These doom-and-gloom predictions indicate that the next recession could be a matter of when and not if. And when a recession actually arrives, the stock market will go into a tailspin as companies find growth hard to come by on account of weak spending by consumers, corporations, and the government. But the likes of Palo Alto Networks (NYSE: PANW) and Netflix (NASDAQ: NFLX) could buck the trend. Let’s see why.

1. Palo Alto Networks provides a critical service

Recession or no recession, everyone needs to protect their critical data and systems from bad actors. A study by the University of Maryland has found that a hacker attack takes place every 39 seconds on average. More than half a billion personal records were stolen last year, and 95% of data breaches take place in three arenas: retail, technology, and government.

Not surprisingly, Cybersecurity Ventures predicts that global cybersecurity spending could top $1 trillion by 2021. Palo Alto Networks is one of the top cybersecurity stocks you can buy to take advantage of this trend.

The cybersecurity specialist is in aggressive expansion mode and seems quite confident about delivering long-term growth despite the looming cloud of a potential recession. That’s evident from the fact that Palo Alto recently issued a three-year outlook and a strong one at that.

The company expects to hit $5 billion in revenue in fiscal 2022, a substantial jump from the $2.9 billion revenue it has generated in the past 12 months. Palo Alto expects free cash flow to hit $4 billion at the end of the forecast period as compared to $924 million over the past 12 months. And it won’t be surprising if the company manages to deliver on this ambitious guidance.

Palo Alto has made a string of acquisitions in recent years, entering fast-growing niches of the cybersecurity industry. For instance, the company has acquired five cloud security-related companies since March 2018, going after a corner of the cybersecurity market that’s expected to clock $13 billion in revenue by 2022 (as compared to $6 billion in 2016).

More importantly, Palo Alto’s acquisition-driven growth strategy seems to be paying off; the company reports that it has been winning business from its rivals.

In the end, it can be said that Palo Alto Networks provides a critical service that will continue to attract spending even when there is a recession. This is why it makes sense for investors to consider this stock for their recession-proof portfolio, especially considering that it trades at a relatively cheaper 42 times forward earnings as compared to the five-year average multiple of 70 times.

2. Why Netflix could thrive in a recession

Don’t be surprised to see Netflix feature in a list of recession-proof stocks, as the video streaming giant has already proved its mettle. While the broader market was clobbered during the last recession, Netflix stock delivered terrific returns.

You might be wondering why Netflix — whose services are not a necessity for survival in difficult times such as a recession — could do well during a financial crisis. The answer to this question lies in an economic concept known as the “lipstick effect.”

While consumers cut down their spending on big-ticket items during a recession, they still like to indulge themselves in small luxuries that don’t burn a hole in the pocket. For instance, you might want to go see a movie, have a good time, and escape the reality of a recession without hurting your already-limited finances, since this is a small-ticket luxury.

The average price of a movie ticket in the U.S. and Canada stood at $9.11 last year, according to third-party estimates. An average American family consists of just over three persons, so the cost of tickets would be closer to $30. Add the cost of fuel, parking, and consumables, and an average family could easily spend much more than just the $30 cost of tickets — to see one movie.

The advantage with Netflix is that a family of three can have a good time for a lot less. For almost $16 a month, a customer can buy Netflix’s premium plan to watch an entire library of movies and shows in ultra-high definition. If you prefer the old-school method, Netflix can send you unlimited Blu-ray DVDs a month for just $12 (though you can rent two discs at once).

Of course, you won’t get the latest box office hit on Netflix immediately, but it is a great way to save a lot of money and get entertainment on demand.

Consumer confidence in the U.S. has started dipping. September retail sales fell for the first time in seven months as households cut their spending on vehicles and building materials. But Netflix’s U.S. subscriber growth returned last quarter. The company added 520,000 new U.S. subscribers in the quarter after losing 130,000 in the previous one, indicating that a lipstick effect could be around the corner.

With a global base of nearly 160 million subscribers and plans to bring more users into its ecosystem through lower-priced plans, Netflix could keep doing well even in a recession. This is why you can add it to your list of top stocks that could recession-proof your portfolio.

The post 2 Tech Stocks That Could Beat a Recession appeared first on The Motley Fool Canada.

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High-flying tech stocks NVIDIA (NASDAQ: NVDA) and Micron Technology (NASDAQ: MU) were in the same boat at the beginning of 2019. While graphics specialist NVIDIA was reeling in the aftermath of the cryptocurrency mining bubble that led to an excess supply of graphics cards and bloated channel inventories, Micron lost its mojo as the memory market went into oversupply and prices plunged.

Cut to the present, and not much seems to have changed for Micron, as its latest results indicate. NVIDIA seems to be turning around, though it is not out of the woods yet. So which one of these two chipmakers should you put your money on? Let’s find out.

The case for NVIDIA

NVIDIA’s top and bottom lines plunged substantially last quarter, but the company’s guidance gave investors reasons to be optimistic. The graphics card specialist expects its revenue to fall 9% year over year in the third quarter of fiscal 2020. That’s much better than the 17% haircut its top-line took in the fiscal second quarter.

What’s more, the bottom-line erosion is also expected to slow down: The guidance calls for $760 million in net income this quarter, down from $1.1 billion a year ago. For comparison, NVIDIA’s net income had halved in the fiscal second quarter.

NVIDIA’s guidance clearly suggests that the graphics card market is recovering at a nice pace. Revenue from the gaming segment was up 24% sequentially during the second quarter thanks to the production ramp of Nintendo‘s Switch Lite console, which is powered by NVIDIA’s custom chip. Meanwhile, demand for NVIDIA’s graphics cards is also being driven by gaming laptops, as CFO Colette Kress pointed out on the latest earnings conference call: “The laptop business continues to be a standout growth driver as OEMs are ramping a record 100-plus gaming laptop models, ahead of the back-to-school and holiday season.”

Beyond gaming, NVIDIA is witnessing strong growth in the automotive business thanks to a clutch of impressive partnerships. The segment delivered terrific annual revenue growth of 30% last quarter and is now accounting for 8% of the company’s total revenue. Meanwhile, the data center business is also showing signs of life: Revenue inched up sequentially on the back of enterprise demand.

In all, NVIDIA’s recovering gaming business and support from other segments such as automotive and data centers seem to have put the company on the path to a turnaround. But this is not the case at Micron.

Micron continues to struggle

Micron’s latest quarterly report was a big disappointment. Revenue was down 42% compared to the prior-year period, gross margin plunged to just 28.6% from 61% a year ago, and net income fell a whopping 87%.

The guidance turned out to be another sore point, as it expects a top-line drop of nearly 37% year over year in the current quarter. The alarming guidance is not surprising, as demand for memory chips continues to remain weak and prices are on the wane, and the bad news is that a turnaround might not happen soon.

Raymond James analyst Chris Caso recently pointed out that higher DRAM inventory and seasonality will continue weighing on prices through the first half of 2020. The analyst also added that a sustained recovery in DRAM prices can be expected only in the second half of 2020.

This is bad news for Micron, as it gets 63% of its revenue from DRAM sales. The company is anticipating a turnaround in the demand-and-supply dynamics of the memory industry beginning in 2020, but a weak smartphone sales environment and Intel’s processor shortage could weigh on a potential DRAM recovery.

However, Micron management remains upbeat about the prospects of a turnaround, pointing out several favorable trends that could help it make a comeback. CEO Sanjay Mehrotra said on the latest earnings conference call that DRAM customer inventories in the data center segment are leaner than before, and this led to sequential demand growth for the company’s server chips last quarter.

Micron says that the graphics card market is also turning around, which seems credible given NVIDIA’s latest performance. But the problem is that Micron’s guidance doesn’t indicate toward a huge improvement in its fortunes this quarter, so investors would be better off waiting for actual signs of a turnaround before betting on the stock.

The verdict

While NVIDIA has given quantifiable proof of its recovery with its guidance, Micron has not. Still, value hunters are probably attracted to Micron considering its dirt-cheap valuation.

The memory specialist has a trailing price-to-earnings ratio of 8.2 as compared to NVIDIA’s multiple of 44. But Micron’s forward P/E of nearly 8.5 suggests that analysts expect its bottom line to drop this fiscal year, which looks like a reasonable forecast considering the company’s first-quarter fiscal 2020 outlook.

Moreover, Micron is dependent on memory prices for a turnaround. If the DRAM market remains under pressure and doesn’t recover as management expects, the stock could head lower. NVIDIA, on the other hand, has shown much more resilience.

Its non-GAAP (adjusted) gross margin fell to 60.1% in the previous quarter from 63.5% in the prior-year period. But the same grew to the tune of 110 basis points on a sequential basis. As we saw earlier, Micron’s margins fell substantially last quarter. So NVIDIA is more resilient as far as margins are concerned and seems better positioned to stage a recovery in its revenue and earnings, based on its latest quarterly performance.

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So it is not surprising to see Netflix trying another trick in the book — luring Indian customers with a free episode of its latest original series for the Indian market. But is this trick going to move the needle for Netflix in India? Let’s find out.

Nothing great about this move

Indians who haven’t signed up for Netflix yet can simply head over to the company’s website and watch the first episode of Bard of Blood for free — without signing up. Previously, someone wanting to watch a Netflix show in India needed to buy a subscription or enter into a 30-day trial period that required the user to provide payment details.

Netflix allows a user signing up for the trial period to cancel the subscription before the trial period ends so that they are not charged. So the company’s move of offering just one free episode isn’t that radical, as anyone with a debit or a credit card in India could enjoy the entire streaming service for a month without paying any money.

For some perspective, India had nearly 49 million credit cards and almost 825 million debit cards in May this year.

The only advantage with the latest freebie is that a user will not have to punch in their card details, but all they get in return is just one free episode, and that from a series that has been panned by critics. The spy thriller hasn’t been as impressive as its Amazon Prime Video rival The Family Man, which was released around the same time.

In all, Netflix’s latest move to attract Indian users is a dumb one because a free episode from a badly reviewed original series is unlikely to lead to many membership conversions. And smart users will simply do what they’ve been doing anyway: opt for a 30-day trial and cancel their subscription before the period ends.

Another misstep in India from Netflix

With competition in India heating up, Netflix is trying hard to make a dent over there. It recently announced cheap, mobile-only plans for the Indian market that actually don’t seem very cheap when compared to rival offerings.

Of course, it cannot be denied that the company is working hard on the content front, having commissioned 12 India-specific originals and 22 films in local languages. But because Netflix costs much more than rival streaming services, it is at a disadvantage. Not surprisingly, Netflix was the least preferred video streaming service in India according to a survey carried out by app distributor MoMagic.

The survey was conducted from June to August 2019 and included around 7,500 unique respondents spread across the country.

Only 9% of the respondents picked Netflix as their streaming platform of choice, with 26% opting for Amazon Prime Video and 41% going for Hotstar, which is owned by Disney. That paints a bad picture of Netflix in India as a high proportion of Indians are willing to spend money on video streaming subscriptions, according to the survey.

The MoMagic survey found out that 70% of the respondents consume content on video streaming platforms after subscribing. But Netflix is not the preferred avenue for that spending as the results of the survey suggest. This can be attributed to the pricing tiers offered by the company in India.

Offering a free episode from a not-so-well-received original will not give Netflix what it needs to succeed in India’s competitive video streaming market. Don’t be surprised if this initiative fails to yield any results for the company.

The post Netflix Makes a Worthless Move That’s Going to Bomb appeared first on The Motley Fool Canada.

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It has been nearly two years since Nutanix (NASDAQ: NTNX) started pivoting to a software-centric business model. Wall Street was overjoyed to see the cloud computing services provider switch to a high-margin model, but once the initial euphoria died down and the company’s top- and bottom-line performance started dipping below expectations, its stock took a hit.

However, Nutanix gave investors some relief recently. The company beat expectations when it released its fiscal 2019 fourth-quarter results and the stock rallied. But it also warned investors to be prepared for more transition-related pain in fiscal 2020 despite impressive growth in the subscription side of the business. Let’s see why.

Nutanix warns of higher top-line compression

Nutanix’s recent stock rally could fizzle out soon, as the company’s top line is expected to take a big hit thanks to its transition to a subscription-based business model. CFO Duston Williams made this very clear over the latest earnings conference call: “This guidance also assumes an estimated 20% or approximately $170 million to $200 million top-line compression related to our subscription transition, as well as approximately $45 million less than hardware billings and hardware revenue versus the current Street estimates.”

The company was originally anticipating a top-line compression of 10% because of the transition. But because its customers are now signing shorter three-year deals as compared to five-year deals, Nutanix is witnessing a slowdown in the up-front revenue that it receives from the initial contract.

More specifically, Nutanix’s average duration for its subscription contracts stood at 3.7 years in the fourth quarter as compared to 3.9 years in the prior-year period. However, the company did point out that the reduction in the average contract length is more because of a movement from five-year to three-year deals, and not because of an increase in one-year deals.

What’s more, Nutanix’s forecast of software and support revenue between $1.3 billion and $1.4 billion this fiscal year represents a high-single-digit increase at the midpoint of the guidance range. So had it not been for the transition-related issues, Nutanix’s top-line performance would have been much better.

However, investors need to look at a few other metrics to understand that the problems are only temporary in nature and that Nutanix is setting itself up for impressive long-term growth.

Don’t miss the big picture

Nutanix’s pivot toward a software-centric business model has reaped rich rewards on the margin front. The company exited the fourth quarter of fiscal 2019 with a non-GAAP gross margin of 80%. That’s a terrific improvement over the 62.6% non-GAAP gross margin reported by Nutanix in Q4 of fiscal 2017.

The cloud specialist’s gross margin profile should get better in the future, as it aims to get 75% of its total billings from subscriptions by calendar 2021, up from 71% at the end of the latest fiscal year. And it should be able to achieve that goal given the impressive pace of deal-making it reported in the latest quarter.

Nutanix added 990 new customers in the fourth quarter of fiscal 2019. Management said that this was the highest number of new customer additions it has witnessed in the past six quarters. What’s more, the company struck 58 deals that were worth more than $1 million during the quarter, and 11 of those customers had struck $1 million-plus deals in Q3 as well. The number of $1 million-plus deals was 50 in the fiscal third quarter.

Moreover, Nutanix exited the fourth quarter of 2019 with 46 customers with a lifetime bookings value of over $10 million. A year ago, this number stood at just 26. The lifetime value indicates the revenue that a company expects to generate from a client over the length of the contract. So an increase in the number of customers with a strong lifetime value indicates that Nutanix’s subscription products are gaining impressive end-market traction.

The final metric that investors need to look at is deferred revenue. Nutanix ended fiscal 2019 with $910 million in deferred revenue, a terrific jump of 44% over the previous fiscal year. Deferred revenue is the amount of money a company has already received for services that will be provided at a later date.

For comparison, Nutanix’s actual revenue increased 6.8% last fiscal year. The rapid increase in deferred revenue is a clear sign that Nutanix’s top-line growth will gain momentum in the long run. The company is already calling for high-single-digit revenue growth this fiscal year, and consensus estimates compiled by Yahoo! Finance indicate that its top-line growth could hit more than 27% in fiscal 2021.

So even though Nutanix faces near-term uncertainty on account of the transition to a subscription-based model, it could be a good long-term stock pick.

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But investors have kept their faith in the audio-chip specialist as it managed to show some improvements last quarter. Cirrus’ revenue erosion has been slowing, and now, the company seems to have stumbled upon one more catalyst that could ensure its high-flying market run continues.

The iPhone 11 could give Cirrus a boost

A year ago, Apple’s decision to not include a headphone dongle with its iPhones sent Cirrus into a tailspin, as the chipmaker was reportedly making $1 from each dongle. That decision took a big toll on Cirrus’ top line: Revenue for fiscal 2019 (which ended in March) fell more than 22% year over year.

But the iPhone 11 could be a tailwind for Cirrus for two reasons: more content and potentially stronger sales.

A teardown of the iPhone 11 shows that Cirrus continues to supply the audio codecs to Cupertino. A Stifel research report says the phone uses three Cirrus chips. What’s more, KeyBanc Capital Markets estimates that the addition of the new audio playback feature is expected to bring more business for the chipmaker in the iPhone 11.

If Cirrus is indeed supplying additional content to Apple compared with last year, it should witness stronger sales in the second half of 2019 as the new devices seem to be in strong demand.

Wedbush Securities estimates that Apple could build between 75 million and 80 million iPhone 11 devices. That would be a slight improvement over last year’s iPhone cycle. And don’t be surprised to see Apple hit the higher end of that range as the iPhone 11 is now seeing longer delivery times, which could prompt the company to build more units.

Is the stock still a good bet?

A boost from Apple should be a big catalyst for Cirrus Logic’s top and bottom lines since Apple is its largest customer, accounting for more than 60% of its revenue. It remains to be seen if the gains will be incremental or substantial, though Cirrus investors will probably be happy with any scenario since the iPhone 11 looks all set to accelerate the chipmaker’s turnaround.

Moreover, Cirrus has been aggressively diversifying its customer base. CEO Jason Rhode pointed this out on the latest earnings conference call, saying, “We are delighted to be shipping with seven out of the top 10 smartphone OEMs and expect more devices incorporating our solutions to be incorporated over the next 12 months.”

More business from Apple and expansion of Cirrus’ customer base could help the chipmaker deliver a better financial performance next fiscal year. Analyst estimates compiled by Yahoo! Finance indicate that revenue will increase 4.50% in fiscal 2021 after dropping 2.70% in the current one.

But the rally for Cirrus stock has made it expensive. Its trailing price-to-earnings ratio of 33 is substantially higher than the five-year average multiple of almost 23. A forward P/E of 22 indicates that the company’s earnings are expected to increase. But if its recovery isn’t as strong as Wall Street anticipates, then its stock could tank as investors will scramble to book profits.

So betting on Cirrus Logic stock based on strong sales of the iPhone seems risky, though it could be a rewarding one for those looking to take that risk given the new catalyst.

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Glu Mobile (NASDAQ: GLUU) investors finally had something to cheer about in September. Shares of the mobile gaming specialist showed some signs of life after Roth Capital analyst Darren Aftahi upgraded the stock to buy. This came as a big sigh of relief to Glu investors, who have seen the stock fall nearly 40% so far in 2019.

So what led Aftahi to upgrade Glu and slap a $7 price target on the stock, which indicates a 40% upside from current levels? Let’s find out.

Glu’s games seem to be gaining traction

Glu Mobile stock was pummeled in August after the company substantially slashed its full-year bookings guidance. This shocked investors, who were probably expecting Glu to increase its bookings guidance after the launch of two new games during the second quarter — WWE Universe and Diner DASH Adventures.

But the company’s announcement that WWE Universe was performing below expectations spooked the market, forcing Glu to shift its spending on the other title. However, Roth Capital believes that Glu is finally managing to get its act together.

Aftahi says that his bookings model for the third quarter shows that Glu’s bookings could arrive above the guidance range originally issued by the company. The company expects third-quarter bookings to fall between $110 million and $112 million. Aftahi’s model indicates that Glu can deliver $117 million in bookings during the quarter.

If that’s true, then it means Glu Mobile’s games have finally regained their mojo. Glu Mobile’s third-quarter results are expected to be released in early November, so investors will have to wait for some time to see if Aftahi’s model is on point or not.

But the good part is that savvy investors looking to invest in a mobile gaming stock now have a window of opportunity, as the analyst upgrade indicates that Glu could be a growth stock.

Why now may be a good time to buy

An important metric to note is that 83% of Glu’s total bookings in the second quarter came from games that it classifies under the “growth” category. The good news: More users are now getting attracted to this category; the daily active user (DAU) base of Glu’s growth games has been rising at a nice clip, as shown in the chart below.

What’s more, not only are Glu’s new titles attracting more users into the company’s fold, they are also driving bookings growth. This is evident from the fact that the company’s average bookings per daily active user (ABPDAU) and its average bookings per monthly active user (ABPMAU) increased substantially on a year-over-year basis last quarter.

Since Glu is on track to bring more new titles to the market, there’s a good chance that these metrics will keep trending upward. So don’t be surprised to see Glu Mobile stage a nice recovery in fiscal 2020 thanks to new game launches that include Disney Sorcerer’s Arena and the next installment in the Deer Hunter franchise.

This is why now could be a good time to go long on Glu stock, as it trades at a forward price-to-earnings (P/E) ratio of around 15. This is less than half of the company’s five-year average forward P/E ratio of nearly 33.

Glu has a nice pipeline of games that will hit the market in the coming months, and it has been better at engaging its users. The company could very well hit those ambitious earnings targets, which is why investors should consider stocking up on Glu shares given its current valuation.

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And its guidance failed to inspire confidence on Wall Street, indicating that the path to recovery is going to be slow and painful.

Weak memory prices are Micron’s Achilles’ heel

Micron’s top and bottom lines have dropped by big margins for three consecutive quarters. In the fourth quarter, revenue fell 42% year over year to $4.87 billion as the average selling price (ASP) of both dynamic random access memory (DRAM) and NAND flash chips saw severe declines.

Micron got 63% of its revenue from the DRAM segment last quarter. Sales from this segment were down 48% annually even though bit shipments increased in the mid-teens, driven by significantly lower DRAM ASPs. Although Micron didn’t elaborate on the year-over-year DRAM price drop, management did point out that DRAM ASPs dropped 20% sequentially.

For the entire fiscal year, Micron reported a 30% decline in DRAM ASPs.

A similar story unfolded in the NAND flash segment, where revenue was down 32% from the year-ago period. NAND flash ASPs were down in the high single digits on a sequential basis. For the full year, Micron reported a mid-40% decline in NAND ASPs.

These massive declines in the ASPs of memory chips constricted Micron’s margins during the quarter. In fact, its non-GAAP gross margin was slashed in half as compared with the prior-year period, to just 30.6% in the fourth quarter.

The bad news for Micron investors is that a turnaround still seems some time away. For the first quarter of fiscal 2020, the chipmaker is forecasting non-GAAP earnings of $0.46 per share on revenue of $5 billion at the midpoint of its guidance range. These numbers are way lower than the year-ago period’s revenue of $7.91 billion and earnings of $2.97 per share.

A non-GAAP gross margin projection of 26.5% for the fiscal first quarter indicates that Micron anticipates further weakness in memory prices. So it was not surprising to see investors sell the stock after the report was released, letting them book the gains that Micron has delivered so far this year.

Are there any silver linings?

Management believes that the memory industry could start turning around in calendar 2020 as demand is expected to exceed supply. CEO Sanjay Mehrotra had this to say on the latest earnings conference call:

Based on our early view of calendar 2020, we expect the industry to see bit-demand growth of high teens to 20%, above supply growth of only mid-teens, which should help normalize supplier inventories and enable a healthy industry environment. We expect the long-term DRAM bit-demand [compound annual growth rate] to be mid to high teens.

On the NAND side, Mehrotra says that the ongoing supply reductions are leading to a drop in inventory levels. NAND demand growth in calendar 2020 is expected in the “high 20s to low 30% range,” outpacing supply growth. What’s more, Micron believes that NAND demand will grow at a compound annual growth rate in the low 30% range in the long run.

But it remains to be seen if Micron’s forecast will materialize, since key end markets such as mobile and PC are under stress right now. For instance, global smartphone sales are expected to drop 2.5% this year as per Gartner’s estimates. A slight rebound is expected in 2020 thanks to the rollout of 5G networks, but shipments will still be lower than 2018 levels.

Meanwhile, demand for PC chips could take a hit as Intel‘s CPU shortage is not showing any signs of letting up. A recent report from Taiwan’s Digitimes states that Intel’s capacity for manufacturing 14nm chips has fallen behind the demand. This could lead to a delay in the launch of new PC models and reduce demand for memory chips, which would be bad for Micron.

So Micron investors should consider booking the profits they have made so far this year and putting their money in other stocks that have upside potential, as the continuing end-market uncertainty will keep weighing on its shares.

The post Micron Technology’s Bad Days Are Here to Stay appeared first on The Motley Fool Canada.

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Not surprisingly, investors have offloaded Xilinx stock, and it has lost around a quarter of its value in the past six months. But savvy investors should not ignore Xilinx, which looks like a great value right now and is sitting on several catalysts that could ensure long-term growth.

Let’s take a look at the three reasons Xilinx stock is worth buying right now.

The FPGA opportunity

Xilinx is known for making field-programmable gate arrays (FPGAs). These are programmable chips that can be bought off the shelves by developers and configured to perform specific tasks. The advantage with FPGAs is that their functionality can be tweaked each time the device is powered up. Developers simply need to download a new configuration file into the FPGA and change the way it works.

The flexibility that FPGAs provide allows for a quicker time to market. This is the reason they are being used in 5G network deployments, boosting Xilinx’s top and bottom lines substantially of late. But 5G is just one of the many areas in which FPGAs are being deployed.

For instance, FPGAs are being used in data centers to accelerate workloads. A third-party estimate projects that the market for data center accelerators will grow at a whopping compound annual growth rate of almost 50% through 2023. FPGAs are expected to enjoy the highest growth rate during this period as compared to other accelerators such as graphics processing units.

That’s because FPGAs are capable of providing higher computational speeds and consume less power for the tasks they are designed to carry out. This allows data center operators to bring down operating costs.

FPGAs are also finding traction in the automotive space. Xilinx has been witnessing impressive growth in its automotive business thanks to the adoption of its chips by auto component suppliers, who have been incorporating its FPGAs into advanced driver assistance systems (ADAS). Xilinx claims to have already shipped more than 100 million of them to its automotive customers, and that number should keep growing in the long run as ADAS deployments gain steam.

So Xilinx can tap into a diversified pool of opportunities thanks to the versatility of the FPGAs it sells.

The elephant in the room

Xilinx is one of the best bets to take advantage of the FPGA opportunity because of its dominant position in this space. The chipmaker reportedly commands a 60% share of the FPGA market, outpacing bigger rival Intel (NASDAQ: INTC) thanks to its technology advantage.

The overall FPGA market is expected to be worth $11 billion by 2025, according to one estimate. Given that Xilinx has generated $3.2 billion in revenue over the past 12 months, it has the potential to significantly increase its revenue in the long run if it keeps hold of its strong FPGA market share.

The good news is that Xilinx has started sampling its 7-nanometer Versal chip to customers. The company claims that Versal is capable of delivering “10x increase in performance and significant power efficiency gains for a number of applications compared to the latest generation FPGAs and general-purpose processors.”

Intel, on the other hand, has also started shipping its 10nm Agilex FPGAs to select customers, promising 40% performance gains and an identical reduction in power consumption as compared to its previous-generation chips. But because Intel’s 7nm chips are still a couple of years away, Xilinx could continue to enjoy a technology advantage over Chipzilla and maintain its lead in the FPGA space.

Attractively valued

The final reason Xilinx is a good bet right now is its valuation. A trailing price-to-earnings ratio of 26 is slightly lower than the five-year average multiple of just over 27. But at the same time, the company’s earnings growth is expected to gain momentum.

In all, Xilinx’s potentially strong earnings growth, a cheaper valuation than before, and the catalysts listed above make it a tech stock to bet on for the long run.

The post 3 Reasons to Buy This Beaten-Down Tech Stock appeared first on The Motley Fool Canada.

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Microsoft, for instance, is reportedly planning to switch from Intel to AMD for its upcoming Surface laptop, probably frustrated by the shortage.

The bad news is that Intel’s CPU business could be in for more pain. DigiTimes‘ latest report says that PC vendors should brace for another round of shortage of Intel CPUs. If that’s the case, the chip giant’s business is all set to take a hit in the crucial holiday season.

Another setback for Intel

The DigiTimes report points out that Intel’s CPU shortage started easing up in the early part of the third quarter. But the company seems to have shot itself in the foot once again, as supply chain inputs indicate that the manufacturing capacity of 14-nanometer CPUs isn’t strong enough to satisfy the demand.

As a result, PC vendors might be forced to delay the launch of new models to next year, according to industry sources cited by DigiTimes. More importantly, the latest shortage opens up the possibility of Intel losing more market share to AMD, especially considering that the latter has been busy rolling out its 7nm Zen 2 processors.

Market-share trends suggest that PC OEMs (original equipment manufacturers) have been choosing AMD’s processors over Intel’s because AMD is making its chips using a superior process. A smaller manufacturing process node means that the transistors on the chip are packed together more closely.

This allows the new Ryzen CPUs to perform at par with or even better than Intel’s CPUs at competitive price points. More importantly, the new AMD Ryzen CPUs surpass Intel’s in power efficiency.

So it’s not surprising to see that more OEMs are flocking to AMD. According to a survey of more than 2,000 PC configurations carried out by brokerage firm Susquehanna Financial Group, AMD cornered 20% of the desktop CPU market in the third quarter of 2019. That’s higher than the 17% market share the company was sitting on in the prior-year period.

Susquehanna analyst Christopher Rolland believes AMD could boost its market share in the remaining months of the year, though there’s one problem that could halt its march.

Is AMD in the same boat as Intel?

AMD recently issued an update on the availability of its latest generation Ryzen processors. The company said in a Reddit post that it’s currently busy “meeting the strong demand” of the third-generation Ryzen processors that are already on sale.

As a result, AMD has pushed the launch its high-end 16-core desktop processor — the Ryzen 9 3950X — from September to November. The high-end Threadripper parts have also been delayed to November.

Supply chain chatter indicates that AMD has been forced to delay the launch of these two chips because of performance issues. The CPUs were reportedly struggling with “unsatisfactory” clock speeds, according to DigiTimes, and AMD decided to withhold their launch instead of bringing a half-baked product to the market.

If that’s the case, then AMD seems to have made a smart move, as it can focus on boosting the output of its already-launched CPUs to fill the void that could result from Intel’s latest shortage. However, investors shouldn’t forget that AMD could also be facing supply constraints: The production lead time of 7nm chips at foundry partner TSMC has reportedly shot up from two months to six months. Such a scenario could weigh on AMD’s ability to take more market share from Intel.

But if AMD is indeed pushing up the production of its already-launched parts, then it can still gain over Intel (thanks to the advantages of AMD’s 7nm process), keep eating into Chipzilla’s CPU dominance, and remain a top stock pick.

The post Is Intel All Set to Gift More Market Share to AMD? appeared first on The Motley Fool Canada.

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But things didn’t turn out as expected. Sierra fell prey to the commoditization of the IoT chip market and lost business to rivals. Not surprisingly, Sierra Wireless is no longer the fast-growing stock that it used to be. The stock is languishing close to its 52-week lows and the company’s latest results weren’t very attractive. However, the company has switched its strategy to take another swing at the IoT opportunity.

Sierra rejiggers its strategy

Sierra Wireless has reclassified its business into two segments: IoT solutions and embedded broadband. Sierra used to report its revenue in three segments: OEM [original equipment manufacturer] solutions, enterprise solutions, and IoT services.

OEM solutions used to be its largest segment in terms of revenue, housing the different types of modules that Sierra sells. More specifically, Sierra used to include sales of embedded cellular modules, navigation satellite system modules, and short-range wireless modules in this segment.

However, the business of selling chips was eventually commoditized, and that seems to have happened in the IoT market as well. More and more players selling identical chips entered the market where Sierra was once a leader, so the only thing that differentiated its products from its rivals’ was the price tag. Sierra became prone to losses in both market share and margins.

So the company decided that it needed to offer end-to-end solutions, by packaging together hardware and software offerings to build a stickier customer base. On an earnings conference call earlier this year, CFO David McLennan said: “We have grouped these [IoT solutions] businesses together in this segment, because they provide us the opportunity to enable our customers with a fully integrated end-to-end IoT solution that includes hardware, connectivity services, and cloud-based management.”

The good news for investors is that the IoT solutions business is moving in the right direction. Revenue from this segment increased 5% year over year in the second quarter of 2019, accounting for 52% of the total revenue. What’s more, Sierra was also able to record an adjusted gross margin of 37.2% in the IoT solutions business, as compared to the year-ago period’s figure of 36.6%.

Sierra management says that this is just the beginning, as the integrated IoT solutions business is seeing stronger interest from customers. The chipmaker says that its recurring-revenue pipeline has more than doubled since the beginning of the year thanks to the restructuring. More importantly, Sierra believes that IoT solutions will end the year with 12% revenue growth, which is more than double the growth clocked in the second quarter.

Sierra also aims to double its recurring revenue to $200 million in the next three years, and drive its consolidated annual revenue to $1 billion by the end of that time frame. The company forecasts that 60% of this revenue will come from IoT solutions, at a gross margin of at least 40%.

So Sierra seems to be quite optimistic about the growth of its IoT solutions business. That’s not surprising, as demand for IoT platform services is expected to clock a compound annual growth rate of 28.5% through 2022, according to third-party estimates.

Should you buy?

Sierra Wireless is trading close to its 52-week lows, and at a forward price-to-earnings (P/E) multiple of 14.6. The P/E is significantly lower than the five-year average multiple of nearly 22.

This makes Sierra Wireless stock a good bet, considering the improving pace of the IoT solutions business, which is expected to exit the year with double-digit revenue growth and potential margin improvements. More importantly, Sierra expects the IoT solutions business to drive greater revenue and margins in the future.

This should help Sierra Wireless offset the weakness in the embedded broadband business and allow it to deliver impressive top- and bottom-line growth in 2020, according to analyst estimates compiled by Yahoo! Finance. With the company seeming set to turn around, it might be a good idea to start stocking up on Sierra shares.

The post This Forgotten IoT Stock Is Aiming for a Turnaround appeared first on The Motley Fool Canada.

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