U.S.-Iran War Pins Pressure on Stock Market While SMCI & GEV Offer Bright Spots

[00:00:00]Let's bring in Alex Coffee, co-host of Next Gen, who helped set up the action today. Alex, we've got oil prices rising once again.

[00:00:09]We've got geopolitical conflict increasing in the Middle East.

[00:00:13]Though even though we're softer in the pre-market, it's not as dramatic as one might expect. I guess let's start with this. Catch people up on where things stand with the conflict with Iran.

[00:00:25]>> Yeah, I think first off, you know, from a market assessment standpoint, Diana, you're right to point out crude oil.

[00:00:31]This is really sort of the the fulcrum in terms of where you see this reaction to either positive updates or negative updates. So, as crude oil moves higher, that's generally meaning escalation in the conflict. That's what you see. The US continues to expand strikes on Iran overnight.

[00:00:51]This now, you know, start sparks the 11th consecutive day of strikes as these peace talks and the ceasefire that was originally put in place, I don't know, a month ago at this point, broke down.

[00:01:08]Now, in terms of the impact, you're seeing it more dramatically in Brent crude oil, which makes sense. That's the more regional crude oil, and that is now over $94 a barrel in September. So, it's also important to note, too, we're not looking at August crude anymore. We're looking at September crude, Diane. So, you're starting to see these, I guess, we use this phrase more for interest rates, but higher for longer crude oil prices is it's starting to bleed over over into further and further dated contract. As far as the Houthi threats that we talked about a bit yesterday, that continues to be a growing concern around the Red Sea and the disruptions there.

[00:01:51]The president also suggested that Iran may be trying to put pressure on his you know his political party around the midterms through its actions in the in the straight. So that's something to consider as well.

[00:02:08]Also Trump specifically mentioned pickaxe Mountain which is a site that's suspected for nuclear activity.

[00:02:17]Um And basically if you look at that combined with Iran's comments around valuing a powerful strike against any attack on its nuclear facilities and then also making comments around the US being the one that sort of broke the the deal you can see escalation on both sides. It doesn't sound like a lot of negotiation. Now it's likely there's still back channel conversations happening but for now and the market assessment based off crude oil's reaction is that we're getting further from the end than we are getting closer at the moment.

[00:02:56]>> It feels like that right now. All right and especially when you talk about the market reaction and crude oil and even watching the bond market as well. We'll continue to monitor the headlines on that front. Let's cross over to the earnings picture. Before we get into GE Vernova let's get into Supermicro got a big update this morning. It looks like it's off to the races even with the backdrop of some concerns about their shipping of certain servers overseas walk us through the latest here.

[00:03:28]>> Yeah the the big takeaway here was the new order numbers that they that they claim to have from their fourth quarter here but we'll get to that in a second.

[00:03:35]Revenue is expected near the low end of guidance between 11 and 12 and a half billion. Gross margins are expected 15 to 17%. That is way ahead of the previous guidance that they had provided. Their backlog reached a record level by the end of the year.

[00:03:53]Receiving again more than, as I said, this is sort of the key takeaway, more than 60 billion dollars worth of new orders in their fourth quarter, fiscal fourth quarter.

[00:04:03]And those orders are expected to be delivered over the future quarters.

[00:04:07]They had previously disclosed approximately 39 billion dollars worth of orders in early June.

[00:04:14]Their earnings call is scheduled for August 11th. Now, a few analysts have had a chance to react to this Diane as well, and I should note that the stock is up, let's call it 15 percent or so in the premarket here, but Needham with a buy rating moved their price target to 46 from 40. Wedbush, this is Matt Bryson. He's been, you know, pretty active as he covers many of these different chip names. He has a neutral rating with a 34 dollar price target. He said that the margin performance was the key surprise, but he and he certainly didn't see this upside in GM based off of this.

[00:04:55]Or SMCI rather as a result of GM in this.

[00:04:59]Citi has a neutral rating. They have lower revenue and higher gross margins is the the big takeaway here.

[00:05:07]But that the record backlog demonstrates strong order momentum. So, all in all, the street themes on this are AI server demand remains robust. Margin improvement was the major positive surprise combined with that order and backlog growth. And then they said that investors primarily appear to be focused on the profitability and order strength rather than sort of those weaker revenue numbers that I talked about.

[00:05:34]>> All right. Shares right now rallying for Super Micro by more than 14%. Let's cross over to earnings we were expecting this morning. GE Vernova, those shares are under pressure in the premarket. But look, they came into today with a high bar. Walk us through some of your takeaways.

[00:05:51]>> Yeah, I think that's a a good starting point, right, Diane? A lot of these AI infrastructure names are are no longer in the place of uh catching the street off guard. They're expected to show good numbers, and sometimes doing that just isn't enough. Now, EPS, the growth is tremendous. Uh comes in at $2.47.

[00:06:11]Last year, same quarter, it was $1.86.

[00:06:15]Revenue, 11.1 billion, grows 22% beats the estimates. Net income was up 32%.

[00:06:22]You look at the segment performance.

[00:06:25]Wind was disappointing, down nearly 10%, but electrification was up almost 70%, and power was up uh 14%.

[00:06:34]Now, the power number was actually slightly below estimates.

[00:06:38]Electrification, uh their most important, you know, highest growth segment at the moment, was better than expected, and actually revenue uh for uh wind, which was uh disappointing from a growth standpoint, was actually better than expected.

[00:06:50]From a guidance standpoint, they did raise their guidance range for revenue uh from 44.5 to uh to 45.5, up by a billion each. So, it's now 45.5 to 46.5.

[00:07:05]Adjusted free cash flow, they almost doubled uh their guidance. Uh they had seen a midpoint previously of 7 billion.

[00:07:12]They now see a midpoint of 12 billion.

[00:07:15]They maintain their EBITDA margin. Uh as far as the the key positives, backlog increased to a uh whopping $176 billion, 13 billion sequentially from equipment and services demand.

[00:07:32]So, you look at this, and we know that there's this desire for power for these data centers. GE Vernova absolutely uh seems to be well positioned to take advantage of that, but apparently not enough here to excite the street this morning, Diane.

[00:07:45]>> Yeah, indeed. All right, let's cross over to AT&T. Those shares are higher in the pre-market. It looks like it's a win that AT&T needed, especially given how shares have performed coming into today.

[00:07:56]Walk us through the latest here.

[00:07:58]>> Yeah, this is the the question of, you know, what does the street want to pay for these kind of companies? They've sort of seen more depressed valuations in terms of multiples recently, but a decent move here today, I would say, Diane, especially for a lower volatility stock. Now, their wireless postpaid net phone ads were at 432,000. That was way better than expected. The phone only churn was sub 1%, 0.86%, so 86 bips.

[00:08:27]2.6% revenue growth. Let's call that slightly below estimates, but pretty much in line. EPS was better than expected at 65 cents on an adjusted basis.

[00:08:39]Better than the 54 cents last year, and the street was looking for closer to 59-60 cents for that metric.

[00:08:46]Adjusted EBITDA was better than expected, grew 5.1% and free cash flow was at 4.7 billion.

[00:08:53]From a guidance standpoint, they reaffirmed their guidance, which, you know, on an EPS basis might be a little bit light. The the midpoint would be $2.30. The consensus for a midpoint was 232.

[00:09:07]Reaffirmed their EBITDA growth range between 3 and 4%.

[00:09:12]And they see free cash flow still at at least 18 billion, also largely in line.

[00:09:18]So, the biggest key takeaway here, Diane, from my perspective, seems to be that wireless subscriber additions not only exceeded the expectations, they they were significantly above them.

[00:09:32]>> Okay. All right. And it feels like this is not because of the pricing wars as we saw that was a theme last year. Let's talk about Pegasystems. Those shares under major pressure in the premarket.

[00:09:45]This is a software name but not as big as say for instance you know some of the software companies that we look at regularly. I know we're expecting for instance ServiceNow later today.

[00:09:57]It's major pressure happening here. Walk us through their numbers.

[00:10:01]>> Yeah, this is an interesting company. It is on the smaller side Diane probably a bit on the overlooked side but it's under significant pressure here this morning closing near $31 a share and set to open sub 26 if we were to ring the bells right now. So significant weakness here.

[00:10:18]Now the numbers were disappointing. I mean adjusted EPS was at 35 cents. The estimate was for 44 cents. Still growth year-over-year by about 25% though considering that they came in at 28% last year.

[00:10:33]Revenue was up 9.4% missed estimates.

[00:10:37]Operating income this is I think where the biggest concern in just the numbers was Diane. 16.6 million the estimate was for closer to 70 million and this actually is a metric that fell year-over-year.

[00:10:50]Their deferred revenue was up 10% but well short of estimates.

[00:10:55]One of the things that I think if this was a bigger company say ServiceNow was to say this this afternoon I think you could see a more of a sector-wide or subsector industry group in software wide impact similar to last time we heard from ServiceNow.

[00:11:10]This company all but said hey in this rapidly changing landscape of AI our customers are waiting. They're not you know that willing at the moment to re-up deals or to expand relationships and partnerships within these software suites because they don't know what they're are to need right now. And I think that's a really uh you know important point. Now, Pegasus uh systems is different than Salesforce or Adobe or ServiceNow in terms of scale, but if that becomes a more prevalent takeaway for many of these companies, I think you're going to see maybe another round of sort of the the SaaS uh I don't want to say SaaS-pocalypse, but say let's say SaaS leg lower.

[00:11:59]>> Yeah, well, listen. I mean, IBM, uh think about that, that pre-reporting.

[00:12:03]And so, this does follow that theme. So, we'll see if it's a continuation of that theme. ServiceNow obviously coming later today. Thank you, Alex. That's Alex Coffee, co-host of NextGen.