An important week of the just-concluded first quarter earnings season, where tech giants such as Amazon (AMZN), Apple (AAPL), Meta (FB), Google parent Alphabet (GOOG, GOOGL) and Microsoft (MSFT), among others, reported their results which either confirmed what the market assumed about the state of their businesses or allayed concerns about their ability to maintain their level of dominance. Overall it was a mixed bag.
In Alphabet’s case, its first-quarter earnings fell short of Street’s expectations, sending the stock down to 52-week lows. Amazon also fell 14% on its results after the company said its cash flow fell 41% from a year ago to $39.3 billion. The stock traded at nearly 40 times operating cash flow, which became extremely expensive following the results. Conversely, there are Microsoft and Meta, which impressed the market with better than expected numbers.
Meta, which was suffering because of TikTok, demonstrated that it could further increase the number of users among its family of applications. He also decided to cut operating expenses, which analysts applauded. In the case of Microsoft, the company has forecast double-digit revenue growth for its next fiscal year. For some investors, this scenario between good and bad has created buying opportunities, especially at Amazon. For others, the outlook remains too hazy to buy a dip during this selloff.
Although it is still early days and more than halfway through the earnings season, the outlook provided by companies so far suggests that rising inflation and interest rates are manageable. But Friday’s stock performance did not reflect that optimism. The Dow Jones Industrial Average was punished again on Friday, falling 939.18 points, or 2.77%, to end the session at 32,977.21. There was no place to hide. All components of the Dow were in red.
The S&P 500 lost 155.57 points, or 3.63%, ending at 4,131.93, while the tech-heavy Nasdaq Composite lost 536.89 points, or 4.17%, to close at 12,334 .64. The Nasdaq came under pressure from Amazon’s aforementioned 14% decline, which drove all FAANGs lower. Will the mixed-low growth trend continue through Q1 earnings season? That remains to be seen. As noted, inflation and rising interest rates will continue to dominate the headlines.
Friday’s stock selloff also suggests that investors remain uncertain about the direction of the economy and the short- and long-term impact of monetary policy decisions. In the meantime, will the “wait-and-see” approach continue to work or will dwindling buyers finally enter the fray? I suspect that question will be answered by the end of this earnings season.
Here are the gains I will be watching this week:
Advanced micro-systems (AMD) – Post-closing reports, Tuesday, May 3
Wall Street expects AMD to earn 91 cents per share on revenue of $5.52 billion. That compares to the year-ago quarter where earnings were 52 cents per share on $3.44 billion in revenue.
What to watch: Despite continuing headwinds with chip supply chain challenges, AMD continues to deliver strong operating results, suggesting issues with rivals such as Intel (INTC) are the their. Nonetheless, Intel’s disappointing first quarter results last week dragged the entire industry down, dragging AMD down with it. A weak PC market forecast by Intel is seen as a pressure point for chip stocks. However, for AMD, the company saw revenue growth of nearly 50% in the fourth quarter, while EPS jumped 77%. Unlike its main rival, AMD has demonstrated strong operating leverage as it is able to grow its profits at a faster rate than its revenues. Additionally, as rivals struggled with a tight chip supply market, AMD used this momentum to boost margins. Notably, this strong total revenue did not include the impact of the Xilinx acquisition that AMD closed in February 2022. As such, after beating revenue and profit estimates in Over twelve consecutive quarters, AMD stock, which is down 37% year-to-date and 26% six months from now, deserves more respect than it currently receives. Assuming the company’s growth metrics remain intact in the first quarter, this would present an excellent buying opportunity for AMD shares.
Lyf (LYFT) – Reports after closing, Tuesday, May 3
Wall Street expects Lyft to lose 7 cents a share on revenue of $846 million. That compares to the year-ago quarter when it posted a loss of 35 cents per share on revenue of $608.96 million.
What to watch: There are still tons of catalysts to propel Lyft higher and support long-term growth. Along with healthy GDP growth, there is a noticeable shift in discretionary consumer spending away from goods towards areas such as travel, dining and entertainment. Rising inflation is one of the reasons. While this is a headwind for consumers, it should benefit Lyft, as well as the rebound in business travel. Yet the ridesharing pioneer’s actions ignored these potential signals. The stock is down 21% since the start of the year and 47% over the past 12 months. Admittedly, the company didn’t enthuse investors when it released first-quarter guidance in its latest earnings report, which called for a sequential decline in revenue of 12% to 18%, while its adjusted earnings from the first quarter would be between $5 million and $15 million. In some context, that would be a significant drop from $75 million in the fourth quarter. Investors will keep a close eye on these measures on Tuesday. For the stock to rebound, Lyft must not only deliver a pace of growth and profitability, but also bullish guidance that paves the way to stronger profitability.
Modern (mRNA) – Reports before the open, Wednesday May 4
Wall Street expects Moderna to earn $5.21 a share on revenue of $4.62 billion. That compares to the year-ago quarter where earnings were $2.84 per share on $1.94 billion in revenue.
Watch: Can Moderna still deliver healthy returns? Given that Covid-19 numbers have plummeted globally, the assumption is that Moderna will struggle to grow revenue. The company believes, however, that Covid-19 is moving towards an endemic phase which will still require the use of Spikevax, among other vaccines. Moderna forecasts approximately $22 billion in sales from Spikevax this year, along with strong commitments for 2023. Additionally, the company’s product portfolio, which utilizes its messenger RNA (mRNA) technology, has several candidates that may marketed to support long-term growth. . Candidates include drug development for flu and HIV vaccine. In total, under mRNA technology, Moderna has more than three dozen programs in development that are in clinical development. So while the stock price has come under heavy selling pressure, down 60% in six months and 44% since the start of the year, Moderna’s business fundamentals are still intact. Still, investors are eager to hear what the company has to say on Wednesday about its near- and long-term growth expectations.
Nio limited (NIO) – Post-closing reports, Friday, May 6
Wall Street expects Nio to post a loss per share of 13 cents on revenue of $1.49 billion. That compares to the year-ago quarter when it posted a loss per share of 49 cents on revenue of $1.23 billion.
Keep an eye on: Shares of Chinese electric vehicle maker Nio have reversed over the past year, losing about 60% of its value. With the stock now down 46% year-to-date, including a 20% drop in the last thirty days, investors want to know if now is the time to take a position? The Covid-related supply chain issues have put the whole industry under pressure. But the problem does not have the same impact on all stocks of electric vehicles. In the case of NIO, it is one of the few electric vehicle manufacturers with a positive free cash flow. Additionally, not only does NIO deliver vehicles to customers each year, but the company’s deliveries are increasing. Estimates suggest electric vehicle sales are expected to grow at a compound annual rate of 24.5% through 2028. These trends should benefit NIO. But with the stock down significantly from its 52-week high, the company can make a strong case for its value on Friday by delivering a higher and lower pace, as well as strong delivery forecasts for the next quarter and the full year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.