The stock market has been on a roll lately, but it appeared Wednesday morning that investors would have to deal with at least a brief pause in the uptrend. Futures contracts on major market benchmarks were all down roughly half a percent in premarket trading, as market participants tried to weigh various impacts of a potential debt ceiling resolution as well as other macroeconomic factors.
Investors have had a close eye on artificial intelligence (AI) stocks, largely because many of them have been performing extremely well lately. But just because a company has associated itself with artificial intelligence doesn't mean that its stock is destined for immediate success. That's what shareholders in several companies are discovering Wednesday morning, as shares of HP (HPQ 0.12%), Hewlett Packard Enterprise (HPE 0.68%), and Ambarella (AMBA -0.66%) are all significantly lower early Wednesday. Here's a closer look at why that could be the case.
Two businesses, two falling stocks
Both halves of the former Hewlett-Packard found themselves losing ground in premarket trading Wednesday morning. Shares of hardware-focused HP fell 6%, while the more services-oriented Hewlett Packard Enterprise dropped 9%.
On the hardware side, HP had to deal with plunging demand for PCs and other equipment. Sales dropped 22% year over year in the fiscal second quarter that ended April 30, with the personal systems segment posting a 29% drop in revenue. Adjusted earnings of $0.80 per share were down 26% from year-ago levels. Although HP projected improving conditions in the second half of its 2023 fiscal year, investors seemed a bit concerned at the lack of demand for computing equipment at the enterprise level.
Meanwhile, Hewlett Packard Enterprise posted somewhat better results for its fiscal second quarter, but they still left investors wanting more. Despite a 35% rise in annualized revenue run rates, total sales for the quarter rose by just 4% from the same period a year ago. Adjusted earnings of $0.52 per share were up 18%, though, and came in at the top of its previous profit guidance.
Yet despite comments about strong demand for Hewlett Packard Enterprise's AI offering, investors had wanted to see the kind of jump in sales that other AI-focused companies have seen. That might yet materialize, but shareholders seem to want confirmation rather than taking it on faith that things will work out well on the artificial intelligence front.
Ambarella takes a big sales hit
Falling even harder were shares of Ambarella, which traded down 19% in the premarket session Wednesday morning. The edge AI semiconductor company's fiscal first-quarter results for the period ended April 30 didn't live up to high expectations among its investors.
Ambarella's numbers showed a company under considerable pressure. Revenue of $62 million was down 31% year over year. The chipmaker reversed a year-ago profit with adjusted net losses of $6 million, or $0.15 per share. Moreover, Ambarella's guidance for the fiscal second quarter projected financial results that would be generally consistent with what the first quarter brought, including revenue of between $60 million and $64 million and calls for modest net losses even on an adjusted basis.
Ambarella did talk up its AI plans, with its CV3 platform helping to drive its inference AI strategy. Moreover, Ambarella has high hopes for its autonomous driving software prowess, securing a place in the development of a Level 4 commercial vehicle design platform.
Yet given the pace of technological advances in artificial intelligence, shareholders want to see faster progress toward meaningful gains in sales and profits. Ambarella didn't persuade its investors with its latest results, and they'll want to see more proof of demand for the chipmaker's products before they'll be convinced the stock can participate in an AI-driven rally.
