The stock market rally pulled back to start the week, but roared higher as booming Nvidia earnings and guidance fueled big AI-led gains. The S&P 500 and Dow Jones hit record highs with the Nasdaq almost there. Walmart, Toll Brothers and Synopsys were among the many other earnings winners. Palo Alto Networks was a huge loser, dragging down other cybersecurity names. Treasury yields are at three-month highs with crude oil also climbing.
Stock Market Rally At Record High
The S&P 500 and Dow Jones hit record highs, while the Nasdaq moved back above the 16,000 level, after retreating to start the holiday-shortened week. The Russell 2000 also rebounded, still in a 2024 range. Nvidia earnings and guidance carried the market rally, giving a huge lift to AI-related stocks. The 10-year Treasury yield rallied to its best levels in over three months. Crude oil futures climbed.
Nvidia Earnings And Guidance Boom Again
Artificial-intelligence chipmaker Nvidia posted another big beat-and-raise earnings report, sending its shares to a record high. Nvidia's earnings rocketed 486% year over year while sales surged 265% to $22.1 billion. Red-hot demand for graphics processors to run AI applications in data centers has fueled its blistering growth. Nvidia also guided higher than views for the current quarter. In addition, Nvidia's report boosted shares of a host of AI-related stocks.
Fed Signals No Rush To Cut Rates
Minutes from the Jan. 30-31 Fed meeting released Wednesday underscored the broad consensus against a quick pivot to rate cuts. "Most participants noted the risks of moving too quickly." However, "a couple" warned that holding policy too tight for too long would create downside risk for the economy. The minutes also revealed the first apparent sign that some Fed policy committee members are starting to grow concerned about the level of stock prices. "Several participants mentioned the risk that financial conditions were or could become less restrictive than appropriate," giving a boost to consumption and potentially causing inflation progress to stall. The minutes also confirmed the Fed's intention to begin discussing a possible tapering of the pace of balance-sheet tightening. Fed policymakers speaking during the week reinforced the go slow message.
Palo Alto Dives On Price War Plan
Cybersecurity stocks fell amid fears over a price war after Palo Alto Networks as it unveiled a marketing strategy to let new customers take lengthy free trials of six months or longer. Palo Alto EPS grew 39% while revenue climbed 19%, both beating. But the cybersecurity leader guided low on current-quarter revenue and billings. PANW stock crashed. Rivals sold off Wednesday, though many pared weekly losses.
Capital One To Buy Discover Financial
Capital One Financial will buy Discover Financial Services in a $35.3 billion all-stock deal that would create the sixth-largest U.S. bank by assets. It'll pay 1.0192 shares for each DFS share, a 27% premium at the time to the Discover's Feb. 16 closing price of 110.49. Discover's payments network is a key factor in the acquisition as Capital One currently uses Visa and Mastercard networks. Combined, the two companies would make up the largest U.S. credit card issuer with a 20% share of the market for outstanding consumer loans, according to BofA analyst Mihir Bhatia. Capital One expects the deal to provide $1.2 billion in network synergies in 2027 and cost synergies of $1.5 billion. COF stock fell modestly during the week, while Discover jumped.
MercadoLibre Gets Tax Hit
The Latin American e-commerce and payments giant reported a 42% revenue gain to $4.26 billion, topping views and with growth accelerating for a second straight quarter. But adjusted earnings of $3.25 per share, flat from last year, sharply missed expectations of $7.10, according to FactSet. MercadoLibre blamed two one-time tax provisions, though operating margins also missed some estimates. MELI stock tumbled Friday from a two-year high. Meanwhile, e-commerce marketplace Etsy also sold off on a mixed Q4. Sales of $842 million topped views but a 27% EPS decline missed expectations.
Dow Retail Giants Top EPS Views
Walmart reported a surprise profit gain of 5% in its fiscal Q4, with sales rising 6% to $173.4 billion, also beating. The Dow Jones discount giant guided up on Q1, though full-year guidance was mixed. Still, Walmart stock rose to a record high. Home Depot reported earnings fell 15% vs. a year earlier, the third straight quarter of accelerating declines. Sales sank 3%, their fourth straight slide. Both beat views, but same-store sales were worse than expected as customers continue to eschew large home improvement projects. Home Depot stock rose to a fresh two-year high.
Homebuilder Earnings Strong
Toll Brothers reported a 32% EPS gain that easily beat views while a 10% revenue rise to $1.95 billion, also topped. The luxury builder delivered 1,927 homes at an average price of about $1 million, while some 2,024 homes were contracted in the quarter. Both also exceeded consensus. Toll also guided up on fiscal Q2 and 2024 deliveries. Tri Pointe Homes reported a 31% EPS decline and 18% revenue slide that both beat views. New home orders rose 143%. Backlog units jumped 58% with the backlog value up 38%.
Housing Retailers Diverge
Floor & Decor earnings tumbled 47% while revenue was flat at $1.048 billion, but both beat views. The flooring retailer guided low on 2024 EPS. But shares rose, briefly hitting a two-year high. La-Z-Boy missed fiscal Q3 views with EPS and sales down vs. a year earlier for a fourth straight quarter, 26% and 13%, respectively. Shares fell solidly from a buy point.
Royal Caribbean Cruises, Booking Hit
Royal Caribbean now expects full-year EPS of $9.90-$10.10, up 40 cents from its February target. About 15 cents of that increase reflects an improved revenue outlook in the first quarter. In early February, Carnival said it was almost sold out for the first half of the year after seeing record bookings since November. RCL stock leapt to around its 50-day line, with Carnival and Norwegian Cruise Line also climbing. China-based Trip.com reported a 411% EPS surge, easily beating. Revenue leapt 98% to $1.44 billion, just topping. Outbound hotel and air reservations recovered to over 80% of their pre-COVID levels for the same period in 2019. Domestic hotel reservations soared 130%. TCOM stock raced past a buy point. Booking Holdings was the exception as BKNG stock tumbled Friday from a record high Its earnings and revenue growth slowed for the third consecutive quarter, to 29% and 18%, respectively, though that did beat views. Booking guided for a 15% EPS gain in 2024 with revenue and bookings up 7%.
Rivian, Lucid Plunge On Production Plans
Rivian reported a Q4 loss that was slightly more than expected while sales doubled, just beating. But the EV startup sees 2024 production flat vs. 2023's 57,000, far below Wall Street expectations. Rivian also will cut 10% of salaried jobs. Shares crashed Thursday to a post-IPO low. Lucid reported a Q4 loss that was roughly in line while revenue tumbled 39% to $157 million, far below views. of 29 cents per share with revenue falling 39% to $157 million on Wednesday. Analysts predicted a loss of 30 cents and sales hitting $180 million. Lucid produced 8,428 vehicles in 2023 and delivered 6,001. For 2024, its expects to make 9,000 vehicles, well below expectations of over 14,000. Lucid stock dived as well.
In Brief
Amazon.com joins the Dow Jones Industrial Average before the open on Feb. 26, replacing struggling drugstore giant Walgreens Boots Alliance. As a catalyst, S&P Dow Jones Indices cited the upcoming 3-for-1 stock split for Walmart, which will reduce the retail giant's weighting in the price-weighted Dow.
Builders FirstSource reported a 10% EPS gain vs. consensus for a 20% decline. Revenue fell 5% but came in above forecast at $4.15 billion. The building materials firm also upped its buyback to $1 billion from an existing $200 million.
Installed Building Products reported a 12% EPS gain, beating views and accelerating slowly for second straight quarter. Sales returned to growth with a 5% rise. The installation services firm set a $300 million buyback and raised its dividend by 6%. Shares soared.
Quanta Services reported a 21% gain, topping views. The utility and energy infrastructure firm's sales grew 31%, the third straight quarter of faster growth. Shares surged.
Wix reported Q4 EPS doubled, easily beating. Revenue rose 14% to $404 million, edging by estimates. The website hosting firm jumped to a two-year high.
Flowserve reported an 8% EPS gain with revenue up 12.5% in Q4, with growth slowing significantly amid tougher comparisons but still beating views. pumps, valves and seals to control fluids for oil and gas, chemical, power, water and general industry raised its dividend by 5% and slightly added to its buyback program. FLS stock rose within a buy zone.
Vertiv earnings doubled to 56 cents a share, beating Q4 views by 3 cents. Revenue rose 14% to $1.87 billion, just missing views and with growth slowing for third straight quarter. The maker of data center cooling systems guided low on Q1. Shares plunged initially, but then slashed losses.
Sprout Social reported fourth quarter EPS of 2 cents, down 33% from a year earlier, but topping break-even estimates. Revenue rose 34% to $93.6 million, topping views. The social media management software guided 2024 revenue in line. Shares fell but pared losses.
Crispr Therapeutics reported its first profit in 10 quarters, with an adjusted $1.10 per share on $201.2 million in sales. Both metrics beat projections. Shares of the gene-editing specialist soared.
Digital Ocean reported Q4 EPS jumped 57%, topping views. Revenue climbed 11% to $180.9 million, just above views but the fifth straight quarter of slowing growth. The cloud hosting firm forecast a 10% revenue gain in 2024, slightly below estimates. DigitalOcean announced a $140 million stock buyback program. Shares jumped on earnings but fell solidly for the week.
Synopsys reported a 36% EPS gain, beating views, while revenue grew 21% to $1.65 billion, matching views. The chip design software firm guided higher for the current quarter. Shares jumped, but pared gains.
Intuit reported an 11% revenue gain to $3.39, matching fiscal Q2 views, while EPS grew 20%, topping. But the TurboTax maker guided below views for earnings in the current Q3.
Altair Engineering topped Q4 EPS estimates with a 48% rise. Revenue grew 7% to $171.5 million, missing views. Its Q1 sales guidance all fell short.
Wingstop reported a 7% EPS gain, the smallest increase in seven quarters. Revenue rose 21% to $127.1 million, the fourth straight quarter of decelerating growth. But both beat views. Shares fell on earnings but rebounded for a solidly weekly gain at record highs.
Square-parent Block reported mixed fourth-quarter results. EPS jumped 109% but came in short. Net revenue grew 24% to $5.77 billion, slightly beating. EBITDA topped forecasts while gross payment volume missed. But SQ stock soared on a Block's strong 2024 guidance.
