The stock market has suffered a persistent decline over the last few months with the benchmark S&P 500 index sinking 10% between Aug. 1 and Oct. 27. Here’s why:
- Seasonality: September and October are the weakest months of the year as many Wall Street professionals are away on vacation, which leaves fewer buyers to support falling stock prices.
- Tax loss selling: Mutual funds have to realize their losses by Oct. 31 each year (as opposed to Dec. 31 for private investors) if they want to use them to offset gains.
- Rising interest rates: The 30-year fixed mortgage rate surged to 8% in October, which was the highest level since the year 2000. Treasury yields also surged with the benchmark U.S. 10-year government bond briefly moving above 5%. Investors are concerned high rates could rapidly slow the economy.
But the script was flipped last week
The S&P 500 is coming off its best week of 2023 with a sizzling gain of 5.9%. What changed so quickly?
The start of November brought an end to the period of seasonal weakness, and mutual funds’ Oct. 31 deadline for tax loss selling officially passed. Plus, the U.S. Federal Reserve held interest rates steady at its meeting last week, and chairman Jerome Powell was slightly less hawkish than investors expected. In fact, experts are now anticipating three interest rate cuts in 2024.
Those factors were enough to springboard the S&P 500 higher. But some individual stocks performed even better last week, because there was another catalyst at play: They reported their latest quarterly financial results. Here are two stocks that topped the S&P 500, and why investors should buy them now.
1. Amazon stock jumped 8.5% last week
Amazon (AMZN -0.67%) is the world’s leading e-commerce company, and that part of its business played a key role in the company’s strong financial results for the third quarter. However, Amazon also received crucial contributions from its industry-leading cloud computing platform, Amazon Web Services (AWS), and its digital advertising segment.
Amazon generated $57.2 billion in online sales during the quarter, marking a 7% increase from the year-ago period. That was the fastest growth rate of 2023 so far. Consumers are likely shopping with Amazon for its cheap prices as they grapple with higher interest rates, but the company has also streamlined its retail operations across the U.S. to speed up delivery times and increase convenience for customers.
AWS, which is Amazon’s most profitable segment, generated $23.1 billion in revenue. That represented growth of 12%, which halted the decelerating growth the cloud platform experienced coming into the quarter. Some of that strength was attributable to Amazon’s investments in artificial intelligence (AI) on both the hardware and software sides, which could be a substantial growth driver going forward.
Investors have also been watching Amazon’s advertising segment with a high degree of interest. The company continues to expand its portfolio of digital assets, like its Prime, Twitch, and Amazon Music streaming services, which are creating new opportunities to sell ads. Starting in 2024, Amazon will introduce video ads on Prime for the first time to help monetize its estimated 200 million users. Advertising was Amazon’s fastest growing segment in Q3 with revenue jumping 25% to $12.1 billion.
In total, Amazon reported $143.1 billion of revenue for Q3, up 13% and higher than the Wall St. consensus. But Amazon’s profitability was the real surprise with its $11.2 billion in operating income representing a whopping 343% year-over-year jump. That proved the company’s efforts to cut costs and improve efficiency over the last 12 months are working.
Ultimately, Amazon appears to be experiencing an upswing across all of its core businesses, which is why investors sent its shares surging 8.5% last week. But it certainly isn’t too late to buy the stock.
2. Advanced Micro Devices stock surged 16.4% last week
Advanced Micro Devices (AMD -0.05%) is one of the world’s leading producers of semiconductors (chips). Its hardware is used in a long list of popular consumer electronics, from the Sony PlayStation 5 to the infotainment systems in Tesla‘s electric vehicles.
Rising interest rates and tough economic conditions have resulted in consumers buying fewer big-ticket electronics like computers and game consoles over the past year. In the first six months of 2023, revenue in AMD’s client segment (which sells chips to computer and device manufacturers) plunged 54% year over year. However, it bounced back with an impressive 42% growth rate in the third quarter.
It was the strongest of AMD’s four key business segments in Q3, and it was driven by the company’s new Ryzen AI line of chips, which are designed to transform computers, notebooks, and devices into artificial intelligence-enabled powerhouses. They will help users process AI workloads on-device, as opposed to in the cloud, which means faster response times and a better experience.
However, investors are now keenly focused on AMD’s data center segment. While revenue was flat in Q3, the company is on the cusp of shipping large volumes of its new MI300 series of chips designed for AI workloads, which will directly compete with Nvidia‘s industry-leading hardware. AMD expects the MI300 range to contribute a whopping $2 billion (at least) to its data center revenue in 2024, once production and sales ramp up, which was music to investors’ ears.
AMD’s total revenue came in at $5.8 billion in Q3, and while that was a modest 4.2% year-over-year increase, it reverses the overall revenue decline the company suffered in the first half of 2023. Plus, AMD’s forecast for the current fourth quarter points to $6.1 billion in revenue, which would translate into an accelerated 9% growth rate.
Investors are looking ahead to a rosy 2024, which should be dominated by strong sales of AI chips. Therefore, despite the 16.4% jump in AMD stock last week, it still looks highly attractive based on the company’s growth potential next year and beyond.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Nvidia, and Tesla. The Motley Fool has a disclosure policy.