| | | Market Snapshot
| Dow | 44883.19 | +168.61 | (0.38%) | | Nasdaq | 19763.66 | +49.43 | (0.25%) | | SP 500 | 6071.17 | +31.86 | (0.53%) | | 10-yr Note | +2/32 | 4.52 |
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| | NYSE | Adv 2119 | Dec 596 | Vol 1.0 bln | | Nasdaq | Adv 2852 | Dec 1444 | Vol 6.7 bln |
Industry Watch
| Strong: Communication Services, Utilities, Real Estate, Financials, Health Care, Consumer Staples, Energy |
| | Weak: Information Technology |
Moving the Market
-- Microsoft (MSFT) lower after earnings, but Tesla (TSLA) and Meta Platforms (META) trading up after earnings
--IBM outperforming after earnings report
--Overall mixed reaction to earnings results
-- Treasury yields moving lower
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Closing Summary
30-Jan-25 16:25 ET
Dow +168.61 at 44883.19, Nasdaq +49.43 at 19763.66, S&P +31.86 at 6071.17
[BRIEFING.COM] The stock market closed on a positive note after a sharp dip and quick recovery in the afternoon trade after President Trump told reporters that he will impose 25% tariffs on Canada and Mexico beginning Saturday due to immigration, trade deficits, and fentanyl, according to Bloomberg.
The S&P 500 logged a 0.5% gain, the Nasdaq Composite closed 0.3% higher, and the Dow Jones Industrial Average registered a 0.4% gain while the Russell 2000 outperformed, jumping 1.1%.
A solid earnings-related decline in Microsoft (MSFT 414.99, -27.34, -6.2%) was overshadowed by positive responses to earnings results from the likes of IBM (IBM 258.27, +29.64, +13.0%), Meta Platforms (META 687.00, +10.51, +1.6%), and Tesla (TSLA 400.28, +11.18, +2.9%).
The upside bias in equities was also supported by the price action in Treasuries. 10-yr yield settled four basis points lower at 4.52% and the 2-yr yield settled three basis points lower at 4.20%.
Broad buying interest led the equal-weighted S&P 500 to close 1.1% higher and ten of the S&P 500 sectors to close in the green. The lone holdout in the red was information technology while the rate-sensitive utilities (+2.1%) and real estate (+1.4%) sectors rose to the top of the leaderboard.
Market participants were also digesting this morning's economic releases, which featured an encouragingly low level of initial jobless claims (207,000) for the week ending January 25 and a refreshingly strong 4.2% growth rate for personal spending in the fourth quarter, which was the best since Q1 2023.
The market will be focused on earnings news from influential names this afternoon followed by tomorrow's release of the December Personal Income and Spending report, which includes the Fed's preferred gauge on inflation (PCE Price Indexes) at 8:30 ET.
- Dow Jones Industrial Average: +5.5.% YTD
- S&P Midcap 400: +4.7% YTD
- Russell 2000: +3.5% YTD
- S&P 500: +3.2% YTD
- Nasdaq Composite: +1.9% YTD
Reviewing today's economic data:
- Q4 GDP-Adv. 2.3% (Briefing.com consensus 2.3%); Prior 3.1%, Q4 GDP Deflator-Adv. 2.2% (Briefing.com consensus 2.4%); Prior 1.9%
- The key takeaway from the report is that there were stronger growth attributes in the fourth quarter than the headline number suggests. To that end, personal consumption expenditures were up 4.2% -- the strongest since Q1 2023 -- and real final sales of domestic product, which excludes the change in private inventories, was up 3.2%.
- Weekly Initial Claims 207K (Briefing.com consensus 221K); Prior 223K, Weekly Continuing Claims 1.858 mln; Prior was revised to 1.900 mln from 1.899 mln
- The key takeaway from the report is the low level of initial jobless claims -- a leading indicator -- which is a good signal for growth prospects, as it conveys a reluctance on the part of employers to let employees go.
- December Pending Home Sales -5.5% (Briefing.com consensus 0.8%); Prior was revised to 1.6% from 2.2%
Looking ahead to Friday, market participants receive the following economic data:
- 08:30 ET: December Personal Income (Briefing.com consensus 0.4%; prior 0.3%), December Personal Spending (Briefing.com consensus 0.5%; prior 0.4%), December PCE Price Index (Briefing.com consensus 0.3%; prior 0.1%), December Core-PCE Price Index (Briefing.com consensus 0.2%; prior 0.1%), Q4 Employment Cost Index (Briefing.com consensus 0.9%; prior 0.8%)
- 09:45 ET: January Chicago PMI (Briefing.com consensus 41.5; prior 36.9)
Stocks sit near highs ahead of the close
30-Jan-25 15:30 ET
Dow +244.23 at 44958.81, Nasdaq +96.43 at 19810.66, S&P +42.15 at 6081.46
[BRIEFING.COM] The major indices trade near highs ahead of the close.
The 10-yr yield settled four basis points lower at 4.52% and the 2-yr yield settled three basis points lower at 4.20%.
Looking ahead to Friday, market participants receive the following economic data:
- 08:30 ET: December Personal Income (Briefing.com consensus 0.4%; prior 0.3%), December Personal Spending (Briefing.com consensus 0.5%; prior 0.4%), December PCE Price Index (Briefing.com consensus 0.3%; prior 0.1%), December Core-PCE Price Index (Briefing.com consensus 0.2%; prior 0.1%), Q4 Employment Cost Index (Briefing.com consensus 0.9%; prior 0.8%)
- 09:45 ET: January Chicago PMI (Briefing.com consensus 41.5; prior 36.9)
XOM, CVX trade up ahead of earnings
30-Jan-25 14:55 ET
Dow +248.56 at 44963.14, Nasdaq +65.24 at 19779.47, S&P +34.78 at 6074.09
[BRIEFING.COM] The major indices are building on gains.
Exxon Mobil (XOM 109.57, +0.90, +0.8%) and Chevron (CVX 156.87, +1.18, +0.8%) trade higher today in front of their earnings reports, out tomorrow morning. This price action has contributed to the gain in the S&P 500 energy sector (+0.6%).
AbbVie (ABBV 175.45, +0.19, +0.1%), Aon (AON 370.85, +4.11, +1.1%), and Colgate-Palmolive (CL 90.76, +1.20, +1.3%) are also among the names reporting earnings tomorrow morning, trading higher today.
IBM leads DJIA components; MSFT lags
30-Jan-25 14:30 ET
Dow +235.65 at 44950.23, Nasdaq +30.44 at 19744.67, S&P +29.22 at 6068.53
[BRIEFING.COM] The Dow Jones Industrial Average trades about 235 points higher.
A look inside the DJIA shows IBM (IBM 256.38, +27.75, +12.1%) leading the 30 components by a wide margin. Boeing (BA 177.89, +4.23, +2.4%), NIKE (NKE 78.30, +1.72, +2.3%), and Visa (V 343.34, +7.49, +2.2%) are the next best performing DJIA components.
Microsoft (MSFT 415.35, -26.94, -6.1%) and Caterpillar (CAT 277.05, -16.18, -4.1%) are the worst performers of the seven components trading lower after reporting earnings.
AAPL shares recover ahead of earnings
30-Jan-25 14:00 ET
Dow +272.56 at 44987.14, Nasdaq +10.13 at 19724.36, S&P +29.40 at 6068.71
[BRIEFING.COM] The Nasdaq Composite joined its peers in positive territory over the last half hour, sporting a 0.1% gain. Small and mid cap stocks continue to outperform their larger peers.
The Russell 2000 trades 1.5% higher and S&P Mid Cap 400 shows a 1.6% gain.
Separately, Apple (AAPL 239.44, +0.11, +0.1%) shares have recovered from early weakness ahead of their earnings reports after the close. Intel (INTC 20.02, +0.27, +1.4%), Visa (V 343.81, +7.93, +2.4%), KLA Corp. (KLAC 739.50, +26.53, +3.7%), and Baker Hughes (BKR 44.27, +1.20, +2.5%) are also among the names reporting this afternoon and show decent gains today.
IBM surges to new all-time high on strong Software results an robust FY25 guidance (IBM)
IBM (IBM +13%) traded sharply higher today to a new all-time high after reporting strong Q4 results last night. It reported nice EPS upside, only its second double-digit EPS beat in the past six quarters. Revenue rose 1% yr/yr to $17.55 bln, which was in-line. We think the guidance is playing a key role in the big move today.
- Quickly on the guidance, IBM's FY25 guidance of +5% CC (constant currency) sales growth may not sound like a lot but it is a notable improvement from FY24's +3% CC result. Also, IBM's FY25 free cash flow guidance of $13.5 bln is a nice improvement from FY24's $12.7 bln number.
- As has been the case in recent quarters, its Software segment was the star of the show with revenue up +10.4% (+11.5% CC) to $7.9 bln with strength across key categories of Red Hat (+17% CC), Automation (+16% CC), Data & AI (+5% CC) and Transaction Processing (+11% CC). Software is now about 45% of IBM's business, with more than $15 bln of ARR growing at double digits.
- IBM continues to see momentum in Red Hat, fueled by six consecutive quarters of double-digit bookings growth. This is reflective of continued demand for its hybrid cloud platform as clients are prioritizing application modernization on OpenShift containers and Ansible automation to optimize their IT spend. OpenShift is now $1.4 bln ARR business, growing about 25%.
- Consulting segment revenue was down -2% (-1.1% CC) to $5.2 bln. IBM continues to see clients reprioritizing their IT spending towards digital transformation and AI initiatives for cost optimization and operational efficiency. Infrastructure segment revenue was down -7.6% (-6% CC) to $4.3 bln, reflecting product cycle dynamics. This is the 11th quarter of z16 availability. Nearly three years in, IBM noted this product cycle has outpaced prior cycles.
- Breaking down the +5% CC FY25 revenue guidance by segment, IBM sees Software approaching double digit growth, led by Red Hat in the mid-teens. In Consulting, IBM sees growth in the low single digits. And with a new mainframe launch in mid-2025, IBM expects Infrastructure to be about a point contribution to IBM's overall revenue growth.
Overall, this was an impressive way to wrap up FY24. What really stood out is its robust Software segment, that keeps growing strongly and is now 45% of sales. The FY25 guidance was quite positive as well. That +5% CC revenue growth may not sound like much but IBM has not had a 5% sales growth in any quarter since 3Q22. So to forecast that for a full year this early in the year is a sign that management is bullish on its prospects. Its Software segment is really booming right now.
Meta Platforms receiving plenty of "likes" after crushing Q4 estimates as AI products shine (META)
Meta Platforms' (META) exorbitant spending on infrastructure and GPUs to support its AI products and tools continued to pay off in 4Q24 as the company easily beat EPS and revenue estimates. The pace of those investments is only expected to accelerate with META reiterating its FY25 capex guidance of $60-65 bln, representing an increase of nearly 60% yr/yr based on the midpoint of the guidance range. Given the company's string of impressive quarterly results, featuring sizable top and bottom-line beats in each of the past six quarters, and CEO Mark Zuckerberg's bullish AI predictions during the earnings call, investors are now willing to give META the benefit of the doubt when it comes to spending.
- META's advertising business is flourishing as revenue jumped by 21% yr/yr to $46.8 bln. This should be a positive sign ahead of Alphabet's (GOOG) and Snap's (SNAP) Q4 earnings reports on February 4, although it's not just a healthy advertising spending climate that's fueling META's healthy growth. Rather, the company's AI-powered tools that improve ad targeting and drive higher user engagement across its social media platforms are generating stronger ROI for its advertisers.
- The improved ROI is supporting higher ad prices and more ad activity on META's platform. In Q4, average price per ad increased by 14% yr/yr, while ad impressions grew by 6% yr/yr.
- Staying true to form, META's advertising business once again offset hefty losses in the Reality Labs segment, which houses the company's metaverse/VR products like Quest headsets and Ray-Ban smart glasses. In Q4, Reality Labs racked up a loss of $5.0 bln on modest revenue growth of 1% yr/yr to $1.08 bln, indicating that demand for its VR products was sluggish during the holiday shopping season. Despite another quarter of steep losses, Mr. Zuckerberg maintained his bullish tone for Reality Labs, stating that 2025 will be the year when the growth trajectory for AI glasses as a category is understood.
- Beyond the upside Q4 results, we believe the market is reacting favorably to Mr. Zuckerberg's prediction that Meta AI will be the leading AI assistant this year, while the growth potential for most of the company's long-term initiatives also come into better focus. As expected, the topic of DeepSeek -- the China-based GenAI platform that's similar to OpenAI, but reportedly cost just $5.5 mln to build -- was a focal point during last night's earnings call. More specifically, the question was asked whether META needs to spend hundreds of billions in order to further develop its Llama AI technology, when DeepSeek only reportedly cost $5.5 mln to create. Mr. Zuckerberg took a page out of President Trump's playbook, highlighting the importance of not relying on Chinese tech and building out AI technology in the U.S.
The main takeaway is that META continues to distance itself in the digital advertising space, thanks to its AI-powered products and tools that are driving advertisers' ROI higher. While the loss-generating Reality Labs segment continues to flounder, excitement regarding META's GenAI assistant, which the company says could reach over 1.0 bln people this year, is mitigating that disappointment.
Lam Research jumps on upbeat Q2 results and Q3 guidance; WFE spending to tick higher in 2025 (LRCX)
Lam Research (LRCX +7%) enjoys a positive response to its upbeat Q2 (Dec) report today, following in the footsteps of peer ASML (ASML), which delivered encouraging DecQ numbers yesterday. The semiconductor equipment supplier toppled earnings and revenue estimates in the quarter, laying the groundwork for upside Q3 guidance, the first time in two years that LRCX has issued bullish quarterly numbers.
- In Q2, LRCX registered double-digit adjusted earnings growth to $0.91 and 16.4% revenue expansion to $4.38 bln. Non-GAAP gross margins of 47.5% exceeded the midpoint of LRCX's prior forecast but did represent a minor 70 bp contraction from Q1 (Sep), reflecting unfavorable customer mix, which LRCX warned of in October. Total wafer fab equipment (WFE) spending finished in-line with LRCX's mid-$90 bln range for the year.
- AI fueled LRCX's solid performance in the quarter, helping overcome muted NAND (flash memory) spending. The company's gate-all-around and advanced packaging technologies, which are critical enablers for AI device manufacturing, saw shipments grow to over $1.0 bln in 2024, maintaining momentum from last quarter when these products reached $1.0 bln for the first time.
- AI is not going anywhere either in 2025, helping push LRCX's WFE spending outlook modestly higher to approximately $100 bln. LRCX predicts technology inflections will lead to faster growth for the company as AI applications require greater device and package-level performance. As such, LRCX forecasts shipments to gate-all-around nodes and advanced packaging to total well over $3.0 bln in 2025, a potential 200% surge yr/yr. These bullish forecasts were showcased in LRCX's promising Q3 guidance, projecting adjusted EPS of $0.90-1.10 and revs of $4.35-4.95 bln.
- Regarding China, the region's concentration for 2025 will be down moderately compared to 2024, consistent with LRCX's remarks from last quarter. In Q4, the region accounted for around 31% of total revs, down 7 pts from Q1. The new export curbs in early December harmed LRCX to a degree, restricting selling to a handful of Chinese customers. Management estimated the impact was roughly $700 mln, which would have been second-half-weighted in 2025.
Like ASML, LRCX's DecQ was encouraging, showcasing how robust AI demand has not budged. While export restrictions are hindering growth in China, healthy demand across other parts of the globe is helping offset normalizing revenue in the region. Still, risks are on the horizon, keeping LRCX trading nearly 30% below all-time highs from July. Geopolitics can create additional and more pronounced setbacks. Meanwhile, markets outside AI, such as smartphones and PCs, are shaky, which can produce outsized volatility, such as what transpired in October following ASML's gloomy guidance.
On a final note, solid reports from ASML and LRCX set a bullish tone ahead of peers' upcoming reports, including KLA Corp (KLAC) today after the close, NXP Semi (NXPI) on February 3, and Applied Materials (AMAT) on February 13.
Tesla's EV business shifts into reverse as its misses Q4 estimates, but focus turns to FY26 (TSLA)
After a reprieve last quarter in which Tesla (TSLA) snapped a streak of four consecutive EPS misses, the EV maker returned to its disappointing ways in 4Q24, missing on both the top and bottom-lines as its automotive business continues to struggle amid a fiercely competitive market. However, despite the weak results, which include an 8% drop in automotive revenue and a 350-bps dive in automotive gross margin to 13.6%, the stock has held up quite well. This resilience can be tied to investors taking a longer-term view of TSLA and its substantial, but very much unproven, growth prospects revolving around autonomous driving and the company's Optimus humanoid robots.
- TSLA's price cutting ways have been well documented for some time now and the impact of those cuts were felt once again in Q4. In China, the company lowered its prices on the Model Y SUV -- which was the best-selling vehicle of any kind in 2024 -- and in the U.S., it slashed the prices of Model Y, Model X, and Model S each by $2,000. As a result, the lower ASP's dragged automotive revenue lower, while also squeezing TSLA's automotive gross margin and profits.
- Fortunately for TSLA, easing raw materials prices and improved manufacturing efficiencies are helping to soften the blow from the price cuts. In fact, COGS per vehicle dipped below $35,000, marking the lowest level in TSLA's history. This enabled adjusted EPS to edge higher by about 3% yr/yr to $0.73.
- Another bright spot was the energy generation and storage business. Revenue in this segment soared by 113% yr/yr to $3.06 bln, helping TSLA to avoid reporting a yr/yr total revenue decline for just the third time over the past five years. Still, the modest 2.1% revenue increase was TSLA's third weakest performance over this same time period.
- Given the weak numbers for Q4, it's rather surprising to see the stock holding up as well as it has today, especially since Elon Musk signaled that vehicle growth could be muted again in 2025. It appears that the market is looking beyond 2025 and is focusing on the 2026-2028 timeframe instead -- a period that's expected to be incredibly strong, according to Musk. By the end of 2025, Musk expects TSLA to have an unsupervised FSD option available in parts of the U.S., paving the way for a more widespread release in 2026.
- TSLA also reiterated that Cybercab, the company's robotaxi vehicle, is scheduled for volume production in 2026 with tests set for many U.S. cities by the end of this year. Also, in typical Musk fashion, he made some bold claims such as TSLA ultimately being worth more than the top five companies combined, and that the company's Optimus humanoid robot may generate revenue into the trillions.
Overall, this was another rough quarter for TSLA and FY25 is shaping up to be a transition year as this lackluster growth likely continues. Investors are brushing this off for now, though, as the lure of major growth catalysts in FY26 and beyond captivate the imagination. Whether those catalysts shift from imagination into reality remains to be seen, but TSLA could be on the cusp of entering a new, powerful growth cycle.
Microsoft heads lower despite upside Q2 results; IC segment and Azure could have been better (MSFT)
Microsoft (MSFT -6%) is trading lower after reporting Q2 (Dec) results last night. The software giant posted a solid double-digit EPS beat. Revenue rose 12% yr/yr to $69.63 bln, which was above analyst expectations. However, the Q3 (Mar) revenue guidance was a bit light of expectations. Also, its Intelligent Cloud (IC) segment was a bit below prior guidance and its closely-watched Azure number was at the low end of guidance.
- Let's start with Azure, which grew +31% CC (constant currency), marking it at the low end of its +31-32% CC prior guidance. MSFT noted that Azure AI results were better than expected. However, there were some challenges on the non-AI side with some indirect customers that MSFT reaches thru partners and indirect sales. MSFT expects Q3 Azure revenue growth to be +31-32% CC. The Azure AI side is seeing good demand but MSFT expects ongoing impacts through H2 on the non-AI side as it works to address execution challenges.
- In terms of the broader IC segment shortfall, Azure appears to have played a role. However, MSFT also said that FX was a bigger headwind than expected. Also, Azure non-AI services, on-prem server, and Enterprise and Partner services were slightly lower than expected, partially offset by better-than-expected results in Azure AI services. Azure also can have quarterly variability from in-period revenue recognition depending on the mix of contracts.
- The company made what we thought was a notable comment on the call. It expects Azure AI to be capacity constrained in Q3, however, by the end of FY25, MSFT expects it should be roughly in-line with near-term demand given its significant capital investments. We have heard a lot from MSFT in recent quarters about how its AI capacity constraints have held back results, so it will be interesting to see how they perform without being constrained.
- Its two other segments, Productivity and Business Processes and More Personal Computing both performed better with sales coming in ahead of prior guidance.
- When asked about DeepSeek's impact on AI spend, MSFT said that DeepSeek has had some real innovations. Also, it noted that what's happening with AI is no different than what was happening with the regular compute cycle. When token prices fall, inference computing prices fall, that means people can consume more, and there will be more apps written. For a hyperscaler and PC platform provider like MSFT, the company believes this is all good news.
Overall, the DecQ results were a bit of a letdown. Microsoft typically outperforms guidance in all three segments each quarter. However, coming up a bit light in IC and with Azure on the low end, that has spooked investors a bit. We think the market may be overdoing the concern a bit. Had Azure's Q3 guidance dipped into the 20's percent range, we would be more worried, but guidance is +31-32% CC. Also, the weakness is more on the non-AI side which is less troublesome, in our view. We look forward to Amazon's AWS performance next week.
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