Interesting moves in the tech sector post earnings announcements.
Yesterday Tesla dropped 12% post earnings as the company missed earnings slightly and provided "notably lower" downward guidance on EV sales. In what has been termed a "train wreck " of a call. Elon Musk and other Tesla executives provided little of substance for analysts looking for details. The move wiped out about $82 billion in market capital. Still, one has to wonder at the severity of the drop.
Today it was Intel's (INTC) turn. On the surface, the company reported EPS of 54 cents/share, versus consensus of 45 cents. So why did the Intel's share drop 8.6%? It comes down to the outlook, the current quarter was forecast was $12.2 billion versus previous market assumptions of $14.2 billion. Looking deeper into the weeds, revenue in the chip making division was down 10%.
That is the key, because much of the hype in the Magic 7 stocks relies on assumption of significant growth in chip demand. Now I could likely write a short book on what is going on with Nvida, but it has continued to put out very optimistic assumptions on chip demand. Intel has likely piggy backed on that. Back in early November was trading around $33.00 it closed today before earnings at $49.55, before dropping to $44.16 in post market.
So one can assume that some funds are getting nervous about the FOMC potentially back tracking on Decembers dot plot, and if Intel chip sales growth is faltering, then its a natural consideration to wonder if as alternate universe Dr. Strange would say "things just got outta hand" trailing Nvidia's moon shot.
The other thing to note is this move and Tesla 's dramatic drop seem overdone. But we saw these things in late 2022 when Meta, Amazon and other pumped stocks took dramatic drops post earnings. I think there is a collateral issue here. Many funds are likely using gains in these tech stocks to offset losses in other plays. It may be nervous trigger fingers are being accentuated by fear of margin calls.
Everyone knows the FED is taking away liquidity. The Reverse Repo account is draining, and yesterday the FED announced they are closing the FDIC pawnshop on Mar 11 and furthermore adjusting the loan rate from now till then to prevent the easy arbitrage. Liquidity is being drained and so any sign that the magic fairy tell of the mighty seven will be challenged by downward looking sales puts the value of that high value collateral at risk.
