News and analysis

Abundant upward moves of Microsoft (by nearly +4.5% to fully offset the previous day's 2.5% decline on Meta's 15% slump) and Google-parent Alphabet shares (by more than 11% to hit new all-time highs) in extended hours trading after long-awaited quarterly reports of the two giant companies on April 25, as well as a rapid rebound of the S&P broad market indicator from under a round figure of 5,000 points with a high closing price at 5,087.30 the same night, compellingly prove my general assumption. The bullish direction remains intact on Wall Street, unaffected by impacts of individually overbought large businesses' strong falls in market value, which including the recent double-digit drop in Meta Platforms, a 7% decline of Caterpillar and a 8% drop in IBM as a few of most striking examples. I should be happy that my analysis allowed me to avoid adding those temporary losers to my portfolio, as most rapidly declining stocks showed some weakness in their forward guidance or big investment houses just took their chance to latch on to their growing cost expenses or their performance in separate segments like it happened with a consulting part of IBM business, as it was considered not strong enough compared to the company's revenue and profit in its major hardware and computing divisions. In fact, Microsoft's CFO Amy Hood also admitted that capital expenditures would increase "materially" to help meet demand for its generative AI offerings, yet nobody cared of these kind of additional expenses as Microsoft is a producer of Chat GPT-like technologies to sell it to others, and not mostly the AI consumer, as it mostly happens in the case of Meta. This produces a big difference for the market's interpretation, so that Meta is falling, while Microsoft is growing on the same story of growth in expenses, as one may say.

All in all, some stocks are going down, but most stocks and Wall Street flagships are going up. And this is purely a normally mixed behaviour of various assets that used to accompany any reporting season, rather than global changes in the markets. With this belief, I am sure, most people in the crowd would continue to calmly and thoughtfully build further investment plans for May and summer months, while only paying closer attention to the details of particular reports' perception by the expert community and using a selective approach when forming and changing in their portfolios' composition. In this contest, the only thing, which is important in dealing with any investment strategies is not to be engaged in a "wholesale" approach of buying everything that can move, but better continue to rely on financial and technical analysis, as well as common sense and former investing experience, taking into account also the readiness of the market's majority for certain movements of specific companies at the moment.

OMG Network (OMG) experienced a 5.3% decline to $0.650 this week, marking the fourth consecutive day of retreat in prices. This trend raises the likelihood of the token testing the support level at $0.500. The first instance of this test occurred two weeks ago amid geopolitical tensions in the Middle East. Despite a slight recovery after this initial drop, the token has struggled to regain momentum, particularly as Bitcoin (BTC) declined by 0.7% over the same period. If the leading cryptocurrency fails to recover, OMG may face further downward pressure, potentially breaching the $0.500 support level.

Visa Inc (V) was able to hold only a poor 0.34% of nearly 3.2% initial gains on April 24, in a reaction to a very solid quarterly release. The powerful and penetrating all the corners of the world, the payment card provider recorded its ever-highest EPS (earnings per share) of $2.51 to beat the crowd's average projection of $2.44. Another jump in its business return was achieved on a historically peaked $8.78 billion of revenue from January to March. Most of the crowd decided to "score" and take profit, without even trying to re-test Visa's highs of March above $290 per share.

This sounds unfair to the company which is easily charging each and every payment or transaction on consumer cards, including rent for homeowners, purchasing of food, energy bills etc, but not be limited to, as Visa management continuously diversifying its sources of income by investing in startups, to add to mostly guaranteed and quite predictable card-based revenue. Overall volume of payments climbed by 8% during, while cross-border contribution (without intra-EU calculations) reportedly jumped by 16%. Visa comments showed the company's own public projections for revenue growth in the whole year of 2024 lie "in the low double-digits" as well, while its EPS growth is expected "in the low teens". Well done forecast, which could attract more investing activity with Visa assets in the nearest two or three weeks, if not before this weekend already. It seems to me that only a rather sharp recent correction in several flagship stocks on Wall Street, including chip makers and some megacaps, prevented the market from a more positive manifestation of their hopes for extending the bullish trend in Visa. So, betting on making up money on Visa shares again is now my choice for May and until mid-summer.

Today's complimentary news is that Visa joins AWS (Amazon Web Service) partner network in order to enhance payment services even more. This collaboration will help cross-border solutions, easing global money transfers and multi-currency holdings and integrating all these into AMS customers' existing operations environment, as well as "reducing the challenges faced by financial institutions and enterprises by making Visa's solutions easily accessible on diverse platforms,” according to Vanessa Colella, Global Head of Innovation and Digital Partnerships at Visa. It may enhance cloud-based connectivity by allowing companies to process payments through VisaNet via AWS, with a measure that may be considered as a potential cost-saver for clients who will not need to spend on local data centers and specialized payment hardware. Startups enrolled in Visa's Fintech Fast Track program can receive up to $100,000 in AWS Activate credits. This could potentially form a bonus to the existing business scheme of both Visa and Amazon, adding to their market values.

Shares of Meta Platforms (META) plummeted by nearly 15%, from $493.5 at closing time of Wall Street's regular session on Wednesday, April 24, to as low as $418.5 in after-hours trading. Current levels are nominally looking so attractive for purchasing stocks of the giant Facebook and Instagram owner, as prices are surely more reasonable for entering this market after the last three months when Meta was extremely costly for investing. Nevertheless, such a severe form of negative response to solid quarterly results of a mega cap company makes us think about the feasibility of taking extra time for probably a better, or at least a more risk-balanced decision, as even lower prices may appear in May. So, simply watching the further dynamics seems to be a rational choice in a rather mixed and complicated environment.

The problem actually was that a substantially better-than-expected EPS number of $4.71 per share, compared with $4.32 per share in analyst poll forecasts, provided a more than 9% advantage against average projections and also impressively doubled Q1 2023 EPS of $2.20. In a normal frame of market minds, this would protect the company's value from an excessively large drop, even though some softer updated guidance for the rest of the year. Another positive thing was that a much better financial return has been squeezed from growing revenue as well, but the pace of revenue rise (less than 1% vs expectations and 27% YoY) was more humble than the speed of income growth.

These achievements were driven by more daily active users than expected (amounting to 3.24 billion) and 6% YoY growth in average prices for advertisers. Yet, the crowd and most investment houses were agitated mostly by weaker points this time, pointing to the general anxiety mood related to Meta Platforms at the moment. Meta CEOs praised improving its advertisement products with AI tools like a last generation chat assistant and Llama 3, an open-source large language model that is designed as a ChatGPT competitor, while Reels (short video) formats also helped a lot in attracting customers, yet those inspiring remarks were mostly ignored by the market. At the same time, Meta was declared "guilty" enough for a tough sold-off due to the company's guidance for total revenue within the range of $36.5 billion to $39 billion for Q2 2024, meaning $37.75 billion at the midpoint to miss average analyst bets on $38.3 billion. Compared to about $36.5 billion in Q1 2024 and $32 billion in Q2 2023, Meta projections were not so sad.

Another "fault" in Meta guidance was that its full-year capital expenditures for 2024 were up from a previously estimated range of $30 billion to $37 billion, now reaching $35 billion to $40 billion. Following only $28 billion spent during a "year of efficiency", proclaimed in 2023, Meta commented it would continue to accelerate its infrastructure investments to support an "artificial intelligence roadmap". A planned increase in spending on generative artificial intelligence features, which is perceived as a boon for many other companies, is somehow interpreted in a different manner by investors for Meta, which is apparently expected to take a more economizing approach.

Meta founder Mark Zuckerberg, who backed all strict cost-cutting measures in 2023, including massive employees lay off, also said that increased investments into AI chips and big data processing are necessary for Meta to become "the leading AI company in the world". Yet, the analysts group at Goldman Sachs argued that "such a narrative results in a slight reduction in forward revenue trends'', while experts at Stifel emphasised in a client's note that the "biggest question" is whether Meta can "meaningfully monetize AI over time to justify the investment cycle".

The current intonation of many comments also shows large funds are more eager to believe in chip producers like NVidia and creators of the AI tools like Microsoft and aggregators like Google, than in financial success of pure AI users in the next year or two. The growing competition from other social networks, like Elon Musk's free speech X or China's regional communication platforms, should also be taken into account. That's probably why we are thinking of a more cautious approach to choosing particular price levels before buying Meta shares after the recent drop.