5 big analyst AI moves: Apple lifted to Buy, AI chip bets reassessed
Financial markets are celebrating the better-than-expected inflation news and the anticipation of another Fed rate cut. The Labor Department reported on Friday that the Consumer Price Index (CPI) rose 0.3% in September and 3% in the past 12 months. The core CPI, excluding food and energy, rose 0.2% in September and 3% in the past 12 months. Food prices rose 0.2% in September, while energy prices increased 1.5% due largely to a 4.1% increase in gasoline prices.
The best news was that shelter costs rose only 0.2% in September, since owners’ equivalent rent declined to the slowest pace in years as rental costs finally cooled off. Economists were expecting the CPI and core CPI to come in at 0.4% and 0.3%.
Meanwhile, the data center boom is simply incredible and is boosting its order backlog. Comfort Systems (FIX) announced on Thursday that its third-quarter revenue rose 35.4% to $2.45 billion compared to $1.81 billion in the same quarter a year ago. The analyst community was expecting revenue of $2.115 billion and operating earnings of $6.20 per share, so Comfort System posted a whopping 13.7% revenue surprise and a 33.1% earnings surprise. The company’s order backlog rose to $9.38 billion at the end of the third quarter, up from $8.12 billion in the second quarter and $5.68 billion a year ago.
Vertiv is another stock riding the data center boom. Vertiv Holdings (VRT) on Wednesday announced that its third-quarter sales rose 29.5% to $2.68 billion compared to $2.07 billion in the same quarter a year ago. During the same period, the company’s operating earnings surged 63.2% to $1.24 per share compared to 76 cents per share. The analyst community was expecting sales of $2.58 billion and operating earnings of 98 cents per share, so Vertiv posted a 3.9% sales surprise and a 26.5% earnings surprise. The company also said that its orders accelerated in the third quarter, up 60% year in the past 12 months and up 20% from the second quarter.
What was surprising was that both GE Vernova (GEV) and Vertiv Holdings declined on Wednesday, since a big mean reversion program kicked in that punished stocks that were previous winners. Specifically, Bespoke reported that the Top 10% of stocks in the Russell 3000 since August 1st, declined 5.73% on Wednesday, led by quantum computing companies, small modular nuclear reactor, and solid-state battery stocks that have not yet posted positive earnings. GE Vernova, Vertiv Holdings and other data centers, plus AI-related stocks, were also swept up in the Wednesday mean reversion selling. However, since GE Vernova, Vertiv Holdings, and other data center and AI-related stocks are posting spectacular third-quarter results and raising guidance, I expect them to rebound strongly.
As far as the quantum computing companies, they resurged on Thursday after The Wall Street Journal reported that the Trump Administration is considering taking equity stakes in quantum computing companies in exchange for federal funding. The WSJ reported that IonQ (IONQ), D-Wave (QBTS), and Rigetti Computing (RGTI) are all in discussions with the Trump Administration. Both President Trump and Commerce Secretary Howard Lutnick have said the federal government should share in a company’s upside since taxpayer money provides financial support and a stamp of approval.