Weekly Preview: Earnings to Watch This Week 9-5-23 (AI, GME)

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Credit: Carlo Allegri - Reuters / stock.adobe.com

A stronger-than-expected jobs report couldn’t keep stocks from rising modestly Friday as the unemployment rate grew to 3.8%, up significantly from the 3.5% expected and 3.5% for July. That rate of increase in the the unemployment was the highest since February 2022. Overall, it was a good news and bad news report.

Although jobs grew by 187,000 for August (seasonally adjusted), beating estimates for 170,000, the U.S. Bureau of Labor Statistics reported Friday, average hourly earnings grew just 0.2% for the month and 4.3% from a year ago. Both were below respective forecasts of 0.3% and 4.4%. And when considering that the July estimate was revised lower by 30,000 to 157,000, with June also revised lower by 80,000 to 105,000, August marked the smallest monthly gain since December 2020.

What’s more, the fact that the unemployment rate grew to 3.8% comes as the labor force participation rate rose to 62.8%, which marks the highest level in more than three years, just prior to the Covid pandemic. In other words, there are several new signs that inflation pressures are easing. Investors are betting that the data-dependent Federal Reserve will assess these numbers and finally let its foot off the rate hiking gas pedal.

It’s no surprise that stocks rose on Friday, albeit somewhat mixed with both the the Dow Jones Industrial Average and the S&P 500 booking gains for the day. The blue-chip index rose 115.8 points, or 0.33%, to close at 34,837.71. Leading the gains on the Dow were, among others, Apple (AAPL), Microsoft (MSFT), Intel (INTC) and IBM (IBM). The Dow was also powered by energy giant Exxon Mobile (XOM) which rose more than 2% on the day. The S&P 500 index added 8.11 points, or 0.18%, ending the day at 4,515.77, while the tech-heavy Nasdaq Composite shed 3.15 points, losing 0.02%, to close at 14,031.81.

This suggests optimism has returned. For the week, the Dow and the Nasdaq added respective gains of 1.4% and 3.3%. These gains marked their best performances in tow months. With a gain of 2.5% for the week, the S&P 500 index logged its best week in more than three months. Investors have been looking for reasons to jump head-first back into the market, particularly to scoop up some mega-cap tech FAANG names that have pulled back on the fear of continued rate hikes by the Fed.

Will the market continue to rally into this week? The Fed’s rate hike mode might not be over just yet. Fed Chair Jerome Powell has remained steadfast in his belief that overall economic growth remains above trend and noted that inflation is still well above the Fed’s recently confirmed 2% target. As I’ve said on numerous occasions, regardless of what the Fed might do, staying the invested in the market seems like the safest best. Here are the stocks I’ll be watching this week.

C3.ai (AI) - Reports after the close, Wednesday, Sep. 6

Wall Street expects C3.ai to post a per-share loss of 17 cents on revenue of $71.59 million. This compares to the year-ago quarter when the loss was 12 cents per share on revenue of $65.31 million.

What to watch: The growing popularity of artificial intelligence, in particular ChatGPT, is more than just hype. The back-to-back quarterly results and guidance from Nvidia’s (NVDA) suggests there’s an insatiable appetite for AI. Another company surging in AI popularity is C3.ai, which provides enterprise AI applications that meet the business-critical needs of global enterprises in manufacturing, financial services, government, defense and intelligence, among others industries. Its shares have risen 180% year to date, compared with 17% rise in the S&P 500 index. The stock has risen near 40% just in the past six months. Much of the gains have also been attributed to the company’s partnership with Alphabet (GOOG , GOOGL), where it will make its generative AI product suite available as a public offer on Google Cloud Marketplace. The product suite features enterprise search, allowing businesses to search across their database to locate and retrieve relevant information. Meanwhile, its management has also been working to modify the company’s business model, shifting the business away from short-term revenues to a transaction-based pricing method, while boosting long-term revenues by growing its customer base. Those initiatives appear to be working with growth rates starting to re-accelerate following. On Wednesday, the company will look to prove that it is here to stay and has a sustainable path towards profitability.

GameStop (GME) - Reports after the close, Wednesday, Sep. 6

Wall Street expects GameStop to post a per-share loss of 14 cents on revenue of $1.14 billion. This compares to the year-ago quarter when the loss was 35 cents per share on revenue of $1.14 billion.

What to watch: Meme stock darling GameStop remains one of the most widely followed stocks on the market, but the retailer has not performed this year as investors hoped it would. Currently trading at around $18 per share, the stock is off some 48% from its 52-week high of around $35. The shares have traded flat year-to-date, against 17% rise in the S&P 500 index. Meanwhile, over the trailing twelve months, GME stock has fallen 35.5%, while the S&P 500 has risen 14%. The brick-and-mortar retailer is still facing significant challenges in its fundamental prospects, the main reason being weakness in its core business of trading physical video games, which has suffered a steady decline due to the digitalization of the gaming industry.

Although GameStop management has attempted to diversify the company’s revenue stream, there has been no signs of meaningful improvement. The company is projected to generate roughly $5.7 billion in revenue for the fiscal year. Not only would this reflect a decline of 3.7% year over year, the estimate has been reduced by 5% over the past six months as U.S. video game sales continue to decline. On the bright side, its management has done a decent job cutting costs to preserve cash flow. This will need to continue if the video game sales continue to decline. However, cost cuts alone, absent revenue growth, is not a workable long-term strategy. On Wednesday GameStop will need to outline its long-term plan and demonstrate it has lasting power.

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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