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Friday, November 3, 2023

Nio Stock Forecast: NIO gains despite announcing 10% cut to workforce

  • NIO gains more than 5% on falling Treasury yields, soft NFP, cost savings plan.
  • Nio CEO William Li says Nio will cut about 10% of its employees.
  • Non-core investments will also be trimmed as EV company focuses on financial performance.
  • US Nonfarm Payrolls fell to 150K in October, a print that all but ensures rate hikes are over.

Nio (NIO) stock closed up 5.65% on Friday at $8.23  after reporting that increased competition in the Chinese electric vehicle (EV) market had forced the Shanghai-based company to lay off 10% of its workforce and trim some of its investments.

NIO stock has broken above its 21-day Simple Moving Average (SMA) as the automaker said it was considering spinning off some of its segments to streamline the firm and save money.

The US equity market has reacted fondly to a light Nonfarm Payrolls (NFP) report for October that showed US employment growing at a slower pace that is more in line with the soft landing narrative. The US Federal Reserve is much less likely to raise interest rates with this news. This is the second straight day that the S&P 500 and NASDAQ have rallied more than 1%.

Additionally, US Treasury yields have collapsed, another boon to equity prices. The 2, 5, 10 and 30-year bonds ↗ all saw yields retreat more than 2%, and the 5-year bond saw its yield fall more than 3%.

Nio stock news: CEO says company will focus on efficiency

Nio management seems to have come to terms with the fact that it is not the future EV leader in the Chinese market that it was once thought destined to become. Data from the China Passenger Car Association shows in the year through September Nio was ranked 9th among EV and hybrid sales in mainland China, bagging a little over 2% of market share.

BYD (BYDDY) and, to a lesser extent, Tesla (TSLA) have been locking up a larger share of the market in 2023 as they engage in a hyper competitive price war that has been hurting smaller players like Nio. 

Bloomberg obtained a letter sent to employees on Friday explaining that the layoffs were necessary due to mounting profit losses and the company’s struggle with growth.

“This is a tough but necessary decision against the fierce competition. We still have a gap between our overall performance and expectations,” said CEO William Li in a statement to Reuters. The chief executive added that investments that would not make a real difference to the company’s financial performance within three years would also be given the axe.

Nio released October delivery data on Wednesday showing that the EV company delivered 16,074 vehicles in the month, which was a 60% increase from a year ago but just a 3% gain from September. At just 126K deliveries so far in 2023, Nio is a long way away from its goal at the beginning of the year to deliver 250K vehicles.

In mid-October, Nio said it was considering selling through a dealer network in Europe rather than its direct sales model. Reports emerged that the company was hiring extensively in Hungary, France, Switzerland, Austria and Italy. 

AI stocks FAQs

What is artificial intelligence?

First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.

What are AI applications?

There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.

What are some stocks that fit into the AI field?

Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.

Could artificial intelligence generate another stock bubble?

Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.

The market is happy that Nio is defining a new strategy, but Nio’s layoffs may have little to do with it. Competitors XPeng (XPEV) and Li Auto (LI) have both seen their share prices advance on Friday despite not offering up major new policy changes. The more likely reason is that the equity market is excited about the employment data in the US and the falling Treasury yields. As the value of the US dollar recedes on the news, stock prices advance in compliment. 

The more than 5% gain in Nio stock on Friday has a lot going for it. NIO stock only on Wednesday was resting at long-term support near the $7.30s. Its break higher late in the week has sent the share price above the 21-day Simple Moving Average (SMA). 

Bulls now have their work cut out for them as the next area of resistance comes more than 10% higher at $9.20. That level served as a double top on September 29 and October 11. From there it’s a straight shot to the resistance band ranging from $10 to $11.30. For this rally to continue, however, the 9-day SMA needs to break above its 21-day counterpart.

NIO daily chart

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James Mackreides
James Mackreides
'Mac' is a short tempered former helicopter pilot , now a writer based in Sofia, Bulgaria. Loves dogs, the outdoors and staying far away from the ocean.

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