Upgrades Are Moving The Market, But Beware The High Hurdles
Among the biggest risks to the market, today are the number of upgrades we're seeing. The consensus estimate for S&P 500 Q1 earnings has nearly doubled in the last six months and is likely to keep rising into the end of the reporting season. What this means for near-term market movement is upward price pressure.
What it means for long-term market movement is yet to be determined but can be summed up like this; if the market fails to meet the expectations we could be in for a big correction. Results from companies like Fastenal (NASDAQ:FAST) only highlight this view. Fastenal reported exactly what the market was expecting, gave no guidance, and shares are moving lower because of it.
1. Microsoft Diversification Strategy Is Paying Off
Microsoft (NASDAQ:MSFT) has been working hard to diversify itself for long-term sustainable growth and those efforts seem to be paying off. The latest move was only announced in the last week and already garnering the attention of analysts.
Microsoft announced a definitive agreement to acquire Nuance Communications (NASDAQ:NUAN) in an effort to build out its business services. Nuance Communications is an AI company focused on the healthcare industry worth nearly $20 billion according to the terms of the deal.
According to Satya Nadella, CEO of Microsoft:
"Nuance provides the AI layer at the healthcare point of delivery and is a pioneer in the real-world application of enterprise AI. AI is technology's most important priority, and healthcare is its most urgent application."
Analyst Joseph Bonner of Argus sees Microsoft benefiting from reopening tailwinds in addition to its acquisitions growth worth another 17% to share prices. Argus maintained its Buy rating but raised the price target to $300 from $275.
The target is 15% above the current consensus and reflects a growing trend. The trend of upwardly revised price targets and a consensus target that's been steadily rising over the past three months.
2. NVIDIA Guides The Market Higher
NVIDIA (NASDAQ:NVDA) caught the analyst's attention on Monday when it issued a pre-report on Q1 earnings. In it, the company guided the market to better than expected results that has shares up more than 7% in the last two days. At least three major sell-side firms have come out since the news to sing the company's praises and raise their price targets.
Rosenblatt Securities was impressed with the breadth of the revenue strength, Deutsch Bank, the "rich pipeline of opportunities," and Cowen, the surprise Grace CPU announcement. The consensus among them is for shares of NVDA to trade near $675 versus the broader consensus of $600. Rosenblatt is the high-price holder of the group matching the Wall Street high price target of $800. NVIDIA is now trading at the all-time-high of $620.
3. Coinbase IPO Is Causing A Buzz
The Coinbase (NASDAQ:COIN) IPO is slated for today and likely to cause a big stir in the market. The latest valuations have it trading far above any comparable financial institution and are pricing in the robust growth we ourselves see for the cryptocurrency market.
Analysts at MoffetNathanson are the first to officially initiate coverage of the company, even before the official direct listing, and have it rated a buy. In their view, this company will be trading around the $600 level in one year's time, which is double the original listing price when the company listed on NASDAQ.
In our view, the $600 price target is a little on the low side considering this company is the #1 portal to cryptocurrency and defi worldwide. This company will benefit from any and all advances in cryptocurrency technology including the digitization of traditional assets like stocks and bonds.
“We view Coinbase as a leading technology infrastructure provider for the cryptocurrency ecosystem, providing essential building blocks to facilitate the use of cryptocurrencies, including market-leading crypto storage and exchange capabilities,” MoffettNathanson wrote in a research note.