Wall Street Breakfast: Deep Learning
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What goes up must come down... unless you have diamond hands. Some cracks are beginning to appear in the recent AI stock rally, with C3.ai (AI) plunging 22% AH on Wednesday after giving a disappointing outlook during its FQ4 results. On an earnings call, CEO Tom Siebel added that the company wasn't "inclined to change expectations" surrounding its guidance, compared to the major boost that Nvidia's (NVDA) stock received following its "jaw-dropping guidance" posted last week.
Snapshot: Other AI players and chipmakers also pulled back yesterday following some impressive runups, but the latest movement might suggest that all companies are not equal when it comes to the "AI supercycle." Investors will have some deep learning to do after being consumed by everything AI this year, especially as they sort through the growing list of companies talking up how they've been AI plays all along. The real thing to consider is how much a firm will successfully capitalize and monetize its artificial intelligence offerings after the meme rallies settle down and huge price swings come to a halt.
"The euphoria is rooted in a very promising underlying technology," noted Robert Schein of Blanke Schein Wealth Management. "Even with the recent market euphoria driven by artificial intelligence, the market is sending a clear signal that artificial intelligence is here to stay, as this technology has the potential to overhaul how companies do business, which has major implications for corporate earnings."
Do your homework: As an example, the overwhelming majority of Wall Street experts believe that Nvidia (NVDA) remains a clear Buy. Seeking Alpha's Quant Ratings system views NVDA with a little more skepticism, labeling the stock as a Hold (valuation represents the key headwind, according to the system of grading quantitative measures). SA analysts have also been sizing up the stock in a series of recent articles. See 11 Billion Reasons To Buy Nvidia, And 2.2 Trillion Reasons To Sell, Bulls Are Way Overestimating AI GPU Demand and Unleashing The Power Of Parallel Computing For AI Dominance.
The U.S. House last night easily passed the debt-ceiling relief deal as the Treasury heads toward a June 5 deadline, after which the government won't have ready funding to pay its bills. The measure now goes to a Senate also working under a tight timetable and preparing for weekend votes. A number of senators have already expressed the wish to amend the bill, meaning it could return to the House for more approval, but the process is expected to get over the finish line in time. With much of the drama in the rear-view mirror, investors have once again set their sights on central bank policymaking, with Fed officials like Patrick Harker and Philip Jefferson calling for a pause this month and assessing the need for future rate hikes thereafter. (104 comments)
Meta Platforms (NASDAQ:META) is threatening to pull news links from Facebook and Instagram in California if state lawmakers move forward with the "California Journalism Preservation Act." The company responded in a similar fashion after a related proposal was tabled in Congress in December, as well as in Canada, and briefly blocked news links in Australia before brokering a deal with the government there. Among the amendments was a clause stipulating that digital platforms and news groups would be required to mediate for two months before subjecting them to mandatory arbitration. Canberra also agreed to take into account existing commercial agreements and give digital platforms a month's notice before reaching any final decision on the law's application. Will the same happen again? (4 comments)
While attention has been centered on the remote, but disastrous possibility, of the U.S. defaulting on its debt, investors may want to focus more on corporate bonds. Preparation is underway for a wave of defaults in the high-yield credit markets as the boom-and-bust cycle returns in 2023. Deutsche Bank issued its 25th annual Default Report and sees the default rate on U.S. junk debt spiking to a peak of 9% of issuance by the end of 2024 vs. 1.3% in 2022. See how that compares to other cycle highs like the dot-com crash and the Great Financial Crisis. (47 comments)
Today's Markets
In Asia, Japan +0.8%. Hong Kong -0.1%. China flat. India -0.3%.
In Europe, at midday, London +0.5%. Paris +0.8%. Frankfurt +1.1%.
Futures at 6:30, Dow +0.1%. S&P +0.2%. Nasdaq +0.1%. Crude -0.2% to $68.22. Gold -0.4% to $1974.40. Bitcoin -0.7% to $26,946.
Ten-year Treasury Yield +4 bps to 3.68%
Today's Economic Calendar
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
1:00 PM Fed's Harker Speech
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening...
Has 'greedflation' caused corporate profits to increase?
Job openings unexpectedly rise in April, quits rate ticks down
Exxon (XOM), Chevron (CVX) shareholders reject climate proposals.
U.S. crude oil slumps to 10-week low, down 11% for May.
Pfizer's (PFE) RSV vaccine, Abrysvo, gets a nod from the FDA.
Retail watch: Nordstrom (JWN) gains on unexpected Q1 profit.
Salesforces (CRM) sinks after earnings; so does CrowdStrike (CRWD).
Amazon (AMZN) settles kids' privacy case and Ring spy claims.
Lucid (LCID) to receive $3B from new investors, including Saudi Arabia.
Ford (F) CEO says EV price parity is unlikely until after 2030.
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