRK.B recently disclosed that it had cut its stake in Apple by around 13% in the first quarter. It was reported that Berkshire’s Apple bet was worth $135.4 billion, implying nearly 790 million shares. Despite this trim, the iPhone maker is still Berkshire’s biggest holding by far, with a 39.8% weight in its publicly traded portfolio.

Another consumer goods company that Buffett loves is The Coca-Cola Company (KO). He recognized the company’s iconic brand, attractive dividends, and market advantages. Coca-Cola’s robust brand has enabled it to mitigate the impact of inflation by transferring higher costs to customers while still being able to generate growth.

At around 6.9%, KO is the fourth-largest holding in Berkshire’s portfolio. Berkshire owns a 9.3% stake in the company.

Meanwhile, Warren Buffett holds significant investments in the energy sector. During the fourth quarter of 2023, Buffett’s Berkshire increased its stakes in two major oil and gas companies, Chevron Corporation (CVX) and Occidental Petroleum Corporation (OXY).

Berkshire Hathaway owns about a 6.7% stake in CVX. According to Berkshire’s February shareholder letter, the firm also holds a 27.8% stake in OXY and has warrants to increase its ownership further at a fixed price.

Chevron (about 5.5% of the portfolio’s total weight) and Occidental (4.5%) provide investors with exceptionally good returns amid the inflationary periods and pay attractive dividends.

In addition, Buffett is fond of financial institutions and insurance companies, viewing them as a strategic bet on the long-term health of the U.S. economy. Berkshire's top two financial holdings are Bank of America Corporation (BAC) and American Express Company (AXP). These financial stocks comprise approximately 21% of the Berkshire portfolio’s total weight.

Outstanding First-Quarter Operating Earnings and Record Cash Hoard

For the first quarter that ended March 31, 2024, Berkshire’s total revenues increased 5.3% year-over-year to $89.87 billion. Revenues from Railroad, Utilities and Energy rose 11.2% year-over-year, and revenues from Insurance and Other grew 3.2%.

The Warren Buffett-led conglomerate reported first-quarter operating profit, which encompasses earnings from the company’s wholly-owned businesses, grew 39% from the year-ago period to $11.22 billion. This remarkable surge was led by a 185% year-over-year increase in insurance underwriting earnings to $2.60 billion. Insurance investment also soared 32% to over $2.50 billion.

However, net earnings attributable to Berkshire Hathaway shareholders declined by 64.2% year-over-year to $12.70 billion.

During the first quarter, the company’s cash pile reached a record high of $188.99 billion, up from $167.60 billion in the fourth quarter.

“We had much-improved earnings in insurance underwriting. And then our investment income was almost certain to increase,” Buffett said at Berkshire’s annual shareholder meeting in Omaha, Nebraska. “And I said that in the annual report because yields are so much higher than they were last year. And we have a lot of fixed, short-term investments that are very responsive to the changes in interest rates.”

Bottom Line

Berkshire Hathaway, led by a well-known investor, Warren Buffett, follows an intrinsic value investing approach, aiming at buying undervalued companies with solid fundamentals, competitive advantages, and long-term growth potential. Berkshire owns a diverse portfolio of businesses, including insurance, utilities, transportation, retail, and technology, among others.

Moreover, Berkshire’s top five holdings pay attractive dividends, which indicates Warren Buffett’s interest in stocks that offer a stable income stream.

Buffett’s conglomerate recently reported a significant surge in operating earnings in the first quarter of fiscal 2024, primarily driven by an increase in insurance underwriting earnings and a record cash pile that nears $200 billion.

USB analyst Brian Meredith maintained a Buy rating on Berkshire, citing the recent earnings beat and noting that Geico is on track to catch up to rivals Progressive and others on data analytics by 2025.

Berkshire Hathaway has historically delivered impressive and consistent returns. From 1965 to 2023, its share price skyrocketed 4,384,748%, more than 140 times the total return of the S&P 500, with dividends included. Moreover, Berkshire shares have already outperformed this year, with each share class having advanced more than 12%, while the S&P is up by nearly 8%.

Shares of BRK.B have gained approximately 16% over the past six months and more than 22% over the past year.

Looking ahead, analysts expect BRK.B’s EPS for the fiscal year (ending December 2024) to increase 14.6% year-over-year to $19.70. Further, the company’s EPS and revenue for the fiscal year 2025 are expected to grow 1.4% and 5.6% from the prior year to $19.97 and $376.61 billion, respectively.

Thus, by owning BRK.B shares, investors can gain exposure to Berkshire’s diversified portfolio of businesses, Buffett’s expertise, and stable growth and performance.

Can Starbucks (SBUX) Rebound From Earnings Miss?

Starbucks Corporation (SBUX), the leading coffeehouse chain, reported quarterly revenue and EPS that fell short of analysts’ expectations. Shares of SBUX declined more than 12% in premarket trading Wednesday after the coffee company reported a disappointing quarter. Also, the stock has plunged nearly 18% over the past month and almost 28% over the past six months.

For the second quarter that ended March 31, 2024, SBUX’s net revenues decreased 1.8% year-over-year to $8.56 billion. That missed analysts’ revenue estimate of $9.16 billion.

Global same-store sales decreased by 4% as traffic to its cafes declined 6% in the quarter. Starbucks experienced declining same-store sales and lower traffic across all regions. In North America and the U.S., same-store sales dropped by 3% as traffic fell 7%, marking the second consecutive quarter of challenges in its home market.

Last quarter, executives attributed slow sales to boycotts of the stores related to misperceptions about its stance on Israel.

SBUX’s CEO Laxman Narismhan told analysts on the company’s conference call, “In this environment, many customers have been more exacting about where and how they choose to spend their money.” Narasimhan added that a deteriorating economic outlook in several of its markets had contributed to a significant reduction in customer traffic.

SBUX’ International segment posted same-store sales declines of 6%, with both average ticket and transactions declining. In China, the company's second-largest market, same-store sales fell by 11%, primarily due to an 8% reduction in average ticket.

The coffee giant’s operating income was $1.10 billion, down 17.2% from the prior year’s quarter. Net earnings attributable to SBUX declined 15% year-over-year to $772.40 million. It reported net earnings per share was $0.68, compared to the consensus estimate of $0.80, and down 13.9% year-over-year.

As of March 31, 2024, Starbucks’ cash and cash equivalents stood at $2.76 billion, compared to $3.55 billion as of October 1, 2023. The company’s current assets were $6.47 billion versus $7.30 as of October 1, 2023.

“In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead,” said Laxman Narasimhan. “It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us.”

“We have a clear plan to execute and the entire organization is mobilized around it. We are very confident in our long-term and know that our Triple Shot Reinvention with Two Pumps strategy will deliver on the limitless potential of this brand,” Narasimhan added.

Meanwhile, Rachel Ruggeri, SBUX’s chief financial officer, commented, “While it was a difficult quarter, we learned from our own underperformance and sharpened our focus with a comprehensive roadmap of well thought out actions making the path forward clear.”

“On this path, we remain committed to our disciplined approach to capital allocation as we navigate this complex and dynamic environment,” he added. 

Bleak Fiscal 2024 Outlook

For the fiscal year 2024, SBUX expects revenue growth in the low single digits, compared to the prior guidance of 7% to 10%. The coffee giant also revised its forecasts for global and U.S. same-store sales growth to a range of low single digits to flat from its prior projection of 4% to 6%.

Starbucks’ same-store sales in China are anticipated to decrease by single digits, compared to the previous guidance of a single-digit increase. The company further expects EPS growth to range from flat to low single digits. Previously, it expected its earnings to surge 15% to 20% in 2024.

However, the company projects that sales might improve in the fourth quarter of 2024.

In addition, SBUX’s CEO Narasimhan said that the company now expects supply-chain cost savings of $4 billion over the next four years, revising its previous outlook of $3 billion over three years.

Strategic Initiatives

In February 2024, SBUX and Bank of America Corporation (BAC), the prominent financial institution, announced a new collaboration that offers millions of Bank of America cardholders and Starbucks Rewards® members in the U.S. the ability to earn more benefits by linking accounts.

Bank of America cardholders and Starbucks Rewards members can earn an additional 2% cash back on qualifying purchases on top of their existing rewards or card benefits. Additionally, they can earn 1 Star per $2 spent at Starbucks by linking an eligible debit or credit card to their Starbucks Rewards account at BofA.com/starbucks or starbucks.com/bofa.

Ryan Butz, vice president of loyalty strategy and marketing at Starbucks, said, “This partnership is the latest example of how we are continuing to invest in our most loyal customers to deepen engagement and connection by offering benefits and experiences that can’t be found anywhere else.”

Despite near-term macroeconomic headwinds, the Seattle-based coffee company remains focused on its long-term growth and outsized returns to partners, customers, and shareholders.

In November last year, SBUX announced its long-term growth strategy, Triple Shot Reinvention with Two Pumps, to elevate the brand, strengthen and scale digital, identify opportunities within and outside the store for efficiencies, expand globally, and reinvigorate the partner (employee) culture. 

For the quarter that ended March 31, 2024, Starbucks’ U.S. store count stood at 16,600, a 3% increase year-over-year. The company aspires to reach 20,000 over the long term, leveraging the vast channels available to meet the changing customer needs and further elevate the brand.

“Innovation in our store formats, to purpose defined stores like pick-up, drive-thru only, double-sided drive-thru, and delivery-only allows us to better meet our customers where they are at through differentiated experiences,” said Sara Trilling, executive vice president and president of Starbucks North America.

In addition, the brand will be elevated via product innovation. Also, SBUX introduced a new phase in the acceleration of its digital flywheel. The coffee chain wants to strengthen its digital leadership with a strategy aimed at Double global Starbucks Rewards with another 75 million members within the next five years.

Also, SBUX announced new technology collaborations to improve the partner and customer experience. The partnership with Microsoft Corporation (MSFT) will continue through joint efforts in its innovation lab, combining industry-leading generative AI capabilities to advance product development and personalization to the next level.

Further, Starbucks will collaborate with Apple (AAPL) products in its first Green Apron Innovation store to experiment and refine technology to help partners worldwide. The company will also reimage the customer in-store experience with Amazon One and Just Walk Out technology. 

SBUX also announced a plan to expand its global store footprint to 55,000 by 2030, bolstered by further expansion of digital platforms across all licensed partners worldwide. 

The company further announced the implementation of a $3 billion efficiency program – with $2 billion outside the store in cost of goods sold – to reinvest in the business and deliver returns to shareholders through margin expansion and earnings growth.  

Bottom Line

SBUX reported weaker-than-expected revenue and earnings in the second quarter of fiscal 2024, driven by a significant decline in same-store sales. After a disastrous quarter, the coffee giant lowered its outlook for the full-year earnings and revenue; however, it forecasts sales will start improving in the fourth quarter of 2024.

Regarding disappointing financial performance, CEO Laxman Narasimhan said customers had been more cautious about where and how they spend their money during the quarter. The U.S. consumer confidence deteriorated for the third consecutive month in April as consumers continued to fight persistently high prices and elevated interest rates.

Starbucks added that bad weather also closed some U.S. stores briefly in the quarter. China, the company's second-largest market, also witnessed a choppy post-COVID recovery. Further, it is facing an ongoing boycott of its stores for its perceived support of Israel in the war in Gaza.

Despite near-term macro challenges, the coffee giant stays committed to its long-term growth strategy, Triple Shot Reinvention with Two Pumps, which priorities elevating the Starbucks brand, strengthening the company’s digital capabilities, becoming more global by accelerating store expansion, unlocking efficiency by cost savings, and reinvigorating the partner culture.

Starbucks continues to deliver significant value to partners, customers, and shareholders. On March 21, SBUX’s Board of Directors approved a quarterly cash dividend of $0.57 per share of outstanding common stock, payable in cash on May 31, 2024.

SBUX pays an annual dividend of $2.28 per share, which translates to a yield of 3.12% on the current share price. Its four-year average dividend yield is 2%. The company’s dividend payouts have grown at a CAGR of 9.8% over the past five years. Moreover, Starbucks has raised its dividend for 13 consecutive years.

Although the road to recovery might be rocky, investors should watch closely for improvements in SBUX’s same-store sales, gains from ongoing strategic initiatives, and global store expansion. Hence, it could be wise to wait for a better entry in this stock for now.

Bank of America (BAC) Payout Potential for Income Investors

Headquartered in Charlotte, North Carolina, Bank of America Corporation (BAC), the financial juggernaut boasting $3.20 trillion in assets, has been a boon for investors lately. Over the past six months, shares of the mega-bank have delivered returns of 50.2%. Impressive, isn’t it?

Moreover, BAC now ranks as the second-largest holding in Berkshire Hathaway's (BRK.A) (BRK.B) portfolio, with well-known investor CEO Warren Buffett showing confidence in the bank’s long-term success. Berkshire owns around 1.03 billion shares in Bank of America, representing a 13.1% stake as of December 31, 2023.

Warren Buffett's knack for investing in profitable ventures has made Berkshire a top conglomerate. Berkshire's investment in BAC is driven by factors including the bank's robust financial position, diversification of financial services, and growth potential. Buffett, known for seeking companies with solid fundamentals and competitive advantages, sees Bank of America meeting his standards. So, does this signal a bullish outlook on the bank’s prospects?

Here's a closer look at whether BAC holds promise for investors seeking to emulate Buffett's investment philosophy.

How Did the Bank Perform in Q1?

Bank of America’s top line in the fiscal 2024 first-quarter results revealed a marginal year-over-year decline, reaching $25.82 billion due to the lower net interest income (NII) generated across its business segments. NII decreased by 3% year-over-year to $14.03 billion, with higher deposit costs outweighing increased asset yields and modest loan growth.

Despite the drop, the company delivered better-than-expected NII performance, which is $100 million higher than the last quarter. BofA had predicted a decrease of $100 million to $200 million from the fourth quarter of 2023 to the first quarter of 2024. Moreover, BAC’s Global Wealth and Investment Management segment reported a record revenue of $5.60 billion, up 5% year-over-year.

In addition, BAC’s net income applicable to common shareholders fell by 19.8% from the prior year’s quarter to $6.14 billion. Its EPS came in at $0.76, representing a decline of 19.2% year-over-year.

Compared to the previous year’s period, the company’s provision for credit losses rose by 41.7% to $1.32 billion. Also, its total net charge-offs increased 85.6% year-over-year. The net charge-offs as a percentage of average loans and leases outstanding stood at 0.58%, compared to 0.32% in the prior-year quarter.

On the other hand, the company’s CET1 ratio came in at 11.8%, compared to 11.4% in the prior-year quarter. Also, its total loans and leases rose 0.2% year-over-year to $1.05 trillion. As of March 31, 2024, Bank of America’s liquidity remained strong, with cash and cash equivalents at $313.40 million, albeit a decline of 5.9% from $333.07 billion as of December 31, 2023.

Brian Moynihan, BAC’s Chair and CEO, said, “We reported a strong quarter as our businesses performed well, adding clients and deepening relationships. We reached 36.9 million consumer checking accounts, with 21 consecutive quarters of net checking account growth. Our Wealth Management team generated record revenue, with record client balances, and investment banking rebounded.”

“Continued strong earnings and strong expense management both position our company to continue to drive our market leading positions across our businesses,” Moynihan added.

What’s Ahead?

Street expects BAC to generate a revenue of $25.31 billion for the second quarter (ending June 2024), indicating a slight increase compared to the same period last year. The company’s earnings per share is expected to stand at $0.81 for the ongoing quarter.

For the fiscal year ending December 2024, analysts anticipate a revenue surge of 3.4% year-over-year, reaching $101.91 billion. They forecast that earnings per share will reach $3.23, up 4.7% year-over-year. Further, the company’s revenue and EPS for the fiscal year 2025 are expected to grow 2.5% and 8.7% year-over-year to $104.49 billion and $3.51, respectively.

Additionally, the company has comfortably surpassed consensus revenue estimates in three of the trailing four quarters, so there is a low likelihood of another miss in the upcoming period.

Dividend Sustainability Makes It Attractive for Income Investors

Thanks to its robust capital strength, with a common equity Tier 1 capital of $197 billion (exceeding regulatory requirements by $31 billion), the bank was able to support clients and return $4.4 billion to shareholders in the first quarter through dividends and share repurchases.

BAC rewards shareholders a dividend of 2.5% (or $0.96 annually), significantly higher than the S&P 500's average of 1.4%. That means BAC shareholders get over 78% of the income generated by America’s leading stock index.

Moreover, BofA has a commendable track record of dividend increases, with compound annualized growth rates (CAGRs) of 9.3% over the past three years and 10.5% over the past five years. With a record of 10 years of consecutive dividend growth, the bank has shown a steady and reliable history of doing so.

The company has a payout ratio of 32.5%, demonstrating a prudent balance between rewarding shareholders and retaining earnings for future growth. While past performance does not indicate future results, the company's steadfast commitment to dividend growth suggests that the management is unlikely to break its streak in the near term.

Bottom Line

Despite the mixed financials, BAC's recent first-quarter report showcased the strength of its diversified business model. Notably, the bank saw a significant 35% increase in investment banking fee revenue, driven by a timely rebound in deal activity. Also, its sales and trading revenue experienced a notable resurgence, marking its most robust first-quarter performance in over a decade.

Moreover, the company’s dividend sustainability and growth prospects highlight its attractiveness for income-focused investors seeking reliable cash flow and capital appreciation.

According to Statista, the U.S. wealth management market is expected to expand at a CAGR of 7.9%, resulting in a market volume of $87.35 trillion by 2028. Meanwhile, the U.S. retail banking market is projected to hit $91.47 billion, growing at a CAGR of 4.3% during the forecast period (2024-2028).

Given the inflationary pressures, the Federal Reserve is unlikely to cut rates in June, meaning interest rates will remain higher for longer. While this may enable banks to charge higher loan rates, they may face increased deposit costs, potentially impacting their margins. Bolstered by an adjusted ROTCE of 13.88% and a CET1 ratio of 11.8%, we believe the company is well-equipped to thrive in a higher interest rate environment.

Looking at valuation, BAC’s forward non-GAAP P/E of 11.89x is 14.1% higher than the industry average of 10.42x. Likewise, in terms of forward Price/Sales, the stock is trading at 2.96x, 18.4% higher than the industry average of 2.50x.

So, while existing shareholders have reason to cheer, potential investors might wait for a better entry point in this stock.

Microsoft (MSFT): Analyzing Investor Opportunities Amidst New Generative AI Tools

The enthusiasm for the transformative potential of generative artificial intelligence (AI) is mounting. Companies from various sectors are actively exploring its applications, be it enhancing worker productivity, facilitating communication with stakeholders, or streamlining operational processes to foster efficiency and growth.

Despite widespread adoption among other C-suite executives, many traditionally cautious CFOs hesitate to embrace generative AI. Concerns over return on investment (ROI) and cost containment persist, hindering their full engagement in leveraging this technology's potential benefits.

According to the CNBC CFO Council survey for the first quarter of 2024, only a third of respondents anticipate increased capital expenditures over the next year. Of this group, merely 7% intend to allocate funds toward new AI capabilities, ranking lower than other investment priorities like market expansion or facility development.

Yet, a suite of specialized tools tailored for CFOs and finance teams is emerging from various business software providers. Microsoft Corporation (MSFT) is at the forefront, launching Microsoft Copilot for Finance. The tool empowers financial professionals within Microsoft 365, offering AI-driven support for critical decision-making processes.

Cory Hrncirik, modern finance lead at MSFT, has emphasized the significance of leveraging generative AI to blend structured and unstructured data sets. He asserts that comparing data from different systems is “something every finance team on the planet does a lot of.”

Furthermore, MSFT’s Copilot drastically reduces the time spent on reconciliation tasks for thousands of financial planning and analysis professionals. Previously, individuals would allocate one or two hours weekly to this process, whereas with Copilot, the task now only demands 10 to 20 minutes.

MSFT’s commitment to advancing business applications through AI-driven solutions underscores its dedication to addressing challenges organizations face. Copilot for Finance represents a significant step forward in empowering finance professionals to navigate complexities and drive success in today’s dynamic business landscape.

Strategic Collaborations and Expansion Avenues

MSFT’s commitment to AI extends beyond individual projects, encompassing strategic collaborations to bolster its AI capabilities. One such venture is the proposed “Stargate” project with OpenAI, involving a $100 billion investment to construct a massive supercomputing cluster supporting advanced AI models.

For perspective, MSFT’s expenditure on building clusters for training OpenAI’s GPT-4 model exceeded several hundred million dollars. OpenAI, in turn, is currently developing a successor to GPT-4, likely named GPT-5, utilizing MSFT’s existing data centers.

In parallel, data security firm Rubrik is eyeing a New York Stock Exchange listing, aiming to raise $500 million to $700 million. Backed by MSFT, which has held a stake in Rubrik since 2021, the IPO underscores the company's interest in expanding its presence in data security.

Moreover, MSFT and NVIDIA Corporation (NVDA) have deepened their collaboration, integrating NVIDIA’s generative AI and Omniverse™ technologies into Microsoft Azure, Azure AI services, Microsoft Fabric, and Microsoft 365. The partnership aims to provide customers with comprehensive platforms and tools across the Copilot stack, facilitating breakthroughs in AI capabilities.

From introducing the GB200 Grace Blackwell processor to Azure to enhancing integrations between DGX Cloud and Microsoft Fabric, these initiatives underscore MSFT's commitment to empowering customers with radical AI solutions spanning hardware and software domains.

Upbeat Financial Results Serve as Evidence

In the fiscal 2024 second-quarter earnings release, MSFT reported a remarkable 33% surge in profit for the October-December quarter, propelled by substantial investments in artificial intelligence. The company's focus on AI within its cloud-computing unit drove significant growth, surpassing Wall Street expectations.

MSFT’s earnings per share for the quarter came in at $2.93, beating the consensus estimate of $2.77. Its revenue stood at $62.02 billion, surpassing analyst expectations of $61.13 billion and up 17.6% year-over-year.

In addition, the company's cloud-centric segment witnessed robust growth, with revenue climbing 20% year-over-year to $25.88 billion. Office Suite and LinkedIn revenue grew by 13% year-over-year to $19.25 billion, and the personal computing business, including Xbox, surged by 19% to $16.89 billion, notably bolstered by the addition of Activision Blizzard.

Jeremy Goldman, director of briefings at Insider Intelligence, has hailed MSFT as a frontrunner in the AI realm, predicting its potential to expand into digital advertising. His firm anticipates the company's worldwide ad revenues to reach $14.93 billion, reflecting a 12% increase this year.

Looking ahead, Wall Street expects MSFT's revenue to increase 15.3% year-over-year to $244.34 billion for the fiscal year ending June 2024. Moreover, the company's EPS is estimated to rise 19.2% from the previous year to $11.69. Furthermore, MSFT has topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

Bottom Line

With staggering market projections, artificial intelligence is poised to become the paramount Next Big Thing. Statista forecasts the AI market to hit approximately $305 billion this year and nearly $740 billion by 2030, although some skeptics argue it’s mere hype.

Notably, Wall Street analysts pinpoint MSFT as a major beneficiary of the AI surge. CEO Satya Nadella emphasized the company’s wholehearted embrace of AI, citing its integration across the entire data stack and its substantial productivity enhancements.

Wedbush tech analyst Dan Ives has raised MSFT’s price target to $500 from $475, citing the transformative potential of Copilot and the accelerating adoption of AI technology. He anticipates a significant increase in Azure cloud deal flow as AI applications proliferate throughout the enterprise landscape.

Ives predicts that 70% of MSFT's enterprise base will utilize AI-driven functionality within three years, fundamentally altering the company's trajectory. He estimates Copilot alone could contribute $25-30 billion to the company’s revenue by 2025, underscoring its pivotal role in its growth.

Concurrently, Bank of America Corporation (BAC) maintains a bullish outlook on MSFT, labeling it a “top pick” with a buy rating and a $480 stock price target. Also, Jefferies Financial Group Inc. (JEF) analyst Brent Thill echoes this sentiment, raising the price target to $550 and affirming MSFT as the leading AI player, poised to capitalize on transformative opportunities in infrastructure and applications.

Given these factors, MSFT emerges as a compelling investment choice with the potential for substantial returns amid the burgeoning AI landscape.