SpaceX, AMD & Palantir All Beat — So Why Did 2 Stocks Drop? | TheStreet Pro Chris Versace

Hey everyone, it is Julie with Tip Ranks and once again I am joined by Chris Versace from the Street Pro to dive into all things happening in the stock market this week. Chris, pleasure to see you today. >> Always happy to see you, Julie. And what a week, my friend. What a week. >> I know we have a lot to talk about. But we are in the thick of Q2 earnings season and this week alone gave us SpaceX first ever public earnings report. A surprising AMD selloff despite a beat and blowout Palunteer quarter. Uh and then we're against a backdrop of a 4-day S&P 500 rally, renewed record highs, and a very fluid US Iran situation. So we're diving into all of that. Starting off with SpaceX. So it was their first quarter as a public company. Revenue nearly doubled, losses narrowed, but their capex ballooned to over 18 billion from 2.83 billion a year ago, and their CFO Brett Johnson said that their spending is staying elevated for the next couple of quarters. Now, you flagged that capex and cash flow as the things to watch going into this earnings report. So, how did the markets reaction live up to what you expected there? >> Well, I mean, first things first, Julie, right? SpaceX or any company is not going to come public and deliver a a big miss relative to the market expectations out of the gate. So that's why I wasn't really concerned so much about uh revenue EPS for the quarter. But you are correct. I I was more far more concerned about rising capex levels um you know cash flow levels because what did we see between you know juxtaposing meta's quarterly results in higher capex against those for Google Microsoft even Amazon right it's questions about not only the size of the capex ramp but how are you increasingly going to afford this um and look look it doesn't take a genius to flip through the S1 filing from SpaceX and understand that they are burning a lot of cash and obviously to the extent they continue to invest at an even more accelerated rate, they're going to need more cash. So, I think that's why the market's um reacting the way it is and by that I mean SpaceX shares selling off. But I would also peer just a little deeper on this, Julie, because it's not just the ramp in AI and data center capacity that we're seeing at the hyperscalers. Remember SpaceX through Starlink, they cpped to the thing that a lot of people thought they were going to do is leverage Starlink to go after uh more traditional wireless service and wireless data service, which means they have to build there as well. So I I think it's you going to be uh you know several quarters, possibly more until we get a real handle on positive cash flow and maybe even free cash flow at SpaceX. That brings me right to my next question because I was going to say that the detail that seems to get less attention is that they may need to acquire more spectrum for their Starlink mobile ambitions. Uh you noted that this could raise some competitive concerns for AT&T, Verizon, and the such. How seriously should investors in those names be taking this? >> Well, it's a great question, right? because in this current market environment, it's almost, you know, fear and headlines are are driving a lot of initial reactions. So, I I think, you know, if you take uh SpaceX Space X's comments about Spectrum, it's going to take time. So, you know, is is it a near-term threat? Probably not. But it's one that we're going to have to closely monitor, not not just for the wireless incumbents like you know that we just talked about, but also key companies that benefit from that supply chain and other parts of the ecosystem like American Tower and Crown Castle and the like. Um, but also too remember it's not just SpaceX. Amazon with their Amazon Leo is probably going to be on a similar path. So when we layer those together, boy, that that landscape is potentially changing for those wireless incumbents, um I I think, you know, it's going to be something to watch and candidly raise a lot more questions in the near term about their viability. >> Sure. And another thing that Elon Musk said is that SpaceX is building exclusively on Nvidia because the Vera Reuben architecture is the best available. Now, you wrote in your article that this reinforces Nvidia's competitive position. Does that comment functionally close the door for, you know, AMD or other custom silicon players from getting a piece of SpaceX AI or is the exclusively doing a bit too much right now? >> No, I don't think so at all. And in fact, I I think what we have to step back and say, okay, they have a special relationship uh but there is rising hyperscaler capex dollars and others as well. you know, SpaceX, we don't really lump into the hyperscalers. Maybe one day we will, but others out there, the Neoclouds and the like. And I and I think what you're seeing is a real um rising tide that lifts multiple boats. Obviously, Nvidia and SpaceX, you know, that relationship there, but these other spending dollars and at the same time, not every application demands bleeding edge compute. So I think as companies look to balance their capex, balance their workloads, we're going to see uh different levels of chips used for different workloads. So I I continue to be very bullish on the prospects for Broadcom, for Marvel, as well as Nvidia. >> And then we're going to move on to AMD who also just reported they guided Q3 revenue to 13 billion which was ahead of the 12.5 billion consensus. The stock fell anyway. uh you pointed to two things that some street estimates were well north of 13 billion and that the stock had already run up 20% into print which obviously raised the bar. So which of those two things do you think mattered more and does that make this look like more of a valuation reset more than real concerns about the business? >> I I don't think there's a lot of concerns about the business when you take a look at you know the guidance that they gave uh particularly for data center you know this year next year it's going to double by next year. So I I I don't think that's it. I think once again we've seen that expectations were likely ahead of themselves because of that runup in the stock price. And when we see that during earnings season, it really means that a company needs to deliver not only a beat for the reported quarter, but they need to clear not just the consensus number, but really increasingly the higherend expectations that are out there. So, you know, the sell-off that we're seeing, I I have to do a little more homework to say, is this something worth picking up here and I also have to be mindful of the portfolio's exposures again in Nvidia, Broadcom, Marll, and some others in the AI data center food chain. But for folks that, you know, uh, might be owners of AMD, I'm not saying you should throw in the towel here. Now, following the SpaceX and Nvidia comment, does AMD's post earning drop right alongside Musk's quote about that tell us anything about how investors are currently ranking the AI chip players? >> You know, it's interesting because if you were to trace back the move in AMD shares relative to the mirror me, excuse me, similar move year to date in Nvidia shares, you would say just the opposite, right? Like, wow, the market is really voting with AMD. I I think that this was a nice shot in the arm that validates Nvidia's competitive position. I don't think it necessarily takes away much from uh AMD, especially given my comments about overall rising capex dollars and a rising tide, at least for the near term. >> Perfect. Now, on to Palunteer. Uh they raised their fullear operating income guidance to 4.89 to 4.91 billion. Kart called the US commercial demand uh staggering up 149% year-over-year to 764 million beating the 716 million by a good bit there of all the numbers in that report. Uh you called out the US commercial remaining deal value as the the single most important metric. What's what's the headline there? uh you know when we think about the future of the business and by that I mean the next several quarters whe whether it's Palunteer or really any other companies that we're uh invested in the portfolio ones we're contemplating we always like to see escalation in it could be backlog numbers it could be total contract value or uh remaining performance obligations because they give us greater confidence in the visibility ahead so it's not just a palunteer thing the at Palunteer put up such big numbers. Obviously, that that adds to our um favorable outlook for the shares. But I I will also tell you though, Julie, that you know, we um continue to monitor rising AI uh adoption and expanding usage metrics, you know, anywhere and anywhere that we can find them, various sectors, and they all point to it rising um and expanding, which is why, you know, earlier uh in June when Palunteer, you know, got hard hit, we actually scooped up shares around 107, you know, and uh coming out of the hyperscalers and their quarterly results over the last two weeks. When you talk about the rise in their cloud business, not understanding where Palanteer is positioned across them, boy, we were increasingly comfortable and confident. But those numbers that they put up re are really a testament to how quickly we are seeing the enterprise uh adopt AI to look to drive greater productivity, greater savings. Um but I will also say too that uh given that you know 50 more than 50% move uh from that June late June pickup in Palunteer shares to yesterday we also prudently locked in a pretty hefty double-digit gain for the portfolio. Didn't sell all our Palunteer because we're still bullish. But Julie, the message to your viewers is you have to be disciplined as an investor. You have to take profits when and where it makes sense. And before we zoom out to the broader market, I do want to touch on that pro portfolio because it does include a lot of the names that we just mentioned. Nvidia Palanteer Broadcom Marll and Street Pro's portfolio has kept its lead over the S&P 500 to a pretty wild stretch in the market here. How much is that outperformance coming from, you know, the AI trade specifically versus value picking stocks elsewhere? What do you attribute that outperformance to? >> Uh, I would say it's a combination of both, Julie. you know, we we have purposely built up our exposure over time uh to the AI and data center trade. You you mentioned a bunch of the names, but we've also um taken profits in those names, most notably Marll earlier this year. And we again here, just like my comment about Palunteer, we used the big pullback over the last, you know, four to six weeks, something like that, may may a little more uh to start to rebuild the portfolio's position in it. So it it's always great to be able to do that, but at the same time we've taken some of the profits that we've um locked in from these trades and we've started to expand the portfolio into other parts of the market. Um for example um you know in the last several weeks we started and increased our position in Boeing which is performing very nicely. uh heavy duty truck manufacturer Packar and one of our more recent additions earlier this week was in a home um home building play not a home builder but one that serves them builder first source. >> Very good. Now we're going to quickly go through the broader market here because of course it's always interesting in the recent months. Now the S&P 500 did just hit fresh all-time highs. Uh the fear and greed index is back to greed after the recent 4-day rally. You've noted that the combination could leave some room for disappointment. So, what would actually trigger that disappointment from here? Are we earnings related, macro geopolitical? >> Uh, all the above. And well, so you have to remember, right, we're we're still in the thick of the earnings season, but fairly soon it's going to pivot and it'll be retailer centric and, you know, then we'll kind of see where the rubber hits the road with consumers. The fact that McDonald's yesterday kind of came up short on their comp sales numbers kind of tells us or reaffirms, I guess, that consumers are being increasingly finicky um and choosing more mildestly where they're spending. That's part of the reason why I'm looking forward to Costco's July uh sales report, which should be out after the close later today. I think that'll give us some more insight on the consumer. Also remember too that earlier this year we heard from uh Chinese companies that they were raising their prices ahead of the buildup for the holiday shopping season this year. So we're have to watch uh retailer margins as well. There's also the um and I said this kind of cheekily you know deal no deal between the US and Iran. Um you know I I've been pretty adamant over the last several months that if we do get a quote deal um what's the duration of the deal? what are the details of the deal? And here this time around, it sounds like another 60-day window. Uh but you know again given the runup in the market it's entirely possible that unless we get a um a good deal and the straight of Hermuz is open in perpetuity with no no fees no tolls um that might leave the market a little wanting especially as you pointed out the huge market run and the fact that we're back you know in greed and as Warren Buffett said you know be fearful when others are greedy be greedy when others are fearful so there is definitely some room for some disappointment. >> Absolutely. And then this week's data, we have ADP employment, ISM services, PMI, and Friday's job reports, which will shape the Fed's conversation. What data point are you watching the closest this week? >> Um, well, out of the three, uh, you know, the labor market appears to be holding up even though that ADP number was a little weaker than expected. Uh for me that that makes it really the ISM services report which came out and yes services kind of picked up a little bit. Um orders picked up as well but that inflation number Julie that ticked a little bit higher and because of the way GDP and some other data is computed you know we the services index a little more than ISM's manufacturing index. So the counterbalance there is uh the services price component ticked higher, the manufacturing prices component ticked a little lower. Uh it tells us net that inflation pressures re probably flat to up compared to June. Uh not really something we want to see. >> Perfect. All right, Chris, as always, I appreciate your insights. I know it was a lot to cover today and I'll see you back in a couple weeks where I'm sure we'll have plenty more to discuss. So thank you so much for your time. >> Anytime, Julie. Thank you.