Last week, chip maker Intel delivered its seventh consecutive quarterly earnings beat with revenue growing 25% year over year, its fastest growth since 2011. Its non-GAAP EPS of $0.42 doubled the $0.21 consensus. Data Center and AI revenue surged 59%, and 18A foundry output exceeded internal targets by roughly 25%.
Intel () shares initially jumped as much as 13% after hours, but despite the outstanding earnings report, the shares gave up much of their gains. Furthermore, fellow chip makers Broadcom (), AMD (), and Micron () were lower as well.
The lackluster price movement is a market tell. In late June, Intel was up over 250% year to date. Since then, the stock has given up 30% from its high point. We saw a similar earnings reaction a day earlier with Alphabet (). Their strong earnings were overshadowed entirely by spending concerns. The emerging thread in the technology and chip sectors is that the market is no longer solely focused on potential growth, and appears to be questioning capex.
The recent history is not a chip sector rout. Fundamentals across AI infrastructure remain intact, and Intel’s own numbers prove real demand exists. But the momentum trade- buy any earnings beat, worry about capex later- appears to be fading. Investors are now pricing execution risk into stocks that spent the first half of the year getting a pass on it. This is a narrative shift worth watching as earnings season continues.
Market Breadth Weakens But Not In The ‘Usual’ Way
It seems that poor market breadth recently was the result of technology, communications, and, at times, discretionary sectors being overbought and outperforming while safer, more value-oriented sectors were underperforming. Today’s instance of weakening breadth is the opposite. The scatter plot on the left side of the first graphic below shows the dots have spread out over the last few weeks, favoring the more value-oriented, higher-dividend sectors, while yesterday’s leaders are the most oversold.
For those not closely following the absolute and relative scores on a daily or even weekly basis, you may not appreciate whether breadth is improving or worsening. SimpleVisor allows you to put “tails” on the score. As we circle in the second graph below, we highlighted five sectors to show how they have rotated over the last six weeks. This ability is in the current SimpleVisor, but as we highlight with the red box, the new version will allow users to animate the movements over various time periods. This feature allows you to watch up to 12 weeks of rotations for all or selected sectors, factors, portfolios, and custom-made lists. The tool will help you better appreciate relationships and guide you in determining if there is a rotation in progress or one likely to occur.
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