Dj Ai Data Company Ddn Gets Blackstone Backing

By Jack Hough

The U.S. stock market wouldn't be riding so high without chip designer Nvidia, which is at the center of a flood of spending on artificial intelligence. Nvidia, in turn, is deeply dependent on Taiwan Semiconductor Manufacturing, which runs the world's most sophisticated chip factories. And Taiwan Semi would be lost in cutting-edge chips without a Dutch company called ASML Holding, the leader in lithography, or using lasers and mirrors to print impossibly dense patterns on silicon wafers.

All three companies have done wonders for investors over the past decade: Nvidia shares have returned 29,000%; Taiwan Semi's American depositary receipts, 1,100%; and ASML's ADRs (which trade under the ticker ASML), 800%. But Nvidia and Taiwan Semi are trading close to their highs. ASML, after slashing its revenue guidance in October, is down by nearly a third from its peak last summer.

Is this an early warning for chips, and by extension, the U.S. stock market? Or is ASML losing its monopoly hold on high-end lithography? Bet neither — and that ASML will bounce back.

For background, start with Roy G. Biv, the old grade-school anagram for the colors of the rainbow, from red to violet. Colors are determined by wavelengths, and these are the ones that human eyes are tuned to see, from 700 nanometers down to 380, but there are others. For example, beyond red is the infrared used by remote controls, and beyond that are broadcast signals, because long waves travel far. Old-fashioned television, and now cellphones, can use waves as long as meatball heroes, and AM radio waves can be the size of football fields.

In the other direction, past violet, are extremely small waves that are handy for passing through solids, like the ultraviolet used in tanning beds, and below 10 nm, the X-rays that can reveal broken bones. This is the neighborhood where ASML plays. Its current extreme ultraviolet, or EUV, machines can print 13-nm resolutions, which chip makers can turn into even smaller features to achieve their current 7-nm, 5-nm, and 3-nm "nodes," or generations. A nanometer is roughly how long a fingernail grows in a second; a human hair is 80,000 to 100,000 nanometers wide.

Transistor density tends to double every two years or so with a minimal increase in cost, making computers ever more powerful — a trend known as Moore's law, and kept alive today by ASML. Its room-size machines are the most complex thing humanity has ever created, says Didier Scemama, who has studied ASML for decades and covers it for BofA Securities. For example, they fire lasers at molten tin droplets falling at a rate of 40,000 to 50,000 a second — two hits per droplet, without a miss. A stray particle could ruin a wafer, or take down the machine.

That technology took decades to develop. The first EUV test chips were made at SUNY Albany in 2008. The first commercial product to use EUV-enabled chips was Samsung Electronics' family of Galaxy Note 10 smartphones in 2019. China, which is banned from buying ASML's most sophisticated machines, would surely like to make its own. "I think the odds of them being very successful in EUV over the course of the next 10, 15, 20 years are fairly low," says Scemama. Beyond complexity, there are ASML's supply deals with Germany's Carl Zeiss, which makes the world's flattest mirrors, and Trumpf, which makes the world's most powerful pulsed industrial lasers.

ASML's current top machines are estimated to cost more than $220 million. The next generation, called high numerical aperture, or NA EUV, can print 8-nm resolutions, supporting nodes starting at 2 nm. Intel is an early recipient. Broader uptake could start in a year or two, at prices estimated at $380 million to $400 million per machine. Apple, which first brought 3-nm chips to market in its top 2023 iPhone, could move to 2-nm production around next Christmas. It currently leads the miniaturization push; Nvidia is content to lag a nanometer or two behind, while differentiating its chips with software and other add-ons.

Back to our original question. Why is ASML slumping? Three reasons. First, China has rushed to stockpile lower-end ASML equipment ahead of what might be tighter trade restrictions starting soon. The shift back to lower demand from China will temporarily sap growth. Second, Intel made a bold push to expand in chip manufacturing, with little financial success so far. Intel and Samsung have delayed equipment orders for their foundries. Third, despite strong growth in AI, there is a slump in consumer devices and their chips. Two-thirds of the companies in the Philadelphia Semiconductor index have trailed behind the S&P 500 index over the past year.

A return to growth for ASML seems likely. Timing will depend on demand for phones, personal computers, cars, and gaming machines — as well as whether Intel and Samsung are able to lure Taiwan Semi customers to their foundries. One bear case is that lithography intensity is rising more slowly than in the past. Taiwan Semi's 5-nm node uses 10 to 12 EUV layers, and its 3-nm node, about 20. But with its 2-nm node, this is believed to rise to only 22 layers. On the other hand, older nodes will remain relevant for many years; the shift to high NA EUV is coming; and computer memory is following the same rising EUV demand path as processors, adding to growth.

BofA's Scemama reckons that earnings for ASML will grow at a compounded average of 16% a year over the next five years. Shares trade at 37 times this year's slashed earnings estimate — a premium, but one that is close to a 10-year low relative to U.S. chip-equipment companies, J.P. Morgan points out. My colleague Andrew Bary recently named ASML one of his top 10 stock picks for 2025. And Scemama's price target for the ADRs implies 26% upside.

Write to Jack Hough at jack.hough@barrons.com Follow him on X Subscribe to his Barron's Streetwise podcast

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

The stock market saw something incredible in 2024, with the “Magnificent 7” tech giants leading the charge and driving a huge chunk of the S&P 500’s impressive 25% return. Big names like Nvidia , Meta Platforms , Tesla , Amazon , Alphabet , Microsoft , and Apple outperformed the rest of the market by a wide margin. In fact, Howard Silverblatt from S&P Dow Jones Indices pointed out that these companies were responsible for more than half of the S&P 500’s gains.

Elsewhere in the market, the biopharmaceutical industry had a rough year in 2024, dealing with layoffs and restructuring.

As we step into 2025, some analysts believe it’s time to rethink strategies and look at dividend-paying healthcare stocks with lower valuations.

Miramar Capital has singled out Merck , Bristol Myers Squibb , and AbbVie as excellent options. These pharmaceutical giants offer solid dividend yields and trade at more reasonable prices compared to tech stocks. Despite challenges, they’ve focused on growing their pipelines.

With the Magnificent 7 starting to show signs of slowing down and Big Pharma working through patent challenges with innovation and smart acquisitions, more investors are starting to notice these dividend-paying pharmaceutical stocks.

Let’s examine why Merck, Bristol Myers Squibb, and AbbVie are becoming such attractive alternatives to the tech-heavy portfolios that have dominated in recent years.

Dividend Stock #1: Merck (MRK)

Merck is a well-known global healthcare company that develops and sells medicines, vaccines, and animal health products. The company focuses on areas like cancer treatments, infectious diseases, and chronic conditions, operating across its pharmaceutical and animal health segments.

Merck's stock had a mixed year in 2024, with prices ranging from a low of $94.48 in November to a high of $134.63 in June — a sharp drop of nearly 25% from its peak.

As of Jan. 8, 2025, the stock sits at $99.85, with a forward price-earnings ratio of 12.89x, much lower than the sector average of 20.36x. This suggests the stock is undervalued compared to its peers.

Merck’s market capitalization is $252 billion, and it offers a forward dividend yield of 3.24% with a payout ratio of 31.67%. The company has raised its dividend for 14 straight years, with the latest quarterly payout at $0.81 per share, making it an appealing option for investors looking for steady income and growth as tech stocks like the “Magnificent 7” face valuation concerns.

In the third quarter of 2024, Merck reported $16.7 billion in revenue, up 4% from the previous year. Sales of its blockbuster cancer drug Keytruda jumped 17% to $7.4 billion, while animal health revenue grew by 6%.

For the full year, Merck expects sales between $63.6 billion and $64.1 billion and non-GAAP EPS between $7.72 and $7.77. Analysts predict Q4 earnings of $1.80 per share on revenue of $15.52 billion.

Merck has also been making strides in innovation and partnerships. It recently secured FDA acceptance for Clesrovimab (MK-1654), an investigational RSV antibody for infants, with a decision expected by June 2025.

Additionally, it finalized a licensing deal for LM-299 with LaNova Medicines, which could bring up to $2.7 billion in milestone payments. These moves highlight Merck’s focus on growth and make it an attractive alternative as analysts at Miramar Capital suggest cutting back on tech stocks.

Analysts are bullish on Merck’s future, with 26 analysts giving it a "Strong Buy" rating — 20 recommending “Strong Buy” and six advising “Hold.” The average price target is $131.04, which suggests potential upside of about 30% from its current price.

Dividend Stock #2: Bristol Myers Squibb (BMY)

Bristol-Myers Squibb Company is a global biopharma company dedicated to developing and delivering medicines for serious diseases. The company invests heavily in research and partnerships to stay ahead in addressing unmet medical needs.

BMY’s stock had a strong recovery in 2024, bouncing back from a 52-week low of $39.35 in July to a high of $61.08 in November. As of Jan. 8, 2025, the stock is trading at $56.81, up 44% from its mid-year lows and off to a steady start in 2025.

With a market capitalization of $115 billion and a forward P/E ratio of 62.30x — much higher than the sector average of 20.36x — the stock looks expensive based on earnings expectations.

However, its forward dividend yield of 4.34% and a payout ratio of 39.35% make it attractive for income-focused investors, especially as analysts suggest reducing exposure to the “Magnificent 7” tech stocks. BMY has been increasing its dividend for 17 straight years, with the latest quarterly payout raised to $0.62 per share.

In Q3 2024, BMY reported $11.9 billion in revenue, an 8% year-over-year increase. Key drugs like Opdivo and Eliquis continued to drive growth, with sales rising by 8% and 7%, respectively. The company raised its full-year revenue guidance to $47 billion and expects EPS between $7.10 and $7.40 for 2024, exceeding analyst expectations.

BMY is also making strides in innovation. The FDA recently approved Opdivo Qvantig, a subcutaneous version of its cancer immunotherapy drug Opdivo, which offers quicker administration and more convenience for patients. The company also partnered with Prime Medicine to develop advanced gene-editing T-cell therapies, potentially strengthening its oncology portfolio.

Analysts have mixed opinions on BMY, with a “Moderate Buy” consensus from 25 analysts. Seven rate it a “Strong Buy,” 17 recommend “Hold,” and one suggests “Sell.” The average price target is $59.52, offering modest upside potential of about 4% from current levels.

Dividend Stock #3: AbbVie (ABBV)

AbbVie is a global biopharma company known for its treatments in areas like immunology, oncology, neuroscience, and virology. Since splitting from Abbott Laboratories in 2013, AbbVie has built a strong lineup of therapies for complex diseases, with drugs like Skyrizi and Rinvoq driving growth in its immunology segment.

Over the past year, AbbVie’s stock has had its ups and downs, ranging from a low of $153.58 in May 2024 to a high of $207.32 in October 2024. As of Jan. 8, 2025, it’s trading at $178.50.

With a forward P/E ratio of 16.51x, lower than the sector average of 20.36x, AbbVie fits Miramar Capital’s call for lower-valuation dividend stocks as an alternative to overvalued tech giants. Its forward dividend yield of 3.68%, annual payout of $6.56 per share, and a 53-year streak of dividend increases make it especially appealing to income-focused investors.

In Q3 2024, AbbVie brought in $14.46 billion in revenue, up 3.8% from the previous year. Immunology contributed $7 billion, while neuroscience added $2.36 billion. Adjusted EPS rose slightly to $3.00 despite acquisition-related costs, though full-year EPS guidance was revised to $10.02–$10.06 due to these expenses. Still, AbbVie remains confident about its long-term growth.

AbbVie’s recent acquisitions underscore its focus on innovation. It bought Nimble Therapeutics for $200 million upfront to strengthen its immunology pipeline with preclinical assets targeting autoimmune diseases like psoriasis. It also acquired Aliada Therapeutics for $1.4 billion, gaining ALIA-1758, an Alzheimer’s treatment using cutting-edge blood-brain barrier technology — a move that could significantly boost its neuroscience portfolio.

Analysts are optimistic about AbbVie’s future, with a consensus “Moderate Buy” rating from 24 analysts. Two suggest “Strong Buy” and five advise “Hold.” The average price target is $205.63, offering potential upside of about 14% from current levels.

Conclusion

In a market dominated by the high-flying “Magnificent 7” tech stocks, shifting focus to reliable dividend-paying companies like Merck, Bristol-Myers Squibb, and AbbVie offers a refreshing balance of growth, income, and stability. These healthcare giants boast attractive valuations and consistent dividend growth, strong pipelines, and solid earnings potential to weather market volatility.

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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By Mackenzie Tatananni

Quantum computing stocks are having a tumultuous week, but one fund manager says investors should focus on the long game when it comes to the sector.

Earlier this week, quantum computing stocks broadly slid after Nvidia CEO Jensen Huang said "very useful quantum computers" were decades away.

However, Joe Tigay, portfolio manager of the Rational Equity Armor fund, said Huang's remarks should help investors manage expectations, rather than downgrade the technology's future possibilities.

Huang's comments "offer a realistic perspective rather than diminishing the immense potential of quantum computing," said Tigay.

Quantum computers harness quantum mechanics to solve problems, using subatomic particles like electrons or photons. Quantum bits — more commonly known as "qubits" — allow the particles to exist in more than one state at the same time. In theory, this could allow computers to perform calculations that otherwise might take millions of years.

Speaking to analysts during a question-and-answer session on Tuesday, Huang signaled that it would take decades for the technology to arrive.

"If you kind of said 15 years for very useful quantum computers, that would probably be on the early side," the Nvidia CEO said. "If you said 30, it's probably on the late side. If you picked 20, I think a whole bunch of us would believe it."

The remarks sent quantum computing stocks spiraling, with IonQ, Rigetti Computing, D-Wave Quantum, and Quantum Computing seeing double-digit percentage declines on Wednesday. (The same stocks had climbed sharply after Google unveiled its Willow quantum chip in December.)

Through Wednesday's close, the four stocks have declined 37%, 47% 33%, and 43% this week, respectively.

Alan Baratz, CEO of D-Wave Quantum, had a very different assessment of the industry. During a CNBC appearance Wednesday, he said his company's services were being used by clients like Mastercard "not 30 years from now, today."

Tigay noted that Huang differentiated between quantum computers for widespread consumer use and ongoing advancements in research, which "underscores the importance of separating immediate expectations from the transformative possibilities ahead."

His fund primarily invests in the common stock of dividend-paying companies included in the S&P 500, with Alphabet and Microsoft included among its top 10 holdings. Technology stocks composed about 41% of the fund as of Oct. 31, 2024, according to Morningstar.

Tigay said Microsoft, Alphabet, and IBM see quantum computing as a "long-term strategic investment. That long-term focus, however, might shift toward near-term applications in areas such as drug discovery and financial modeling, "where existing quantum computers already demonstrate potential advantages," he added.

It's also worth noting that, for now, quantum computing isn't a key part of Nvidia's business strategy. The company is focused on so-called "classical computing," such as graphics processing units that power artificial intelligence.

However, the chip maker could provide hardware and software infrastructure to accelerate the development of quantum computers further down the line.

Tim Costa, the senior director of computer-aided engineering and quantum computing at Nvidia, said in 2022 that while large cloud vendors offered a variety of quantum computers at the time, they lacked the processing power to make them commercially viable.

Since then, the technology has certainly improved. Google's Willow chip marked a significant milestone, with the company writing that it "demonstrates error correction and performance that paves the way to a useful, large-scale quantum computer."

As Barron's previously reported, smaller companies developing the technology are at an even greater disadvantage and are unlikely to generate significant revenue for years to come.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.