A survey of North American equities heading in both directions
On the rise
Shares of Microsoft Corp. (MSFT-Q) were higher by 1.3 per cent on Wednesday after ChatGPT-maker OpenAI reached an agreement for Sam Altman to return as CEO days after his ouster, capping frenzied discussions about the future of the startup at the center of an artificial intelligence boom.
The company also agreed to revamp the board of directors that had dismissed him. OpenAI named Bret Taylor, formerly co-CEO of Salesforce, as chair and also appointed Larry Summers, former U.S. Treasury Secretary, to the board.
Mr. Altman said in a post on X, “i’m looking forward to returning to openai.”
After Mr. Altman was fired on Friday, the original board had given scant explanation other than his lack of candor and its need to defend OpenAI’s mission to develop AI that benefits humanity.
The deal to restore Mr. Altman ushers in a potentially new era for the startup - a non-profit - which long juggled concerns among staff about AI’s dangers and its potential for commercialization.
Tuesday’s reshuffle appeared to favour Mr. Altman and financial backer Microsoft, which is rolling out OpenAI’s technology to business customers globally.
In a research note released before the bell, Wedbush analyst Dan Ives said: “After a circus show that began by the 4 person JV OpenAI board on Friday night early this morning OpenAI announced an agreement to bring Altman back as CEO with a new initial board of Bret Taylor (Chair), former US Treasury Secretary Larry Summers, and Adam D’ Angelo. The former now infamous board members are finally gone after the failed coup and now in essence OpenAI will be virtually the same then before this soap opera began HOWEVER will have a much stronger governance now in place which is key.
For Microsoft this all ends up like a Cinderella ending as OpenAI will be stronger from an innovation and governance perspective and the MSFT relationship will be even firmer as Redmond and Nadella was the bedrock in backing Altman and OpenAI during this almost week long saga. Microsoft from the beginning wanted to keep this ongong structure but ultimately had to pull the grandmaster chess move when the OpenAI board pulled out their kids checker set Friday night and began this Twilight Zone nightmare. ... The Street is glad this is now over and so is Nadella and MSFT investors. We maintain our OUTPERFORM rating and $425 price target.”
HP Inc. (HPQ-N) forecast first-quarter profit below Wall Street estimates but maintained annual earnings outlook, a sign that demand in the personal computers market is still recovering, but it shares rose 2.7 per cent on Wednesday.
Companies such as HP, Lenovo and Dell (DELL-N) have seen demand ease from peaks hit during the pandemic, when work-from-home trends boosted sales of laptops and other electronic devices.
HP expects first-quarter adjusted profit per share to be between 76 US cents and 86 US cents, the midpoint of which was below LSEG estimates of 86 US cents.
The company said it is on track to launch AI PCs in the second half of next year and expects its penetration to increase gradually.
“While we don’t think the market will immediately shift to AI PCs, we believe there will be a gradual uptick in the uptake, with some in 2024 and more penetration to come in 2025 and even more in 2026,” CEO Enrique Lores said in a media call.
Recent earnings at major PC chipmakers have signaled that more than a two-year long slump in the market could be nearing an end as demand picks up ahead of the holiday season and an expected Windows update next year from Microsoft.
HP maintained fiscal 2024 adjusted profit forecast of US$3.25 to US$3.65 per share.
Its fourth-quarter revenue was US$13.82-billion, slightly lower than the estimated US$13.85-billion.
“We continue to see weak demand in China both across consumer and commercial. At this point we don’t expect that to change and we’ve built that into our plans,” Mr. Lores said.
Sales for HP’s personal systems segment — home to its desktop and notebook PCs — fell 8 per cent from a year ago, while its printing segment posted a 3-per-cent fall.
Peer Lenovo posted a decline in revenue last week. Dell is scheduled to release third-quarter results on Nov. 30.
U.S.-listed shares of Alibaba Group Holding Ltd. (BABA-N) finished narrowly higher after a top executive told staff on Wednesday that it was a “coincidence” that a plan by former chief Jack Ma’s family trust to sell some shares in firm was disclosed on the same day the firm scrapped its cloud unit’s listing.
In a move seen as an effort to quell ongoing unease within the e-commerce giant, Jiang Fang, an Alibaba partner and its chief talent officer, said in an post on the firm’s intranet seen by Reuters that Mr. Ma’s office had earlier this year made a plan to sell some shares to reinvest in agriculture and public welfare projects.
They were required by U.S. securities rules to disclose the plan by mid-November, she said.
“Nov. 16 happened to be the disclosure time set, but the stockbrokers did not know that this day was the day when the company was set to release its financial report,” Ms. Jiang said, adding that the “coincidence” had created a “severe misunderstanding.”
Investors wiped some US$20-billion off Alibaba’s market value last Friday after the company abruptly scrapped plans to spin off its cloud and groceries businesses.
Analysts also said a regulatory filing that came out hours before the disclosure saying that Mr. Ma’s family trust intended to sell 10 million American Depository Shares in Alibaba hurt sentiment as it raised eyebrows about Mr. Ma’s commitment to the future of the company he co-founded.
Two company sources told Reuters that Mr. Ma’s move had generated a lot of discussion within the company, as did Ms. Jiang’s post. Alibaba and the Jack Ma Foundation, the philanthropic organization that handles media queries for the billionaire, did not immediately respond to requests for comment.
On the decline
Docebo Inc. (DCBO-T) gave back early gains and finished down 2.1 per cent after announcing founder Claudio Erba is “stepping away” from his role as chief executive officer and a member of the board of directors.
“Mr. Erba’s new role as Chief Innovation Officer will provide him with more time to focus exclusively on his true passion, innovation, and reduce the time-consuming operational responsibilities,” it said in a statement.
The Toronto-based online employee training software provider said president and chief operating officer Alessio Artuffo will become the interim CEO effective March 1, 2024.
Docebo also announced approval of a substantial issuer bid to repurchase for cancellation up to US$100-million of its outstanding common shares at a price of US$55.00 each. Its Nasdaq-listed shares closed at US$50.42 on Tuesday.
Cineplex Inc. (CGX-T) dipped 2.3 per cent after announcing it has signed a deal to sell its Player One Amusement Group business to Los Angeles-based private equity firm OpenGate Capital for $155-million in cash.
Player One Amusement Group sells, distributes, operates and services arcade games and other equipment.
Cineplex chief executive Ellis Jacob says the company built the business being sold through several acquisitions and organic growth, to become a North American leader.
The company says the sale unlocks value for Cineplex and its stakeholders and provides immediate liquidity for debt repayment.
Under the deal, Player One Amusement Group has signed a long-term agreement to continue to supply and service games in Cineplex’s theatres and location-based entertainment venues.
The transaction is expected to close in the first quarter of 2024 and is subject to regulatory approvals and other closing conditions.
Montreal-based Goodfood Market Corp. (FOOD-T) fell 12 per cent after it reported a loss of $3.7-million in its latest quarter compared with a loss of $58.4-million a year earlier as the meal kit company improved its margins.
The company says the loss amounted to five cents per diluted share for the quarter ended Sept. 2 compared with a loss of 78 cents per diluted share a year earlier.
Net sales in what was Goodfood’s fourth quarter totalled $37.2-million, down from $50.4-million in the same quarter last year.
The drop in net sales came as Goodfood saw a drop in the number of active customers, partially offset by an increase in average order value.
Goodfood says the decrease in active customers was mainly driven by its focus on attracting and retaining customers that provide higher gross margins and by changing customer behaviour.
The company’s gross margin for the quarter improved to 38.2 per cent compared with 28.3 per cent a year earlier.
Shares of chip designer Nvidia Corp. (NVDA-Q) fell 2.5 per cent on Wednesday on fears that widening U.S. chip curbs would sap growth in China, its third largest market, and curtail the AI-driven boom in its business.
Nvidia, which has been at the forefront of artificial intelligence developments with its tailor-made graphics processing units, said its China business will take a hit from tighter export controls.
Still, it forecast current-quarter revenue of US$20-billion, plus or minus 2 per cent, beating analysts’ average estimate by more than US$2-billion, according to LSEG data.
China contributed more than a fifth of its total revenue in the quarter ended Oct. 29.
“This disconnect between stellar earnings and an uncertain future in China is causing investor concern,” said Scott Acheychek, CEO of REX Shares, which offers a fund linked to Nvidia shares.
Nvidia has been one of the biggest beneficiaries of a rally in AI-linked stocks, with its shares gaining 229.8 per cent compared to tech-heavy Nasdaq’s 36.6-per-cent rise so far this year.
“Nvidia’s shares went into the results ‘priced to perfection’....compounded by a run-up to record highs going into the release,” said Capital.com analyst Kyle Rodda.
“As a result, despite fantastic financial performance and an even better outlook than analysts had been expecting, any bad news was bound to undermine sentiment.”
At least seven brokerages raised their target price for the stock with the median now at US$625, more than US$125 above its last closing price, signaling confidence that the business would grow as businesses adopt AI.
Farm equipment maker Deere & Co (DE-N) forecast 2024 profit below analysts’ expectations on Wednesday as high borrowing costs and squeezed budgets dented demand for its products.
Its shares were down 3.1 per cent in Wednesday trading.
The world’s largest farm equipment maker expects 2024 net income between US$7.75-billion and US$8.25-billion, compared with analysts’ average expectations, according to LSEG data, of US$9.33-billion.
“While our end markets will fluctuate, we remain focused on disciplined execution,” the company’s Chief Executive, John May said in a statement.
Despite the Illinois-based manufacturer beating Wall Street profit estimates, Deere’s stock slump is consistent with peers such as Caterpillar (CAT-N) that have outperformed forecasts.
Demand for its large tractors and combines has allowed the company to increase prices to help offset higher raw materials, logistics and freight costs.
However the mounting dealer inventories that the company noted in previous quarters are becoming a red flag to investors, analysts say, leading to speculation demand might have peaked for the manufacturer and other cyclical industrial companies.
Persistent inflation continues to drag on consumer appetite for big-ticket items. Experts say weaker consumer sentiment is a sign Americans are being more frugal, including farmers.
Net farm income is forecast to decline 18.2 per cent from a year ago, according to the Agriculture Department.
Sales for production and precision agriculture products for crop care such as fertilizers and applicators have consistently outpaced other equipment divisions, but revenue for the segment fell 6% from the year prior.
Deere’s net income rose to US$2.37-billion, or US$8.26 per share, for the quarter through October from US$2.25-billion, or US$7.44 per share, a year earlier.
Total net sales and revenue fell about 1 per cent to US$15.41-billion for the fourth quarter ended on Oct. 31.
Nordstrom Inc. (JWN-N) missed Wall Street targets for third-quarter revenue on Tuesday as sticky inflation pressured consumer spending in the months leading up to the all-important holiday shopping season.
Shares of the upmarket department store chain slid lower by 4.6 per cent on Thursday.
Fellow retailers Best Buy (BBY-N) and Kohl’s (KSS-N) have also hinted at a bleak holiday season with still-high interest rates, food prices and the start of student loan repayments prompting customers to spend less and push their shopping to the last minute.
“The consumer is phasing out their shopping ... they are shopping check to check,” Jane Hali & Associates senior analyst Jessica Ramirez said.
Shoppers are also “prioritizing categories of interest,” helping some segments perform better than others, she added.
Nordstrom executives said in a post-earnings call that the active, beauty and accessories segments were leading sales growth.
They also joined other retailers in highlighting cautious consumer spending.
The company’s eponymous label recorded a 9.4-per-cent drop in sales while discount banner Rack declined only 1.8 per cent, its smallest fall in five quarters, as efforts to bring in trendier brands started to pay off.
That, coupled with lower markdowns, helped the company post a 180-basis point increase in quarterly gross profit.
“They did not do as much discounting as expected, but that may have hurt the top-line sales ... especially at Nordstrom,” said Morningstar analyst David Swartz.
Total revenue fell 6.4 per cent to US$3.32-billion, missing analysts’ estimates of US$3.40-billion, according to LSEG data.
Excluding items, Nordstrom earned 25 US cents per share, topping estimates of 13 US cents.
Best Buy and Kohl’s had trimmed their annual sales expectations to account for difficult-to-predict consumer demand in an uncertain economy, but Nordstrom maintained its forecast.
The company narrowed its annual adjusted profit forecast range, with the midpoint remaining the same.
Broadcom (AVGO-Q) dipped 0.9 per cent after it closed its US$69-billion acquisition of cloud-computing firm VMware after receiving regulatory approval in last major market China and ending a months-long saga.
The deal, one of the biggest globally when announced in May 2022, was the latest in CEO Hock Tan’s efforts to boost the chipmaker’s software business.
However, the transaction faced tough regulatory scrutiny across the world and the companies had delayed the closing date three times.
China’s regulatory approval came through on Tuesday after ongoing tensions with the U.S. around tougher chip export control measures had stoked fears among some investors on the company’s ability to close the deal before the Nov. 26 deadline.
“The improved mood music after the meeting between China’s President Xi Jinping and U.S. President Joe Biden earlier this month helped to settle remaining nerves,” Danni Hewson, head of financial analysis at AJ Bell, said on Tuesday, after the companies said they planned to close the transaction on Nov. 22. The European Commission had approved the acquisition after Broadcom offered remedies to help rival Marvell Technology (MRVL-Q) while the UK’s Competition and Markets Authority (CMA) gave its green light following an in-depth investigation.
“Perhaps we will see some boards being willing to move forward now that we have seen the (Activision Blizzard) and (VMware) get blessing, but don’t think we can count on it,” said Cabot Henderson, market strategist at JonesTrading, on Tuesday.
Big Tech mergers such as Microsoft’s now-closed US$69-billion purchase of the Call of Duty publisher Activision have faced heightened regulatory pressure from the U.S. Federal Trade Commission under its Chair Lina Khan.
With files from staff and wires