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AMD downgraded on limited AI revision potential. (0:15) Goldman still sees two rate cuts, starting September. (2:23) DraftKings named a top pick. (3:00)
This is an abridged transcript of the podcast.
Our top story so far. The sell-side is expressing some caution on the AI freight train.
Morgan Stanley downgraded AMD (NASDAQ:AMD) to Equal Weight from Overweight, keeping its $176 price target.
Analyst Joseph Moore says: "We like the AMD story, but investor expectations for the AI business still seem too high to us. We see limited upward revision potential for AI from here, and we move to EW, with a preference for NVDA and AVGO among large-cap AI semis.”
Nvidia (NVDA) is up 1% in its first post-stock-split session.
Goldman Sachs says: "In theory, there is no change in the underlying value of a company when it splits its stock. However, empirically, the academic literature has generally found positive announcement effects around stock splits."
Strategist David Kostin says megacap stock splits tend to generate more retail trading activity than the average post-split stock. In addition, greater liquidity can play a role.
In addition, Barclays boosted its revenue projections for Nvidia today, citing an additional $25 billion opportunity from sovereign nations building up their AI capabilities. Sovereign sales could mean $157.1 billion in fiscal 2026 revenue, resulting in an additional $0.61 in earnings per share, analyst Tom O'Malley said.
In today’s trading. Stocks are mixed and close to little changed, while the bond market is predictably avoiding big moves ahead of the CPI data and Fed meeting.
Goldman Sachs chief economist Jan Hatzius is sticking with his view on the Fed, saying: "We continue to expect the first rate cut in September, by which point we expect to have seen five straight months of better inflation news."
"Our conviction remains somewhat limited because we continue to see cuts as optional, the inflation news we expect would make a decision to cut reasonable but not obvious, and FOMC participants have a range of views. But we think the decisions of other central banks to begin cutting on the basis of the considerable but incomplete cumulative progress made to date on inflation raise the odds a bit that the Fed will do the same."
He expects another rate cut in December, four more in 2025, and two more in 2026.
Moving to active stocks. UBS boosted Honeywell (HON) to Neutral from Sell, saying the industrial conglomerate is fairly valued and that the outlook for industrial automation has improved. Analysts raised the price target to $215 from $175 per share.
Morgan Stanley named DraftKings (DKNG) a top pick in the North American gaming and lodging sector.
Analyst Stephen Grambling points to catalysts for the sports betting giant, alleviating recent pressure from the recent tax headlines in Illinois. He said free cash flow is still poised to inflect.
Offshore drilling contractor Noble (NE) will acquire Diamond Offshore (NDO) in a cash-and-stock deal, creating a fleet of 41 rigs. Diamond shareholders will receive 0.2316 share of Noble and $5.65 in cash for each share of Diamond. That’s an 11.4% premium to Friday’s close.
In other news of note. Managers of major indexes are announcing quarterly rebalancings.
KKR (KKR), CrowdStrike (CRWD), and GoDaddy (GDDY) are joining the S&P 500. They replace Robert Half (RHI), Comerica (CMA), and Illumina (ILMN).
(SP600) (SPSM), Krystal Biotech (KRYS), Virtu Financial (VIRT), StepStone Group (STEP), Cactus (WHD), and Tidewater (TDW) are in. OraSure Technologies (OSUR), Marcus (MCS), TTEC Holdings (TTEC), Medifast (MED), and Cerence (CRNC) are out.
Robert Half and Comerica will replace Anywhere Real Estate (HOUS) and ADTRAN Holdings (ADTN) in the index.
(SP400) (SPMD) will add Texas Pacific Land (TPL), BioMarin Pharmaceutical (BMRN), Warner Music Group (WMG), Nextracker (NXT), Altair Engineering (ALTR), and RB Global (RBA).
They will replace Werner Enterprises (WERN), Integra Lifesciences Holdings (IART), PENN Entertainment (PENN), Grocery Outlet (GO), Leggett & Platt (LEG), and Hertz Global Holdings (HTZ).
Illumina (ILMN) will move down from the S&P 500 to the S&P 400, swapping places with GoDaddy. The biotech firm announced its intention to spin off a company earlier this month.
Leggett & Platt, Hertz Global Holdings (HTZ), Grocery Outlet Holding, PENN Entertainment, Integra Lifesciences, and Werner Enterprises will head down to the S&P 600 to replace Methode Electronics (MEI), Chatham Lodging Trust (CLDT), Northfield Bancorp (NFBK), Xperi (XPER), Resources Connection (RGP), and ATN International (ATNI).
And in the Wall Street Research Corner. Investors typically pay a valuation premium for liquidity, according to Goldman Sachs.
Strategist David Kostin says: "By many measures, liquidity has improved dramatically during the past 40 years, alongside technological and regulatory developments. Cyclical liquidity has also improved."
"Investors typically assign higher valuations to liquid stocks because of their low trading costs and flexibility in a variety of market environments," he added. "Since 1976, the least liquid stocks have traded at an average P/B valuation multiple discount of 20% to the most liquid stocks."
Goldman Sachs' equity team updated their High Liquidity and Low Liquidity baskets.
The new entrants in the High Liquidity basket of 50 stocks are Linde (LIN), Oracle (ORCL), Thermo Fisher (TMO), RTX (RTX), Micron (MU), and Nike (NKE).
The new entrants in the Low Liquidity basket include PHINIA (PHIN), WK Kellogg (KLG), Net Lease Office Properties (NLOP), Liberty Media (LLYVA), U-Haul (UHAL), ChargePoint Holdings (CHPT), and Virtu Financial (VIRT).
The top 20 stocks in each basket is in our story on Seeking Alpha. I’ll put the link at the top of Show Notes.
Wall Street Breakfast
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