The Nasdaq Composite Index (^IXIC 2.86%) is cranking on August 10, 2022, up 2.4% at 12:53 p.m. Today’s big gains come as earnings season continues and following the release of the latest inflation data from the U.S. Department of Labor this morning. According to the data, the Consumer Price Index, or CPI, rose 8.5% in July. For context, that’s still near the highest levels of the past four decades, but it’s trending very much in the right direction after June’s 9.1% set a 41-year high.
Today, investors are betting that slowing inflation is a good signal that a sharp recession is less likely. Energy and food prices are moderating, and many companies are still reporting upbeat quarterly results and expectations. Upstart (UPST 17.36%) and Affirm Holdings (AFRM 12.74%) are at the leading edge of that consumer risk, and their highly volatile stocks are up big today on the optimistic reading of the inflation data.
Today’s noteworthy postearnings gainers include The Trade Desk (TTD 36.62%), with shares up more than 36% at one point. Investors are also betting on better prospects for renewable and low-carbon energy companies. Shoals Technologies (SHLS 15.28%) and Plug Power (PLUG 16.99%) are two of those up big today.
When near-record inflation is a “good” thing
While the CPI is still very high, today’s interpretation of the data was generally positive. We have seen energy and food prices begin to come down, and some areas of the global supply chain crisis are improving, too. Semiconductor companies, in particular, are reporting that the cycle in that industry is turning from too much demand to too much supply in certain product categories. While that’s not a positive for shareholders in the short term, it’s positive for the broader economy that the supply shortfall that’s kept many products off the shelves and prices very high might be starting to ease.
Investors see this as very positive for Upstart, the AI-driven consumer lending platform, and for buy now, pay later specialist Affirm Holdings, with their shares up 16% and 13%, respectively, at this writing. Both companies live at the leading edge of consumer credit risk. By and large, the bulk of their lending products are unsecured consumer debt (though Upstart is diversifying into auto lending), which is the first kind of credit to see increased rates of default in weak economic periods. However, today’s gains could prove temporary, as both saw their stocks fall sharply earlier this week on earnings and economic speculation.
What happens next? Plenty of volatility as investors try to telegraph what happens in the near term. Investors in both companies should be prepared for that and acknowledge that their risks will be amplified if consumers continue to get squeezed. The companies’ long-term prospects, however, are tied to their ability to keep disrupting the traditional credit card and consumer lending industries.
The Trade Desk shakes off earnings woes for adtech
The Trade Desk’s results were a breath of fresh air for the adtech industry. In recent weeks, many of the companies that are deeply involved in the growing digital ad industry have reported somewhat mixed results. The mature giants like Facebook parent Meta Platforms (META 5.79%) have reported strong ad volume but falling ad rates, as marketers have cut ad spending.
The Trade Desk’s second quarter was, by almost every measure, exceedingly strong. It reported 35% revenue growth, continued to retain more than 95% of its customers, and more than doubled its operating cash flows. If there’s one not-great number, it’s stock-based compensation, which almost tripled year over year and was the primary factor in The Trade Desk reporting a GAAP loss.
Investors seem happy to trade a portion of equity to co-founder and CEO Jeff Green, however, as part of his compensation. Shares are up a massive 36% at this writing.
Cleantech stocks cleaning up today — can they keep it up?
The stocks of a number of clean energy companies are up big today. Shares of Shoals Technologies, which makes electrical wiring for utility-scale solar plants, are up 14% today, joining hydrogen companies Plug Power and Bloom Energy (BE 18.20%). The latter’s shares are up more than 15% after Bloom reported expectations-beating earnings and said it expects to be cash flow positive for the full year.
Plug Power reported on August 9. Unlike Bloom, its results came up short of expectations. However, analysts continued to have bullish outlooks, raising their price targets on the company, partly due to the expected tailwinds of the recently passed landmark federal climate legislation.
Looking beyond near-term price targets and potential tailwinds from the new climate law, investors should focus on the financials. Plug Power has a very long record of cash burn (it has never had a positive-cash-flow year in its multidecade history), while Shoals and Bloom have demonstrated positive cash flows in the past and are trending in positive directions.
Optimistic thinking is nice, but as investors, we mustn’t forget that long-term wealth comes from a healthy — growing — bottom line.