In February, AI superstar Nvidia (NASDAQ:NVDA) announced fourth-quarter earnings that blew expectations out of the water. Shares rose 16% in a single day, adding $34 billion to shareholder pockets.
The fascinating thing, however, was what happened afterward. Because over the following month, shares of Nvidia rose another 20%. Even if investors completely missed out Nvidia’s monster Q4 earnings, they could have made even more money from buying after the fact.
The tech giant isn’t alone in seeing this market momentum effect. Commodities… international stocks… real estate… virtually all well-traded assets seem to retain some “memory” of their past movements. Rising prices tend to keep going up, while falling ones keep going down.
Many academics have attempted to answer why. They studied the concepts of “inertia” and “harmonics” as early as the 1930s. And later academic works in 1980s focused on data “heterogeneity,” a term for how information flows across markets. There is still no single answer that everyone agrees on.
Still, we’ve found that momentum works. Earnings beats tend to improve Wall Street’s outlook on a company, which historically drives share prices higher. Successful companies also find it easier to raise capital and generate internal cash flows, which can fund even greater future successes. Nvidia itself expected to pour $9.2 billion into research and development (R&D) this year thanks to its windfall. It will outspend all but two other chip developers. It’s why Louis Navellier considers earnings beats so crucial in his Portfolio Grader system, and why it features so heavily in my own MarketMaster AI trading system.
First-quarter earnings are now creating a whole new market of “haves” and “have-nots” in this momentum-heavy market.
Companies like Nvidia are pulling ahead while consumer-facing firms are starting to fall behind. Earnings at firms like McDonald’s (NYSE:MCD) and Yum! Brands (NYSE:YUM) were so bad that writers at CNBC called this quarter the “long-predicted consumer pullback.”
That’s why the writers at our free news and analysis site – InvestorPlace.com – are focusing on successful companies that are announcing blowout earnings. Pandemic-era savings are beginning to deplete for both consumers and enterprises, and our analysts are closely watching which firms are succeeding.
5 Stocks to Buy on Monster Q1 Earnings: Digital Realty Trust (DLR)
Digital Realty Trust (NYSE:DLR), a data center real estate investment trust, announced stunning first-quarter results on May 2. Earnings per share of 82 cents blew expectations out of the water, while new bookings also came in strong. Wall Street was only expecting 24 cents EPS, so the world’s largest owner of data centers beat forecasts by almost 250%.
These results were driven by 1) an insatiable demand for AI-related data centers and 2) a severe market shortage of them. DLR raised renewal prices by an average of 12% this quarter and booked a record $252 million in additional annualized revenue.
At InvestorPlace.com, Rich Duprey even sees Digital Realty Trust as a stock to buy for a potential downturn.
Business continues to move its data to the cloud, and artificial intelligence (AI) is an increasingly critical component for ensuring the health and integrity of the information. The need for data centers won’t abate during a market crash. It would be just as important that data is accessible and viable €” if not more so, particularly considering the caliber of Digital Realty’s clients.
That’s because DLR will profit in both good times and bad. Companies are only creating more data, and the costs of analyzing this information are only growing. Cloud computing in the form of data centers provides a compelling solution.
Even better, shares of Digital Realty Trust have not yet moved on earnings news. Shares are only up 3% since May 2, providing investors with an opening to buy the stock at a reasonable 20 times cash flow.
2. Western Digital (WDC)
Memory-chip maker Western Digital Corp. (NASDAQ:WDC) released an equally impressive earnings report on April 25. Revenues of $3.45 billion beat expectations by 3%, while earnings per share of 63 cents beat by 204%. After a terrible 2023, the cyclical memory industry is finally entering a period of growth again. Wall Street analysts have now raised their WDC target price to $86.60, up from $52 at the start of 2024.
Duprey also notes this week at InvestorPlace.com that Western Digital has another potential catalyst to drive shares higher. The firm plans to split itself into two companies, and we know that spinoffs are historically strong events for returns.
Western Digital and Kioxia reportedly increased first-quarter output to 1.22 million units, according to industry site Omdia. That’s a 20% increase over the 1.02 million units produced in the fourth quarter. That would be a fortuitous turnaround for the spinoff.
Shares of Western Digital have been rising ever since the separation was announced last year and the new company could make for an interesting play on the memory market.
Analysts have now raised their 2024 earnings estimates by 56% over the past 30 days. And given that Western Digital’s stock hasn’t really moved yet, this could present a compelling moment to jump in on a hidden gem before markets catch on.
3. Robinhood (HOOD)
Stock trading platform Robinhood Markets (NASDAQ:HOOD) is a tough company for long-term investors to buy. The firm scores an F grade in my MarketMaster AI system for its high short interest and lumpy profitability. Louis’s Portfolio Grader awards Robinhood’s fundamentals a C for similar reasons.
However, the numbers don’t lie: Robinhood could see a near-term boost in share prices thanks to blowout first-quarter earnings.
On May 9, the Silicon Valley-based firm announced quarterly revenues of $618 million and EPS of 18 cents, beating estimates by 13% and 226%, respectively. Rising cryptocurrency prices and renewed retail trading interest have put the company back on a path of growth. InvestorPlace.com’s Larry Ramer notes that investment bank Mizuho has now raised its target price to $23, a 29% implied upside.
Fellow InvestorPlace.com writer Marc Guberti now urges investors to look beyond Robinhood’s reputation as a one-trick pony.
The company’s foray into innovative financial products and services can create more opportunities. Investors are monitoring the company’s unlimited 3% cashback credit card that is available for Robinhood Gold members. Also, [the] fintech firm has an impressive 3% match for IRA contributions.
Very few financial institutions and fintech companies have these types of offers. Most companies don’t match any of your IRA contributions. Robinhood can gain more ground as it releases innovative products and its trading platform continues to perform well. While the fintech company has fallen by 49% since its IPO, the stock is up by [65]% YTD. Therefore, investors are starting to realize Robinhood’s potential, and a recent switch to profitability has helped matters.
Put another way, Robinhood’s Q1 results might be a sign of even greater improvements to come. The company now earns over $250 million each quarter from interest-based revenues (the interest earned on investor cash deposits). And the rising popularity of options could put Robinhood’s transaction revenues on more stable footing.
4. SoFi (SOFI)
Online banking firm SoFi Technologies (NASDAQ:SOFI) joins the list of strong earners this quarter. Revenues came in 4.4% better than expected, its largest positive surprise since 2022. Earnings were also impressive, with total profits beating forecasts by a solid 20%.
Perhaps the most notable feat, however, was that these figures were achieved without loan origination growth and only a 5.4% increase in loan balances. In other words, SoFi is purposely tapping on the brakes to balance its risks… and is still beating Wall Street’s expectations.
Will Ashworth sees SoFi’s conservative approach as a reason to buy shares.
“SoFi continues to add customers and deposits as its banking business grows,” he writes at InvestorPlace.com. “Restrained growth in a higher interest rate environment is a good thing.”
He views the firm as the ultimate long-term winner.
He’s not alone. InvestorPlace’s David Moadel sees shares topping $10 in the medium term, thanks to rising forecasts and strong underlying growth.
Essentially, SoFi’s management is keenly aware that banks that grow too quickly tend to face problems with bad loans. FICO credit scores only tell part of a borrower’s story, and regional lenders like First Republic and Signature Bank folded in 2023 precisely because they grew too quickly in markets they didn’t understand.
SoFi is taking a different tack – allowing its services business (i.e., non-lending) to grow fast, while keeping loan growth to manageable levels. First-quarter results showed this strategy in full light, and it’s only a matter of time before markets realize there’s more to SoFi’s story.
5. Bumble (BMBL)
Finally, Josh Enomoto writes at InvestorPlace.com about Bumble (NASDAQ:BMBL). The dating app, he writes, is a potential breakout stock.
In my opinion, Bumble needs a simple tweak. It needs to focus more on the business rather than attempting to engineer gender equity in relationships. That means in traditionally oriented couplings, the company must allow male users to reach out to female users. Currently, women must make the first move, which hurts participation and engagement…
A ship can always be righted if the damage is caught in time.
Since that writeup, lo and behold, management says it is revamping Bumble’s core business. Men can now make the first move if allowed, and the dating firm is also finding new ways to monetize through Premium+ subscriptions. As CEO Lidiane Jones noted in her Q1 earnings call:
We have expanded upon our signature make the first move by introducing choice in how connections made. Women can choose to make the first move as always. And now, they can choose to have a question set that their matches can respond to, creating a new way to engage with connection while retaining control…
We’re [also] expanding monetization, once our updated Premium+ subscription is here. We continue to have conviction that our subscription tiers are designed to bring value to our customers by offering them the fastest path to finding their matches.
The company also announced strong first-quarter earnings. Revenues of $268 million beat expectations by 1%, while EPS of 19 cents came in 181% ahead. Not only is management revamping its core user experience; these efforts are already having an effect.
These improvements will go a long way to win back skeptics. Analysts now expect Bumble to earn 86 cents per share this year in profits, a major upward revision since January. And growth is expected to accelerate through 2025 as these efforts play out. If history is any guide, Bumble’s initial 7% post-earnings pop should be followed by even greater gains to come as markets begin to realize that Bumble’s growth story is far from over.
MarketMaster AI is an artificial-intelligence-powered stock picking system that uses an ensemble of neural networks to grade stocks based on their expected 6-month returns. You can read more about the system’s historical performance, training data, and other useful facts here. Please note that while MarketMaster AI has a strong track record, it is designed simply as a starting point for further research.
On the date of publication, Thomas Yeung held no positions in stocks mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tom Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Tom Yeung’s Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad.