Market Setup
Trading is flat and thin heading into the Labor Day long weekend, with volumes expected to dry up. Markets snapped a three-session losing streak the prior day, but gains were modest across the board. The tech-heavy Nasdaq 100 rose only about 0.10%, so no broad-based rally yet.
Crude oil sits near $93 a barrel, and these geopolitical tensions have a grip on stocks. The 10-year Treasury yield eased about 5 basis points off its highs, the highest since November 2023. That drop off the yield peak helped stocks the prior day.
Market breadth has weakened sharply, and extremes like this catch my attention. About a week and a half ago, over 70% of S&P 500 companies traded above their 50-day simple moving average. Now it is below 50%, at about 48%. The number of S&P 500 companies below their 200-day moving average keeps rising. Much of the breadth that pushed the index to all-time highs in August is gone, which worries me.
The catalysts hurting stocks are higher yields, rising crude, and geopolitical tension, since earnings season has been strong. New York Fed President Williams gave an interview saying higher yields reflect growth. But Japan, Germany, and France have yields at multi-decade highs with growth rates nowhere near the U.S., so his logic has a gap. He was upbeat on the U.S. economy, a likely positive. Keep watching yields, geopolitical headlines, and crude prices.
Broadcom (AVGO)
Shares swung from a positive after-hours reaction to pressure this morning. Current-quarter revenue guidance came in slightly below expectations, roughly in line, and the street disliked it. AVGO was already in bear-market territory going into the report, so the bar was low. High valuation is the concern.
Revenue grew 86% year-over-year to just over $29.5 billion. The semiconductor solutions segment rose 127% year-over-year. Infrastructure software rose 29% year-over-year to $8.75 billion. AI semiconductor revenue, the main growth area, surged 221% year-over-year to $16.7 billion for the quarter. They raised guidance. With lofty valuations, missing any metric gets a stock punished. I would not be surprised to see AVGO close positive if the broader market rallies, because this was a good report. The forward guidance on the current quarter is what is hitting the stock.
Snowflake (SNOW)
Shares are up more than 20% in the pre-market, extending an after-hours rally. Software is back, echoing Salesforce (CRM) last week. Snowflake beat on every metric and raised guidance and margins.
Total revenue reached $1.55 billion, above the $1.48 billion expected, up over 35% year-over-year. Product revenue came in at $1.49 billion, up 37% year-over-year, and was the key to the report. They guided product revenue to about $1.588 billion to $1.593 billion, implying 37% to 38% growth, well above expectations. Full-year product revenue was raised by about $230 million to just over $6 billion, about 36% year-over-year growth. Adjusted operating margins came in about 14.5%, above the 13.5% expected, so margins are expanding. The customer count keeps growing fast.
Hewlett Packard Enterprise (HPE)
Revenue beat with 34% growth to $12.2 billion, above the roughly $12 billion expected, a slight beat. Adjusted EPS came in at $0.11, above expectations. Networking grew 75% year-over-year to about $2.9 billion. Cloud and AI came in at $9 billion, up over 25% year-over-year. Server revenue grew over 35% to about $6.8 billion. Normalized total orders jumped 42% year-over-year, outpacing revenue growth.
The weakness comes from margins. Gross margins reached about 40.1% and are expected to moderate. Guidance was maybe slightly above expectations, but the street wanted more from this networking company.
NetApp (NTAP)
Earnings came in at $2.58 per share, beating estimates of about $2.13. Revenue was $2.03 billion, up 30% year-over-year. All-flash array revenue was $1.31 billion, up 47% year-over-year, the primary growth engine. Hybrid cloud revenue was $1.82 billion, up 30%. Public cloud revenue rose about 28% year-over-year.
Rising input costs are the pain point, starting to hit margins. Guidance was a little light, with gross margins of about 67% to 68%, just below the street's view. They raised guidance, lifting full-year fiscal 2027 revenue to about $7.97 billion to $8.225 billion, up about $650 million from the prior outlook. Good numbers and growth, but margins will drag the stock down.
Nvidia (NVDA) Buys Hugging Face
Nvidia announced this morning it is acquiring Hugging Face for more than $12.9 billion. CEO Jensen Huang said in a blog post the deal will scale Hugging Face's platform, strengthen its infrastructure, and expand AI access for developers and institutions worldwide. It is the second largest acquisition in Nvidia's history, after paying about $20 billion for chipmaker Groq's assets last year. The deal extends Nvidia's reach beyond chips and computing systems.
NVDA is little changed on the news, having already run up the prior day on a Bloomberg report the deal was coming. After earnings the stock exploded, then fell over the next few sessions, then popped on this news. Initial whisper numbers yesterday morning were nearly $14 billion, so the final price is a slight discount.
Nvidia is diversifying its revenue. It leads in GPUs. On the CPU side, Vera Rubin is expanding and getting decent bookings, digging into AMD and Intel. Nvidia is moving into other AI infrastructure parts of the tech industry to compete a bit with OpenAI and Anthropic. Jensen Huang has repeatedly said Nvidia wants to be the go-to for all of AI, not just the chip producer. This is a big deal for building out Nvidia's AI stack.
