Tesla Earnings Lift the Market and These Portfolio Holdings

Equities are being lifted by better-than-expected earnings on Thursday morning as well as favorable comments about AI adoption.

Let’s remember, though, that S&P Global SPGI will post its Flash October PMI data later in the morning, and that has the potential to renew questions over the pace of rate cuts. Based on recent data, we see a slower pace of cuts than the market over the next six-to-nine months, and if the market needs to recalibrate to our thinking, volatility is likely to come along for the ride.

One of the shares helping lift the market this morning are those from Tesla TSLA. Better-than-expected September quarter earnings are one factor in the shares moving higher but so is the company’s outlook for the current quarter. Tesla shared that it expects to sell more vehicles in 2024 than in the prior year, implying deliveries of at least 515,000 vehicles in the current quarter compared to 490,000 vehicles projected by Wall Street. While we’re not involved in TSLA shares, higher sales volumes for its EVs only solidify our thinking about the looming power pain point that keeps us long Eaton ETN shares.

Adding to that thinking were very positive data points about enterprise AI adoption. IBM IBM shared that its book of AI business was more than $3 billion in the September quarter, a $1 billion-plus sequential improvement. This follows Apple’s AAPL release last night of a beta version of its upcoming iOS 18.2 that includes new Apple Intelligence features and anticipated ChatGPT integration. This speaks to the thoughts we shared on Wednesday about the underwhelming start to the much-touted iPhone upgrade cycle. While the soon-to-be-released iOS 18.1 has some Apple Intelligence features, the next update looks more promising as a catalyst for iPhone volumes.

A Quick Hit on ServiceNow

Turning to other Portfolio holdings, ServiceNow NOW shares are rebounding on Thursday morning following quarter results last night that are leading to some incremental price target increases across Wall Street this morning. We upped our NOW price target to $1,000 recently, but today’s moves reflect some catch-up but also large deal momentum, strong AI adoption, continued double-digit subscription revenue growth and raised guidance.

Those results as well as the comments shared above from IBM keep us bullish on the shares of our latest Portfolio holding, Elastic N.V. ESTC.

Lam’s Results Back Our Thinking on Applied Materials

We are also seeing our shares of Applied Materials AMAT bounce back this morning following consensus-beating results from semi-cap equipment company Lam Research LRCX. For the current quarter, Lam sees its top line rising to $4.3 billion, up 14% year over year and a more modest 3% sequentially. While China-related semi-cap business is expected to soften in the coming quarters, its order book continues to benefit from AI-related investments.

That strength, as well as the rebound in the PC, smartphone and other markets, suggests chip-industry capacity will continue to tighten, fostering continued demand for new semi-cap equipment. With AMAT shares below the Portfolio’s latest pickup point for the shares, we see the risk-reward trade-off as very favorable relative to our $220 price target.

Weakness as Expected at United Rentals

When it reported its September quarter results last night, unsurprisingly, United Rentals URI came up short relative to consensus expectations even though it posted record revenue for the quarter. Unlike other companies, United published its results last night but will hold its earnings call this morning, and that will bring some answers about how it was impacted by recent hurricanes. It will also allow for questions over the company’s tightened guidance for this year to $15.1 billion to $15.3 billion in revenue from $15.05 billion to $15.35 billion. We also look forward to comments about construction projects, United’s progress on acquisition integration, and what the means for further operating margin improvement.

Our thinking continues to be that additional Fed rate cuts will stir additional nonresidential construction activity, especially with infrastructure dollars flowing. Those same rate cuts will foster a rebound in housing demand, fostering construction in that part of the market as well. Based on what we learn from the call, we formulate any next move with URI shares.

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At the time of publication, TheStreet Pro Portfolio was long ETN, AAPL, NOW, ESTC, AMAT and URI.