Traders work on the floor of the New York Stock Exchange on April 26, 2023 in New York City.
Michael M. Santiago | Getty Images
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Broad sell-off
The Dow Jones Industrial Average dropped more than 500 points as investors trimmed positions in technology stocks and booked profits in other sectors. The S&P 500 and the Nasdaq Composite also declined, with Alphabet and Apple among the Big Tech names that fell on Thursday. Even the small cap-focused Russell 2000, up 3.5% in the last five trading days on hopes of interest rate cuts, lost 1.9%. The yield on the 10-year Treasury climbed, while U.S. oil prices inched lower.
Netflix beats
Netflix‘s second-quarter earnings beat estimates as it solidified its dominance in the streaming market. The company saw a 34% growth in ad-supported memberships and a 16.5% increase in global paid memberships to 278 million in the reported quarter. This growth, coupled with a crackdown on password sharing, boosted revenue by 17% to $9.6 billion. Netflix raised its full-year revenue growth forecast to 14%-15% from 13% to 15%. Net income rose to $2.15 billion, or $4.88 a share.
Nvidia rebounds
Nvidia shares rose 3% on Thursday, recovering from a 7% drop in the previous session as Donald Trump’s comments on Taiwan raised geopolitical concerns. Nvidia’s rise came after TSMC said demand remained high while supply was constrained for high-end AI chips, which TSMC manufactures for Nvidia. The semiconductor sector had its worst day since 2020 on Wednesday, with AMD, Arm, Broadcom, and Qualcomm also declining. “While there is rising concern over geopolitical tension given the upcoming US presidential election, TSMC mentioned that it would continue its overseas expansion to mitigate the risks,” Citi analyst Laura Chen wrote in a note on Thursday.
EV hub shelved
Ford Motor is investing $3 billion to expand production of its Super Duty trucks, with $2.3 billion going to its Canadian plant, which was previously slated to become an electric vehicle hub. While Ford intends to electrify the next generation of Super Duty trucks, specific details remain undisclosed. This decision follows CEO Jim Farley’s recent remarks stating that full electrification of large vehicles like the Super Duty trucks was “never going to make money.”
Online sale record
Amazon‘s Prime Day generated a record $14.2 billion in U.S. online spending, an 11% increase year on year, according to Adobe Analytics. Back-to-school shopping and consumer demand for new electronics drove the surge, contrasting with last year’s inflation-weary shoppers’ focus on household essentials. Amazon highlighted the role of its AI shopping assistant, Rufus, in facilitating customer browsing.
[PRO] Trump trade
Banks are set for near-term outperformance as the “Trump trade” gains momentum, says Wells Fargo. Banks rebounded, with the Financial Select Sector SPDR Fund up 3.7% this week, boosted by strong second-quarter earnings from major banks like Bank of America, Morgan Stanley, and Citigroup.
The bottom line
What does the semiconductor rout tell us? The PHLX Semiconductor Sector Index, which tumbled 6.8% on Wednesday amid concerns about tighter export regulations and Trump’s remarks on Taiwan, just managed a modest recovery of 0.5% on Thursday.
“We understand the rotation away from AI/data-center semis towards industrial/auto/consumer, but it’s not supported by fundamentals and is likely short-term positioning driven,” Bank of America analyst Vivek Arya said in a note Wednesday.
Despite the recent sell-off, Arya remains bullish on the sector, particularly on AI, which he sees as the strongest and most dependable area of capital expenditures. Outside of AI, “global growth remains murky at best,” he added, pointing to consumer restraints on the PC/smartphone upgrade cycle, sluggish enterprise and telco demand, as well as weak demand in China.
Concerns, however, have been building around artificial intelligence and its ability to turn huge capital expenditure into profits amid the lack of killer AI end uses. Microsoft-backed OpenAI launched GPT-4o mini Thursday, a smaller version of its flagship AI model. The $80 billion company is under pressure to maintain market leadership and monetize its technology in the face of growing competition.
Alger CEO Dan Chung told CNBC that the recent volatility in chip stocks is creating a “buying opportunity.”
“These are politically sensitive companies for a good reason because they are the most vital part of the semiconductor industry, ASML in particular is unique,” he said on Wednesday.
“They have already given up quite a bit of revenue because of the restrictions and exports to China. I think the political football will continue around this. We have more trade with than we don’t have with China. We have more trade with our partners around the world, even as we argue about political ramifications… this noise is creating a buying opportunity, or will potentially create one pretty soon.”
Nvidia’s rebound from heavy losses after TSMC said explosive demand for AI has stretched chip supplies, supports Chung and Arya. Broadcom, another chip maker seen as a huge beneficiary from AI demand, also rose 2.9%.
However, markets had another rough session on Thursday. There could be many more to come. Evercore ISI’s head of technical analysis, Rich Ross, in a note to investors warned of potential short-term weakness in the stock market due to historically weak performance in the coming months. Despite this, Ross maintains his bullish outlook for the S&P 500 with a year-end target of 5,800.
— CNBC’s Michelle Fox, Michael Wayland, Annie Palmer, Hayden Field, Pia Singh, Alex Harring, Sarah Min, Kif Leswing and Lillian Rizzo contributed to this report.