AMD's Home Run, Told You So on Oracle, Shutdown Lowdown
Let's look at AMD's dynamic duo, what Doug Kass and I told you about Oracle amid the cheering, and why the shutdown's not over ... just yet.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Unchained
Change, nothing stays the same
Unchained, and ya hit the ground runnin'
Change, ain't nothin' stays the same
Unchained, yeah, ya hit the ground runnin'
I know, I don't ask for permission
This is my chance to fly
Maybe enough ain't enough for you
But it's my turn to try
E. Van Halen, A Van Halen, Anthony, Roth (Van Halen), 1981
The New Dynamic Duo
Batman & Robin? No. How about Su & Hu? Sounds good to me. Equity index futures are trading higher overnight. Yes, we are inching closer to the end of the longest government shutdown in U.S. history. There is that. This is also an "AMD" story, though. Advanced Micro Devices (AMD) held its first analyst day since 2022 on Tuesday and CEO Lisa Su did not just hit "it" out of the park; she hit a five-run homer. If you were watching Liz Claman's show (the 3 p.m. ET hour) on Fox Business on Tuesday, I tried to address this for viewers.
Su did not just update the size of what she sees as the addressable market for the AI-focused data center, she doubled it, from her prior view of $500 billion to $1 trillion by the year 2030. The CEO said, "I think we've been very consistent that high performance computing is the foundation of everything that's important." She added, "AI is such a large part of it. When you look at where we are today, AMD computing touches billions of people every day."
“We expect to really inflect in overall revenue growth over the next three to five years,” Su added. She got a little granular. She said that the company’s data-center AI revenue should grow by more than 80% per year over the next three to five years. Let me say that again: She said that the company’s data-center AI revenue should grow by more than 80% per year over the next three to five years. Last year, Su had said that the market for AI data center graphics processing units will grow by more than 60% a year.
AMD closed down 2.7% on Tuesday. You may have noticed the shares have moved sharply higher overnight, dragging Nasdaq futures in a northerly direction with them. After the closing bell, AMD CFO Jean Hu (I wrote to you on Tuesday morning that we would likely hear from Hu) noted that AMD expects to increase its operating margin from the current 24% this year to more than 35% over the next three to five years. This will result, according to Hu, in what she refers to as a “clear path” to more than $20 in annual earnings per share. Twenty bucks, gang. According to Barron's, the current Wall Street consensus view for AMD‘s 2028 full-year EPS stands at $10.18. Rock on. The new "Dynamic Duo."
About the Shutdown...
The House of Representatives is expected to vote on the amended spending package on Wednesday that passed in the Senate in a filibuster-proof 60 to 40 vote earlier this week. Are we out of the woods? Not quite. While the Republicans do hold a slight majority in the House and there is no filibuster in this chamber, meaning a simple majority will rule, Polymarket only has passage at a 56% probability for Wednesday. Remember, the bill has to pass and then go to the president to be signed into law. If it takes more than one vote or if it just takes all day, this shutdown could last into Thursday.
50-Year Mortgage ... Yikes! ...
I think we can agree that a 50-year mortgage would be an awful deal for young people trying to buy a home.
Tax Rebates ... Uh ...
I'm not sold on the idea of tariff-driven taxpayer rebates either. If the tariffs are ruled to be lawful, let's actually try to improve the nation's fiscal situation with the dough. Call me crazy, but are we not close to a fiscal crisis?
Marketplace
Tuesday was a quiet day. Tuesday was actually a federal holiday -- unless you trade equities for a living. Then it was simply Tuesday. That said, banks were closed and the bond market was closed. So, there was less juice or liquidity in the pipes. Equity markets were mixed for the session. The S&P 500 gained 0.21% as the Nasdaq Composite gave up 0.25%. The small- and mid-cap stocks closed anywhere from down fractionally to up 0.36%.
The semiconductors, however, were pummeled on Tuesday as algorithmic profit takers reacted to Monday's rally, and unfortunately for them, ahead of the Su & Hu show in New York City. The Philadelphia Semiconductor Index gave back 2.48%, as Micron (MU) , Lam Research (LRCX) and Marvell Technology (MRVL) were all taken to the woodshed for beatings of greater than 4%.
Breadth
Surprisingly, at least to me, 10 of the 11 S&P sector SPDR ETFs closed out the Tuesday session in the green, led by Health Care (XLV) as defensives took three of the four top spots on the daily performance tables. Only Technology (XLK) closed the day in the red, thanks to the underperformance of the semis.
Winners beat losers at the NYSE by a rough 9-to-5 margin and at the Nasdaq by a more modest 5 to 4. Advancing volume took a 68.3% share of composite NYSE-listed trade, but just a 43.8% share of composite Nasdaq-listed activity. Aggregate trading volume ended the day sharply lower across NYSE and Nasdaq listed securities and across the membership of the S&P 500 due to the holiday. Your trades from Tuesday do count. How meaningful anything that happened on Tuesday was, with the exception of the 16% bludgeoning of CoreWeave (CRWV) would be doubtful.
Oracle's Obstacles
Anyone else notice that on Tuesday, Barclays downgraded Oracle's (ORCL) debt rating to "underweight" while making note that Oracle's capital expenditures for the AI data center have far exceeded its free cash flow capacity? Its debt-to-equity ratio is running in the 500% range, which far exceeds the rest of the rest of "big tech." When I say "anyone else" of course I omit Dougie Kass, because he indeed does see everything.
I want readers to remember a column I wrote on Sept. 10, the morning after the most recent Oracle earnings release. Oracle traded up 36% that day and peaked at $345.72. Last night, Oracle closed at $236.15, down 31.7% from that apex. Dougie had noted the night before that Oracle's Remaining Performance Obligation stood at a stunning $455 billion (+359%), which the market celebrated, but the balance sheet only showed deferred revenue for the coming 12 months at $12.098 billion and that there was no entry made for non-current deferred revenue?
The conclusion? These orders were likely not guaranteed as there had to have been no down payments or few down payments made. Please check out this segment from my Sept. 10 column...
My Thoughts (on Sept. 10) ...
I don't care who is upgrading ORCL this morning. I don't care what the lemmings are doing with the respective target prices. Half of them don't do their own homework anyway. The questions for me are as follows...
Do I want to pay up more than 30% for a firm with negative free cash flow?
Do I want to pay up more than 30% for a firm that is suffering firm margin contraction?
Do I want to pay up more than 30% for a firm that was already trading at 35 times forward looking earnings?
Do I want to pay up more than 30% for a firm whose balance sheet any CFO should be too embarrassed to publish?
You know the answer to these questions. For me they are "no." I have no position. If I were long the stock, I would take profits on at least a significant partial today.
My guess is that Dougie probably came off as too meticulous. I am sure I came off as "mean-spirited." I know of one person who said I was just angry because I had missed the upside move.
The facts are this. You had two seasoned professional traders (one, not me, could be called legendary), respected across the industry, call B.S. on Oracle's rally that day here at TheStreet Pro and we both nailed it. I saw nobody else publish a thorough and elite level interpretation of that earnings release as the stock was soaring. I'd be willing to bet that there was probably more cheerleading than rigorous scrutiny going on elsewhere in our financial media universe.
Rant over.
Economics
(All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.31%.
07:00 - MBA Mortgage Applications (Weekly): Last -1.9% w/w.
08:55 - Redbook (Weekly): Last 5.7% y/y.
1:00 p.m. - Ten-Year Note Auction: $42B.
4:30 p.m. - API Oil Inventories (Weekly): Last +6.5M.
The Fed
(All Times Eastern)
09:20 - Speaker: New York Fed Pres. John Williams.
10:00 - Speaker: Philadelphia Fed Pres. Anna Paulson.
10:20 - Speaker: Reserve Board Gov. Christopher Waller.
12:15 p.m. - Speaker: Atlanta Fed Pres. Raphael Bostic.
12:30 - Speaker: Reserve Board Gov. Stephen Miran.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: (CRCL) (.19), (GFS) (.38)
After the Close: (CSCO) (.98)
At the time of publication, Guilfoyle was long AMD, MU, LRCX equity.
