The conclusion of the first quarter marks the onset of another volatile earnings season, particularly as United States equities closed Q1 on a high note following a generally positive Q4 earning season. Notably, the S&P500 and the Nasdaq indices saw gains of 10.2% and 9.1%, respectively, while the Russell 2000 index trailed behind with a more modest 4.8% increase. Despite the positive earnings trends and market momentum, driven in part by phenomena like the generative AI craze, macroeconomic volatility has resurfaced, compounded by the high trading multiples U.S. equities have reached, leading to increased selling pressure in Q2.
Federal Reserve Chair Jerome Powell’s recent remarks on persistent inflation and prolonged higher interest rates have injected further uncertainty into the macroeconomic landscape, potentially amplifying volatility during the upcoming earnings season. In this context, let’s delve into three stocks poised for earnings volatility:
- CrowdStrike (CRWD): CrowdStrike, a cybersecurity firm specializing in cloud-based endpoint protection and threat intelligence services, demonstrated robust growth during its Q4 earnings, surpassing Wall Street estimates with top-line growth reaching 54% year-over-year. Despite challenges faced by the cybersecurity industry, CrowdStrike has consistently improved its revenue figures, evading job cuts seen in some competitors. The company’s ability to exceed earnings estimates, coupled with strong guidance, could trigger significant stock price movements.
- Palantir (PLTR): Palantir, a data analytics firm, introduced its AI Platform in 2023, driving revenue growth in its U.S. Commercial business segment by 37% year-over-year. The upcoming earnings season is expected to focus on the performance of Palantir’s AI Platform and the market’s reception to its high stock-based compensation (SBC). Analysts will scrutinize earnings figures and the company’s adjusted operating profit margin, potentially influencing stock price volatility.
- Nvidia (NVDA): Nvidia, renowned for designing AI-powering graphics cards, commands a dominant position in the AI chip market. With its extensive R&D expenditure and market-leading chip design capabilities, Nvidia has secured 81% of the AI chip market. Analysts will closely monitor Nvidia’s revenue, EPS figures, and guidance for sustainability in light of higher interest rates. Positive earnings outcomes could drive significant stock price gains.
As investors brace for a tumultuous earnings season amidst macroeconomic uncertainty, these three stocks present opportunities for capitalizing on earnings-related volatility. It’s essential to stay informed and monitor earnings reports closely to make informed investment decisions.