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Citi names Apple its top AI-related pick. (0:16) Second quarter GDP revised up, inflation revised down. (1:30) Dollar General plunges on guidance. (3:25)
This is an abridged transcript of the podcast.
Our top story so far. Citi named Apple its top artificial intelligence-related stock pick going into 2025, ahead of Nvidia (NVDA) and Arista Networks (ANET).
Analysts at the firm said early developer feedback on iOS 18 beta AI features has been positive, including the recently launched feature to remove unwanted objects with AI, which should provide consumers with a “compelling” reason to upgrade their iPhones.
Additionally, the recent transition to Kevan Parekh as the company’s new CFO and the Department of Justice case against Google (GOOG) (GOOGL) should not be of too much concern to investors, the analysts added.
Meanwhile, Nvidia moved down but was off its overnight lows.
The selloff came despite the semiconductor giant reporting second-quarter results and guidance that topped estimates, leading to much praise from Wall Street firms that seem to be running out of ways to praise the company.
Wedbush Securities analyst Dan Ives said the results and guidance were a “drop the mic” moment yet again.
James Demmert, chief investment officer at Main Street Research, said “Nvidia’s post-earnings pullback was largely driven by investor confusion and a fear that Nvidia’s stock has run too fast since the early August low, but the strength in Nvidia’s quarter showed that its valuation is justified and that the stock has more room to run.”
“The pullback in Nvidia’s stock is an invitation for investors to buy the stock.”
Looking to the economy. The premarket economic indicators provided more evidence that recent concerns about growth and labor market strength were overblown.
U.S. Q2 GDP was revised to +3.0% from the advance estimate of +2.8% and the consensus of +2.8%. That compares with 1.4% growth in Q1 2024. The update primarily reflected an upward revision to consumer spending.
The core PCE price index was revised to 2.8%, down from 2.9%.
Raymond James chief economist Eugenio Aleman says the GDP revision “reflects either a larger contribution from insurance companies paying more for health costs during the quarter than originally estimated and/or a larger calculation of payments from the private sector as well as the US government for health care costs.”
“The contribution from this sector was probably the reason why the PCE price indices, both headline as well as core, were revised downward, as health care costs paid by companies/government is one of the components that distinguishes the diversion between the PCE price indices from the Consumer Price Indices. This is also positive for the Federal Reserve in its campaign to gain more conviction on the continuous disinflationary path of inflation going forward.”
In addition, weekly initial jobless claims fell by 2,000 to 231,000, compared with the 230,000 consensus. Continuing claims increased to 1.868M from 1.855M in the prior week.
Pantheon Macro economist Ian Shepherdson said: “The latest claims data provide further evidence that the labor market is slowing only gradually and hint that some of the recent jump in the unemployment rate probably is due to sampling error.”
Odds of a 50-basis-point rate cut in September fell back below 35%.
Economist Joseph Brusuelas says the stable claims and upward GDP revision “is in line with our call for a 25-bps cut in rates by the Fed at its September meeting. Lots of data ahead to debate 25 vs. 50. Sure to be interesting.”
Among active stocks, Dollar General (DG) slumped after the retailer missed consensus estimates with its Q2 earnings report and slashed its full-year guidance.
Dollar General sees full-year revenue growth of +4.7% to +5.3% vs. a prior expectation for +6.0% to +6.7%. DG also expects full-year EPS of $5.50 to $6.20 (midpoint $5.85) vs. $7.13 consensus. For fiscal 2024, Dollar General plans to execute approximately 2,435 real estate projects, including approximately 730 new store openings, 1,620 remodels, and 85 store relocations.
Best Buy (BBY) beat revenue, EPS, and margin expectations for the quarter. CEO Corie Barry said the retailer delivered strong results in the domestic tablet and computing categories, which together posted comparable sales growth of 6% versus last year.
Looking ahead, Best Buy sees fiscal 2025 revenue of $41.3 billion to $41.9 billion (midpoint $41.6 billion) vs. $41.8 billion consensus and EPS of $6.10 to $6.35 (midpoint $6.225) vs. $6.07 consensus. Comparable sales growth is seen landing in a range of -3% to -1.5%.
Salesforce (CRM) rose as Wall Street analysts praised the cloud computing giant’s results and guidance, with some saying it is a “huge step forward.”
Stifel analyst Parker Lane raised his price target to $320 from $300. Lane, who has a Buy rating on Salesforce, highlighted the strength in bookings, current remaining performance obligations, and AI benefits, citing Benioff’s comments around Einstein and Agentforce, the Einstein-powered generative AI agents.
In other news of note, iron ore prices have risen 10% higher in just 10 days to top $100/ton, despite persistent worries over prospects for Chinese demand. That’s prompted the official journal of China’s metals industry to post a long article on why the gains are “irrational.”
State-affiliated China Metallurgical News says: “The current rise in iron ore prices lacks fundamental support,” and plentiful supply, weak demand, high inventories, and low mining costs should continue to weigh on iron ore for the rest of 2024.”
China’s steel sector is battling what top producer China Baowu Steel Group recently said were worse conditions than earlier crises in 2008 or 2015, and BHP (BHP) said this week that iron ore has support in the $80-$100/ton range, a level at which many high-cost producers in China, India, and elsewhere may need to consider halting production.
And in the Wall Street Corner, the number of 401(k) millionaires kept growing in Q2, according to Fidelity.
A third consecutive quarter of retirement-savings growth created 497,000 401(k) millionaires, up 2.5% from Q1. IRA-created millionaires rose by 6% to 398,594, leaving the April-June quarter to log a fresh all-time high in millionaires based on retirement accounts.
The average balance for 401(k) millionaires rose by nearly 1% to $1,595,200. The firm analyzed 24 million 401(k) accounts on the 26,000 corporate-defined contribution plans it handles. Looking more broadly, the average 401(k) balance was $127,100, up by 1% from the first three months of the year.
Overall, the total average 401(k) savings rate was steady at 14.2%, the closest it’s been to Fidelity’s suggested savings rate of 15%.