SumZero Zeroed In, April 4 2022

Elon Musk: Passive Activist?

SumZero Headlines: Social media naturally exploded this morning when it was revealed that Tesla’s (NASDAQ: TSLA) founder had taken a 9% stake in Twitter (NASDAQ: TWTR), coming mere days after the eccentric billionaire had stated that he wants to start a new social media due to his personal concerns about Twitter’s policies regarding content regulation.

The result? Another multi-billion dollar company’s equity was turned into a meme stock, with shares up over 25% on the day. While Musk states that his investment is “passive”, others on the Street aren’t so enthusiastic about peaceful co-existence between Twitter’s management and a former member of the PayPal mafia. The Journal quotes Cascend Securities analyst Eric Ross: “There’s no such thing as a passive stake with Elon Musk. He’s clearly going to roll his sleeves up.”

Buyside Take: While we don’t have any specific read-throughs to share with you on TWTR, perhaps we may so politely advise Elon to look at issues more directly in his wheelhouse. TSLA’s high valuation and appeal to retail shareholders has created controversy, and SumZero’s community take on the name is no different. Check out these reports, one bearish courtesy of our current #1 ranked analyst, and this bullish case for TSLA - and decide for yourself.

Source: Wall Street Journal

AMD Doubles Down on Data Centers

SumZero Headlines: Advanced Micro Devices (NASDAQ: AMD) announced in the premarket that it will be acquiring private distributed services platform Pensando in a $1.9 billion deal before working capital and other adjustments, according to a press release. Pensando represents an attempt by AMD to continue building its high-growth data center business and offer products across its cloud and enterprise solutions.

Coming off the back of a $50 billion acquisition of Xilinx in February, AMD’s aggressive M&A strategy remains in place despite concerns from investors that growth trade has tapped out, Intel’s status as a competitor, and supply chain/input costs in the semi and chip space. As such, the stock is down -26% YTD, despite margin expansion and increased FCF generation.

Buyside Take: A SumZero report on AMD from December noted that AMD’s 10% market share in server markets was one of the key items to watch, and the new Pensando acquisition will allow AMD to continue scaling into one of the fastest growing markets in cloud computing. With AMD trading at a forward 26.8x P/E, the stock looks relatively interesting based on this contributor’s $310 price target and 35x earnings multiple.

Source: VentureBeat

Carnage in SPAC World

SumZero Headlines: SPACs, all the rage in post-coronavirus recovery in equities, have had to navigate difficult waters in more recent times. After institutional and retail investors piled into these blank check companies, investors faced poor performance, with IPOX SPAC index declining from a peak of around 950 to its current level ~572.

Notably, some recent high-fliers such as former President Trump’s social media company (NASDAQ: DWAC) have also seen major contractions, with DWAC shedding over 10% in Monday trading on news senior executives were leaving the company. Of course, DWAC’s story is a tale as old as time, but our research indicates that there may be some hidden gems in the carnage of the SPAC market.

Buyside Take: For starters, if you read this report from early March on DWAC (+35% to date), you’d already be short right now. But if you’re looking for one of those hidden gems, we’d point you towards this report on Playstudios (NASDAQ: MYPS), up 9% in two weeks. The author, a PM at a $50m+ hedge fund, notes the asymmetry of the trade and says MYPS “DD rev growth, 20%+ EBITDA margins and strong FCF” is also “possibly the best way to play Apple's App Store fee changes”.

Source: Bloomberg