It's been a very ugly week for momentum names, but since these days that really means AI and/or mega tech, we can just saw this has been a very ugly week for the Nasdaq. And sure enough, with the QQQs down 0.4%, the Nasdaq is now pacing for its worst week in over a year - and is down 6 of the past 7 weeks...
... on what Goldman trader Peter Callahan calls a complicated technical backdrop (CTAs, lower retail participation, Nasdaq now testing 100-dma, seasonality), sideways earnings revisions thus far (ASML, TSM and even Sheridan’s NFLX EPS revisions were only 1-2% last night), a tense geopolitical backdrop (overnight headlines) and elevated positioning are testing conviction into a busy week of earnings. The Goldman trader notes that this back and forth has spawned debate "if this all ‘helps’ the set-up into FAAMG prints or if the market is just read to ‘take a breather’ and sell any good news."
Some more observations from the Goldman tech sector specialist:
Top client inbounds yesterday (and this week):
- Why is MSFT leaking lower? Bogeys?
- Are Semis breaking or just a healthy rest?
- Feedback on drawdown stocks (eg LYV or ADSK)
- Bogeys (META, NOW)
Bad = Bad (or not good enough = not good enough) across pockets of cyclicals to start: handful of charts that jump out to me on earnings - KNX & JBHT in Industrials … INFY & EFX in Services .. LVS in leisure / casinos .. TSM & ASML in Semis (admittedly, a secular angle here) .. something to keep in mind ahead of upcoming earnings (esp for areas like Analog Semis)
NFLX -7%: headline numbers were ‘solid’ for Netflix – 1Q subs ~9.3mn (vs expects +HSDs q/q), beat on revs/EPS, raised FY OM guidance .. but, stock sharply lower this morning against the backdrop of elevated positioning & expectations (SI at lows, multiple at local highs). Sheridan/GIR remains NEUTRAL rated
- BULLS: solid UCAN/EMEA sub growth (2.5-3mn q/q) .. narrative hand-off from Subs -> Ad supported (& Live with WWE) is next story .. no more subs = no more volatility (?!) .. ‘easy’ to own in this (geo)-political climate .. can look at GAAP EPS approaching a 3-handle in ’26 (GIR went to ~$28.30 – stock 20x that number in the pre’) … potential capital returns on a sustained double digit revenue growth compounder .. catalyst = Media Upfronts in mid-May ..
- BEARS: no more subs disclosure = slower subs growth? (I suppose Apple is a case study?) … choppy revenues despite px’ing efforts (2Q / FY24 Revs guide below GSe) .. continued modest growth of ARM .. lack of visibility into Ad story … tough(er) comps from here (e.g. lapping >20mn subs added in 2H’23) .. long-term debate on ‘competition’ (short form video / A.I.) ..
TSMC: a number of inbounds yesterday.. feedback / action yesterday felt more like tactical de-risking (momentum breaking / profit taking on back or softer 'core' revs outlook and choppy GM cadence re: N3 ramp & costs)... whereas I did not really sense a m shift in long-term Bull views as Bulls remain focused on: 1) cyclical (eventual recovery in job AI workloads + secular (TSMC extended its 50% AI revs CAGR guide to ‘28 - from 2027 prior) growth, 2) multiple expansion on back of geographic manufacturing diversification, 3) upcoming node ramps – TSM noted AI adoption for N2 likely much faster vs that seen in N3/N5 and 4) pricing power (rather than a 'hike', GIR believes TSMC could provide lesser annual price reduction to its customers in 2025 vs typically a 5-10% of annual price reduction).
Finally, some charts from the Goldman trader:
NDX back testing its 100-dma: on this point, it has been a pretty swift drawdown with just ~1 in 5 names in the NDX still sitting above their 50-dma.
And the punchline: after ugly earnings from ASML and TSMC, the semis (SOX) are down ~8.5% in the last 5 sessions, the worst stretch since 2022.
More in the full Goldman note available to pro subs.
