After last week’s market spasm over hints from Fed officials that rates may need to rise rather than fall due to the resilience of the US economy, this week the focus moved on to earnings with around one third of S&P 500 companies posting first-quarter updates.
So far most firms have beaten estimates, leading to slim gains for the indices, but an increasing number have tempered their guidance for the full year by lowering their second-quarter outlook.
Interestingly, tech stocks - including the ‘Magnificent Seven’ - are beginning to show signs of divergence in terms of performance as investors come to realise not all supposed AI (artificial intelligence) stocks are created equal.
One non earnings-related highlight this week was the debut of Rubrik (RBRK:NYSE), the Palo Alto-based cyber-security company backed by tech giant Microsoft (MSFT:NASDAQ).
Rubrik shares were priced at $32 each, well above the initial range after the issue was 20 times oversubscribed, and finished their first day with a 16% pop to $37 marking another successful IPO (initial public offering).
The placing follows the successful float of Ibotta (IBTA:NYSE), the digital marketing firm backed by retail goliath WalMart (WMT:NYSE), whose shares jumped 33% on their first day of trading last week.
BIG TECH
It has been a week of contrasting fortunes for big US tech companies. On 24 April, Meta Platforms (META:NASDAQ) saw its recent momentum brought to a shuddering halt on the back of plans for big AI spending with limited visibility over when this investment would pay off.
The following day Google-owner Alphabet (GOOG:NASDAQ) won investors' attention with a maiden dividend and Microsoft’s (MSFT:NASDAQ) better-than-expected results confirmed its credentials as a leader in the AI space.
Meta’s first-quarter earnings per share came in at $4.71 per share versus a forecast of $4.32 while revenue was $36.46 billion against the consensus expectation of $36.16 billion. However, the mid-point of the second-quarter guidance range for revenue of $37.75 billion was below the $38.3 million anticipated by analysts.
Microsoft said AI demand was ahead of capacity and saw quarterly revenue climb 17% to $61.9 billion in the quarter compared with analyst expectations for $60.8 billion, while earnings per share rose to $2.94, also ahead of expectations for $2.82.
Alphabet announced its first-ever payout of $0.20 per share and committed to doling out further cash to shareholders in the future as revenue and EPS both came in north of estimates.
TESLA
Having feared the worst, investors seemed to get the added clarity they were seeking on mass-market vehicles when Tesla (TSLA:NASDAQ) updated the market this week.
There wasn’t a huge amount of detail, but Elon Musk said production would likely begin ‘in early 2025, if not late this year’ and would include ‘more affordable models’.
This was important - competition has been fierce and consumers have been thinking twice about big-ticket items as their finances come under pressure from the higher interest-rate environment.
A mass market Tesla priced at around $25,000, referred to by most as ‘Model 2’, is seen as giving the company the next growth lever to pull, so Musk’s commentary did wonders sending the stock surging 12% after hours (24 Apr) to $162, rallying again the following session to $170.
‘The strong positive market reaction to Tesla’s mixed first quarter print, in our view represented some relief the company is not completely giving up on selling cheaper consumer models, nor is it staking the company’s entire future on Robotaxi’, said analysts at Deutsche Bank, referring to the firm’s plans for a self-driving fleet of cabs.
PEPSICO
Soda and snack giant PepsiCo (PEP:NASDAQ) beat Wall Street revenue and earnings estimates on Tuesday (23 April) as the Doritos and Gatorade maker benefited from strong international demand offsetting a slow-down in its domestic market.
First-quarter revenue increased 2.3% to $18.25 billion compared with consensus forecasts calling for $18.01 billion while core EPS (earnings per share) increased 7% to $1.61, around 6% higher than expected.
PepsiCo’s average prices increased 5% for the quarter representing a deceleration from the 9% jump in the fourth quarter. Cumulative price increases appear to be causing a strain on US consumers as beverage volumes fell 5% and the Frito-Lay snacks division registered a 2% volume decline.
The picture is brighter overseas particularly in the Asia-Pacific, Australia, New Zealand and China regions which saw snack volumes increase 12%, while European beverage volumes jumped 7%.
Management reiterated 2024 guidance of at least 4% organic revenue growth and 8% core EPS growth. Despite worries over US weakness, the shares gained around 3% over the week.
