Wall Street has started off November in a better mood after a couple of October “spooks” they got yesterday. Yesterday, the S&P 500 went up 0.4%, the Dow rose 0.7% and the NASDAQ gapped up 0.8%.
The main culprit was the earnings results from a couple of “Magnificent Seven” companies that investors were laser-focused on this earnings season: Meta Platforms, Inc. (META) and Microsoft Corporation (MSFT). Their results sparked concerns over their aggressive increase in AI spending. (You can read my full review of those earnings here.)
So, the question for investors now is who is the true king of “The Magnificent Seven”?
NVIDIA Corporation (NVDA) is, of course, the red-hot company right now. With a market cap of $3.3 trillion, it’s the second-largest company in the S&P 500. Only Apple Inc. (AAPL) edges NVDA out for the top spot.
We’ll learn more from NVIDIA on November 21, when the company announces its results. But for now, it was Apple’s and Amazon.com, Inc.’s (AMZN) turn to release their earnings this week.
Investors have been eager to see whether Apple’s entry into the AI race will bear any fruit. And given the concerns about AI spending, investors were curious to see whether Amazon is bucking the trend.
So, in today’s Market 360, I’ll review the latest earnings from Apple and Amazon. We’ll examine whether investors got what they were hoping for, and I’ll also share whether my Stock Grader system says they’re good buys right now. Then, I’ll share where you can learn about my latest election prediction which could shock you.
Amazon: It’s All About the Cloud…
For its third quarter, Amazon reported results that blew expectations out of the water. The company reported $1.43 earnings per share on $158.9 billion in revenue. Analysts were expecting earnings per share of $1.16 on $157.29 billion in revenue, so Amazon posted an impressive 23% earnings surprise.
Now, Amazon Web Services (AWS) is Amazon’s cloud computing unit, and Wall Street closely tracks it because it has been a huge driver of both sales and profit for the company. For the quarter, AWS raked in $27.45 billion in revenue which was about in line with Wall Street expectations. In other words, Amazon remains more dominant than ever in cloud computing.
The company recently launched new AI-powered features, including Rufus, a generative AI-powered shopping assistant, which is available in parts of Europe. Then, there’s Project Amelia, an AI assistant that helps sellers with tailored business insights.
During Amazon’s earnings call on Thursday evening, CEO Andy Jassy explained that Amazon expects to spend more than $75 billion in 2024, and even more next year. And this is all due to, you guessed it, the demand for generative AI and the data centers needed to fuel it. Here’s what he had to say:
The faster we grow demand, the faster we have to invest capital in data centers and networking gear and hardware. And of course, in the hardware of AI, the accelerators or the chips are more expensive than the CPU hardware. And so we invest in all that up front, in advance of when we can monetize it with customers using the resources.
Now, I want to highlight one key thing about Amazon, which is that it seems to be benefitting from its AI investments already. Unlike Microsoft, which said it expects slower growth in its cloud business, Andy Jassy said that the AI business within AWS has generated several billion in sales already and that it is growing at a triple-digit rate. And this is why Amazon’s shares went up by about 6% on Friday following the earnings beat.
Apple Shines Despite Bumps in the Road
Apple also beat Wall Street’s expectations but was hit hard by a large tax payment to the European Union (EU). For its fourth quarter, Apple reported $1.64 earnings per share on revenue of $94.9 billion in revenue. Analysts were expecting $1.60 earnings per share on $94.58 billion in revenue.
There was just one problem. Apple had to make a hefty one-time payment of $10.2 billion in back taxes to Ireland after the European Court of Justice ruled that Apple benefited from Ireland’s tax loopholes.
Despite this charge, Apple is seeing strong growth in iPhone sales, which account for 49% of the company’s overall sales. iPhone revenue reached $46.2 billion, which is a 6% growth from the same quarter last year. In the Greater China region, however, revenue was down year-over-year to $15.03 billion – and this disappointed some investors.
In my opinion, CEO Tim Cook is growing weary of China’s troubles weighing on Apple’s bottom line. And this is one reason why the company is pivoting its focus to India.
I should also add that the new Apple Intelligence features became available in the U.S. for iPhone, iPad and iMac users earlier this week. CEO Tim Cook says it “marks the beginning of a new chapter for Apple innovation.”
However, like all the Magnificent Seven stocks, investors want to see that the company’s AI spending is going to lead to growing revenue and profits soon.
Apple did project company revenue to grow “low- to mid-single digits” year-over-year next quarter. And that disappointed Wall Street, sending Apple’s stock down about 1.3% yesterday.
So, Are Amazon and Apple Buys?
Clearly, investors were pleased with Amazon’s results. And while investors were not as happy with Apple’s earnings, I think Apple is doing a much better job monetizing AI right now than, say, Microsoft.
Of course, this may already be baked into the cake, considering the $300 billion disparity between Apple and Microsoft’s market caps. However, it’s important to remember that the AI race is a marathon and not a sprint. And since Apple typically enters the fray late and comes from behind, I wouldn’t count the company out.
But the proof is in the pudding, as they say. So, let’s see what my Stock Grader (subscription required) has to say…
Apple gets a C-rating for both the Fundamental and Quantitative Grades. It also has a Total Grade of “C”, which signifies a “Hold.” In other words, if you’re looking to buy, you may want to hold off until the fundamentals and buying pressure improve. But if you own it, I wouldn’t sell it just yet.
Amazon, meanwhile, has stronger fundamentals, marked by the Fundamental Grade of “B.” However, buying pressure has dried up a bit, which is why it has a Quantitative Grade of “D.”
The Quantitative Grade makes up 70% of the Total Grade, so the end result is a Total Grade of “C” for Amazon. So, it’s not a buy just yet, either.
My Latest Market Prediction – How to Prepare
This upcoming Tuesday, November 5, everyone will be making their way to the polls to cast their ballot for the next President of the United States.
But the real story is what could happen the day after the election, on November 6.
In short, I’m talking about the potential for political strife to cause the markets to shift at an unparalleled, chaotic rate.
Now, you’re probably thinking that you should move your money around, right?
Before you do, I want you to know that in my four decades of experience in the market, I can tell you that times of chaos are often the best opportunities for life-changing profits.
So, in order to show you how to best prepare for the potential volatility that may be coming, Charles and I put together an urgent briefing called “The Day After Summit.”
We’ll tell you everything you need to know about what’s coming – and more importantly, how to profit.
Also, be sure to stick around to the end, because Charles will even reveal a free ticker that has shown an average gain of 31% in just over one month during situations like this.
You don’t want to miss it.
Click here to watch the replay of “The Day After Summit” now.
Sincerely,
Louis Navellier
Editor, Market360
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
