A grim week for Nvidia and Tesla, but Netflix triumphs: Weekly tech roundup

By Louis Juricic and Sarina Isaacs

Investing.com -- Here is your weekly Pro Recap on the biggest headlines out of tech this past week: Netflix triumphs; Nvidia hit by new China restrictions; Tesla disappoints; Apple seeing iPhone trouble in China; and ASML garners positive marks despite poor guidance.

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Netflix smashes Q3 expectations, raises prices

Netflix (NASDAQ:NFLX) shares catapulted higher on Thursday after it reported far better Q3 earnings than anticipated and a healthy rise in subscribers, while also announcing it will hike prices on its streaming services.

The company's earnings of $3.73 per share was well above the $3.49 average analyst target, while $8.54 billion in sales was in line, and paid subscribers rose 8.76 million in the third quarter - well above expectations for just over 6M.

The company acknowledged the "challenging" macro environment for the industry in the past six months due to the writers and actors strikes, and said it is "committed to resolving the remaining issues as quickly as possible."

Netflix said it sees Q4 EPS of $2.15, reversing from the prior year's loss of $0.47, and anticipates year-over-year revenue growth of around 11% to some $8.69B.

KeyBanc, Morgan Stanley, Truist and DZ Bank all upgraded the stock to buy-equivalent ratings on the news, with KeyBanc citing the company's ongoing success in paid sharing, its rising operating profit and free cash flow, and its estimate that share buybacks "should support a 25%+ EPS growth profile."

Morgan Stanley, for its part, said, “We believe Netflix will deliver the objectives it set out a year ago, accelerate revenue growth back to double digits and expand margins. At the same time, some of the froth in the stock and expectations have come out, creating a better entry point."

And JPMorgan also hailed the company's paid sharing strategy, as well as a "strong content slate" and Q4's "favorable seasonality."

Netflix also said it will immediately raise rates on its basic and premium (non-ad-supported) plans in the US, UK and France. In the US, this will mean a $2 raise to $11.99 per month for basic, and a $3 hike to $22.99 for premium. It is keeping prices steady on ad-supported plans.

Netflix ended the week at $400.96, up 16% for the week and some 36% higher year to date

Nvidia dented by new US restrictions on chip exports to China

On the flip side, Nvidia (NASDAQ:NVDA) shares slumped nearly 10% this past week amid the US government's decision to restrict export of advanced chips to China.

In a regulatory filing, Nvidia highlighted the possibility of export controls affecting its ability to complete product development in a timely manner. The company also said that these controls could potentially disrupt support for existing customers of affected products and their supply to regions impacted by these restrictions.

While these challenges are not expected to have an immediate financial impact, Nvidia may possibly need to relocate certain operations from one or more countries.

Analysts at Citi and Morgan Stanley lowered their Nvidia price targets in response.

Citi analysts kept their Buy rating on the stock but slashed the price target by $55 to $575, writing that they "assume low likelihood of US government granting export licenses," and adding that they believe the new restrictions "will make it difficult for NVIDIA to sell to China."

They nevertheless remain bullish on Nvidia stock due to “secular AI growth which remains in early innings, in our view.”

Morgan Stanley likewise kept Nvidia's Overweight rating in place - as well as the stock's designation as a "Top Pick in semis" - but cut the price target by $30 to $600 as the announced export controls turned out “more draconian than our expectations.”

Tesla poor earnings, caution

Meanwhile, Tesla's (NASDAQ:TSLA) Q3 missed Wall Street estimates as its recent wave of electric vehicle (EV) price cuts weighed on margins, triggering a more-than-9% plunge in the shares Thursday.

Tesla reported adjusted EPS of $0.66 on revenue of $23.35B late Wednesday, making for its widest revenue miss in over three years. Analysts polled by Investing.com anticipated EPS of $0.73 on revenue of $24.32B.

Gross margins excluding credits, which have been closely watched following recent price EV cuts, slowed to 16.1% in the quarter from 18.7% in Q2.

Shares on Thursday reversed Wednesday's after-hours gains after cautious commentary by CEO Elon Musk, who appeared to waver in his optimism after once calling Tesla "recession-resilient."

“I’m worried about the high interest rate environment we’re in,” he said on the call. “If interest rates remain high or if they go even higher, it’s that much harder for people to buy the car.”

Musk also said he wants to "temper expectations" for Tesla's Cybertruck vehicle, adding, "It’s a great product, but financially, it will take a year to 18 months before it is a significant positive cashflow contributor."

Ten Wall Street analysts have slashed their price targets on the stock amid increased concern about Tesla's near-term outlook and its ability to maintain its exceptional expansion.

Goldman Sachs analysts, who lowered Tesla's price target by $30 to $235, wrote that they believe the Q3 report "will add to near-to-intermediate term investor concerns." And Citi analysts - who cut the price target by $16 to $255, along with their full-year EPS estimate on Tesla - said the Q3 results were worse than they had anticipated.

For the week, shares were off about 16% to Friday's close of $211.99. The stock has still booked a 96% gain for the year.

Flimsy China demand for Apple's new iPhone

Apple's (NASDAQ:AAPL) new iPhone 15 is facing challenges in the Chinese market, according to Bloomberg, with sales there lagging behind those of its predecessor.

Market tracker Counterpoint Research estimates a 4.5% decline in iPhone 15 sales in China compared with those of the iPhone 14 in the first 17 days after release, while Jefferies analysts estimate a much steeper double-digit percentage shortfall.

These reports highlight the stumbling blocks Apple is encountering in China, where these sales are impacted by economic struggles and competition from companies like Huawei.

Counterpoint projects Huawei could sell 5M to 6M units of its Mate 60 Pro this year alone, numbers that could hit double digits in 2024 - and in fact, Jefferies says, Huawei has now taken the top spot in the market from Apple - a trend that "suggests iPhone would lose to Huawei in 2024," the analysts wrote.

Apple shares slipped 3.3% for the week to $172.88.

ASML a new top pick at BofA despite soft guidance

ASML (NASDAQ:ASML) issued a cautionary outlook along with its report that orders had fallen below expectations, even as it maintains a robust outlook - a forecast that BofA analysts said was “the reset” they were looking for, with ASML now deemed a top pick at the firm.

The semiconductor-equipment maker warned of flat sales in the upcoming year as customers opt to conserve cash in the face of economic uncertainties, and net profit for the three months ended September 30 was 1.9 billion euros, in line with analysts' expectations, while net bookings came to €2.6B ($1 = €0.94) vs. Q3 sales of €6.7B.

Despite the cautious 2024 outlook, ASML maintains a robust order backlog of €35B, and the company expects a more favorable 2025, given its customers' expansion plans across Asia, the US, and Europe.

BofA, positive on this "reset," added ASML to its list of Top EU SemiCap stocks to own: “The stock trades on 18x EV/EBITDA and 22x PER, which we consider highly attractive given the 21% EBITDA CAGR 2022-25E (PEG

Morgan Stanley added that the new guidance suggests ASML is taking a "more conservative view" on FY24, saying the company likely sees “revenues similar to FY23 and yet still see this year as pivotal to preparation for “significant” growth in 2025."

Still, after the weak guidance, shares lost 3.5% Wednesday. The stock closed Friday at $547.10, down nearly 5% for the week.

Senad Karaahmetovic, Yasin Ebrahim, and Michael Elkins contributed to this report.