Tech earnings can still come to the stock market's rescue but the early signs are far from encouraging.
Netflix, Taiwan Semiconductor Manufacturing Co. and Dutch chip equipment maker ASML have done nothing to improve the mood with their earnings in recent days. TSMC, the world's largest chip maker, cut its growth forecast for the broader semiconductor industry Thursday, putting the sector under more pressure. ASML, whose machines are essential for manufacturing chips, reported new orders that fell short of expectations Wednesday.
Netflix looks unlikely to play the role of savior as its revenue outlook disappointed investors despite strong subscriber growth. Its plan to stop reporting subscriber numbers, a metric popular on Wall Street, will not help with visibility.
So, the S&P 500 is currently on a five-day losing streak, its worst run since October last year. A sixth day of losses is a possibility, particularly amid rising tensions in the Middle East after Israel retaliated against Iran overnight, although early Friday there had yet to be official confirmation.
But there's still hope for a tech-led market rebound. It lies with everybody's favorite market catalyst -- artificial intelligence. As badly as the market reacted to TSMC earnings, the company signaled strong demand for its AI chips. It's non-AI semiconductors, such as for autos and smartphones, that are letting the side down.
AI and whether it can offset struggles in other areas of the tech sector may come to define this earnings season and determine whether the rally restarts. Next week could be key as several of the biggest AI players post earnings, including Microsoft and Alphabet. Meta, which released a new version of its AI chatbot Thursday, will also release results.
Anything connected to AI seems to generate increasingly lofty expectations, which Big Tech must overcome to get the rally back on track.
-- Callum Keown
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Stock Markets React After Israel Launches Iran Strike in Retaliation
Markets were reacting early Friday after Israel struck back at Iran, heightening tension in the Middle East. Israel aimed attacks at sites in central Iran where there is a drone factory, The Wall Street Journal reported, citing people familiar with the matter. While there haven't been any public statements providing official confirmation, CNN reported that unnamed U.S. officials acknowledged the incident.
-- Israel's strike, in response to Iran's drone and missile attack last
weekend, targeted the area around Isfahan in central Iran, The Journal
reported.
-- Oil prices spiked above $90 a barrel first thing before pulling back as
markets grappled with the aftermath of the retaliatory strikes against
Iran. Brent crude futures, the international benchmark, had jumped 3% to
$90.75 following initial reports of the attacks, later pulling back to a
1% rise. West Texas Intermediate had also risen 1.1% to $83.01 a barrel.
-- Gold futures were little changed early Friday at $2397.10. That suggests
traders aren't turning to the yellow metal as a safe haven amid the
deepening tensions. Gold prices are still up 1.5% over the past five days
and 11% over the past month. U.S. stock futures fell and the U.S. dollar
was little changed against a basket of currencies early in the day.
What's Next: Much remained unclear about the extent or the impact of the Israeli action, The Journal reported. It added that the direct exchange of blows risks taking the conflict that began with militant group Hamas's Oct. 7 attack on Israel to a dangerous new level. The worry is that it could embroil the U.S. and Gulf states in a regional conflagration that they have worked hard to prevent.
-- Brian Swint, Callum Keown, Patrick O'Donnell, Rupert Steiner
***
Netflix Beats as Password-Sharing Crackdown Boosts Subscribers
Netflix reported better-than-expected financial results and strong subscriber growth for its first quarter, boosted by original content and a password-sharing crackdown. But the streaming provider warned that it would soon stop providing quarterly membership data and average revenue generated per-member, the data investors watch most closely.
-- Netflix added 9.33 million net new subscribers in the quarter, more than
five times the number added during the same quarter last year. Its global
audience exceeds more than half a billion people, including 269.6 million
paying customers, up 16% from last year.
-- Revenue rose nearly 15% to $9.37 billion, and profit was $5.28 a share.
Ad-based memberships increased 65%. Netflix said it won't provide
membership data because the figure has become less meaningful under its
multiple plans at various pricing levels. It will announce major
subscriber milestones.
-- Co-CEO Greg Peters said Netflix wants to focus more on the key data that
matter most, including operating income, EPS, margins, and free cash
flow. Co-CEO Ted Sarandos said the approach better reflects the evolution
of the business and how it manages internally.
-- Original streaming content offered in the quarter included the science
fiction show 3 Body Problem, the next season of reality show Love Is
Blind, and the drama Griselda. It also debuted the film Damsel.
What's Next: Netflix projects second-quarter revenue of $9.49 billion, up 16%, slightly below consensus, and better-than-consensus profit of $4.68 a share. Although it didn't provide detailed subscriber guidance, it said net adds would be down from the first quarter because of seasonal factors.
-- Eric J. Savitz and Janet H. Cho
***
Meta Platforms Raises Profile of Its AI Chatbot Efforts
Meta Platforms is raising the profile of its artificial intelligence products, rolling out a free website version of its Meta AI chatbot upgraded with its latest large-language model and integrating the chatbot in the search functions of its social media apps Facebook, Messenger, Instagram, and WhatsApp.
-- It is Meta's answer to Google's Gemini from Alphabet, OpenAI's ChatGPT,
and Microsoft's Bing. In addition to natural language chat queries, Meta
AI can create images and short animations. Meta said the updated version
will produce images that are more consistent with user intent.
-- The new chatbot is powered by Meta's Llama 3, its updated open-source
large-language model, in 8 billion or 70 billion parameter versions. It
first rolled out Meta AI in the U.S. last year but is now expanding an
English-language version to more than a dozen countries. It will
eventually be multilingual.
-- Although Meta AI is free to use, people who log in with their Facebook
IDs will have their queries stored in memory, making it easier to pick up
on explorations started in previous sessions. The company said it doesn't
plan to sell ads or require subscriptions for the site.
-- Wedbush analyst Dan Ives said the AI revolution has begun to hit its next
gear of growth focused on software after starting with chip makers. He
said AI-related outlays will be 8% to 10% of 2024 information technology
budgets, up from less than 1% in 2023.
What's Next: Connor Hayes, vice president of product for Generative AI, told Barron's that Meta has partnerships with both Google and Bing to handle real-time queries through Meta AI on the stand-alone services and inside the company's apps, for questions such as live sports scores and stock quotes.
-- Janet H. Cho and Eric J. Savitz
***
Fed Officials Deliver Message that Patience is a Virtue
More Federal Reserve officials are delivering the message that there's no rush to move on interest rates, joining those who don't see a rate cut until later this year. New York Fed President John Williams and Atlanta Fed President Raphael Bostic indicated they were comfortable being patient.
-- Williams said during a conference sponsored by Semafor that the current
rate is at a good place and he doesn't feel the urgency, especially as
inflation continues to run higher than their target 2% rate. He added
that policy is "doing exactly what we'd like to see."
-- Recent economic data have shown a strong labor market, economic growth,
and better-than-expected consumer spending. Inflation will return to 2%,
Bostic said in Florida on Thursday, but he isn't in a "mad dash" to get
there. He suggested a cut could come closer to the end of the year.
-- Late Wednesday, Cleveland Fed President Loretta Mester said the Fed would
likely cut rates at some point this year but didn't suggest a time
element. She also expects inflation will cool, but is willing to be
patient and wait for more data.
-- Futures traders put the highest probability of a first cut coming in
September, at 45%, pushing back once widely held expectations that June
would usher in the first one. Now there's even a slight number of market
watchers who see the chance of a rate increase.
What's Next: The Atlanta Fed's market probability tracker is implying a 3.6% probability of a quarter-point rate increase in June. The tracker shows there's a 63% probability of rates staying the same. The CME's FedWatch tool puts a sliver of probability -- 1.4% -- on a June rate increase.
-- Liz Moyer
***
Mortgage Rates Rise Again, While Existing Home Sales Drop
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April 19, 2024 06:45 ET (10:45 GMT)
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