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Highlights from the past week

Market / Macro Economic Summary

Markets rebounded in an impressive way this past week.  In as much as economic data allowed for the market to drop the week prior, this week showed a resiliency rarely seen. As GDP data (Gross Domestic Product) came in stronger than expected, it demonstrated the U.S. economy is growing well ahead of estimates. There are two ways to interpret this: one, the Federal Reserve might keep rates higher than expected (which would be a negative) but two, our economy does not need interest rate reductions to stay at these levels. Investors answered the question with an emphatic “yes we like it” to know the economy is growing stronger via their buying up stocks indiscriminately last week.  The S&P 500 index gained 2.7% for the week; the Dow Jones Industrial Average increased 0.7% for the week and the Nasdaq jumped up an impressive 4.2% for the week.

Company Specific / Micro Economic Summary

Verizon (VZ)

Shares declined 3.5% as the telecommunications carrier posted a mixed quarter. Revenue of $33 billion for the quarter, compared with an estimate of $33.24 billion, as phone upgrade levels continued to drift lower. In terms of earnings per share, numbers came in at $1.15 a share, excluding items, three cents more than the consensus forecast of analysts.

General Electric (GE)

Shares fell 3.6% as the industrial posted a quarter that met expectations.  Revenues of $15.3 billion met analyst calls as adjusted earnings came in at $0.82 per share, surpassing consensus estimates of $0.65 per share. Amidst the Boeing current fiasco, GE CEO Scott Culp said, “Moving forward as a focused global aerospace leader, we will continue to prioritize safety, quality, delivery, and cost—always in that order—while also investing in our future and driving long term profitable growth.”

Visa (V)

Shares initially traded 2.5% higher on the heels of a top and bottom-line beat. Revenue: $25.98 billion, vs. $25.46 billion expected. Adjusted earnings per share of $0.83 cents were also higher than the Wall Street estimates of $0.76 cents. The revenue growth of 10% over that last year is another sign that the U.S. consumer is alive and well which bodes well for our economy.

Tesla (TSLA)

Shares rocketed 12% on the heels of a quarter that fell short of expectations but guidance that promised much for the coming year.  Revenue came in at $21.30 billion vs. $22.15 billion expected. Earnings per share of $0.45 cents adjusted were short of the calls for $0.51 cents expected by analysts. CEO Elon Musk committed the company to releasing new models, including a lower-cost model, by early next year.

I want to take a moment here to describe something that is the fundamental basis for why I believe in listening to conference calls (in as much hard work as it entails).  Elon said the company had been constrained in its artificial intelligence efforts.  However, the company now boasts 35,000 active H100 chips/computers working on AI.  He also added he expects to have 85,000 H100s by the end of the year.  Who makes H100 chips, none other than Nvidia!  At a cost of 40,000 per chip….this is $2 billion dollar order for 2024 alone!

Meta aka Facebook (META)

Shares tumbled 12% as the company issued weak revenue guidance that overshadowed its first-quarter earnings beat. Earnings per share of $4.71 on $36.46 billion in revenue for the quarter, exceeding the $4.32 in expected earnings per share and $36.16 billion Wall Street estimates. CEO Mark Zuckerberg told investors to expect slower growth and big spending on AI moving forward, as there isn’t a clear path for how the technology would become a money-maker for the firm, which almost exclusively makes its money through ads.

International Business Machines (IBM)

Shares fell 8% as the company reported a mixed quarter.  Revenues of $14.46 billion fell short of the expectations of $14.55 billion.  Earnings per share of $1.68 adjusted did come in higher than the calls of $1.60. “We see multiple drivers of product synergies within IBM and accelerating growth for HashiCorp,” Jim Kavanaugh, IBM’s finance chief, said on a conference call with analysts. There are short-term cost synergies as well, Kavanaugh said.

AT&T (T)

Shares of the telecommunications giant rose 4% in premarket hours on Wednesday. Revenue increased 2.2% from a year ago to a better-than-expected $32 billion. Earnings per share of $0.47 were lower than the calls for $0.55. CEO John Stankey said, “Customers are choosing AT&T and staying with us. We achieved a record-low first-quarter postpaid phone churn, grew consumer broadband subscribers for the third consecutive quarter, and expanded margins in Mobility and Consumer Wireline.

Chipotle Mexican Grill (CMG)

Shares rose 3% as the company reported a top and bottom-line beat. Revenue of $2.7 billion came in better than the $2.68 billion expected by Wall Street. Earnings per share of $13.37 was much stronger than the $11.68 analysts expected.  The revenue growth of 17.2% year-over-year is impressive as it came on top of a 14% growth the year prior!  The burrito chain said traffic increased 5.4% in its first quarter and the board of directors also approved a 50-for-1 stock split.

Microsoft (MSFT)

Shares rose as much as 5% in extended trading on Thursday after the software maker issued fiscal third-quarter results that outdid Wall Street’s expectations. Revenue of $61.86 billion came in higher than the $60.80 billion Wall Street was looking for. Earnings per share of $2.94 also came in higher than the $2.82 analysts were looking for. Management highlighted that currently, near-term AI demand is a bit higher than our available capacity. They have been increasing its capital expenditures to secure Nvidia graphics processing units for training and running artificial intelligence models.

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