🔥Tesla's Earnings on Fire

+ Chip Company Beef: Arm to Scrap Qualcomm Chip Design License

October 23, 2024

Good afternoon! Peloton is pedaling into new territory—Costco. Starting November 1, the fitness brand will sell its Bike+ at 300 Costco locations for $1,999 and on Costco’s website for $2,199, a solid markdown from its usual $2,495. The move aims to capture Costco’s affluent shoppers, 36% of whom have household incomes over $125k. It’s a bold attempt to get younger, wealthy customers to toss a high-end bike into their cart alongside their bulk groceries.

Why Costco? Peloton is shifting gears from growth-at-all-costs to profitability, and tapping into Costco’s massive (and growing) younger membership base could provide a much-needed boost. With nearly half of new Costco members under 40, Peloton is betting that this partnership will bring in a fresh wave of fitness enthusiasts, just in time for the holiday season.

MARKETS

*Stock data as of market close*

  • Wednesday was a rough one for Wall Street. The Dow dropped 0.96%, marking its worst day in over a month, while the S&P 500 slipped 0.92%, and the Nasdaq tumbled 1.6%. Tech giants, particularly the Magnificent Seven, all took a hit, dragging the market lower.

  • Blame it on the Fed. Investors are growing anxious about the timeline for rate cuts, and that uncertainty sent stocks into a tailspin. Even earnings from Boeing and Tesla couldn’t brighten the mood, as the market opened in the red and stayed there all day.

STOCKS
Winners & Losers

What’s up 📈

  • Spirit Airlines climbed 45.97% following a report by The Wall Street Journal that Frontier Airlines is seeking to renew a bid for Spirit ($SAVE).

  • Packaging Corp. of America surged 5.53% as the company reported record third-quarter sales with a 26% jump in production, surprising both Wall Street and its own executives ($PKG).

  • AT&T advanced 4.60% after third-quarter earnings exceeded expectations, posting adjusted earnings of 60 cents per share, above analysts’ estimates of 57 cents ($T).

  • Texas Instruments gained 4.01% after surpassing analysts' estimates for the third quarter, reporting $1.47 per share on $4.15 billion in revenue ($TXN).

  • LI Auto rose 3.76% ($LI).

  • Verizon increased 3.28%, in sympathy with AT&T ($VZ).

What’s down 📉

  • Enphase Energy tumbled 14.92% after reporting weaker-than-expected earnings, with adjusted earnings of 65 cents per share on $380.9 million in revenue. Analysts were expecting 77 cents per share and $392 million in revenue. The company’s fourth-quarter guidance also fell short of expectations ($ENPH).

  • Hims & Hers dropped 9.37% ($HIMS).

  • Arm Holdings slid 6.67% after Bloomberg reported that it plans to cancel its license agreement with Qualcomm ($ARM).

  • McDonald's fell 5.12% following news that the CDC tied an E. coli outbreak to its Quarter Pounder burgers, resulting in 10 hospitalizations and one death ($MCD).

  • Qualcomm declined 3.80% as Arm Holdings plans to cancel its license agreement with the company ($QCOM).

  • Affirm dropped 4.96% ($AFRM).

  • Meta slipped 3.15% ($META).

EARNINGS
Tesla Notches a Blowout Quarter on Strong Sales, Credits

Tesla is back in the fast lane.

The EV giant reported third-quarter earnings that blew past Wall Street expectations, clocking in at 72 cents per share and ending a four-quarter losing streak.

Demand for Tesla’s cars rebounded in a big way, with CEO Elon Musk forecasting a potential 20-30% growth in deliveries next year. Shares surged 12% in late trading, marking a sharp turnaround for the stock, which had been down 14% this year.

Tesla’s quarterly win wasn’t just about sales, though. The company raked in $739 million from regulatory credits—selling them to carmakers who need help meeting emissions targets. It’s clear that Tesla’s profits are being boosted not only by the cars on the road but also by the deals happening behind the scenes.

Driving Growth with New Models and Margins
Musk’s big plans don’t stop there. Tesla reiterated its commitment to rolling out more affordable models by 2025, while its futuristic Cybertruck is finally profitable after a production ramp-up. And there’s more good news: Tesla’s gross margin (excluding credits) jumped to 17.1% from 14.6% last quarter.

The company is also steering full throttle into autonomous driving. Musk teased a robotaxi service, set to launch in Texas and California next year. If the tech holds up (and regulators play ball), this could be a game-changer for Tesla’s future business model.

What’s Next?
While Tesla’s recent results are impressive, challenges lie ahead.

The company faces stiff competition from Chinese automakers like BYD, along with legacy brands such as Ford and GM stepping up their EV game. Tesla also needs a strong Q4 to top last year’s deliveries, and heavy price cuts could keep pressuring its margins.

Still, with its sights set on affordable models and a driverless future, Tesla seems ready to ride out the storm. Investors are watching closely to see if this momentum can carry the stock even higher.

NEWS
Market Movements

CHIPS
Arm to Scrap Qualcomm Chip Design License, Feud Escalates

Arm just threw a major curveball at Qualcomm.

The UK-based chip designer is pulling the plug on a key license agreement, giving Qualcomm 60 days to fix their messy legal spat or risk losing access to critical tech.

Qualcomm, known for powering most Android smartphones, might be forced to stop selling its flagship processors if it can’t resolve the issue.

This isn’t just a minor tiff—both companies took a hit. Arm’s shares dropped 6.67%, and Qualcomm’s fell 3.8% as the markets weighed the potential fallout of this escalating feud. If the license gets scrapped, Qualcomm’s $39 billion chip business could be on the chopping block.

Why the Beef?
The bad blood dates back to 2022 when Arm sued Qualcomm for breach of contract over its acquisition of Nuvia, a chip-design startup.

Qualcomm says the lawsuit is just Arm trying to strong-arm (pun intended) them into paying higher royalties. Now, Arm’s stepping things up by threatening to cancel Qualcomm’s rights to use its chip architecture.

Qualcomm has big plans for Nuvia’s tech—its AI-driven PC processors are already hitting the market. If Arm’s move sticks, Qualcomm may need to scrap Nuvia’s designs entirely, a costly setback that could give competitors a golden opportunity.

What’s Next?
With a December trial looming, many see Arm’s license termination as a bargaining chip to gain leverage.

Qualcomm, however, is no stranger to courtroom drama, having settled disputes with Apple and Nokia in the past. A settlement seems likely, but if not, both companies could face serious damage.

Calendar
On The Horizon

Tomorrow

Buckle up, because tomorrow's reports might actually stir the pot. First up, initial jobless claims—one of the Fed's favorite labor market indicators—dropped by 19,000 last week to 241,000. This week? Economists expect a small bump to 245,000, but that’s likely just seasonal noise.

Also on the radar: new home sales for September, with hopes of a slight rise from 716,000 to 720,000, and the S&P’s Purchasing Manager Index for services and manufacturing. Let's see if these numbers bring some real movement.

Before Market Open:

  • UPS is often seen as the economy's crystal ball, especially with the holiday season just around the corner. But 2024 hasn't been kind to the shipping giant, thanks to rising competition and ballooning labor costs. Last quarter’s earnings miss hit the stock hard, but UPS is still a powerhouse in the industry, and its hefty dividend gives shareholders a reason to stay patient. Wall Street’s expecting $1.63 EPS on $22.16 billion in revenue. ($UPS)

NEWS
The Daily Rundown

RESOURCES
The Federal Reserve Resource

Join our small yet growing subreddit 🚀: https://www.reddit.com/r/investinq/

Wall Street Reads 💎 (Best Books):

Check out our latest issues 🎯: https://investinq.beehiiv.com