📊 Buffett Sells Apple

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Happy Sunday!

This week has been one of the wildest in the market, so I've included a few extra visuals, my gift to you!

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Some key data bites from this week that you should know:

• The U.S. national debt has surpassed $35T.

• Meta $META has agreed to a $1.4B settlement regarding facial recognition.

• TikTok has been spending $20M per month to purchase OpenAI models through Microsoft $MSFT.

• Microsoft $MSFT will pay its employees a one-time cash award of up to 25% of annual bonus.

• The unemployment rate increased for a fourth month to 4.3%.

• Shake Shack $SHAK surged after Q2 adjusted EBITDA climbed 27.4%.

• August is one of the best investing months during an election year, returning an average of 3.2% for the Nasdaq $QQQ.

• Warren Buffett $BRK.B has now sold $3.8B worth of Bank of America $BAC in 12 days.

• Starbucks $SBUX has $1.77B in unused gift cards.

• Snapchat $SNAP tumbled after Q3 projected adjusted EBITDA of $85M was below analyst estimates of $110.5M.

• Delta $DAL said the Crowdstrike $CRWD outage cost it $500M.

• Tinder’s parent Match Group $MTCH will cut 6% of staff.

In today’s newsletter:

• 🍟 McDonald’s Sales Plummet

• 💸 PayPal Reverses Course

• ☁️ Microsoft Misses On Cloud

• 📈 AMD’s AI Chip Revenue Explodes

• 📉 Intel Has Gone Nowhere

• 📲 Meta’s Growth Continues

• 🔻 Reality Labs Has Lost $50B

• 🍎 Buffett Sells Apple

There’s a McMess over at McDonald’s.

The company’s Q2 earnings were disappointing, to say the least, missing analyst estimates across the board. 

Global comparable sales dropped 1%, with declines in all segments. Consolidated revenues came in flat and operating income fell 6%.

Sales are down as consumers are tightening their spending, especially with recent price hikes. Adjusted EPS also decreased 6%, landing at $2.97.

McDonald’s CEO, Kempczinski, noted, “These price increases disrupted long-running value programs and led consumers to reconsider their buying habits.”

The company is now focusing on value and has seen popularity in its new $5 meal deals. Despite the rough quarter, the stock trended upward this week, reflecting hopes that these value deals will help revive the company’s sales.

One should note that McDonald’s isn’t the only restaurant struggling.

Starbucks also saw global comparable same store sales decline in the most recent quarter.

Now, let’s talk about a company that seems to be getting back on track following a massive 80% drop from its all-time highs.

PayPal shares jumped 6% this week after the company beat Q2 earnings and raised its guidance.

Recent contributions from branded checkout, Braintree, and Venmo drove the highest transaction margin dollar growth rate since 2021.

After laying off 2,500 employees at the start of the year, among other changes, PayPal is channeling those cost savings into growth areas like checkout, omnichannel, and their ads platform.

Here are the key numbers from the quarter:

• Net Revenues: $7.9B (+8% YoY)

• Transaction Margin Dollars: $3.6B (+8% YoY)

• GAAP Operating Margin: 16.8% (+126 bps)

• GAAP EPS: $1.08 (+17% YoY)

• Total Payment Volume: $416.8B (+11% YoY)

• Free Cash Flow: $1.4B

• Cash, Cash Equivalents, Investments: $18.3B

For fiscal year 2024, PayPal now expects GAAP EPS between $3.88 and $3.98, up from the previous estimate of around $3.65.

Free cash flow and share repurchase guidance also exceeded expectations, with both now expected to reach $6B.

It’s all about the Cloud for Microsoft, judging by investor reactions.

Even though the company reported a quarter that generally beat analyst expectations, a slight miss on cloud revenue and growth sent shares down this week.

Here are some key numbers (analyst estimates from LSEG):

• EPS: $2.95 vs. $2.93 Est.

• Revenue: $64.73B vs. $64.39B Est.

• Free Cash Flow: $23.3B (+18% YoY)

• CapEx: $19B

• Cash Returned to Shareholders: $8.4B ($5.6B Dividends, $2.8B Share Repurchases)

Overall revenue increased by 15% and net income rose by 10% from a year ago.

All of Microsoft’s segments saw double-digit growth, with revenue in Intelligent Cloud climbing the fastest at 19% to $28.5B. However, this was slightly below the $28.7B expected by analysts.

Within the cloud segment, server products and cloud services revenue climbed 21%, and Azure and other cloud services revenue grew by 29%, falling short of the 31% expected.

Outside of the Cloud, Microsoft topped estimates for its Productivity and Business Processes and More Personal Computing segments.

LinkedIn revenue climbed 10%, and search and news advertising revenue excluding traffic acquisition costs jumped 19%.

For overall revenue next quarter, Microsoft guided to $64.3B at its midpoint, below the $65.2B analysts estimated.

The outlook for Azure Growth was also lighter than the 31% analyst consensus, coming in between 28% and 29%.

While the reaction to the earnings might seem unwarranted, it’s crucial to remember that shares of the company trade at nearly 35x earnings.

High expectations are baked into the stock at these prices, leaving no room for error when it comes to earnings and guidance.

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AMD delivered a robust Q2, beating analyst estimates and offering a positive outlook for the next quarter, and you can thank none other than AI.

Here’s a quick breakdown of the key figures (analyst estimates from LSEG):

• Adjusted EPS: $0.69 vs. $0.68

• Revenue: $5.84B vs. $5.72B (+9% YoY)

• GAAP Gross Margin: 49% (+3 pp YoY)

AMD’s data center revenue, which includes sales of server CPUs and AI chips, soared 115% YoY to $2.8B. 

Revenue from its MI300 chips, the company’s main AI chips that compete with Nvidia’s H100 series, hit $1B in sales for the quarter.

Data center revenue now makes up nearly 50% of AMD’s total revenue, and the company plans to release new AI chips annually. 

CEO Lisa Su increased the 2024 revenue forecast for data center GPUs to over $4.5B, up from $4B.

AMD’s client segment, which covers CPUs and APUs for PCs, also saw a solid 49% growth to $1.5B, thanks to strong AMD Ryzen sales.

On the flip side, AMD’s gaming and embedded segments faced declines of 59% and 41% YoY, though both were better than expected amid a slower industry.

To add icing on the cake, AMD is now expecting $6.7B in revenue for the current quarter, surpassing analyst estimates of $6.61B.

Not all semiconductor companies are created equal.

Shares of Intel imploded over 30% this week following a disappointing earnings report and is now trading at levels seen 27 years ago.

Q2 revenue fell 1% YoY to $12.8B, and adjusted earnings came in at $0.02, below the $0.10 expected. Adjusted earnings reflected an 85% decline from the previous year.

To make matters worse, the company announced it would be suspending its dividend for Q4.

In response to the weak earnings, Intel is planning to implement a $10B cost reduction plan, which includes laying off more than 15% of its staff.

And the future doesn’t look bright. The company continues to expects revenue for the next quarter to come in at roughly $13B, with an adjusted gross margin of 38%.

This was below analysts' predictions of $14.4B and 45.7%.

If there's one company that knows what Intel is going through, it's Meta.

Few companies have been able to turn things around as quickly as they have.

The company announced earnings this week, and it was an overall solid quarter.

CEO Mark Zuckerberg said, "Meta AI is on track to be the most used AI assistant in the world by the end of the year...and we're driving good growth across our apps."

The company's revenue climbed 22%, and net income jumped 73% YoY.

Family daily active people, representing unique users accessing one of Meta’s apps, increased 7% to 3.27B.

Ad impressions and the average price per ad both increased by 10%, reflecting continued growth in advertising.

Threads, Meta’s competitor to X, also recently surpassed 200M active users.

For the next quarter, Meta expects revenue to come in at roughly $39.75B at the midpoint, ahead of the $39.1B projected by analysts.

One area in Meta’s portfolio that isn’t doing so hot? Reality Labs.

The company expects 2024 operating losses to increase significantly YoY, primarily due to ongoing product development and ecosystem investments.

Since Q4 2020, Reality Labs has accumulated $50.5B in operating losses.

Investors continue to question whether this segment will ever yield a return on investment.

However, with the rest of the company performing well, the key question remains: Can Zuckerberg eventually prove his vision of the metaverse will be a success?

There’s no denying that Warren Buffett is the greatest investor of all time, and when he sells a stock, that definitely raises some questions.

Yesterday, Berkshire Hathaway released their earnings report that revealed they had sold nearly 50% of their massive Apple stake, with holdings valued at $84.2B at the end of Q2.

Buffett had previously reduced his position in Apple by 13% in the first quarter, without giving a clear justification why.

The Oracle of Omaha rarely provides reasoning for why he buys or sells a specific stock, so it’ll be interesting to see if he continues to sell Apple shares in the coming quarters, but for now, it remains one of his largest positions.

Apple reported earnings this week with nothing major to nitpick.

The company beat earnings and revenue estimates, posting a $1.40 EPS and $85.8B in revenue.

Overall revenue climbed 5% YoY, with iPad seeing the strongest growth among segments, jumping 24% due to new iPad releases driving a robust upgrade cycle.

Services continued its double-digit growth, increasing 14% YoY to $24.2B.

However, Apple’s iPhone segment, which accounts for nearly half of the company’s revenue, declined 1% from last year.

On the earnings call, CFO Luca Maestri projected similar overall revenue growth for the next quarter.

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Notable Companies Reporting Earnings This Week:

• Monday (8/5):

  • CSX Corporation $CSX, Palantir $PLTR, Reality Income $O, Simon Property $SPG

• Tuesday (8/6):

  • Amgen $AMGN, Caterpillar $CAT, Uber $UBER, Airbnb $ABNB, Super Micro Computer $SMCI, Rivian $RIVN, Celsius $CELH, Reddit $RDDT

• Wednesday (8/7):

  • Novo Nordisk $NVO, Walt Disney $DIS, CVS $CVS, Shopify $SHOP, Monster Beverage $MNST, Robinhood $HOOD, Duolingo $DUOL

• Thursday (8/8):

  • Eli Lilly $LLY, The Trade Desk $TTD, Datadog $DDOG

• Friday (8/9):

  • Evergy $EVRG

All of the companies that are reporting earnings next week can be viewed here.

Buys

• Nancy Pelosi (D)

  • Company: Nvidia ($NVDA)

    • Amount Purchased: $1M - $5M

• Michael Burgess (R)

  • Company: Royal Bank of Canada ($RY)

    • Amount Purchased: $1K - $5K

Sells

• Nancy Pelosi (D)

  • Company: Microsoft ($MSFT)

    • Amount Sold: $1M - $5M

• Michael Burgess (R)

  • Company: UPS ($UPS)

    • Amount Sold: $1K - $5K

  • Company: Royal Bank of Canada ($RY)

    • Amount Sold: $1K - $5K

Buys

• Loews ($L)

  • Insider: Jonathan Locker (Director)

    • # of Shares Purchased: 6,200

    • $ Amount: $499,896

    • SEC Forms: [1]

• Norfolk Southern ($NSC)

  • Insider: Richard Anderson (Director)

    • # of Shares Purchased: 2,000

    • $ Amount: $494,960

    • SEC Forms: [1]

Sells

• TE Connectivity ($TEL)

  • Insider: Terrence Curtin (CEO & Director)

    • # of Shares Sold: 1,000,000

    • $ Amount: $88,521,841

    • SEC Forms: [1]

• Nvidia ($NVDA)

  • Insider: Jensen Huang (President & CEO)

    • # of Shares Sold: 480,000

    • $ Amount: $53,809,773

    • SEC Forms: [1], [2]

• Amphenol ($APH)

  • Insider: Richard Norwitt (President & CEO)

    • # of Shares Sold: 400,000

    • $ Amount: $25,710,480

    • SEC Forms: [1]

• Automatic Data Processing ($ADP)

  • Insider: Carlos Rodriguez (Executive Chair)

    • # of Shares Sold: 87,798

    • $ Amount: $22,916,870

    • SEC Forms: [1]

🤝 Review of the Week