TL20 tops benchmarks
Year-to-date, the TL20 group of stocks to consider is up thirty-two percent, ahead of the nine percent gain of the Nasdaq and the S&P 500. Read about the TL20
The IPO market saw the debut this week of an interesting venture in nuclear power, two-year-old Nano Nuclear, which plans to build what are called “microreactors,” plants so small they can fit in a sixteen-wheel truck and be driven to sites where they’re needed.
It’s an intriguing business idea, and it has some interesting backers on its advisory board, including former U.S. presidential candidate and NATO commander Wesley Clark, and former New York governor Andrew Cuomo, who hold stock options in the company.
There’s a passel of earnings reports to catch up on from Wednesday and Thursday. I’ll try to make this as rewarding, and brief, as possible.
The star of this week’s reports was undoubtably ARM Holdings, which went public September 14th. The stock has been a stellar performer, up sixty-three percent since its IPO, and up thirty-eight percent this year.
Wednesday evening’s report was not enough, a lesson in expensive stocks. The shares trade for an amazing twenty-six times revenue projections for the year ending next March. As a consequence, even though both the reported results and forecast for this quarter were above expectations, the stock sold off on Thursday by about two percent.
While a lot of the action this earnings season has been “better-than-feared” results lifting stocks, Tuesday night saw some positive surprises driven by expanding opportunities, including artificial intelligence.
Networking giant Arista Networks has Microsoft and Meta as its two biggest customers, and so it makes sense that its report Tuesday night reflected healthy spending. The stock rose seven percent in late trading.
Most bulls were impressed with the company’s hiking its full-year revenue growth view to a rate of twelve to fourteen percent growth from a prior forecast of ten to twelve percent.
Three very different earnings reports on a Monday afternoon, with Palantir failing to justify a lofty valuation, Lumentum’s enthusiasts defending its AI potential, and Microchip headed on the road to recovery.
We're still in the thick of earning season, and last week, the week ending May 3rd, was a big recovery for some struggling names like ON Semiconductor and Qorvo, although the big feature of the week was Apple.
The best sign of the week for stocks in technology was Samsung Electronics, which reported on Tuesday morning. Samsung said that the second half of twenty twenty four is going to see business conditions remain positive with demand mainly around generative AI holding strong. Its memory chip business returned to profit and that should be good news for Micron Technology, which is Samsung's competitor in making DRAM. Samsung rose 1% for the week, while Micron shares were flat.
Apple’s earnings report was the main event of the week, on Thursday evening. The company turned in better-than-expected revenue and profit. There was a lot of speculation that the company's iPhone sales were not doing so well in China, but results were just fine.
Thursday saw a healthy bunch of reports, with large stock jumps, the best coming from stocks that were relatively heavily shorted, including Clearfield Communications, Opendoor Technologies, and Paylocity.
The star of the evening, of course, was a stock not heavily shorted, but a name heavily weighed down by negative sentiment.
Apple’s fiscal second quarter report was the classic hop over a very low bar. Consider that the average estimate for sales, ninety billion dollars, had fallen in the past twelve months by ten billion dollars, the biggest cut to estimates of the last four reported quarters. Apple beat that greatly reduced estimate by about half a billion dollars.
Wednesday evening was a terrible night for TL20 stocks worth considering, with Axcelis Technologies and Qorvo both flaming out, and Informatica merely delivering a fine performance and rising not at all in late trading.
For Axcelis, makers of tools to make silicon carbide chips, and Qorvo, makers of radio-frequency chips, the issue is not the companies themselves, but their still-struggling markets, respectively, electric vehicles, and mobile technology. Those markets are taking longer than expected to correct, which continues to weigh on both companies’ results.
For Axcelis, all I can say is, the overall EV implosion still weighs on its sales of tools for silicon carbide chips.
Tuesday was another plentiful earnings bundle, with some modestly positive signs from Amazon and Advanced Micro Devices. Pinterest, the ad-supported photo sharing site, had the biggest revenue upside since 2020, which boosted the stock seventeen percent after-hours.
The most interesting commentary in broad strokes came from Samsung Electronics early Tuesday morning. The company beat expectations for revenue and profit, and what it had to say about artificial intelligence was encouraging for the overall market for infrastructure.
“In the second half of 2024, business conditions are expected to remain positive with demand — mainly around generative AI — holding strong, despite continued volatility relating to macroeconomic trends and geopolitical issues,” said Samsung in its press release.
We’re already more than halfway through earnings season, even though things are just getting underway, as you can see from the packed calendar for this week in the table.
Merrill Lynch strategist Savita Subramanian notes Monday morning that tech is leading positive surprises this earnings season. “228 S&P 500 companies / ~60% of index earnings are in,” she relates, and, “Reported EPS beat by 5% […] Tech leads the beat, adding +10% more than expected.” The number of reports beating on revenue, however, is merely average, about fifty-nine percent, writes Subramanian.
Be like Buffett on Apple stock: Apple is one of the stars of a very busy few days in earnings this week, reporting after market close on Thursday. You should buy the weakness in the stock in advance of that report, writes Toni Sacconaghi of Bernstein in a note to clients on Monday in which he upgrades the stock from Market Perform to Outperform. Apple’s stock is down over nine percent this year.
What a difference a week makes. The week ending April 26th saw a 10% gain in shares of Nvidia, which had declined the prior week, the week ending April 19th, by the same amount. What happened? Some earnings reports from Meta, Alphabet, and Microsoft, all three of which said that they are going to continue to focus their spending on artificial intelligence, which will of course, mean lots more sales of Nvidia GPUs.
Nvidia’s gain for the year to date is now 77%, and within 10% of its 52-week high price.
The Nvidia gain helped to power the TL20 group of stocks to consider to an 11% gain for the week.
The shares of Alphabet, Meta and Microsoft were rather mixed as they reported results, despite healthy results. Microsoft was the most satisfying from an AI standpoint, saying its cloud growth was a helped by AI by about seven percentage points. Microsoft rose 1.3% for the week.
Thursday evening’s earnings headlines contained a giant curve ball: Alphabet’s Google announced its first-ever quarterly dividend, twenty cents a share, and also added to its share buyback program another seventy billion dollars.
Before you get too excited, note that the dividend yield on an 80-cent payout, annually, based on Alphabet’s after-hours price of $174, is a yield of barely one half of a percent. That makes it one of the lowest payouts of large tech firms, putting it below Microsoft’s three quarters of a percent, Apple’s half a percent, and chip giant Intel’s one percent.
Nevertheless, lots of income investors will have to own Google now, which prompted Alphabet shares to rise twelve percent after-hours on Thursday.
The announcement obscured what had been the main event expected by investors: The cloud and artificial intelligence battle between Google and Microsoft, which also reported.
The tech initial public offering market has been gradually crawling its way back, though it is nothing like it was in the go-go days of 2020 and 2021. Reddit was the most notable recent example, and on Wednesday, a cyber-security vendor, eleven-year-old Rubrik of Palo Alto, California, priced its offering at $32 per share, above an expected range of $28 to $31.
Rubrik’s prospectus describes its software, called Rubrik Security Cloud, as a “cloud native SaaS platform that detects, analyzes, and remediates data security risks and unauthorized user activities.” In that respect, Rubrik appears similar to many existing players in the market, Zscaler and Palo Alto Networks among them.
Not a lot changed for Tesla on Tuesday between 4 pm and 4:05 pm, save that its quarterly results were not as bad as feared, and the company said it would introduce more economical cars sooner than expected, relieving some investor fears. That was enough to drive the stock up over ten percent in late trading.
Tuesday, the gain totaled twelve percent by the end of the day. Given a huge sell-off in the stock leading up to the report, down forty-two percent, and a slew of bad news in recent weeks, the gains on Wednesday are not exactly surprising.
The good news, though, may not be as goos as it seems. The company’s announcement of cheaper models of car is not all it appears, as analyst Toni Sacconaghi of Bernstein related on Tuesday.
Earnings reports from Enphase, Seagate and Texas Instruments, three struggling names, all had an element of recovering markets in them, Super Micro has a bright future but the stock is fully valued at this point, and Qualcomm could find new appeal based on the “edge” market for AI.
The past several months have been a “horror show” for Tesla investors, as one analyst put it, but that meant a much lowered bar for the auto maker that lead to a better-than-expected sales report on Tuesday evening, prompting a ten percent after-hours jump in the stock.
Revenue of $21.3 billion came in below the average estimate for $21.59 billion, but it was better than the vast majority of estimates, if you look at the distribution of estimates. So, the company avoided the worst expectations.
On the profit side, things were better than expected. Adjusted Ebitda of $3.38 billion was higher than the average estimate for $3.1 billion, and although Tesla’s free cash flow came in negative, at $2.5 billion, the average estimate was just $281 million, meaning, the Street had ramped down that expectation to very little.
A soggy forecast from Cadence Design doesn’t reflect big potential later this year, Nvidia and chip stocks will rebound in May, Matterport is a two-billion-dollar deal for virtual house tours, and shares of Western Digital are debated in advance of its earnings report.
The period between earnings reports is a good time for companies to either meet with investors or meet with customers. Monday, at the Nasdaq in Manhattan, it was the latter for software maker HashiCorp, which held a cocktail hour and presentation for clients to discuss the company’s new emphasis on its cloud computing service.
I swung by the event to listen the pitch. The sell-side analysts were not invited, and the event offered nothing pertaining to the financials, but it was useful food for thought.
Twelve-year-old, San Francisco-based HashiCorp sells a piece of software called Terraform, and accompanying applications, that is used to set up and manage servers in cloud computing. The company went public in December of 2021. 2023 was a hard year for HashiCorp, as growth was cut dramatically amidst belt-tightening by customers.
At Monday’s event, CEO Dave McJannet, and two deputies, head of field service Susan St. Ledger and CTO Armon Dadgar, made the case that moving to the company’s cloud computing version of its product will bring numerous benefits to clients versus running the code in their own data centers.
The big event for the week ending April 19th, of course, was the fall of 10% in Nvidia stock on Friday the 19th. All of the news reports covering the share price decline noted that there was in fact no news regarding Nvidia out on Friday. The Financial Times’s George Steer notes Nvidia endured its worst session since March of 2020, losing more than $200 billion of its market value in one day.
Mega Tech was terrible across the board last week, with Apple, Amazon and Meta all down 6%. The Nasdaq Composite Index declining 5.5%. The Standard & Poor’s 500 index down 3%.
Nvidia is more than half of the value of the TL20 group of stocks to consider, which was down 12% with the 8% decline on Friday, its worst decline since October of 2022.
“We have big plans there for using generative AI across the whole lifecycle of build, deploy and operate your cloud application.”
Taiwan Semi lowered its outlook for the chip industry this year, but its sales are still expected to rise on the AI chip race, Oracle may have to spend like crazy to stay in the AI game, and Zscaler’s competition from Microsoft and others looks not as bad as previously thought.
Shares of Netflix are down almost six percent in late trading despite the company beating on revenue and profit with its Q1 report, and forecasting this quarter’s profit higher as well, with new subscribers coming in well above consensus.
Seems that after a twenty-five percent run-up this year, people are taking profits on what looks to be less upside in the current quarter. Tonight’s drop is the reverse of the large gains the stock saw the prior two quarters. The giant addition of subscribers in the January report boosted the stock by eleven percent at the time, but, clearly, adding subscribers doesn’t always carry the day for the stock.
But there’s also a disheartening surprise in the forecast section of the shareholder letter: Netflix will stop disclosing the number of members next year.
ASML Holding, one of the top chip-equipment makers in the world, missed with its first-quarter revenue report Thursday morning, and missed with its outlook for this quarter, but the bulls on the stock are taking it in stride.
“We attribute the shortfall to quarter-to-quarter lumpiness, and do not see a demand issue,” writes Raymond James analyst Srini Pajjuri in a note to clients Thursday.
“A near-term hiccup” is how TD Cowen analyst Krish Sankar describes the report. The focus of the Street is not so much revenue as is it is the company’s number for “bookings,” the contract value signed during the quarter. Bookings are a prelude to revenue, as the product is delivered and the money is formally recognized on the income statement.
Those bookings, at €3.6 billion, were well below expectations for about five and a half billion euros.
Earning season is getting underway as I record this, with the early reports IBM, Netflix and ASML.
The week that ended April 12th saw some sell-offs in names that include Nvidia, one of the TL20 stocks worth considering. Nvidia ended the week of the 12th up fractionally, reversing a 3% loss the ending April 5th.
I had written about Nvidia’s plight on April 4th. It's what I call “inverse estimates behavior.” The stock is way down from a recent high of about $950, and over the course of the past two weeks, it has really meandered through ups and downs.
I can't tell you when it will relieve itself, but I will tell you that estimates have continued to rise and my inverse estimates behavior theory for Nvidia would be that it will see some gains when some of these increases slow down.
The people who sold the Reddit IPO don’t believe in its immediate future, Amazon is your best bet among social and commerce stocks this earnings season, and Enovix announces positive development amidst nail-biting.
Things keep getting worse for Tesla heading toward its earnings report, Cisco will be fine after the speed bump, the Street loves Astera Labs’s expensive stock, and Informatica and Salesforce are each other’s problems at the moment.
“We are at that kind of watershed moment in quantum where you transition from research experimentation to business benefit.”
Tesla needs to cut its software price, Marvell is your new AI chip star, investing in AI software requires patience, and Snowflake still appeals even though its stock is in the dumps.
The news flow of late is filled with big dollar signs for the potential investment in AI. They range from Advanced Micro Devices CEO Lisa Su’s comment in December that the market for AI chips could be worth four hundred billion dollars by 2027 to the report two weeks ago from The Information that OpenAI is contemplating building hundred-billion-dollar AI computers.
What to believe? The average individual will note that many AI programs have issues, such as “hallucinations.” Either the money is therefore good money after bad or it’s a desperate attempt to fix a big mess.
But there is another view to consider.
Tesla could transition away from the car business, Amkor is less expensive than a lot of AI stocks, there’s a reason ASML is pricier than many other chip stocks, and Meta’s trends are looking good now and through 2028.
We are just approaching the very beginning of earnings season — how time flies! — which gets underway a week from Thursday, when Taiwan Semiconductor Manufacturing and Netflix will both report results, the traditional early birds of the season.
And that means it’s time for earnings upgrade season, when analysts tune up their spreadsheets, and, if they’re feeling chipper, raise price targets and ratings on stocks.