Image Source: Pixabay
 

Market Wrap

Apparently, whisper numbers are still a thing because, in an overall flat-to-down day in broad equity indexes, the Technology sector stood out. The sector gained 1.09% ahead of Nvidia’s (NVDA) evening earnings announcement which saw them beat estimates by about $0.04 (more below). Of that 1.09%, Nvidia, Broadcom (AVGO), and Intuit(INTU) combined to contribute to just under 90% of the sector’s result with Broadcom trading higher on AI enthusiasm and Intuit rallying on a strong earnings surprise from the latest quarterly update.

Other positive sectors included Utilities (0.42%) and, squeaking into positive territory, Industrials adding 0.06%. The remaining sectors saw drops ranging between 0.05% (Materials) and 1.91% (Consumer Staples). Staples continued to be weighed down by Walmart’s (WMT) most recent earnings release and updated guidance. Broad market equity indexes played out along tech exposure lines with the Dow losing 0.43%, the S&P 500 coming in essentially flat, up 0.01%, and the Nasdaq Composite rising 0.26%. Small caps closed 0.19% higher.

Crypto continues to come under pressure as Bitcoin (BTC) continued to get further away from $90,000 but not in the direction “Holders” would want. Gold was flat, seeing $2,916/oz, down a mere $2 at the close and the 10-year treasury saw prices firm up, slightly leaving yields at 4.25%. Despite the Trump administration’s full frontal assault on current EPA regulations, oil prices continue to ease, this time on reports of on-schedule production out of Kazakhstan despite a recent drone attack.

The Tematica Select Model Suite saw positive results in a broader swath of strategies than traditional sectors with the exception of Core Holdings and Guilty Pleasure, which both came under the same pressures as the broader Consumer Staples sector. Leadership in the suite came from EPS Diplomats, Safety & Security, and Nuclear Energy & Uranium.
 

Will the S&P 500’s Losing Streak Extend to Five Days?

Despite several attempts to move higher, yesterday the S&P 500 closed down for the fourth consecutive day keeping it between support at the 100-day moving average (5948.51) and resistance at the 50-day moving average (6,004.35). Equity futures suggest the S&P 500 is looking to snap that losing streak but barring any major economic data points out today, that effort will hinge on how the market interprets last night’s earnings report and guidance from Nvidia (NVDA) as well as today’s rash of reports.

While Nvidia’s results topped consensus expectations for its January quarter, led by the 93% year-over-year increase in its data center business, revenue for the quarter came up short compared to the whisper numbers making their rounds on Wall Street. While the top-line guidance for the current quarter was ahead of the market’s expectation and implied a whopping year-over-year growth of more than 65%, we’re going to see some EPS re-jiggering largely due to Nvidia’s gross margin guidance. The company sees its non-GAAP gross margin falling to 70.6%-71.0% in the current quarter, down from 73.5% in the January quarter and 75.0% the one before that.

What’s weighing on those margins at least in the near term is the ramp of Nvidia’s Blackwell solutions, which contributed $11 billion in the January quarter (28% of total sales). As production ramps, Nvidia’s management expects those margins will return to the mid-70s “later this year”, which means near-term meeting consumer demand trumps cost improvement efforts. Based on capacity constraint comments from Microsoft (MSFT), Amazon (AMZN), Meta (META), and Alphabet (GOOGL) about their cloud/data center businesses, we should not be surprised Nvidia is focused on meeting that demand in 1H 2025. But that means modestly lower margins.

Not what folks were looking for but not the worst problem either. While there is fodder for the Nvidia bulls and bears, when we reflect on numerous data points that confirm ramping AI adoption in the enterprise, including earnings call comments this week from Workday’s (WDAY) CEO Carl Eschenbach, the reality is we are still in the early innings when it comes to AI.

The comment from Eschenbach that stood out to us? AI is front and center in every conversation I have with customers, prospects, and partners. They want to move beyond incremental productivity gains.

Ramping to meet demand isn’t easy under normal conditions but when there is a sea change underway that drives explosive demand it’s even more challenging. If it sounds like we’re inclined to give Nvidia a pass, we are but only because of the rising AI adoption levels and capital spending to expand the digital infrastructure to support it. We continue to think rising AI adoption across consumers, enterprises, and other institutions (including local, state, and federal governments) to drive productivity and other efficiencies means we have a multi-year explosion of digital content creation and consumption ahead of us that will pressure data center and network capacity.

That leaves our Artificial Intelligence, Digital Infrastructure, and CHIPs Act models well-positioned for what’s ahead.
 

Back to today

Getting back to today, we have another wave of quarterly earnings to chew through. This morning that means reports from Bath & Body Works (BBWI), Good RX (GDRX), Hormel Foods (HRL), and JM Smucker (SJM). Consumer spending and food inflation will be top of mind as folks roll through those reports and earnings call comments. After today’s market close, comments from Dell (DELL) and HP (HPQ) will give some fresh color on the AI PC market ramp, while results from Elastic (ESTC) will give another perspective on AI adoption in the enterprise.

As it relates to our Homebuilding & Materials and Rebuilding America models, we’ll be interested in what Redfin (RDFN) and Tudor Perini (TPC) have to say. Sticky inflation, including tariffs on Canadian lumber, and the growing prospect the Fed will not deliver another rate cut this year have soured appetites for homebuilders. However, non-residential construction remains a bright spot given the number of mega projects announced in 2023 and 2024 slated to begin this year.

More By This Author: