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Earnings Leaders and Laggards: This AI Stock Dives on Q4 Results

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U.S. markets fell in the early going on Tuesday, reversing some of the gains from last week following a historic milestone for the S&P 500. We remain in the thick of the Q4 earnings season, with more than 800 companies reporting results this week. Earnings continue to be the focus heading into Tuesday’s session along with this morning’s key inflation report.

The consumer price index (CPI) data for January showed that both headline and core inflation came in above forecasts. On a monthly basis, headline CPI rose 0.3%, above expectations of a 0.2% rise. Despite an easing to a 3.1% year-over-year increase (from the 3.4% figure in December), the annual inflation rate came in ahead of the 3% projection.

Excluding food and energy components, core inflation ticked up 0.4% month-to-month and 3.9% on an annual basis. Both figures exceeded estimates as well.

The hot prints across the board sent treasury yields higher and stocks lower this morning. The S&P 500 was down nearly 1.5% in the early going, while the Nasdaq had shed nearly 2%. Small-caps were particularly hit hard as the rate-cut outlook continues to be pushed back; the Russell 2000 index lost nearly 4% of its value.

Current odds show just an 8.5% chance of a rate cut at the Fed’s next meeting in March. We heard from multiple Fed officials in recent days. Minneapolis Fed President Neel Kashkari said that while recent inflation data has been mostly positive, the Fed is “not all the way there yet” when it comes to tackling inflation. Meanwhile, Cleveland Fed President Loretta Mester stated that the Fed can begin to move rates lower “if the economy evolves as expected.”

Q4 Earnings Season Marches On

We’ve now received results from more than 60% of S&P 500 index members, and some important trends have emerged. The earnings and revenue growth pace represents an acceleration from what we’ve seen in recent quarters.

So far, fourth-quarter earnings are up 5.5% vs. this time last year on 3.7% higher revenues. This will be the second consecutive quarter of growth, after Q3 of last year officially halted the earnings recession trend.

The tech sector has been the main driver; had it not been for blowout numbers out of this sector (+21.9% for those companies that have reported thus far), S&P 500 earnings would be on track for a -2.7% drop. For the Magnificent 7 companies, total Q4 earnings are on track to be up 48.7% from the same period last year on 14.5% higher revenues.

In total, we have more than 800 companies reporting quarterly results this week. Combined with important economic data, it could be a market-moving week.

Key Earnings Reports This Week

It’s been a mixed showing in terms of reactions to earnings announcements. AI stock Cadence Design Systems (CDNS - Free Report) , a leader in the electronic system design space, saw its stock fall nearly 7% this morning despite beating on both the top and bottom lines. The company reported non-GAAP earnings yesterday evening of $1.38/share, which marked an increase of 43.8% versus the year-ago period. Revenues of $1.069 billion jumped 18.8%. CDNS stock has since recovered some of the intraday losses and is a Zacks Rank #2 (Buy) stock.

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Similarly, Zacks Rank #1 (Strong Buy) stock Shopify (SHOP - Free Report) also saw its shares decline despite beating estimates after the bell yesterday. The cloud-based commerce platform provider came out with quarterly earnings of $0.34/share, ahead of the $0.31/share Zacks Consensus Estimate by 9.68%. Revenues of $2.14 billion also topped forecasts by 3.66%. SHOP stock shed about 10% this morning but remains up about 3% this year.

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After the bell today, San Francisco-based Airbnb (ABNB - Free Report) is set to deliver its fourth-quarter results. A leading platform for unique stays and experiences, Airbnb expects revenues between $2.13-$2.17 billion, implying year-over-year growth in a range of 12-14%. The Zacks Consensus Estimate is pegged at $2.16 billion, indicating growth of 13.7% from the same period in the prior year.

Our Q4 earnings estimate for ABNB of $0.67/share suggests growth of 39.6% from the year-ago period. Airbnb has surpassed earnings estimates in each of the past four quarters, with an average beat of nearly 50% during that timeframe. ABNB is a Zacks Rank #1 (Strong Buy); the stock hit a 52-week high yesterday ahead of the release. 

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Volatility is rising as we head into the latter half of February, so it’s a good time to take partial profits on winning positions. As the week rolls on, be sure to keep abreast of the evolving earnings picture.

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