The stock market has been under pressure as the Fed’s aggressive monetary tightening has increased the odds of the economy tipping into a recession. Technology shares were hit particularly hard by the Fed’s dramatic pace of rate increases last year. The Federal Reserve seems to remain hawkish until inflation trends downward more intensely, and the robust labor market slows down.
Investors’ bearish sentiments around the tech stocks are evident as the Technology Select Sector SPDR ETF (XLK) slumped 28.8% over the past year.
Many economists warn that an economic downturn is looming. IMF director Kristalina Georgieva warned of a ‘tough year’ ahead, as one-third of the global economy could slide into recession this year. In addition, nearly 90% of CEOs surveyed by KPMG expect the economy to be in a recession this year, while 34% expect it to be short and mild.
Given the pessimistic outlook, it could be wise to avoid fundamentally weak stocks NVIDIA Corporation (NVDA), Snowflake Inc. (SNOW), and Core Scientific, Inc. (CORZ).
NVIDIA Corporation (NVDA)
NVDA is a global provider of graphics, computation, and networking technologies. The company operates through two segments: Graphics; and Compute & Networking. The company’s products are used in the gaming, professional visualization, data center, and automobile industries.
For the fiscal 2023 third quarter ended October 30, 2022, NVDA’s revenue declined 16.5% year-over-year to $5.93 billion, and its gross profit fell 31.4% year-over-year to $3.18 billion. Its total operating expenses increased 31.4% from the year-ago value to $2.58 billion, while its non-GAAP operating income declined 54.6% year-over-year to $1.54 billion.
In addition, NVDA’s non-GAAP net income and non-GAAP EPS decreased 51% and 50.4% from the previous year’s quarter to $1.46 billion and $0.58, respectively.
In terms of forward EV/Sales, NVDA is currently trading at 13.43x, 420.8% higher than the industry average of 2.58x. Its forward EV/EBITDA multiple of 58.10 is 364.6% higher than the industry average of 12.51. In addition, its forward Price/Sales ratio of 13.47 is 429.4% higher than the industry average of 2.54.
Analysts expect NVDA’s EPS to decline 39.3% year-over-year to $0.80 for the fourth quarter (ending January 2023). Its revenue estimate of $6.02 billion for the current quarter is expected to decline 21.2% year-over-year. The stock has slumped 49.6% over the past year to close the last trading session at $147.49.
NVDA’s POWR Ratings reflect weak prospects. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a D grade for Growth, Value, and Stability. It is ranked #81 out of 93 stocks in the Semiconductor & Wireless Chip industry. Click here to see the other ratings of NVDA for Momentum, Sentiment, and Quality.
Snowflake Inc. (SNOW)
SNOW is a cloud-based data platform provider to various organizations in the United States. The company offers Data Cloud, which enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data.
For the fiscal third quarter ended October 31, 2022, SNOW’s total operating expenses increased 54.3% year-over-year to $572.33 million. The company’s operating loss and attributable net loss came in at $206.02 million and $200.94 million, widening 31% and 29.8% from the prior-year period. Also, its loss per share widened 23.5% year-over-year to $0.63 in the same period.
In terms of forward EV/Sales, SNOW is currently trading at 18.20x, 606.1% higher than the industry average of 2.58x. Its forward EV/EBITDA and EV/EBIT multiple of 305.61 and 535.78 is significantly higher than the industry averages of 12.51x and 15.88x, respectively. SNOW’s forward Price/Sales ratio of 20.45 compared with the industry average of 2.54.
For the quarter ending January 31, 2022, SNOW’s EPS is expected to decline 60% year-over-year to $0.05. Over the past year, the stock has lost 58.7% to close the last trading session at $130.44.
SNOW’s POWR Ratings reflect this bleak outlook. It has an overall rating of D, equating to a Sell in our proprietary rating system.
It has a D grade for Value, Momentum, Stability, and Quality. Out of 79 stocks in the D-rated Technology - Services industry, it is ranked #72. Click here to see the other SNOW rating for Growth and Sentiment.
Core Scientific, Inc. (CORZ)
CORZ mines digital assets and provides blockchain infrastructure, software solutions, and services in North America. The company operates in two segments: Equipment Sales and Hosting.
CORZ’s net revenue decreased 117.7% year-over-year to $163.97 million for the second quarter ended June 30, 2022. The company’s operating loss came in at $1.09 billion, compared to an operating income of $15.53 million in the year-ago period. Also, its net loss and net loss per share widened significantly year-over-year to $861.67 million and $2.65, respectively, in the same period.
Street expects CORZ’s EPS and revenue of $0.05 and $158.44 million for the fiscal 2023 first quarter (ending March 2023) to decline 83.9% and 17.7% year-over-year, respectively. Shares of CORZ have declined 98.8% over the past year to close the last trading session at $0.07.
CORZ’s weak fundamentals are reflected in its POWR Ratings. According to our rating system, it has an overall rating of D, translating to Sell.
It has an F grade for Stability and a D for Momentum and Quality. Within the same industry, it is ranked #60 out of 77 stocks. To see the other ratings of CORZ for Growth, Value, and Sentiment, click here.
NVDA shares were trading at $142.82 per share on Thursday afternoon, down $4.67 (-3.17%). Year-to-date, NVDA has declined -2.27%, versus a -0.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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