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October 27, 2021

‘Another World Series cloud performance’: 3 analysts react to Microsoft’s 1st-quarter earnings report that sent stock to record highs

Microsoft CEO Satya Nadella stands on stage and gestures widely with both hands — Microsoft CEO Satya Nadella.
Justin Sullivan/Getty Images

Microsoft stock spiked 4% on Wednesday to new record highs following its Q1 earnings report.
The cloud provider posted record revenues and profits that exceeded estimates.
Here’s how three Wall Street analysts reacted to Microsoft’s blowout quarter.

Microsoft stock hit record highs on Wednesday, jumping as much as 4% after the company reported strong first-quarter earnings.

The cloud provider posted record profits that exceeded analysts’ estimates as growth in its Azure cloud and productivity units helped drive a 22% surge in revenues to $45.3 billion. The company also gave second-quarter revenue guidance that was ahead of consensus forecasts.

“We are off to a fast start for fiscal year 2021. The case for digital transformation has never been more urgent or more clear,” said Microsoft CEO Satya Nadella.

Wall Street analysts seem to agree with him, as several raised their price targets for Microsoft stock and said the Redmond-based tech giant has more growth ahead. Here’s how three analysts reacted to Microsoft’s blowout quarter.

Wedbush: ‘Another World Series cloud performance.’

Price Target: Maintained at $375

“Nadella & Co. handily beat Azure estimates by 300 bps with 50% cloud growth and gave December guidance well above expectations speaking to a cloud party that is still in the middle innings of playing out for Microsoft… We believe the strong numbers from Nadella & Co. is a broader indication of strength we expect to see across the enterprise cloud software landscape throughout this earnings season… In a nutshell, these results and stronger guidance will be enough to move the stock much higher into 2022,” Wedbush analyst Dan Ives said.

Goldman Sachs: ‘Azure continues to become an increasingly strategic cloud vendor.’

Price Target: Raised to $400 from $360

“The re-acceleration potential with Azure that we had anticipated is playing out and bodes positively for upcoming quarters…We continue to see Microsoft as well positioned to capitalize on durable secular growth in digital transformation budgets, and we remain convicted in our thesis that Microsoft Cloud is on track to generate $120-$140bn in annual revenue, likely 1-2 years ahead of our initial expectations at the time of our January initiation,” Goldman Sachs said, led by analyst Kash Rangan.

Bank of America: “Cloud momentum continues with continues scale.”

Price Target: Raised to $365 from $340

“Q1 results point to continued momentum in the two key cloud franchises… New industry cloud offerings are likely to add incremental growth from here. We are encouraged by continued ramp in cloud gross margin with estimated Azure margin in the 59%-60% range, trending toward industry competitive low 60s level… steady normalized low single digit growth for Server & Windows demonstrates Microsoft’s ability to capture incremental growth in cloud, though not at the expense of these large, profitable legacy businesses,” Bank of America said, led by analyst Brad Sills.

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July 30, 2021

‘Rinse, lather, buy the dip’: Here’s how 3 Wall Street analysts are reacting to Amazon’s 2nd-quarter earnings

Amazon’s mixed second quarter earnings results led to a more than 7% decline in the stock on Friday.
The company reported $113 billion in revenue, missing analyst estimates by about $2 billion.
Here’s how 3 Wall Street analysts reacted to Amazon’s second quarter earnings report.
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Shares of Amazon fell more than 7% on Friday after the e-commerce giant released second quarter earnings results that beat profit estimates but missed revenue estimates.

Friday’s decline represented Amazon’s worst day since the onset of the COVID-19 pandemic in March of 2020, but Wall Street analysts remain bullish on the company’s long-term growth prospects.

Amazon reported second-quarter revenue of $113.1 billion and earnings per share of $15.12, missing analyst estimates of $115.1 billion and beating estimates of $12.32, respectively.

The company said it expects revenue of $106 billion to $112 billion in the third quarter, which would represent year-over-year growth of 10% to 16%. Still, that’s well below analyst estimates of $118.7 billion in third-quarter revenue. Amazon gave a wide third quarter guidance range for profits, guiding for $2.5 billion to $6.0 billion in operating income.

As investors navigate Amazon’s results, here’s how three Wall Street analysts reacted to the second quarter earnings report.

Stifel: “Rinse, lather, buy the dip.”

“While Amazon missed overall topline numbers, the shortfall was primarily concentrated in Online Stores which includes first party sales (the lowest multiple business line). The higher margin AWS, advertising, subscription and 3P business lines outperformed our expectations, with AWS growth accelerating sequentially,” Stifel said in a note on Thursday.

The firm said the current sell-off makes for an attractive setup “now that shares are on the other side of the COVID comp reset,” according to the note.

Stifel reiterated its Buy rating and $4,400 price target, and advised investors to take advantage of the 7% sell-off.

JPMorgan: “AWS & Advertising were bright spots in an otherwise tough quarter.”

“While street estimates will come down, Amazon is still running at a 2-year compound annual growth rate of 25% to 30%, which is above its pre-pandemic growth rate of ~20%,” JPMorgan said in a note on Thursday.

The bank noted that the weaker-than-expected earnings results were driven by higher labor costs, less operating leverage on slower volume growth, and marketing costs returning to more normalized levels.

“Amazon is still catching up with strong multi-year demand and 2021 is shaping up to be another big fulfillment build-out period on the heels of 50% square footage growth in 2020. Slower growth and increased investments make the shares more challenging near-term, but we expect revenue growth to normalize more around 20% next year and Amazon’s investments in fulfillment and logistics bode well for future growth,” JPMorgan said.

JPMorgan reiterated its Overweight rating and lowered its price target to $4,100 from $4,600.

Bank of America: “Reopening pressuring sales, but just a blip in long-term penetration trend.”

“While outlook was disappointing, and bears could argue Amazon is investing in 1-day fulfillment out of competitive necessity, we think Amazon remains in a solid position, with US retail growth likely above industry growth rates (indicating continued share gains). We still think the stock set up could benefit after 4Q guidance is provided (potentially removing an overhang), when Street can likely start looking forward to more normal growth comps in 2022,” BofA said.

Bank of America reiterated its Buy rating and lowered its price target to $4,250 from $4,300.

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July 3, 2021

These are the stocks to own in the second half of 2021 as markets navigate higher interest rates, according to Goldman Sachs

NYSE trader — Spencer Platt/Getty Images

The second half of 2021 won’t be as strong as the first half, Goldman Sachs said in a Friday note.
The S&P 500 will end the year flat as markets navigate higher interest rates, the note said.
These are the top stocks to own in the second half of 2021, according to Goldman Sachs.
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Investors should not expect another strong six months for stocks after the S&P 500 finished the first half of the year up about 15%, Goldman Sachs said in a note on Friday.

Instead, the stock market is likely to consolidate sideways for the next six months as investors navigate higher interest rates. With the 10-year US Treasury yield currently at 1.43%, Goldman expects it to climb to a cycle-high of 1.9% by the end of the year.

That expected surge in interest rates will likely weigh on high growth stocks and benefit cyclical stocks, the bank said. To benefit from the market setup going into year-end, Goldman recommends investors buy stocks that have short duration, high growth investment ratios, and pricing power, according to the note.

While long duration growth stocks have outperformed their short duration value stock counterparts in recent weeks, Goldman expects this trade to reverse, especially if its forecast for higher interest rates materializes.

Some well-known stocks in Goldman’s short duration basket include Ford, CVS, Intel, and AT&T.

“Companies that have consistently invested for growth have outperformed the S&P 500 year-to-date and are best positioned to continue growing despite the expected slowdown in economic activity,” Goldman said.

Some well-known stocks in Goldman’s high growth investment ratios basket include Facebook, Alphabet, General Motors, and Costco.

“We recommend investors focus on stocks with high pricing power as demonstrated by their high and stable gross margins. High pricing power stocks outperformed in 2018 – 2019 as wage growth accelerated and profit margins declined,” Goldman explained.

Some well-known stocks in Goldman’s high pricing power basket include Activision Blizzard, Etsy, Procter & Gamble, and Adobe.

Goldman outlined its expectations that while the S&P 500 will end the year at 4,300, it will jump 7% to 4,600 by the end of 2022 as the unemployment rate falls to 3.5%.

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April 28, 2021

Bitcoin bottomed after a textbook 20% selloff, and a new uptrend is likely underway, Fundstrat’s Tom Lee says

A new uptrend in bitcoin is “likely underway,” according to a note from Fundstrat’s Tom Lee.
After a textbook 20% sell-off, bitcoin has found support near the $47,000 level, Lee said.
Traders should look for bitcoin to move above $62,000 to affirm that the sell-off is over.
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Bitcoin’s recent sell-off looks to have found support and a new uptrend is “likely underway,” Fundstrat’s Tom Lee said in a note on Wednesday.

The most valuable cryptocurrency sold off more than 20% in recent weeks after topping out just below $65,000 amid the Coinbase IPO. Bitcoin broke below $50,000, which represents a key psychological level for investors, but has since recovered and is trading near $55,000 as of Wednesday afternoon.

Now, bitcoin has found support near $47,000, which coincided with a “9” count buy signal generated by the DeMark indicator. This counter-trend indicator, created by Tom DeMark, helps measure price exhaustion in securities.

Traders should look for bitcoin to move above $62,000 to affirm that the sell-off is over, according to Lee.

“If this [$47,000] holds, and is likely, given this was a level prior to the last ‘sell countdown,’ bitcoin going to rally,” Lee said.

A potential target bitcoin could rally too is $69,000, representing potential upside of 25% from current levels, according to technical analyst Katie Stockton of Fairlead Strategies.

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April 21, 2021

Bitcoin’s momentum will slow for months if it’s unable to quickly climb back above the crucial $60,000 level – and 2 main hurdles stand in its way, JPMorgan says

Bitcoin Bubble — Jaap Arriens/NurPhoto via Getty Images

A decay in momentum could represent a big problem for bitcoin, JPMorgan said in a Tuesday note.
A steep liquidation in bitcoin futures contracts has transpired over recent days, suggesting future weakness in the cryptocurrency.
“The challenge for bitcoin momentum in the current conjecture is to break above $60,000,” JPMorgan said.
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A decline in momentum could set bitcoin up for weakness going forward, according to a Tuesday note from JPMorgan.

Over the past few days, bitcoin futures contracts have faced a steep liquidation, which in the past has occurred near big round price levels. Certain thresholds like $20,000 in November, $30,000 in mid-January, and $50,000 in mid-February were all met with a brief decay in momentum.

According to the bank, it’s likely that momentum traders are behind the buildup and decline of long bitcoin futures in recent week.

“Each previous episode presented a challenge for bitcoin momentum to break out above the certain price thresholds,” JPMorgan said.

Now, that price threshold is the $60,000 level. If bitcoin fails to break out above the $60,000 level, momentum signals “will naturally decay from here for several months, given their still elevated level,” JPMorgan said.

Bitcoin currently trades near $55,500 after topping out around $64,000 last week amid the Coinbase direct listing frenzy.

The recent decline in bitcoin has investors watching key technical levels, including the 50-day moving average, which would signal further downside to $42,000 if that level doesn’t hold as support, according to one technical analyst.

JPMorgan is doubtful that bitcoin will be able to break above the key $60,000 level amid a decline in momentum for two reasons.

“First, the decay in our bitcoin momentum signals seems more advanced, reminiscent of the second half of 2019, and thus more difficult to reverse than in the previous three episodes. Second, the flow into bitcoin funds appears weak, raising concerns about the strength of the overall bitcoin flow picture at the moment,” JPMorgan concluded.

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April 15, 2021

QuantumScape drops 15% after short-seller report calls it a ‘pump-and-dump SPAC scam by Silicon Valley celebrities’ and compares it to disgraced startup Theranos

QuantumScape fell as much as 15% on Thursday after short-seller Scorpion Capital compared the company to Theranos and called it a “pump and dump SPAC scam by silicon valley celebrities.”
The report is based on interviews with former QuantumScape employees and alleges that many of the battery startups claims are false.
“Our research indicates that QuantumScape can’t even reliably make test cells that work,” the short report said.
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QuantumScape fell as much as 15% on Thursday after the battery startup was the subject of a scathing short-report from Scorpion Capital.

The report, titled “A pump and dump SPAC scam by silicon valley celebrities, that makes Theranos look like amateurs,” say that QuantumScape’s technical claims on its highly guarded battery technology are misleading, exaggerated, or fraudulent.

The report is based off of interviews with former QuantumScape employees, as well as battery experts and current Volkswagen employees that are focused on the auto company’s electric vehicle battery efforts.

QuantumScape is working to make a scalable solid-state battery that would promise quicker charging times, longer range, and lower costs for electric vehicles, relative to today’s lithium-ion batteries.

The company has partnered with Volkswagen, which has invested $300 million in QuantumScape over the past few years, but Scorpion Capital is skeptical that the battery startup can deliver on its promises.

“Our research indicates that QuantumScape can’t even reliably make test cells that work,” the report said, adding that “red flags around scaling and manufacturability render QuantumScape’s cells a pipe dream.”

Volkswagen and QuantumScape are targeting a production start of 2025 for the solid-state batteries. But Scorpion Capital doesn’t think that goal will be met. The short-seller believes Volkswagen is an unwitting partner that lends credibility to QuantumScape, similar to how General Motors partnered with Nikola, or Walgreens and Safeway partnered with Theranos.

“A key feature of the largest frauds is often the backing of a famous investor or corporate partner, in this case VW – ‘the smart money’ – that lends credibility to the scam,” Scorpion Capital said.

Scorpion Capital is short shares of QuantumScape, meaning it stands to profit if the stock moves lower.

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April 8, 2021

Why one Wall Street analyst doubts GameStop’s e-commerce turnaround plan, even with Ryan Cohen set to become chairman

GameStop’s plan to elect activist investor Ryan Cohen to become its chairman isn’t winning over Wall Street analysts.
CFRA Research reiterated its “sell” rating on GameStop and said plans to make Cohen chairman don’t change the fundamental story of the video game retailer.
Here’s why CFRA is still bearish on GameStop despite its e-commerce turnaround plan.
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GameStop is moving ahead with its turnaround plan to shift its selling strategy to e-commerce from physical stores, and its recently announced plans to elect activist investor Ryan Cohen as board chairman is part of that.

But one Wall Street analyst remains unconvinced that shares of GameStop present a good value for investors at current prices, and that GameStop can even pull off its turnaround plan.

CFRA Research analyst Camilla Yanushevsky reiterated her Sell rating on GameStop, arguing that the stock’s fair value is $16 rather than its current price of $177. That $16 price target represents 91% downside potential from its current price.

Yanushevsky was not surprised by GameStop’s decision to elect Cohen and said “little has changed in the fundamental story.”

The fundamental story, according to Yanushevsky, is the fact that GameStop was the only member of its peer group to post negative sales growth in its fiscal year 2020 despite the backdrop of thousands of dollars in stimulus checks and a surge in video game activity amid the pandemic. GameStop’s comparable store sales fell 9.5% to $5.1 billion last year.

“We hold concerns over [GameStop’s] ability to maintain competitive positioning due to [its] high dependence on brick-and-mortar and consumers’ shift away from physical to digital,” Yanushevsky said.

Further adding to Yanushevsky’s concerns on GameStop is the fact that it was the only member of its peer group to not provide earnings guidance for the upcoming year.

Investors seemed to also not view Cohen becoming chairman of GameStop’s board as a surprise. Shares initially rose 4% on the news, but eventually traded about flat in Thursday trades.

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April 2, 2021

2 consecutive days of gains points to a stronger than usual April for the stock market, Fundstrat’s Tom Lee says

Two consecutive positive closes for the stock market on March 31 and April 1 signal stronger than usual gains ahead for the month of April, according to Fundstrat’s Tom Lee.
“When March 31 and April 1 are both positive price dates, the follow through for the rest of April is very good,” Lee explained in a note on Thursday.
April already represents one of the best months of the year for stocks based on seasonality data.
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The stock market could see stronger than usual gains in April after equities closed higher on both March 31 and April 1, Fundstrat’s Tom Lee said in a note on Thursday.

Based on historical data since 1945, the S&P 500 returned an average gain of 2.4% in April when stocks posted consecutive gains on those dates, compared to just a 1.3% gain when they did not, according to Lee.

“When March 31 and April 1 are both positive price dates, the follow through for the rest of April is very good,” Lee explained.

April already is a strong month for the stock market based on seasonality data. Over the past 20 years, April has on average been the best month of the year for stocks, and since 1950 it has been the second best month, just behind November.

Besides seasonality data, a move higher in stocks this month would make sense as investors anticipate a full reopening of the economy and as Congress works on a $2.2 trillion infrastructure bill.

Economic numbers are already starting to improve based off of Friday’s jobs report, which saw a better than expected 916,000 jobs added in the month of March.

One more indicator that is increasing the chance of a strong April is a continued decline in the volatility index, also known as the stock market’s fear gauge. The VIX remains below the key 20 level, and fell below 18 on Thursday. Systematic quant funds typically pile into stocks when volatility is low on Wall Street, according to Lee.

“The bottom line is this is a positive environment and risk/reward for stocks. This keeps us constructive,” Lee concluded.

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March 31, 2021

2 big reasons why the market is poised for a massive rally this week, according to Fundstrat’s Tom Lee

Trader — A potential “face rip” rally will be driven by the last trading day of March, Tom Lee said.
Spencer Platt/Getty Images

An explosive rally in the stock market could transpire over the next two days, according to Fundstrat’s Tom Lee.
Window dressing on the last day of the month by fund managers favors buying pressure in some of the most popular stocks, Lee said.
And the start of April on Thursday will likely be marked by inflows into equities as one of the strongest months of the year for the stock market begins.
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The stock market is poised for a massive rally over the next two days as window dressing and strong seasonality begins to kick in, according to a Tuesday note from Fundstrat’s Tom Lee.

The potential “face rip” rally will first be driven by the last trading day of the month on Wednesday, in which fund managers participate in “window dressing,” Lee said. The practice of window dressing occurs when funds sell their losing stocks and buy the winning stocks to improve the image of their quarter-end holdings.

And on Thursday, strong seasonality should kick in as it’s the first trading day of April. Stocks typically see inflows on the first trading day of the month, according to Lee, and systematic funds want to be long stocks in April because it is on average one of the strongest months of the year for markets.

According to LPL Financial’s Chief Market Strategist Ryan Detrick, gains for stocks in April have been consistent, as “stocks have closed higher in April an incredible 14 out of the past 15 years.”

“We are literally facing a turning point, due to the above named factors, and add to the performance anxiety created by the past few weeks, and it is a set-up for a big chase higher,” Lee explained.

That performance anxiety refers to the $20 billion liquidation of Archegos Capital and the subsequent volatility that roiled a handful of stocks. Investors braced for more pain related to the unwinding of Bill Hwang’s family office, but the market has since shrugged off the event and investors that expected more volatility are likely ready to step in and buy stocks.

“I think this chase starts Wednesday [morning],” Lee concluded.

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March 28, 2021

A broad sell-off in the stock market looks less likely as rolling corrections hit tech and energy, according to Fundstrat

trader nyse pray — Getty Images / Bryan R. Smith

The chances of a broad sell-off hitting the stock market in the first half of 2021 are diminishing, according to Fundstrat’s Tom Lee.
Rolling corrections in certain sectors like technology and energy have diminished the chance of a big sell-off, Lee said in a note on Friday.
Technology, energy, and small cap stocks have all experienced declines of more than 10% in recent months.
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The chances of a broad sell-off hitting the stock market in the first half of 2021 are diminishing as rolling corrections hit certain sectors, Fundstrat’s Tom Lee said in a note on Friday.

Since the start of the year, technology and growth, energy, and small cap stocks have all experienced sell-offs of at least 10%, Lee highlighted.

“Because of this recent suite of rolling corrections, we believe the prospects for a larger correction in 1H2021 have largely diminished,” Lee explained.

Tech stocks have sold off on fears of inflation and rising interest rates, while energy and small cap stocks have taken a breather in recent weeks after staging over-extended rallies on the reflation trade.

The change in leadership within the stock market has led to a choppy range of trading, with tech and energy switching places for 2020 and 2021. Tech is now the worst performing sector within the S&P 500 so far in 2021 after being the winner in 2020, while the energy sector is the best performing so far this year after suffering in 2020.

Four structural factors driving this change in 2021 include the first real rise in long-term interest rates not driven by the Fed in decades, rising inflation expectations, a less business-friendly Biden administration that is mulling a rise in the corporate tax rate, and the re-opening of the US economy.

“Each of these individual factors would be difficult for a fund manager to discount. But 2021, these 4 are happening simultaneously. Moreover, the first two factors have not been part of the investment playbook for a generation, so it is natural for markets to be uncertain,” Lee said.

To navigate the uncertainty of the markets, Lee suggest investors buy cyclical stocks poised to benefit from a strong reopening of the US economy as the COVID-19 pandemic subsides.

“Energy is really the sector facing the best tailwinds in 2021,” Lee said.

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