US stocks rallied late in the day on Wednesday as investors counted down to high-stakes earnings from AI darling Nvidia (NVDA) and digested the release of Federal Reserve minutes which reiterated the central bank’s focus on not cutting interest rates too soon.
The S&P 500 (^GSPC) rose more than 0.1%, while the Dow Jones Industrial Average (^DJI) popped about 0.1%, or almost 50 points. The tech-heavy Nasdaq Composite (^IXIC) led the way lower, down 0.3% on the heels of Tuesday’s declines.
Stocks are lagging, with the focus fixed on looming results from Nvidia, whose shares fell almost 3% on Tuesday for their worst day since Oct. 17 as investors positioned for the release. The stock extended that loss on Wednesday, falling more than 3% heading into its earnings release. Expectations are running high for the chipmaker’s fourth quarter results, seen both as a barometer for the AI trade and as a potential turning point for stocks more broadly.
In corporates, shares of Palo Alto Networks (PANW) tumbled over 28% after the cybersecurity provider cut its annual revenue forecast, igniting concerns about a potential pullback in tech spending. Meanwhile, Walgreens shares (WBA) slid as much as 3% after the pharmacy giant lost its spot on the blue-chip Dow index to Amazon (AMZN).
Minutes from the Fed’s January meeting released on Wednesday showed most Fed officials “noted the risks of moving too quickly” in easing interest rates during the most recent meeting. Recent discouraging data has prompted a wavering in conviction that the central bank will cut rates in June, seen as the most probable timing.
After the closing bell, Nvida reported fourth quarter earnings, and first quarter revenue guidance, that exceeded Wall Street’s lofty expectations. The company guided for first quarter revenue of $24 billion plus or minus 2%, above Wall Street’s projections for $21.9 billion. Shares rose as much as 7% in after hours trading.
LIVE COVERAGE IS OVER14 updates
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Nvidia tops Wall Street’s expectations with quarterly earnings, notes slowdown in China sales
Nvidia reported fourth quarter earnings that topped Wall Street’s lofty expectations on Wednesday afternoon but noted its data sales to China declined significantly.
The company’s fourth quarter adjusted earnings per share of $5.16 topped analyst expectations for $4.64. Meanwhile, fourth quarter revenue of $22.1 billion came in higher than analyst projections for $20.4 billion.
The company also guided higher than analysts’ expectations for the first quarter, saying it anticipates revenue of $24 billion plus or minus 2%. Wall Street was expecting $21.9 billion for quarter.
Shares of Nvidia climbed about 2% following the report.
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Stocks rally late in day, S&P 500 closes in the green
US stocks rallied late in the day on Wednesday as investors counted down to high-stakes earnings from AI darling Nvidia (NVDA) and digested the release of Federal Reserve minutes which reiterated the central bank’s focus on not cutting interest rates too soon.
The S&P 500 (^GSPC) rose more than 0.1%, while the Dow Jones Industrial Average (^DJI) popped about 0.1%, or almost 50 points. The tech-heavy Nasdaq Composite (^IXIC) led the way lower, down 0.3% on the heels of Tuesday’s declines.
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Don’t panic over the ‘short-term story’ of Nvidia earnings, strategist says
Earnings results from the AI leader Nvidia (NVDA) are set to hit the tape after the close on Wednesday. As we’ve covered extensively over the last few days, these results are expected to be a litmus test for the AI narrative, and perhaps the current market rally as whole.
Given the stock’s more than 200% rise over the past year, even if the company tops its massive expectations, investor appetite for the stock trading near all-time highs will serve as litmus for investor’s risk appetite.
But Yardeni Research President Ed Yardeni cautioned that investors shouldn’t read too far into Wednesday’s report, even if it proves to be a market moving event.
“It’s a very short-term story,” Yardeni said.
Yardeni, who has a 5,400 year-end target on the S&P 500 for 2024 and sees the benchmark index reaching 6,500 by the end of 2026, believes AI will play a role in that rise. But it’s not the whole story.
“[Nvidia’s report] is obviously viewed as a big deal,” Yardeni said. “But overall there’s more going on in this economy than just Nvidia or artificial intelligence. The reality is that the eocnomy proves to be remarkably resilient. It continues to grow at a good pace. Inflation’s come down despite the fact that the unemployment rate remains below 4%.
“So it’s been a great economy and the stock market reflects that. I don’t think the AI story, is the entire story here.”
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Trending tickers Wednesday afternoon
Palo Alto Networks (PANW) led the Yahoo Finance trending tickers page on Wednesday afternoon as shares tumbled more than 28% after the company’s latest quarterly results were released on Tuesday afternoon. The cybersecurity company, whose stock had risen more than 100% over the past year, missed Wall Street’s expectations for current year revenue guidance. Palo Alto guided for full-year revenue in a range of $7.95 billion to $8 billion, below analyst expectations for $8.18 billion.
Shares of fellow cybersecurity companies Crowdstrike (CRWD) and Zscaler (ZS) also sold-off on the news, falling more than 10% after Palo Alto’s report.
Meanwhile, Teladoc Health (TDOC) shares fell more than 25% following the company’s latest quarterly results release. Teladoc’s earnings per share and revenue guidance for 2024 fell short of Wall Street’s estimates as CEO Jason Gorevic described the telehealth market as “fairly well-penetrated.”
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Fed minutes show ‘most’ officials acknowledge ‘risks of moving too quickly’ on rate cuts
The minutes from the Federal Reserve’s January meeting, released on Wednesday, showed officials remain cautious on cutting interest rates too soon.
“Most participants noted the risks of moving too quickly to ease the stance of policy,” the minutes said.
Meanwhile, only a “couple” officials highlighted the downside risks of holding policy in a restrictive stance.
The major stock averages ticked down slightly after the minutes reiterated many of the same talking points Fed officials have recently been touting, including that further confidence is needed that inflation will continue on its path downward.
Markets are continuing to price in the first interest rate cut in June. As of Wednesday afternoon, investor bets placed a 73% chance that the central bank cuts interest rates in June, per the CME FedWatch Tool.
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No Dip-Buying in Palo Alto Networks
It’s a brutal day for Palo Alto Networks (PANW) and its cast of cyber-security rivals.
In fact, there has been very little dip-buying in the stock judging by the action all day. The ticker has also remained tops on Yahoo Finance since this morning.
Shares of the cybersecurity play — and AI investor favorite — are selling off by close to 30% amid a shift in growth strategy towards free incentives that has sparked concern on the Street.
But, Advisors Capital Management Partner JoAnne Feeney cautioned the steep selloff isn’t a sign of weakening AI demand. And in fact, investors should use the dip in share price as an opportunity to ‘get in.’
Bold, and indeed contrarian on a day like this for Palo Alto.
“You have a lot of short-term holders that recognize the next few months could be bumpy…. There’s questions about how much growth they can generate because of this shift in strategy,” Feeney told me on Yahoo Finance Live. “But when you look into that shift, and what it portends for the future, it’s a lot more potential to take market share.”
Ultimately, the stock is on track for its biggest intraday drop on record. Rivals Crowdstrike (CRWD), Fortinet (FTNT) and Zscaler (ZS) also declined on the results as investors brace for Palo Alto-like warnings.
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A new era of the streaming bundle has arrived
Media companies like Disney (DIS) and Warner Bros. Discovery (WBD) used to compete for subscribers to their streaming services. Now, they are looking to team up too.
Disney’s ESPN, Warner Bros. Discovery, and Fox (FOXA) announced they would launch a sports streaming service this upcoming fall. Meanwhile, Paramount (PARA) and Peacock owner Comcast (CMCSA) have held discussions about a potential joint streaming venture, according to a report in the Wall Street Journal.
The developments come as media companies face pressure from investors to scale their streaming services and achieve profitability. At the same time, the companies are dealing with more competition from tech giants like Amazon (AMZN) and Apple (AAPL), which are gobbling up streaming deals.
“Big tech is now in this game,” Jon Christian, executive vice president of digital media supply chain at Qvest, a media and entertainment-focused consulting company, told Yahoo Finance. “These are highly diversified businesses that have a lot of money. It’s a much different set of competitors for these legacy networks and studios.”
As a result, consolidation through mergers and acquisitions or partnerships is the only way for these traditional players to compete, according to Christian.
“At the end of the day, you have to look at the consumer and ask, ‘What is the least amount of friction for the end user to be able to view my content?'” he said.
The concept of bundling isn’t new. Companies in the space have been doing it with their own services. The move toward partnerships among competing media companies, though, represents a clear strategy shift.
“It’s more of an evolution as the industry matures, and the focus has become on maximizing profits,” Morningstar analyst Matthew Dolgin told Yahoo Finance.
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The Dust Settles on Roku…
Ugly.
Brutal 32% sell-off in Roku (ROKU) over the past week (Nasdaq off by 2% roughly…before those Nvidia earnings) on fears Walmart’s (WMT) Vizio (VZIO) deal will hammer Roku’s account numbers and bottom line. Roku founder Anthony Wood – who owns 14% of the company –has seen his networth tank about $400 million year to date.
Tough being a wealthy person, ain’t it?
The question now some on the Street are asking is what in the world do you with Roku’s damaged stock? Digging through enough equity research on the company and I don’t think anyone has the answer yet!
But, I believe JP Morgan analyst Cory Carpenter (who downgraded his rating…today) has a solid view on where things stand:
“The Walmart & Vizio tie-up makes Vizio a stronger competitor, and we’d expect Walmart to switch its house TV brand (onn.) from Roku’s operating system to SmartCast. We believe onn. is likely one of Roku’s bigger TV partners after TCL, and for reference Roku has 30+ TV partners globally. However, we’d be surprised to see any material Roku active account impact until perhaps early 2025, with the VZIO acquisition not expected to close until 2Q, after which onn. TVs need to be integrated with VZIO’s SmartCast operating system. We are less worried about Roku Device revenue impact, despite Walmart historically accounting for ~30% of Roku Device revenue (Amazon + Walmart = 59% of 2022 Device revenue; we assume a roughly equal split).
We expect Walmart to continue carrying Roku products, and while shelf space could be compromised, in our view other retailers (i.e., Target, Best Buy) are likely to be less keen to promote Walmart-owned Vizio TVs, potentially resulting in improved Roku shelf space at their locations. Said succinctly, we see minimal risk to our 2024 Roku estimates from the Walmart & Vizio tie-up, but we recognize the combination of Roku guiding to decelerating Platform growth and overhangs from Amazon Prime AVOD + Walmart/Vizio integration could limit share upside in the near-term. However, we remain bullish on the secular growth of connected TV and Roku’s longer-term monetization opportunity as ad dollars increasingly shift from linear to streaming, and in our view Roku’s recent pull-back presents a compelling entry point for longer-term investors.”
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The waiting is the hardest part
The story in markets on Wednesday won’t come until after the closing bell.
Nvidia, the leader of the AI hype-cycle is slated to report quarterly results after the market close and the company has sky-high expectations to meet.
Consensus projects Nvidia to report earnings per share of $4.60 and revenue of about $20.4 billion. That would mark year-over-year growth of 422% and 236%, respectively.
Those lofty projections come after Nvidia has consistently topped expectations by a wide margin since its blowout report last May. Nvida’s stock itself has run up more than 200% in the past year and the story behind it has sent the stock market into an AI-driven frenzy.
The company’s influence has been wide ranging. It’s investments in smaller AI plays have caught attention and recently sent shares of SoundHound (SOUN) up nearly 60% in a day. It’s overall talk of AI demand, has had investors betting on what could be the next AI winner and sent shares of company’s like SuperMicro Computer (SMCI) and Palantir (PLTR) roaring.
But this could come with a cost, too, if the company fails to meet expectations. And that’s what Wall Street will be watching for on Wednesday night.
Interactive Brokers chief strategist Steve Sosnick told Yahoo Finance’s Madison Mills that the report could be “very difficult” for markets.
“If Nvidia misses or just fails to hit a home run … that can have a gravitational effect on the whole market,” Sosnick said.
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Big Food Pitches Investors Down in Florida
Big Food is itching to hit the reset button on its narrative with investors, who have soured on the group amid the spread of the Ozempic craze and consumers balking at still inflationary prices.
Enter CAGNY, more formally known as the annual Consumer Analyst Group of New York conference.
The event is well underway in Boca Raton, Florida, where major packaged food brands with juicy dividend payouts such as PepsiCo (PEP), Coca-Cola (KO), Hershey’s (HSY), Conagra Brands (CAG), Molson Coors (TAP), among others are presenting.
While the conference is set to run through Friday, I have spotted a few early themes from being here on the ground chatting up sources and sitting in on presentations:
Eyes on Volume: As Americans pull back on just how much they’re buying because of high prices (see chocolate), the volume recovery is in focus. Execs at both General Mills (GIS) and Conagra were “hesitant to comment on whether fiscal 2025 (beginning in June) could be a return to growth in line with long-term targets,” Evercore ISI analyst David Palmer wrote in a note to clients from the event.
Hershey and Mondelēz (MDLZ) called on “price pack architecture” with different size and price point offerings, as another potential growth lever. “We’ve always capitalized on having different price points, different pack sizes so that there’s accessibility for everyone,” Hershey CEO Michele Buck said.
Innovation as well as marketing with new partners, are other key tactics to re-engage consumers. Hershey’s, for example, excited the crowd with NBA legend Shaquille O’Neal in attendance to announce a tie-up to “win” in the gummy segment, the fastest-growing sweets segment. Conagra Brands shared that Dolly Partons’ baking line is expanding into frozen shelves.
The Potential for Deals: M&A chatter is alive and well, not too far removed from Campbell Soup’s (CPB) big deal for pasta sauce maker Sovos Brands and J.M. Smucker (SJM) buying Twinkie king Hostess Brands.
While no major announcements were made (yet), many companies are teasing that they’re open to the idea of deals, but are waiting for the right company to come along at the right price.
It may not be a traditional acquisition one would think though. Mizuho Securities managing director John Baumgartner told me that similar to Walmart’s acquisition of Vizio this week, perhaps you could see “food staples companies acquiring differentiated tech companies” to gain a deeper understanding of consumers.
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Addition of Amazon helps Dow Jones stay ‘relevant’
The Dow Jones Industrial Average (DJI^) just got more relevant.
On Tuesday night S&P Dow Jones Indices announced Amazon (AMZN) will replace Walgreens Boost Alliance (WBA) in the benchmark index. The change is set to go into effect before the market opens on Monday Feb. 26.
“The index needs to stay relevant and reflect the higher end of US markets and Amazon was a natural selection at this point,” Howard Silverblatt, S&P Dow Jones Indices senior index analyst told Yahoo Finance Live.
He added: “For the average investor it will mean that the index is more reflective of consumer selections at this point in time.”
The swap of tech giant Amazon for Walgreens adds exposure to a variety of areas for the index. Amazon’s wide range of industry’s including cloud computing, artificial intelligence exposure, healthcare and e-commerce shopping for everyday products far exceeds the reach of the traditional pharmacy brand in Walgreens. This, Silverblatt, was crucial in influencing the switch.
“[Amazon is] developing and giving you exposure to a few other fields where we would’ve wanted to increase on it,” Silverblatt said. “But mostly you’re dealing with the consumer, the retail sector, where the bulk of [Amazon] is right now. And that’s a positive because the consumer is the biggest part of the economy.”
Silverblatt highlighted that unlike the S&P 500 which rebalances every quarter, the Dow Jones doesn’t reshuffle the 30 companies within its index frequently. In the 120 year history of the Dow, there have only been 60 changes, per Silverblatt.
But one reason a company can be swapped out of the index is a deterioration in its stock price. Walgreens has seen that over the last several years with shares down nearly 70% over the last five years, while Amazon is up more than 100% in that same time frame.
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Stocks open lower ahead of Nvidia earnings
US stocks slipped on Wednesday as investors counted down to high-stakes earnings from AI darling Nvidia (NVDA) and the release of Federal Reserve minutes that could set hopes for interest rates.
The S&P 500 (^GSPC) dropped roughly 0.3%, while those on the Dow Jones Industrial Average (^DJI) shed 0.4%. The tech-heavy Nasdaq Composite (^IXIC) led the way lower, down 0.5% on the heels of Tuesday’s declines.
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TrendWatch: Here Comes Talk of Deflation
From inflation to the opposite of inflation.
Deflation is starting to creep up into the conference calls and presentations of consumer companies. It’s also starting to impact top-line sales trends as prices, well, deflate.
Where we have heard deflation used already this week:
Tuesday’s Home Depot Earnings Call: Deflation was mentioned six times on the conference call.
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“Deflation from core commodity categories negatively impacted our average ticket by 35 basis points during the fourth quarter, driven by deflation in lumber and copper wire. During the fourth quarter, we continued to see, on average, a decline in lumber prices relative to a year ago.” -Billy Bastek, executive vice president of merchandising at Home Depot (HD)
Tuesday’s Walmart Earnings Call: Deflation was mentioned two times on the conference call:
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“During our Q3 call, I mentioned that we might find ourselves in a deflationary position early in calendar 2024. In Walmart US, we’re there in general merchandise, but the slope of the decline softened during Q4, meaning the prices are lower than a year ago, but not as much as the trend line would have suggested at the end of Q3. We saw the trend line for food and consumables in Walmart US soften too, resulting in our retail prices in food and consumables being slightly higher than a year ago.” Doug McMillon, Walmart (WMT) CEO
This is a topic I plan to dive into at 10:40 a.m. ET on Yahoo Finance Live in a chat with the CEO of Mondelez (MDLZ), Dirk Van de Put. The Oreo maker’s sales outlook at the CAGNY conference (where Yahoo Finance’s Brooke DiPalma has been stationed this week, firing off these interesting insights) yesterday suggests it’s poised to overcome deflation in 2024, but more to come from our interview soon.
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Palo Alto Networks gets pummeled
If you could only hear the chatter very early in the morning in the Yahoo Finance newsroom on one of the more favorite tickers on our platform, lightning-hot tech play Palo Alto Networks (PANW)…
The a.m. team seems to be of the view that Palo Alto Networks is unstoppable (which is probably in line with a lot of you who have traded this name in the past two years). I get it: The stock gained 377% in the past five years before the 22% premarket, post-earnings drubbing today. Palo Alto’s meteoric stock price has been supported by strong rates of growth amid demand for cybersecurity products.
But I reminded the team that several things appeared to change fundamentally around Palo Alto Networks last night. And if you put them together, the steep sell-off looks warranted, and the stock may stay capped in the near term until investors get more comfortable.
For one, the company’s billings outlook was 10% below consensus expectations. Palo Alto Networks said it’s seeing some federal demand softness. I fancy there is more here, though — specifically around demand softness from big companies — akin to what we heard from Cisco (CSCO) last week (it’s also in the cybersecurity business).
And two, Palo Alto Networks surprised the Street via a new pricing strategy. It’s one that could impact profit margins this year and perhaps into 2025.
The strategy shift reflects Palo Alto Networks more aggressively trying to gain market share by giving customers short-term access to solutions for “free.”
“This pricing/bundling/consolidation strategy can weigh on results over the next 12-18 months,” warned Stifel analyst Adam Borg in a client note this morning.
Welcome to the show-me story zone, PANW.
