What the heck really did happen on Friday, when the Dow jumped 700 points on a strong jobs reading ? Why such a viscerally positive reaction to an employment number that was hotter than expected? Was it because wages didn’t spike? Was it all that perfect — a Goldilocks report? Here’s my take on Friday’s rally. Going into the debt ceiling crisis, there was a belief that House Speaker Kevin McCarthy couldn’t control his own Republican party. Senate Majority Leader Charles Schumer wasn’t much better off with the Democrats. Both had lost control of their parties to the extremists. That meant the United States would default on its debt. It seemed pretty logical. I truly believe the extremists never believed a default would mean more than a few weeks of setbacks and more brinkmanship. Who can blame them? President Joe Biden lamely floated that he could invoke the 14th Amendment to avoid this and any future debt limit fights; the amendment includes a clause that some legal scholars say overrides the statutory borrowing limit set by Congress. No matter what, it was pretty clear that chaos was our destiny. But when McCarthy and Biden agreed to temporarily suspend the debt ceiling and cap some federal spending in order to prevent a default, we got a deal that was even less contentious than the 2011 bargain . (The coming together brought to mind the legendary coalition of President Ronald Reagan and House Speaker Tip O’Neil in the 1980s, memorialized in Chris Matthews’ “Tip and the Gipper: When Politics Worked.”) It was the compromise debt limit deal — not the employment number — that caused the market to rally. Sure, the jobs report showed wage inflation was cooling, which is good news in the Federal Reserve’s fight against inflation. But the job creation in May and the revisions were insanely strong. What matters most is that Fed Chair Jerome Powell, who is far more powerful than the independents on the Fed’s board who have such a hard time keeping their mouths shut, is reasonable. He seems to understand that it’s time to wait a bit on any more rate hikes. Not because he thinks things are cooler, but because he actually doesn’t even know. We have a young workforce coming into the market akin to when I got out of school in 1977 — nary a job to be had anywhere. This is potentially a monumental moment. The new debt limit legislation sets the date for resuming federal student loan repayments, which have been on hold since March 2020. We have the end of Supplemental Nutrition Assistance Program (SNAP) benefits and other pandemic breaks. Why not wait two months to see if unemployment naturally goes up and wages come down? To sum things up: We came into Friday shocked that there was a shocker of a deal and a not-red-hot employment number (at least one that didn’t send rates higher). This is what triggered the long-awaited buying of stocks outside of the Magnificent Seven that have led the market all year: Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Tesla (TSLA), Meta Platforms (META), Apple (AAPL), and Nvidia , which briefly joined the $1 trillion valuation club. We each have our own way of monitoring these things. I used Club name Caterpillar (CAT) as my judge. On Thursday afternoon, CEO Jim Umpleby went into the lion’s den of Sanford Bernstein and told a tale about de-cyclization. Shares of the heavy equipment maker had a tiny snap back. One day later and armed with the budget deal and the employment number, CAT shot up seventeen points — an unheard-of short squeeze. This took the stock back to when it reported a good number that was converted into a bad number by bearish analysts still unwilling to admit that the company had changed its bi-polar ways. Of course, the bears would say that it only went up because of one more silly stimulus by China, this time to adjust rents. I say Caterpillar went up because it was overly shorted, like so much of the market, including retail, health care, financials, other industrials including the commodities (the oils!). We even saw the imperfect chipmakers and heavily challenged enterprise software stocks come alive. The shorts were correct to press their bets if there was no debt deal and we got an employment number that was a steamer. But they were wrong on both counts. This plus a rare wave of new money coming in and massive buybacks by companies capable of plundering after their reports, caused the broadening that had been bemoaned as non-existent as recently as the day before. You could argue it was a short squeeze of monumental proportions. A short squeeze happens when short sellers having to buy stocks to cover their short positions, pushing prices higher. But every time there has been a broadening since FANG, it’s always been called a short squeeze. That’s just how things work, although it’s never been acknowledged by anybody. Which brings us up to date for Monday. We have a blackout of the Fed speakers. We have no real macroeconomic data. We have no landmines of earnings. And no Fed meeting until mid-June. A true interregnum. We are going to have to take more things off the table if we get a rally into an overbought setting. Yes, we have some real stinkers — Disney (DIS), Foot Locker (FL), Emerson Electric (EMR), Estee Lauder (EL) — and we can battle them. But the important thing is that we have so many winners that we have to ring the register on some stocks if all goes our way. Of course I obsess on the losers. I didn’t think that Fabrizio Freda at Estee Lauder and Mary Dillon at Foot Locker could both blow it that badly. I had reason to dislike the Emerson team, but it still gave me more than I can handle. I have no idea how Disney’s stock could be this weak in a long-on-money-short-on-time moment. I am furious at myself for not seeing around any of these corners. But I am not going to throw good money after bad and I see no good on these names — yet. This leaves us with the big question: Which winners to trim? As long as we are not subsidizing losers, we aren’t breaking protocol. But we have two tasks. One is to come up with a new name that hasn’t moved that we actually like. And two is to trim into strength as we get overbought. I want both resolved by our next Club meeting on June 14. That’s what I am working on right now. Do we need so much Salesforce (CRM), even as it reported a good quarter all things considering? Do we even need Advanced Micro Devices (AMD) when it has nothing to rival Nvidia? I just don’t know. I want the market to tell me what to do. I think it will. Where does this leave us? In a sanguine week that will allow us to see if the short squeeze continues. If it does and continues to broaden, we can both peel some winners. See which caterpillars can develop into, well, Caterpillars. Maybe add Take-Two (TTWO), which gave us a two-year outlook, possibly aided by a new Grand Theft Auto game and better Nvidia cards. Just one of many ideas. But one Jeff Marks and I are trying to get our arms around. Some who read might ask: “Shouldn’t there be more of a thesis behind a bullish move?” I say no, no more than you needed in 2011, when the debt ceiling deal led to a fantastic rally because Armageddon was avoided. We cannot sit back and relax. But what we can do is accept that it is a better moment than we thought not that long ago. There are cracks. The Dollar General (DG) call was a compendium of weakness for the lower middle class and the Macy’s (M) call was a confusion of negativity. But who is to say that these companies just don’t have the “it” of Five Below (FIVE) or Lululemon (LULU). We are close enough to the infrastructure money wave to handle another rate hike if we need it. But Powell recognizes the futility of another rate hike right now because it lowers mortgage rates, making his job even harder. What we can do is watch and wait as battlegrounds get resolved — like CAT did on Friday. We can anticipate better things from a Johnson & Johnson (JNJ) — especially with a 3M (MMM) deal — and from GE Healthcare (GEHC). We can lick our Estee and Foot Locker wounds. And we can be glad that we got through the debt deal and wax in the wave of new money that will at last be coming in. No, we can’t be complacent. Too many needs for the shorts to save themselves. They have been run over in so many places that they have to make a comeback somewhere. Their number didn’t get so strong before the debt ceiling deal that they can’t all cover at once. Nevertheless, we have enough money to put to work if we want to in a new name that hasn’t moved and has a special situation thesis. But I do not want to be so relieved as to think there is no woods, just that we are out of it for now. Personally, the last few weeks have been hard ones, ameliorated by members who have made money with the club. Some mistakenly believe that we missed this entirely rally. It galls me because I gave up being a hedge fund manager years ago and I know the truth: This may be the best we’ve ever been, and this time it is for you, not the entitled class. I thank you all for letting us have the floor to help and not be tools of the traders who have infiltrated our ranks. So let’s take and make some gains and be ready for the next storm after the calm, wherever it might be coming from. Rest up. We have gotten past the systemic chaos into business as usual, where we can glow in a world where stock picking matters. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
US President Joe Biden, accompanied by Speaker of the House Kevin McCarthy, Republican of California, arrives for the annual Friends of Ireland luncheon on St. Patrick’s Day at the US Capitol in Washington, DC, on March 17, 2023.
Saul Loeb | AFP | Getty Images
What the heck really did happen on Friday, when the Dow jumped 700 points on a strong jobs reading? Why such a viscerally positive reaction to an employment number that was hotter than expected? Was it because wages didn’t spike? Was it all that perfect — a Goldilocks report?
Here’s my take on Friday’s rally. Going into the debt ceiling crisis, there was a belief that House Speaker Kevin McCarthy couldn’t control his own Republican party. Senate Majority Leader Charles Schumer wasn’t much better off with the Democrats. Both had lost control of their parties to the extremists. That meant the United States would default on its debt. It seemed pretty logical.
I truly believe the extremists never believed a default would mean more than a few weeks of setbacks and more brinkmanship. Who can blame them? President Joe Biden lamely floated that he could invoke the 14th Amendment to avoid this and any future debt limit fights; the amendment includes a clause that some legal scholars say overrides the statutory borrowing limit set by Congress.
No matter what, it was pretty clear that chaos was our destiny. But when McCarthy and Biden agreed to temporarily suspend the debt ceiling and cap some federal spending in order to prevent a default, we got a deal that was even less contentious than the 2011 bargain. (The coming together brought to mind the legendary coalition of President Ronald Reagan and House Speaker Tip O’Neil in the 1980s, memorialized in Chris Matthews’ “Tip and the Gipper: When Politics Worked.”)
Some of the most overbought stocks this week on Wall Street are chipmakers, as investors piled into the artificial intelligence play after Nvidia’s blockbuster quarter. Nvidia and Advanced Micro Devices are just two of the names that investors snapped up. While Nvidia only reported earnings Wednesday night, the semiconductor firm’s market value has since surged to just under $1 billion — adding roughly $200 billion in not even two days of trading. Other chip stocks also surged as traders sought out possible beneficiaries of what they perceive as an A.I. “gold rush.” However, that could mean these stocks are overbought, at least according to one metric. Called the “relative strength index,” the metric measures the speed and magnitude of recent price moves to indicate which stocks are possibly overbought or oversold. A stock with a 14-day RSI greater than 70 is considered overbought, signaling investors may have gotten too bullish on a stock. Meanwhile, a stock with a 14-day RSI lower than 30 is considered oversold and could spell a buying opportunity. Based on this measure, CNBC Pro screened for the most overbought and oversold names this week. Here are the most overbought stocks that came up. Chipmakers dominated the list of overbought names, with shares of Advanced Micro Devices and Broadcom surging 20% and 19% this week, respectively. AMD topped the list, with a a 14-day RSI of 89.72, according to FactSet data. Bank of America hiked its price target on the company , saying it’s poised to take a larger slice of the AI market. However, it reiterated a neutral rating on the stock. Broadcom has a 14-day RSI of 84.36, FactSet data showed. This week, Bank of America hiked its price target on the firm, calling it the “most underappreciated AI beneficiary” after its multibillion deal with Apple was announced. Nvidia also made the list, with an RSI of 83.62. Other stocks on this list include Meta Platforms and Alphabet . Other stocks have seen extreme selling recently, based on their 14-day RSIs. Defensive stocks such as health care and utilities dominated the list of most oversold stocks this week, including Humana . The stock has a 14-day RSI of 8.02. In an April note, Cantor Fitzgerald initiated coverage of the stock with an overweight rating, saying the health care stock is “undervalued” with a boost from Medicare Advantage (MA) share gains. Amgen came up as an oversold stock this week as well. It has a 14-day RSI of 9.58. In a May note, Oppenheimer said the biotech firm has a “unique risk/reward” profile.
Jen-Hsun Huang, president and chief executive officer of Nvidia Corp., speaks during the company’s event at Mobile World Congress Americas in Los Angeles, California, U.S., on Monday, Oct. 21, 2019.
Patrick T. Fallon | Bloomberg | Getty Images
Forget about the debt ceiling. Tech investors are in buy mode.
The Nasdaq Composite closed out its fifth-straight weekly gain on Friday, jumping 2.5% in the past five days, and is now up 24% this year, far outpacing the other major U.S. indexes. The S&P 500 is up 9.5% for the year and the Dow Jones Industrial Average is down slightly.
Excitement surrounding chipmaker Nvidia’s blowout earnings report and its leadership position in artificial intelligence technology drove this week’s rally, but investors also snapped up shares of Microsoft, Meta and Alphabet, each of which have their own AI story to tell.
And with optimism brewing that lawmakers are close to a deal to raise the debt ceiling, and that the Federal Reserve may be slowing its pace of interest rate hikes, this year’s stock market is starting to look less like 2022 and more like the tech-happy decade that preceded it.
“Being concentrated in these mega-cap tech stocks has been where to be in this market,” said Victoria Greene, chief investment officer of G Squared Private Wealth, in an interview on CNBC’s “Worldwide Exchange” Friday morning. “You cannot deny the potential in AI, you cannot deny the earnings prowess that these companies have.”
To start the year, the main theme in tech was layoffs and cost cuts. Many of the biggest companies in the industry, including Meta, Alphabet, Amazon and Microsoft, were eliminating thousands of jobs following a dismal 2022 for revenue growth and stock prices. In earnings reports, they emphasized efficiency and their ability to “do more with less,” a theme that resonates with the Wall Street crowd.
But investors have shifted their focus to AI now that companies are showcasing real-world applications of the long-hyped technology. OpenAI has exploded after releasing the chatbot ChatGPT last year, and its biggest investor, Microsoft, is embedding the core technology in as many products as it can.
The chipmaker, known best for its graphics processing units (GPUs) that power advanced video games, is riding the AI wave. The stock soared 25% this week to a record and lifted the company’s market cap to nearly $1 trillion after first-quarter earnings topped estimates.
Nvidia shares are now up 167% this year, topping all companies in the S&P 500. The next three top gainers in the index are also tech companies: Meta, Advanced Micro Devices and Salesforce.
The story for Nvidia is based on what’s coming, as its revenue in the latest quarter fell 13% from a year earlier because of a 38% drop in the gaming division. But the company’s sales forecast for the current quarter was roughly 50% higher than Wall Street estimates, and CEO Jensen Huang said Nvidia is seeing “surging demand” for its data center products.
Nvidia said cloud vendors and internet companies are buying up GPU chips and using the processors to train and deploy generative AI applications like ChatGPT.
“At this point in the cycle, I think it’s really important to not fight consensus,” said Brent Bracelin, an analyst at Piper Sandler who covers cloud and software companies, in a Friday interview on CNBC’s “Squawk on the Street.”
“The consensus is, on AI, the big get bigger,” Bracelin said. “And I think that’s going to continue to be the best way to play the AI trends.”
Microsoft, which Bracelin recommends buying, rose 4.6% this week and is now up 39% for the year. Meta gained 6.7% for the week and has more than doubled in 2023 after losing almost two-thirds of its value last year. Alphabet rose 1.5% this week, bringing its increase for the year to 41%.
One of the biggest drags on tech stocks last year was the central bank’s consistent interest rate hikes. The increases have continued into 2023, with the fed funds target range climbing to 5%-5.25% in early May. But at the last Fed meeting, some members indicated that they expected a slowdown in economic growth to remove the need for further tightening, according to minutes released on Wednesday.
Less aggressive monetary policy is seen as a bullish sign for tech and other riskier assets, which typically outperform in a more stable rate environment.
Still, some investors are concerned that the tech rally has gone too far given the vulnerabilities that remain in the economy and in government. The divided Congress is making a debt ceiling deal difficult as the Treasury Department’s June 1 deadline approaches. Republican negotiator Rep. Garret Graves of Louisiana told reporters Friday afternoon in the Capitol that, “We continue to have major issues that we have not bridged the gap on.”
Treasury Secretary Janet Yellen said later on Friday that the U.S. will likely have enough reserves to push off a potential debt default until June 5.
Alli McCartney, managing director at UBS Private Wealth Management, told CNBC’s “Squawk on the Street” on Friday that following the recent rebound in tech stocks, “it’s probably time to take some of that off the table.” She said her group has spent a lot of time looking at the venture market and where deals are happening, and they’ve noticed some clear froth.
“You’re either AI or you’re not right now,” McCartney said. “We really have to be ready to see if we don’t get a perfect debt ceiling, if we don’t get a perfect landing, what does that mean, because at these kinds of levels we are definitely pricing in the U.S. hitting the high note on everything and that seems like a terribly precarious place to be given the risks out there.”
Things move quickly in the world of artificial intelligence. It is easy to sit back and complain about developments that could be disruptive, but sometimes investors are best served by putting emotions aside and observing new developments and how they affect markets. Could AI developments and related trends make you a lot of money?
Below is a new screen showing a group of AI-oriented companies expected to increase their sales most rapidly through 2025, based on consensus estimates among analysts polled by FactSet. Then we show expected revenue growth rates for the largest AI-oriented companies in the screen.
Over the long haul, many businesses might perform more efficiently by employing AI. Maybe this technology can create an economic revolution similar to the one that moved the majority of the working population away from agricultural labor during the 19th and 20th centuries.
Back in February, we screened 96 stocks held by five exchange-traded funds focused on AI and related industries and listed the 20 that analysts thought would rise the most over the following 12 months.
Three months is a long time for AI, and the shakeout hasn’t even started.
There is no way to predict how politicians will react to perceived or real threats of AI and machine learning. And the largest U.S. tech players are doing everything they can to employ the new technology and remain dominant. But that doesn’t mean they will grow more quickly than smaller AI-focused players.
A new AI stock screen
Once again we will begin a screen with these five ETFs:
The Global X Robotics & Artificial Intelligence ETF BOTZ, +0.97%
BOTZ was established 2016 and has $1.8 billion in assets under management. The fund tracks an index of companies listed in developed markets that are expected to benefit from the increased utilization of robotics and AI. There are 44 stocks in the BOTZ portfolio, which is weighted by market capitalization and rebalanced once a year. Its largest holding is Intuitive Surgical Inc. ISRG, +0.53%,
which makes up 10% of the portfolio, followed by Nvidia Corp. NVDA, +3.30%
at 9.4%.
The iShares Robotics and Artificial Intelligence Multisector ETF IRBO, +1.64%
holds 116 stocks that are equal-weighted, as it tracks a global index of companies that derive at east 50% of revenue from robotics or AI, or have significant exposure to related industries. This ETF was launched in 2018 and has $304 million in assets.
The $246 million First Trust Nasdaq Artificial Intelligence & Robotics ETF ROBT, +1.83%
has 107 stocks in its portfolio, with a modified weighting based on how directly companies are involved in AI or robotics. It was established in 2018.
The Robo Global Artificial Intelligence ETF THNQ, +1.81%
has $26 million in assets and was established in 2020. I holds 69 stocks and isn’t concentrated. It uses a scoring system to weight its holdings by percentage of revenue derived from AI, with holdings also subject to minimum market capitalization and liquidity requirements.
The newest ETF on this list is the WisdomTree Artificial Intelligence and Innovation Fund WTAI, +2.42%,
which was established in December and has $13 million in assets and holds 73 stocks in an equal-weighted portfolio. According to FactSet, stocks are handpicked and selected companies “generate at least 50% of their revenue from AI and innovation activities, including those related to software, semiconductors, hardware technology, machine learning and innovative products.”
Altogether and removing duplicates, the five ETFs hold 270 stocks of companies in 23 countries. We first narrowed the list to 197 covered by at least nine analysts and for which consensus sales estimates are available through calendar 2025. We used calendar-year estimates because some companies have fiscal years that don’t match the calendar.
Here are the 20 screened AI-related companies expected by analysts to have the highest compound annual growth rates (CAGR) for sales from 2023 through 2025. Sales estimates are in millions of U.S. dollars. The list also shows which of the above five ETFs holds each stocks.
Click the tickers for more about each company or ETF.
Click here for Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote pages.
We have screened for expected revenue growth, rather than for earnings or cash flow, because in a newer tech-oriented business area, investors are most likely to consider the top line as companies sacrifice profits to build market share.
It is important to do your own research if you consider purchasing any individual stock, to form your own opinion about a company’s ability to remain competitive over the long term. Starting from the top of the list, BioXcel Therapeutics Inc. BTAI, -2.47%
is expected to show exponential sales growth, but that is from a low expected baseline this year.
What about the largest AI-related companies held by these ETFs?
Here are the largest 20 companies in the screen by market capitalization, ranked by expected sales CAGR from 2022 through 2025. Once again the sales estimates are in millions of U.S. dollars, but the market caps are in billions.
AMD Chair and CEO Dr. Lisa Su delivers a keynote address at CES 2023 at The Venetian Las Vegas on January 04, 2023 in Las Vegas, Nevada.
David Becker | Getty Images
AMD reported better-than-expected revenue and earnings for the first quarter, but the stock dropped 6% in extended trading on Tuesday after the chipmaker issued guidance for the current period that trailed analysts’ estimates.
Here’s how the company did versus Refinitiv consensus estimates for the quarter ended in December:
EPS: 60 cents per share adjusted vs. 56 cents per share expected
Revenue: $5.35 billion vs. $5.3 billion expected
related investing news
AMD said it expected about $5.3 billion in sales in the current quarter, versus Wall Street estimates of $5.48 billion. AMD CEO Lisa Su said in a statement that the company sees “growth in the second half of the year as the PC and server markets strengthen.”
The company’s net loss swung to $139 million, or 9 cents per share, from a net income of $786 million, or 56 cents per share, during the year-earlier period. AMD excludes certain losses on investments and acquisition-related costs from its earnings.
Revenue dropped 9% from $5.89 billion a year earlier.
The biggest decline came in AMD’s client group, which includes sales from PC processors. AMD reported $739 million in sales in the category, a 65% decrease from $2.1 billion in sales during the same period last year.
AMD’s report comes as the PC industry is in a deep slump, with shipments dropping 30% in the first quarter, according to IDC. Last week, Intel, AMD’s primary competitor in the PC and server chip markets, reported that its overall sales declined 36%.
“We believe the first quarter was the bottom for our client processor business,” Su said.
AMD’s data center segment sales edged up to $1.295 billion from $1.293 billion during the year-earlier period. The company said the category is likely to grow in the current quarter.
“I would say from an overall market standpoint, I think enterprise will still be mixed, with the notion that we expect some improvement. Depends a little on the macro situation,” Su said.
Sales in its embedded segment of less powerful chips for networking soared to $1.56 billion from $595 million year over year, partially due to additional revenue from the company’s purchase of Xilinx.
AMD’s gaming segment, which includes graphics processors for PCs as well as chips for consoles like Sony PlayStation 5, reported $1.76 billion in sales, down slightly from $1.88 billion last year.
Correction: The $5.3 billion revenue expectation was misstated in an earlier version.
The tech sector was a bright spot last week as the banking crisis rocked markets. The Nasdaq Composite was up 4.4% over the week, while the Nasdaq 100 — which includes the index’s largest non-financial companies — was 5.8% higher. Big tech and semiconductor stocks such as Nvidia and Microsoft were up around 12% over the week, while AMD soared over 18%. Some investors started to view tech as something of a safe haven , as bond yields dropped and amid uncertainty over whether the U.S. Federal Reserve will continue with its rate hikes following the banking crisis. So should you buy into the tech rally? Market pros urge caution — but think some stocks are set to outperform. ‘Creeping back’ into the sector Tech investor Paul Meeks, portfolio manager at Independent Solutions Wealth Management, said he’s “creeping back into the sector” after advocating an underweight position in it for a long time. “I do think within technology, there are some pretty interesting, very specific stories,” he said. He likes semiconductor stocks in Europe, including ASML , and is also focusing on artificial intelligence names, such as Nvidia , Microsoft , and Chinese tech firm Baidu . Hedge fund manager Dan Niles, meanwhile, said he likes Meta as it has a “strong” core business, with good user growth and engagement. Its Reels product is also holding up against Tik Tok, he told CNBC Pro Talks last week. However, he cautioned that a lot of tech companies are going to be struggling with cost efficiency going forward. Like Meeks, Niles is also bullish — but selective — on semiconductor stocks. He highlighted that the sector dropped last year on collapsing demand as countries reopened following the pandemic. But in terms of the smartphone and PC corners of the market, “it’s gotten bad enough and it can start to turn with generative AI as a nice kicker on top of that,” Niles added. He said he owns Intel and Nvidia, with the former “starting to close the gap” in manufacturing with Advanced Micro Devices and Taiwan Semiconductor Manufacturing , which should improve its outlook. Nvidia is also the “biggest beneficiary of generative AI” as a lot of graphic chips will be needed, Niles added. Is tech a safe haven? But tech is not out of the woods yet, according to Meeks. “The way that U.S. tech companies distinguished themselves to the upside with their first-quarter reports and … forward guidance is by how many people they could fire — and that is not a recipe for growth,” he told CNBC’s “Street Signs Asia” on Friday. He added that the banking crisis has led to market talk about halting or declining interest rates, and “of course, that is a recipe for greatness for tech stocks.” “It’s all about the interest rates, potentially going down after a full year of them rising swiftly and aggressively. But I don’t think that the fundamentals and technology have changed for the better, or not materially,” Meeks said. Tech firms in particular are vulnerable to rising rates as future profits become less valuable. Financial services firm BTIG said it believes that tech stocks have become something of a “rotation beneficiary given the recent events and rising odds for a hard landing.” “If you are managing money, and you are selling high-beta cyclicals but have a mandate to be fully invested, that money is going to find its way into more perceived safe havens. While we don’t think FANG+ names are immune to weakness, they are perceived as safer in an economic downturn than Energy, Industrials, Financials, etc,” the bank’s analysts wrote in a March 16 note. However, they warned that once these “rotations” have run their course, there could be renewed weakness in tech. — CNBC’s Michael Bloom, Sarah Min contributed to this report.
The collapse of Silicon Valley Bank has added to volatility in the tech sector, coming hot on the heels of expectations that interest rates are likely to remain high for some time. The tech-heavy Nasdaq Composite closed 0.45% higher on Monday. That’s after sliding 1.76% on Friday following the closure of Silicon Valley Bank . Crypto-focused Signature Bank was also shut down. Meanwhile, Fed Chairman Jerome Powell said last week that interest rates are likely to remain “higher than previously anticipated” — usually viewed as bad news for the tech sector. Earnings misses and a series of layoffs at tech giants, including a planned second round of redundancies at Meta , have further compounded nervousness in the sector. But some market pros see the volatility as an opportunity to snap up growth stocks at bargain prices. “We think that for medium- and long-term investors, the recent bout of volatility that you’ve seen represents a buying opportunity,” Anthony Doyle, head of investment strategy at Firetrail Investments, told CNBC on Monday. He said some tech firms’ valuations have been “absolutely hammered.” Meanwhile Phillip Wool, managing director of Rayliant Global Advisors, added: “The upshot is that we’re bearish on U.S. stocks generally, though this will give way to bargain hunting as lagged damage from Fed policy shows up and greed turns to fear.” Big Tech stock picks Speaking last week, before the sell-off, Sylvia Jablonski, chief investment officer at Defiance ETFs, urged investors to watch for pullbacks. “Through the last several decades, the top days in the markets have occurred during some sort of recession, crisis or pullback,” she said in emailed notes to CNBC. “If you’re an investor, and you’re in it for beyond 2024, where we’ll have a little more certainty at that point, we would think there is a really high chance that you’re going to be buying [at] lower levels today than you will be in that timeframe and certainly a decade from now,” she added. Meanwhile, Barbara Doran, CIO at BD8 Capital Partners, believes tech has “really been on a roll” and is “holding up,” despite concerns around higher interest rates. She said she’s refocusing on big-cap tech names given the promise of artificial intelligence — the hottest tech theme this year — and “historically attractive” valuations. She is bullish on Meta , giving the stock upside of between 15% to 35%. That’s despite a gain of about 50% in its stock price this year. Meta’s users and engagement have continued to increase across all platforms, according to Doran, with the company also growing monetization of its Reels platform and increasing financial discipline. Apple is another stock that she likes, citing its growing market share in high-end smartphones outside the U.S., as well as its ability to take market share from major competitor Samsung . Defiance’s Jablonski highlighted that the top stock picks from major Wall Street banks tie to AI and machine learning. “Looking at a basket of stocks ranging from semiconductors, quantum computing, AI and machine learning, stocks in the lead in this space may pay off in the long term,” she said. AI is expected to grow at a compounded rate of 37% by 2026, Jablonski added, citing research by global market intelligence firm International Data Corporation. “That’s not so far off.” Jablonski identified Microsoft , Nvidia , Advanced Micro Devices , Alphabet and Amazon as likely leaders in the space and believes now is a “great opportunity” to add exposure given that they are trading at “double digits from their 52-week highs.” Defiance ETFs manages The Next Generation Quantum Computing & Machine Learning ETF . The exchange-traded fund is up more than 11% as of the end of February. Amy Kong, chief investment officer at CI Barrett Private Wealth, favors Microsoft, calling it a “stellar company” with a good business model. She added that the company is generating a lot of free cash flow, has “a lot more growth engines” relative to Alphabet, and is expected to grow its cloud computing business by about 30% over the next quarter. Firetrail Investments’ Anthony Doyle also identified Microsoft as a tech stock he’s bullish on , despite the volatility.
This year has, so far, been something of a Jekyll and Hyde market for equities. January’s strength was a welcome reprieve from the brutality that was 2022. February’s stumble has reminded us that sticky inflation remains a challenge for both the broader economy and stocks. With that in mind, we sifted through our portfolio to find names with a mix of durable fundamentals and stories strong enough to cut through rekindled inflation fears — and the resulting concerns that the Federal Reserve could need to maintain higher interest rates for longer. It’s a dynamic we discussed just last week, charting the ups and downs for the S & P 500 at pivotal moments in the 2023 inflation arc. The criteria for Tuesday’s screen were simple: Stocks had to outperform the market on a monthly basis in both January and February. The returns each month had to actually be positive. The S & P 500 gained nearly 6.2% in January, while losing 2.6% in February. Here are the seven Club holdings that made the cut (and two honorable mentions), arranged by year-to-date performance. Generative AI boost for Nvidia NVDA 1Y mountain Nvidia (NVDA) 1-year performance Nvidia (NVDA) was the Club’s biggest winner in January, climbing 33.7%, and in February its 18.8% monthly gain is second to only Bausch Health (BHC). In January, Nvidia certainly benefited from the broad tailwind that lifted many of 2022’s biggest losers . The stock’s exceptional performance this year goes much deeper to company-specific factors — specifically, all the buzz around generative artificial intelligence (AI). Nvidia’s semiconductors and related software are integral to the budding generative AI field, which generally refers to a type of artificial intelligence that can create text, images and code in response to user queries. Optimism around generative AI began late last year, with the release of ChatGPT, and it’s picked up steam well into 2023. “AI adoption is at an inflection point,” Nvidia CEO Jensen Huang said on the chipmaker’s earnings conference call last week. During that call, Nvidia also indicated a recovery in data center and gaming chips is taking place sooner than many expected, which has only added fuel to investor optimism and contributed to a wave of analyst price-target boosts the following day . Despite this year’s surge, Nvidia shares were still about 18.5% lower than their 52-week high of $289 each back in March. It’s worth noting that fellow Club holding Microsoft (MSFT) has been a huge beneficiary of the AI tailwind this year. The tech giant is a large investor in OpenAI, the startup behind ChatGPT, and the two entities maintain a very close partnership. Microsoft also has made a series of AI-related announcements so far this year, including a revamped version of its search engine, Bing, geared around generative AI. If not for a rough three-day stretch to begin 2023, Microsoft shares likely would’ve made it onto this list of stocks. Ultimately, the stock underperformed the market in January with a gain of 3.3%, disqualifying it. But the stock did beat the market in February, with a nearly 0.7% advance. Bausch bounces, but questions remain BHC 1Y mountain Bausch Health (BHC) 1-year performance Bausch Health (BHC) has had an incredible start to the year, climbing roughly 21% in both January and February. Thanks to a solid earnings report last week, it has managed to hold onto that strong performance. Some of that January move was no doubt attributable to the broader market action, as headwinds certainly remain for Bausch due to its ongoing Xifaxan patent battle. The market was also pleased to see that Brent Saunders is taking the helm at Bausch + Lomb (BLCO). Since Bausch Health still owns over 85% of Bausch + Lomb, what’s good for the latter is good for the former. However, the Xifaxan dispute remains a major overhang on the stock, taming our excitement over its performance so far this year. BHC was still about 62% lower than its 52-week high of just over $24 per share exactly one year ago. Efficiency commitment lifts Meta META 1Y mountain Meta Platform (META) 1-year performance Meta Platforms (META) has really turned it around, gaining roughly 24% in January and over 17% in February. This is one of the best examples in the market of how important it is to acknowledge the operating environment and act accordingly. Last year was brutal for the stock, with management seemingly intent on investing in the metaverse at all costs and planning to grow expenses despite revenues coming under pressure. But it’s a whole new world in 2023. CEO Mark Zuckerberg has completely changed his tune, telling investors on the company’s most recent post-earnings conference call that the focus now is efficiency, efficiency, efficiency . The team has also stressed the important role of artificial intelligence. Investments in AI technology will likely help Meta become more efficient, aid in monetizing previously unmonetized platforms such as WhatsApp and Messenger, all while fending off Chinese competitor TikTok. Meta made this list largely due to a post-earnings surge, but we think the consolidation seen the rest of the month is healthy in the long term. After being crushed last year, shares were recovering but still 26% lower than their 52-week high of nearly $237 each back in April. Palo Alto pivot to profitability PANW 1Y mountain Palo Alto Networks (PANW) 1-year performance Palo Alto Networks (PANW) advanced nearly 14% in January before climbing nearly 19% in February, aided by a very strong quarterly report that demonstrated our investment thesis in the newest Club holding. We started our PANW position in mid-February, adding to it once since then for a nearly 8.5% paper profit so far. The stock was still more than 11% below its 52-week high of $213 per share back in April. As a cybersecurity provider, Palo Alto Networks benefits from being among the highest priorities in corporate IT budgets. Given the company’s strong free cash flow and pivot to profitability , a move that has now resulted in three consecutive quarters of generally accepted accounting principles (GAAP) profitability, we think shares have further room to the upside despite their year-to-date strength. Wynn benefits from China reopening WYNN 1Y mountain Wynn Resorts (WYNN) 1-year performance Wynn Resorts (WYNN) stock has climbed more than 4.5% in February, following a robust 25.7% gain in January. Shares have more than doubled since their 52-week low of around $50 each back in June. There are a few reasons for the stock’s resilience, including continued optimism around a recovery of the casino operator’s business in Macao, a Chinese special administrative region where gambling is legal and a big business. Wynn’s crucial Macao properties stand to benefit in the quarters ahead after China late last year dropped its draconian zero-Covid policy. Wynn’s U.S. operations — in Las Vegas and Boston — have been impressive, too, a clear sign the company is benefiting from consumers’ desire to keep spending on experiences despite inflationary pressures. AMD sees inventory corrections near bottom AMD 1Y mountain Advanced Micro Devices (AMD) 1-year performance After climbing 16% in January, shares of Advanced Micro Devices (AMD) gained 4.6% through February. As with Nvidia, AMD’s January performance was partially aided by the general rotation back into 2022 clunkers. The stock, however, was still about 37% lower than its 52-week high of $125 per share back in March. Recent optimism around artificial intelligence is spilling over into AMD, too. While Nvidia is seen as the best-of-breed AI chipmaker, the tech trend is a clear growth opportunity for AMD, a point CEO Lisa Su made on the firm’s fourth-quarter earnings call in January . AMD also is a cheaper option for investors who want a semiconductor stock poised to benefit from AI, trading at 23.7-times forward earnings, compared with Nvidia’s 52.2 forward multiple, according to FactSet. Some of the inventory corrections that plagued AMD last year — particularly on the PC side — appear to be nearing a bottom, as well. That’s helped improve sentiment. Nvidia’s recent comments on the data center and gaming turnaround it’s seeing may also support optimism around AMD. Apple grabs smartphone market share AAPL 1Y mountain Apple (APPL) one-year performance. Apple (AAPL) gained just over 11% in January and more than 2.5% in February, reinforcing the Club mantra: Own it, don’t trade. The gains come as the iPhone maker is capturing a greater portion of the global smartphone market, particularly when it comes to high-end models. Gen-Z buyers “increasingly see the iPhone as a must-have,” The Wall Street Journal reported Monday. And the iPhone’s growing popularity with Gen Z shows that Apple is continuing to brandish its image as a status symbol with the next generation of consumers. It also demonstrates how Apple is growing its installed base of users, which should allow the company to ultimately expand its high-margin services revenue. Those developments, combined with the company’s continued commitment to shareholder returns, make Apple a name to hold for the long term. Honorable Mentions We also want to call out two honorable mentions: Morgan Stanley (MS) and Wells Fargo (WFC). Both financial firms outperformed the S & P 500 in January and February. However, they failed the screen due to negative absolute returns in February, despite their outperformance versus the broader market. Wells Fargo lost 0.2% in February, while Morgan Stanley fell 0.9%. Both banks benefit from higher interest rates and an economy that so far has refused to be held down, something of a goldilocks scenario for a business that makes money on the spread between rates and thrives on economic activity. Wells Faro and Morgan Stanley also have significant share repurchase authorizations, which is good news for shareholders . WFC MS 1Y mountain Wells Fargo (WFC) vs. Morgan Stanley (MS) 1-year performance Morgan Stanley is benefiting from an increase in fee-based revenues, part of its multiyear shift toward asset management to smooth out the cyclical fluctuations of its traditional investment banking franchise. Wells Fargo, meanwhile, is seeing great benefits from the interest rate spread between what it charges for loans and pays out on deposits. Wells Fargo also is a turnaround story, working diligently to achieve regulatory milestones that will let it free up additional capital for investments and shareholder returns. Bottom line Wall Street hit a rough patch in February, but that didn’t prevent certain Club stocks from breaking through. Of the names mentioned above, Palo Alto, Apple and Wells Fargo are 1-rated stocks , indicating our view that they can be bought here and now. With the exception of Bausch Health, which we think has to be avoided until more is known about the Xifaxan patent litigation, we are actively looking to buy the remaining stocks on this list on pullbacks, as signified by our 2 rating. We believe they’re best-in-class businesses led by top-tier management teams with further long-term upside. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Jensen Huang, president and CEO of Nvidia, speaks during the company’s event at the 2019 Consumer Electronics Show in Las Vegas on Jan. 6, 2019.
David Paul Morris | Bloomberg | Getty Images
This year has, so far, been something of a Jekyll and Hyde market for equities.
January’s strength was a welcome reprieve from the brutality that was 2022. February’s stumble has reminded us that sticky inflation remains a challenge for both the broader economy and stocks.
Nvidia CEO Jensen Huang speaks during a press conference at The MGM during CES 2018 in Las Vegas on January 7, 2018.
Mandel Ngan | AFP | Getty Images
Software that can write passages of text or draw pictures that look like a human created them has kicked off a gold rush in the technology industry.
Companies like Microsoft and Google are fighting to integrate cutting-edge AI into their search engines, as billion-dollar competitors such as OpenAI and Stable Diffusion race ahead and release their software to the public.
Powering many of these applications is a roughly $10,000 chip that’s become one of the most critical tools in the artificial intelligence industry: The Nvidia A100.
The A100 has become the “workhorse” for artificial intelligence professionals at the moment, said Nathan Benaich, an investor who publishes a newsletter and report covering the AI industry, including a partial list of supercomputers using A100s. Nvidia takes 95% of the market for graphics processors that can be used for machine learning, according to New Street Research.
The A100 is ideally suited for the kind of machine learning models that power tools like ChatGPT, Bing AI, or Stable Diffusion. It’s able to perform many simple calculations simultaneously, which is important for training and using neural network models.
The technology behind the A100 was initially used to render sophisticated 3D graphics in games. It’s often called a graphics processor, or GPU, but these days Nvidia’s A100 is configured and targeted at machine learning tasks and runs in data centers, not inside glowing gaming PCs.
Big companies or startups working on software like chatbots and image generators require hundreds or thousands of Nvidia’s chips, and either purchase them on their own or secure access to the computers from a cloud provider.
Hundreds of GPUsare required to train artificial intelligence models, like large language models. The chips need to be powerful enough to crunch terabytes of data quickly to recognize patterns. After that, GPUs like the A100 are also needed for “inference,” or using the model to generate text, make predictions, or identify objects inside photos.
This means that AI companies need access to a lot of A100s. Some entrepreneurs in the space even see the number of A100s they have access to as a sign of progress.
“A year ago we had 32 A100s,” Stability AI CEO Emad Mostaque wrote on Twitter in January. “Dream big and stack moar GPUs kids. Brrr.” Stability AI is the company that helped develop Stable Diffusion, an image generator that drew attention last fall, and reportedly has a valuation of over $1 billion.
Now, Stability AI has access to over 5,400 A100 GPUs, according to one estimate from the State of AI report, which charts and tracks which companies and universities have the largest collection of A100 GPUs — although it doesn’t include cloud providers, which don’t publish their numbers publicly.
Nvidia stands to benefit from the AI hype cycle. During Wednesday’s fiscal fourth-quarter earnings report, although overall sales declined 21%, investors pushed the stock up about 14% on Thursday, mainly because the company’s AI chip business — reported as data centers — rose by 11% to more than $3.6 billion in sales during the quarter, showing continued growth.
Nvidia shares are up 65% so far in 2023, outpacing the S&P 500 and other semiconductor stocks alike.
Nvidia CEO Jensen Huang couldn’t stop talking about AI on a call with analysts on Wednesday, suggesting that the recent boom in artificial intelligence is at the center of the company’s strategy.
“The activity around the AI infrastructure that we built, and the activity around inferencing using Hopper and Ampere to influence large language models has just gone through the roof in the last 60 days,” Huang said. “There’s no question that whatever our views are of this year as we enter the year has been fairly dramatically changed as a result of the last 60, 90 days.”
Ampere is Nvidia’s code name for the A100 generation of chips. Hopper is the code name for the new generation, including H100, which recently started shipping.
Compared to other kinds of software, like serving a webpage, which uses processing power occasionally in bursts for microseconds, machine learning tasks can take up the whole computer’s processing power, sometimes for hours or days.
This means companies that find themselves with a hit AI product often need to acquire more GPUs to handle peak periods or improve their models.
These GPUs aren’t cheap. In addition to a single A100 on a card that can be slotted into an existing server, many data centers use a system that includes eight A100 GPUs working together.
This system, Nvidia’s DGX A100, has a suggested price of nearly $200,000, although it comes with the chips needed. On Wednesday, Nvidia said it would sell cloud access to DGX systems directly, which will likely reduce the entry cost for tinkerers and researchers.
It’s easy to see how the cost of A100s can add up.
For example, an estimate from New Street Research found that the OpenAI-based ChatGPT model inside Bing’s search could require 8 GPUs to deliver a response to a question in less than one second.
At that rate, Microsoft would need over 20,000 8-GPU servers just to deploy the model in Bing to everyone, suggesting Microsoft’s feature could cost $4 billion in infrastructure spending.
“If you’re from Microsoft, and you want to scale that, at the scale of Bing, that’s maybe $4 billion. If you want to scale at the scale of Google, which serves 8 or 9 billion queries every day, you actually need to spend $80 billion on DGXs.” said Antoine Chakaivan, a technology analyst at New Street Research. “The numbers we came up with are huge. But they’re simply the reflection of the fact that every single user taking to such a large language model requires a massive supercomputer while they’re using it.”
The latest version of Stable Diffusion, an image generator, was trained on 256 A100 GPUs, or 32 machines with 8 A100s each, according to information online posted by Stability AI, totaling 200,000 compute hours.
At the market price, training the model alone cost $600,000, Stability AI CEO Mostaque said on Twitter, suggesting in a tweet exchange the price was unusually inexpensive compared to rivals. That doesn’t count the cost of “inference,” or deploying the model.
Huang, Nvidia’s CEO, said in an interview with CNBC’s Katie Tarasov that the company’s products are actually inexpensive for the amount of computation that these kinds of models need.
“We took what otherwise would be a $1 billion data center running CPUs, and we shrunk it down into a data center of $100 million,” Huang said. “Now, $100 million, when you put that in the cloud and shared by 100 companies, is almost nothing.”
Huang said that Nvidia’s GPUs allow startups to train models for a much lower cost than if they used a traditional computer processor.
“Now you could build something like a large language model, like a GPT, for something like $10, $20 million,” Huang said. “That’s really, really affordable.”
Nvidia isn’t the only company making GPUs for artificial intelligence uses. AMD and Intel have competing graphics processors, and big cloud companies like Google and Amazon are developing and deploying their own chips specially designed for AI workloads.
Still, “AI hardware remains strongly consolidated to NVIDIA,” according to the State of AI compute report. As of December, more than 21,000 open-source AI papers said they used Nvidia chips.
Most researchersincluded in the State of AI Compute Index used the V100, Nvidia’s chip that came out in 2017, but A100 grew fast in 2022 to be the third-most used Nvidia chip, just behind a $1500-or-less consumer graphics chip originally intended for gaming.
The A100 also has the distinction of being one of only a few chips to have export controls placed on it because of national defense reasons. Last fall, Nvidia said in an SEC filing that the U.S. government imposed a license requirement barring the export of the A100 and the H100 to China, Hong Kong, and Russia.
“The USG indicated that the new license requirement will address the risk that the covered products may be used in, or diverted to, a ‘military end use’ or ‘military end user’ in China and Russia,” Nvidia said in its filing. Nvidia previously said it adapted some of its chips for the Chinese market to comply with U.S. export restrictions.
The fiercest competition for the A100 may be its successor. The A100 was first introduced in 2020, an eternity ago in chip cycles. The H100, introduced in 2022, is starting to be produced in volume — in fact, Nvidia recorded more revenue from H100 chips in the quarter ending in January than the A100, it said on Wednesday, although the H100 is more expensive per unit.
The H100, Nvidia says, is the first one of its data center GPUs to be optimized for transformers, an increasingly important technique that many of the latest and top AI applications use. Nvidia said on Wednesday that it wants to make AI training over 1 million percent faster. That could mean that, eventually, AI companies wouldn’t need so many Nvidia chips.
Last week was a big one for tech earnings, but it ended on a whimper as a series of disappointments left market watchers questioning the strength of the tech rally. The week kicked off with positive earnings surprises from the likes of Meta and Advanced Micro Devices , but ended with misses and negative outlooks from tech giants Alphabet , Apple and Amazon that paint a worrying picture of consumer weakness and renewed fears of an economic slowdown. Investors were quick to react. Shares in Alphabet fell 2.8% and Amazon’s shares fell 8.4% on the same day. The Nasdaq Composite shed 1.6%. Only Apple reversed early losses to close the session 2.4% higher. But market veteran Kenny Polcari, chief market strategist at SlateStone Wealth, is still bullish on Big Tech. “We added Big Tech on weakness, like Apple and Amazon, these stocks are getting arbitrarily dislocated. Apple did end up closing the day on Friday higher even after their report, which just suggests to you that people are still putting money into Big Tech,” Polcari told CNBC’s “Street Signs Asia” on Monday. Outside of the tech giants, his top pick in the semiconductor space is Nvidia . “Semis is another sector that has absolutely taken off this year. It’s up double-digits because it had gotten so clobbered in 2022. So, I do think there’s [an] opportunity for sure, but I don’t think you can go all in on Big Tech just yet,” he said. Nvidia is also a play on artificial intelligence, according to Polcari. It is one of two broad themes he likes in tech, the other being cybersecurity. “I think you really must consider the role that artificial intelligence is going to play but hasn’t played so far. It has made this quantum leap almost overnight. I think that puts it right smack in the front and center of peoples’ portfolios,” he said. STPN – ‘Stuff that people need’ But tech isn’t Polcari’s only way to play the market. In fact, his overall positioning is largely defensive, with his preferred sectors being what he calls STPN, or “stuff that people need.” “The bulk of the portfolio is going to be overweight in consumer staples and healthcare, utilities and energy, and then you’re going to create alpha around the edge with some of the names that have gotten really beaten up,” he said. He believes the market has “gotten ahead of itself,” and now looks “a bit overbought.” “The market is betting that the Federal Reserve can pull off a soft landing — something I do not think they can do, but I just think it will be a longer, more sluggish recession and not a goldilocks type of soft recession,” Polcari said. He believes energy will continue to outperform this year, with a full China opening set to send global demand higher. Against this backdrop, he likes oil giants such as ExxonMobil , Chevron , Schlumberger , and Halliburton
The Nasdaq just wrapped up its fifth straight week of gains, jumping 3.3% over the last five days. It’s the longest weekly winning streak for the tech-laden index since a stretch that ended in November 2021. Coming off its worst year since 2008, the Nasdaq is up 15% to start 2023.
The last time tech stocks enjoyed a rally this long, investors were gearing up for electric carmaker Rivian’s blockbuster IPO, the U.S. economy was closing out its strongest year for growth since 1984, and the Nasdaq was trading at a record.
This time around, there’s far less champagne popping. Cost cuts have replaced growth on Wall Street’s checklist, and tech executives are being celebrated for efficiency over innovation. The IPO market is dead. Layoffs are abundant.
Earnings reports were the story of the week, with results landing from many of the world’s most valuable tech companies. But the numbers, for the most part, weren’t good.
Applemissed estimates for the first time since 2016, Facebook parent Metarecorded a third straight quarter of declining revenue, Google‘s core advertising business shrank, and Amazon closed out its weakest year for growth in its 25-year history as a public company.
While investors had mixed reactions to the individual reports, all four stocks closed the week with solid gains, as did Microsoft, which reported earnings the prior week and issued lackluster guidance in projecting revenue growth this quarter of only about 3%.
Meta was the top performer among the group this week, with the stock soaring 23%, its third-best week ever. In its earnings report Wednesday, revenue came in slightly above estimates, even with sales down year over year, and the first-quarter forecast was roughly in line with expectations.
The key to the rally was CEO Mark Zuckerberg’s pronouncement in the earnings statement that 2023 would be the “Year of Efficiency” and his promise that “we’re focused on becoming a stronger and more nimble organization.”
“That was really the game-changer,” Stephanie Link, chief investment strategist at Hightower Advisors, said in an interview Friday with CNBC’s “Squawk Box.”
“The quarter itself was OK, but it was the cost-cutting that they finally got religion on, and that’s why I think Meta really took off,” she said.
Zuckerberg acknowledged that the times are changing. From the year of its IPO in 2012 through 2021, the company grew between 22% and 58% a year. But in 2022 revenue fell 1%, and analysts expect growth of only 5% in 2023, according to Refinitiv.
On the earnings call, Zuckerberg said he doesn’t expect declines to continue, “but I also don’t think it’s going to go back to the way it was before.” Meta announced in November the elimination of 11,000 jobs, or 13% of its workforce.
Link said the reason Meta’s stock got such a big bounce after earnings was because “expectations were so low and the valuation was so compelling.” The stock lost almost two-thirds of its value last year, far more than its mega-cap peers.
Apple, which slid 27% last year, gained 6.2% this week despite reporting its steepest drop in revenue in seven years. CEO Tim Cook said results were hurt by a strong dollar, production issues in China affecting the iPhone 14 Pro and iPhone 14 Pro Max, and the overall macroeconomic environment.
“Apple is navigating what is, of course, a very difficult environment quite well overall,” Dan Flax, an analyst at Neuberger Berman, told “Squawk Box” on Friday. “As we move through the coming months and quarters, we’ll see a return to growth and the market will begin to discount that. We continue to like the name even in the face of these macro challenges.”
Amazon CEO Andy Jassy, who succeeded Jeff Bezos in mid-2021, took the unusual step of joining the earnings call with analysts Thursday after his company issued a weaker-than-expected forecast for the first quarter. In January, Amazon began layoffs, which are expected to result in the loss of more than 18,000 jobs.
“Given this last quarter was the end of my first full year in this role and given some of the unusual parts in the economy and our business, I thought this might be a good one to join,” Jassy said on the call.
Managing expenses has become a big theme for Amazon, which expanded rapidly during the pandemic and subsequently admitted that it hired too many people during that period.
“We’re working really hard to streamline our costs,” Jassy said.
Alphabet is also in downsizing mode. The company announced last month that it’s slashing 12,000 jobs. Its revenue miss for the fourth quarter included disappointing sales at YouTube from a pullback in ad spending and weakness in the cloud division as businesses tighten their belts.
Ruth Porat, Alphabet’s finance chief, told CNBC’s Deirdre Bosa that the company is meaningfully slowing the pace of hiring in an effort to deliver long-term profitable growth.
Alphabet shares ended the week up 5.4% even after giving up some of their gains during Friday’s sell-off. The stock is now up 19% for the year.
Ruth Porat, Alphabet CFO, at the WEF in Davos, Switzerland on May 23rd, 2022.
Adam Galica | CNBC
Should the Nasdaq continue its upward trend and notch a sixth week of gains, it would match the longest rally since a stretch that ended in January 2020, just before the Covid pandemic hit the U.S.
Investors will now turn to earnings reports from smaller companies. Some of the names they’ll hear from next week include Pinterest, Robinhood, Affirm and Cloudflare.
Another area in tech that flourished this week was the semiconductor space. Similar to the consumer tech companies, there wasn’t much by way of growth to excite Wall Street.
AMD on Tuesday beat on sales and profit but guided analysts to a 10% year-over-year decline in revenue for the current quarter. Intel, AMD’s primary competitor, reported a disastrous quarter last week and projected a 40% decline in sales in the March quarter.
Still, AMD jumped 14% for the week and Intel rose almost 8%. Texas Instruments and Nvidia also notched nice gains.
The semiconductor industry is dealing with a glut of extra parts at PC and server makers and falling prices for components such as memory and central processors. But after a miserable year in 2022, the stocks are rebounding on signs that an easing of Federal Reserve rate increases and lightening inflation numbers will give the companies a boost later this year.
AMD Chair and CEO Lisa Su speaks at the AMD Keynote address during the Consumer Electronics Show (CES) on January 4, 2023 in Las Vegas, Nevada.
Robyn Beck | AFP | Getty Images
AMD reported fourth-quarter earnings on Tuesday, beating Wall Street expectations for sales and profit, but guided analysts to a 10% decline in year-over-year sales in the current quarter. The stock rose over 3% in extended trading. Here’s how the company did versus Refinitiv consensus estimates for the quarter ending in December:
EPS: $0.69, adjusted, versus $0.67 per share expected
Revenue: $5.6 billion, versus $5.5 billion expected
AMD said it expected $5.3 billion in sales in the current quarter, slightly lower than a Refinitiv estimate of $5.47 billion. AMD’s estimate suggests a 10% decline in sales in the current quarter. AMD’s sales rose 44% in the December quarter.
The company also said it expected its adjusted gross margin to be about 50%, a key metric for chipmakers.
AMD reported earnings as many of its rival chipmakers have stumbled in recent weeks, citing lower consumer demand for finished electronics and gluts of parts needed to make PCs and servers. Intel, AMD’s primary competitor, reported a disastrous quarter last week that included a weak 2023 outlook.
The chipmaker attributed its beat to strong growth in its embedded and data center businesses, and said that its client revenue, or chips for PCs and laptops, and its gaming segment were down.
AMD’s data center segment rose 42% year-over-year to $1.7 billion. Its embedded segment grew 1,868%, AMD said, because of sales from its purchase of Xilinx.
While AMD said it saw slow sales for its PC chips and graphics processors, it said its data center segment rose 42% year-over-year, suggesting it took market share from Intel.
But its client group, which includes sales from PC processors, was down 51% year-over-year because of a slumping PC market, AMD said. It added that its customers have too much inventory of its chips, a theme other semiconductor companies have mentioned in recent weeks. The global PC market is in a protracted slowdown, according to estimates.
AMD CEO Lisa Su said the PC environment was “weak” in a statement.
“Although the demand environment is mixed, we are confident in our ability to gain market share in 2023 and deliver long-term growth based on our differentiated product portfolio,” Su said in a statement.
AMD’s gaming business, which is comprised of graphics cards and chips for gaming consoles, was down 7% year-over-year. The decrease came from graphics cards and was offset by “semi-custom” revenue, which how the company reports sales from chips for gaming systems like the PlayStation 5.
AMD expects that the segments with PC chips and graphics processors will continue to decline in the current quarter, but data center and embedded sales will grow.
Advanced Micro Devices Inc. shares rose in the extended session Tuesday after the chip maker’s data-center sales gained and executives forecast sales of more than $5 billion to start 2023, even as cloud-customer demand begins the year light.
AMD shares AMD rose 3% after hours, following a 3.7% gain in the regular session to close at $75.15.
CNBC’s Jim Cramer on Friday said that Wall Street’s recent gains could continue next week depending on the Federal Reserve’s actions.
“A decision not to raise rates at all might show too much weakness. A quarter-point with a statement that they’ll remain vigilant will allow the bulls to party on,” he said.
The central bank is set to conclude its first meeting of the year on Wednesday, which Wall Street largely expected to beget a quarter-percentage point interest rate hike.
Cramer said he’ll also have his eye on the January nonfarm payrolls report set to be released Friday. “If wage inflation’s very strong, the quarter-point move will be criticized. If it’s weaker, we’ll be hearing all about that hard landing,” he said.
All estimates for earnings, revenue and economic data are courtesy of FactSet.
Q4 2022 earnings release at 4:05 p.m. ET; conference call at 5 p.m. ET
Projected EPS: $2.26
Projected revenue: $31.54 billion
“All I know is the stock’s had a real run, and while we own it for the Charitable Trust, we’re not pounding the table on this one. Not here,” Cramer said.
When Advanced Micro Devices (AMD) reports quarterly earnings next week, the Club holding’s results should not look nearly as bad as longtime rival Intel ‘s (INTC) dismal numbers. AMD’s quarter is unlikely to be perfect and may even be underwhelming in some areas. The semiconductor market — especially on the personal computer side where both AMD and Intel operate — remains challenged overall. But the magnitude of the Intel’s disappointment stems from many company-specific factors, including lost market share to chip peers such as AMD. It’s an important distinction that Friday’s stock moves seem to reflect. Intel shares fell more than 7%, to under $28 apiece. Meanwhile, AMD shook off minor losses early in the session to climb more than 1% to roughly $76 per share. What the Club thinks To be sure, we are relatively cautious on AMD and believe investors should wait before buying additional shares as reflected by our 2 rating . But this was the case before Intel’s worse-than-feared earnings were released after the closing bell Thursday. Before turning more bullish, we want clarity on when AMD’s margins will no longer be squeezed by an inventory glut. This multi-quarter, industrywide problem will likely show up in the fourth-quarter results AMD is scheduled to release after Tuesday’s close. The company’s forward guidance should offer an indication on when the margin pressure will ease. At the same time, the big picture is clear. AMD has taken the upper hand in its rivalry against Intel. Under CEO Lisa Su, the chip designer has built a track record of consistent execution and developed technology that’s superior to Intel. It’s put AMD in position to be one of the leaders of the semiconductor industry’s eventual recovery. AMD INTC 5Y mountain Advanced Micro Devices (AMD) vs. Intel (INTC) stock performance over the past 5 years What Wall Street says about Intel Intel failed to meet analysts’ already-low expectations on both fourth-quarter results and guidance, leading to a cascade of critical Wall Street research notes. “We have written the phrase ‘Worst earnings report in our history of covering this company’ on more than one occasion over the last couple of years. But this time we REALLY mean it,” wrote Stacy Rasgon, the noted semiconductor analyst at Bernstein. In the three months ended Dec. 31, Intel earned an adjusted 10 cents per share, compared with an EPS estimate of 20 cents, according to Refinitiv. Revenue fell 32% year over year to $14.04 billion, missing expectations of $14.45 billion. The company’s first-quarter forecast was even worse in the minds of analysts. Intel guided to or an adjusted loss of 15 cents per share in the first quarter, when analysts expected earnings of 24 cents, according to Refinitiv. The chipmaker’s first-quarter sales estimate of between $10.5 billion and $11.5 billion was far below the $13.93 billion consensus estimate. “While we were braced for a weaker number, and had cut estimates in our preview, the magnitude of the weaker guidance was quite surprising to both us and to investors that we talked to,” analysts at Morgan Stanley wrote in a note to clients. Multiple analysts also raised concerns about the sustainability of Intel’s dividend at current levels due to the significant amount of cash flow the company is burning. In 2022, Intel paid out $6 billion in dividends to shareholders. On Thursday’s post-earnings call, Intel’s finance chief, David Zinsner, said the company was “committed to maintaining a competitive dividend. AMD does not pay a dividend. Implications for AMD Morgan Stanley said it believes Intel’s results are “cautious” for peers, especially AMD. “To some degree, we do think that Intel’s inventory position is higher at customers than peers, and share loss in servers is a factor for them. But this clearly indicates even weaker conditions than we were expecting,” the analysts said. “We remain enthused for the year to play out for AMD, and we like the stock longer term -but there is no getting around that this is an anxiety inducing report for them.” Bank of America sees Intel’s results as “only incrementally negative” for AMD, partially because the analysts believe AMD’s inventory correction in the second half of the year was larger than Intel’s. This led the analysts to lower their expectations for AMD’s first-quarter PC sales already, lowering the risk of a major guidance disappointment like with Intel. Analysts at investment bank Cowen said they expect Intel to continue losing market share to AMD in key parts of the data center and server chip market. AMD’s multiyear push into that lucrative market is central to the Club’s investment case. “As Intel itself proved for [over a decade], unseating a well-executing incumbent is difficult,” the analysts wrote. (Jim Cramer’s Charitable Trust is long AMD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Intel Foundry Services will manufacture multiple chips for MediaTek for a range of smart edge devices, the two companies said on Monday.
Fabian Bimmer | Reuters
When Advanced Micro Devices (AMD) reports quarterly earnings next week, the Club holding’s results should not look nearly as bad as longtime rival Intel‘s (INTC) dismal numbers.
Looking at the worst-performing sectors, you might wonder why the consumer discretionary and communication services sectors have fared worse than information-technology, the core tech sector. One reason is that S&P Dow Jones Indices can surprise investors with its sector choices. The consumer discretionary sector includes Tesla Inc. TSLA, +0.70%
and Amazon.com Inc. AMZN, -1.17%,
which has fallen nearly 50% this year. The communications sector includes Meta Platforms Inc. META, -1.21%,
along with Match Group Inc. MTCH, +0.50%,
which is down 69% for 2022, and Netflix Inc. NFLX, -0.44%,
which is down 52% this year.
There have been many reasons easy to cite for Big Tech’s decline, such as a questionable change in strategy for Facebook’s holding company, Meta, as CEO Mark Zuckerberg has put so much of the company’s resources into developing a new world that most people don’t wish to enter, at least yet. Meta’s shares were down 64% for 2022 through Dec. 29.
You might also blame the Twitter-related antics and sales of Tesla shares by CEO Elon Musk for the 65% decline in the electric-vehicle maker’s stock this year. But Tesla had a forward price-to-earnings ratio of 120.3 at the end of 2021, while the S&P 500 SPX, -0.72%
traded for 21.4 times its weighted forward earnings estimate, according to FactSet. Those P/E ratios have now declined to 21.7 and 16.4, respectively. So Tesla no longer appears to be a very expensive stock, especially for a company that increased its vehicle deliveries by 42% in the third quarter from a year earlier.
Click on the tickers for more information about the companies.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
Another way of measuring the biggest stock-market losers of 2022
It is one thing to have a large decline based on the share price, but that doesn’t tell the entire story. How much of a decline have investors seen in the holdings of their shares during the year? The S&P 500’s total market capitalization declined to $31.66 trillion as of Dec. 28 (the most recent figure available) from $40.36 trillion at the end of 2021, according to FactSet.
Shareholders of these companies have suffered the largest declines in market cap during 2022.
Amazon Web Services has been the biggest growth engine for its parent company over much of the past decade, taking business from some of the largest tech vendors in the world.
But as corporations face the most daunting economic environment since the 2008 financial crisis, those massive checks they’re writing to AWS for their tech infrastructure are getting greater scrutiny.
Peter Kern, CEO of online travel company Expedia Group, sees the cloud as an area where his company can reduce its fixed costs. In recent years, Expedia has moved considerable parts of its operations to AWS from on-premises data centers.
“We haven’t fully optimized the cloud,” Kern said during the company’s earnings call last month. “We’ve moved a lot of technology into the cloud, but we have a lot of work to do.”
U.S. stocks are poised to close out their worst year since 2008. Central bankers have continued to lift interest rates to address rising prices, prompting skittishness about economic deterioration by consumers and businesses. Executives are in cash-preservation mode to appease Wall Street and make sure they’re in position to weather a potential recession.
The National Football League, which uses AWS to produce statistics and schedules, is making conservative plans around costs, said Jennifer Langton, the NFL’s senior vice president of health and innovation.
“We are not recession proof,” Langton told CNBC during an interview at AWS’ annual Reinvent customer conference in Las Vegas this week. The league is negotiating with AWS on the terms of a renewed multi-year agreement, and there are some areas her organization wants to prioritize, she said.
Amazon knows customers are facing challenges. In some cases, Amazon cloud employees reach out to clients to see how it can help optimize spending, said David Brown, AWS’ vice president responsible for the core EC2 computing service. At other times, customers contact AWS, he said.
AWS is coming off its slowest period of expansion since at least 2014, the year Amazon started reporting on the group’s finances. It also missed analysts’ estimates. Still, the division recorded growth of 27.5%, outpacing Amazon’s overall growth of 15%. And it generated $5.4 billion in operating income, accounting for more than 100% of profit for its parent company.
With such a hefty cash balance, AWS can afford to accommodate customers in the short term if it means more business in the future. The company did the same thing during the pandemic in 2020, when Amazon sent some users an email with an offer of financial support.
AWS isn’t the sole big cloud provider that’s dealing with customers’ budget constraints. In the third quarter, Microsoft’s Azure consumption growth moderated as the company helped clients optimize existing workloads, finance chief Amy Hood said in October. Amazon leads the market in cloud computing, with an estimated 39% share.
“If you’re looking to tighten your belt, the cloud is the place to do it,” AWS CEO Adam Selipsky said during his keynote presentation in front of over 50,000 people on Tuesday. Selipsky said that moving IT jobs to the cloud could help budget-strapped organizations save money, citing customers Agco and Carrier Global.
Not everyone agrees. Last year, investors Sarah Wang and Martìn Casado of venture firm Andreessen Horowitz published an analysis, showing that a company could trim its computing costs by half or more by bringing workloads from the cloud back to on-premises data centers.
Amazon is trying to give customers options to reduce costs. It offers Graviton computing instances based on energy-efficient Arm-based chips, a less expensive alternative to instances using standard AMD and Intel processors.
“Customers of every size have adopted Graviton, and they’re achieving up to 40% better price performance simply by shifting their workloads to Graviton instances,” Selipsky said. He said AT&T‘s DirecTV unit was able to eliminate 20% of computing costs by adopting current-generation Graviton chips.
Selipsky told CNBC’s Jon Fortt in an interview that AWS teams are working with customers that are trying to become more efficient.
“We do see some customers who are doing some belt-tightening now,” Selipsky said. One example is data analytics software maker Palantir, which said last month its operating profit in the third quarter was higher than expected primarily because of cloud and deployment efficiencies.
Other companies are in on the trend. NetApp and VMware have acquired startups to help businesses streamline their cloud spending. On the Reinvent exhibition floor, several companies were promoting their cost-trimming capabilities.
Zesty, which announced a $75 million funding round in September, added Sainsbury and Silicon Laboratories to its customer list in the current quarter. The company’s technology can automatically adjust the amount of storage space a company is using to avoid waste.
CEO Maxim Melamedov said Zesty picked up a bunch of new leads at its Reivent booth, where the startup was handing out candy, socks and stuffed animals and giving visitors the chance to win AirPods.
“Some of my guys lost their voices,” Melamedov said. “We are 15 people constantly on our feet. We’re constantly talking.”
Wall Street expects these “tenbagger” stocks that enjoyed a meteoric rise over the past decade to continue their big gains. Identifying a tenbagger, or an investment that surges 10-fold from its purchase price, is the ultimate goal for professional stock pickers. The term was first coined by legendary investor Peter Lynch, an avid baseball fan who compared a stock’s growth prospects to two home runs and a double in the sport. According to history, since 1980, there have been 175 occurrences when a stock jumped 10-fold over a five-year period, according to a Monday note from AllianceBernstein. The firm found that tech names were most represented in the list of tenbaggers, and that they generated the highest average returns. These are followed by consumer cyclicals and health care products. “On net, our analyses find that Tech has historically provided disproportionate opportunity for alpha generation and 10-baggers, particularly over a 5-year period. Over longer time-frames, 10-baggers are more prevalent across the broader market, but tech’s big winners win much bigger than other sectors,” AllianceBernstein’s A.M. (Toni) Sacconaghi, Jr. wrote. With that in mind, CNBC Pro searched for tenbagger stocks from the past decade that analysts believe will continue to make outsized gains. Of course, they may not advance another 10 times from here, but analysts like their prospects. Not only have these names posted a compound total return greater than 1,000% over the past 10 years, they’re also forecasted to jump more than 20% to their consensus 12-month price targets, according to FactSet data. What’s more, they have a 2022 estimated earnings per share growth rate of more than 20%, and an estimated annual long-term EPS growth rate of more than 20%. Here are five tenbagger names Wall Street likes. Tesla enjoyed a meteoric rise that generated returns of over 11,000% in the past decade. Despite the eye-popping gains, Wall Street expects the stock can climb even further from here — roughly 37% in the next 12 months. The electric vehicle maker is expected to grow earnings per share by 81% in 2022. Its estimated annual long-term growth estimate is also forecasted to be about 28%. Tesla could emerge a winner among electric vehicle makers as it raises capacity, Piper Sandler’s Alexander Potter said in a note this week. The analyst, who has an overweight rating on Tesla, said the electric vehicle company could soon cut prices as it raises manufacturing capacity in its facilities in Shanghai and Tesla, and burns through its backlog. “We think the order backlog is 310k+ units, with book-to-bill trending < 1.0 for the past four months. Tesla’s capacity will only keep rising, foretelling eventual price cuts, in our view. As noted elsewhere in our work, we think price cuts could drive periodic sell-offs in the coming months, but overall, when Tesla cuts price, the real losers will be Tesla’s peers (not Tesla itself),” Potter wrote. Advanced Micro Devices surged more than 2500% over the past decade. Analysts expect that the semiconductor company will enjoy roughly 50% upside over the next 12 months. It’s forecasted to grow 2022 earnings per share by about 28%, while the annual long-term growth estimate stands at about 35%. While AMD missed third-quarter earnings expectations this week, Morgan Stanley analysts remained overweight on the stock, saying that the worst is behind the stock. “Continued PC weakness into 4q weighs on numbers, and the dust hasn’t completely cleared, but modest data center growth in 4q should be a relief; we like the stock for next year server gains,” Morgan Stanley’s Joseph Moore said in a Wednesday note. Monolitic Power Systems has a more than 1900% 10-year compound total return. Over the next 12 months, the stock is predicted to jump another 35%. Its 2022 earnings per share growth estimate is 66%, while its annual long-term share growth is forecasted to be 26%. Other stocks include Fortinet and ServiceNow .
