Dell Shares Roaring: 8 Key Items Shaping the Stock Market Friday

These are the early headlines and other items poised to influence the market at the start of the trading day. As we share this collection of market drivers, U.S. equity futures point to a positive market open putting the S&P 500 on track for a ninth straight week of gains.

1. US stocks held steady at record highs as traders waited to see whether America and Iran could finally get a peace deal across the line and restore oil flows through the Strait of Hormuz. (Bloomberg).

Under the proposed terms, Iran would gradually allow the strait to reopen and remove mines from the waterway. It would not charge ships a fee for the duration of the 60-day period, said people briefed on the talks. Negotiations would also begin over Iran’s nuclear programme, with a commitment to discuss Tehran either diluting or handing over its stockpile of highly enriched uranium. Iran would also agree not to develop a nuclear weapon. In return, the US would agree, in phases, to sanctions relief and the unblocking of Iran’s assets held overseas, although that would depend on progress towards a final pact. (FT)

2. Oil prices fell early Friday and were on track for their biggest monthly decline since March 2020 as markets grew more confident of a deal between the U.S. and Iran… Brent crude has fallen around $18 so far in May and is on track for its biggest monthly drop in dollars since March 2020, according to Dow Jones Market Data. WTI, down $16, is on pace for its sharpest dollar fall since November 2021. (Barron’s)

Federal Reserve Bank of Kansas City President Jeffrey Schmid said on Friday that already-hot levels of inflation make it harder ‌to assume the current energy shock will have only a temporary impact on pricing and can be ignored by the central bank. (Reuters)

It appears we are closing in on an agreement that would lead to the gradual re-opening of the strait, and that has the market in a positive mood. However, as we learned coming out of the Covid pandemic, it takes time to get supply chains back to normal, inflation and related pressures to flow through the system and return to prior conflict levels. How quickly companies will look to roll back surcharges and the speed at which consumers see lower prices for food, fuel and other items is TBD.

3. Shares of Dell Technologies soared nearly 40% in premarket trading on Friday, after robust demand for its Nvidia-powered AI servers prompted the company to raise its annual revenue and profit forecasts… On Thursday, ⁠Dell raised its annual revenue forecast to $165 billion to $169 billion from $138 billion to $142 billion, and said it now expects AI server revenue of about $60 billion in fiscal 2027, up from $50 billion. (Reuters)

A confirming signal for the strong level of AI and data center spending if there ever was one, and rising shipments from Dell (DELL) indicate robust demand for AI and data center chips as well as those for networking. Dell said it had over 5,000 AI server customers, including neoclouds, sovereign clients and enterprises. Revenue from Dell’s Infrastructure Solutions Group, featuring servers and other data center equipment rose 181% to $29 billion, well above the $22.4 billion consensus. Growth accelerated across AI servers and traditional servers and networking gear. Dell warned about supply constraints ahead, calling out memory, “standard” computer processors and hard drives.

Next up will be Nvidia (NVDA) CEO Jensen Huang’s keynote address at Computex on Monday, June 1, which for those of us on U.S east coast will be at 11 p.m. on Sunday, May 31.

4. Costco Wholesale Corp. reported higher-than-expected profit in the latest quarter, showing the club chain continues to gain ground among cautious US shoppers… Costco sold a “record-breaking” volume of goods during the quarter, and its gas business experienced “unprecedented demand,” Chief Executive Officer Ron Vachris said on a call with analysts. Many shoppers used a Costco gas station for the first time, he added. (Bloomberg)

We are not going to quibble about Costco’s (COST) quarterly results coming up a few pennies short of the $4.98 consensus. By the math the $4.93 it delivered was around a 1% miss but given the market we’re in we could see some pressure on COST shares. Arguably, the top-line beat with $70.5 billion compared to the $69.7 billion consensus is more telling given the current environment. Per CEO Ron Vachris on Thursday night’s earnings call, the final five weeks of the quarter were Costco’s highest ever in terms of sales volume. Even more telling, Costco ended the quarter with 82.9 million total paid members and 41.2 million paid executive memberships up from 82.1 million and 40.4 million exiting the prior quarter with renewal rates in the U.S. and Canada at more than 92%.

We’ll have more to say on Costco’s results in a stand-alone note to Pro members later on Friday morning.

5. Shares of apparel makers Gap and American Eagle Outfitters dropped 15% and 10%, respectively, in premarket trade on Friday ‌after weak annual forecasts, as consumers curb discretionary spending amid a tough macroeconomic climate… U.S. inflation posted its biggest increase in three years, while consumer sentiment hit a record low in ⁠May, forcing households to tap savings and cut back on discretionary purchases such as clothes and accessories. Both companies flagged weakness in certain women’s seasonal categories, weighing on current-quarter results. (Reuters)

A stiff reminder that the consumer continues to remain selective and in certain cases cut back their spending. With the April personal savings rate falling to 2.6%, and inflation pressures continuing to pressure disposable income, we continue to think that certain retail and consumer facing companies that are not positioned for this environment are a likely source of funds for investors aiming to participate on what is expected to be a red hot IPO summer.

6. Blue Origin’s New Glenn rocket exploded during testing on Thursday, days before it planned to launch internet satellites for Amazon, in a further setback for Jeff Bezos’s space company… New Glenn was scheduled to ferry 48 satellites for Amazon’s Leo internet constellation on Monday… Blue Origin has been seeking to build up its launch cadence and planned to carry out 12 flights using New Glenn this year. It is aiming to compete with Elon Musk’s SpaceX, which is on course for a record initial public offering next month. (FT)

Fortunately, the rocket featured an unmanned crew, and reports are all involved are safe. Clearly a setback for Blue Origin, but also one for Amazon (AMZN) and its race to compete with SpaceX’s Starlink service with Amazon Leo. How big a setback will hinge on the Blue Origin’s revised timetable. The event could also temper enthusiasm for the SpaceX IPO, which, per reports, is now targeting a valuation of at least $1.8 trillion, down from above $2 trillion in April. If you missed our walk through the SpaceX S-1 filing, you can find it here.

7. Economic data today per TipRanks: Goods Trade Balance (Advance, April), Retail & Wholesale Inventories (Advance, April), Chicago PMI (May).

8. Companies reporting today per TipRanks: Buckle (BKE)

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At the time of publication, TheStreet Pro Portfolio was long AMZN, COST and NVDA shares.