Key Takeaways:
- Earnings help calm AI spending fears
- Tesla earnings fall but outpace expectations
- Meta to create new class of non-voting stock
The topsy-turvy trading world of technology stocks got a pick-me-up Wednesday after dual earnings reports eased some artificial intelligence (AI) investment fears. Post-session earnings reports may do so again tomorrow.
The tech-heavy Nasdaq Composite led the advance, closing up 1.05%. The S&P 500 Index finished up 0.59%, marking its third straight close in the green and its best pace since April for a monthly gain. The Dow Jones Industrial Average rose 0.69%. The Cboe Volatility Index® (VIX® Index) fell 3.6% to below 17, indicating an expectation of market stability. WTI Crude Oil prices closed lower at $97.61.
Late Tuesday, SpaceX delivered better-than-expected third-quarter results, including its first-ever profit, and Super Micro Computer issued significantly stronger preliminary profit and sales projections ahead of its Nov. 3 earnings report. That seemed to calm the waters for some investors who worry that multi-billion-dollar investments in AI-centric companies before seeing solid returns might have been too much, too soon.
After the bell, Tesla’s revenues fell, as expected, but still topped Wall Street’s expectations on the top and bottom lines. Auto revenues fell, but renewable energy, robotics and energy storage were robust. Auto gross margins were up 18.1% and also beat estimates. The metric has been closely watched because buyers no longer get federal tax credits for purchasing electric vehicles. The company also noted that production has begun on Optimus, its two-legged humanoid robot. Shares climbed 3.4% ahead of the earnings report, but fell in post-session trading ahead of the conference call.
Meta also turned in third-quarter results post-session that bested revenue projections. Its per-share profit, however, was lower because of the company’s $10 billion settlement with state attorneys general over claims its apps were detrimental to young users. The social media giant said it is creating a new class of non-voting stock in January to help Meta cover capital costs for its AI buildout. Meta shares edged moderately ahead during the session and rose 3.7% while the conference call was in progress.
I mentioned Tuesday that earnings results might help solidify the AI spending story and that story become clearer today. But a handful of results only tell a chapter, not the entire book. Meta’s move to create a new class of non-voting stock underscores how companies may grapple with how to pay for AI-related costs while keeping overall expenses in line. That could also drive volatility in the sector.
Elsewhere, Netflix shares gave up nearly 5% after the company lowered its outlook as it juggles recent C-suite changes and efforts to shore up subscriptions and entertainment.
United Airlines shares reversed course and closed 4% higher. The carrier revised its fourth-quarter and full-year guidance, citing the year-over-year $1.8 billion increase in jet fuel costs. On the earnings call, executives said flight demand was strong, especially during the holidays. They expect to recapture 100% of the higher jet fuel cost by raising fares and other pricing. They also said they are trimming service in unprofitable areas.
United’s remarks also helped boost shares of Delta Air Lines, American Airlines and Southwest Airlines.
Procter & Gamble reports earnings tomorrow, and we’re seeing a 3% implied move in either direction. Puts at the 155 line are 1.5 times more active than normal, suggesting hedging may be in play, given the stock closed about 1% higher at $156.84.
Honeywell also reports tomorrow, and options are pricing in a 5% move. Honeywell is not a big options trader but it had four times the normal amount of puts at the 210 line for Friday’s expiration. Shares closed 0.66% to the upside at $214.73.
Happy Trading!
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