Macro Data, Corporate Earnings Leave Equity Markets Mixed Intraday

Tech stocks gained Wednesday afternoon, with the Technology Select Sector SPDR Fund (XLK) up 0.9% and the SPDR S&P Semiconductor ETF (XSD) rising 1.7%.

The Philadelphia Semiconductor index rose 2.1%.

In corporate news, Alphabet shares fell past 7% after it reported late Tuesday Q4 revenue that trailed analysts' estimates.

Advanced Micro Devices shares fell 7.8% after the company forecasted a sequential decline in revenue for Q1 and reported weaker-than-expected data center sales for Q4 despite upbeat top- and bottom-line results.

Apple faces a potential investigation by Chinese regulators, specifically the State Administration for Market Regulation, into its App Store fees and policies that restrict third-party payment providers, which highlights broader tensions between China and US tech companies, Wedbush said in a note Wednesday. Apple shares fell 1.2%.

US equity indexes traded mixed in choppy midday trading Wednesday as investors weighed an unexpected deceleration in services with disappointing big-tech results overnight and uncertainty over the timing of trade talks with China.

The Nasdaq Composite was 0.1% lower at 19,638.3. The S&P 500 added 0.2% to 6,046.9, and the Dow Jones Industrial Average climbed 0.4% to 44,711.4. Consumer discretionary and communication services were the laggards intraday, while real estate and technology led the top gainers.

Alphabet shares slumped 7.3% intraday after the company reported late Tuesday Q4 revenue that trailed analysts' estimates. Advanced Micro Devices sank 8% after the chipmaker overnight reported weaker-than-expected data center sales for Q4 and guided to a sequential decline in Q1 revenue. Shares of the duo were among the worst performers on the S&P 500 and the Nasdaq.

The Institute for Supply Management's US services index fell to 52.8 in January from 54 in December, compared with expectations for no change in a survey compiled by Bloomberg. The index indicates slower expansion, which is in line with the Richmond Fed, Dallas Fed, and the S&P Global indexes but in contrast with the New York Fed, Kansas City, and Philadelphia Fed measures that signaled contraction.

The Prices Paid index, reflecting inflation in the services data, fell to 60.4 from 64.4 in December, the highest since February 2023, according to a Jefferies note.

"This [Prices] index has been in the process of gradually slowing from above 80 during H2 2021 and H1 2022, to the low-70s in H2 2022, and then the mid-50s from the beginning of 2023," Jefferies US economist Thomas Simons said. "Since the beginning of 2024, the index has shown strong resistance in falling to the low-50s or below."

US Treasury yields fell, with the 10-year down 9.9 basis points to 4.41% and the two-year 4.2 basis points lower at 4.17%.

Gold futures traded 0.6% higher at $2,893.01 an ounce after touching a new record high of 2,906.00 earlier in the session.

The gains come as the Trump Administration negotiates punitive trade tariffs on its partners. President Donald Trump this week imposed a 10% additional tariff on imports from China and postponed for 30 days planned blanket duties on imports from Canada and Mexico, the largest US trading partners. He also threatened to place tariffs on imports from the European Union.

"Precious metals' ongoing rally has taken gold to a record ... amid worries that global tariffs will impede growth, raise debt levels, and increase inflation while boosting demand for safe-haven assets," Saxo Bank said in a note.

West Texas Intermediate crude oil futures dropped 1.9% to $71.31 a barrel.

US commercial crude oil stocks, excluding the Strategic Petroleum Reserve, rose by 8.7 million barrels in the week ended Jan. 31 after a 3.5-million-barrel gain in the previous week, larger than the 1.9-million-barrel increase expected in a survey by Bloomberg.

MicroStrategy said Wednesday it is rebranding its business name to Strategy.

The rebranding is a move towards simplification to focus on broad appeal, the Bitcoin-focused company said.

Strategy will continue to trade under the "MSTR" ticker symbol.

By Adam Levine

When Qualcomm reports its first quarter on Wednesday afternoon, its continuing transition will be on display. Long associated with smartphone chips, CEO Cristiano Amon has made it his mission to diversify the company's income toward other end markets — efforts that have started to show results in recent quarters.

Overall, Wall Street analysts expect Qualcomm to report earnings per share of $2.96, up 8% from the year before, on sales of $10.91 billion, up 10%.

Revenue from smartphone customers remains 75% of Qualcomm's chip revenue in fiscal 2024, which has become problematic for Qualcomm. It is a mature market, and consumers worldwide are beginning to stretch out replacement cycles from three years to four or five years. Fiscal 2024 was another year of mid-single-digit worldwide unit sales growth for smartphones, like in 2023. Smartphone sales are a cyclical business, and the current upcycle has been tepid.

Qualcomm has tried to fight this trend by moving up the value chain to high-end Android phone chips where there are higher prices and margins, and Qualcomm was able to achieve 12% annual growth in this segment in the last two quarters. But Wall Street analysts aren't convinced it can hold up. The consensus for smartphone chip sales is for 5% yearly growth to $7.0 billion.

There is a cloud over Qualcomm's smartphone segment: its looming loss of Apple's 5G chip business. Beginning this fall, Apple will begin to substitute 5G chips of its own making, and Qualcomm stands to lose most of Apple's business by the end of 2026. Qualcomm and Apple have a famously contentious relationship, Apple has worked for almost six years to end it, and the fruits of that labor will start rolling out this year.

This is a healthy portion of Qualcomm sales, very likely over 10%.

Another form of concentration risk is Qualcomm's China business, at 46% of revenue in fiscal 2024. The Chinese government would like to end the country's reliance on U.S. chips, Qualcomm's included. Homegrown smartphone chips have gotten better but still don't match the performance or efficiency of Qualcomm's top-end offerings. Still, Qualcomm is already losing business in Chinese low and mid-range Android phones.

Qualcomm's auto chip segment is a fast grower, with annual expansion averaging 45% over the past three years. These are relatively new sorts of chips for new "digital cockpit" systems, assisted driving, and self-driving. This is a wide open field with few competitors, but one of them is Nvidia, which can't be underestimated.

Analysts expect 49% growth from the previous year to $890 million. At the rate it is going, the Qualcomm segment will probably hit a billion dollars in quarterly sales before too long.

Qualcomm's IoT segment contains chips for virtual and augmented reality and "smart" devices like TVs and refrigerators. The segment flagged in 2023 into 2024, with six quarters in a row of sales shrinkage. But last quarter saw relief in the form of new PC chips that compete with offerings from Intel and AMD. Sales in the IoT segment jumped 22% from the year before, albeit against a weak 2023 comparison. Analysts are looking for the momentum to continue in the first quarter, the holiday season, with sales up 23% to $1.4 billion, also against a weak comparison.

Qualcomm's final segment is for intellectual property licensing and royalties, which tends to be a volatile line item. Part of Qualcomm's big beat on revenue last quarter was overperformance in the segment, up 21% on the year. Analysts expect that to cool off in the first quarter, with a gain of 7% to $1.6 billion. This segment also looks likely to lose revenue when Apple departs.

Write to Adam Levine at adam.levine@barrons.com

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