Mid-Week Wrap-Up - October 30th, 2024

Company Profits vs. Economic Reality: Can Inflation and Jobs Data Put the Brakes on the Rally?

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CMG Venture & Mark Roussin
October 30, 2024

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Good morning investors!

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Every Wednesday we publish “The Mid-Week Wrap-Up” — your ticket to being well informed and staying ahead in the investment game!

This report is designed to help investors of all skill levels break down important stories/topics within the stock market. And best of all, we cut through all of the BS and give you exactly what you need to know in easy to digest, bite sized pieces of content.

This article is designed to truly give you that EDGE in the day ahead!

Grab your afternoon pick me up and let’s dive in.

Market Talk

The major indexes are higher to start the week as earnings from large companies pull the Nasdaq and overall markets higher.

3 Stories Moving the Market

These are some of the biggest stories so far this week that are having an influence on market action.

Alphabet shares rise on earnings beats boosted by cloud revenue

Alphabet reported third-quarter earnings that beat expectations on both revenue and earnings per share, driven by substantial growth in its cloud division and strong contributions from its core search and YouTube advertising businesses.

The company reported net income of $26.3 billion, or $2.12 per share, up from $19.7 billion, or $1.55 per share, in the prior year. Revenue rose 15% year-over-year to $88.27 billion, exceeding analyst estimates of $86.40 billion.

Key highlights include Google Cloud revenue reaching $11.4 billion, a 35% YoY increase attributed to demand for AI-driven services, and YouTube advertising revenue hitting $8.9 billion, up 12% YoY. Google Search remains the largest revenue contributor at $49.4 billion, reflecting a 12% annual growth, while advertising revenue grew to $65.85 billion amid rising competition.

For FY 2024, Alphabet provided no formal guidance but emphasized plans to leverage AI to drive future growth across Google Search, Cloud, and YouTube. The company also highlighted a $15.3 billion share buyback and a dividend of $0.20 per share for shareholders.

👉 EDGE ALERT: Alphabet delivered a very strong quarter, with…upgrade to Edge+ to read the full Edge Alert.

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AMD shares fall as forecast fails to impress despite strong AI growth

AMD reported third-quarter earnings in line with expectations and slightly beat on revenue, driven by explosive growth in its data center segment.

The company posted net income of $771 million, or $0.47 per share, up from $299 million, or $0.18 per share, a year ago. Revenue rose 18% year-over-year to $6.82 billion, above the $6.71 billion estimate.

Key highlights include a 122% YoY increase in data center revenue to $3.5 billion, driven by strong demand for AMD's Instinct AI GPUs, and a 29% growth in the client segment to $1.9 billion. However, gaming revenue declined sharply by 69% YoY due to lower demand for semi-custom console chips, and embedded revenue fell 25% YoY to $927 million.

For Q4 2024, AMD guided revenue in the range of $7.2 billion to $7.8 billion, a 22% YoY growth expectation, with a gross margin target of 54%, reflecting continued strength in data center sales.

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Eli Lilly stock tumbles after drug giant misses estimates and slashes profit guidance

Eli Lilly reported third-quarter earnings and revenue that missed expectations, impacted by lower-than-expected sales of its key drugs Zepbound and Mounjaro.

The company posted net income of $970 million, or $1.07 per share, compared to a net loss of $57 million in the prior year. Adjusted earnings were $1.18 per share on revenue of $11.44 billion, which grew 20% year-over-year but missed the $12.22 billion estimate.

Key highlights include Mounjaro revenue of $3.1 billion, which, while more than doubling year-over-year, fell short of expectations, as did Zepbound with $1.26 billion in sales. Trulicity revenue declined 22% YoY to $1.3 billion, while Verzenio saw strong growth, rising 32% YoY to $1.4 billion.

Eli Lilly revised its full-year guidance, lowering adjusted EPS to a range of $13.02 to $13.52 from its previous $16.10 to $16.60 range, and reducing its revenue outlook to $45.4 billion to $46 billion.

📚 EDGE-UCATION: What are operating expenses?

Operating expenses (OPEX) are the costs a company incurs to run its core business operations on a day-to-day basis. These expenses are essential for the company to maintain its operations but are not directly tied to the production of goods or services (those are usually classified as "cost of goods sold" or COGS). Operating expenses include things like:

  1. Salaries and Wages - Compensation for employees not directly involved in production, such as administrative, sales, and support staff.

  2. Rent and Utilities - Costs for office or retail space, including electricity, water, and other essential utilities.

  3. Marketing and Advertising - Expenses associated with promoting the company's products or services.

  4. Research and Development (R&D) - Costs for developing new products or improving existing ones, especially common in industries like technology and pharmaceuticals.

  5. Insurance - Premiums for insuring the company’s assets and liabilities.

  6. Office Supplies and Maintenance - Day-to-day materials and upkeep required for the business’s workspace.

  7. Legal and Professional Fees - Costs for services like accounting, legal advice, and consulting.

Operating expenses are distinct from capital expenditures (CAPEX), which are used to buy or improve long-term assets, like property or equipment. Keeping OPEX under control is crucial for a company’s profitability, as high operating expenses can reduce net income, even if revenues are strong.

In Other News

In this section we'll be curating a selection of news headlines we think you'll find interesting. If a topic catches your eye, click the provided links to read more about it.

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The Second Half

The next few days are jam packed with earnings reports and major economic data. At the Investor’s Edge, we are bracing for some volatility ahead.

Earnings Reports

There are still some major earnings this week. We will be watching Apple, Microsoft, Amazon, Meta, Exxon Mobil, Mastercard, Merck, Chevron, Uber, Intel, VICI Properties, and Coinbase.

Here is the calendar of earnings releases scheduled for the rest of the week:

Source: Earnings Whisper

Economic Reports

Inflation and the labor market are the key drivers behind the Fed’s monetary policy and there are no more important reports than the PCE and Nonfarm Payrolls, both of which are scheduled to be released in the next two days. Both reports will be major catalysts for markets, though there will also be the latest initial jobless claims data and manufacturing PMI data.

Here is the full calendar of events scheduled for the remainder of the week:

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Thank you for reading this edition of the Mid-Week Wrap-Up.

Until next time investors!

Mark & Chris

The Investor’s Edge

Disclosure

This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.

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