Day: September 18, 2024

By Johann M Cherian and Purvi Agarwal

(Reuters) – Wall Street’s main indexes were flat on Wednesday as investors stepped onto the sidelines ahead of the Federal Reserve’s highly anticipated first interest rate cut in more than four years, with bets favoring a 50-basis-point reduction.

Borrowing costs have stayed at their highest levels in over two decades since July 2023, when the central bank last hiked interest rates by 25 basis points to between 5.25% and 5.50% to combat inflation. But the focus recently has been more about a moderating labor market.

At 9:45 a.m., the Dow Jones Industrial Average fell 40.18 points, or 0.11%, to 41,560.69, the S&P 500 gained 3.11 points, or 0.06%, to 5,637.69 and the Nasdaq Composite edged up 22.76 points, or 0.13%, to 17,650.82.

Nine of the 11 S&P 500 sectors traded flat, although energy and industrials edged up 0.3% each.

The Russell 2000 index, tracking small caps which tend to fare better in a lower interest-rate environment, crept up 0.19%.

The benchmark S&P 500 and the blue-chip Dow both recovered from an early August rout and are trading just shy of their respective record highs ahead of the Fed decision, expected at 2:00 p.m. ET.

Economic indicators over the previous one month have been relatively mixed, making investors nervous ahead of the least predictable Fed decision in years.

Following dovish commentary from present and former Fed officials recently, traders are now pricing in 61% chances of a bigger 50-basis-point reduction, according to the CME Group’s FedWatch tool.

Some analysts, however, caution that an outsized move from the central bank could spook markets.

Bets for a smaller 25-bps cut have now slipped to 39% from 86% a week ago. Investors will also be watching for comments from Fed Chair Jerome Powell at 2:30 p.m. ET to gauge the central bank’s stance on the economy and prospects of further rate cuts this year.

“It’s been the first meeting in a while that you have no 100% consensus on whether it’s going to be one (quarter-percentage-point) cut or two,” said Mike Dickson, head of research in quantitative strategies at Horizon Investments.

“No matter what happens today, there’s going to be some people that get what they expected and some people that don’t.”

Stock options are pricing an about 1.1% swing, in either direction, for the S&P 500 after the Fed’s verdict, according to options analytics service ORATS.

Markets have rallied this year, with all three major indexes setting record highs on prospects of lower interest rates as inflation moderated and the jobs market showed gradual signs of cooling.

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Heavyweight growth stocks such as Apple climbed 1% and Alphabet added 0.41%, while Microsoft slipped 0.57%.

Intuitive Machines jumped 52% after clinching a $4.8 billion navigation services contract from NASA.

U.S. Steel rose 1.7% after sources said the U.S. national security panel reviewing Nippon Steel’s bid for the U.S.-based steel maker let the companies refile their application for approval of the deal.

Advancing issues outnumbered decliners by a 1.75-to-1 ratio on the NYSE and by a 1.26-to-1 ratio on the Nasdaq.

The S&P 500 posted 16 new 52-week highs and no new lows, while the Nasdaq Composite recorded 23 new highs and 21 new lows.

(Reporting by Purvi Agarwal and Johann M Cherian in Bengaluru; Editing by Pooja Desai and Maju Samuel)

Nvidia (NASDAQ: NVDA) has grown by leaps and bounds over the past few years. Thanks to the company’s dominance in the artificial intelligence (AI) chip market, its quarterly revenues and profits have been climbing at triple-digit percentage rates year over year. The company also boasts a gross margin of over 70%. The market has responded to these amazing results by bidding the stock up by more than 2,400% over five years.

In fact, the stock climbed so high that the company engaged in a stock split this spring to bring its price down from more than $1,000 to about $120 — a move designed to make it easier for retail investors to buy in.

All of this sounds great, but current shareholders and potential investors remain worried about one thing — future growth. Competition in the AI chip market is on the rise, and some are concerned that Nvidia’s pace of growth will start to taper off as cheaper options become more widely available. But a recent shocking move by Tesla Chief Executive Officer Elon Musk and Oracle co-founder Larry Ellison actually signals that Nvidia still has enormous growth ahead, and should ease investors’ fears.

The GPU’s speed and efficiency

First, a quick summary of Nvidia’s path so far. The company makes graphics processing units (GPUs), a type of chip that processes multiple tasks simultaneously. Originally, GPUs were largely destined for use in the video gaming market, but it became clear that their speed and efficiency made them valuable for a host of other computing uses. As companies over the past few years have turned their attention to AI, which demands precisely the sort of high-speed parallel processing power that GPUs can bring to bear, Nvidia took center stage — and the rest is history.

Today, companies have some choices when they need high-powered chips to launch an AI program or set up a data center — other players, from Intel to Advanced Micro Devices, make rival AI chips to power such tasks as the training and inferencing of AI models. Some companies, such as Meta Platforms, are even making some of their own chips to power their AI workloads. This is why investors’ biggest worry about Nvidia right now is the growth of competition in the market.

Now, let’s consider the recent move made by Musk and Ellison. The two billionaires took Nvidia CEO Jensen Huang out for dinner and “begged” him for more GPUs, according to a report in Fortune. Ellison said he and Musk said to Huang, “Please take our money.”

Why would a pair of powerful CEOs have to beg for GPUs instead of just ordering more? Demand is still surpassing supply even as Nvidia works nonstop to keep up with it. But instead of turning to other suppliers, Ellison and Musk decided to talk with Huang and plead their case.

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The early stages of an AI build-out

Now let’s consider what this means for Nvidia. First, it shows that the company’s revenue growth should continue at a high level — Ellison, Musk, and others are still in the early stages of their AI build-outs, and everyone hopes to reach the finish line first with a winning AI product or platform. So, demand for AI chips is going strong.

Next, and the most important point here, is that Nvidia doesn’t have to worry about the competition yet. Yes, some companies are building their own chips in addition to using Nvidia’s — but demand is so high that at this point, Nvidia can’t meet 100% of everyone’s needs, and its customers have recognized this and planned ahead. In other instances, less expensive chips may be just fine for certain tasks.

But, overall, what Ellison and Musk did illustrates exactly how important Nvidia’s GPUs are in the AI landscape — and the fact that major companies would rather beg Huang for more than turn to rival hardware.

This is excellent news for Nvidia’s shareholders today, and considering its strengths in innovation, it’s good news for those who plan to hold onto the stock for the long term, too.

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In a surprising move, Michael Conway, Starbucks (NASDAQ:SBUX) North America CEO, has resigned after only six months in the role.

What Happened: Conway, who took on the position in April, informed the company of his decision last week, as per a Securities and Exchange Commission filing. He will remain with the company until November 30 to assist with the leadership transition, concluding his 11-year tenure at Starbucks, Business Insider reported on Tuesday.

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Before his North American CEO role, Conway served as group president of international and channel development and president of Starbucks Canada. His appointment was part of a reorganization effort by former CEO Laxman Narasimhan, Bloomberg noted in March.

Rather than appointing a new CEO for North America, Starbucks announced that Sara Trilling, the company’s North American president, will oversee retail operations across the region. Trilling has been with Starbucks for 22 years and previously managed 3,500 stores as senior vice president of its north division.

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The company aims to enhance decision-making efficiency by streamlining its leadership structure, The Wall Street Journal reported. Conway’s departure follows other significant leadership changes, including the recent appointment of Brian Niccol, former CEO of Chipotle, as Starbucks’ new top executive.

Operational challenges have affected Starbucks’ North American stores, with complex drink orders, rising prices, and varying foot traffic impacting staff and profitability. Niccol plans to revamp operations and focus on customer experience, he stated last week.

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Why It Matters: This leadership change comes amid a series of strategic shifts at Starbucks. In March, the company announced a new geographic leadership structure to support global functions, appointing Conway as North America CEO to spearhead this initiative.

In August, the appointment of Brian Niccol as the new CEO boosted Starbucks’ valuation by over $15 billion in just one day. Niccol, known for his successful tenure at Chipotle, aims to steer Starbucks through its current challenges and enhance customer experience.

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On his second day as CEO, Niccol outlined his vision to reconnect Starbucks with its community coffeehouse roots. He emphasized the need for comfortable seating and a clear distinction between “to-go” and “for-here” services to improve the in-store experience.

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Image by Şahin Sezer Dinçer from Pixabay.

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This article Starbucks North America CEO Michael Conway Quits After Just 6 Months In The Position originally appeared on Benzinga.com

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