Premarket action on Friday had the three major U.S. indexes trading higher. The Dow Jones industrials were up 0.14%, the S&P 500 up 0.19% and the Nasdaq 0.35% higher.
Nvidia Corp. (NASDAQ: NVDA) lit up the Nasdaq 100 on Thursday, pushing the index and the Invesco QQQ Trust (NASDAQ: QQQ) to a one-day gain of 2.4% and 12-month gain of 10%. The company also towed other chipmakers along in its wake: Advanced Micro Devices Inc. (NASDAQ: AMD) added 11.2%, design automation firms Cadence Design Systems Inc. (NASDAQ: CDNS) and Synopsys Inc. (NASDAQ: SNPS) rose 10.2% and 9.8%, respectively, and Marvell Technology Inc. (NASDAQ: MRVL) jumped 7.9%.
After markets closed Thursday, Marvell reported earnings and revenue that beat consensus estimates, but just barely. Earnings per share (EPS) beat the estimate by $0.02, and revenue beat by just 0.5%. Year over year, revenue was lower by 8.7%. As happened with Nvidia, it was Marvell’s forecast that drove premarket gains of around 17% on Friday.
In Marvell’s case, the company said that about $400 million in AI-related revenue is expected in fiscal 2024 ending in January. That is double the prior-year revenue. Marvell expects that total to double again in fiscal 2025, and gross margins are forecast to rise from around 60% currently to 64% this year and remain there through 2025. The company also plans to close out the current fiscal year with a reduction of 5% to 10% in operating expenses.
If not for the drag of its PC business, the new strength in data center revenue would add even more to the company’s bottom line. Additional risks, according to a research note issued by BofA Global Research after Marvell reported results, include monetizing the AI opportunity, low visibility into demand from data centers, decelerating growth opportunities in the 5G networking space, and exposure to the consumer/enterprise networking markets where Marvell derives around a third of its revenue.
BofA retained its Buy rating on the stock and raised its $51 price objective to $70. The stock traded at around $58 before Friday’s opening bell. Its 52-week range is $33.75 to $61.50.
Retailer Gap Inc. (NYSE: GPS) also reported quarterly results late Thursday. The company posted EPS of $0.01, where a loss of $0.16 per share was expected. Revenue was essentially flat sequentially and down by 5.8% year over year.
The EPS number drove the share price higher after markets closed Thursday and continued to drive the price higher (up 12%) Friday morning. The fact that Gap posted a profit after freight costs dropped and the company reduced its promotional pricing probably will not sustain over the whole year.
The effect on gross margins (up 570 basis points in the quarter and a company forecast for a second-quarter increase of about 150 basis points) could be offset by declining sales for the rest of the year. Same-store sales declined by 3% across all its brands, with the Athleta stores dipping by 13%, Old Navy down by 1% and Banana Republic 8% lower. Comparable sales at Gap stores rose 1%. It is this rather poor showing in sales that led BofA to maintain its Underperform rating on the stock and to lower its $9.50 price target to $8.50. In Friday’s premarket session, the stock was trading up about 11.7% at $8.29. Gap’s 52-week range is $7.22 to $15.49, and that low was posted on Thursday.
Economists at Goldman Sachs say that the U.S. Treasury will run out of cash on June 9. They also said that an agreement on the debt ceiling would be reached Friday or Saturday. Congress is beginning its Memorial Day holiday weekend Friday, but members have been told to be prepared to return if a deal is reached.
Republicans apparently are giving up on a larger defense budget. What Democrats will have to offer in exchange is unclear, but cuts in other areas of discretionary spending are highly likely.
Here is a look at how the markets fared on Thursday.
Six of 11 market sectors closed lower. Energy (−1.89%) and utilities (−1.389%) had Thursday’s biggest losses. Technology (4.45%) and communication services (0.43%) posted the day’s best gains. The Dow closed down 0.11%, the S&P 500 up 0.88% and the Nasdaq up 1.71%.
Two-year Treasuries added 19 basis points to end Thursday at 4.50%, and 10-year notes rose by 10 basis points to close at 3.83%. In Friday’s premarket, two-year notes were trading at around 4.50% and 10-year notes at about 3.79%.
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