For Immediate Release

Chicago, IL – April 2, 2024 – Zacks Equity Research shares NVIDIA (NVDA Quick QuoteNVDA - Free Report) as the Bull of the Day and Red Robin Gourmet Burgers (RRGB Quick QuoteRRGB - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Citigroup (C Quick QuoteC - Free Report) , Wells Fargo (WFC Quick QuoteWFC - Free Report) and JPMorgan (JPM Quick QuoteJPM - Free Report) .

Here is a synopsis of all five stocks.

Bull of the Day:

I last profiled NVIDIA for the Bull of the Day on February 28 after another big beat-and-raise quarter caught most investors and analysts off-guard and shares jumped from $675 to new highs above $800.

That article also has a video link where I go over an NVIDIA slide deck that should blow your mind.

I've been telling investors since that they won't see $700 again. And that prophecy became further solidified after the semiannual GPU Tech Conference (GTC) the week of March 18.

GTC 2024: March 18th Will Be Remembered For Years

Just as I tell investors to check in with the NVIDIA Newsroom every couple of weeks to see the latest in innovations on the accelerated computing/AI frontier, so too being aware of GTC events is critical.

Because there is always a flurry of new technologies and partnerships unveiled, to say nothing of the most recent scientific R&D that Jensen highlights as accomplished using their hardware and software stacks.

On March 18, GTC 2024 kicked off with these observations from Jensen & Co...

Generative AI promises to revolutionize every industry it touches — all that’s been needed is the technology to meet the challenge.

NVIDIA founder and CEO Jensen Huang on 3/18 introduced that technology — the company’s new Blackwell computing platform — as he outlined the major advances that increased computing power can deliver for everything from software to services, robotics to medical technology and more.

“Accelerated computing has reached the tipping point — general purpose computing has run out of steam,” Huang told more than 11,000 GTC attendees gathered in-person — and many tens of thousands more online — for his keynote address at Silicon Valley’s cavernous SAP Center arena.

“We need another way of doing computing — so that we can continue to scale so that we can continue to drive down the cost of computing, so that we can continue to consume more and more computing while being sustainable. Accelerated computing is a dramatic speedup over general-purpose computing, in every single industry.”

Introducing the Blackwell Superchip

Less than a year after NVIDIA unveiled the DGX GH200 supercomputer pod, at GTC they rolled out the DGX GB200 SuperPOD. I previewed the coming mystery "superchip" -- that was expected to be much faster and more energy efficient -- in my February profile.

As you may know, “GH” is for Grace Hopper. Jensen likes to find unsung heroes of computing and science to name his products after and this was a salute to Grace Brewster Hopper, an American computer scientist, mathematician, and United States Navy rear admiral. One of the first programmers of the Harvard Mark I computer, she was a pioneer of computer programming.

So who is Blackwell? David Blackwell was an American statistician and mathematician who made significant contributions to game theory and information theory. He was the first African American inducted into the National Academy of Sciences, the first African American full professor (with tenure) at the University of California, Berkeley, and the seventh African American to receive a Ph.D. in mathematics.

What happens when you put the Admiral of COBOL together with the Bayesian stats genius? According to Jensen, you get a platform to “power a new era of computing.”

To scale up Blackwell, NVIDIA built a new chip called NVLink Switch. Each can connect four NVLink interconnects at 1.8 terabytes per second and eliminate traffic by doing in-network reduction.

So the GB200 NVL72 is a multi-node, liquid-cooled, rack-scale system for the most compute-intensive workloads. It combines 36 Grace Blackwell Superchips, which include 72 Blackwell GPUs and 36 Grace CPUs interconnected by fifth-generation NVLink.

The Blackwell platform will enable organizations everywhere to build and run real-time generative AI on trillion-parameter large language models at up to 25x less cost and energy consumption than its predecessor.

Convergent Technologies = Exponential Acceleration

The Blackwell GPU architecture features six transformative technologies for accelerated computing, which will help unlock breakthroughs in data processing, engineering simulation, electronic design automation, computer-aided drug design, quantum computing and generative AI — all emerging industry opportunities for NVIDIA.

“For three decades we’ve pursued accelerated computing, with the goal of enabling transformative breakthroughs like deep learning and AI,” said Huang. "Generative AI is the defining technology of our time. Blackwell is the engine to power this new industrial revolution. Working with the most dynamic companies in the world, we will realize the promise of AI for every industry.”

And who is lined up to buy these systems? Only the who’s who of big tech: Amazon Web Services, Dell Technologies, Google, Meta, Microsoft, OpenAI, Oracle, Tesla and xAI. You can read their view of this breakthrough in one of the March 18 press releases.

Estimates Still Levitating

In my February report, I noted that sales estimates would continue to rise in March as analysts re-worked their models and caught up to the real, but still hard-to-believe, demand for solutions from the King of AI.

Next year's topline has moved from $117 billion to $125 billion, with the high estimate at $142B. I expect the consensus for next year to soon be $150B.

And with gross margins above 75%, NVIDIA continues to release the profit flow. This year's EPS consensus has risen over 20% in the past two months to $23.84, representing 84% growth. Next year is projected to top EPS of $27.

Limits to AI Growth and Impacts?

How long can it go on for? And what about the massive energy costs, both financial and environmental, of all these datacenters running at insane speeds and temperatures.

Take it from Taiwan Semiconductor, aka TSMC, who forecasts a 1000x improvement in GPU performance per watt over the next 15 years. JD Ross, cofounder of Opendoor and now working on energy projects, wrote this last week on Twitter @justindross...

"Coupled with major algorithmic improvements we're quickly seeing every week, it isn't crazy to expect 100,000 to 1,000,000x increase in AI performance per dollar in the next decade and a half."

Jensen always told us that GPU-driven massively parallel architectures had reinvented Moore's Law and were going to give exponential life to computing that solves big problems in science, industry, and society. He kept his promise.

Bear of the Day:

Red Robin Gourmet Burgers is a full-service casual dining restaurant chain serving an assorted range of its namesake.

Founded in 1969 in Seattle, with a 2002 IPO, Red Robin operates, franchises, and develops over 500 full-service restaurants in North America. The company also runs limited-service, non-traditional prototype restaurants named Red Robin's Burger Works.

After reporting mixed results for their Q4 earnings in late February, the stock slipped to new 52-week lows. It also fell into the cellar of the Zacks Rank as analysts moved to lower their EPS forecasts based on company guidance.

Analysts Wait for the Money

The 2024 EPS consensus dropped 90% from a loss of 78-cents to -$1.48. This represents a 2.8% annual loss over 2023's -$1.44.

The topline will also be 2-4% lighter based on company guidance of a range of $1.25-$1.28 billion.

Before the pandemic shutdown, Red Robin boasted a TTM profit peak of $1.81 per share in June 2019. But since the recession trough, the company has struggled to get back to profitability.

And any hopes of that were dashed last month with analysts taking the 2025 consensus down from a projection of a 33-cent profit to a loss of 57-cents.

Competition is Ravenous

As an anecdote that may or may not be useful, I frequent a metropolitan area with a 100,000+ population and it has a Red Robin full-service restaurant. But I've never been there.

Meanwhile, this area is growing so fast that it keeps attracting new full and quick-service eateries at a road runner clip. Just last month, I tried two of them with my kids because they'd never been to a Taco John's or a Cane's Chicken Fingers.

Dad just wanted to go to the new Buona, Chicago's "Original Italian Beef." And I found it delicious, but as with prices everywhere, expensive.

I also decided after writing this that I'm going to take them to Red Robin next time just to taste what's going on.

Additional content:

3 S&P 500 Bank Stocks That Outperformed the Index in Q1

The first quarter of 2024 was the banner one for the S&P 500 Index. It rallied more than 10% during the period, thus marking the best first-quarter performance in five years.

This also reflected that the momentum that started in November 2023 has continued this year as well. The primary drivers for the steady uptrend in the index are the clarity on the path of interest rates and robust economic growth, along with persistently cooling inflation numbers. Thus, almost all the sectors within the S&P 500 Index rallied during the first quarter. Among the top three was the Financial Services, which gained 12% during the said time frame.

One of the largest constituents of the sector – banks – were in the spotlight as the Federal Reserve continued to signal a 75-basis points cut in rates this year. Of the banks that are part of the S&P 500 Index, only Citigroup, Wells Fargo and JPMorgan outperformed the index. These three currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Before we discuss the above-mentioned three banks, let’s check out the reasons (in detail) that drove investor confidence in bank stocks.

One of the key reasons for the bullish investor sentiments was the Fed’s signal of interest rate cuts later in 2024. Though, initially, the market participants projected the first cut in rates occurring as early as March, incoming economic data showed that the central bank will wait for further confirmation on inflation cooling down before doing so.

Secondly, the imminent recession risk is largely gone and the U.S. economy is showing resilience. The country’s real GDP increased to 2.5% in 2023 from 1.9% in 2022. Further, per the Fed’s latest Summary of Economic Projections, the real GDP is expected to grow at the rate of 2.1% in 2024. This is an upward swing from the prior expectation of 1.4% growth. With the anticipation that inflation will continue to come closer to the Fed’s 2% goal, the chances of the U.S. economy’s soft landing are high.

Hence, driven by these developments, investors continue to be bullish on bank stocks. With the central bank keeping the rates stable at 5.25-5.5%, deposit costs are stabilizing and even coming down. Thus, pressure on the net interest margin is likely to decline eventually. Further, as the economy remains strong, the lending scenario is likely to be decent. Hence, the banks’ net interest income (NII) is expected to be stable.

But banks are not fully out of the woods. The major concern is the exposure to commercial real estate (CRE) loans. This is turning out to be a stress on the banks’ asset quality. The major rating agencies, including S&P Global Ratings, Fitch and Moody’s, have been flagging exposure to CRE loans as a key concerning factor for the industry. The slump in commercial property values will likely hurt the regional banks to some extent.

Nevertheless, at present, investors are seeing interest rate cuts and robust economic growth as major positives for the industry than the CRE exposure woes. Driven by these favorable factors, bank stocks are expected to keep performing solidly in the near term.

Banks Perform Impressively Backed by Robust Fundamentals

Citigroup: As a globally diversified financial services holding company, Citigroup continues to increase its fee-based business mix and shrink non-core businesses. In sync with this, the company has announced the completion of major actions to simplify its operating structure and improve performance, which were announced in September 2023.

As a part of this initiative, since September, C has eliminated more than 5,000 jobs and plans to trim management layers to eight from 13 and its global workforce by 20,000 over the next two years. Such efforts will make the decision-making process swifter, drive increased accountability and enhance the focus on clients.

Citigroup is also on track with its major strategic action to exit the consumer banking business in 14 markets across Asia and the EMEA. The bank has divested businesses in nine markets, including Australia, Bahrain, India, Malaysia, the Philippines, Taiwan, Thailand, Vietnam and Indonesia. It has substantially wound down consumer banking businesses in South Korea, Russia and China. Also, the company has restarted its sale procedure in Poland. It remains on track to separate its Mexico business through an IPO in 2025.

Such exits will free up capital and help the company pursue investments in wealth management operations in Singapore, Hong Kong, the UAE and London to stoke fee income growth.

It seems that the investors are optimistic about initiatives being undertaken to simplify operations, and this supported the company’s stock to become the top-performing bank in the S&P 500 index.

Further, management expects revenues in the range of $80-$81 billion in 2024, up from $75.3 billion in 2023. Though NII is expected to be marginally down because of higher funding costs, fee income is likely to offer some support.

Wells Fargo: One of the largest banks in the country, Wells Fargo is gradually resolving regulatory issues that have been plaguing it since the revelation of the sales scandal in 2016. Though it remains under close supervision of the regulatory authorities and has an asset cap in place, the recent developments show the lender is on the right path.

Since third-quarter 2020, WFC has been actively engaging in cost-cutting measures, including the streamlining of its organizational structure, closure of branches and reduction in headcount. The bank delivered gross expense savings aggregating $10 billion in 2021-2023. It expects to continue with these efficiency initiatives in 2024. Management projects non-interest expenses to be $52.6 billion this year, indicating a decline from the $55.6 billion in 2023.

Wells Fargo is revamping its home lending operation by reducing its mortgage servicing portfolio and exiting the correspondent lending business. As the demand for mortgages and refinancing activities continue to be low due to higher rates, the company is executing this plan to “continue to reduce risk in the mortgage business.”

WFC continues to build on its deposit base, which witnessed a three-year (ended 2023) CAGR of 1.1%. A large base of retail clients, as well as considerable strength in the consumer business and commercial banking segments, will likely aid the deposit balance in the upcoming period.

JPMorgan: The largest U.S. bank, JPMorgan, is expected to keep benefiting from higher rates, loan growth, strategic acquisitions, business diversification efforts, strong liquidity position and initiatives to expand the branch network in new markets.

Last May, JPM took over the failed First Republic Bank for $10.6 billion after almost two months of joint efforts with other lenders to save the flagging institution. The deal immensely supported the company’s financials last year.

By expanding its footprint in newer markets, JPMorgan will be able to improve cross-selling opportunities by increasing its presence in the card and auto loan sectors. Apart from this, the company launched its digital retail bank Chase in the U.K. in 2021 and plans to further expand the reach of its digital bank across the European Union countries. JPMorgan is also focused on expanding the CIB and AWM businesses in China.

JPMorgan has a solid capital deployment plan. In March, the company raised its quarterly dividend for the second time in the past year. It announced a dividend of $1.15 per share, marking a 9.5% increase from the prior payout. Last year, following the clearance of the 2023 stress test, JPM increased its quarterly dividend by 5% to $1.05 per share.

Raising quarterly dividends seems to be a way to reward its shareholders after notching record profits in 2023 despite turmoil in the banking industry and challenging macroeconomic backdrop. Driven by a strong capital position and earnings strength, the company is expected to sustain current capital deployments. This will also enhance shareholder value.

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