The Future of NVIDIA: Post-Split Valuation and Growth Projections

NVIDIA Corporation (NVDA), a prominent force in the AI and semiconductor technology industries, announced a 10-for-1 forward stock split of the company’s issued common stock during its last earnings release in May. Shareholders of record as of June 6 received nine additional shares for each share held after the close on Friday, June 7. Trading will commence on a split-adjusted basis at market open on June 10.

This strategic move is poised to reshape the landscape for Nvidia investors and the broader tech market.

Post-Split Valuation

NVDA was already a leading AI stock in the market, but investor interest in the chipmaker skyrocketed as its 10-for-1 stock split took effect after the market’s close on June 7. Shares of the hottest stock on the S&P 500 surged tenfold on Friday following its much-anticipated stock split.

Moreover, NVIDIA’s stock has gained more than 158% over the past six months and nearly 222% over the past year. Notably, the stock is up over 3,222% over the past five years. During this remarkable run, Nvidia’s market cap of around $3 trillion surpassed those of Amazon (AMZN) and Alphabet Inc. (GOOGL). Before the 10-for-1 split, the stock traded at a lofty $1,209.

The chip giant’s strategic decision to split its stock follows a broader trend among tech giants to make their stock ownership more affordable and appealing to retail investors. With more individual investors gaining access to Nvidia’s shares post-split, increased trading activity and demand are observed, potentially driving share prices higher.

According to data from BofA research, total returns for companies announcing stock splits are about 25% in the 12 months after a stock split historically versus 12% gains for the S&P 500. Thus, stock splits are seen as a bullish signal, often accompanied by positive investor sentiment and increased buying activity.

Solid Earnings And A Healthy Outlook

The stock split isn’t the only reason for NVDA’s latest bull run. The company also reported better-than-expected revenue and earnings in the fiscal 2025 first quarter, driven by robust demand for its AI chips. During the quarter that ended April 28, 2024, Nvidia’s revenue rose 262% year-over-year to $26.04 billion. That surpassed the consensus revenue estimate of $24.59 billion.

The company’s largest business segment, Data Center, which includes its AI chips and several additional parts required to run big AI servers, reported a record revenue of $22.60 billion, up 427% year-over-year.

“Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets,” said Jensen Huang, founder and CEO of NVDA.

“We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI,” Huang added. During a call with analysts, the CEO mentioned that there would be significant Blackwell revenue this year and that the new chip would be deployed in data centers by the fourth quarter.

The chipmaker’s non-GAAP gross profit grew 328.2% from the previous year’s quarter to $20.56 billion. NVDA’s non-GAAP operating income was $18.06 billion, an increase of 491.7% year-over-year. Its non-GAAP net income rose 461.7% year-over-year to $15.24 billion. Also, it posted a non-GAAP EPS of $6.12, compared to analysts’ estimate of $5.58, and up 461.5% year-over-year.

Furthermore, NVIDIA’s cash, cash equivalents and marketable securities were $31.44 billion as of April 28, 2024, compared to $25.98 billion as of January 28, 2024.

According to its outlook for the second quarter of 2025, the company expects revenue to be $28 billion, plus or minus 2%. Its non-GAAP gross margin is expected to be 75.5%, plus or minus 50 basis points. NVDA’s non-GAAP operating expenses are anticipated to be approximately $2.8 billion.

Raised Dividends

NVDA raised its dividend payouts to reward shareholders and demonstrate confidence in its financial strength and growth prospects. The company increased its quarterly cash dividend by 150% from $0.04 per share to $0.10 per share of common stock. The dividend is equivalent to $0.01 per share on a post-split basis and will be paid on June 28 to all shareholders of record on June 11.

While Nvidia's dividend yield is modest compared to its tech peers, its considerable cash flow and strong balance sheet provide ample room for growth.

Dominance in AI and Data Center Markets Fuels Unprecedented Growth Opportunities

NVDA is strategically positioned at the forefront of the AI and data center markets, with a high demand for AI chips for data processing, training, and inference from large cloud service providers, GPU-specialized ones, enterprise software, and consumer internet companies. In addition, vertical industries, led by automotive, financial services, and healthcare, drive the demand.

Statista projects the generative AI (GenAI) market to reach $36.06 billion in 2024, with the U.S. accounting for the largest market size of $11.66 billion. Further, the GenAI market is expected to total $356.10 billion by 2030, expanding at a CAGR of 46.5% from 2024 to 2030.

Over the past year, Nvidia has experienced a significant surge in sales due to robust demand from tech giants like Google, Microsoft Corporation (MSFT), Meta Platforms, Inc. (META), Amazon, and OpenAI, who invested billions of dollars in Nvidia’s advanced GPUs essential for developing and deploying AI applications. In January, META announced a sizable order of 350,000 high-end H100 graphics cards from Nvidia.

As a result, NVDA holds a market share of about 92% in the data center GPU market for generative AI applications.

Bottom Line

NVDA’s recent 10-for-1 stock split has significantly impacted its valuation and market appeal. This strategic move not only made Nvidia's shares more accessible to retail investors but also fueled increased trading activity and demand, driving share prices higher. The stock surged tenfold on Friday when the stock split took effect, reflecting the heightened investor interest.

NVIDIA's strong financial performance, as evidenced by the fiscal 2025 first quarter report, further solidifies its position in the AI and data center market. The company reported threefold revenue growth, driven by the massive demand for its AI processors from major tech companies, including Microsoft, Meta, Amazon, Google, and OpenAI.

The chipmaker’s remarkable growth has propelled it to the third-largest market capitalization globally, surpassing peers such as AMZN and META.

Further, the company’s revenue and EPS for the fiscal year ending January 2025 are expected to grow 97.9% and 108.9% year-over-year to $120.55 billion and $27.07, respectively. For the fiscal year 2026, Analysts expect its revenue and EPS to increase 32.4% and 32.6% from the prior year to $159.55 billion and $35.90, respectively. With a healthy outlook for the future, NVDA continues to attract investors looking for long-term growth opportunities.

Moreover, the recent decision to raise dividends by 150% showcases NVDA's confidence in its financial strength and growth prospects, making it more attractive to income-oriented investors. This move, coupled with the stock split, appeals to different investor demographics and reflects NVDA's commitment to rewarding shareholders while positioning itself for future growth in the AI and semiconductor sectors.

Why Nvidia’s Stock Split Could Drive Further Market Gains

NVIDIA Corporation (NVDA) shares topped a record high of $1000 in a post-earnings rally. Last week, the company reported fiscal 2025 first-quarter results that beat analyst expectations for revenue and earnings, reinforcing investor confidence in the AI-driven boom in chip demand. Moreover, the stock has surged nearly 120% over the past six months and more than 245% over the past year.

Meanwhile, the chipmaker announced a 10-for-1 forward stock split of NVIDIA’s issued common stock, making stock ownership more accessible to employees and investors.

Let's delve deeper into how NVIDIA’s stock split decision could attract more investors and propel future gains.

The AI Chip Leader

NVDA’s prowess in AI and semiconductor technology has been nothing short of remarkable. Its GPUs (Graphics Processing Units) have become synonymous with cutting-edge AI applications, from powering self-driving cars and training and deploying LLMs to revolutionizing healthcare diagnostics and e-commerce recommendation systems.

Amid a rapidly evolving technological landscape, NVIDIA has consistently remained at the forefront, driving innovation and redefining industry standards. Led by Nvidia, the U.S. dominates the generative AI tech market. ChatGPT’s launch in November 2022 played a pivotal role in catalyzing the “AI boom.”

NVDA holds a market share of about 92% in the data center GPU market for generative AI applications. The company’s chips are sought after by several tech giants for their diverse applications and high performance, including Amazon (AMZN), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Tesla, Inc. (TSLA).

Nvidia surpassed analyst estimates for revenue and earnings in the first quarter of fiscal 2025, driven by robust demand for its AI chips. In the first quarter that ended April 28, 2024, NVIDIA’s revenue rose 262% year-over-year to $26.04 billion. That topped analysts’ revenue expectations of $24.59 billion. The company reported a record revenue from its Data Center segment of $22.60 billion, up 427% from the prior year’s quarter.

“Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets,” said Jensen Huang, founder and CEO of NVDA.

“We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI,” Huang added. 

NVDA’s non-GAAP gross profit grew 328.2% from the year-ago value to $20.56 billion. The company’s non-GAAP operating income was $18.06 billion, an increase of 491.7% from the prior year’s quarter. Its non-GAAP net income rose 461.7% year-over-year to $15.24 billion.

Furthermore, the chipmaker reported non-GAAP EPS of $6.12, compared to the consensus estimate of $5.58, and up 461.5% year-over-year.

Nvidia’s Stock Split: A Strategic Move

Alongside an outstanding fiscal 2025 first-quarter earnings, NVDA announced a 10-for-1 stock split of its issued common stock. Nvidia’s decision to split its stock aligns with a broader trend among tech giants to make their shares more appealing to a wider range of investors, particularly retail investors. The chipmaker aims to democratize ownership and attract a vast investor base by breaking down the barrier of high share prices.

As more individual investors gain access to Nvidia’s shares post-stock split, we could see heightened trading activity and increased demand, potentially exerting upward pressure on its share prices. This strategic move reflects the confidence of NVIDIA’s management in its future growth trajectory and underscores its commitment to inclusivity in the investment landscape.

Bank of America analysts, led by Jared Woodward, head of the bank’s research investment committee, described the share split as “another large-cap tech pursuing shareholder-friendly policies” in a note to clients.

NVIDIA marks the fourth Magnificent Seven big tech companies to announce a stock split since 2022, following Google, Amazon, and Tesla’s efforts to make shares more accessible, according to Woodward and his team.

In recent years, as the share prices of several Big Tech companies surged past the $500 mark, it has become challenging for retail investors to buy shares. Consequently, these companies have been exploring ways to simplify the process for nonprofessional investors to buy in. BofA added, “Big Tech is going bite-sized” to lure retail investors, which might signal more market-beating returns.

Historical Data Suggests That Stock Splits Indicate a Bullish Outlook

Examining historical data on stock splits reveals a generally positive picture. While immediate post-split gains aren’t guaranteed, companies like Apple Inc. (AAPL) and Google have witnessed substantial appreciation in their share prices following splits. AAPL’s 4-for-1 stock split, which took effect in August 2020, primarily influenced investor sentiment and trading dynamics.

Following the split, Apple’s stock continued its upward trajectory, driven by solid performance in its core businesses, including iPhone sales, services revenue, and wearables. Throughout the latter half of 2020 and into 2021, its share price experienced significant appreciation, reaching new all-time highs.

Given NVIDIA’s robust fundamentals and leadership in AI and semiconductor technology, there’s reason to believe that its recent stock split could lead to similar outcomes.

BofA’s sell-side analysts have consistently been bullish on Nvidia shares, and following the first-quarter earnings release, they raised their lofty 12-month price target for the chip giant from $1,100 to $1,320. If the outlook proves accurate, Nvidia shares could surge by another 26%, and the stock split could support that bullish move, as per Bank of America’s reading of history.

“Splits have boosted returns in every decade, including the early 2000s when the S&P 500 struggled,” noted Woodard and his team. BofA’s research indicates that stocks have delivered 25% total returns within the 12 months following a stock split historically, compared to the S&P 500’s 12%.

Further, the bank highlighted that stock splits often ignite bullish runs, even in stocks that have been underperforming. For example, both Advanced Micro Devices, Inc. (AMD) and Valero Energy Corporation (VLO) experienced significant share price increases after announcing stock splits despite their prior poor performance. According to analysts, “Since gains are more common and larger than losses on average, splits appear to introduce upside potential into markets.”

However, it's essential to heed the standard caveat the Securities and Exchange Commission (SEC) provided: “Past performance is not indicative of future results.” In line, Bank of America emphasized that “outperformance is no guarantee” after a stock split. Companies still witness negative returns 30% of the time following a split, with an average decline of 22% over the subsequent 12 months.

The analysts noted, “While splits could be an indication of strong momentum, companies can struggle in a challenging macro environment.” They pointed to companies like Amazon, Google, and Tesla that faced difficulties in the 12 months following their stock splits in 2022 due to a high interest-rate environment.

Bottom Line

NVDA has a significant role as a global leader in AI and semiconductor technology, with its GPUs driving innovations across numerous industries, such as tech, automobile, healthcare, and e-commerce. Nvidia’s fiscal 2025 first-quarter results suggest that demand for its AI chips remains robust.

Statista projects the global generative AI market to reach $36.06 billion in 2024. This year, the U.S. is expected to maintain its position as the leader in AI market share, with a total of $11.66 billion. Further, the market is estimated to grow at a CAGR of 46.5%, resulting in a market volume of $356.10 billion by 2030. The AI market’s bright outlook should bode well for NVDA.

The company also recently made headlines with its announcement to undergo a 10-for-1 stock split. While stock splits generally do not change the fundamental value of a company, they make its shares more accessible and attractive to retail investors. So, the recent stock split could significantly increase retail participation, driving heightened trading activity and potentially exerting upward pressure on Nvidia’s share prices.

Historically, stock splits generally indicate a positive impact on stock performance. Companies like AAPL, GOOGL, and AMD experienced substantial price appreciation after stock splits, with enhanced accessibility to retail investors driving higher demand and liquidity.

However, it is crucial to acknowledge that past performance is not indicative of future results. While stock splits can signal strong price momentum, they do not guarantee outperformance.

In conclusion, Nvidia’s stock split will likely attract more retail investors, potentially boosting increased trading activity and stock price appreciation. Coupled with the company’s strong position in the AI and semiconductor markets, the stock split could facilitate further growth, aligning with historical trends of positive post-split performance.

Why Nvidia's Stock Surge Could Translate to Higher Dividends

With a $2.35 trillion market cap, NVIDIA Corporation (NVDA) has had an exceptional year so far. Following a stellar 2023, NVDA’s stock has already surged nearly 92% since January. Moreover, the stock has gained over 200% in the past year.

This surge in NVIDIA has been fueled by its explosive growth in the AI and data center markets, making it one of the most talked-about and desirable stocks. With a high of just under $955 in yesterday’s session, expectations are mounting for the stock to hit four digits soon.

Ahead of Nvidia’s earnings, Stifel analyst Ruben Roy increased his price target on the stock from $910 to $1,085, citing that he expects Nvidia to again surpass expectations on the top and bottom lines and raise its guidance for the next quarter.

The company’s results have been bolstered by solid demand for its chips from hyperscalers, including Amazon (AMZN), Alphabet Inc. (GOOGL), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), and others. As a result, the first-quarter earnings report will serve as a crucial gauge of the industry’s appetite for further AI investment.

Also, Bank of America analyst Vivek Arya raised his price target on NVDA stock from $925 to $1100 while maintaining a “Buy” rating.

Let’s analyze how Nvidia’s stock price appreciation could lead to higher dividend payouts.

Dominance in AI and Data Center Markets

The U.S., led by NVIDIA, dominates the generative AI (GenAI) tech market. With the launch of ChatGPT in November 2022, the rise of GenAI gained substantial momentum.

From consumer-facing applications, foundational technology such as large language models (LLMs), cloud infrastructure, and semiconductors crucial for operations, U.S. companies hold a market share ranging from 70% to an impressive 90% across several segments of the generative AI landscape.

According to Statista, the global generative AI market is expected to reach $36.06 billion in 2024. Further, the market is projected to grow at a CAGR of 46.5%, resulting in a market volume of $356.10 billion by 2030. In global comparison, the U.S. is estimated to have the largest market share, totaling $11.66 billion this year.

Moreover, NVDA, a leading tech player, commands a market share of around 92% in the data center GPU market for GenAI applications.

Nvidia’s success extends beyond its cutting-edge semiconductor performance, owing to its software capabilities. The widely adopted CUDA development platform, introduced in 2006, has become a fundamental tool for AI development, amassing a user base of more than 4 million developers.

The company’s chips are essential in powering technology like Google’s Gemini and OpenAI’s ChatGPT. Also, META has placed a sizable order of 350,000 H100 GPU graphics cards from Nvidia. In line, MSFT has spent billions of dollars buying chips from the chipmaker.

Unveiled New Generation AI Graphics Processors

In March 2024, NVDA announced its next-generation chip architecture named Blackwell and related products, including its latest AI chip, B200. The latest GPUs are expected to dramatically boost developers’ ability to build advanced AI models.

The new GPU platform succeeds the company’s Hopper architecture, which was launched two years earlier and helped send NVDA’s business and stock surging.

Blackwell GPUs, containing 208 billion transistors, can enable AI models to scale up to 10 trillion parameters. It will be incorporated in Nvidia’s GB200 Grace Blackwell Superchip, which connects two B200 Blackwell GPUs to a Grace CPU.

The new AI chips are expected to ship later this year.

“Generative AI is the defining technology of our time,” said Nvidia CEO Jensen Huang during a keynote address at the company’s developers conference in San Jose, California. “Blackwell GPUs are the engine to power this new industrial revolution. Working with the most dynamic companies in the world, we will realize the promise of AI for every industry.”

With Blackwell’s superior performance, the chipmaker aims to solidify its dominance in the data center GPU market.

Outstanding Fourth-Quarter Financials

For the fourth quarter that ended January 28, 2024, NVDA’s revenue increased 265.3% year-over-year to $22.10 billion. That exceeded analysts’ expectations of $20.55 billion. It reported a record revenue from the Data Center segment of $18.40 billion, up 409% from the prior year’s period.

“Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations,” said Jensen Huang.

He added, “Our Data Center platform is powered by increasingly diverse drivers — demand for data processing, training and inference from large cloud-service providers and GPU-specialized ones, as well as from enterprise software and consumer internet companies. Vertical industries — led by auto, financial services and healthcare — are now at a multibillion-dollar level.

The chipmaker’s gross profit was $16.79 billion, an increase of 338.1% year-over-year. Its non-GAAP operating income rose 563.2% year-over-year to $14.75 billion. Its non-GAAP net income grew 490.6% from the previous year’s quarter to $12.84 billion.

Also, Nvidia posted non-GAAP earnings per share of $5.16, compared to the analysts’ estimate of $4.63, and up 486% year-over-year.

NVDA’s non-GAAP free cash flow was $11.22 billion, up 546.1% from the previous year’s period. The company’s total current assets were $44.35 billion as of January 28, 2024, compared to $23.07 billion as of January 29, 2023.

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

Further, NVIDIA predicts revenue of $24 billion for the first quarter of fiscal 2025. The company’s non-GAAP gross margin is anticipated to be 77%.

Potential for Increased Dividend Payouts

As Nvidia's revenue and profits soar significantly, the company will likely consider increasing its dividend payouts, benefiting long-term investors. NVIDIA paid its quarterly cash dividend of $0.04 per share on March 27 to shareholders of record on March 6. The company’s annual dividend of $0.16 translates to a yield of 0.02% at the current share price.

Currently, Nvidia's dividend yield is modest compared to its tech peers, but its substantial cash flow and strong balance sheet provide ample room for growth. By increasing dividends, the company can attract a broader base of income-focused investors, further supporting its stock price.

Bottom Line

NVDA’s remarkable rise so far this year can be attributed to its dominance in the AI and data center markets, fueled by the growing demand for its chips from tech giants such as Amazon, Google, Meta, Microsoft, and more.

Moreover, Nvidia’s recent announcement of its next-generation chip architecture, Blackwell, and related products demonstrates its commitment to innovation and maintaining its competitive edge. With Blackwell's superior performance, Nvidia aims to consolidate its dominance in the data center GPU market.

Analysts are highly optimistic about the chipmaker’s prospects. Analysts expect NVDA’s revenue and EPS for the fiscal 2025 first quarter (ended April 2024) to increase 242% and 411.9%year-over-year to $24.59 billion and $5.58, respectively. Also, the company topped consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

As NVDA continues to expand its market share and generate higher revenue and profit, the company naturally accumulates more cash reserves. With ample cash in hand, it can increase its dividend payouts without compromising its ability to fund ongoing operations or invest in future growth opportunities.

Increased dividends will be a positive signal to the market, reflecting Nvidia’s confidence in its long-term prospects and its commitment to returning value to shareholders. This move can also enhance investor sentiment, particularly among those looking for stable income streams in addition to capital appreciation.

In conclusion, NVDA stands at the forefront of the tech industry, driving innovation and shaping the future of AI. Given its outstanding financial performance, technological leadership, and potential for dividend growth, Nvidia is an attractive investment opportunity for long-term investors.

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.

Is Now the Right Time to Buy (Nintendo) NTDOY Stock Amidst the Leak?

Nintendo Co., Ltd.’s (NTDOY) Nintendo Switch has been around for more than seven years, and enthusiasts are beginning to get impatient about a successor. Initially rumored for a release in 2024, recent reports now suggest that the Nintendo Switch 2 is more likely to launch in the early months of 2025.

NTDOY has been secretive about its plans so far, but a recent significant leak suggests revealing a key detail about the new controllers for the rumored Switch 2, which will differ from the present design.

The major difference is that the upcoming controllers (which may be called Joy-Con) will utilize a magnetic system to attach to the console’s body, unlike the current design that relies on rails that the Joy-Con slides into. This magnetic attachment may be similar to the Lenovo Legion Go, in which the controllers need to move less to attach.

However, unlike the Legion Go, which has a mechanical lock, this appears to be distinct from that approach.

The leaked information comes from Spanish outlet Vandal, citing accessory vendors who got to touch the new console but did not see it. As per reports, these manufacturers were allowed to handle the console inside an opaque box that conceals its look, allowing them to get a feel for the hardware in general.

The shift to magnetic attachment raises significant concern about the compatibility of the current Joy-Con models with the new console, particularly in handheld mode. However, the report suggests the console will support the Nintendo Switch Pro controller. Further, it seems that Joy-Con would be supported in wireless mode, akin to how they can be used with a Nintendo Switch Lite.

Another noteworthy detail from the leak is that the Nintendo Switch 2 will be larger than the current Switch models but smaller than a Steam Deck. Earlier reports indicated an 8-inch LCD display is being built into the console, making a bigger size mandatory.

But, intriguingly, the Nintendo Switch 2 will be smaller than a Steam Deck, given that the latter has a 7-inch panel. That said, the larger trackpads on the sides of the screen and the thicker controller may contribute to Nintendo’s console being still smaller overall.

As per sources cited by Vandal, the hardware for the Nintendo Switch 2 is completed. However, the company is postponing its launch to coincide with a more captivating lineup of games. This strategy mirrors the success of the Nintendo Switch, which was highly influenced by a strong lineup of titles available in the first year, like Super Mario Odyssey, The Legend of Zelda: Breath of the Wild, and Splatoon 2.

In addition to this information, earlier reports have indicated that the Switch 2 will use an Nvidia chip based on the Ampere architecture with support for DLSS. There are also speculations about the console's backward compatibility with the current generation.

The leaked details about the Nintendo Switch 2’s innovative features have fueled excitement and speculation about the console’s potential success in the market. The upcoming launch of Nintendo Switch’s successor is anticipated to be a key catalyst for NTDOY’s stock price.

Investors will likely closely monitor developments related to the new next-generative video game console, including its release date, pricing, and game lineup.

Now, let’s analyze other factors that could influence NTDOY’s performance in the near term:

Recent Developments

On March 10, 2024, NTDOY and Illumination announced a new animated film based on the world of Super Mario Bros. This animated film will be released on April 3, 2026, in the U.S. and additional markets globally, with select territories releasing throughout April.

The film will be produced by Chris Meledandri, Illumination’s Founder and CEO, and Shigeru Miyamoto, Representative Director and Fellow of NTDOY, directed by Aaron Horvath and Michael Jelenic, and written by Matthew Fogel. The film will be co-financed by Universal Pictures and Nintendo and distributed theatrically globally by Universal Pictures.

On November 8, 2023, NTDOY announced the development of a live-action film of The Legend of Zelda. The film will be produced by Nintendo and Arad Productions Inc. and directed by Wes Ball. It will be co-financed by Nintendo and Sony Pictures Entertainment Inc., with over 50% financed by Nintendo.

By producing visual content of Nintendo IP by itself, NTDOY is opening up new avenues for global audiences to experience the entertainment world it has built via different means apart from its dedicated game consoles.

Gaming Console Industry Analysis

As per the market analysis, customers highly prefer home consoles due to their enhanced gaming experience. Favorable features of home consoles include online multiplayer gaming experience and cloud support, among others. Factors like rising disposable incomes and the availability of several gaming options boost the market growth.

Further, the integration of emerging technologies such as 3D and augmented reality & virtual reality (AR&VR) in gaming is expected to drive the industry’s expansion.

According to a Mordor Intelligence report, the global game console industry is expected to reach $80.98 billion by 2029, growing at a CAGR of 7.2% during the forecast period (2024-2029). The market is moderately competitive, with dominant players such as Sony Group Corporation (SONY) and Microsoft Corporation (MSFT).

The gaming console industry’s bright growth prospects should bode well for NTDOY.

Robust Financial Performance and Upbeat 2024 Outlook

For the nine months that ended December 31, 2023, NTDOY reported net sales of ¥1.39 trillion ($8.83 billion), an increase of 7.7% year-over-year. The company sold 13.74 million Switch consoles for the nine-month period. Its operating profit grew 13.1% from the prior year’s period to ¥464.41 billion ($2.95 billion).

Furthermore, the gaming giant’s profit attributable to owners of parent came in at ¥408.04 billion ($2.59 billion), up 17.9% year-over-year. Its profit per share rose 18% from the previous year’s period to ¥350.48.

As of December 31, 2023, NTDOY’s total assets stood at ¥3.07 trillion ($19.51 billion), compared to ¥2.85 trillion ($18.11 billion) as of March 31, 2023. The company’s net assets were ¥2.48 trillion ($15.76 billion) versus ¥2.27 trillion ($14.43 billion) as of March 31, 2023.

After an outstanding financial performance, the Japanese video game company expects to sell 15.5 million of its Switch consoles in the fiscal year 2024, up from the prior forecast. NTDOY revised its net profit to ¥440 billion ($2.80 billion) for the full year, compared to its previous forecast of ¥420 billion ($2.67 billion).

Impressive Historical Growth

Over the past five years, NTDOY’s revenue and EBITDA grew at CAGRs of 7.3% and 17.8%, respectively. The company’s net income and EPS rose at respective CAGRs of 23.4% and 24.1% over the same timeframe. Its total assets improved at 11% CAGR over the same period.

Solid Profitability

NTDOY’s trailing-12-month gross profit margin of 56.78% is 15.5% higher than the 49.17% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 32.81% and 29.07% are considerably higher than the industry averages of 8.31% and 2.62%, respectively.

In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 21.27%, 15%, and 16.1% are favorably compared to the respective industry averages of 2.94%, 3.39%, and 1.18%.

Bottom Line

NTDOY surpassed market expectations for profit and revenue in the last reported quarter and raised its full-year 2024 forecast for Switch console sales and profit. The Japanese video gaming company has managed to keep up the momentum for the Switch, driven by the release of the “Super Mario Bros. Movie” and the flagship Zelda game last year.

Investors and enthusiasts are now watching for an outright announcement of a successor to its Flagship console, Switch. Latest reports indicate that the Nintendo Switch 2 is expected to launch in the early months of 2025.

The company has maintained secrecy regarding its plans so far, but a recent significant leak from Spanish outlet Vandal revealed crucial hardware details about the purported Switch 2, which will likely be different from the current design.

The new controller will use a magnetic system to attach to the body of the console. Also, it will be larger than the present Switch models, albeit not as large as Steam Deck. Further, prior reports suggest that the Switch 2 will incorporate an Nvidia chip based on the Ampere architecture with DLSS support.

Additionally, there are speculations that the console may feature backward compatibility with the current generation.

The upcoming launch of the Nintendo Switch 2 presents a significant opportunity for investors. Investors should closely monitor developments related to this new console, such as release date, game lineup, and pricing.

Notably, NTDOY has a valuable portfolio of iconic gaming franchises, including Mario, Zelda, and Pokémon. Continued innovation, strategic partnerships, and expansion into mobile gaming are expected to drive the company’s growth and profitability.

Given these factors, it could be wise to invest in this stock for potential gains.