Good Reports From Google, Texas Instruments Not Attracting Buyers
The news is hitting and there is some knee-jerk selling.
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Despite some strength in semiconductors due to the (SMCI) earnings report, the session turned ugly as the day progressed on Wednesday. Selling pressure was broad with only 38% of stocks in positive territory. New 12-month lows exceed new highs by a score of 134 to 102. The Russell 2000 (IWM) lost about 0.9% and biotechnology (XBI) was hit for 1.5%.
There is understandable nervousness about upcoming earnings news, especially in the AI sector. While the SMCI report showed exceptional demand, that wasn’t enough to help Micron (MU) and other chip plays in recent action. Will Google and others deflect some of these worries or will they trigger more concern?
Earnings Reports
The news is hitting and there is some knee-jerk selling. Texas Instruments (TXN) beat on both the top and bottom lines, with earnings of $2.09 versus $1.94 and revenue of $5.46 billion against a $5.26 billion consensus. Even so the stock slipped a bit. That is the kind of reaction you get when good news is already well anticipated.
Alphabet (GOOGL) looked like a huge beat at first glance, with earnings of $9.11 versus $2.88. But that number is misleading. Other income included a net gain of $98.0 billion, and almost all of it was unrealized gains on equity securities. That is a paper gain on stocks the company holds. It is not cash, it did not come from the business, and it can reverse just as easily next quarter. Take it out and the operating results were roughly in line.
The number that mattered was revenue of $119.8 billion, up 24% from a year ago, with operating margins of 34%. The stock dipped on the headline and then started to recover as traders looked past the accounting noise to the actual business but it is slipping again as the news is digested.
Tesla (TSLA) was an actual disappointment. Revenue came in ahead at $28.24 billion versus $26.42 billion, but earnings missed badly at $0.33 versus $0.53. The company is selling products but making less on each sale.
We’ll see how this develops after conference calls and analyst comments but this is not an environment where a beat is going to generate sustained positive momentum. The big hope is that more aggressive “sell the news” action does not take hold.
My bigger concern is not these headline reports. It is in the weak breadth we saw all day. If the beats hold up that will help but if the soft reactions spread into that already poor breadth over the next few days, then the nervousness is well justified. We will see. Proceed with caution.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
