Demand for artificial intelligence is still strong but the stock market can no longer rely on the boom to ride to its rescue.
Three well-established AI players—
Amazon
,
and
—reported earnings late Tuesday amid lofty expectations. The results were pretty good but the initial market reaction was one of disappointment—only Amazon’s shares managed to climb in after-hours trading and not by much despite strong AI demand.
The market appeared in the mood to punish missteps and reluctant to reward successes, a worrying sign and a symptom of impressive gains already achieved across the tech sector over the past year or so. How often do you see a company report 200% revenue growth yet leave investors downhearted? Just take a look at Super Micro.
So the stock market may need to battle on without AI acting as a knight in shining armor shielding it from other concerns. It would be a bad time to lose that protection, particularly amid signs of increasingly stickier inflation and higher-for-longer interest rates.
Hotter-than-expected employment cost index data Tuesday added to those fears, pointing to higher wages in the first quarter and delivering a blow to the Federal Reserve’s inflation fight. On Fed decision day, the timing of rate cuts in 2024 remains uncertain.
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The health of U.S. shoppers is also in question. The consumer confidence index fell to its lowest level since 2022 in April, according to data Tuesday, while
surprised investors as it said customers slowed their spending in the first quarter.
With doubts over AI’s position as a market catalyst, and consumer concerns, stocks are more exposed to the mounting risks.
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AWS Supercharges Revenue Amid AI-Fueled Cloud Growth
posted better-than-expected first-quarter financial results, driven by strong growth in its artificial-intelligence-driven AWS cloud-computing business and impressive advertising demand. The performance echoes the better-than-expected cloud-computing growth at
and
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amid fierce competition.
- March-quarter sales rose 13% from last year to a record $143.3 billion, and profit was $10.4 billion, or 98 cents a share. CEO Andy Jassy said customers are trading down on price and seeking out deals. But Jassy has intensified Amazon’s focus on AI as its next avenue of growth.
- Amazon Web Services revenue rose 17% to $25 billion, the best growth in four quarters, and operating profit jumped nearly 84%. The company sees strong demand for both generative AI and non-generative AI work, with customers signing up for longer deals and bigger commitments.
- In streaming, Amazon’s advertising revenue rose 24% to $11.8 billion, boosted after it started showing advertisements on Prime Video unless customers paid more to opt out. Amazon released 20 films and series during the quarter, including Fallout, and it is developing a series with YouTube personality MrBeast.
- For the June quarter, Amazon forecasts sales of between $144 billion and $149 billion, a little shy of the FactSet consensus, with operating income of $10 billion to $14 billion, compared with Street estimates at $12.7 billion.
What’s Next: Amazon had nearly $14 billion in capital expenditures in the quarter, about even with Microsoft and slightly more than Alphabet’s $12 billion. It expects capital spending to meaningfully increase this year. Wall Street expects full-year capital spending of $58 billion, more than any other public company, according to FactSet data.
—Eric J. Savitz and Janet H. Cho
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Walmart Unveils Premium Private-Label Foods, Closes Health Clinics
is expanding its private-label food offerings with a new premium brand called Bettergoods to increase profit and draw higher-income customers from competitors such as
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Trader Joe’s, and Amazon.com’s Whole Foods. The nation’s largest grocer is also closing its unprofitable health clinics.
- More than 300 Bettergoods items are planned to be introduced this year, featuring new flavors and a low price, including mango chili salsa, Italian-made pistachio nut butter, strawberry sparkling water, and gluten-free coconut chocolate cookie dough bites.
- Private-label foods and beverages, often cheaper than national brands, now comprise about 26% of overall sales, up from 25% in 2022, according to data from consumer research firm Circana. Walmart gets nearly 60% of its U.S. sales from groceries, but declined to specify how much comes from store brands.
- Bettergoods is higher end than Walmart’s mostly generic Great Value brand, which offers selections that track national brands. About 200 items branded as Sam’s Choice, named after company founder Sam Walton, will be rebranded as Great Value or Bettergoods items or be phased out.
- Bettergoods items will likely compete with national manufacturers’ products in Walmart stores, forcing other brands to “work a lot harder to win the space on the shelf” in stores where Walmart owns the real estate, said Mary Ellen Lynch, Circana’s lead analyst for private label research.
What’s Next: Walmart is closing all 51 of its primary care health centers opened since 2019, saying the challenging reimbursement environment and higher operating costs made the business unprofitable and unsustainable. The closures aren’t expected to significantly affect company financials.
—Sabrina Escobar and Janet H. Cho
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McDonald’s Says Consumers Are Hungry for Meal Deals
said consumers worldwide are spending less than expected, reporting first-quarter adjusted earnings that missed analysts’ projections though price increases on core menu items helped U.S. sales growth. While lower-income diners in particular are struggling with higher costs, consumers of all income levels are hungry for bargains.
- CEO Chris Kempczinski said its U.S. restaurants would benefit from taking a national approach to meal deals, breakfast promotions, and value pricing. Deals are set locally by its franchisees and stores. Labor costs are still increasing, including the higher minimum wage in California.
- Revenue rose 5%, mostly in line with expectations but McDonald’s is facing challenges in some markets. Its restaurants in the Middle East have taken a hit from a push to boycott it for its perceived support for Israel. Global same-store sales rose 1.9%.
- Elsewhere in the sector, rival Burger King is spending another $300 million through 2028 to modernize its restaurants. Its owner
Restaurant Brand International
and Chili’s Grill & Bar owner
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both beat quarterly earnings expectations but also said customers are more sensitive to high prices.
- Separately, the consumer confidence index fell to 97 in April, its lowest level since 2022, from March’s revised 103.1 reading. Economists had expected a reading of 104. Higher prices, especially for food and gas, dominated consumers’ concerns, said Dana Peterson, the Conference Board’s chief economist.
What’s Next: McDonald’s kept its 2024 outlook for operating margins and expects revenue growth to moderate this year, partly because of higher wages. It already announced plans to open 10,000 new restaurants in the next four years, pushing the total number of its locations to 50,000 by the end of 2027.
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Tesla Takes Action Amid Slowing Growth at Fast-Charging Stations
Tesla stock closed down 5.5% Tuesday amid reports of layoffs, executive departures, and the electric vehicle maker cutting its Supercharger team of around 500 people. Tesla operates the largest network of fast-charging stations in the U.S. and is likely to continue building out that business under new managers.
- Rebecca Tinucci, the senior director of EV charging, and Daniel Ho, director of vehicle programs and new product introduction, were both dismissed, according to a report from The Information, a tech publication, that cited an email to senior managers. Tesla didn’t immediately respond to a request for comment.
- Slowing growth at Tesla’s fast-charging stations has led to it taking action to control costs. The company told employees it would lay off some 14,000 people earlier in April. But Tuesday’s drop may also be in response to the stock’s big jump on Monday, as CEO Elon Musk won the ability to sell his company’s highest-level driver-assistance product, FSD, in China.
- Tesla has sold roughly 1.7 million vehicles in China. If 25% of people who own its EVs in the country paid $99 a month to use FSD—the U.S. price—it would represent roughly $500 million in incremental revenue a year. That would add about 10 cents in per-share earnings, assuming a 100% profit margin.
What’s Next: Now investors and Wall Street analysts have to figure out the benefits—and potential pitfalls—for the EV maker from selling FSD in a new country. Data privacy and artificial intelligence-based training of FSD software are two potential pitfalls. Some of Tesla’s training computers run on
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chips, which can’t be sold in China. Tesla also has to be careful with its treatment of Chinese driver data.
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FTC Warns Pharmas About ‘Junk’ Patents for Popular Drugs
In its latest push against the pharmaceutical industry’s tactics that it says slows the generic drug development process, the Federal Trade Commission sent warning letters to 10 drugmakers disputing the accuracy of hundreds of what it calls “junk” patent filings, including for popular weight-loss drugs such as Ozempic.
- The Food and Drug Administration publishes a document called the Orange Book that lists patents relevant to brand-name drugs. But improper Orange Book patent listings can delay cheaper generic alternatives from entering the market and keep brand-name drug prices artificially high, FTC said.
- The FTC said it sent letters relating to 20 drugs, including those made by
and
for weight loss and type-2 diabetes. AstraZeneca wasn’t available for comment, while Novo said it was currently reviewing the letter. FTC also sent letters to makers of asthma and COPD inhalers.
- Last November, the FTC challenged 100 patent listings for asthma drugs and inhaler devices, resulting in several companies delisting their patents. Later AstraZeneca,
and other drugmakers capped the out-of-pocket cost of inhalers at $35 a month, the FTC said.
-
which wasn’t on the list of companies the FTC released on Tuesday, raised its 2024 revenue guidance by $2 billion, even as supply constraints continue to weigh on sales of its Zepbound weight loss drug and its cousin, the diabetes drug Mounjaro.
What’s Next: Lilly acknowledged there were back orders for the two drugs and said sales growth would depend on the pace at which it can ship them and the quantity it can make. However, the increase in guidance for the full year suggests the supply constraints may not be as restrictive as some analysts had feared. Wall Street expects Combined sales of Zepbound and Mounjaro to top $40 billion in 2029 and peak at around $100 billion a year.
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Dear Quentin,
My mother-in-law passed away in 2009 in North Carolina and her only asset was her home that was worth $125,000 at the time. The home was willed to her son with the provision that he paid his sisters a percentage of the home’s value which he did, and the house was retitled to him.
Her bank account included her son as joint survivor, and was used to pay credit-card debts as were a couple of small insurance payouts, but it did not cover all of her debt. The creditors were notified that there was nothing left to pay the balances.
My concern is that the executor, my husband, never filed the will nor did it go through probate. Can the state take any legal actions against the executor if there were no other assets and the terms of the will were satisfied? Will this affect the future sale of the house?
—Concerned Wife
Read the Moneyist’s response here.
—Quentin Fottrell
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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
