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Nasdaq Stays Strong, but These 2 Stocks Are Weighing on the Market Friday

By Dan Caplinger – Nov 19, 2021 at 8:58AM

Key Points

  • The Nasdaq looked ready to move to record highs again despite broader market weakness.
  • However, Workday and Applied Materials fell after reporting earnings.
  • Both stocks have the potential to bounce back if they can successfully address short-term challenges.

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Investors aren't pleased with what these companies had to say about their future prospects.

The Nasdaq Composite (^IXIC -1.59%) has been doing extremely well lately, climbing to an all-time high on Thursday. Moreover, even amid rising concerns about the spike higher in COVID-19 cases in Europe, the Nasdaq looked poised to move higher again on Friday. As of 8:30 a.m. ET, Nasdaq futures were up another 74 points to 16,555.

Yet there were some stocks that trade on the Nasdaq that contributed to the broader market's lack of conviction on Friday morning. Both Workday (WDAY -2.69%) and Applied Materials (AMAT -3.44%) saw significant declines in their share prices as the two businesses reported financial results that failed to satisfy their investors. Below, we'll look more closely at what Workday and Applied Materials said and how their reports could affect broader market sentiment.

Workday leaves investors wanting more

Shares of Workday were down more than 7% in premarket trading Friday morning. The software-as-a-service human resources platform provider continued to see solid growth, but it fell short of the ambitious targets many shareholders had set for the company.

Workday's third-quarter results had a lot of positives. Revenue rose 20% year over year, with a 21% rise in subscription-based revenue to $1.17 billion. Total subscription backlog rose 24% to nearly $11 billion, and adjusted earnings of $1.10 per share were up 28% from the year-ago period. The company also boosted its guidance for the remainder of the fiscal year, expecting subscription revenue growth for fiscal 2022 to clock in up 20% from 2021 levels.

Workday's growth strategy has used strategic acquisitions extensively, and the company announced another purchase Friday, entering into an agreement to purchase cloud-based external workforce and vendor management technology provider VNDLY. Workday sees the acquisition boosting its ability to work with enterprise customers that have both internal, freelance, and outsourced workers, which reflects the ongoing evolution of the workforce across the global economy.

Investors in Workday are likely disappointed by the day's declines, but the stock has jumped to all-time highs recently. Even with the brief pause in its rise, Workday stock has plenty of potential to regain its upward trajectory in the months to come.

Person looking at semiconductor products with a magnifying glass.

Image source: Getty Images.

Applied Materials hits the supply chain wall

Meanwhile, Applied Materials also saw a nearly 7% decline in its stock. The semiconductor equipment manufacturer reported solid growth but also said that supply chain issues held it back from even larger potential gains.

Applied Materials' fourth-quarter report told the story. Revenue for the quarter rose 31%, capping a year in which sales jumped 34% to a record $23.06 billion. All-time highs in operating margin helped produce quarterly earnings of $1.94 per share and annual earnings of $6.84 per share.

However, investors focused on the words of CEO Gary Dickerson, who cited extremely strong demand for semiconductors and related equipment due to digital transformation efforts. Yet Dickerson described Applied Materials' problems simply, stating, "Our supply chain cannot keep up." The executive expects ongoing near-term silicon component shortages to continue, and the company is focusing all its efforts on improving relationships with suppliers and other partners to ease the burden.

It's evident that if Applied Materials can resolve supply chain challenges, the demand is there to deliver even stronger growth. That's potential good news for investors, but it could take some time for the stock to recover from short-term concerns.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Workday. The Motley Fool recommends Applied Materials. The Motley Fool has a disclosure policy.

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