Tuesday, December 17, 2024

Wall Street Lunch: Quantum Stocks Manic

 

Summary

  • Quantum Computing shares surged after winning a NASA contract, but experts caution against investing broadly in the highly competitive quantum sector.
  • November retail sales exceeded expectations, driven by motor vehicle sales, suggesting a decent holiday season despite potential future economic challenges.
  • Wolfe Research identifies stocks like Sirius XM and Rivian as potential rebound candidates for a New Year bounce, typically outperforming in late December to January.

The following is an abridged transcript:

Has the quantum trade already eclipsed the AI trade?

Quantum Computing (NASDAQ:QUBT) shares are soaring for the second-straight trading day following news the company won a contract with NASA to utilize Dirac-3, its entropy quantum optimization machine, to support the space agency's advanced imaging and data processing demands.

The stock is up 45% after a 70% surge on Monday. It has more than doubled since Friday and is up more than 500% since mid-November.

Several other quantum stocks followed suit. D-Wave Quantum (QBTS) and Rigetti Computing (RGTI) are up about 10%. But IonQ (IONQ) is just lower.

Danil Sereda, Investing Group Leader for Beyond the Wall Investing, says some of these meteoric rises among quantum computing stocks will be short-term events. The space is highly competitive, and likely only one or two of these companies will survive.

"This fact puts investors in an awkward position if they try to invest in multiple companies without being aware of their particular prospects," Sereda said. "Due to the high technology hurdles and a scarcity of market players, many of these companies will be unable to survive, so it is important for investors not to buy into the entire niche on an ad hoc basis."

"Also, there's a clear gap between their skyrocketing market caps and their factual performance. For example, IonQ has a market cap of more than $9b billion in the face of sustained losses, and Rigetti’s value at roughly $2 billion is in the face of declining revenue. Quantum Computing, likewise, is experiencing a stock price explosion while reporting little revenue and continued losses."

Meanwhile, Seeking Alpha analyst Dilantha De Silva says IonQ is the best positioned among these stocks for long-term growth.

"Although quantum computing stocks including IonQ are trading at stretched valuation levels on the back of a strong YTD performance, I believe this is just the beginning for these companies from a long-term perspective as we are yet to see the best this technology has to offer."

Looking to the economy, November retail sales climbed 0.7% M/M, topping the +0.5% consensus and accelerating from 0.5% in October, revised up from +0.4%.

Cars (ahem) drove the beat. Motor vehicle and parts sales surged 2.6% M/M. On a Y/Y basis, motor vehicle and parts dealers saw sales jump 6.5%.

Core retail sales, which excludes motor vehicles and parts, increased 0.2% M/M, missing the +0.4% consensus, and unchanged from +0.2% prior (revised from +0.1%).

Those numbers did not include the Sunday after Thanksgiving and Cyber Monday, which fell into December this year.

Wells Fargo economists said today's report suggests holiday sales are still tracking in the neighborhood a gain of just over 3%.

"We ultimately expect this will be a 'decent' holiday sales season for retailers. It's not going to knock anyone's socks off in the wake of record pandemic gains, but continued consumer momentum means it's unlikely to be overly weak either. As the calendar flips to 2025, households could face some new challenges, namely around tariffs."

And speaking of holiday shopping, 35 years ago “Simpsons Roasting on an Open Fire” aired on Fox as the 30-minute show debuted as a Christmas Special. After Mr. Burns cancels Xmas bonuses and Homer’s Santa moonlighting gig falls short, Homer and Bart bet on a 99-1 long shot at the dog track. They lose – but come home with Santa’s Lil Helper.

This year’s holiday episode – titled “O C'mon All Ye Faithful” – is on tonight. It will be the 778th episode aired. It would take more than 16 days to watch them all in a row, so my next staycation is set.

Among active stocks Pfizer (PFE) is higher after it issued its full-year 2025 guidance and reaffirmed its 2024 outlook in line.

The company expects its 2025 revenue and adjusted diluted earnings per share to reach $61 billion to $64 billion and $2.80-$3.00, respectively. The consensus is $63.28 billion and $2.88.

Alphabet's (GOOG) (GOOGL) self-driving vehicle unit Waymo picked Tokyo as its first international destination to test its robotaxis as the company moves towards expanding beyond the U.S.

Waymo will partner with Tokyo's largest taxi operator Nihon Kotsu and taxi app GO to bring its fleet to the city. The cars will initially be operated manually by Nihon Kotsu drivers to map key areas of Tokyo.

And SolarEdge Technologies (SEDG) is rallying sharply after a double upgrade by Goldman Sachs to Buy from Sell.

While the SolarEdge upgrade “is likely a bit early,” adding that the stock “represents a unique recovery story, in our view, that could be poised to benefit from a ‘shrink-to-grow’ strategy starting in 2025.”

In other news of note, Ray-Bans have been sported by Holly Golightly, The Blues Brothers and Joel Goodsen, but with more plans from Meta (META) they may have their own personality.

Meta said that it is updating the Ray-Ban Meta smart glasses with live AI video capability and real-time language translation.

The company has started rolling out the v11 software update. Meta said that during a live AI session, Meta AI can see what a user is seeing continuously and converse with them more naturally. Users can get real-time, hands-free help and can ask questions without saying "Hey Meta," reference things they discussed earlier in the session. Users can also interrupt anytime to ask follow-up questions or change topics.

Meta noted that eventually live AI will, at the right moment, give useful suggestions even before users ask.

And in the Wall Street Research Corner, looking for stocks poised for a New Year bounce? Wolfe Research is out with a list of stocks that have had a tough 2024, but may get some juice from tax-loss selling as December wraps up.

Chief Investment Strategist Chris Senyek says this trade typically starts mid-December and continues through the first few weeks of the next year. These stocks historically outperform by an average of about 250 basis points during the last two weeks of December through the end of January.

Here’s a name from each sector:

  • Sirius XM Holdings (SIRI), down 55% year-to-date
  • Rivian Automotive (RIVN), own 39% year-to-date
  • Walgreens (WBA), down 63% year-to-date
  • Transocean (RIG), down 38% year-to-date
  • StoneCo (STNE), down 50% year-to-date
  • Moderna (MRNA), down 57% year-to-date
  • Boeing (BA), down 36% year-to-date
  • SolarEdge Tech (SEDG), down 86% year-to-date
  • Cleveland-Cliffs (CLF), down 46% year-to-date
  • Rexford Industrial Realty (REXR), down 28% year-to-date
  • And AES (AES), down 30% year-to-date.

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