NVIDIA Corporation (NVDA) provides graphics, computation, and networking solutions globally. On October 7, new restrictions were imposed on chipmakers, including NVDA, to prevent technology from advancing China’s military power. The companies must now obtain a license from the Commerce Department to export advanced chips and chip-making equipment.
The above restrictions have closely followed last month’s announcement in which the White House blocked NVDA from exporting high-end graphics chips to China due to similar concerns. The company said the ban impacted $400 million in potential sales to China.
For the fiscal 2022 second quarter, NVDA’s non-GAAP net income and EPS declined 50.7% and 51% year-over-year to $1.29 billion and $0.51, respectively. Also, analysts expect its EPS and revenue for the fiscal 2023 third quarter (ending October 2022) to come in at $0.71 and $5.85 billion, indicating a 39.3% and 17.6% year-over-year decline, respectively. The stock has plummeted 59.9% year-to-date.
The recently released jobs data for September seems to have paved the way for another significant interest rate increase by the Federal Reserve during its meeting next month. This indicates another headwind for tech companies.
Despite the current headwinds, demand for ubiquitous tech goods and services is expected to keep growing amid the increasing adoption of cloud computing, artificial intelligence (AI), virtual reality (VR), the internet of things (IoT), and increasing automation of business processes.
The global technology market is expected to grow at a CAGR of 25.7% over the next five years to reach $3.17 billion by 2027, with the United States expected to strengthen its leadership in this space.
Hence, we suggest investing in fundamentally strong technology stocks Cisco Systems, Inc. (CSCO) and Hackett Group Inc. (HCKT) instead of NVDA for better risk-adjusted returns.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells internet protocol-based networking and other products across networking, security, collaboration, applications, and the cloud. The company operates through three geographic segments: the Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
On October 5, CSCO announced an expansion of its existing SD-WAN partnership with Microsoft (MSFT) to allow customers to sidestep the public internet and MPLS to send their Cisco SD-WAN traffic over the latter’s Azure cloud backbone. This is expected to add value by providing speed and cost benefits.
For the fiscal year 2022 ended July 31, CSCO’s revenue increased 3.6% year-over-year to $51.6 billion, while its operating income increased 8.9% year-over-year to $13.97 billion. The company’s non-GAAP net income increased 3.7% year-over-year to $14.10 billion, which translates to an EPS of $3.36, up 4.3% year-over-year.
Analysts expect CSCO’s revenue and EPS for the fiscal year 2023 to increase 5% and 5.1% year-over-year to $54.11 billion and $3.53, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, CSCO’s stock slumped 9.6% to close the last trading session at $40.27.
CSCO’s overall B rating equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality. Within the Technology – Communication/Networking industry, it is ranked #5 out of 49 stocks.
Click here to see the additional POWR Ratings for Growth, Momentum, Stability, Sentiment, and Value for CSCO.
Hackett Group Inc. (HCKT)
HCKT operates as a business and technology consulting firm. The company offers benchmarking, executive advisory, business transformation, and cloud enterprise application implementation.
On September 22, HCKT announced the launch of a new Market Intelligence Service for software and service providers and users. The service will measure software and service providers' ability to deliver business value and their unique capabilities to help companies achieve Digital World Class performance.
HCKT believes the new service will be a powerful and attractive value proposition for all C-level executives and their respective teams.
HCKT’s total revenue increased 3.7% year-over-year to $75.93 million for the second quarter of 2022. The company’s total assets stood at $217.89 million as of July 1, 2022, compared to $207.54 million as of December 31, 2021.
Analysts expect HCKT’s revenue and EPS for the fiscal year 2022 to increase 6.6% and 10.4% year-over-year to $297.20 million and $1.45, respectively. Also, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
HCKT’s stock has slumped 2.4% over the past month to close the last trading session at $19.05.
HCKT's promising outlook is reflected in its overall POWR Rating of A, which translates to a Strong Buy in our proprietary rating system. It also has a grade of A for Sentiment and Quality and a B for Value and Stability.
HCKT tops the list of 10 stocks in the A-rated Outsourcing - Tech Services industry.
Click here for an additional rating of HCKT (Growth and Momentum).
NVDA shares were trading at $116.70 per share on Monday afternoon, down $4.06 (-3.36%). Year-to-date, NVDA has declined -60.29%, versus a -23.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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