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Stock futures pointed higher Friday as Wall Street returned for a shortened trading session following the Thanksgiving holiday. Retailers will be in focus on Black Friday, which marks the unofficial start to the Christmas shopping season.
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With yet another blowout earnings report, Nvidia Corp. has ended an earnings recession in the U.S. and helped to solidify the continuation of a drastic change to corporate profits.
Nvidia NVDA on Tuesday rode enduring demand for hardware that is essential for artificial-intelligence tasks to yet another record quarter, as revenue tripled and profit zoomed more than 1,300% higher year over year. Nvidia recorded earnings of more than $9 billion in just three months, a total it had never achieved in a full year before 2022.
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U.S. stock futures on Tuesday showed the November rally stalling ahead of results from AI chipmaker Nvidia.
On Monday, the Dow Jones Industrial Average DJIA rose 204 points, or 0.58%, to 35151, the S&P 500 SPX increased 33 points, or 0.74%, to 4547, and the Nasdaq Composite COMP gained 159 points, or 1.13%, to 14285.
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Updated Nov. 20, 2023 6:34 am ET
SAN FRANCISCO—Microsoft said it is hiring Sam Altman to helm a new advanced artificial-intelligence research team, after his bid to return to OpenAI fell apart Sunday with the board that fired him declining to agree to the proposed terms of his reinstatement.
Microsoft Chief Executive Satya Nadella posted on X (formerly Twitter) late Sunday that Altman and Greg Brockman, OpenAI’s president and co-founder who resigned Friday in protest over Altman’s ouster, will lead its team alongside unspecified colleagues. Nadella said Microsoft was committed to its partnership with OpenAI and that it would move quickly to provide Altman and Brockman with “the resources needed for their success.”
Copyright ©2023 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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It’s filing season for a string of major hedge funds, and big tech names like Apple, Microsoft, and Nvidia were among the most-traded equities in the third quarter.
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Soros Fund Management, the investment firm founded by billionaire George Soros, took new positions or bulked up on IPOs and a number of tech names during the third quarter.
But it sold off small holdings of some of the largest — like Nvidia Corp. and Microsoft Corp. — as well as electric-vehicle maker Rivian Automotive.
According to a filing on Tuesday, the firm during the third quarter bought up 325,000 shares of chip designer Arm Holdings
ARM,
which went public in September, for $17.4 million. It also bought smaller stakes in recent IPOs such as Maplebear Inc.
CART,
better known as grocery-delivery platform Instacart, and digital-marketing firm Klaviyo Inc.
KVYO,
Those purchases were disclosed as investors remain cautious on new IPOs.
Elsewhere, the fund took a new position, of around 41,000 shares, in Apple Inc.
AAPL,
And it did so as well for Datadog Inc.
DDOG,
buying 62,000 shares during the quarter. It also bought up 574,962 shares of Splunk, and took fresh positions in Snowflake Inc.
SNOW,
and Taiwan Semiconductor
TSM,
Soros also packed on more to some of its other tech holdings. It added 125,000 shares to its stake in Uber Technologies Inc.
UBER,
boosting its position by 16.6% for a total of 878,955 shares. It also bought 42,000 more shares of another gig-economy player, DoorDash Inc.
DASH,
a 30.9% increase for 178,075 shares.
While Soros boosted its stake in General Motors
GM,
it sold off its 4.2 million shares in Rivian
RIVN,
The firm also sold off its positions — of roughly 10,000 shares apiece — in tech giants Microsoft
MSFT,
and Nvidia
NVDA,
Soros Fund Management also sold off its stake in Walt Disney Co.
DIS,
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These Stocks Are Moving the Most Today: Plug Power, Trade Desk, Doximity, Unity Software, Illumina, Wynn, and More
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Unity Software Inc.’s stock fell about 12% in extended trading Thursday after the company reported a revenue miss and withheld from offering guidance.
“Our results in the third quarter were mixed,” Unity
U,
said in a letter to shareholders. “While revenue came in within guidance, we believe we can do better.”
The beleaguered game-engine software company has been whipsawed by a series of missteps and departures. In September, it announced new fees based on the number of people who install games built with Unity’s editor software — only to backtrack and revamp its plan following a chorus of complaints that dented the stock. Last month, John Riccitiello announced he was retiring as chief executive, effective immediately.
Also read: Opinion: Unity Software has a fleeting moment to win back developers — and investors
“While we did not expect the introduction of the fees to be easy, the execution created friction with our customers and near-term headwinds,” Unity said in the letter. “We expect the impact of this business-model change to have minimal benefit in 2024 and ramp from there as customers adopt our new releases.”
Unity executives are mulling several new strategies that include layoffs, a reduction in office space and product discontinuations, but it did not offer timing or guidance, according to the shareholder letter.
Unity reported a fiscal third-quarter net loss of $125.3 million, or 32 cents a share, compared with a net loss of $250 million, or 84 cents a share, in the year-ago quarter.
Revenue was $544.2 million, up from $322.9 million a year ago.
Analysts surveyed by FactSet had expected revenue of $554 million.
Shares of Unity have dipped 12% this year. The broader S&P 500 index
SPX,
is up 13% in 2023.
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Virgin Galactic said it would cut jobs and expenses to focus on producing its lower-cost Delta spaceships.
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Commercial space-flight operator Virgin Galactic Holdings Inc. on Tuesday said it would cut staff in an effort to focus on developing its new class of Delta spacecraft that are expected to cost less and bring more profit.
Management, in an email to employees, did not offer specific figures on the cuts, while citing a shaky investing environment as part of the reason for them. The message said the company would offer more details during its third-quarter earnings call on Wednesday.
Virgin Galactic
SPCE,
when reached on Tuesday, declined to offer additional information. Executives over the summer said they expected commercial service for Delta ships to begin in 2026, after testing in 2025.
Shares were little changed after hours on Tuesday. The stock has fallen 50.4% so far this year.
The cuts follow a handful of space flights this year from Virgin Galactic, which was founded by billionaire Richard Branson. But Chief Executive Michael Colglazier, in the email, said that following successes from the spaceship Unity and its carrier mothership, Eve, the company needed to “reduce our reliance on unpredictable capital markets.”
“To profitably scale our business, we must first invest upfront capital to create a fleet of ships based on a standardized production model — the Delta Class ships,” Colglazier said in the email.
He added that “uncertainty has grown in the capital markets,” with higher interest rates pressuring borrowing and “geopolitical unrest” making for a more cautious environment. He said the Delta spacecraft played a key role in expanding flight service and profitability, and that it was crucial to focus on bringing them into service.
“Interest rates remain high, which adds pressure to companies who are investing today for profits that will come in the future,” he said. “Geopolitical unrest continues to expand, and the combination of these factors makes near-term access to capital much less favorable.”
“The Delta ships are powerful economic engines,” he continued. “To bring them into service, we need to extend our strong financial position and reduce our reliance on unpredictable capital markets. We will accomplish this, but it requires us to redirect our resources toward the Delta ships while streamlining and reducing our work outside of the Delta program.”
He said employees would be notified of their job status between Tuesday and Thursday. Employees will be working from home for the rest of the week, Colglazier said, adding that on-site work locations would be unavailable through that time.
“Delta ships have been designed to have a relatively low unit-production cost and have a material improvement flight cadence relative to our initial ship, VSS Unity,” Colglazier said on Virgin Galactic’s earnings call in August.
“The Delta development process has yielded some excellent enhancements to the ship’s architecture, particularly with regard to manufacturability and maintainability,” he said. “And we are tracking well against our primary ship-performance criteria.”
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Datadog stock surged Tuesday after the security software provider generated more profit than expected in the quarter and raised its sales outlook for the full year.
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RingCentral Inc.’s stock jumped about 10% in after-hours trading Monday after it reported a narrowing quarterly loss, results that beat analysts’ forecasts on the top- and bottom-lines, and sales projections that were raised.
The cloud-based communications company
RNG,
posted a third-quarter net loss of $42.1 million, or 45 cents a share, compared with a net loss of $284.6 million, or $2.98 a share, in the same quarter a year ago. Adjusted earnings were 78 cents a share.
Total revenue improved nearly 10% to $558.2 million from $509 million a year ago. Subscription sales were $531 million, or about 95% of total
revenue.
Analysts polled by FactSet had forecast on average adjusted earnings of 75 cents a share and revenue of $554 million.
“The results speak for themselves: Our solid third-quarter results demonstrate our ability to drive long-term durable, profitable growth,” RingCentral Chief Executive Tarek Robbiati said in an interview. This marks his first quarter as company CEO after five years as chief financial officer at Hewlett Packard Enterprise Co.
HPE,
Robbiati credited his predecessor for the quarterly performance and vowed to “infuse AI into everything we do.”
“We are leveraging AI into our core of products,” he added. “AI is a massive trend in turbo-charging productivity.”
At the same time, RingCentral raised its annual total revenue guidance to between $2.198 billion and $2.205 billion. FactSet analysts are projecting $2.198 billion.
The company’s board last week also authorized an incremental $100 million stock-repurchase plan.
Shares of RingCentral are down 20% in 2023; the broader S&P 500 index
SPX
is up 14%.
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Going back decades, if you wanted to buy or sell a stock on the open market, you had to pay a 2% commission to buy and a 2% commission to sell. Then the advent of discount brokerage, led by Charles Schwab Corp.
SCHW,
made lower commissions available until eventually, with improved technology and efficiency, the entire industry changed to enable the average investor to avoid commissions completely.
But the internet hasn’t done much to reduce the cost of selling a home in the U.S. Sellers typically pay a 6% commission to a real-estate agent to list and sell a home, with the seller’s agent splitting that commission with the buyer’s agent. But all of that may change because of a verdict this week in a class-action lawsuit in federal court against the National Association of Realtors.
Aarthi Swaminathan covers the case, what may happen next and the implications for home sellers and buyers:
Quentin Fottrell — the Moneyist — works with three readers to answer tricky real-estate questions:
On Wednesday, Federal Reserve Chair Jerome Powell may have bolstered the case that the central bank is finished raising interest rates for this economic cycle. The federal-funds rate was left in its target range of 5.25% to 5.50%.
Jon Gray, the president of Blackstone Group, spoke with MarketWatch Editor in Chief Mark DeCambre and said he expected the Fed to succeed in bringing down inflation without pushing the U.S. economy into a deep recession.
Friday employment numbers: Jobs report shows 150,000 new jobs in October as U.S. labor market cools
FactSet
Normally, longer-term bonds have higher yields than those with short maturities. But the yield curve has been inverted for nearly a year, with 3-month U.S. Treasury bills
BX:TMUBMUSD03M
having higher yields than 10-year Treasury notes
BX:TMUBMUSD10Y.
There has been elevated demand for long-term bonds, as investors have anticipated a recession and a reversal in Federal Reserve interest-rate policy. When interest rates decline, bond prices rise and vice versa.
As you can see on the chart above, the yield curve was narrowing until mid-October. Yields on 10-year Treasury notes were close to 5% on Oct. 19, but they have been falling the past several days as the three-month yield has remained close to 5.5%.
In this week’s ETF Wrap, Christine Idzelis reports on where all the money is flowing in the bond market.
In the Bond Report, Vivien Lou Chen summarizes the action as investors react to the Federal Reserve’s decision not to change its federal-funds-rate target range this week and to other economic news.
For income-seekers looking to avoid income taxes, here’s a deep dive into municipal bonds, with taxable-equivalent yields and a deeper look at those within four high-tax states.
Getty Images
Ford Motor Co.’s
F,
credit rating was upgraded to an investment-grade rating by Standard & Poor’s on Monday. This takes about $67 billion in bonds out of the high-yield, or “junk,” market, as Ciara Linnane reports.
Courtesy Everett Collection
By now you have probably heard the term “Magnificent Seven” used to describe stocks of the tremendous tech-oriented companies that have led this year’s rally for the S&P 500
SPX
: Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Amazon.com Inc.
AMZN,
Nvidia Corp.
NVDA,
Alphabet Inc.
GOOGL,
GOOG,
Meta Platforms Inc.
META,
and Tesla Inc.
TSLA,
With Tesla’s recent decline, that company is now the ninth-largest holding in the portfolio of the SPDR S&P 500 ETF Trust
SPY,
which tracks the benchmark index. Here are the top 10 companies held by SPY (11 stocks, including two common-share classes for Alphabet), with total returns through Thursday:
| Company | Ticker | % of SPY portfolio | 2023 total return | 2022 total return | Total return since end of 2021 |
| Apple Inc. |
AAPL, |
7.2% | 37% | -26% | 1% |
| Microsoft Corp. |
MSFT, |
7.1% | 46% | -28% | 5% |
| Amazon.com Inc. |
AMZN, |
3.5% | 64% | -50% | -17% |
| Nvidia Corp. |
NVDA, |
3.0% | 198% | -50% | 48% |
| Alphabet Inc. Class A |
GOOGL, |
2.1% | 44% | -39% | -12% |
| Meta Platforms Inc. Class A |
META, |
1.9% | 158% | -64% | -8% |
| Alphabet Inc. Class C |
GOOG, |
1.8% | 45% | -39% | -11% |
| Berkshire Hathaway Inc. Class B |
BRK.B, |
1.8% | 13% | 3% | 17% |
| Tesla Inc. |
TSLA, |
1.7% | 77% | -65% | -38% |
| UnitedHealth Group Inc. |
UNH, |
1.4% | 2% | 7% | 9% |
| Eli Lilly and Company |
LLY, |
1.3% | 60% | 34% | 115% |
| Sources: FactSet, State Street (for SPY holdings) | |||||
Five of these stocks (including the two Alphabet share classes) are still down from the end of 2021. SPY itself has returned 14% this year, following an 18% decline in 2022. It is still down 7% from the end of 2021.
Mark Hulbert makes the case that a decade from now, the Magnificent Seven are unlikely to be among the largest companies in the stock market.
More from Hulbert: These dividend stocks and ETFs have healthy yields that can lift your portfolio
A different market opportunity: India is seeing a multidecade growth surge. Here’s how you can invest in it.
The MarketWatch 50 series is back, with articles and video interviews starting this week, including:
MarketWatch/PayPal
After the market close on Wednesday, PayPal Holdings Inc.
PYPL,
announced quarterly results that came in ahead of analysts’ expectations, and the stock soared 7% on Thursday even though the company lowered its target for improving its operating margin.
In the Ratings Game column, Emily Bary reports on the positive reaction to PayPal’s new CEO, Alex Chriss.
A less enthusiastic earnings reaction: EV-products maker BorgWarner’s stock suffers biggest drop in 15 years after downbeat sales outlook
Mario Tama/Getty Images
Here’s more of the latest corporate financial results and reactions. First the good news:
And now the news that may not be so good:
AP
It might seem that some legal battles never end, but it took only a year from the collapse of FTX for the cryptocurrency exchange’s founder, Sam Bankman-Fried, to be convicted on all seven federal fraud and money-laundering charges brought against him. The charges were connected to the disappearance of $8 billion from FTX customer accounts.
Here’s more reaction and coverage of the virtual-currency industry:
Want more from MarketWatch? Sign up for this and other newsletters to get the latest news and advice on personal finance and investing.
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Microsoft Corp. and Alphabet Inc. both reported mostly strong results Tuesday, but the disparate reactions from investors showed that Wall Street only cares about artificial intelligence right now.
While Microsoft shares
MSFT,
rose 4% in after-hours trading following the company’s latest report, Alphabet shares
GOOG,
GOOGL,
dropped 6% as Wall Street got the sense that AI is manifesting differently in the companies’ cloud businesses.
Microsoft surprised investors with 28% constant-currency growth in its Azure cloud-computing business, above the company’s own forecast and the projection for 25.6% growth that analysts were modeling on average. While Microsoft continues to see “optimization” challenges as customers remain conscious about their spending, the company is also benefiting from AI tailwinds in the cloud.
Companies looking to beef up their AI offerings are often looking to add AI services for their customers through additional cloud services, so they don’t have to do as much internal development themselves. In addition, AI offerings ranging from chatbots to tools that can streamline the writing of reports require ever more computing power, and both Azure and Google Cloud are starting to offer new software applications to address those needs.
Microsoft Chief Executive Satya Nadella called AI a “unique and different” factor that was helping Azure trends. “Given our leadership position, we are seeing complete new project starts, which are AI projects,” he said in response to an analyst question about the sustainability of cloud growth rates.
In addition, Microsoft, which has invested heavily in ChatGPT-creator OpenAI, offers an Azure OpenAI service that more than 18,000 organizations are now using. Some of these customers are new to Azure.
Microsoft Chief Financial Officer Amy Hood forecast that Azure revenue growth should be around 26% in constant currency in the fiscal second quarter, driven by new workload trends and with the growing contributions from AI.
Investors seem less confident that Alphabet is seeing the same tailwinds in its Google Cloud business, especially as that segment showed its slowest quarterly growth since Google began breaking out results that way back in 2019. Cloud revenue of $8.4 billion, with growth of 22%, was $250 million shy of consensus estimates on Wall Street, according to Colin Sebastian, an analyst with Baird. That overshadowed an upbeat performance in the company’s advertising business.
When one analyst asked Alphabet executives about the deceleration in the revenue growth of its cloud business, Chief Executive Sundar Pichai was vague but said that customers are being selective of where they are spending their IT budgets.
“On cloud, what I would say is overall, we have definitely started seeing customers looking to optimize spend,” Pichai said. “We leaned into it to help customers, given some other challenges they were facing, and so that was a factor.”
Alphabet is seeing “a lot of interest in AI,” but it remains to be seen whether that’s contributing materially to its financial performance just yet.
“Google Cloud missed consensus revenue expectations (although in line with Baird) on slowing growth, and we believe consistent with the view that newer Gen-AI workloads will take time to move the needle,” Sebastian wrote in a note to clients.
Insider Intelligence senior analyst Max Willens added that Google Cloud is facing tough competition, and while the business seems to have traction with AI startups that “may bear fruit in the long run, it is not currently helping Google Cloud enough to satisfy investors.”
Wall Street clearly is looking to AI to fuel better growth rates and help offset sluggish macroeconomic trends. The poster child for that dynamic is Nvidia Corp.
NVDA,
which is expected to single-handedly drive earnings growth for the information technology sector thanks to booming demand for its AI hardware.
Given economic pressures, it’s becoming obvious that companies without much of an AI story to contribute this quarter will continue to fall out of favor with investors.
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Microsoft shares were trading higher after the company posted better-than-expected financial results for its September quarter, aided by better performance than expected from the company’s cloud computing business.
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“ ‘You have to get yourself to believe that it’s not that hard, because it’s way harder than you think. If I go taking all of my knowledge now and I go back, and I said, I’m going to endure that whole journey again, I think it’s too much. It is just too much.’ ”
That was one of the world’s most visionary tech-sector leaders, Nvidia
NVDA,
CEO Jensen Huang, who explained that building Nvidia was “a million times harder than I expected it to be” as he theorized that “nobody in their right mind would do it” if they were aware of the true personal toll.
The Taiwan-born 60-year-old, whose family relocated to Thailand and then the U.S. in his youth and is said to have co-founded Nvidia in 1993 following a meeting at a Denny’s restaurant in San Jose, Calif., after stints at AMD
AMD,
and LSI Logic, wouldn’t start his own company today, he said, if he were 30 years old.
The tech titan, however, posited in a recent interview with the podcast Acquired that a “superpower” among entrepreneurs is the ability to trick themselves into believing “it’s not that hard.”
Huang said that his biggest fear remains, as it has been since Nvidia’s early days, is failing to facilitate success among workers. “I’m afraid of the same things today that I was in the very beginning of this company, which is letting the employees down.”
Huang, who according to FactSet owns a 3.5% stake in Nvidia (market cap: $1.04 trillion), explained in the podcast interview that workers joining a company end up believing in its vision and taking on its aspirations as their own.
“You have a lot of people who joined your company because they believe in your hopes and dreams, and they’ve adopted it as their hopes and dreams,” Huang said. “You want to be right for them. You want to be successful for them. You want them to be able to build a great life. … The greatest fear is that you let them down.”
In explaining how he persevered, despite doubts and challenges, in building Nvidia into the company it is today, Huang credited a “support network” of people who never gave up on him during the three-decade journey.
He explained that the experience of leading Nvidia during those periods when its share price has been in seeming free fall was almost “too much to endure,” after the company was first listed on public markets in 1999. “It’s embarrassing no matter how you think about it.”
His comments come as Nvidia’s share price has, again, been in retreat, losing ground following a major 245% surge over the previous 12 months.
More recently, the Santa Clara–based company’s stock was hit by the Biden administration’s decision to introduce tougher controls on the export of semiconductors to China.
Read: One semiconductor company is expected to grow sales nearly as quickly as Nvidia through 2025
Looking ahead, Huang said developments in artificial intelligence now pose an “enormous” opportunity for companies like Nvidia. “The market opportunity has grown by probably a thousand times,” he said.
He said AI will “create more jobs” in the near term, but he also warned that the creation of those jobs doesn’t mean certain other jobs will not be lost to automation. “If you become more productive and the company becomes more profitable, usually they hire more people to expand into new areas,” Huang said.
“Now, obviously, net generation of jobs doesn’t guarantee that any one human doesn’t get fired. That’s obviously true. It’s more likely that someone will lose a job to someone else, some other human that uses an AI,” he added.
He advised people to “learn how to use AI” as he argued that “jobs will change.”
As to Nvidia itself, Huang explained, the company — in a reflection of the products it sells — is structured like a “computing stack.”
He said “Nvidia’s not built like a military” with a top-down command and control system. Instead, Huang said, the company is organized like a “neural network” with a decentralized structure, reflecting a belief that “your organization should be the architecture of the machinery of building the product.”
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Hewlett Packard Enterprise Co. shares fell in the extended session Thursday after the company’s forecast for fiscal 2024 fell short of expectations.
HPE
HPE,
shares dropped as much as 4% after hours, following a 2.3% decline to close Thursday’s regular session at $16.30.
For fiscal 2024, HPE said it expects adjusted earnings of $1.82 to $2.02 a share, while analysts surveyed by FactSet had forecast, on average, $2.15 a share.
The company also forecast revenue growth of 2% to 4% in 2024, while analysts expect $29.63 billion, or 1.6% above their current consensus estimate for 2023 of $29.15 billion.
For the current fiscal year, HPE forecasts revenue to growth 4% to 6%, and adjusted earnings of $2.11 to $2.15 a share. Analysts expect $2.14 a share.
In August, HPE’s third-quarter earnings results came in slightly above expectations.
As of Thursday’s close, HPE shares were up 2.1% for the year, while the S&P 500 index
SPX
is up 11.4% over the same period.
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Nearly a year ago, OpenAI released ChatGPT 3 into the world, and investors got visions of dollar signs in their heads as they imagined the ways that artificial intelligence could make big money for businesses.
Wall Street’s now coming to terms with the fact that those sorts of paydays are going to take time. As investors have already seen from the past two quarters of earnings, AI has only really delivered financial benefits for a select few hardware companies so far — while spurring new costs for many others.
“The AI boom has already bifurcated into the contenders and pretenders,” said Daniel Newman, chief executive and principal analyst of Futurum Research. And while Advanced Micro Devices Inc., Intel Corp. and Arm Holdings PLC
ARM,
have stirred up interest, Nvidia Corp.
NVDA,
has established itself as far and away the greatest “contender,” with AI driving strong demand for its chips tuned for AI training.
Nvidia last quarter reported record earnings, including a 141% jump in revenue for its graphics chips used in AI infrastructure building up data centers. Nvidia, which reports near the end of earnings season on Nov. 21, posted record revenue of $13.5 billion last quarter and is expected to easily top that with $16 billion in the most recent quarter, a surge of 170% versus a year ago. Those estimates include $12.3 billion of revenue coming from data-center sales.
Other chip companies could post gains from AI as well, but to far lesser extents. Candidates include Broadcom Corp.
AVGO,
and system maker Super Micro Computer Inc.
SMCI,
as well as Marvell Technology Inc.
MRVL,
which last quarter told analysts that it expects to end the year at a revenue run rate of about $800 million this year from cloud/data-center chips related to AI.
“This is well above what we had outlined last quarter. Put this in perspective: This would put us at the run rate we had previously communicated for all of next year,” Marvel Chief Executive Matthew Murphy told analysts.
Super Micro is also riding the AI wave with its customized data-center servers that are designed to consume less power. But revenue in the September quarter is forecast to rise just 15% from a year ago and drop on a sequential basis, as supply constraints from Nvidia likely hampered Super Micro’s ability to meet all its demand.
Much as Advanced Micro Devices Inc.
AMD,
and Intel Corp.
INTC,
want to be in the AI conversations with the graphics chips they hope will be used for AI data-center applications, they won’t see much of an impact yet from AI revenue. Plus, those companies are experiencing a slowdown in PC sales that may overshadow any small benefit from AI chips.
The AI boom in chips is clearly not providing enough of a boost to lift finances for the overall semiconductor sector, which is forecast to see earnings fall 3.3% in the third quarter and post a revenue decline of 0.6%, according to FactSet. The industry is being dragged down in part by Micron Technology Inc.
MU,
which reported a 40% drop in revenue and a whopping fiscal fourth-quarter loss in late September for the quarter ended Aug. 31, which is included in FactSet’s third-quarter data. Even so, the company called a bottom to the memory-chip downturn.
Read also: Micron’s AI focused chip won’t help financial results anytime soon.
“Most of the consumer-based tech is still struggling, [including] PCs, laptops and to a certain extent smartphones,” said Daniel Morgan, senior portfolio manager at Synovus Trust Co. Wall Street has tempered expectations related to the impact of Apple Inc.’s
AAPL,
iPhone 15 launch on the quarter, as estimates call for an overall 1% drop in September-quarter revenue. Last quarter, Apple executives forecast that both Mac and iPad sales would be down by double-digits and that revenue performance would be similar to its June quarter, when revenue fell 1.3%
In addition, when asked about AI, Apple CEO Tim Cook said the company views AI and machine learning “as core fundamental technologies that are integral to virtually every product that we build.” Those comments, though, can also apply to the bulk of tech companies, where AI is built into software as another layer to improve a product. Internet companies such as Meta Platforms Inc.
META,
and Alphabet Inc.
GOOG,
GOOGL,
incorporate AI into their software and algorithms but don’t treat it as a specific, revenue-generating product.
Other software companies are building AI into their products as separate features or add-ons, but they are still in the early stages of seeing whether or not customers will pay more for them. Take Microsoft Corp.,
MSFT,
which has showed off Copilot, an extra AI feature for customers of Microsoft 365.
“[Microsoft] can distinguish itself by providing more details around its AI revenue
ramp since we don’t expect much information from Google, who really doesn’t seem
to have the monetization plan for Bard and AI-assisted search (SGE) ready to
articulate yet,” Melius Research analyst Ben Reitzes said in a note to clients this week. He also noted that the cost of offering AI products to consumers is steep, and requires lots of investment.
“There are sophisticated issues to contend with for Microsoft, including balancing the potential for higher revenue from Copilots with the high costs per query and much-needed investment,” Reitzes said. “The balance of AI adoption vs. cost was implied when Microsoft guided to flat operating margins year over year for fiscal 2024.”
Earlier this year, the Information reported that OpenAI, the creator of ChatGPT and recipient of a hefty investment from Microsoft, has costs of up to $700,000 a day, because the massive amounts of computing power needed to run queries. In February, OpenAI launched ChatGPT Plus, for $20 a month, a service that will give subscribers access to its AI during peak times and faster response times.
Another example is Adobe Inc.
ADBE,
which has a few AI offerings, including a subscription service called Generative Credits, tokens that let customers turn text-based prompts into images. Another is Firefly, a generative AI service for images, and an AI option in Photoshop, currently called Photoshop Beta AI, to help users fill in images and other collaborative tools. Adobe did not provide any forecasts on potential revenue generation during its analyst day earlier this month.
Toni Sacconaghi, a Bernstein Research analyst, said AI could drive a massive increase in enterprise productivity, and companies could dramatically increase IT spending on servers in order to invest in productivity-enhancing AI. “However, we note that enterprise adoption appears to be in early stages,” he said in a recent note to clients, adding that it was feasible that spending on AI infrastructure could take money away from other IT projects in process. “We do worry that projected AI infrastructure build out may be occurring too quickly, necessitating a digestion period, which could result in a commensurate stock pullback in AI-related names.”
Overall, the information-technology sector itself is expected to see anemic revenue growth this quarter. The consensus on FactSet forecasts a meager 1.35% revenue uptick in the third quarter, with earnings growth of 4.65%. FactSet’s estimates for IT companies exclude internet companies like Meta and Alphabet, which are under the category of communications/interactive media services. That sector is expected to see sales growth of 12%, and earnings growth of 51%, thanks to a 116% boost in Meta’s net income, after it hit a low point in the year-ago quarter.
Amazon.com Inc.
AMZN,
in the category of consumer discretionary/broadline retail, is forecast to see earnings growth of 109%, and revenue growth of 11%. Amazon’s cloud services business, AWS, is expected to also see a potential uplift from customers spending money on AI projects, according to a TD Cowen & Co. survey, in which 41% of respondents said they were “highly considering” allocating a budget for generative AI.
“This trend could bode well for Amazon’s AWS,” TD Cowen analyst John Blackledge said in a recent report, adding that he expects AWS revenue growth to reaccelerate in the second half of this year and in 2024, boosted by the move of additional workloads to the cloud, possibly including generative AI.
As companies build up their infrastructure, or their spending on cloud computing to add or improve AI capabilities, they are seeing higher costs, which is affecting margins — especially if revenue has slowed down, as it has in some sectors. Across both the broader S&P 500
SPX,
and the IT sector, earnings are lower than a year ago.
As Newman of Futurum pointed out, “AI stole the budget this year.” And that is a mixed bag for tech.
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When Eyal Waldman thinks of his youngest daughter and her boyfriend, he sees them dancing.
“Danielle and Noam loved dancing, and I hope they continue dancing somewhere up there,” Eyal Waldman told MarketWatch.
Danielle Waldman and Noam Shay were killed at a music festival in southern Israel last week, part of a campaign by the Hamas terrorist group that has led to further bloodshed.
Danielle’s father — an Israeli tech executive who co-founded Mellanox, which became the largest acquisition in Nvidia Corp.’s
NVDA,
history — spoke with MarketWatch as Friday turned to Saturday in Israel, in hopes of increasing attention on the hostages who are still held in Gaza as well as to memorialize his daughter, who was 24, and Shay, who was 26.
Courtesy of Eyal Waldman
Danielle Waldman — who was born in Palo Alto, California, but moved back to Israel with her family at age 4 — and Israeli native Shay were students who met six years ago in the army, and her father said they had been inseparable since. They attended the Supernova music festival in early October with friends, and were killed while attempting to escape Hamas terrorists in a car that Eyal Waldman found bullet-riddled near the festival’s location.
“Danielle and Noam have done nothing bad to anyone, and they were murdered only because they were Israelis,” he said.
Eyal Waldman, a onetime Israeli combat fighter, founded Mellanox in 1999, and sold it 20 years later to Nvidia for $6.9 billion. He is known internationally for attempting to foster peace between Israelis and Palestinians through his work in technology — Mellanox hired Palestinian tech workers in Gaza, Nablus and the West Bank town of Rawabi, which led to a “60 Minutes” appearance.
“We wanted to make peace, to work together, to bring prosperity to the Palestinian people, the same as we have in Israel,” he said. “I brought even Apple
AAPL,
to open a design center in Rawabi and I brought other companies to open design centers in Rawabi.”
The death of his daughter and Shay and the scope of the attacks and counter-attacks dominating headlines in recent days have not changed Waldman’s hope for peace in the future, he said, but not the near future. He believes this time, the violence “took us back several years, if not decades.”
“We need time to build the trust, if at all, between the two nations and start working together to be able to talk about peace,” he said. “Until then, we will continue protecting ourselves in a very direct manner in Gaza and everywhere else around Israel.”
Waldman also said he would continue to try to hire Palestinians and work with them to be a part of the Israeli tech ecosystem, as long as they state “that they are working for peace, and they are not supporting — not financially and not in any other way — any terror actions, or any actions that are not civilian economics between the two nations.”
“Our hands are always reaching out for peace. But at the same time, before we do this, we need people to understand that Israel is strong, Israel is united, and we will never let anyone harm the citizens of the state of Israel again.”
Read: Israel-Gaza war scenarios: Here’s what might lift oil prices to $95, $100 and $115 a barrel
Waldman was thankful for U.S. aid and was forceful in discussing the need to find hostages that were still missing. One of Nvidia’s current employees was kidnapped, according to an email that Chief Executive Jensen Huang sent to employees that was obtained by Insider, which reported that the employee was also at the Supernova music festival.
Nvidia has more than 3,000 employees in Israel mostly working for Mellanox, which makes networking gear that connects Nvidia’s high-performance data-center products. In an emailed statement, an Nvidia spokesman said “our focus now is working with our Israel leadership to ensure our employees and their families are safe and well cared for. We will then turn our focus to shoring up [the company’s] execution if necessary to ensure continued operations of our business.”
Waldman said the return of hostages is top of mind.
“What’s important now is to focus on bringing back the hostages, and that is the No. 1 priority for the State of Israel and for the international community,” he said.
Continuing to worry about others while suffering his own tragedy is a trait that Eyal Waldman seems to have passed down to his youngest daughter. He said that he had received a note from another festival attendee who was wounded in the eye in the initial attack. That victim told him that Danielle Waldman had stopped to attend to her and make sure she was safe before attempting to escape in a car that was later believed to have been attacked by Hamas terrorists with rifles.
“They loved to celebrate life,” Waldman said of his daughter and her boyfriend.
“And they went down on Friday night to celebrate life, love and freedom, and they were massacred.”
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By Kim Mackrael
Microsoft’s acquisition of videogame company Activision Blizzard won approval from U.K. competition authorities, clearing a path for the companies to close the $75 billion deal after a lengthy struggle with regulators.
The U.K.’s Competition and Markets Authority said Friday that the proposed deal no longer poses a major threat to competition in cloud gaming. The shift comes after Microsoft offered to restructure the deal by forfeiting cloud-streaming rights for “Call of Duty” and other popular Activision franchises in much of the world.
-Sarah E. Needleman contributed to this article
Write to Kim Mackrael at Kim.mackrael@wsj.com
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