When companies deliver their quarterly reports, markets react -- but not always as the headline numbers would lead you to expect. And that's perfectly reasonable, because as vital as those data points are, they have to be dealt with in context.
In this segment from Motley Fool Money, host Chris Hill and senior analysts Ron Gross and Jason Moser attempt to do just that -- put the market's tepid responses to a pair of apparently strong releases from chipmaker NVIDIA (NASDAQ: NVDA) and Chinese e-commerce powerhouse Alibaba (NYSE: BABA) into context for investors.
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This video was recorded on May 17, 2019.
Chris Hill: NVIDIA's first-quarter profits came in higher than expected. The chipmaker also raised guidance. Wall Street basically shrugged, Jason.
Jason Moser: Well, I mean, it's been a tough past 12 months for the company. It's been a good start to the year. I think this is a good business. They're dealing with a stretch of challenges, albeit they were somewhat self-inflicted. But looking further out, though, I think there's plenty of reasons to be optimistic about the potential there. Go back to the inventory problems, really, we started to see signs that there might be something in Q2 of last year. Q3 is where they really materialized. That's when the stock fell off a cliff. But those were some inventory issues. They're working through them. The T4 GPU is gaining some traction from some big names out there. They announced a big acquisition during the quarter with a company called Mellanox. It's going to be a $6.9 billion, all-cash acquisition. Mellanox is a network tech company. I think there were some challenges in crypto. You only heard crypto mentioned once on the call this quarter. I think they're getting past that. But the outlook for the year is still a bit tame as data center spending is on pause and gaming is facing a little headwinds. I think there's some big implications for this company down the road, though, in augmented reality, with headsets and their drive platform. Big business, generates a ton of cash. They're going to keep on reinvesting a lot of that cash back in R&D, which means they'll be a major player in this space for many, many years to come. I actually am pretty optimistic about where they're headed.
Hill: Alibaba's fourth-quarter revenue rose 51%. Profits came in higher than expected. Shares of the e-commerce giant stayed flat for the week, Ron.
Gross: Yeah, concerns about slowing growth. But as you point out, those numbers are pretty impressive. Fifty-one percent growth in revenue, that's a big number. Investments in cloud computing really paying off. That unit was up 76%. Still only accounts for 8% of revenue, though. But they're now the third-largest cloud service provider after Microsoft and Amazon. They've got 40% share in China. Clearly, those investments are paying off. Their core commerce business up 54%. Advertising and fee revenue up 31%. Adjusted earnings up 50%. These are really big numbers. Stock's only trading 26 times for numbers like that, it's not that expensive. And as you said, the stock is off about 12% in May, but still up 24% for the year.
Hill: Is it safe to assume, particularly when we're talking about tech giants like Alibaba and Baidu, that the ongoing trade talks and tensions between the U.S. and China, they just don't go in the plus column for businesses like these?
Gross: Yeah, it's interesting. We talked about Walmart earlier. They're more concerned with what's going on than Alibaba is. Alibaba in the call and in the press release kind of pooh-poohed it and said they're not too concerned about it, they think it's going to work out.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Chris Hill owns shares of AMZN. Jason Moser owns shares of AMZN. Ron Gross owns shares of AMZN, BIDU, and MSFT. The Motley Fool owns shares of and recommends AMZN, BIDU, MSFT, and NVIDIA. The Motley Fool has a disclosure policy.