More and more, business leaders are still talking up artificial intelligence.
And it’s not just the usual things. FactSet says that between March 15 and May 23, almost 40% of S&P 500 index SPX components talked about AI on their earnings calls with analysts. Already, there are 199 S&P 500 members, which is more than the previous high of 180 in the second quarter of 2023. The first quarter earnings season isn’t even over yet.
As you might expect, the biggest players were the tech companies. The term “AI” was used 95 times on the call for Meta Platforms Inc. (META, +2.67%), 86 times on the call for Nvidia Corp. (NVDA, +2.57%), and 74 times on the call for Microsoft Corp. (MSFT, +0.74%).
Investors will hear a lot more about AI next week, especially in the hardware business. Thursday is a big day for Marvell Technology Inc. (MRVL, +2.21%) and Dell Technologies Inc. (DELL, +4.30%), both of which are closely watched plays on the AI trend.
A big question for Marvell is how to grow its AI business and how that can help the company deal with pressures in more traditional areas. Wall Street is very interested in seeing how much Dell has grown in AI servers, so they have high hopes for the company.
Evercore ISI analyst Amit Daryanani recently wrote to clients, “We think Dell is well positioned to exceed Street estimates, with traction in the all-important AI flywheel continuing to gain steam.” In the note, he opened a tactical outperform call on the stock.
He also said, “Small wins with CoreWeave and Tesla could give the AI server backlog buy-side bogey a big boost.” He said it was about $3.5 billion though.
Software companies will also give hints about how AI is changing their business finances. Some of the most interesting reads are from Okta Inc. OKTA, -1.60%, Salesforce Inc. CRM, -2.25%, and Zscaler Inc. ZS, -0.16%.
These businesses will want to join the group of others that have already beaten their earnings forecasts this year. FactSet says that 78% of the S&P 500’s components have surprised to the upside on earnings per share, and 61% have surprised to the upside on the top line.
The coming week, however, doesn’t have many index components. Not many companies in the S&P 500 are due to report this week, according to FactSet. Only Salesforce is due to report from the Dow Jones Industrial Average (DJIA).
The week ahead in earnings
Coming up this week is a big one for businesses that report results that don’t follow the normal calendar quarters.
Stores are some of the most important companies to keep an eye on, and Dollar General Corp.’s DG, +4.39% The Thursday morning report on the state of consumers could be very interesting to read. In March, Dollar General said that shoppers were having to “make tradeoffs in the store” because of rising prices. In addition, the company gave a disappointing profit forecast, saying that they thought there would be more discounts. But UBS analyst Michael Lasser is optimistic about this quarter’s report: “Most likely, the company will show it has made further progress in stabilising top line trends, sharpening operations, and managing its [profit-and-loss] statement.”
In other news, investors should keep an eye on the cybersecurity market because earlier this year, reports from Palo Alto Networks Inc. PANW, +3.26%, Fortinet Inc. FTNT, +0.69%, and Cloudflare Inc. NET, +0.77% caused stock prices to drop.
But soon-to-report Okta has said that it is more than just a cybersecurity company because companies pay for its identity-management tools for a number of different reasons. The company Zscaler is also one to keep an eye on. In each of the last 20 quarters, their sales have been higher than expected. This time, Guggenheim analyst John DiFucci thinks the company will beat revenue again, but he added, “there may be little room to guide [fiscal fourth-quarter] revenue above the Street and still beat by a typical margin.”
The call to put on your calendar
People have had to cut back on buying things they want in order to pay for things they need. Costco Wholesale Corp.’s (COST, +1.68%) fiscal third-quarter earnings report, which is set to come out after the market closes on May 30, could be a bright spot for investors. Some things, like gold bars, may look like they’re all in Costco’s warehouses, but the store mostly sells food and other things that people need.
Last quarter, Costco made $31.67 billion, or 55% of its total revenue, from its fresh foods and foods and other items business. Since Costco’s stock is at an all-time high, investors shouldn’t pay too much attention to what the company says about its non-foods business.
Walmart Inc. WMT, +0.83%, like Costco, gets most of its sales from groceries. When it reported its results in mid-May, it said that people were spending less on non-food items, which caused deflation in the general merchandise category. However, the stock still rose to new highs. Costco’s “significant value propositions” helped boost sales, just like they did last quarter. Investors should pay attention to what is said about the company.
The number to watch
Gap Inc. GPS, +0.58%, a clothing store that sells a lot of stuff that people don’t need, has surprised Wall Street the last two quarters by reporting same-store sales that didn’t go down. They were flat last quarter and rose 2% the previous quarter, thanks to strong sales of Old Navy and Gap’s lower-priced brands offsetting weak sales of Banana Republic and Athleta’s higher-priced brands. According to FactSet, most people expect same-store sales to go up by 1.2% in the fiscal first quarter. This is what Wall Street is now calling for. In nine quarters, that’s the first time in which the FactSet consensus has been positive before earnings. How well Banana Republic and Athleta do in terms of sales will likely determine whether Gap can pull off another big surprise.
Remember that Target Corp. TGT, +0.57% reported a fiscal first-quarter profit on May 22 that was lower than expected due to weak sales of discretionary items. However, the store said that sales had “meaningful improved” in some discretionary categories, especially clothing.
