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Boring is beautiful

The flashiest, best performing sector this year is... utilities?

Utilities stocks are up 27% in 2024, even better than tech

9/17/24 8:48AM

The stock market story of the year has been all about artificial intelligence (or maybe the Fed, if you’re more of a “zoom out” person).

But, despite Nvidia’s inexorable rise and the ongoing dominance of the Magnificent 7, it’s good old fashioned utility stocks — think electricity, water, and gas companies — that are leading the market this year, up more than 27%. That’s better than the Information Technology (+26%) or Communication Services (+25%) sectors.

Utilities stocks outperforming — Sherwood News

So, why are utility stocks soaring?

We never know exactly why any stock is doing anything, but in this case the market seems to be seeking exposure to utilities for two reasons. Firstly, after years of tighter monetary policy, we’re close to getting a cut in interest rates, lowering the borrowing costs for utility companies, as well as making their high dividend yields relatively more attractive to income-seeking investors.

The second reason is more fundamental. Many utilities stocks are indirectly exposed to AI (and you thought this story was about something else), by powering the ever-growing demand for data centers.

In fact, the best performing stock in the Utilities sector of the S&P 500 is a little-known company called Vistra Corp., which only joined the index in May, and has soared more than 130% this year. The second-best performing is Constellation Energy Corp. (+71%), which is America’s largest owner and operator of nuclear power plants.

Unsurprisingly, the management of these companies are talking up the opportunity:

The simple fact is that data centers are coming and they're essential to America's national security and economic competitiveness. We've heard this from a variety of policymakers, a number of nations, including China, are vying for AI supremacy. And it's absolutely critical that the US not fall behind. Time is of the essence. We simply cannot wait years for the data centers that are going to bring transformations. They're going to bring transformations in medicines, bringing new cures to diseases and treatments that research alone cannot do.
Joseph Dominguez — Chief Executive Officer, Constellation Energy Corp [August 6th, 2024]

Altogether, the words “data center” were mentioned 35 times on Constellation Energy’s Q2 earnings call. The count for the same quarter last year? Zero mentions.

Nia Warfield, Luke Kawa

13h

S&P 500 closes at record as tech heavyweights flex (besides Apple)

The Magnificent 7 did the heavy lifting, performing better than any S&P 500 sector ETF on Tuesday.

Matt Phillips

13h

Oracle rips as backlog builds, but company misses on top and bottom lines

Oracle shares shot higher after-hours as the company reported a growing backlog, even though its fiscal Q1 results fell slightly short of expectations. The company reported:

Adjusted earnings per share of $1.47 vs. expectations of $1.48.
Revenue of $14.93 billion vs. expectations of $15.04 billion.

Shares were up 21% in after-hours trading, which is a pretty crazy stock move for a company with a market cap of more than $675 billion.

The market was likely impressed by a giant build in the company’s “remaining performance obligations,” or RPO, which is how the company measures the value of signed cloud computing deals that haven’t yet been reported as revenue. In a statement, CEO Safra Catz said:

“We signed four multi-billion-dollar contracts with three different customers in Q1. This resulted in RPO contract backlog increasing 359% to $455 billion. It was an astonishing quarter — and demand for Oracle Cloud Infrastructure continues to build. Over the next few months, we expect to sign-up several additional multi-billion-dollar customers and RPO is likely to exceed half-a-trillion dollars.”

Oracle Announces Fiscal Year 2026 First Quarter Financial Results

“We signed four multi-billion-dollar contracts with three different customers in Q1. This resulted in RPO contract backlog increasing 359% to $455 billion. It was an astonishing quarter — and demand for Oracle Cloud Infrastructure continues to build. Over the next few months, we expect to sign-up several additional multi-billion-dollar customers and RPO is likely to exceed half-a-trillion dollars.”

Matt Phillips

14h

Robinhood rides index inclusion rally to record close

Robinhood Markets notched a new closing high Tuesday, as the crypto, stock, and options brokerage continued to ride a rally set off by the announcement that it would be added to the S&P 500 Index.

(Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company subject to certain legal and regulatory restrictions.)

Robinhood appears to be benefiting from the so-called inclusion effect, a market phenomenon where companies that are added to major market indexes can see a price move as index funds — whose holdings must mirror the membership of the index — rush to buy the stock.

For what it’s worth, it seems like Robinhood will upon entry (effective prior to the market open on September 22) be the top-performing member of the index, as its roughly 220% gain this year is more or less double that of the current leader, Seagate Technology Holdings.

Luke Kawa

14h

GameStop posts impressive Q2 results with big sales beat

Don’t call it a comeback!

GameStop is jumping aftermarket as the video games and collectibles retailer posted an impressive set of second-quarter results.

Net sales: $972 million (estimate $823 million).
Adjusted diluted earnings per share: $0.25 (estimate $0.16).

Note: these consensus estimates, compiled by Bloomberg, are from only two analysts.

The sales beat is particularly noteworthy, as the company had already done an exemplary job of expense control to help protect its bottom line. Revenues were up more than 20% versus the year-ago quarter, the biggest annual jump in sales since the company (and the world) was emerging from the pandemic in 2021.

The options market implies a move of plus or minus about 9.4% on earnings.

For a while, GameStop’s ability to generate positive net income was purely a function of the interest earnings on its substantial cash hoard. But now, GameStop has strung together five consecutive quarters of positive operating cash flows for the first time in its history!

This was the quarter when the company began to act on its bitcoin treasury strategy, raising money through the sale of convertible notes and using some proceeds to purchase the crypto asset.

Because of how much market value has been ascribed to potential for GameStop CEO Ryan Cohen to use its significant cash holdings to transform the company, the prospect of converting cash into bitcoin initially did not sit too well with investors following the announcement of this new strategic push in March.

Shares of the once-upon-a-time meme stock really didn’t get too much love during retail frenzies earlier in the summer, and were down about 25% year to date heading into this release.

As of the close of the quarter, its bitcoin holdings were valued at $528.6 million.

Western Digital Seagate Technology Rise to top of S&P 500

Data storage is so hot right now

A rapid turnaround in profitability helps explain how Seagate Technology and Western Digital have clawed to the top of the S&P 500 this year.

Matt Phillips16h