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On Sat, 13 Jul, 8:00 AM UTC
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2 Tech Stocks Heading in Opposite Directions So Far in 2024
Arm Holdings (NASDAQ: ARM) and Tenable Holdings (NASDAQ: TENB) are technology companies that are market share leaders, but their stock prices have moved in opposite directions so far this year. Arm is up 140% in 2024, while Tenable is down 6.5%. Is one a buy and the other worth ignoring? Stock price and recent movement can't tell you that, but looking at a stock's forward price-to-earnings ratio can help you determine if it is fairly valued. Arm's forward P/E sits at a staggering 119, one of the highest in its sector. Tenable's forward P/E is less than a third of that at 36. Is Arm Holdings overvalued and Tenable a better technology investment? Let's get an understanding of the operations and financials of both companies to find out. What do these two companies do? Arm Holdings is in the semiconductor industry and licenses out intellectual property (IP) cores, which are generic semiconductor designs. Other companies build more complex designs on top of them to create cutting-edge chips. In addition to licensing IP cores for central processing units (CPUs), Arm has a smaller graphics processing unit (GPU) business. Apple is one of its biggest customers. Nvidia, which mainly makes GPUs, is a smaller customer that recently entered the CPU business using Arm's technology. Arm receives royalties from each chip shipped using its designs. For the fiscal year ending March 31, royalties made up about 56% of total revenue and notched an 8% year-over-year jump. The rest of the company's revenue came from licensing. Tenable is in the cybersecurity industry. It provides cloud-based software that assesses and helps to reduce cybersecurity risk, but doesn't eliminate incoming threats itself. The software identifies and prioritizes areas for security improvement, which an organization must implement separately. Tenable uses artificial intelligence (AI) and machine learning to constantly improve its recommendations. It generates revenue primarily through yearly subscriptions. As of the end of 2023, the company had 44,000 customers, which included 65% of Fortune 500 companies. The year included a 17% increase in revenue. How sturdy are they? Arm's revenue grew by 21% in the most recently completed fiscal year, moderately higher than Tenable's 17% growth. Impressively, Arm achieved this growth with total revenues of $3.2 billion, four times higher than Tenable's $800 million. Even more significant is that Arm grew its adjusted free cash flow by 50%, compared to a 37% year-over-year jump in unlevered free cash flow for Tenable. Analysts predict that Arm will increase free cash flow per share by 97% by 2026, outpacing Tenable's projected 80% increase. Earnings-per-share estimates favor Tenable with 38% growth expected, versus 23% for Arm. A big area of strength for Arm is in margins. The company boasts a gross profit margin of 95%, one of the highest in the technology sector. Tenable's sits at 77%. Investors should also look at the competitive position of both companies. Arm is a dominant force in its market and has a monopoly on the chip market for mobile devices, with its licenses used in 99% of products. Out of all semiconductor companies, 75% reportedly use Arm's IP. Arm recently unveiled its latest chip architecture: the Armv9 CPU. This chip increases performance and power efficiency to support the use of generative AI in smartphones. The royalty the company receives on each device sold is double that of its previous design, which should increase future margins. Tenable is a market share leader in device vulnerability management. In 2022, the company ranked first for the fifth consecutive year, with 28.7% market share. It's a market leader, but not nearly as dominant as Arm. However, Tenable has the opportunity to increase its market share much more than Arm. Are these stocks worth buying now? Based on the financials and competitive positions, it's reasonable for Arm stock to have a higher valuation multiple than Tenable, but it is harder to justify the size of the difference. Tenable has yet to achieve profitability, but it has made significant progress over the past year. The company decreased its net loss under generally accepted accounting principles (GAAP) from $92 million to $78 million last year. Once net income turns positive, the share price should benefit significantly, but there is a long way to go. Arm is a great business, but it's hard to justify paying more than 100 times estimated earnings for any company. It seems like investors have priced Arm for perfection. According to analysts, the average price target for Arm is $121, implying a downside of roughly 35%. The average price target for Tenable is $57, implying an upside of roughly 35%. Analysts aren't always right, but I think all this gives investors good reason to look more closely at Tenable right now. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Tenable wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $780,654!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Leo Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
[2]
2 Tech Stocks Heading in Opposite Directions So Far in 2024
Arm Holdings (ARM 4.61%) and Tenable Holdings (TENB 1.36%) are technology companies that are market share leaders, but their stock prices have moved in opposite directions so far this year. Arm is up 140% in 2024, while Tenable is down 6.5%. Is one a buy and the other worth ignoring? Stock price and recent movement can't tell you that, but looking at a stock's forward price-to-earnings ratio can help you determine if it is fairly valued. Arm's forward P/E sits at a staggering 119, one of the highest in its sector. Tenable's forward P/E is less than a third of that at 36. Is Arm Holdings overvalued and Tenable a better technology investment? Let's get an understanding of the operations and financials of both companies to find out. What do these two companies do? Arm Holdings is in the semiconductor industry and licenses out intellectual property (IP) cores, which are generic semiconductor designs. Other companies build more complex designs on top of them to create cutting-edge chips. In addition to licensing IP cores for central processing units (CPUs), Arm has a smaller graphics processing unit (GPU) business. Apple is one of its biggest customers. Nvidia, which mainly makes GPUs, is a smaller customer that recently entered the CPU business using Arm's technology. Arm receives royalties from each chip shipped using its designs. For the fiscal year ending March 31, royalties made up about 56% of total revenue and notched an 8% year-over-year jump. The rest of the company's revenue came from licensing. Tenable is in the cybersecurity industry. It provides cloud-based software that assesses and helps to reduce cybersecurity risk, but doesn't eliminate incoming threats itself. The software identifies and prioritizes areas for security improvement, which an organization must implement separately. Tenable uses artificial intelligence (AI) and machine learning to constantly improve its recommendations. It generates revenue primarily through yearly subscriptions. As of the end of 2023, the company had 44,000 customers, which included 65% of Fortune 500 companies. The year included a 17% increase in revenue. How sturdy are they? Arm's revenue grew by 21% in the most recently completed fiscal year, moderately higher than Tenable's 17% growth. Impressively, Arm achieved this growth with total revenues of $3.2 billion, four times higher than Tenable's $800 million. Even more significant is that Arm grew its adjusted free cash flow by 50%, compared to a 37% year-over-year jump in unlevered free cash flow for Tenable. Analysts predict that Arm will increase free cash flow per share by 97% by 2026, outpacing Tenable's projected 80% increase. Earnings-per-share estimates favor Tenable with 38% growth expected, versus 23% for Arm. A big area of strength for Arm is in margins. The company boasts a gross profit margin of 95%, one of the highest in the technology sector. Tenable's sits at 77%. Investors should also look at the competitive position of both companies. Arm is a dominant force in its market and has a monopoly on the chip market for mobile devices, with its licenses used in 99% of products. Out of all semiconductor companies, 75% reportedly use Arm's IP. Arm recently unveiled its latest chip architecture: the Armv9 CPU. This chip increases performance and power efficiency to support the use of generative AI in smartphones. The royalty the company receives on each device sold is double that of its previous design, which should increase future margins. Tenable is a market share leader in device vulnerability management. In 2022, the company ranked first for the fifth consecutive year, with 28.7% market share. It's a market leader, but not nearly as dominant as Arm. However, Tenable has the opportunity to increase its market share much more than Arm. Are these stocks worth buying now? Based on the financials and competitive positions, it's reasonable for Arm stock to have a higher valuation multiple than Tenable, but it is harder to justify the size of the difference. Tenable has yet to achieve profitability, but it has made significant progress over the past year. The company decreased its net loss under generally accepted accounting principles (GAAP) from $92 million to $78 million last year. Once net income turns positive, the share price should benefit significantly, but there is a long way to go. Arm is a great business, but it's hard to justify paying more than 100 times estimated earnings for any company. It seems like investors have priced Arm for perfection. According to analysts, the average price target for Arm is $121, implying a downside of roughly 35%. The average price target for Tenable is $57, implying an upside of roughly 35%. Analysts aren't always right, but I think all this gives investors good reason to look more closely at Tenable right now.
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As 2024 unfolds, the tech sector witnesses contrasting fortunes. NVIDIA continues its meteoric rise, while Apple faces unexpected challenges, highlighting the dynamic nature of the technology market.
As we delve into the early months of 2024, the technology sector is witnessing a tale of two titans heading in opposite directions. NVIDIA, the graphics processing unit (GPU) manufacturer, continues its remarkable ascent, defying gravity and market expectations. The company's stock has surged an impressive 24% year-to-date, building on its extraordinary performance from the previous year when it skyrocketed by 239% 1.
NVIDIA's success can be attributed to its dominant position in the artificial intelligence (AI) chip market. As businesses and industries increasingly adopt AI technologies, the demand for NVIDIA's specialized hardware has soared. The company's data center revenue, which includes sales of AI chips, more than tripled year over year in the most recent quarter, reaching a staggering $14.5 billion 1.
In stark contrast to NVIDIA's stellar performance, Apple, long considered a bastion of stability and growth in the tech sector, has encountered unexpected headwinds. The iPhone maker's stock has dipped by 3% since the beginning of 2024, a notable deviation from its usual upward trajectory 2.
Several factors contribute to Apple's current challenges. The company faces increasing competition in the smartphone market, particularly from Chinese manufacturers offering high-quality devices at competitive prices. Additionally, concerns about slowing iPhone sales and potential market saturation have dampened investor enthusiasm 2.
The diverging paths of NVIDIA and Apple underscore the rapidly evolving landscape of the technology sector. While NVIDIA benefits from the AI boom and its specialized offerings, Apple grapples with the challenges of maintaining growth in a mature smartphone market.
Analysts remain divided on the future prospects of both companies. Some believe NVIDIA's valuation may be stretched, with the stock trading at a forward price-to-earnings ratio of 68 1. However, others argue that the company's dominant position in the AI chip market justifies its premium valuation.
For Apple, the road ahead involves diversifying its revenue streams and potentially entering new markets. The company's services segment, which includes offerings like Apple Music and iCloud, continues to grow, providing a cushion against fluctuations in hardware sales 2.
As 2024 progresses, investors and industry observers will closely monitor these tech giants, watching for signs of sustained growth or potential course corrections. The contrasting fortunes of NVIDIA and Apple serve as a reminder of the dynamic and often unpredictable nature of the technology sector, where innovation and market trends can rapidly reshape the competitive landscape.
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Two prominent growth stocks, Airbnb and The Trade Desk, have experienced significant drops in value. Despite their current struggles, these companies show potential for long-term growth, presenting a possible buying opportunity for investors.
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Arm Holdings reports record Q3 revenue driven by AI adoption and v9 technology, but faces valuation scrutiny as stock slips despite beating expectations.
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Morgan Stanley analysts have named ARM Holdings as their new top pick, citing the company's potential in the growing AI market. The move has sparked investor interest and led to a significant rise in ARM's stock price.
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As Nvidia dominates the AI chip market, investors seek alternative tech stocks with potential for growth. This article examines overlooked AI opportunities and analyzes the pros and cons of various AI-related investments in 2024.
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Wall Street analysts are optimistic about AI stocks, with predictions of substantial growth for companies like Super Micro Computer and C3.ai. These firms are positioned to benefit from the expanding AI market.
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