TSMC: A Major Test for the AI Trade
Ticker: TSM | Reports early Thursday
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Taiwan Semiconductor Manufacturing Company will report second-quarter results early Thursday morning. The company has already announced quarterly revenue of approximately NT$1.27 trillion, representing growth of about 36% from last year. Wall Street expects earnings of roughly $3.80 per American depositary share.
Because the revenue numbers are already known, the real focus will be on management's outlook. Investors will be listening for comments about AI-chip demand, advanced-node production, CoWoS packaging capacity, margins and capital spending.
TSMC manufactures advanced chips for many of the world's largest technology companies, including Nvidia, Broadcom, AMD and Apple. A confident outlook would provide further evidence that AI infrastructure spending remains strong. Expectations are already high, however, so the company may need both excellent results and equally strong guidance to move the stock substantially higher.
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Maria's Bottom Line
After reviewing the chart and the return on risk, there is no earnings trade here for me. The $380 strike is near the first meaningful support level, but TSMC spent considerable time trading below that price and has only remained above it since May. That is not enough history for me to trust $380 as dependable support during a volatile earnings reaction.
The return does not justify the uncertainty, so I am not going to force a trade simply because earnings are coming. I am still hoping for a strong report and confident guidance because a positive outlook from TSMC would be good for the entire AI trade and should help support Nvidia and Broadcom.
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UnitedHealth: Medical Costs Remain the Main Story
Ticker: UNH | Reports before the market opens
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UnitedHealth Group will release its second-quarter results before the market opens Thursday. Wall Street expects adjusted earnings of approximately $4.91 per share on revenue of about $110.8 billion.
The headline earnings number will matter, but the more important issue is whether UnitedHealth has brought its medical costs under control. The company has struggled with higher healthcare utilization, particularly within its Medicare Advantage business.
Investors will also be watching Medicare Advantage pricing, membership trends, Optum's margins and management's full-year outlook. The stock has recovered, but the company now needs to prove that the improvement is supported by the underlying business.
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Maria's Bottom Line
UnitedHealth is one I am going to watch, not trade, going into earnings. The company still has a lot to prove, especially when it comes to medical costs and Medicare Advantage.
For me, this is not simply about whether UnitedHealth beats the earnings estimate. I want to hear that costs are truly improving and that management feels confident about the remainder of the year.
There may be a better opportunity after earnings, once we know whether the recovery is real. Right now, I would rather wait than take a position without a clear edge.
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Netflix: Growth Is Expected, but Confidence Must Be Restored
Ticker: NFLX | Reports after the market closes
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Netflix will release its second-quarter results Thursday shortly after the market closes. Wall Street expects earnings of approximately $0.79 per share on revenue of about $12.58 billion, representing revenue growth of nearly 14% from last year.
Investors will be watching advertising growth, viewer engagement, operating margins and management's guidance. Netflix must show that it can continue growing revenue while maintaining engagement and keeping spending under control.
The stock has struggled this year, so investors may be looking for more than a routine earnings beat. A strong report and confident outlook could begin rebuilding momentum, while disappointing advertising results, margins or guidance could keep pressure on the shares.
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Maria's Bottom Line
There is no additional Netflix earnings trade here for me because I already own the stock in my portfolio. I have enough exposure going into the report without adding more risk through the options market.
Netflix could beat the headline estimates and still trade lower if investors do not like the details. I am comfortable letting the shares I already own participate in the earnings reaction rather than forcing another position.
I am hoping Netflix delivers strong results and that we can bite off a little meat from earnings.
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