Tech Earnings from AMAT, CSCO, CBRS: A Litmus Test for AI Ecosystem?

The health of chipmaking and artificial intelligence investments is in sharp focus with postmarket results Thursday from three important industry players – Applied Materials (AMAT), Cisco Systems (CSCO), and Cerebras Systems (CBRS).

The AI trade saw severe volatility in recent weeks as many factors converged, resulting in the Global X Artificial Intelligence & Technology ETF (AIQ) falling about -7% from relative highs of $64.43 on Oct. 28. There are mounting concerns over whether revenue can make up for the extreme capex spending of many companies in the space. In addition, tech has been impacted by Nvidia (NVDA) sentiment, with CEO Jensen Huang's resignation following his admission to an affair with an alleged Chinese spy, and late Wednesday headlines regarding a second alleged relationship. This follows whipsaw trading following midterm election Democratic Party wins. Ongoing factors include the U.S.-Iran war’s effect on oil prices, as well as stubbornly high inflation and interest rate concerns.

However, strong results from CoreWeave (CRWV) Wednesday seemed to spark some renewed vigor in the languishing sector, making for a +24.7% jump in shares of the neocloud company as it beat expectations for both earnings-per-share and revenue. Now, the question is whether the three companies reporting this afternoon can keep the enthusiasm going for a sector facing many question marks.

• Applied Materials (AMAT): AMAT manufactures the advanced machines and tools that computer chip foundries use to make their products. Analysts are looking for Q4 EPS of $4.06 vs. $2.17 year-over-year (+87.1%) and revenue of $10.3 billion against $6.8 billion (+51.4%) in the same time frame. On Nov. 9, B. Riley made a sharp price target cut to $475 from $700, but upheld its Buy rating, citing Q1 guidance risk. The potential expected move for the Nov. 13 weekly expiration is +/-$27.10 (7.1%).
• Cisco Systems (CSCO): Another integral company to general AI infrastructure, Cisco’s operations span physical hardware for advanced heavy-duty data traffic and cloud cybersecurity. Analyst estimates come in at $1.33 vs $1.00 (+33.0%) for EPS and at $18.09 billion compared to $14.88 billion (+21.5%) last year. One recent notable analyst move was a Nov. 5 Morgan Stanley downgrade to Equal Weight from Overweight coupled with a price target cut to $120 from $135. The analyst wrote that "strong expectations and gross margin headwinds from AI business leave less room for upside.” Expected move info for Nov. 13 comes in at +/-$8.08 (8.1%), which suggests a lower boundary of around $91.90 that is beyond the recent relative lows of $93.35 from Nov. 6.
• Cerebras Systems (CBRS): Cerebras is perhaps the most unusual company of the group as focuses on building unique giant computer chips the size of dinner plates for super-fast processing. For Cerebras’ third quarterly report as a publicly traded company, analysts are expecting a loss of $0.13 per share and $215.82 million in revenue. The Street expressed some recent bearishness as well, with price target cuts from Morgan Stanley (Nov. 9, $178 from $279, kept Overweight) and UBS (Nov. 2, $250 from $330, kept Buy). In this case, the projected possible expected move range for Nov. 13 is +/-$12.20 (12.6%), which suggests the market is not looking for any meaningful breakouts directly as a result of earnings.

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