Tuesday, July 30, 2024

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Microsoft Corporation (MSFT), Meta Platforms, Inc. (META) and JPMorgan Chase & Co. (JPM), as well a micro-cap stock Applied Energetics, Inc. (AERG). The Zacks microcap research is unique as our research content on these small and under-the-radar companies is the only research of its type in the country.

These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Microsoft shares have outperformed the Zacks Computer - Software industry over the year-to-date period (+13.4% vs. +11.1%). The company is riding on strong growth from Intelligent Cloud and Productivity and Business Processes. Intelligent Cloud revenues are driven by growth in Azure and other cloud services. 

Productivity and Business Processes revenues continue to rise due to the strong adoption of Office 365 Commercial solutions. Microsoft 365 Consumer subscribers grew to 80.8 million in the third quarter. Continued momentum in the small and medium businesses and frontline worker offerings, as well as a rise in revenue per user, drove top-line growth. 

However, the office's declining commercial licensing has been a headwind due to the continued customer shift to cloud offerings. Higher operating expenses and spending on Azure enhancements amid stiff competition in the cloud space remain a concern.

The market also appears to be starting to get concerned about the ever-rising trend in AI-focused capital spending without a lot of visiblity and discussion on the part of management with respect to outlay's ROI, as we saw with the Alphabet earnings release. It will be interesting if the coming Microsoft quarterly release will produce a comparable reaction or something different.

(You can read the full research report on Microsoft here >>>)

Shares of Meta Platforms have outperformed the Zacks Internet - Software industry over the year-to-date period (+31.5% vs. +6.2%). The company is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its offerings like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver.

Meta Platforms is leveraging AI to recommend Reels content, which is driving traffic on Instagram and Facebook. Its innovative portfolio, which includes Threads, Reels, Llama 2, Ray-Ban Meta smart glass, and mixed reality device Quest 3 is likely to aid prospects. AI-recommended content now comprises more than 50% of the content people see on Instagram. Threads have more than 175 million monthly actives. 

Meta now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. However, monetization of these AI services will take considerable time, which is a concern, an issue that we also we encountered with Alphabet recently. It will be interesting to see how the market will react to the latest capex numbers from Meta.

(You can read the full research report on Meta here >>>)

JPMorgan Chase’s shares have outperformed the Zacks Banks - Major Regional industry over the past year (+33.5% vs. +30.4%). The company’s second-quarter 2024 results show a rebound in investment banking (IB) business. High rates, buyouts, opening branches and solid loan balance will aid net interest income (NII), though higher funding costs will weigh on it. 

According to the Zacks analyst estimates for NII (managed) and loans imply a CAGR of 1.8% and 3.8%, respectively, by 2026. While there has been a resurgence in deal-making activities, a complete revival will still take some time. So, the performance of the IB business is not expected to improve much.

The volatile nature of the capital markets business and high mortgage rates will likely hurt fee income growth. Owing to these challenges, we expect non-interest income (managed) to rise in 2024 but decline next year. Mounting costs will hurt profits, and we expect it to rise 5.4% in 2024.

(You can read the full research report on JPMorgan Chase here >>>)

Shares of Applied Energetics have underperformed the Zacks Lasers Systems and Components industry over the past year (-44.5% vs. -34.5%). This microcap company with market capitalization of $269.19 million reported a sharp revenue decline in first-quarter 2024 due to contract modifications, increasing operating expenses and declining cash reserves. 

Additionally, its reliance on government contracts and competition from established defense contractors, coupled with deficiencies in financial reporting controls, present significant challenges. 

Nevertheless, Applied Energetics expanded operations at the University of Arizona Tech Park, establishing a new Battle Lab, and increasing laser manufacturing capacity to support technology maturation and customer demonstrations. With 25 patents and more than $50 million invested in intellectual property, the company is well-positioned to capitalize on the growing directed energy weapons and counter-UAS markets. Recent contracts with the USMC, Army and Navy validate AERG’s technology.

(You can read the full research report on Applied Energetics here >>>)

Other noteworthy reports we are featuring today include Intuitive Surgical, Inc. (ISRG), Sony Group Corporation (SONY) and Carrier Global Corporation (CARR).

Director of Research

Sheraz Mian

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>