A market hooked on rate cut hopes.
It’s 35 days until the next Federal Reserve meeting, and investors are banking on a September rate cut.
Currently, there's a 98.2% probability the Fed cuts rates at that meeting, according to the CME FedWatch tool. The probability got a boost on Tuesday following a Consumer Price Index reading that didn’t signal accelerating tariff-driven inflation.
Another side of the trade does exist, however.
I know this may come as a shock to you, but not every stock in this market is ripping higher. Take a look at the plunges in Cava (CAVA) and CoreWeave (CRWV) today in the wake of their earnings last night.
The poundings should serve as a reminder that in a hot market, no disappointments on an earnings day will be tolerated. No letdowns in sales. No letdowns in earnings. Not letdown in guidance. Reports must be darn near perfect, or else!
CoreWeave was teed up to let down investors last night.
And it did on several fronts, with the stock tanking 15% today.
First, the company's net loss was much higher than consensus.
Second, capital expenditures were a whopping $1 billion higher sequentially. And third, capex may climb another $500 million in the current quarter.
While I appreciate the company's revenue backlog of $30.1 billion doubled year over year, the company's mixed results and high debt load are real causes for concern.
Here are two important call-outs this morning from DA Davidson analyst Gil Luria. I'm highlighting them because most on the Street have stayed bullish on CoreWeave post earnings, citing strong fundamentals. Luria presents a valid bear case.
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“With operating income of $200 million and interest expense of $(267 million) it appears that CoreWeave does not currently generate enough profit to pay all its debt holders, certainly not equity holders. Guidance of $(350)-(390) million of interest expense on only $160-190 million of operating income indicates that may be getting worse.”
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“CoreWeave will likely need to add $10 billion more debt during the balance of the year to support their data center expansion plans. Management acknowledges that they will have to bring more debt onto the balance sheet in order to scale this business further, and we believe they will have to perform significant capital raises in the near-term just to meet their guidance and capacity commitments.”
A year ago today, I remember jumping out of my chair in astonishment as news broke that then-Chipotle (CMG) CEO Brian Niccol was named the new CEO of Starbucks (SBUX).
