AI In the Driver's seat

Market Movers

• Stocks started the week lower after Fed Chair Jerome Powell warned that the Federal Reserve plans to move cautiously, all but ruling out early rate cuts. Powell stated that the Fed wants more data to confirm the lower inflation trend, with inflation working its way back down towards the 2% target rate.

• Palantir (PLTR) is trading higher after better than expected fourth quarter revenue growth led by its commercial segment, with investors jazzed about its AI driven future. This marks the first annual profit recorded by the The Company is also forecasting improved operational performance over the next year. From CEO Alex Karl, “we are seeing surging demand across industries and sectors for artificial intelligence platforms. . . every part of the organization is focused on the AI rollout.” Many analysts remain on the sidelines, however, citing high relative valuation and weak March revenue guidance of $612-$616 million, short of analyst expectations of $617 million. For the year, however, the Company guided to revenue of $2.6-$2.7 billion, slightly better than consensus of 2.64 billion.

• Snap (SNAP) announced it is laying off approximately 10% of its workforce, following similar announcements from other technology companies during the reporting period including Microsoft, Amazon and others.

AI Highlights:

• Meta (META) announced that it will begin labeling AI generated images from other generative services over the next several months to help users distinguish AI content from real photos. The labels will post to its Facebook, Instagram and Threads platforms, making it more difficult for those with digital girlfriends to maintain their suspension of disbelief.

• NVidia (NVDA) bucked the market sell-off yesterday to close at an all-time high of nearly $695. Investors remain excited by the growth in AI, and are rewarding the main chip company that is fueling the industry.

• Check Point Software (CHKP) beat fourth quarter profit expectations and announced that its CEO will transition to the role of Executive Chairman of the board once a replacement can be found. Revenue for the December quarter was $664 million, slightly ahead of consensus expectations of $661.5 million, with earnings per share of $2.57 vs. $2.45.

Semiconductor Highlights

• Amkor (AMKR) reported earnings this morning, barely edging our analysts’ revenue expectations at $1.75 billion vs. $1.72. Revenue was down approximately 8% Y/Y, however, and management guided March revenue lower than current consensus at $1.35 billion vs. an expected $1.5 billion. The weak March guide does not send a strong signal for the recovery of the consumer electronics market as Amkor provides advanced packaging for items including smartphones, personal computers, etc.

• Intel (INTC) announced that it is working with Faraday Technologies and ARM to develop a 64-core SoC that will use the Intel 18A platform. The chip will be developed for the ARM server market targeting data centers. While ARM-driven servers are expected to cannibilize Intel’s x86 chips, the successful development of ARM-based processors could help Intel stem significant losses in its high-margin server business.

• Rambus (RMBS) reported just over $122 million in revenue for the December quarter, in-line with analyst consensus. EPs was $0.53, above consensus of $0.45 driven by better operational performance. March revenue is expected to increase sequentially to $132 million at the mid-point.

• Microchip announced that the board has voted to reduce executive compensation by 20% for the CEO, and to reduce compensation for several other executives including the CFO and Executive Chair of the board. This comes on the heels of a reduction in revenue and earnings outlook for CY24.

Chart of the Day

Is it time to take another look at INTC? The company has been under pressure from AMD, NVDA, ARM and TSMC for several years, losing share across its x86 server and consumer products, graphics chips, manufacturing dominance and losing the battle for mobile devices. However, the company has made an early win in its new foundry hopes with the ARM/Faraday announcement and is rapidly improving its manufacturing capability through the introduction of new, advanced fabs in the United States and overseas.

Judging by the 5-Year chart above, it appears that investors may be placing bets on a protracted rebound and recovery by Intel driven by massive AI data center needs over the next several years.

Earnings Calendar

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