Palacios Perspectives 02.23.2024

From Wall Street to Main Street

Highlights from the past week

Market / Macro Economic SummaryWhat a week! I came into this week as a nervous wreck because history is littered with countless iterations of stocks that have “run up” or climbed higher into their earnings announcements and report great numbers only to see their stock sell-off. With all eyes on Nvidia’s 220% gain in 2023 and the unexpected additional 40% gain in January and February of this year, I knew they would report good numbers…. but I was concerned over investors’ reactions.  Not only did we get the strong quarter we expected, but we also got higher guidance for the coming quarters!!!  This helped to propel the entire markets and made for a heck of a week!  The Dow Jones gained 1.3%, the S&P500 rose 1.7% and the Nasdaq advanced 1.4%.  We are 90% done with the S&P500 earnings calls and, overall, 78% of the reports have come in beating estimates by an average of 7%.  I will state the obvious once again: the economy is doing well, and I remain optimistic that markets will meander their way even higher.  To be clear though, historically speaking, on average each year sees two 10% corrections as part of normal trading performance.  We might see a decline soon, but this would be more of a “buying opportunity” for cash that has been sitting on the sidelines. Company Specific / Micro Economic Summary Nvidia (NVDA) Shares soared more than 16% and hit a record high after reporting earnings per share of $5.16 and a 265% year-over-year surge in revenue to $22.1 billion, far-above Wall Street forecasts. CEO Jensen Huang credits escalating bullishness over demand for high-end graphics processing units and other types of chips capable of serving advanced artificial intelligence.  Gross margins surged to 76%, an extraordinary number for a hardware company but it highlights Jensen’s leadership as he built CUDA, the software that sits on top of the H100 and other chips as well.  Moving to the profit side, net profit was $12.29 billion. A year ago, net profit was $1.41 billion, so an 872% improvement. The story is still evolving here as we’re in the early cycles of a technology refresh.

Moderna (MRNA) Shares rallied 13% after the biotech company reported an unexpected quarterly profit despite slumping Covid vaccine sales.  Earnings per share of $0.55 cents were much better than Wall Street expectations for a loss of 97 cents. Revenue of $2.81 billion was also much better than the calls for $2.5 billion.  CEO Stephane Bancel highlighted that they’re very excited to see the next FDA regulatory approval coming for an RSV, Respiratory Syncytial Virus, coming in May. Walmart (WMT) Shares were up 4% on the heels of a top and bottom-line beat.  Earnings per share of $1.80 were above the consensus estimates of $1.65.  Revenue grew 5.7% to $173.39 billion and above the calls for $170.21 billion.  CEO Doug McMillion announced the company’s acquisition of TV maker Vizio for $2.3 billion in an attempt to bolster advertising business via its Walmart Connect Platform. Warner Bros. Discovery (WBD) Shares sank 10% after the media conglomerate's fourth-quarter results fell short of expectations.  Earnings per share came in at a loss of 16 cents when analysts were looking for a loss of 7 cents.  Revenue came in at $10.28 billion when estimates were higher at $10.35 billion.  CEO David Zaslav tried to preach a good story of increasing free cash flow and paying down debt, but investors didn’t quite care for that as they wanted to hear about the company’s growth plans. Palo Alto Networks (PANW) Share declined 28% on the back of a strong quarter but weak guidance.  Earnings per share of $1.46 beat calls for $1.30.  Revenue of $1.98 billion was higher than the $1.97 billion analysts expected.  Guidance was a problem for CEO Nikesh Arora as he set expectations for next quarter at an EPS of $1.24-$1.26 when Wall Street expected $1.29.  Revenue was also lower than expectations.  This should serve as a reminder that while past quarter’s performance are usually priced in, stock reactions to earnings are oftentimes more about the guidance and future expectations! Parting Thoughts We welcome an opportunity to discuss the above detail and wish you much success in the rest of your week! Regards, E.Palacios Erick J.  Palacios, MBA Wealth/Financial Advisor

Plan to Prosper Wealth Management’s clients & employees will from time-to-time hold securities mentioned above. Commentary is not endorsements or recommendations of any securities.