Week ending May 30th, 2025
From Wall Street to Main Street
Highlights from the past week
Market / Macro Economic Summary Markets closed out the month of May on a positive note and demonstrated a tremendous come back from the April 8th lows. The S&P 500 is 18% higher since that date while the Dow Jones is up 12.28% and tech-heavy Nasdaq has led the rebound with an impressive increase of 24.78%. On the year, the S&P is up 0.5% while the Dow and Nasdaq are both down less than 1% each! This week marked the beginning to the end of the Q2 quarterly reports. While tech earnings have been a bright spot more importantly they have eased concerns that AI spending might slow. Tech companies remain committed to innovation, seeing attractive returns, and this optimism fueled May's stock market rally in technology and growth sectors. On the tariff front, the "tit-for-tat" continues, meaning uncertainty is here to stay for a while longer. Investors may need more patience before a stable trade policy emerges, with potential clarity around the July 9 and August 12 tariff-pause deadlines. So far, companies have largely navigated tariff uncertainty, keeping prices contained by building inventories. This was reflected in April's PCE inflation, which came in at 2.1% year-over-year, inching closer to the Fed's 2.0% target. However, we could see some goods price increases and a potential softening in economic and earnings growth in the coming quarters as companies adjust to a higher-tariff regime. The good news? We believe peak tariff rates and fear are likely behind us. Company Specific / Micro Economic Summary Nvidia (NVDA) Nvidia's latest quarterly report showcased continued robust growth, significantly driven by its data center business, which saw a remarkable 73% year-over-year increase in sales of AI chips and related components, leading to a 69% overall revenue surge to $44.06 billion, exceeding analyst estimates. This strong performance, reflected in the stock's approximately 4% rise in extended trading to near record highs, underscores the immense global demand for AI infrastructure, with large cloud providers making up nearly half of the data center unit's revenue and key partnerships like Microsoft deploying tens of thousands of Nvidia's advanced GPUs for AI applications. However, the report also highlighted a significant impact from U.S. export restrictions on China-bound H20 chips, costing Nvidia an estimated $8 billion in lost sales for the current quarter, prompting a $4.5 billion charge for excess inventory, and leading CEO Jensen Huang to declare the $50 billion China AI chip market "effectively closed to U.S. industry," which negatively impacted the company's gross margin. Despite these geopolitical headwinds, Nvidia's underlying business remains incredibly strong, with sustained demand for its AI technology fueling aggressive growth and even its gaming division seeing a healthy 42% annual increase, demonstrating the company's enduring market leadership in the rapidly expanding AI landscape. Earnings per share of $0.96 cents also beat the expectations of $0.93 cents. I continue to believe the stock remains an important component in any long term portfolio. Salesforce (CRM) Shares fell 6% despite the company reporting a strong quarter. Salesforce exceeded analyst expectations in its latest quarterly report, with adjusted earnings per share of $2.58 against an estimated $2.54, and revenue reaching $9.83 billion compared to a forecast of $9.75 billion, representing a 7.6% year-over-year growth. Looking ahead, the company provided optimistic guidance for the fiscal second quarter, expecting adjusted earnings per share between $2.76 and $2.78 on revenue of $10.11 billion to $10.16 billion, both above LSEG estimates of $2.73 and $10.01 billion respectively. Salesforce also raised its full-year forecast, projecting adjusted earnings per share of $11.27 to $11.33 and revenue between $41.0 billion and $41.3 billion, signifying a positive outlook despite the ongoing impacts of tariffs and a newly announced $8 billion acquisition of data management company Informatica to bolster its AI capabilities. This was a bit of headscratcher as often when a company reports a strong quarter and guides higher, it tends to rise in price. Costco (COST) Share were slightly lower as the latest quarterly report revealed a mixed bag, with the warehouse retailer surpassing analyst expectations on both earnings per share and revenue. The company reported adjusted earnings per share of $4.28 against an anticipated $4.24, and revenue reached $63.21 billion, narrowly beating the $63.19 billion estimate. Despite these positive figures and an 8% year-over-year sales gain, including a nearly 16% rise in e-commerce, the company acknowledged that tariffs are leading to higher costs and supply chain adjustments, potentially necessitating price increases. While Costco doesn't provide an annual outlook, CEO Ron Vachris noted that its business model, characterized by competitive pricing and bulk discounts on staples like gas and groceries, could benefit as economic worries drive more customers to seek value. One item to keep in mind for the retailer, about one-third of its U.S. sales stem from imported goods, 8% of which are from China. This is of course something to keep an eye on as the tariffs are solidified. Dell Technologies (DELL) Share rose 2% as the company’s latest earnings report presented a mixed financial picture. Earnings per share at $1.55 fell just short of the estimated $1.69 by Wall Street analysts. Revenues came in at $23.38 billion against a forecast of $23.14 billion. However, Dell's forward guidance was notably strong, anticipating adjusted earnings per share of $2.25 and revenue between $28.5 billion and $29.5 billion for the current quarter, significantly exceeding LSEG estimates. This optimistic outlook is attributed to an expected $7 billion in high-margin AI systems shipments, with the company reporting a robust backlog of $14.4 billion in confirmed AI system orders. For the full year, Dell maintained its revenue forecast at approximately $103 billion but raised its adjusted earnings per share outlook to $9.40. The company's Infrastructure Solutions Group, housing its server business, saw a 12% sales increase to $10.3 billion, driven by "unprecedented demand" for AI systems, while its Client Solutions Group (laptops and PCs) recorded $12.5 billion in sales as the global PC market begins to recover. Additionally, Dell significantly ramped up its shareholder capital return, spending $2.4 billion on share repurchases and dividends during the quarter. Zscaler (ZS) Shares were up 8% as the company delivered a strong quarter, with revenue reaching $678 million, a 23% year-over-year increase that surpassed analyst estimates of $667.1 million. The cybersecurity firm also exceeded profit expectations, reporting adjusted earnings per share of $0.84 against a consensus of $0.76. This performance was bolstered by robust customer metrics, including strong growth in customers generating over $100,000 and $1 million in annual recurring revenue, alongside impressive 25% year-over-year growth in calculated billings to $784.5 million. Zscaler's strategic focus on Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations is proving successful. These segments are nearing $1 billion in annual recurring revenue, driven in part by a massive surge in enterprise AI/ML tool usage. Reflecting this confidence, management raised its fiscal 2025 guidance, now forecasting revenue between $2.659-$2.661 billion and adjusted EPS of $3.18-$3.19. The company is further solidifying its market position through key leadership appointments and the pending $675 million acquisition of Red Canary to enhance its AI-powered security operations. Parting Thoughts We welcome an opportunity to discuss the above detail and wish you much success in the rest of your week! Regards, Erick J. Palacios, MBA Wealth/Fiduciary Advisor