Today, as Wall Street anticipates the onset of the third-quarter earnings season, tune in to Full Court Finance at Zacks for insights on where the stock market currently stands.
Delving into the forthcoming earnings reports of Taiwan Semiconductor (TSM) and Netflix (NFLX), we unravel reasons why investors should seriously consider these tech stocks for a long-term investment strategy.
At this juncture, Wall Street refrains from making significant moves, contemplating developments surrounding the Israel-Iran conflict and the dockworkers’ strike.
Historically, October, especially during election years, tends to exhibit weakness, leading to potential volatility and sell-offs ahead of the presidential election.
Despite the political climate, investors remain steadfast in their quest for profitability. The stock market’s performance during the Trump and Obama administrations, amid periods of unified and divided governments, displayed almost identical average annual returns of 16.0% and 16.3%, respectively.
Taiwan Semiconductor: A Dominant Force in Tech and AI
Taiwan Semiconductor Manufacturing Co. (TSM) is scheduled to release its Q3 2024 earnings on October 17, highlighting a fundamental investment opportunity in diverse technological domains.
Pioneering advancements in data centers, semiconductors, smartphones, artificial intelligence, and beyond, Taiwan Semiconductor is the cornerstone of technological innovation.
With its cutting-edge 3-nanometer production capabilities catering to tech giants like Nvidia and Apple, TSMC commands 61% of the semiconductor foundry market, leaving competitors far behind.
Following a stellar second quarter, TSMC is projected to witness substantial sales growth in the upcoming fiscal years, alongside significant earnings increases, boasting a Zacks Rank #2 (Buy).
Netflix: A Trailblazer in the Streaming Realm
Netflix (NFLX) is gearing up to unveil its Q3 results on October 17, retaining its position as a transformative force in the entertainment industry.
Netflix Sails Ahead in Streaming Seas
Netflix, the behemoth of streaming services, continues to steer the ship of success, leaving competitors like Disney, Apple, Amazon, and a slew of others trailing in its wake. The company’s strategic expansion into live sports, reality TV, big-ticket movies, and more has not only fortified its existing subscriber base but also attracted a flood of new customers aboard.
Setting Sail with Subscriber Growth
In the fourth quarter of 2023, Netflix welcomed a whopping 13.1 million net new paid subscribers, marking one of its most significant quarterly jumps – a feat almost matching the surge witnessed during the Covid-19 surge in Q1 2020. The trend continued in Q2 FY24, with a further 8.1 million net new subscribers pushing the total count to a staggering 277.7 million. Notably, Netflix also witnessed a remarkable 34% spike in ad-tier memberships.
Smooth Sailing into Projected Growth
Maintaining its trajectory, Netflix is forecasted to broaden its subscriber base by 14% in the upcoming third quarter. Revenue is also expected to climb, with a 15% surge projected for 2024 and a steady 12% rise penciled in for 2025, adding a substantial $10 billion to its top line compared to 2023. These figures point to an upcoming growth spurt that could outshine the company’s 2023 and 2022 expansions by a considerable margin.
Financial Winds in Favor
From a financial vantage, Netflix appears to be on a steady course. The company is anticipated to bolster its adjusted earnings by 59% in 2024 and a further 19% the following year. Although recent EPS revisions have been stagnant, leading to a Zacks Rank #3 (Hold) assessment, the long-term outlook for Netflix for FY24, FY25, and FY26 has witnessed a remarkable upswing in the past year.
Riding High in Stock Market Seas
The stock market seas have been favorable for Netflix, with its shares soaring a staggering 1,000% over the past decade, tripling the Tech sector benchmarks. In the last two years alone, Netflix stock has surged by an impressive 200%, breaching its 2021 peaks in recent months. The outlook indicates the potential for further upward momentum, especially if Netflix can impress Wall Street with robust guidance.
Weathering the Valuation Tides
From a valuation perspective, Netflix is currently trading at a significant discount – over 90% below its all-time highs and approximately 50% under its 10-year median, with a forward earnings multiple at 32.6X.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
