Apple CEO Tim Cook (Andrew Caballero-Reynolds/Getty Images)

It may be time for Big Tech’s wake-up calls

Call volumes in the “Magnificent 7” have slipped to lows not seen in over a year.

7/23/24 10:36AM

Megacap tech companies are showing some signs of stirring as their quarterly reporting period begins.

On the eve of Tesla and Alphabet’s earnings, a Bloomberg index that tracks the so-called Magnificent Seven (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, and Tesla) rose 2.3% on Monday in its best day of the month. The prior 8% pullback in this cohort is – in the grand scheme of its +40% year-to-date gain – a flesh wound.

But what’s concerning for investors looking for a repeat of the group’s performance in the back half of the year is how much demand for bullish options has plummeted.

On Monday, the total call volumes traded across the group totaled 4.1 million, the lowest in over a year. That’s down from a cumulative 14.1 million on June 7 – the session before Nvidia’s stock split went into effect.

The decline in call buying is more acute in Nvidia – off more than 80% over this period. But five members of the Magnificent Seven have seen call volumes decline by at least 20% over this stretch – Amazon and Alphabet are the exceptions, where demand for bullish options has risen. This period has been marked by something of a “hot potato” dynamic in the options market, with speculative activity shifting from Nvidia after its split to Apple, to Tesla, and then to small caps.

Why does this matter? Because call buying can magnify demand for a stock. Assume a world in which a trader buys a call option, and a dealer is on the other side of the trade. The dealer is on the hook if that stock goes up enough so that the option is money-good. Dealers don’t like taking directional risk – they like making money on the fine edges of every trade. So, dealers will offset that directional exposure by buying the underlying stock. Problem solved – and more effective buying demand for that company’s shares. The positive momentum created during times of heavy call buying can, at times, resemble something of a perpetual motion machine (it isn’t, though).

Earnings are certainly a potential catalyst for (most of) the Magnificent Seven to be able to remind investors why they warrant such an honorific.

Per John Butters, senior earnings analyst at FactSet, four of the seven constituents– Nividia, Amazon, Meta, and Alphabet – are expected to be among the top five drivers of annual earnings growth for the S&P 500 this reporting period. Profit growth by these four companies is expected to outstrip the rest of the index by 50 percentage points, according to Butters, and that premium performance doesn’t shrink to less than 15 percentage points until the fourth quarter.

Earnings growth Mag 4 — Earnings growth in Amazon, Alphabet, Meta, and Nvidia poised to stay far ahead of the pack. (Source: Factset)

Microsoft, Meta, Apple, and Amazon will release their quarterly figures next week, while Nvidia’s report is still more than a month away.

Perhaps call demand will pick up in the next few sessions as investors pre-position for financial results that tend to exceed expectations. Or, on the other hand, given the amazing run of form for these stocks so far this year, there’s a higher bar to clear for traders to aggressively re-engage in these names.

In the long term, stocks are going to be driven by earnings growth. But shorter-term episodes of outperformance in stocks or sectors are often going to include a substantial amount of multiple expansion. And that’s a process that is usually firmly rooted in flows, and more and more, those flows tend to be emanating from the options market.

Luke Kawa1m

Nvidia’s Jensen Huang says the chip designer is getting closer to selling AI chips to China

H200 sales to China are back 𝚘̶𝚗̶ 𝚘̶𝚏̶𝚏̶ 𝚘̶𝚗̶ 𝚘̶𝚏̶𝚏̶ 𝚘̶𝚗̶ 𝚘̶𝚏̶𝚏̶ 𝚘̶𝚗̶ 𝚘̶𝚏̶𝚏̶ 𝚘̶𝚗̶ 𝚘̶𝚏̶𝚏̶ on the menu.

Bloomberg headlines from Nvidia’s conference in San Jose on Tuesday indicate that CEO Jensen Huang said the chip designer has received purchase orders from Chinese customers, received licenses for many customers, and that it’s firing up manufacturing to sell these AI chips from the Hopper generation to buyers in the world’s second-largest economy.

The situation in China has changed, he added.

Earlier this month, the FT had reported the opposite: that Nvidia had asked TSMC to ramp down its production of H200 chips in order to produce Vera Rubin, its upcoming flagship generation.

The situation loosely remains that Nvidia wants to sell AI chips to China, Chinese buyers want them, but authorities in both DC and Beijing don’t seem to want Chinese companies to be able to get their hands on too many of these processors.

Shares of Nvidia are ending the day lower, and are off more than 3% from their Monday knee-jerk peak reached after Jensen said that the company’s Blackwell and Vera Rubin sales would total at least $1 trillion through 2027.

It’s another case of good financial news from Nvidia failing to give the stock anything more than a short-lived lift.

Crowd of businessmen with multiple expressions

Corporate America won't shut up about agentic AI, or AI in general

In fact, executives are saying the word “AI” more than they’re saying “earnings” on earnings calls.

Hyunsoo Rim, David Crowther2h

Matt Phillips4h

Space, drone, and satellite stocks continue their Iran war-driven rally

Space, drone, and satellite stocks like Rocket Lab, Redwire, Intuitive Machines, AST SpaceMobile, and Planet Labs are outperforming both broader indexes and the thematic baskets of momentum stocks and shares with high retail sentiment with which they are often lumped.

There’s little clear news on the tape to attribute for the move higher. (Though the FAA did announce a streamlining of launch licensing rules that cover a number of these companies, including Rocket Lab and Firefly Aerospace, as well as Tesla CEO Elon Musk’s commercial space giant, SpaceX.)

More broadly, the outbreak of war with Iran has burnished the space, drone, and satellite sector in the eyes of investors, as the conflict underscores the importance of the three technologies to the future of defense. And in a world where nations are growing unsure of traditional alliances, countries across the board will look to boost their own capabilities. (Belgium just announced that it has selected Redwire, for example, to provide its first national security satellite system. Belgium!)

As Goldman Sachs analysts put it in a research note from January:

“Companies with native drone and satellite technology cultures like AeroVironment and Rocket Lab may find themselves particularly well positioned. And in Europe, a remilitarization of the Continent is underway that could require a $160bn investment over the next 5 years just to catch up with Russia.”

Since the start of the Iran war, most of these types of shares have handily outpaced the Nasdaq Composite Index. Rocket Lab, Redwire, and Intuitive Machines are all up more than 12% during that period, compared to a Nasdaq that’s just slightly in the red, as of shortly before 12 p.m. ET on Tuesday.

Nvidia keeps giving Wall Street everything it wants — without getting rewarded

Yet another case of good financial news from Nvidia failing to generate an enduring positive reaction.

Luke Kawa5h

Matt Phillips6h

Oklo surges after receiving approval for next phase in the construction of its first reactor

Revenue-free retail favorite Oklo is up in early trading after announcing regulatory updates on its first product, a reactor it calls Aurora, which it has started building at the US Energy Department’s primary nuclear energy research and development center, the Idaho National Laboratory.

Oklo announced that it signed an “other transaction agreement” (OTA) with the Department of Energy early Tuesday. (OTAs are typically used by the federal government to enter into research, prototyping, and production deals with private entities outside of the typical procurement processes.)

Oklo also announced that the DOE’s Idaho Operations Office also signed off on a preliminary safety design review for the reactor, which is expected to be completed sometime in late 2027 or 2028. The company broke ground on the project in September.

Separately, Oklo also announced that the Nuclear Regulatory Commission issued a materials license enabling an Oklo subsidiary to handle, process, and distribute isotopes.

“This is Oklo’s first NRC-issued license and supports the transition from design and planning to real-world execution and progress,” the company said.

Given the close involvement of the federal government in the development of nuclear power plants, Oklo’s close ties to the Trump administration have been seen as an important advantage for the company — but have also drawn scrutiny and criticism.

Energy Secretary Chris Wright was formerly a board member at Oklo, before he was tapped to lead the Trump administration’s Department of Energy.

The department is playing a more prominent role in the nuclear regulatory process under an executive order designed to speed up approval of new nuclear energy technologies.

Separately, Oklo is due to report earnings after the close of trading on Tuesday.

Oklo Announces U.S. Department of Energy Approval for Nuclear Safety Design Agreement of Aurora Powerhouse at Idaho National Laboratory