Key US markets struck record highs on Wall Street this past week, which will either have you topping up your favourite stocks, or running for cover, depending on your point of view.
AI chip champ Nvidia (NVDA:NASDAQ) is a big reason why, the stock rallying 10%-odd to close beyond $3 trillion in market cap for the first time ever, briefly knocking Apple (AAPL:NASDAQ) into third spot on the world’s most valuable companies list.
Bank of America is one of multiple analysts to pump Nividia target prices up, now $1,500. The (near) $3 trillion trio, including number one Microsoft (MSFT:NASDAQ), worth $3.16 trillion, now make up 20% of the S&P 500 and Nvidia accounts for about 45% of the S&P 500’s gains this year, according to data.
Little wonder that both the S&P 500 and Nasdaq hit record highs over the past week, closing at 5,354 and 17,187.9 on Wednesday (5 Jun). But worriers see the narrow breadth of the rally, and one analyst noted this week that Nasdaq’s record high was marked by fewer stocks hitting 52-week highs than 52-week lows, counter-intuitive and rare.
Is this a scary signal or a sign that only a very few stocks are currently capable of tapping the AI gravy train at the moment, but others will catch up in time?
More knockout quarterlies from cybersecurity hot stock Crowdstrike (CRWD:NASDAQ) and a revamped Hewlett-Packard (HPE:NYSE) - see below - suggest a broadening of the rally but the latest meme stock rally paint a picture of investor euphoria, often a signpost to a correction.
Goldman Sachs says a ‘wall of money’ will come into the market in the second half from passive equity allocation. The first 15 days of July is usually the best for equities. Is it a bubble? BofA says not yet: ‘...the lack of a material rise in tech volatility suggests we are not there yet. Return dispersion (how much stocks diverge) also shows few bubble signs as do valuations compared to the late ‘90s.’
GAMESTOP
Computer games retailer and 'meme' stock GameStop (GME:NYSE) has seen its share price double this week to more than $46 as investor Keith Gill, also known as Roaring Kitty, flagged a livestream on Youtube for 7 June.
The New York Stock Exchange had to suspend trading in the stock due to the volatility twice on the preceding day. Roaring Kitty’s foray on Youtube would represent the first such post since 2021. Back then he was central to the initial meme stock phenomenon which helped propel GameStop to highs above $80.
A Reddit account previously linked to Gill also posted on the social media platform in the days leading up to the livestream with screenshots purporting to show the value of his holdings in GameStop.
GameStop enjoyed a 180% rally over a span of two days in the middle of last month after Roaring Kitty posted for the first time on X, formerly known as Twitter, since 2021.
HEWLETT PACKARD ENTERPRISE
Hewlett Packard Enterprise surged 11% to a new all-time high on Wednesday (5 June) after the technology company forecast consensus beating third quarter revenue driven by growing demand for its AI-optimised servers.
Fiscal second quarter revenue grew 4% year on year to $7.2 billion while EPS (earnings per share) fell 19% to $0.42, surpassing Wall Street estimates of $6.8 billion and $0.39 respectively.
The firm’s AI (artificial intelligence) systems division reported double the revenue it generated in the prior quarter.
CEO Antonio Neri said: ‘Our deep expertise in designing, manufacturing, and running AI systems at scale, fueled growth of cumulative AI systems orders to $4.6 billion dollars, with enterprise AI orders representing more than 15%’. The number of enterprise AI customers has nearly tripled compared with same quarter in 2023.
Management raised its forecast for third quarter revenue to between $7.4 billion and $7.8 billion, above the consensus estimate of $7.4 billion, according to LSEG data.
The company also increased full year guidance which now calls for revenue growth of between 1% to 3% and EPS in the range of $1.85 to $1.95, up from $1.82 to $1.92.
LULULEMON ATHLETICA
Lululemon’s (LULU:NASDAQ) shares are down 35% year-to-date on concerns demand for its pricey leggings could be plateauing as consumers pull in their horns, with some recent stock challenges also impacting investor sentiment.
But the stock enjoyed a 5% relief rally to $322.4 this week after first quarter sales and earnings beat estimates and the athletic apparel specialist increased its share buyback programme by $1 billion.
First quarter earnings per share of $2.54 was above the $2.38 Wall Street scribes were calling for and revenue of $2.21 billion was up 10% year-on-year and narrowly above the $2.19 billion analyst consensus.
Strong momentum in international markets and new women’s merchandise gave Lululemon the confidence to bump up its full year profit outlook, but the joggers, yoga mats and tank tops seller issued tepid second quarter guidance amid a growth slowdown in the Americas, its largest market.
CEO Calvin McDonald lauded the ‘strong momentum’ Lululemon is seeing in international markets, but also conceded the company has work to do to get growth going again in the Americas, where Q1 comparable sales were flat year-on-year.
