Forget the Fed and Inflation, It's Clear Now What Really Rules This Market
This week's action in Oracle, Broadcom, Apple and now Adobe hammer home the point.
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For the past several months, I have thought this market is about inflation, interest rates, and the Federal Open Market Committee (FOMC). This week, that view has shifted. Those things are all still very important, but the market is being driven by tech— more specifically, the earnings of tech companies as they relate to artificial intelligence.
AI is about all anyone discusses these days, and rightly so. It’s a paradigm shift in how business is conducted, revenue generated, and profits earned. And we are seeing it play out in real-time.
Last night, Adobe ADBE reported record revenue of $5.31 billion with non-GAAP earnings per share of $4.48. AI was a key driver, helping the company achieve nearly $2 billion in free cash flow. The stock traded higher by 15% in the afterhours.
A day earlier, Broadcom AVGO reported earnings of $12.49 billion with EPS of $10.96. Both numbers exceeded expectations, with VMware being the main driver. Management quickly noted that $3.1 billion, or 25% of the company’s revenue, came from Broadcom’s AI products. Broadcom also announced a 10-for-1 stock split, which is en vogue by many high-priced tech companies this quarter. The stock finished higher by 12% Thursday.
No split from Oracle ORCL, but the stock is higher by 13% this week. The company announced a partnership with OpenAI, the creator of ChatGPT. Additionally, management stated that strong demand for Oracle’s AI-powered cloud services will drive double-digit revenue growth. Last quarter, ORCL signed more than 30 AI contracts, including the aforementioned OpenAI partnership.
And I would be remiss not to mention Apple’s AAPL big move after WWDC. Although the company may not see immediate revenue from its AI initiatives, the strong move higher in the stock indicates investors believe its move into the AI space will bear fruit.
The most amazing part is that I didn’t mention Nvidia NVDA once, even as the shares powered to all-time highs.
Rather than focusing on the Fed and inflation, AI stocks may be what tips us off to any market pullbacks.
At the time of publication, Byrne had no positions in any securities mentioned.
