Dow drops 200 points, Nasdaq sheds 1% after Microsoft’s dismal guidance

It’s time to take a step back from Block shares, according to Oppenheimer.

Analyst Dominick Gabriele downgraded the mobile payments stock to perform from outperform after its recent rise. Shares are up roughly 23% to start 2023.

“Given the strong recent market rally and performance in SQ shares, combined with our 2024FYE significantly lower gross profit vs. consensus, we’re downgrading shares from Outperform to Perform,” Gabriele wrote in a Tuesday note.

“We think SQ will be a first mover for risk on; that said, we don’t believe we have seen the bottom in stocks and thus we could see the recent SQ rally evaporate (up a whopping 43% last three months),” the analyst added.

Shares are down more than 4% in Wednesday midday trading.

— Sarah Min

It’s a good time to sell shares of Cheesecake Factory, given the stock’s roughly 16% gain this year and the potential for a tough macro environment going forward, according to UBS.

The firm on Wednesday downgraded the fast casual chain to sell from a neutral rating and kept its $30 price target, which implies a more than 20% decline from where shares are trading.

“While CAKE could continue to benefit from customer brand affinity and earnings upside potential exists if targets are reached, we think potential pressured industry demand, ongoing cost headwinds and limited macro visibility highlight risk to the recent move higher in shares and expectations,” wrote analyst Dennis Geiger in a Jan. 25 note.

UBS sees slowing sales trends going forward and revenue for the year at the low end of its targeted range of $3.5 billion to $3.6 billion after a relatively resilient year in 2022. Risks include spending pressures, elevated ticket prices relative to peers, menu price concerns and the chain’s underperformance during the Great Recession.

Any recovery to pre-Covid restaurant margins this year is also unlikely as labor and food costs face upwards pressure.

— Carmen Reinicke

J.P. Morgan reiterated its overweight rating on Texas Instrument shares, saying that the company will maintain its standing as one of the market leaders in high-value analog and embedded products. 

“Despite a difficult environment this year (slowing demand along with

GM cost/depreciation headwinds) for Texas Instruments, the team continues to

execute well and maintain strong earnings power even with weaker fundamentals,” said J.P. Morgan Executive Director Harlan Sur. 

The semiconductor manufacturer released its fourth quarter earnings yesterday, which marked  the first time the company posted a quarterly year-on-year revenue contraction since the post-pandemic recovery. Despite the losses, reported revenue and earnings of $2.13 per share beat analysts expectations of $1.98 per share, according to FactSet. 

Texas Instruments share fell 2.25% today, following a small rally under 1% during yesterday’s aftermarket hours.

— Hakyung Kim

Don’t expect Google to be out in the clear any time soon as it faces another antitrust suit, Evercore ISI said.

“We’ve long said that Google faces the greatest overall regulatory and litigation risk among the big tech platforms, and the filing of yet another plausible case against them underscores the cloud that will continue to hang over them,” wrote U.S. policy and politics strategist Tobin Marcus in a note to clients Tuesday.

The comments came as the U.S. Department of Justice on Tuesday filed its second antitrust suit against Google, accusing the tech giant of monopolizing the online advertisement market.

The Wall Street firm believes the regulatory pressure on Google may benefit adtech companies PubMatic, The Trade Desk, Magnite, and Microsoft subsidiary Xandr. Other than Google, Amazon and The Trade Desk, both at $10 billion in annual gross advertising spend, are the largest players in the demand-side platform space.

Companies like Meta and Apple might also stand to benefit as well, according to Evercore ISI. The firm noted Meta doesn’t face as much anti-trust scrutiny as Google does, and that Apple has the scale and resources to compete in the advertising solutions space.

“This regulatory risk likely carries only modest fundamental risk – in terms of heightened overhead expenses (legal fees, regulatory compliance expenses), management distraction, and possible ad market demand tentativeness,” the note said. “The risk is less to the E than to the P/E. But it is real, and is not going away anytime soon.”

— Pia Singh

Bank of America downgraded shares of Booking Holdings to neutral from buy, saying it’s time to look elsewhere after Booking’s recent outperformance.

“Our thesis on Asia recovery seems to be playing out as a positive driver for Booking, and China outbound could provide an additional Summer boost,” analyst Justin Post wrote Wednesday.

“However, Booking stock has far outperformed peers (+3% TTM [trailing twelve months] vs NASDAQ -16%), comps get tougher in 2Q, and we downgrade to Neutral from Buy as we see less valuation upside looking out to our now above-Street 2024 ests. (adjusted for FX),” Post added.

Instead, Post said he favors another travel stock.

Shares declined about 1%.

CNBC Pro subscribers can read more about the call here.

— Sarah Min

Despite Wednesday’s selloff trend, three stocks notched new highs during the trading session.

That included shares of Marathon Petroleum, which hit their highest level dating back to the company’s June 2011 spinoff from Marathon Oil.

These stocks also hit fresh highs:

• Hess trading at all-time highs back to its merger with Cletrac and public listing on the NYSE in 1962
• Travelers trading at all-time highs back to its spin-off from Citi in 2002

CVS Health, meanwhile, last traded near lows not seen since October 2021.

— Chris Hayes, Samantha Subin

Piper Sandler downgraded shares of Enphase Energy to neutral from overweight, saying the U.S. residential solar power market could undergo a reset this year on weaker demand.

“We still view ENPH as a company with solid products, strong mgmt, best-in-class ops, and an attractive market position; however, we believe US resi demand uncertainty is too elevated. We look for US resi demand stabilization to revisit our rating,” Harrison wrote.

CNBC Pro subscribers can read the full report here.

— Sarah Min

Technology stocks declined Wednesday as growth fears mounted and Microsoft shared disappointing earnings guidance.

Shares of Tesla, Salesforce and Alphabet shed 2% each, while Amazon fell 3.6% amid a price cut from Bernstein. Apple declined 1.5%. Semiconductor stocks also slipped, with Advanced Micro Devices and Nvidia down 1% each.

The moves dragged down the tech-heavy Nasdaq Composite by 1.7% as of 9:50 a.m. Wednesday, and the S&P 500’s information technology sector by 2%.

— Samantha Subin

Stocks declined Wednesday as earnings season carried on.

The Dow Jones Industrial Average declined by 270 points, or 0.8%. The Nasdaq Composite fell 1.8%, and the S&P 500 dropped 1.26%.

— Samantha Subin

Despite Microsoft’s muted guidance for the current quarter, most analysts covering the stock are standing by the tech giant.

Citi analyst Tyler Radke said Microsoft remains “best positioned” among the large cap software names, saying that it offers investors a good mix of growth and profitability. Morgan Stanley’s Keith Weiss also maintained an overweight rating on the stock.

Microsoft reported a stronger-than-expected profit for the previous quarter, but it’s current-quarter guidance sent the stock down more than 2%.

— Sarah Min

These are some of the companies making headlines before the bell:

Boeing – Boeing’s stock dropped about 1.7% premarket after the aircraft maker posted earnings and revenue that missed expectations, despite a demand recovery. The company cited labor and supply shortages for the disappointing numbers.

News Corporation, Fox News — Shares of News Corp and Fox News were up 4.9% and 1.8%, respectively, after Rupert Murdoch ditched plans to merge the two companies, a proposition that met pushback from shareholders.

??AT&T — Shares were up 1.8% after the telecommunications giant’s fourth-quarter report came out Wednesday, showing an increase in subscribers but forecasting an annual profit below expectations.

Microsoft — Microsoft shares declined by nearly 3% after the software giant shared a dismal revenue forecast for the current quarter. The tech bellwether topped earnings expectations but said new business growth slowed in December, including within its Azure segment.

Click here to read more of today’s early market movers.

— Pia Singh

Shares of Amazon declined nearly 3% premarket amid a price target cut from analysts at Bernstein.

The firm trimmed its price target by $5 to $120 a share, representing about 25% upside from Tuesday’s close price.

“We remain comfortably above the street on EBIT for 2023 as we see operating leverage as a when, not an if, but are keeping an eye on the outlook for AWS as MSFT … performed well this quarter but the guide was weak,” said analyst Nikhil Devnani in a Wednesday note to clients.

Bank of America analyst Justin Post, meanwhile, shared worries about the company’s Amazon Web Services division heading into earnings. He cited Microsoft’s recent Azure guidance as an indicator of decelerating cloud spend.

“We think it will take a few more quarters to digest elevated Pandemic era Cloud spend, but with a large total addressable market and healthy innovation, industry growth can accelerate in 2024,” he said in a Tuesday note

— Samantha Subin

Shares of AT&T rose more than 2% before the bell despite posting mixed quarterly results.

The telecom giant beat earnings estimates by 4 cents a share, although revenue came in slightly below the $31.39 billion as expected by analysts.

— Samantha Subin

Boeing shares declined as much as 4% before the bell after fourth-quarter earnings fell short of estimates on both the top and bottom lines amid labor and supply shortages.

The aircraft maker posted an unexpected loss of $1.75 a share on $19.98 billion in revenue. Analysts had anticipated earnings of 26 cents per share on revenues of $20.38 billion.

Despite the top-and-bottom line miss, Boeing generated free cash flow last year for the first time since 2018.

— Leslie Josephs, Samantha Subin

Demand for weekly mortgage rose last week as rates declined for the third consecutive period.

Total application volume rose 7% last week over the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

At the same time, rates dropped to the lowest level since September, with the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances declining to 6.2% from 6.23%

— Diana Olick, Samantha Subin

Shares of Intuitive Surgical fell nearly 9% in the premarket after the company reported weaker-than-expected quarterly results.

Intuitive Surgical earned $1.23 per share on revenue of $1.66 billion. Analysts polled by Refinitiv expected a profit of $1.25 per share on revenue of $1.67 billion. The company cited a resurgence in Covid cases in China, which hurt procedure volumes in the region.

— Fred Imbert

Microsoft shares slid about 1% in after-hours trading, reversing earlier gains.

Shares were initially higher after the company posted quarterly earnings per share that beat the Street’s expectations. However, investors’ sentiment soured after Microsoft issued disappointing guidance for revenue in the current quarter on its earnings conference call.

The company forecasted $50.5 billion to $51.5 billion in fiscal third quarter revenue, while analysts surveyed by Refinitiv anticipated $52.43 billion.

Read more about Microsoft’s results here.

–Darla Mercado, Jordan Novet

Morgan Stanley’s Mike Wilson said investors should brace for tougher times ahead.

“The numbers are actually going to finally come down in a way that we didn’t think would happen in Q4, which it didn’t, but now, we think that’s happening,” Wilson said Tuesday on CNBC’s “Closing Bell: Overtime.”

The investment strategist said he expects earnings will start to roll over as companies deal with a weakening consumer.

Still, he’s open to changing his outlook if he does not see a “more meaningful” drawdown in the next three or four months, or by April.

“We will probably back off our call, … because we’re still in a world of somewhat of financial repression, and bonds are not a great alternative necessarily longer term, and stocks are kind of the only game in town in a higher inflationary environment,” he said. “We’re not willing to make that call today because we think the risk reward is out of whack.”

— Sarah Min

Shares of Microsoft led the gains in after-hours trading, up more than 4% after its quarterly results came in above estimates on top and bottom lines. The stronger-than-expected report was driven by the strong growth in its cloud unit.

Revenue in Microsoft’s Intelligent Cloud segment amounted to $21.51 billion, up 18%. Meanwhile, sales from Azure and other cloud services, which Microsoft does not report in dollars, grew by 31%.

— Yun Li