In today’s Daily Rundown video, Chris Versace explains why the Fed may not be as enthused with Friday’s April PCE data as the market.
He also explains why pullbacks Friday in Costco (COST) and Marvell (MRVL) are an opportunity for members. Chris also connects the dots between earnings from Ulta Beauty (ULTA) and Dell (DELL) to select portfolio positions.
Transcript
CHRIS VERSACE: Hey, folks, Chris Versace here. As you probably know, today is Friday, May 31, the last day of trading in the month of May. And so far, it's been a very positive month. But as we look at what's unfolding today, so far, all the major market indices are mixed following the April PCE price data, as well as the April data for personal income and spending.
Now, in our comments to you earlier, we broke down our reaction to the data, particularly the April PCE data. And when we looked at that, focusing on the core PCE, we can understand why the market started off in a positive response because we saw a little bit of a positive surprise. That's right, the April core PCE data, on a month-over-month basis, only rose 0.2%, better than the expected 0.3% increase the market was looking for.
And again, in our note, we ran through the argument that was put forth that helped spur a downtick in Treasury yields, particularly for the 10-year. But in the same note, we also shared the simple fact that on a year-over-year basis, the core PCE data was unchanged yet again, coming in at 2.8%. What that means is, it's stalled out here for about four months in a row. And the Fed's not going to be ignoring that. We know that. They're very, very attuned to concerns about lack of progress on inflation.
And as we've talked about, they're not going to look at any one indicator or any one vantage point for a certain data set. They're going to look at multiple views across multiple metrics. And when we do that, it simply tells us that, yes, we've seen some progress of late, depending on the metrics. But by and large, we haven't seen any demonstrative improvement. And that tells us that the Fed is going to continue to remain in this need to see more good data, especially after what we saw and shared with you in the Flash May PMI report from S&P Global and in this week's Beige Book, which covered, again, April all the way to mid-May.
So our thinking remains that while folks might read a little bit into today's data, the real focal point for what's next, from an inflation data point perspective, is going to be what we see next week. By that, I mean the final May PMI data reports from S&P Global and ISM, as well as the various wage data that we'll get from ADP, as well as the employment report for the month of May. We'll get some other indicators, too. But I think those will be the biggest ones that we and the market are likely to focus in on. But again, that's next week.
So let's talk about some other things that are happening today. We are seeing our shares of Costco and Marvell both trade off. We had an alert out earlier to you this morning where we actually raised our price target on Costco and reaffirmed our one rating and our current Marvell price target. Now, the shares are trading off. And it might be a little counterintuitive because not only did we just make those comments, but if you look across Wall Street, they are boosting their price targets for Costco and for Marvell.
And I think we've seen what's happening here a few times already over the last several weeks of companies that reported. They've delivered good results, in-line results, but not results that were so strong that they support the double-digit moves leading into the earnings report. And again, as I shared in my comments this morning, when you look at Marvell, you look at Costco, both are up double digits coming into their earnings reports over the last month. Expectations were running high, arguably potentially too high.
With Costco, did they talk about the membership fee increase? Oh, they talked about it, and they said it's still a matter of when, not if. But that's just not enough, I think. I think people really wanted to see a little bit more on that. From our perspective, we continue to see Costco extremely well-positioned. Inflation, as we've just talked about, remains persistent.
And of course, people are leaning into it to stretch their disposable spending dollars. And the CFO also talked about how they continue to see further opportunities to expand their warehouse footprint, particularly in the US. That's going to be great for driving incrementable-- incremental, excuse me, membership fee revenue, especially when that eventual membership price increase rolls around.
With Marvell, look, hard to argue with data center business being up 87% year over year, up nicely on a sequential basis. Pointing to more of that as their custom AI solutions ramp. Remember, they include customers like Amazon, Meta, and others. So that's going to be a very strong business. They also reaffirmed what we've been thinking, that we should start to see a rebound in their networking and enterprise and carrier businesses in the second half of 2024.
Our thinking is that as that rebound takes hold, adoption of AI and AI on-device usage, it's going to result in rising spending for those business categories later this year into 2025 and the ensuing quarters. So we remain long-term bullish on Marvell. What I would share is for folks that are underweight, either Costco or Marvell relative to our positions in the portfolio. Today's pullbacks, nice opportunity to pick up some additional shares.
Before we end today's video, I do want to talk about two other things. Last night, Ulta reported. And of course, we're paying attention to this for Coty. So what did Ulta say? Well, the fragrance business at Ulta delivered double-digit growth, driven by newness, as they say, "existing brands and exciting brand launches," including Coty's own Cosmic from Kylie Jenner. So that's, of course, very positive for Coty shares, which, as we know, the bulk of their business is in fragrance. But Ulta also said that skincare was another positive occurrence in their quarter, up mid-single digits on a comp basis. Also positive for Coty.
So these comments from Ulta are simply the latest in a string that we've been sharing with you that I think will set up for a very positive investor conference presentation from Coty management next week. You, of course, know that we recently added to our position in Coty for the portfolio. And the shares are still hovering around that price point. To me, it says that it offers members a good chance to pick up the shares if they didn't when we recently did.
And finally, let's just talk about Dell. Two callouts from the earnings conference call last night, and this is a big one. First, their AI-optimized server orders increased to 2.6 billion, and their shipments are up 100% sequentially to 1.7 billion. More important, their AI server backlog stood at 3.8 billion, ending the quarter. Dell also made some comments about the PC refresh cycle that we've been talking about. They're saying it's going to be driven by multiple factors-- aging PC install base, end of life for Windows 10 next year, but most importantly, AI.
Wrap all those comments together, we find a lot of support for our bullish views on Nvidia, Marvell, and Qualcomm. It also candidly explains why Bank of America upped its Qualcomm price target today to $245 from $180. We, of course, remain very bullish on Qualcomm because of the looming AI on-device upgrade cycle that's not just smartphones but also PCs, given its position with Snapdragon and being called out as a key partner by Microsoft for AI on-device.
Folks, that's our video for today. Thanks for watching. Please be sure to check the rest of your emails, alerts. As I always say, we want to make sure that you are with us, getting our latest thinking and any moves that we might make with the portfolio. With that, have a great weekend. Oh, and before I forget, be sure to check today's roundup. That'll be out later today. And we should have some more notebook signals for you over the weekend. So again, just another reason to be sure you check your emails and your alerts. Talk to you soon.
At the time of publication, TheStreet Pro Portfolio was long COST and MRVL.