Martin Gamble on US markets: Dell shines as Broadcom falls, Uber cuts jobs

US stock markets eked out small gains, aided by a mid-week reversal in bond yields, triggered by a speech from Federal Reserve governor Christopher Waller who said he could support keeping interest rates on hold at the September meeting.

This follows a hawkish speech from Fed chair Kevin Walsh’s at the Jackson Hole Economic Symposium on 28 August, where he reiterated the central bank’s commitment to get inflation back to its 2% target.

The prospect of higher interest rates impacted the performance of the smaller companies Russell 2000 index which fell 1.5%, reflecting the higher interest-rate sensitivity of domestically focused companies.

On the economic front, August’s ISM services PMI, a measure of economic activity rose to 55.4 from 54.1 in July, beating expectations and marking the strongest expansion in six months.

Brent Crude prices moved back through $90 per barrel to trade a high as $96 per barrel after hostilities ramped up between the US and Iran.

Retail brokerage Robinhood Markets was the biggest gainer in the S&P 500 after receiving a raft of bullish analyst notes including from Morgan Stanley which upgraded the stock and set a $150 price target.

Californian utility companies Edison International and PG&E fell more than 20% after state lawmakers amended a Senate Bill, preserving insurers' ability to recover wildfire-related claims from utilities.

Dell cashes in on AI server demand

Shares in Dell Technologies scaled new all-time highs on 1 September after earnings came in ahead of expectations and the server maker ratcheted up full year revenue and earnings per share guidance to $192 billion (up 66% year-on-year) and $25.5 per share (up 148% year-on-year), respectively.

For comparison, analysts were forecasting revenues of $172.7 billion and EPS of $18.72.

Dell’s servers are equipped with Nvidia designed chips and sought after by AI cloud providers including companies like Coreweave.

The company reported second-quarter revenue up 58% to a record $47 billion, surpassing analysts’ estimates of $44.9 billion, while EPS increased to $6.34 from £1.6 in the same quarter a year ago.

The company’s Infrastructure Solutions Group which targets data centre hardware, grew revenues by 89% to a record $31.8 billion. Analysts at Melius Research said they see no reason why Dell’s ISG cannot grow at a similar pace to Nvidia’s expected 70% revenue growth.

Dell shares are up 283% so far this year compared to the S&P 500’s 13% gain.

Uber cuts jobs as it looks to win the robotaxi race

Uber has announced its most sweeping job cuts since the pandemic. The company plans to slash as many 3,300 jobs, mainly in management roles, as it looks funnel cash towards its pivot into robotaxis.

Uber is in a race with Alphabet’s Waymo and Tesla on the robotaxi front while also faces robust competition in its food delivery operations.

The company will hope from a boost in takeaways when it completes the integration of Berlin-based Delivery Hero after agreeing a blockbuster deal for the group in July. Although, the US business is the one which really looks in need of running repairs as it loses ground on rival DoorDash.

Uber hopes its large existing customer base can give it the edge in its robotaxi drive and has received permits for Transport for London to launch a commercial trial with UK partner Wayve.

The need for supervising driver behind the wheel to keep TfL happy hints at lingering concerns over safety, particularly in European markets.

Broadcom’s outlook fails to impress

Despite delivering another blowout quarter which topped analysts’ estimates, Broadcom shares dropped on 3 September after fourth quarter revenue guidance fell shy of market forecasts.

That seems a little mean by investors given the revenue miss was only around $200 million, or half a percentage point in a quarter in which Broadcom expects to grow by 93%.

Broadcom, whose custom AI chips are used by big tech companies including Meta Platforms, Alphabet’s Google and OpenAI, said it expects to double revenue for the year to October 2027 to around $115 billion, up from a prior forecast of $100 billion, before doubling again in 2028.

CEO Hock Tan said Broadcom is on track to produce over $30 in earnings per share in 2028, compared with analysts’ estimates of $25.86. Tan told analysts the company has secured enough supply to support the forecasts.

The company is in talks to raise up to $100 billion in debt through off-balance sheet, special purpose vehicles to finance AI chip purchases for clients like Anthropic.

The fall in the shares means they are roughly unchanged this year compared with a 14% gain for the Nasdaq Composite, although they are up more than 600% over the past five years.