Just six weeks into the new year and the cream is already rising to the top.
The two biggest winners from 2023—Nvidia and Meta Platforms—are the S&P 500’s best performers of the year so far. Those who questioned whether the pair could keep going higher after such a bumper year have their answer.
Doubts over whether the artificial intelligence frenzy can keep boosting the stocks exposed to the technology appear to be misplaced right now. It seemingly only takes one company’s bullish earnings or outlook to give tech stocks another leg up, as British chip designer ARM has highlighted in recent days.
Super Micro Computer
also showed that new joiners to the party give cause for the good times to roll on.
The AI usual suspects—Palantir, Microsoft,
C3.ai,
and
Advanced Micro Devices
—have all had strong starts to the year.
Gone are the days of tech stocks closely following the ebb and flow of Federal Reserve interest-rate expectations. AI-exposed stocks are dancing to a different tune. That may work in the sector’s favor if economic data push back the timeline for the central bank’s first rate cut.
The winners from last year aren’t all enjoying a happy new year.
Tesla
stock was in the top 10 with its 102% gain in 2023, but is the second worst performer so far this year, falling 24%.
Apple
is the only other member of the so-called Magnificent 7 in the red year to date.
There are other reasons for their underperformance but Elon Musk recently said he wants greater voting power before pushing Tesla’s AI ambitions, and Apple’s own developments in the space are being kept under wraps.
The moral of the story is: if it’s going big on AI, the stock can fly.
—Callum Keown
***
Carl Icahn Amasses Stake in JetBlue, Discusses Board Seat
Activist Carl Icahn disclosed a 9.9% stake in shares of
JetBlue Airways,
calling it an undervalued and attractive investment opportunity. He added in a regulatory filing that he has had and continues to hold discussions with management and the board, including about possible board representation.
- The filing comes as airlines brace for a winter storm along the East Coast that has forced the cancellation of hundreds of flights today, including to and from New York and Boston. Heavy snow and high winds are forecast from Southern New England through Southern Pennsylvania and New Jersey.
- JetBlue is waiving cancellation fees and fare differences for passengers traveling today through Thursday, at several airports in the northeast including New York’s John F. Kennedy and Boston’s Logan International. American Airlines is waiving change fees for trips in the same region. United Airlines also waived change fees and fare differences.
-
Delta Air Lines
is waiving fare differences for rebooked travel before Feb. 16 and change fees for trips in the affected region. In 2023, a record 144 million people traveled through Newark Liberty International, JFK International, and LaGuardia Airports, the Port Authority of N.Y. and N.J. said. -
Separately,
Tripadvisor,
the travel planning site, said it has formed a special committee of independent board members to evaluate any potential sale of the company, and that Centerview Partners is the committee’s financial advisor. A transaction isn’t guaranteed, it said.
What’s Next: The storm isn’t the only obstacle for travelers this week. A national group representing ride-hailing and delivery workers for
Uber,
Lyft,
DoorDash,
and other apps has called for a strike on Wednesday for rides to and from the airports in 10 locations, including Chicago and Miami, from 11 a.m. to 1 p.m.
—Janet H. Cho and Liz Moyer
***
Bitcoin Blows Past $50,000 as Crypto Rally Rolls On
Bitcoin rose to its highest level in more than two years as a cryptocurrency rally continued. Digital assets have surged since the Securities and Exchange Commission approved the first spot Bitcoin exchange-traded funds (ETFs) last month, with improved risk sentiment in wider markets also helping matters as stocks trade at record highs.
- Bitcoin broached the psychologically important $50,000 point late Monday and remained above that mark on Tuesday, sitting at the highest level since late December 2021, when prices were a month off their record high near $69,000. Other cryptos including Ether and Dogecoin were also higher.
- Bitcoin has now more than recovered from a brutal bear market that began in 2022 and lasted through much of 2023, punctuated by the collapse of stablecoin Terra and bankruptcy of crypto exchange FTX. However, many smaller tokens remain severely beaten down at a fraction of 2021 peaks.
- Bitcoin prices have doubled since last June, when BlackRock became one of the first mainstream financial firms to file for a spot Bitcoin ETF. Crypto bulls hope these new ETFs will usher in a fresh wave of interest in digital assets—especially from institutional investors who have stayed on the sidelines.
What’s Next: Crypto prices continue to be correlated to stocks, so wider sentiment for risk remains key in the short term. Beyond that, traders are eagerly awaiting Bitcoin’s so-called halving, which will cut the programmatic issuance of the token, restricting supply and putting upward pressure on prices. That should happen around April.
—Jack Denton
***
Arm Holdings Extends Rally, Lifting Japan’s SoftBank With It
Chip design firm
Arm Holdings
has notched a four-day rally in its stock after beating earnings expectations last week on the strength of artificial intelligence spending. The winning streak, its longest since Dec. 28, has pushed its stock price to a record high, bringing Japan’s
SoftBank
on the ride with it.
- Arm is projecting March-quarter revenue of between $850 million and $900 million, well above expectations, as it says the AI potential has just begun. Its stock is up more than 110% this month, nearly triple its $51-a-share initial public offering price last September.
- Trading was frenzied on Monday. Some speculated on social media that a short squeeze is happening. As of Dec. 31, according to Nasdaq, the short position in the stock was 9.3 million shares, about equal to the average daily trading volume in the stock.
- Arm’s run-up was also a windfall for SoftBank Group, the Japanese technology holding company that acquired Arm for $32 billion in 2016 and holds more than 90% of its shares. Arm now has a market value of about $145 billion, with SoftBank’s stake worth more than $129 billion.
-
Nvidia
has been winning the race for AI computing power so far, briefly pushing its market value above
Amazon’s
. SoftBank tried to sell Arm to Nvidia for $40 billion in 2022 but regulators stopped the deal.
What’s Next: While Arm has just over one billion shares outstanding, only about 95 million are currently trading in the public market. The lockup agreement that covers both SoftBank’s shares and stock held by insiders expires on March 12.
—Janet H. Cho and Eric J. Savitz
***
The Magnificent 7 Have a More Attractive European Rival
The Magnificent 7 tech stocks that have been a driving force behind the S&P 500’s rally to record highs have a European rival. A new group dubbed the GRANOLAS by
Goldman Sachs
includes some of the largest European companies by market capitalization and may warrant a look.
- The collective performance of GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi has been astonishing over the past few years, even if it hasn’t been nearly as eye-catching as the Magnificent 7, which include Tesla, Apple and Nvidia.
- The GRANOLAS accounted for 60% of all gains over the past year in Europe, where the stocks make up a quarter of the market capitalization of the pan-European Stoxx 600 index, Goldman Sachs analyst Guillaume Jaisson wrote in a Monday note. He added the 11 stocks have delivered better returns for less risk than the Magnificent 7.
- While the group trades at a premium 20 times price-to-earnings ratio, it’s a 30% discount to the Magnificent 7—at 30 times—and below their historical discount. The GRANOLAS also offer an average dividend yield of 2.5%, which is much higher than the S&P 500’s average 1.5% and the meager 0.3% dividend offered by the Magnificent 7.
What’s Next: The GRANOLAS exhibit qualities Goldman expects to predominate in a cycle of strong earnings growth, low volatility, high and stable margins, and strong balance sheets. While the GRANOLAS might sound like more of a cereal category, these names might be worth a look for a balanced portfolio.
—Jack Denton
***
Arista Networks Beats Expectations as AI Build-out Continues
Arista Networks
beat expectations as the networking equipment company set its focus on large companies and the enterprise market. It makes nearly half of its revenue from
Microsoft
and
Meta Platforms
and recently picked up business from
Oracle.
- Microsoft and Meta both recently predicted 2024 capital spending would be well above the 2023 level, driven by investment in artificial intelligence data centers.
- For the December quarter, Arista’s revenue rose 21% to $1.5 billion from a year earlier and it reported adjusted profit of $2.08 a share. Both beat the consensus forecast from analysts. An adjusted gross margin of 64.9% was also higher than the company’s forecast.
- CEO Jayshree Ullal said on a conference call with analysts on Monday that the company was “cautiously optimistic” about achieving its goal of at least $750 million in AI networking revenue in 2025.
What’s Next: For the March quarter, Arista expects revenue of between $1.52 billion to $1.56 billion, which is slightly above the Wall Street estimate, and an adjusted gross margin of 62%.
—Eric J. Savitz and Liz Moyer
***
Be sure to join this month’s Barron’s Daily virtual stock exchange challenge and show us your stuff.
Each month, we’ll start a new challenge and invite newsletter readers—you!—to build a portfolio using virtual money and compete against the Barron’s and MarketWatch community.
Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and at the end of the challenge the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.
Are you ready to compete? Join the challenge and pick your stocks here.
***
—Newsletter edited by Liz Moyer, Patrick O’Donnell
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