#5things: Before the Bell
Alphabet pops, AMD tanks, Eli Lilly & Caterpillar warn, Reddit record
Hopefully what I write below makes sense as I am home this morning. I’ve been writing this while one of the children screamed for me to come downstairs to help them put a dress on a doll. This went on for about 20 minutes until the child suddenly became aware that her father was right next to her and might be able to provide some assistance. It must have come as a surprise to my husband as well who was standing next to her the whole time but apparently unaware of the doll’s wardrobe crisis.
Your ABCs: Shares of the parent company of Google are up 6% right now after earnings beat expectations, sales grew 15%, margins expanded, and cloud revenue came in much higher than last quarter (+35% vs 29% last quarter). Furthermore, AI is helping Google gain traction in search. “This proved to be the most important quarter for (Alphabet) in 7-10 years,” said Gene Munster of Deepwater Asset Management, “Given it showed Search revenue is benefiting from generative AI.” He expressed surprise the stock is only up 6% right now. Perhaps it is due to lingering regulatory concerns. “While we remain concerned by risks related to the DOJ Search trial,” wrote Evercore’s Mark Mahaney, “We think (Alphabet) is making a compelling case for the company’s continued leadership in the AI era.” Even with the rally today it is still about 7% off its all-time high and trades at an undemanding 24x earnings.
Taking your lumps: Chipmaker AMD is down about 8% in the pre-market even as data centre revenue surged 122% to a record $3.5 billion. This was well above expectations. So what gives? It is all about the forecast. Forecasted growth was just in-line with expectations and that’s just not going to cut it in the AI world. Even worse, management said production can be “lumpy”. Investors don’t want lumps. Stifel was out with a note this morning telling investors not to worry about the lumps. “While management noted that data centre infrastructure builds at a handful of large customers can, at times, be lumpy,” Stifel analyst Ruben Roy wrote, “We continue to expect significant growth, particularly in the 2H of the calendar year.” The rally in AMD this year has paled in comparison to larger rival Nvidia. Shares of AMD are up just 20% this year compared to Nvidia which is up 193%.
Slimmed down: Shares of weight-loss drug maker Eli Lilly are shedding the pounds this morning down more than 7%. The maker of not-Ozempic has seen a meteoric 50% jump in shares so far this year on an insatiable appetite for their version of weight loss drugs. But in a surprise move today Eli Lilly reported worse profit and sales than expected and slashed its profit outlook. The company says sales were weaker for Mounjaro and Zepound because of inventory decreases in its wholesale channel. The results are hot off the press so I’ll watch for any downgrades or analysts recommending you buy the dips. Shares of Novo Nordisk are down 4% in sympathy.
Tug of war: We’ve got two influential Dow components trading in different directions right now. Shares of Caterpillar are down about 3% after profit missed expectations and cutting its sales forecast. Caterpillar is warning sales will be weaker than expected as demand for heavy machinery struggles under the weight of high interest rates and sticky inflation. Caterpillar recently traded near all-time highs which is a bit of a head scratcher given China has been weaker (sales in Asia have fallen 5 quarters in a row). They’ve been able to offset that thanks to stimulus in the US, but North American sales this quarter fell. Worse, sales in every business segment declined quarter over quarter. Shares of Visa, on the other hand, are up as profit and sales for the quarter came in above expectations.
R/wallstreetbets: Shares of Reddit and Snap are surging right now. The smaller-cap tech stocks are punching above their weight after results bested expectations. Reddit is up a whopping 20% and poised to open at an all-time high after sales grew nearly 70%, it reported a profit for the first time ever, and daily active users surged 47% to more than 97 million. Its forecast came in higher than expected, but investors are paying up for it. Reddit trades at 11x sales. The parent company of Snapchat is also popping 10% although it is still well off its highs (this was an $80 stock at the height of the pandemic and is poised to open at $12/share today). Sales increased 15% and daily active users grew to 443 million. More and more people are paying for their accounts as the Snapchat+ subscriber base grew to 12 million. Just don’t ask me what they are paying for.