AMD Experiences Q2 Earnings Dip; Eyes on Federal Rate Cut

On Wednesday, the stock market continued its positive trajectory as investors analyzed recent company earnings reports. There has been growing anticipation of a potential rate reduction in September that has lifted spirits following further endorsement from another Federal Reserve official towards a reduced federal funds rate. While the majority of companies on the S&P 500 have already released their earnings statements, quite a few are yet to do so. One company that stole the spotlight with its post-earnings movement was Advanced Micro Devices (AMD), witnessing a 6.4% dip following its results showcase.

AMD successfully surpassed projections on the revenue front, but its Q2 earnings of 48 cents per share didn’t quite align with analysts’ expectations. AMD also relayed that the rate of its year-over-year revenue growth in its data center division had decelerated to 14%, a significant drop from rates of 57% in Q1 and an unprecedented 115% in Q2 2024. In a similar vein, AMD’s artificial intelligence (AI) data center business experienced a dip in revenue compared to last year.

The decrease was attributed to U.S. export restrictions that put a stopper on MI308 sales to China, in addition to the transition to the novel MI350 series accelerators, as explained by AMD’s CEO Lisa Su during the company’s earnings call. Nevertheless, Argus Research’s analyst Jim Kelleher is not overly concerned about these restrictions impacting earnings in imminent quarters, considering the possibility of a more lenient export control on chip shipments to China hinted by the Trump administration.

Maintaining his optimistic stance on the semiconductor stock post-earnings, Kelleher reiterated his Buy recommendation and hiked his price target from $160 to $200, suggesting potential upside over 20% from current trade rates. On the other side, other leading companies such as Super Micro Computer (SMCI, -18.3%) and Walt Disney (DIS, -2.7%) didn’t fare as well after sharing their earnings details.

Standing out as a post-earnings winner, e-commerce technology company Shopify (SHOP) saw a 22.0% surge in the wake of its second-quarter earnings recap. Reporting higher than expected earnings and revenue, Shopify indicated projections for its third-quarter revenue to escalate by a ‘mid-to-high twenties percentage rate,’ In comparison, many analysts are forecasting Q3 revenue growth of around 22%.

Scott Berg from Needham, a financial analyst who initiated coverage on SHOP in mid-July with a Buy rating, believes that ‘the company remains in only the mid-cycle of a durable growth opportunity.’ Further bright spots in the earnings landscape included McDonald’s (MCD, +3.0%) and Arista Networks (ANET, +17.5%), both of which saw gains.

In other non-earnings related news, Apple (AAPL) made significant gains of 5.1%, becoming the best performer on the Dow Jones. Reports are circulating that the tech titan is planning to announce an additional $100 billion investment in U.S. manufacturing, likely in response to mounting threats from President Donald Trump to impose a staggering 25% tariff on iPhones if Apple does not relocate their production to the U.S. soil.

This development follows the White House’s decision to double tariffs on exports from India to 50% after the South Asian nation indicated its unwillingness to cease Russian oil purchases. Currently, the majority of iPhones sold in the U.S. are produced in India. As it stands, all these incidents have stirred up market performance, with the Nasdaq Composite adding a 1.2% gain to 21,169 points, while for S&P 500 and Dow Jones Industrial Average, the end-of-day numbers stood at 6,345 (up 0.7%) and 44,193 (up 0.2%) respectively.

Meanwhile, in absence of any substantial hard data on the day’s economic calendar, several remarks from Federal Reserve officials grabbed the spotlight. Among the speakers was the relatively hawkish Minneapolis Fed President Neel Kashkari. In his televised interview with CNBC’s Squawk Box, he suggested that a potential adjustment to the federal funds rate may be appropriate in the near future as the economy shows signs of slowing down.

This is following the July jobs report which painted a picture of a labor market noticeably weaker than previously assumed. Kashkari highlighted this, along with other recent data, as factors providing him with ‘confidence’ that the economy is entering a cooling phase.

Neel Kashkari also stated that he views two quarter-percentage-point rate reductions before the end of the year to be ‘reasonable’. The Fed official, however, cautioned that if President Trump’s tariffs exert a larger-than-expected impact on inflation, it would lead the Fed to cut just once, or possibly not at all.

Current sentiment among futures traders, as signified by the CME FedWatch, indicates a 95% probability that the Federal Reserve will announce a 0.25% rate cut in its next meeting scheduled for September. This marks an increase from the 47% odds put forth approximately a week ago.

In summary, while stocks maintain a general uptrend, analysts and investors have shown a keen interest in corporate earnings announcements, with noticeable reactions in response to earnings over or underperformance. Alongside, anticipated rate cuts have played a significant role in shaping investor sentiment and markets.

Furthermore, the geopolitical landscape and associated policy changes, such as export restrictions and potential tariffs, have also influenced market dynamics. As a case in point, the recent developments concerning the Chinese and Indian markets have had a notable impact on specific companies, such as AMD and Apple.

The U.S. stock market, advancing amidst economic and geopolitical challenges, is navigating through uncharted waters suspended between corporate performance, anticipated policy adjustments, and international trade uncertainties. This dynamic scenario underscores the importance of expert analysis and strategic investment decisions.