Market Snapshot
| Dow | 38239.66 | +153.86 | (0.40%) | | Nasdaq | 15927.90 | +316.14 | (2.03%) | | SP 500 | 5099.96 | +51.54 | (1.02%) | | 10-yr Note | +3/32 | 4.67 |
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| | NYSE | Adv 1819 | Dec 841 | Vol 885 mln | | Nasdaq | Adv 2639 | Dec 1512 | Vol 4.7 bln |
Industry Watch
| Strong: Communication Services, Information Technology, Real Estate, Materials, Consumer Discretionary |
| | Weak: Energy, Utilities, Financials, Consumer Staples |
Moving the Market
-- Positive responses to better-than-expected earnings from MSFT and GOOG, also fueling optimism about AI
-- Weakness in energy stocks after earnings news from Exxon (XOM) and Chevron (CVX)
-- Drop in market rates supporting buying in stocks
-- Digesting the March Personal Income and Spending report
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Closing Summary
26-Apr-24 16:25 ET
Dow +153.86 at 38239.66, Nasdaq +316.14 at 15927.90, S&P +51.54 at 5099.96
[BRIEFING.COM] The stock market started the final session of the week on a higher note, building on gains through the day. A modest move lower in the late afternoon left the major indices off their highs, which had the S&P 500 just shy of the 5,100 level.
Earnings-related gains in Alphabet (GOOG 173.69, +14.75, +10.0%), which reached a new all-time high today, and Microsoft (MSFT 406.32, +7.28, +1.8%) provided a boost to the broader market. The Vanguard Mega Cap Growth ETF (MGK) rose 1.9%.
Outperforming semiconductor shares, benefitting from buzz around AI following the aforementioned earnings news, also acted as a boost to the broader market. The PHLX Semiconductor Index (SOX) jumped 2.6%. Intel (INTC 31.88, -3.23, -9.20%) was an exception from the SOX, sliding nearly 10% after reporting disappointing quarterly results. Competitor NVIDIA (NVDA 877.35, +51.03, +6.2%) jumped more than 6.0%.
Six of the S&P 500 sectors closed higher and five registered a decline. The communication services sector led the outperformed thanks to a big move higher in Alphabet. The information technology (+1.9%) and consumer discretionary (+1.3%) sectors were the next best performers, reflecting leadership from mega caps.
Meanwhile, the energy sector was among the weakest performers, clipped by a loss in Exxon Mobil (XOM 117.95, -3.37, -2.8%) after its earnings report. Chevron (CVX 165.89, +0.61, +0.4%) was also lower early in the session following its earnings report, but shares settled higher.
Market participants were also digesting the March Personal Income and Spending report that showed solid spending activity, but stalled progress on inflation. The market also received the final reading of the University of Michigan's Consumer Sentiment survey for April (actual 77.2; Briefing.com consensus 77.9; prior 77.9), which showed a weakening from the preliminary reading and an uptick in inflation expectations.
Treasuries had a calm response to the data and settled mostly higher today. The 10-yr note yield declined four basis points to 4.67% and the 2-yr note yield settled unchanged at 5.00%.
- S&P 500:+6.9% YTD
- Nasdaq Composite: +6.1% YTD
- S&P Midcap 400: +4.1% YTD
- Dow Jones Industrial Average: +1.5% YTD
- Russell 2000: -1.2% YTD
Reviewing today's economic data:
- March Personal Income 0.5% (Briefing.com consensus 0.5%); Prior 0.3%; March Personal Spending 0.8% (Briefing.com consensus 0.6%); Prior 0.8%; March PCE Prices 0.3% (Briefing.com consensus 0.3%); Prior 0.3%; March PCE Prices - Core 0.3% (Briefing.com consensus 0.3%); Prior 0.3%
- The key takeaway from the report is the recognition that progress on inflation has stalled. Therefore, market participants should continue to expect the Fed to stall on any rate cut.
- April Univ. of Michigan Consumer Sentiment - Final 77.2 (Briefing.com consensus 77.9); Prior 77.9
- The key takeaway from the report is that consumer sentiment is holding steady despite an uptick in inflation expectations. Presumably, that can be owed to the ongoing strength in the labor market and rising personal income.
Looking ahead, there is no notable U.S. economic data on Monday's calendar.
Stocks holding steady ahead of close
26-Apr-24 15:35 ET
Dow +199.63 at 38285.43, Nasdaq +344.22 at 15955.98, S&P +60.43 at 5108.85
[BRIEFING.COM] The market remains near session highs ahead of the close.
The 10-yr note yield settled four basis points lower today, and five basis points higher this week, to 4.67%.
Looking ahead, there is no notable U.S. economic data on Monday's calendar.
Next week features another huge batch of earnings news. Amazon.com (AMZN), Apple (AAPL), Starbucks (SBUX), CVS Health (CVS), Qualcomm (QCOM), Amgen (AMGN), and others headline the earnings calendar next week.
Nasdaq leads major indices on the week
26-Apr-24 15:00 ET
Dow +216.23 at 38302.03, Nasdaq +332.23 at 15943.99, S&P +60.90 at 5109.32
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
The Nasdaq Composite leads other major indices this week, up 4.4%. The S&P 500 is 2.9% higher on the week.
Gains in mega cap stocks had an outsized impact on index gains through the week, leading the Vanguard Mega Cap Growth ETF (MGK) to a 3.9% gain so far this week.
ResMed, T. Rowe Price ride earnings to top of S&P 500 on Friday
26-Apr-24 14:30 ET
Dow +197.84 at 38283.64, Nasdaq +315.87 at 15927.63, S&P +56.18 at 5104.60
[BRIEFING.COM] The S&P 500 (+1.11%) is in second place on Friday afternoon, up about 56 points.
Elsewhere, S&P 500 constituents ResMed (RMD 217.25, +33.83, +18.44%), Super Micro Computer (SMCI 851.38, +63.98, +8.13%), and T. Rowe Price (TROW 114.42, +5.59, +5.14%) dot the top of the average. RMD and TROW move higher following earnings.
Meanwhile, Fair Isaac (FICO 1,113.58, -80.08, -6.71%) is one of today's worst performers following earnings.
Gold slips this week on easing geopolitical tensions
26-Apr-24 14:00 ET
Dow +234.36 at 38320.16, Nasdaq +352.40 at 15964.16, S&P +63.65 at 5112.07
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+2.26%) rides technology company earnings to gains north of 350 points with about two hours to go on Friday.
Gold futures settled $4.30 higher (+0.2%) to $2,347.20/oz, but sliding -2.8% this week, pressured this week as geopolitical tensions took a bit of a backseat in investors' minds.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $106.03.
Intel's Q1 earnings report only raises more doubts about its turnaround prospects (INTC)
A painful correction in shares of Intel (INTC) is taking a turn for the worse today after the chip maker issued EPS and revenue guidance for Q2 that badly missed expectations, exacerbating concerns that the company has simply fallen too far behind competitors NVIDIA (NVDA), Advanced Micro Devices (AMD), and Taiwan Semiconductor (TSM). Including today's losses, INTC has plummeted by about 36% on a year-to-date basis, reflecting investors' rising doubts that its ongoing transition to a foundry model will return the company to its past glory as a semiconductor juggernaut.
It was only a few months ago that INTC was riding high on a bullish swing in sentiment that was underpinned by a strong recovery in the PC market and hopes that its data center business would begin turning a corner. On both accounts, INTC's Q1 results provided some disappointment, even as the Client Computing Group (CCG) generated strong revenue growth of 31%.
- The growth in the CCG segment could have been even stronger, if not for component shortages at INTC's packaging facilities. While CEO Pat Gelsinger has acknowledged that INTC largely missed out on the initial wave of AI-based demand in data center as NVDA's Grace Hopper GH200 and H200 processors dominate the market, he has made the case that INTC will be at the forefront of AI-enabled PCs.
- That prediction isn't fully materializing, though, because INTC is unable to fully meet the rising demand for its new Core Ultra processors, which are designed to run AI technologies on laptops, due to supply constraints. The good news is that the company expects growth to accelerate in the back half of 2024.
- On the data center side, the news is more discouraging as revenue edged higher by just 5% yr/yr to $3.0 bln in the DCAI segment -- despite lapping a very favorable yr/yr comparison in which revenue dove by 39%. Demand for traditional data center chips continues to be weak as enterprises are still focused on building out AI infrastructure. INTC believes that Q1 represents a bottom and that a recovery in data center will gain steam later this year, but the main focus remains on whether it can make some inroads on the AI side.
- To that end, INTC announced on April 3 that it launched Gaudi 3, its enterprise level AI chip that will compete with NVDA and AMD. Last night, INTC disclosed that it's expecting the Gaudi 3 chip to generate approximately $500 mln in sales this year, which is a drop in the bucket compared to what NVDA is achieving.
- For some context, NVDA's data center revenue soared by 409% yr/yr last quarter to $18.4 bln, driven by its Hopper GPU platform.
- Trying to make up some ground on NVDA is only part of the struggle for INTC. The company's vision of transforming into a contract manufacturer, or foundry, in the semiconductor industry is looking even blurrier.
- On April 3, the company announced a new financial reporting structure that was implemented for the first time in the Q1 earnings report, with the idea being that the new structure will better align INTC with its foundry operating model. In that press release, INTC also disclosed that the foundry business had an operating loss of nearly ($7.0) bln in FY23 as revenue fell by 31% to $18.9 bln.
- The Q1 earnings report further highlighted the troubles for foundry, showing that revenue decreased by 10% to $4.4 bln, while the operating loss worsened to ($2.5) bln from ($1.3) bln in Q4.
- One silver lining is that INTC added another customer for its production technology called 18A, bringing the total number of customers to six. One of those customers happens to be Microsoft (MSFT), so there is some reason for optimism there.
Overall, though, there seems to be more questions than answers for INTC right now and investors aren't willing to stick around for a few years to find out if its manufacturing ambitions will eventually pay off
KLA Corporation heading back to all-time highs after calling a bottom in MarQ (KLAC)
KLA Corporation (KLAC +5%) heads back toward all-time highs as its Q3 (Mar) figures, Q4 (Jun) guidance, and market commentary alleviate recent concerns over a potential deterioration in the demand backdrop this year. While uplifting MarQ results from peer Lam Research (LRCX) yesterday already helped douse some fears triggered by a trio of semiconductor companies, comprised of Taiwan Semi (TSM), ASML (ASML), and Super Micro Computer (SMCI), waving red flags last week, investors were still wanting further affirmation from KLAC that wafer fab equipment (WFE) spending and the overall memory market bottomed out during Q3.
- The inventory rebalancing cycle weighing on fab equipment suppliers like KLAC persisted in Q3, illuminated by another quarter contracting sequential results. KLAC delivered adjusted EPS of $5.26 and revs of $2.36 bln, matching the midpoints of its previous forecasts and representing a 14.6% and 5.2% drop from Q2 (Dec), respectively.
- However, KLAC remained steadfast in its previous expectations that market conditions are stable, supporting its view of noticeable improvements unfolding as it progresses through 2024. The company was also encouraged by the improvements in its customers' businesses across several end markets, supporting demand for leading-edge capacity investments. As a result, management was confident in calling a bottom in Q3.
- This means that growth should return on a qtr/qtr basis going forward. KLAC estimates Q4 adjusted earnings of $5.47-6.67 and revs of $2.375-2.625 bln, translating to modest sequential increases. For CY24, KLAC's high-level outlook remained unchanged, continuing to project WFE spending around $90-91 bln, with a stronger second half of the year than the first. This outlook mirrors what LRCX provided and sets a positive tone ahead of peers' upcoming quarterly results, including NXP Semi (NXPI) and Applied Materials (AMAT).
While KLAC is still facing a volatile demand environment in 2024, investors remain optimistic about a robust recovery in 2025. Management commented that given its conversations with customers, it should enjoy stability alongside rising demand for this year, with the actual build-out emerging in 2025. AI is playing a heightened role in this development. KLAC pointed out the increasing complexity in advanced packaging applications surrounding AI, which will drive demand for its process tool and control products over the long run. However, other end markets that have languished recently, such as personal electronics and automotive, will also need to see demand activity begin picking up for 2025 to be as robust as KLAC and its peers anticipate.
Bottom line, KLAC cleared up some lingering uncertainty surrounding whether demand will remain stable for the remainder of the year or start to contract by officially calling a bottom in Q3. As a result, investors are expressing their increased confidence in relatively smooth sailing ahead, particularly as demand for AI proves unwavering.
Alphabet's strong Q1 results show that it's not just surviving AI emergence, but its thriving (GOOG)
Like Meta Platforms (META), which saw its stock dive lower yesterday after sharply raising its FY24 capex guidance, Google (GOOG) is ramping up its investments to build out its AI technologies, including Gemini 1.5. While both tech giants are benefitting from those investments, GOOG's blowout Q1 results suggest that it's seeing a greater and more immediate impact. In fact, during META's earnings call, CEO Mark Zuckerberg acknowledged that it could take years before the company's investments fully pay off and generate meaningful returns.
That doesn't appear to be the case with GOOG, which beat analysts' expectations across the board, calming investors' and analysts' fears that the emergence of generative AI will sink its bread-and-buter search business.
- In Q1, Google Search and Other revenue increased by 14.4% yr/yr to $46.2 bln, comfortably exceeding estimates. For more than a year, the retail vertical has been a source of strength for Search, particularly in the APAC region, and that continued into Q1.
- YouTube had a very strong quarter, as well, with ad revenue jumping by 21% yr/yr to $8.09 bln, driven by both direct response and brand advertising. Furthermore, Shorts -- which is GOOG's answer to TikTok's short-format videos -- continues to gain traction as the monetization rate relative to viewing has more than doubled in the past twelve months.
- Overall, Google's advertising business saw a solid 13.0% increase in revenue to $61.6 bln, illustrating that advertising spending remains healthy. Perhaps more importantly, though, in the big picture for GOOG, is that the strong performance for Search and advertising indicates that AI may be an asset rather than a threat to the business.
- During the earnings call, Senior Vice President and Chief Business Officer Philipp Schindler explained that AI is a core facet across the ads ecosystem, including in ad targeting, bidding, measurement, and ad creation.
- As an example, Mr. Schindler discussed how Gemini -- GOOG's AI model -- was integrated into Performance Max, the company's automated, AI-powered campaign, in February and has delivered promising results. Currently available to all U.S. advertisers, Performance Max users are 63% more likely to publish a campaign with good or excellent ad strength. Advertisers with excellent ad strength see 6% more conversions, on average.
- Turning to Cloud, AI is having an even more profound effect as revenue increased by 28.5% to $9.57 bln, easily beating expectations, and up from last quarter's growth of 26%. The upswing in Cloud growth is a key catalyst for the stock's surge today because this business has been viewed as a laggard compared to competitors Microsoft (MSFT) Azure and Amazon (AMZN) Web Services.
- AI is playing a major role here, too, as GOOG inroduced Gemini for Meetings and Messaging in Google Workspace, and added Gemini Security for Workspace. Even with these AI-based investments, Cloud's operating income surged by $900 mln from $191 mln in the year-earlier period.
The cherry on top is that GOOG also initiated its first dividend program, declaring a cash dividend of $0.20/share, while also authorizing the repurchase of up to an additional $70.0 bln of stock. Along with its impressive Q1 results, the shareholder-friendly actions are inspiring confidence that GOOG will not only survive in the AI era, but that it will thrive in it.
Microsoft trades higher following MarQ upside; Azure was the star of the show yet again (MSFT)
Microsoft (MSFT +3%) is trading higher after posting an impressive Q3 (Mar) report last night. The software giant reported its fifth consecutive double-digit EPS beat with nice revenue upside. The Q4 (Jun) revenue guidance was generally in-line, maybe a bit light. This was Microsoft's first full quarter to include its recent Activision Blizzard acquisition.
- Let's start with Azure, which was the star of the show. Azure grew +31% CC (constant currency), which was above prior guidance of +28% CC. Not only was it above guidance, but Azure had been settling in the high-20s in recent quarters. It was nice to see Azure break back above 30% CC growth despite a larger base. What's more, the Q4 (Jun) guidance was impressive as well at +30-31% CC.
- Importantly, Microsoft is seeing an acceleration in the number of large Azure deals, including some $1+ bln multi-year commitments. The number of $100+ mln Azure deals increased over 80% yr/yr, while the number of $10+ mln deals more than doubled. A key driver has been AI adoption. Customers use its Azure platforms/tools to build their own AI systems. MSFT says it offers the most diverse selection of AI accelerators, including the latest from NVIDIA, AMD and its own first-party silicon.
- More generally, Microsoft's PBP and Intelligent Cloud segments both reported revenue above the high end of guidance while its MPC segment was at the high end of guidance. In its commercial business, bookings increased 31% CC, significantly ahead of expectations driven by Azure commitments with an increase in average deal size and deal length. In its consumer business, PC market demand was slightly better than expected, benefiting Windows OEM, while ad spend was in-line. In Gaming, MSFT saw better-than-expected performance of Activision titles, benefiting Xbox content and services. Surface demand was slightly lower than expected.
- An area to watch in coming quarters is cap-ex spend and its impact on margins. On the call, MSFT said it expects cap-ex spending will increase materially on a sequential basis in Q4 (Jun) and that FY25 cap-ex spend will be higher than FY24 spend. This will be driven by cloud and AI infrastructure investments. The company is scaling up to meet growing demand for its cloud and AI products. MSFT expects FY25 op margins will be down only about 1 pt yr/yr, even with its significant cloud and AI investments.
Overall, this was another impressive quarter for MSFT. All of its segments performed well, but Azure was the star of the show yet again. We think Azure's performance and its acceleration in the number of large deals bodes well for Amazon's (AMZN) AWS segment, set to report next week (Apr 30). We are not seeing a big reaction in the stock today despite it pulling back in recent weeks. However, the stock is up significantly (+30% since early Oct) in recent months and rising rates have caused some jitters recently in mega tech names. Also, the higher cap-ex spend and its impact on margins may be worrying investors a bit.
Snap bounces back on notable sequential improvements in Q1; ad investments paying off (SNAP)
After trading sideways following lackluster Q4 results in early February, Snap (SNAP +24%) shares are springing back to life today on an upbeat Q1 report. The social media platform, competing with short-form video alternatives such as YouTube Shorts (GOOG), Instagram Reels (META), and TikTok, delivered noticeably better headline numbers in Q1 compared to Q4, topping earnings by a wider margin and returning to double-digit yr/yr revenue growth. SNAP's bright Q2 revenue outlook was even more compelling, which assumed a sustained uptick in daily active users (DAUs).
- Unlike in Q4, SNAP pounced on a healthy advertising market in Q1, expanding total revs by 20.9% yr/yr, a 16 pt jump over last quarter's growth, to $1.2 bln. To start 2024, SNAP was focused on bolstering its advertising infrastructure, illuminated by a 31% hike in its total adjusted cost of revs yr/yr. SNAP ramped up its machine learning (ML) and AI investments to support its direct response (DR) ad platform. As a result, both DR and brand-related ad revs grew across all regions in Q1.
- In North America, revs expanded by 16% yr/yr in Q1, 14 pts higher than in Q4. Likewise, demand in SNAP's Rest of World and Europe regions accelerated at a relatively swifter pace in Q1, partially due to the adverse impact of the war in the Middle East that unfolded during Q4.
- SNAP also reached 422 DAUs, a 10% bump yr/yr and a 2% improvement sequentially, exceeding its 420 mln estimate. SNAP remains a popular platform among younger generations, reaching over 75% of the 13-34-year-old market in around 25 countries, which together comprise over half of the global ad market.
- A notable development highlighting the traction SNAP is gaining with its ad enhancements was an 85% increase in active advertisers from small and medium-sized businesses (SMBs). DR ads helped drive the explosive SMB growth as smaller companies like how this form of advertising diversifies their campaigns and forces users to respond.
- SNAP has also been focused on cost-cutting, including additional layoffs, announcing a 10% reduction in February after a 20% cut in late 2022. The result has been consistently surprising, with an EPS of $0.03 in Q1 when the consensus called for a net loss.
- Looking to Q2, seasonality does come into play during the warmer months for SNAP. Still, it mentioned that progress should continue with its DR business. As a result, the company projected Q2 revs of $1.225-1.255 bln, a +15-18% increase yr/yr, a deceleration of around 3-6 pts from Q1, illustrating the seasonality, but still a modest bump in overall revenue. SNAP's revenue forecast assumes that DAUs will be around 431 mln.
SNAP's Q1 report was a marked jump over Q4, igniting an impressive rally today. GOOG's upbeat Q1 results, sending its shares to all-time highs, are also aiding SNAP's energetic move. Speaking of GOOG, SNAP still operates in a highly competitive field. TikTok, which could be banned in the U.S., has proven how quickly users can gravitate to a different platform, illuminating SNAP's minor, if any, competitive advantage. This dynamic could make it increasingly challenging for SNAP to mount a broader comeback. Shares are still down over 80% from 2021 highs.
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