New York Stock Exchange Opens On Monday Morning

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Earnings are absolutely off the charts this year

4/30/24 10:48AM

In case you were losing sleep about the ability of America’s largest and most powerful corporations to continue growing record profitability, you can rest easy.

Roughly halfway through first-quarter earnings season, Wall Street analysts have ratcheted up their expectations for earnings over the next twelve months. That’s been the reaction to results now for well over the last year. (See below.)

This is maybe the simplest way to quickly decide if earnings season has been good, bad or meh. If, after earnings season starts, the angle of this line moves higher, that means analysts are generally pleased with what they’re seeing in numbers and hearing from executives on conference calls. That seems to be what we’ve seen since the current crop of results starting rolling in earlier in April.

For the record, expectations for earnings rise most of the time, the key thing to watch is how fast they’re going up. This reflects the fact that earnings generally rise, and earnings generally rise, because prices generally rise. (Higher prices typically translates into higher revenues and profits.)

If expectations for earnings fall sharply, it’s usually because something pretty bad has happened, like the financial crisis, the Great Recession or more recently, the outbreak of Covid.

Nia Warfield, Luke Kawa

14h

Megacap tech and the AI trade power US stocks to fresh records

The S&P 500 rose 0.5%, the Nasdaq 100 was up 0.8%, and the Russell 2000 advanced 0.3% on Monday.

Matt Phillips

16h

Analysts on hard drives: “Supply remains tight”

Bank of America analysts bumped up price targets for hard disk drive (HDD) industry leaders — and S&P 500 top stocks — Seagate Technology Holdings and Western Digital as surging AI data center demand for these low-cost, long-term data storage devices continues to ramp up. They wrote:

“We raise our calendar year hard disk drive exabyte shipment forecast to 1,602 exabytes (+28% y/y) from 1,575 exabytes (+26% y/y) and see room for further upside as demand continues to outpace supply. Despite double digit percentage increases in total capacity... from STX & WDC so far during C25, HDD industry supply remains tight.”

BofA boosted its price target for Seagate from $170 a share to $215, slightly above where the stock is trading on Monday. The analysts also increased their stock price target on Western Digital from $100 to $123, implying a roughly 20% premium to where its share were trading Monday afternoon shortly before 2 p.m. ET.

Besides being an influential market driver this year, demand for hard disk data storage also reflects the vast amounts of data that the boom in AI is expected to generate. (A single exabyte is the equivalent of 1 billion gigabytes.)

As a result, hard drive makers like Seagate and Western are focusing on the next generation of high-capacity data storage gizmos that pack more data bits. These devices are also more profitable than traditional disk drives, which has helped to boost the profitability of the industry, BofA analysts said.

“As HDD demand continues to outpace supply, STX & WDC have seen profitability metrics hit all-time highs,” they wrote.

Those profitability metrics could help explain why the stocks have suddenly caught the fancy of traders.

“We estimate that STX & WDC can get above 42-43% corp gross margin levels exiting [calendar year 2028],” they wrote. “But if pricing is stronger than expected or if manufacturing efficiencies lower COGS, we believe margins could go even higher. Key risks include pause in hyperscaler capex (low probability) and tariffs.”

Max Knoblauch

17h

Alaska Air declines as it warns its profit will be dinged by fuel costs, weather, and air traffic control problems

Seattle-based Alaska Air is trading lower Monday afternoon after the airline warned investors that its third-quarter profits will likely come in on the low end of its prior outlook.

When Alaska Air reported its second-quarter results in July, the airline said it expected third-quarter earnings to land between $1 and $1.40 per share. As of early Monday, analysts polled by FactSet estimated $1.35.

A host of issues are behind the company’s expectations of a dent to earnings. ALK said it’s projecting fuel costs to climb to between $2.50 and $2.55 per gallon, up from its previous estimate of $2.45, due to West Coast refinery disruptions. Weather and air traffic control issues “led to increased costs from overtime, premium pay and passenger compensation,” Alaska said.

With Monday afternoon’s move, ALK shares are down about 8% year to date.

Matt Phillips

18h

Intel cuts expense forecast, sees best gain in weeks

Intel shares jumped after the partially nationalized US chip giant snipped its forecast for operating expenses this year to $16.8 billion from $17 billion after finalizing the divestiture of 51% of its stake in its Altera programmable chip unit to private equity firm Silver Lake.

Shortly after 12 p.m. ET the stock was up 4%, Intel’s best gain since August 22, when the Trump administration announced the extraordinary step of having the federal government take a 10% ownership stake in the private chip company.

Intel trims full-year expense outlook following Altera stake sale

OpenAI doesn’t have the cash to pay Oracle $300 billion — raising it will test the very limits of private markets

The ChatGPT maker plans to burn though $115 billion by 2029. No company in history has ever lit that much money on fire intentionally, let alone tried funding such a splurge through private markets alone.

David Crowther19h