It appears investors have finally decided that buying back the Big Tech leaders, namely the “Magnificent Seven” stocks, makes too much sense to ignore. The market rally has seemingly resumed after a temporary pause to start 2024. Collectively, these mega-cap tech giants -- consisting of Alphabet (GOOG , GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) -- powered the Nasdaq Composite’s 44% rise in 2023. Over the past several days, investors have returned to buying those tech leaders. But it’s not just Big Tech leading the way.
Investors are also encouraged by better-than-expected fourth quarter earnings results and guidance from some of the world's largest banks such as JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC), which suggests that the consumer is in a far better shape than economist expected. This is not a surprise given the recent data has affirmed that not only has the Fed won its battle with inflation, the long-awaited Fed pivot has indeed arrived.
On Friday the Dow Jones Industrial Average rose 395.20 points, or 1.05%, to close at 37,863.80. Leading the gains on the Dow were, among others, Apple, Microsoft, and Salesforce (CRM) which together rose by an average of 1.5%. The S&P 500 Index rose 58.87 points, or 1.23%, to close at 4,839.81, while the tech-heavy Nasdaq Composite added 255.37 points, or 1.7%, to close at 15,310.97. As of Friday's close, all three major averages are now in positive territory for 2024.
That the Fed has begun to pivot is, in part, due to the fact that the U.S. economy remains resilient, coupled with a strong labor market, affirming solid job growth will continue. Given the drastic inflationary improvement we have seen over the past year, and especially since the highs of 2022, the market is now celebrating the highly-sought after soft landing by the Fed. Just as encouraging is the likelihood that there is now a strong chance that there will be at least one rate cut in the first quarter of 2024.
The fed funds futures market are pricing in about a 70% probability that this will happen during the March meeting, according to the CME Group’s FedWatch tracker. Still, March is a long ways away. In the meantime, as to whether the broader market can maintain this rally, Q4 earnings from heavyweight tech hitters will determine that. Their winning streaks and whether the market’s momentum continues depends on the earnings results they release in the next few weeks. In that vein, Tesla and Netflix are two of several names to keep an eye on for this coming week.
Netflix (NFLX) - Reports after the close, Wednesday, Jan. 24
Wall Street expects Netflix to earn $2.22 per share on revenue of $8.71 billion. This compares to the year-ago quarter when earnings were 12 cents per share on $7.85 billion in revenue.
What to watch: Despite having enjoyed a massive rally in 2023, there still remains strong upside potential in Netflix stock. Although the shares have slightly pulled back to start the year, the trend remains the same. Armed with strong management, robust financials and impressive revenue and net income growth, there’s potentially 30% more upside to Netflix in the next 12 to 18 months. This means investors who are on the sidelines waiting for a better entry point might be disappointed. Part of the reason is the fact that the global streaming market is projected to enjoy almost 13% compound annual growth over the next three years. This suggests that Netflix's forward revenue growth estimate of 8.75% might be underestimated.
The company’s crackdown on password sharing, which should help boost management's Q3 revenue and profits, is one of many reasons Netflix is poised to reach its consensus price target. Meanwhile, in terms of profits, which has enjoyed a growth rate of 102.7% spanning three quarters, the upward trajectory will continue. Netflix is also operating more efficiently and is looking to capitalizing on existing 247 million global subscribers through ad-based plans and timely price hikes in the U.S., UK and France. In the U.S., the Ads plan will remain at $6.99 per month and the Standard plan at $15.49 per month, while the Basic plan rises to $11.99 per month, and the Premium plan to $22.99 per month. All told, the company’s growth initiatives are paying huge dividends. This makes a compelling case to remain invested in Netflix stock ahead of next week's quarterly results.
Tesla (TSLA) - Reports after the close, Wednesday, Jan. 24
Wall Street expects Tesla to earn 74 cents per share on revenue of $25.57 billion. This compares to the year-ago quarter when earnings came to $1.19 per share on revenue of $24.32 billion.
What to watch: Unlike several of its large-cap tech peers, Tesla stock has driven in reverse since the start of the year. After doubling last year, Tesla shares have fallen almost 20% in the past thirty days, compared to 1.22% rise in the S&P 500 index. The stock is down almost 30% in six months and is down 16% year to date, compared with 1% rise in the S&P 500 index. But this could be a nice buying opportunity for investors who have waited for a better entry point. Ahead of the quarter, Tesla reported Q4 deliveries that not only beat Wall Street predictions, it helped Tesla to achieve a record in terms of the number of vehicles sold during 2023. The company delivered 484,507 vehicles during the fourth quarter and 1.81 million in 2023, exceeding its 1.8 million target. Wall Street consensus had Tesla vehicle deliveries in 2023 totaling 1.797 million.
In light of this achievement, the reaction to stock was somewhat surprising as analysts maintained their price targets and ratings on TSLA. Instead, the attention has shifted towards what Tesla will reveal in Q4 earnings and potentially delivery forecast for all of 2024. The company’s profit margins will be closely-watched. In Q3 Tesla's automobile gross profit margins, excluding regulatory credits, fell to 16.3%. Also in November, Tesla delivered 12 Cybertrucks during an event at its Austin, Texas, factory. The market will also be listening for any hints on how many Cybertrucks the company expects in Q1 and for all of 2024. All of this should be in the context that Tesla which is armed with robust free cash flow and brand loyalty, is well-positioned to lead the EV space in the years ahead. Until these fundamentals change, Tesla stock should be owned, not traded.
Intel (INTC) - Reports after the close, Thursday, Jan. 25.
Wall Street expects Intel to earn 45 cents per share on revenue of $15.16 billion. This compares to the year-ago quarter when earnings were 10 cents per share on revenue of $14.04 billion.
What to watch: Intel stock has enjoyed a nice rebounded over the past year, rising some 65%, compared to 22% rise in the S&P 500 index. This includes gains of close to 40% in six months, besting the 5% rise in the S&P 500 index. Investors are betting on continued success in 2024. For the near-term, Intel’s Q4 earnings will determine how high the stock goes. Expectations are high based on analysts recently revised estimates, thanks to Intel’s strong Q3 results and confident guidance. Sentiment has improved as the management has endeavored several new initiatives to sharpen the company’s focus, including spinning off of the Programmable Solutions Group. Intel is also betting on its core CPU business, as well as broadening its AI initiatives to secure its piece of the AI pie.
The company’s diverse business portfolio which has enabled it to serve multiple industries will help Intel establish a leadership position in AI. And the company has show it has the financial firepower to effectively compete for these growth opportunities. As to what to expect during the quarter, Intel should show continued strength while advancing its strategic priorities. Intel has also begun to benefit from a slight rebound in the personal computer market, which had seen a sharp decline. The company has done a solid job controlling costs and it is likely that will be a point of emphasis for the management. Although margins might be down from a year ago, they should show significant improvement from the previous two quarters. In terms of revenue, it would not surprise me if revenue arrived significantly higher than the midpoint of management's guidance, which would put Intel back to year-over-year growth. That said, the company on Thursday must deliver another top and bottom line beat, while selling the upside potential of its ongoing turnaround.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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