New inventory in Irvine, Calif. (Brian van der Brug / Los Angeles Times via Getty Images)

Homebuilding stocks get another burst of outperformance

Even though they’re building remarkably few houses.

8/21/24 11:28AM

A better-than-expected earnings report from luxury homebuilder Toll Brothers is giving a fresh burst of momentum to homebuilding stocks on Wednesday.

Toll Brothers brought in $482 million in profits — 10% better than expected — on slightly better than expected sales of $2.73 billion. Profit margins, on an adjusted basis, of nearly 29% were a key driver of outperformance. Costs only rose slightly.

The stock soared on the report, pulling along share prices of competitors and extending a solid run of outperformance for the sector.

The angle of incline for homebuilder shares has risen sharply as inflation has softened in recent months, and investors have concluded that the Fed is all but certain to cut interest rates when it meets next month. (Though there remains some debate about how big a cut it will deliver.)

Of course, the housing market is the example par excellence of an interest-rate sensitive sector of the economy. The expected decline in Fed rates has been transmitted through the bond market into a drop in mortgage rates, which are now around 6.50% for the 30-year fixed.

That should boost activity among homebuyers. But, for my money, the remarkable thing about the recent rise in home builder share prices is that it comes amid a remarkable dearth of actual homebuilding. Housing starts tumbled to a four-year low in July — which, to be fair, was likely affected by bad weather — but still!

How does this make sense? Well, believers in the all-seeing power of financial markets might argue that perspicacious traders are simply pricing in the uptick in activity that they see coming in the future as mortgage rates move lower. Slightly more cynical observers might simply note that the current state of affairs in the housing market — low inventory, high prices — means that homebuilders don’t have to build as much to make the amount of money Wall Street expects. Probably a little bit from Column A, a little bit from Column B.

Jon Keegan4h

Snap shoots up 25% on $400 million deal with Perplexity, strong earnings

Snap shares shot up as much as 25% in after-hours trading on the release of third-quarter earnings that beat estimates, as well as the announcement of a big deal with AI startup Perplexity to integrate its “conversational AI search” into Snap products.

Some highlights:

Revenue came in at $1.51 billion, up 10% year on year (compared to Wall Street’s estimate of $1.49 billion).
Adjusted EBITDA was $182 million (estimate: $124 million).
Global monthly active users hit 943 million, up 7% year on year.
Perplexity will pay Snap $400 million “over one year, through a combination of cash and equity, as we achieve global rollout” of its conversational search engine within Snapchat.

The company also announced a $500 million stock buyback program.

Snap shares rocket 25% on strong forecast, $400 million Perplexity deal

Some highlights:

Revenue came in at $1.51 billion, up 10% year on year (compared to Wall Street’s estimate of $1.49 billion).
Adjusted EBITDA was $182 million (estimate: $124 million).
Global monthly active users hit 943 million, up 7% year on year.
Perplexity will pay Snap $400 million “over one year, through a combination of cash and equity, as we achieve global rollout” of its conversational search engine within Snapchat.

The company also announced a $500 million stock buyback program.

Duolingo dives on Q3 user growth miss, uninspiring guidance

Duolingo has run into stiff headwinds this year.

Matt Phillips4h

Luke Kawa4h

Nvidia slumps as Jensen Huang warns that China “will win” the AI race versus the US

Nvidia tumbled late in the session Wednesday after the Financial Times released an article in which CEO Jensen Huang says that “China is going to win the AI race” because it has a more favorable regulatory environment and cheaper access to power.

Reading between the lines here, I’d say the main takeaway for traders is what’s left unsaid at the end of this sentence: “China is going to win the AI race” — without having access to Nvidia’s flagship processors, or even wanting its nerfed chips!

Not exactly a signal that Nvidia’s hardware is as all-important and synonymous with success in AI as its stock price and revenue trajectory would suggest it is!

President Trump didn’t discuss Blackwell chips with Chinese President Xi at last week’s meeting, being convinced by advisers to keep that off the table. And while Nvidia has the all-clear to sell its H20 chips to China again, China’s internet regulator apparently instructed its leading tech companies not to buy them, preferring to bolster its domestic capabilities.

Max Knoblauch4h

Lucid dips as it lowers its full-year production forecast

Shares of Lucid are down more than 4% in after-hours trading on Wednesday following the luxury EV maker’s third-quarter earnings results.

Lucid, which delivered 47% more vehicles in Q3 than in the same period last year, posted an adjusted loss per share of $2.65, compared to the $2.29 loss per share Wall Street analysts polled by FactSet expected.

The company also:

Booked $336.6 million in revenue, up 68% from last year and above the consensus estimate of $349.5 million.
Updated its full-year production outlook to 18,000 vehicles, the bottom of its previous range of between 18,000 and 20,000 vehicles. Wall Street expected the company to build 18,940 vehicles on the year.

Lucid shares sold off heavily during Q3 as the company executed a 1-for-10 reverse stock split that took effect in early September. The stock remains lower compared to its highs earlier this year and is down more than 40% year to date as of Wednesday’s close. That’s significantly underperforming larger rivals like Rivian and Tesla.

J. Edward Moreno4h

Lyft bookings top estimates as revenue grows

Lyft swung to a third-quarter profit, boosted by 11% revenue growth, as bookings topped Wall Street’s expectations.

Shares were up 2.7% in recent after-hours trading.

The company reported earnings per share of $0.11, compared with a loss of $0.03 in the year-earlier quarter. Gross bookings came in at $4.8 billion, slightly more than the $4.7 billion the Street was expecting. It reported revenue of $1.7 billion, in line with analysts’ expectations.

Lyft’s top competitor, Uber, reported revenue numbers on Tuesday that beat expectations, though its stock still took a dip on the news.