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  • šŸ‘šŸ¼ Berkshire Joins The Trillion-Dollar Club

šŸ‘šŸ¼ Berkshire Joins The Trillion-Dollar Club

+ Nvidia's Earnings

August 28, 2024

Good afternoon! The founders of Two Sigma, a leading $60 billion hedge fund, are stepping down as co-chief executives following years of intense conflict that disrupted decision-making at the firm. David Siegel and John Overdeck, who started the quant-trading powerhouse in 2001, had been at odds over the direction of the firm, causing a significant rift that the company felt compelled to disclose to investors. The tension, described by insiders as escalating from "irritation to cold war to hot war," led to an unprecedented management and governance challenge.

To resolve the ongoing strife, Two Sigma announced that Scott Hoffman and Carter Lyons will take over as co-chief executives while Siegel and Overdeck will remain as co-chairmen. Although the firm's performance has remained strong despite these internal conflicts, the leadership shake-up raises questions about whether Two Sigma can move past the discord and maintain its competitive edge.

MARKETS

  • Tech stocks took a tumble on Wednesday, dragging the broader market down with them as all eyes were on Nvidiaā€™s much-anticipated earnings report. The Dow slipped 0.39% after hitting a record high on Tuesday, the S&P 500 dropped 0.6%, and the Nasdaq sank a hefty 1.12%. Traders were on edge, waiting to see if the chipmakerā€™s results could keep the marketā€™s AI-fueled hype alive.

  • Nvidia's earnings report had investors biting their nails, as the chipmaker's sales forecast fell short of some lofty expectations. As a major player in the AI boom that's been driving the market, Nvidia's results are seen as a key indicator of the sector's health. With tech stocks taking a hit and market sentiment on shaky ground, all eyes are on how this could shift the market dynamic for the rest of the week.

STOCKS
Winners & Losers

Whatā€™s up šŸ“ˆ

  • Chewy ($CHWY) surged 11.06% after the online pet products retailer blew past earnings expectations for its second quarter.

  • Box ($BOX) rose 10.83% after the company reported a "beat and raise" quarter. Box exceeded analysts' billings and adjusted operating profit expectations during the quarter.

  • Insulet Corporation ($PODD) gained 6.15% after the U.S. Food and Drug Administration cleared the use of the Omnipod 5 automated delivery system for adults with Type 2 Diabetes.

  • Nordstrom ($JWN) climbed 4.21%, driven by a "beat and raise" quarter, where the company exceeded analysts' EPS expectations, with revenue coming in slightly ahead. Additionally, Nordstrom lifted its full-year earnings guidance and raised the lower end of its full-year guidance for revenue and comparable sales.

  • Semtech Corporation ($SMTC) jumped 11.19%.

Whatā€™s down šŸ“‰

  • Super Micro Computer ($SMCI) plummeted 19.02% after revealing it would push back its annual financial filing with the SEC. This comes on the heels of a report from short-seller Hindenburg Research, which accused the company of ā€œglaring accounting red flagsā€ and other questionable practices.

  • Abercrombie & Fitch ($ANF) fell 16.99% despite beating profit estimates because investor expectations were extremely high after a nearly 90% rise in the stock this year. The slight adjustment in its operating margin guidance, which didn't impress against lofty forecasts, led to disappointment and a sell-off.

  • Li Auto ($LI) dropped 16.12% after the Chinese electric-vehicle maker reported second-quarter earnings of 1.1 billion yuan, down from 2.29 billion yuan a year earlier.

  • Foot Locker ($FL) declined 10.24% after the retailer missed the Streetā€™s expectations for the second quarter. Foot Locker posted an adjusted loss of 5 cents per share on $1.90 billion in revenue. Analysts had expected a loss of 7 cents per share on $1.89 billion in revenue, per LSEG.

  • Bath & Body Works ($BBWI) decreased 7.00% after the fragrance seller posted weaker-than-expected revenue for the second quarter. Bath & Body Works posted second-quarter adjusted earnings of 37 cents per share on revenue of $1.53 billion. Analysts had expected earnings of 36 cents per share on revenue of $1.54 billion, according to FactSet.

  • Reddit ($RDDT) declined 4.85% after the social media platform said it had resolved an issue related to an update that led to an outage affecting thousands of users.

  • Lululemon Athletica ($LULU) dropped 4.55%. The decline comes amid broader sector weakness, particularly following the earnings reports of other retail and athletic wear companies, such as Foot Locker Inc. and Abercrombie & Fitch Company.

  • NIO ($NIO) fell 7.50%.

  • Pinduoduo ($PDD) declined 7.03%.

  • Robinhood Markets ($HOOD) fell 4.87%.

  • Arm Holdings ($ARM) dropped 4.48%.

STOCK
Buffett's Berkshire Joins the Trillion-Dollar Club

Warren Buffett's Berkshire Hathaway just hit a whopping $1 trillion market cap, becoming the first non-tech U.S. company to join the exclusive trillion-dollar club. Take that, Silicon Valley!

Berkshire's stock has been on a roll this year, climbing 30% in 2024 and outpacing the S&P 500's 17% gain. The company's strong performance has been fueled by robust insurance results, economic optimism, and the Federal Reserve's potential interest rate cuts on the horizon.

Old-School Cool with a Modern Twist

Unlike its techy trillion-dollar club companionsā€”think Apple ($AAPL), Microsoft, and Nvidiaā€”Berkshire's success is built on what some might call "old-school" businesses. We're talking railways, insurance, and Dairy Queen blizzards, not cloud computing or AI chips.

Buffett, who took over a floundering textile company in the 1960s and transformed it into this sprawling conglomerate, has proven that slow and steady does indeed win the race. Even with a significant chunk of Berkshire's portfolio invested in Apple, the firm's focus on value over flashy growth has paid off big time.

Cash Moves and Strategic Shifts

Recently, Buffett has been in what some might call "defensive mode." He's been trimming Berkshire's holdings in some heavyweights like Apple and Bank of America, building up a record cash pile of about $277 billion. This cautious approach has some investors speculating whether the Oracle of Omaha is seeing storm clouds on the economic horizon.

Buffett might be getting ready for more acquisition opportunities or simply reinforcing Berkshire's reputation as a safe haven amidst market uncertainty. Whatever the case, his strategy appears to be workingā€”investors are rewarding Berkshire's steady hand with a spot in the trillion-dollar club.

Whatā€™s Next?

Looking ahead, Berkshire's all-weather portfolio seems well-positioned for whatever the future holds. The company might not boast eye-popping growth, but it's hard to argue with a steady performer in a world of market volatility.

As Greg Abel prepares to step into Buffett's legendary shoes, only time will tell if Berkshire can continue its winning streak. But for now, the Oracle of Omaha's empire is basking in the glow of a trillion-dollar valuationā€”a testament to the power of patience, prudence, and, of course, a good old-fashioned blizzard from Dairy Queen.

NEWS
Market Movements

EARNINGS
Nvidia: Not Quite Perfect

By the Numbers:

  • Earnings Per Share (EPS): $0.68 adjusted vs. $0.64 expected

  • Revenue: $30 billion vs. $28.9 billion expected

  • Q3 Revenue Forecast: $32.5 billion vs. $31.9 billion expected (but fell short of high estimates up to $37.9 billion)

  • Stock Movement: Down -5.87% in extended trading

Nvidia ($NVDA) just dropped their latest earnings report, and while it wasn't a total disaster, it also didn't have us popping champagne. The chipmaker forecasted third-quarter revenue of $32.5 billion, which is technically higher than the average analyst estimate of $31.9 billion. But here's the catch: some pie-in-the-sky expectations were up to $37.9 billion. As a result, Nvidia's stock took a 5% dip in late trading, adding a reality check to its gravity-defying run this year.

  • Chip Slip: The culprit behind this lukewarm reception? Nvidia's new Blackwell chip. The company admitted to hitting some production snags, which means theyā€™re tinkering with manufacturing processes to boost yields (think: more functioning chips per batch). While CEO Jensen Huang reassured everyone that the "anticipation for Blackwell is incredible," the market isn't big on anticipationā€”itā€™s all about execution.

  • Data Center Dominance: Nvidia has been riding the AI boom like a pro surfer catching a killer wave. With nearly 88% of its revenue coming from data center chips, Nvidia is the go-to for AI accelerators. Last quarter, they pulled in $26.3 billion from their data-center division alone, handily beating the $25.1 billion estimate. Their gaming segment isnā€™t too shabby either, with $2.9 billion in sales. But letā€™s face it, all eyes are on their AI chips powering the likes of ChatGPT.

  • Competition Heating Up: Nvidiaā€™s success hasn't gone unnoticed. Competitors like Advanced Micro Devices ($AMD) and Intel ($INTC) are scrambling to grab a slice of the AI pie, even if their combined revenues only account for about 5% of Nvidiaā€™s total. Meanwhile, Nvidia continues to expand its lead, having shipped samples of its Blackwell chips despite the production hiccups.

  • AI Boom or Bust? : With a market cap north of $3 trillion, Nvidia has been the belle of the AI ball. Yet, the soaring spending on AI infrastructure has some wondering if we're heading towards a bubble. Nvidia remains optimistic, projecting that the demand for its AI chips will continue to skyrocket. Investors, on the other hand, might be looking for more than just optimism after the stockā€™s recent rollercoaster ride.

For now, it looks like Nvidia is still in the driver's seat of the AI revolution. But with production challenges and rising competition, they'll need to keep their foot on the gas.

Calendar
On The Horizon

Tomorrow

At 8:30 AM ET, the initial jobless claims report will provide fresh insight into the labor market, especially in light of Jerome Powell hinting at a possible rate cut in September during his Jackson Hole speech. Powell noted that while the labor market isnā€™t in a crisis, itā€™s showing signs of softening.

Weā€™ll also see updated numbers for second-quarter GDP at the same time. Last monthā€™s preliminary figures showed the economy grew by 2.8% in Q2, beating expectations.

Earnings:

Thursday: Lululemon ($LULU), Dell ($DELL), Best Buy ($BBY), Dollar General($DG), Burlington Stores ($BURL), Campbell Soup Company ($CPB), Marvell Technology ($MRVL), Brown-Forman ($BF.B), Ulta Beauty ($ULTA), and Birkenstock ($BIRK).

NEWS
The Daily Rundown

RESOURCES
The Federal Reserve Resource

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