Market Snapshot
briefing.com
| Dow | 39087.38 | +90.99 | (0.23%) | | Nasdaq | 16274.94 | +183.02 | (1.14%) | | SP 500 | 5137.08 | +40.81 | (0.80%) | | 10-yr Note | +28/32 | 4.18 |
|
| | NYSE | Adv 1716 | Dec 1034 | Vol 1.0 bln | | Nasdaq | Adv 2626 | Dec 1639 | Vol 5.4 bln |
Industry Watch
| Strong: Energy, Communication Services, Information Technology, Health Care |
| | Weak: Utilities, Financials, Consumer Staples |
Moving the Market
-- Ongoing momentum after another record close for the S&P 500 and the first record closing high for the Nasdaq in 2 years yesterday
-- Strength in mega caps and semiconductor-related names boosting broader market
-- Treasury yields falling after today's economic releases, providing support to stocks
| Closing Summary
01-Mar-24 16:30 ET
Dow +90.99 at 39087.38, Nasdaq +183.02 at 16274.94, S&P +40.81 at 5137.08
[BRIEFING.COM] The stock market had a solid showing on the final session of the week. The day started on a mixed note, though, following yesterday's gains that saw the Nasdaq Composite hit a record closing high for the first time in two years.
Stocks started to climb as Treasury yields turned lower in response to this morning's data. Many stocks came along for the upside ride today, which brought the S&P 500 (+0.8%) and Nasdaq Composite (+1.1%) to fresh record closing highs.
The 10-yr note yield stood at 4.28% before the February ISM Manufacturing Index showed the contraction in manufacturing activity accelerating and pricing pressures moderating. It settled at 4.18%, which is seven basis points lower than yesterday. The 2-yr note yield slid 11 basis points to 4.53%. Other data today included a weaker than expected Construction Spending report for January.
This morning's economic releases followed a slate of data this week that did not deter the market's view on the Fed's rate cut path.
The broad buying activity in stocks left eight of the 11 S&P 500 sectors higher. The information technology sector, which constitutes 30% of the index, closed at the top of the leaderboard with a 1.8% gain. This price action was influenced by relative strength in mega cap and semiconductor-related components.
Strength in semiconductor stocks also left the PHLX Semiconductor Index with a 4.3% gain. NVIDIA (NVDA 822.79, +31.67, +4.0%) was a winning standout from the space, closing above a $2 trillion market cap for the first time today.
The energy sector (+1.2%) was another top gainer, rising alongside WTI crude oil futures, which settled 2.2% higher at $79.97/bbl.
Meanwhile, the utilities (-0.7%), financials (-0.2%), and consumer staples (-0.04%) sectors were alone in negative territory at the close. The underperformance of the financial sector is related to weakness in regional bank shares after New York Community Bancorp (NYCB 3.55, -1.24, -25.9%) acknowledged last night that it has identified material weaknesses in the company's internal controls related to internal loan review.
- Nasdaq Composite: +8.4% YTD
- S&P 500: +7.7% YTD
- Dow Jones Industrial Average: +3.7% YTD
- S&P Midcap 400: +4.6% YTD
- Russell 2000: +2.4% YTD
Reviewing today's economic data:
- February S&P Global US Manufacturing PMI - Final 52.2; Prior 51.5
- February ISM Manufacturing Index 47.8% (Briefing.com consensus 49.5%); Prior 49.1%
- The key takeaway from the report is that there was a slowdown in manufacturing activity in February that was also accompanied by a slowdown (albeit modest) in price growth. That will sit well in the market's mind as it contemplates the monetary policy outlook.
- February Univ. of Michigan Consumer Sentiment - Final 76.9 (Briefing.com consensus 79.6); Prior o 78.8
- The key takeaway from the report is that consumers are feeling better about the economy with inflation pressures easing and the labor market showing continued strength.
- January Construction Spending -0.2% (Briefing.com consensus 0.3%); Prior was revised to 1.1% from 0.9%
- The key takeaway from the report is that new single-family construction remains an important prop for overall construction spending.
Looking ahead, there is no US economic data of note on Monday.
Stocks stick near highs ahead of close
01-Mar-24 15:35 ET
Dow +76.29 at 39072.68, Nasdaq +177.56 at 16269.48, S&P +38.65 at 5134.92
[BRIEFING.COM] The major indices haven't moved up or down much recently.
Many stocks are driving the upside moves today. Only two of the 11 S&P 500 sectors are trading lower ahead of the close -- utilities (-0.6%) and financials (-0.2%) -- while the influential information technology sector (+1.7%) shows the largest gain, followed by energy (+1.3%), and health care (+0.9%).
Looking ahead, there is no US economic data of note on Monday.
Stocks build on gains, yields drop
01-Mar-24 15:05 ET
Dow +73.63 at 39070.02, Nasdaq +194.09 at 16286.01, S&P +40.26 at 5136.53
[BRIEFING.COM] Stocks continue to hit fresh session highs. The Nasdaq Composite is up 1.2% and the S&P 500 sports a 0.8% gain.
Treasury yields are dropping, coinciding with buying activity picking up in the stock market. The 2-yr note yield is at 4.53% and the 10-yr note yield is at 4.18%.
Separately, the US Dollar Index is down 0.3% to 103.87.
NetApp, Cooper among S&P 500's top performers following earnings
01-Mar-24 14:25 ET
Dow +93.82 at 39090.21, Nasdaq +201.05 at 16292.97, S&P +40.81 at 5137.08
[BRIEFING.COM] The S&P 500 (+0.80%) is comfortably in second place on Friday afternoon, hovering just off session highs.
Elsewhere, S&P 500 constituents NetApp (NTAP 108.22, +19.10, +21.43%), Cooper (COO 102.07, +8.47, +9.05%), and Broadcom (AVGO 1403.07, +102.58, +7.89%) dot the top of today's standings. NTAP and COO outperform after earnings, while AVGO finds solid gains alongside broader strength in technology and semiconductor stocks.
Meanwhile, Dominion Energy (D 44.36, -3.47, -7.25%) falls to the bottom of the S&P after disclosing underwhelming full year earnings guidance.
Gold shoots higher on Friday as economic data bodes well for rate cut prospects
01-Mar-24 14:00 ET
Dow +72.52 at 39068.91, Nasdaq +188.94 at 16280.86, S&P +37.53 at 5133.80
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.17%) remains comfortably in the lead on Friday afternoon, continuing to probe all-time highs with about two hours to go in the session.
Gold futures settled $41.00 higher (+2.0%) to $2,095.70/oz, up +2.2% this week, as yield and dollar losses; this morning's University of Michigan Consumer Sentiment Index for February showed that consumers are feeling better about the economy with inflation pressures easing and the labor market showing continued strength.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $103.86.
NetApp taps into expanded all-flash array product portfolio to deliver strong Q3 report (NTAP)
Data storage and security company NetApp (NTAP) is soaring to multi-decade highs following its strong beat-and-raise Q3 earnings report, indicating that the company has transitioned from turnaround mode to growth mode.
- NTAP notched several records in Q3, including EPS of $1.94 (+42% yr/yr), gross margin of 73%, and all-flash array ARR of $3.4 bln (+21% yr/yr). At least equally important, though, is that billings returned to growth, increasing by 7% to $1.69 bln, following declines of 11% in Q2 and 17% in Q1.
- Operational discipline is part of the story for NTAP -- non-GAAP operating expenses as a percent of revenue were flat yr/yr at 42.5% -- but the brightening demand situation is what really has investors excited.
- In particular, NTAP's strategy to focus on and expand its all-flash product portfolio is really paying off. The company's Hybrid Cloud segment, which accounts for over 90% of its revenue, grew by 6% in Q4 as the all-flash business expanded to approximately 60% of Hybrid Cloud revenue. For a point of comparison, Hybrid Cloud saw revenue drop by 8% last quarter as NTAP experienced notable weakness on the large enterprise side due to increased budget scrutiny and smaller deal sizes.
- Additionally, while NTAP may not be the first name that comes to mind when thinking about AI, it is emerging as a bonified AI play. Investors ears certainly perked up when the company mentioned that it secured several large wins with NVIDIA (NVDA) for SuperPod and BasePod deployments. In CEO George Kurian's words, "[NTAP] delivers the data management capabilities for security, performance and simplicity that enterprises require for their Gen AI workflows. We continue to advance our position with the development of Gen AI-driven cloud and on-premises solutions in partnership with industry leaders."
- The strengthening demand picture is having another positive effect: namely, higher margins. In Q3, product gross margin came in 250 bps higher than the top end of NTAP's guidance at 63%, mainly driven by a favorable mix shift towards all-flash products and pricing discipline.
- It's also important to point out that NTAP's results are not necessarily a function of an improving macro environment. In fact, during the earnings call, Mr. Kurian stated that while the macro climate hasn't worsened, it also has stayed relatively consistent the whole time. In other words, the company's improved results are being driven by its stronger so-to-market execution.
Overall, this was an impressive and encouraging quarterly report from NTAP, signaling that momentum is building and that its turnaround efforts have been a success.
Hewlett Packard Enterprise goes from red to green today over accelerating growth in 2H24 (HPE)
Hewlett Packard Enterprise (HPE +1%) flips from down nearly -5% at open today to firmly in the green, a reflection of mixed results in Q1 (Jan). The servers, storage, and networking software provider squeaked out a beat on its bottom line but missed top-line estimates for the second straight quarter. Meanwhile, Q2 (Apr) guidance fell short of analyst forecasts, whereas FY24 (Oct) targets aligned with consensus.
There were several moving parts underlying HPE's mixed performance in the quarter. However, the central theme was softened industry-wide demand and lingering supply-related headwinds. Nevertheless, management is optimistic that its long-term strategy will produce outsized results, viewing the current economic environment as a short-term speed bump.
- This speed bump drove HPE's revenue miss in the quarter, registering its first yr/yr decline since 1Q21 at -13.5% to $6.75 bln. CEO Antonio Neri mentioned that the lighter-than-expected sales in Q1 emanated primarily from demand weaknesses across its industry and a shift in the timing of several large GPU acceptances, leading to less supply than needed.
- Specifically, HPE endured campus networking product demand deterioration during the quarter by more than it had initially forecasted. Customers continue to take longer to digest prior orders, especially in Europe and Asia.
- The revenue miss is even more frustrating, given that AI server demand remained robust in the quarter. HPE commented that its AI pipeline is vast and growing across the entire AI lifecycle, including training and inferencing. For the year, management is confident its server business will benefit from AI demand, including improving GPU supply.
- Still, even with underwhelming revenue performance, HPE managed to expand its non-GAAP gross margins by 200 bps yr/yr, supporting its adjusted EPS of $0.48 landing toward the high end of its $0.42-0.50 guidance. Profitability remains HPE's core focus, streamlining its reporting segments, accelerating its new sales model, and managing spending prudently.
- As part of its segment streamlining initiative, HPE combined its Compute, HPC, and AI segments into a single server segment while putting all related hybrid cloud products into one business segment.
- The year ahead will be lumpy, evidenced by the dichotomy between HPE's Q2 and FY24 outlooks. HPE anticipates large GreenLake (its edge-to-cloud platform) deals to materialize toward the year's second half. As such, it projected FY24 adjusted EPS of $1.82-1.92 and revenue growth of flat to +2%, a notable acceleration over its Q1 performance and estimated Q2 performance of $0.36-0.41 in earnings and (5)% to flat sales growth.
HPE's Q1 report triggered a wave of selling today, only for buyers to immediately swoop in, excited over a much stronger second half of the year for HPE. However, economic uncertainties and supply chain disruptions can lead to periods of weaker-than-anticipated results, such as what unfolded in Q1, which could prevent HPE from enjoying accelerated growth in 2H24.
Zscaler shareholders scaling out of the stock as rich valuation and growth concerns weigh (ZS)
Bolstered by robust demand for cybersecurity products, and Zero Trust tools in particular, Zscaler (ZS) delivered another strong beat-and-raise performance in Q2 as the company added a record number of new logos in the quarter.
Yet, the stock is selling off sharply despite the upside results and outlook, mainly because the stock was priced to perfection heading into the print with a 12-month trailing P/S of about 20x. That sky-high valuation left no room for error and investors have found a blemish or two, providing enough of an excuse to take some profits following the stock's 25% rally since ZS last reported earnings in late November.
- Those blemishes essentially boil down to ZS's slowing growth and its increasing expenses. The company is adjusting its go-to-market sales strategy and Mike Rich, who came over from ServiceNow (NOW) last quarter, is heading up that effort.
- Part of this plan includes the launch of a top accounts pilot program, which aims to drive deeper platform engagement and adoption from the largest customers. Another key component is an increased focus on vertical selling. ZS already has a vertical-specific sales approach in place for the public sector and healthcare industry, but it now wants to expand the program into additional verticals.
- To help execute this strategy, ZS is hiring more experienced leaders and salespeople. This, of course, will require investments and ZS's Q2 results indicate that its spending is ramping up. Specifically, the company's operating expenses jumped by over 24% to $453.3 mln.
- It will take time before these investments in the sales force fully pay off in the form of revenue growth. On that note, ZS's revenue growth continues to decelerate, hitting 35% in Q2, down from 40% last quarter and 43% in Q4.
- Perhaps the bigger issue, though, is that ZS barely nudged its FY24 billings guidance higher. Recall that last quarter, ZS initially sold off hard following its earnings report, mainly because the company merely reaffirmed its calculated billings guidance of $2.52-$2.56 bln.
- Although the company bumped its billings guidance a bit higher last night to $2.55-$2.57 bln, the increase is pretty disappointing, especially since its Q2 billings of $627.6 mln easily beat expectations. Furthermore, while Q3 is typically ZS's slowest quarter, the company is forecasting a 7% qtr/qtr in billings for Q3.
- Billings are a key metric for ZS because it's an indicator of future cash flow generation. The fact that ZS only increased its billings guidance by about $20 mln at the midpoint suggests that it expects some bumpiness as it implements its new go-to-market strategy.
All of that said, it's difficult to be too disappointed in a company that's registering strong double-digit top-line growth that also achieved record free cash flow margin in Q2. Additionally, there's some evidence that its go-to-market strategy is already working, such as a 31% increase in customers with $1 mln or more in ARR. However, this good news was already priced in, as reflected in the stock's exorbitant valuation.
Dell surges to new all-time highs as its AI-optimized server orders get investors excited (DELL)
Dell (DELL +27%) is surging today to a new all-time high following another large EPS beat with its Q4 (Jan) earnings report last night. This was Dell's sixth consecutive large EPS beat. Revenue fell 10.9% yr/yr to $22.32 bln, but that was also better-than-expected. If that were not enough, Dell also threw in a 20% dividend increase. Unlike HPQ, which is mostly PCs, Dell has a lot of exposure to networking equipment and specifically its AI-optimized servers.
- Infrastructure Solutions Group (ISG) revenue declined 6% yr/yr, but rose 10% was sequentially to $9.33 bln with 15.3% segment operating margin vs 15.6% last year. Storage revenue declined 10% yr/yr while servers and networking fell 2%. Traditional server demand grew yr/yr and posted a third consecutive quarter of sequential growth while storage demand grew above normal seasonality, though down yr/yr as expected. Storage recovery typically lags servers by a couple of quarters.
- What really stood out was that AI-optimized server orders increased by nearly 40% sequentially. Dell shipped $800 mln of AI-optimized servers and its backlog nearly doubled sequentially, exiting the fiscal year at $2.9 bln. Demand continues to outpace GPU supply, though H100 lead times are improving. Most customers are still in the early stages of their AI journey, and they are very interested in what Dell can offer.
- Dell believes it has positioned itself well in AI. It saw strong demand for its AI-optimized server portfolio, including its flagship PowerEdge XE9680, which remains the fastest-ramping system in company history. Dell believes it has just started to touch the AI opportunities ahead of it, including broader adoption of AI by enterprise customers and the projected growth in unstructured data. Also, Dell sees the long-term AI action being on-prem where customers can keep their data and IP safe and secure. PCs will become even more essential as most day-to-day work with AI will be done on the PC.
- Turning to Client Solutions Group (CSG), segment revenue fell 12% yr/yr to $11.72 bln with 6.2% op margin vs 5.0% last year. Dell remains optimistic about the coming PC refresh cycle as the PC install base continues to age. Windows 10 reaches end-of-life later next year. Dell says the PC market is still soft, and it expects the recovery to push into the second half as enterprise and large customers remain cautious with their spend. Dell plans to continue focusing on commercial and high-end consumers.
- Despite near term softness, Dell remains excited about the long-term opportunity in its CSG business. It plans to announce a number of new products at Dell Technologies World in May that will help customers get started with AI. Earlier this week, Dell announced what it believes will be the broadest portfolio of commercial AI PCs in the industry, and new XPS systems, which feature built-in AI acceleration with a neural processing unit.
Overall, investors are clearly thrilled with Dell's Q4 results. The stock gapped higher a couple of weeks ago when Nvidia (NVDA) reported blowout earnings. Dell seems to be catching some of that AI magic. Recall that in May 2023, Dell and Nvidia announced a collaboration to deliver Project Helix, which aims to enable faster, full-stack GenAI deployments. Dell saying that its AI-optimized server backlog nearly doubled sequentially was music to investors' ears.
We see a real clear difference between Dell and HPQ. You would not know it by this move today, but Dell's CSG segment, which is mostly PCs, is larger than its ISG segment. However, it is not getting punished for the weak PC market like HPO is. And that is because investors are excited about its AI potential on the ISG side.
Autodesk gaps higher as headwinds associated with its new business model set to ease in FY25 (ADSK)
Shares of Autodesk (ADSK +2%) reached their highest levels since January 2022 after the design software developer registered beats on its top and bottom lines in Q4 (Jan) and issued better-than-expected FY25 (Jan) revenue guidance. While billings growth continued to decelerate in the quarter as ADSK transitions from an upfront to an annual billings model, most other key metrics were solid, underscoring the company's ability to unearth success despite a volatile economic environment.
ADSK has been undergoing a shift from billing its multi-year customers upfront, which tended to carry attractive discounts, to annual contracts. ADSK notes that this new transaction model is a crucial step toward integrating more closely with its customers' workflows, as its partners now provide a quote to customers who then must transact with ADSK directly. Management also mentioned that the transition should result in a tailwind to revenue growth immediately while enabling growth in operating income and free cash flow over the long term. However, it has caused some notable disruptions in billings, remaining performance obligations (RPO), and free cash flow in the interim.
While it will take time for the transition to play out across all of ADSK's customer base -- it is deploying the model in North America in Q2 (Jul) -- the company is optimistic that the adverse effects will begin to ease this year. ADSK's FY25 revenue guidance, projecting $5.99-6.09 bln, includes a 1 pt tailwind to revenue growth and a 3-4 pt tailwind to billings growth due to the transition. Conversely, the new model will remain a headwind to operating margins, as illuminated in ADSK's FY25 adjusted EPS outlook of $7.89-8.11 missing analyst forecasts. However, free cash flow headwinds are finally easing; ADSK projected $1.43-1.50 bln in FY25, a 14% jump yr/yr at the midpoint following a 37% drop in FY24.
- Alongside easing problems associated with ADSK's model transition is a stabilized macroeconomic environment, aiding the company's 12% jump yr/yr in both adjusted EPS to $2.09 and revs to $1.47 bln. As expected, total billings tumbled by 19%, a deterioration from the 11% in Q3 (Oct).
- Growth was supported primarily by ADSK's enterprise business, with early renewals and robust upfront revs from Enterprise Business Agreements (EBA). The company's AEC segment (architecture, engineering, and construction) led growth at 18%. Meanwhile, Manufacturing and M&E (media and entertainment) climbed by 16% and 8%, respectively.
- AI is also underpinning enthusiasm today. ADSK's tools can generate 3D representations rapidly, automate efforts that tend to be labor-intensive, and remove complexities in creating models. Management commented that its AI efforts center around increasing customers' productivity, which is already beginning to take shape.
Bottom line, headwinds from ADSK's billing model transition are beginning to ease. At the same time, macroeconomic conditions remain stable, setting up FY25 as a turning point for the company.
|
