Market setup
The major indexes rebounded this week, all positive, and all positive for August, which wraps up Monday. Momentum has been positive but is turning choppy. This week's PCE data ran hotter on the headline number, while core came in at 3.3%.
Yesterday 10 of the 11 S&P 500 sectors closed red. Information technology, the biggest part of the S&P 500, rose 3.4% to 4% on Thursday after Nvidia (NVDA) earnings. NVDA gained 8.7%, with Salesforce (CRM) and CrowdStrike (CRWD) also higher, offsetting the broad weakness.
Crude oil sits near $83 a barrel, down nearly 4% this week, helped by easing geopolitical tension. The 10-year yield settled around 4.74% last Friday, is down about five basis points this week, and now sits just below 4.7%. That consolidation helped equity sentiment.
All focus is on Kevin Warsh's speech at Jackson Hole. The market wants clarity and may not get it, which explains the nervous, flat tone. Beth Hammock and Jeffrey Schmid said yesterday at Jackson Hole that inflation is running hot and the Fed needs to act on rates now. Warsh may instead say his task forces are still working through inflation metrics and will conclude in the next few weeks before the September Fed meeting. Rate hike expectations for that meeting sit at about 35% per the CME FedWatch tool.
Marvell (MRVL)
Shares fell 8% pre-market after earnings, with expectations elevated because the stock is up 184% this year. Its forward 12-month PE is 60 times, expensive versus peers. Revenue hit $2.74 billion, up 37%, beating estimates. Adjusted EPS was 94 cents, slightly above expectations.
The data center segment set a record at $2.17 billion, up 46% year over year, near 80% of total revenue. MRVL announced a partnership with Alphabet (GOOGL) to buy up to $12.2 billion of MRVL stock and help build TPUs, but gave little clarity, which along with the high valuation drove the pullback. The pattern is common: MRVL runs up into earnings, then sells off when it fails to give the street what it wanted. The company raised guidance, targeting long-term revenue of about $18 billion, 50% growth off a higher fiscal 2027 base. Analysts adjusted price targets both ways without changing buy or neutral calls. This looks like a reset.
Workday (WDAY)
The stock bounced hard off its January-February fall tied to fears of a "SaaS apocalypse." Revenue rose nearly 13% year over year, beating consensus slightly. Subscription revenue grew nearly 14%, above the company's targets. EPS was $2.75 versus an estimate near $2.60. The 12-month subscription backlog rose 14.2% to just over $9 billion. AI products generated over $100 million in annual contract value (ACV) and made up about 25% of new deals closed. Backlog growth is projected at 11% to 12%, a slowdown from Q2.
Shares traded actively after hours, down sharply then rallying back above $23, now pulling back. Many neutral ratings follow the results. The growth targets are the focus; any slowdown would pressure the stock. Trading should stay choppy after the open.
Affirm (AFRM)
Shares moved higher pre-market on the best quarter to date. Revenue reached $1.17 billion, up 33% year over year, beating estimates, with a large GAAP EPS beat. Gross merchandise volume climbed 36% year over year to $14.1 billion, above the roughly $13.4 billion expected. Active consumers grew 21% to about 27.8 million. Total transactions rose 41% to about 53 million, pushing transactions per active user up 20% year over year. Affirm Card GMV, an overlooked new growth area, surged 124% year over year to about $2.8 billion. The company has been profitable for 12 straight months with stable GMV growth, and the founder gave positive commentary.
PayPal (PYPL)
Shares dropped nearly 15% after Bloomberg reported the takeover deal with Stripe collapsed. The board pushed back against the deal, announced about a month ago, viewing the offer from Stripe and Advent as too low. The consortium abandoned its pursuit, and the roughly $50 billion valuation for the company washed away. Mizuho and Loop Capital both cut their price targets.
This is likely not the last push, whether from an activist, private equity, or another buyer, and it may be a buying chance given the low valuation. Active account growth at PayPal has moderated, but the platform still holds over 400 million active accounts.
