Wall Street Lunch: Chip Chip Hooray

Summary:

• Micron sees strong revenue growth and AI demand.
• Southwest Airlines updates strategy, expects higher Q3 revenue per seat mile, and authorizes a $2.5 billion share repurchase program.
• Accenture’s Q4 results beat expectations, guiding fiscal 2025 revenue above estimates, increasing dividend.
• Goldman Sachs recommends buying Tesla calls ahead of Q3 earnings and Robotaxi event.

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Strong guidance has shares of MU rallying sharply. (0:16) Southwest raises guidance as it unveils new strategy. (2:39) PayPal to let business customers hold crypto. (3:53)

The following is an abridged transcript:

The AI trade got a jolt following strong guidance from chipmaker Micron (NASDAQ:MU).

Shares of Micron are up more than 10%.

Seeking Alpha analyst Gary Alexander says: “Micron’s incredible (near-doubling) revenue growth helps to solidify the thesis that AI is supporting a multi-year boost in demand,” adding that he believes the “chip sector is oversold.”

Mizuho analyst Vijay Rakesh said the company was aided by strength in both NAND and dynamic random access memory pricing, while high-bandwidth memory pricing is set for 2025, with inventory already sold out.

Also in AI chip news, Susquehanna noted that pricing on Nvidia’s (NVDA) Hopper line of products has remained strong ahead of the upcoming Blackwell line.

Analyst Chris Rolland said aftermarket prices for the H100 have been “relatively stable” at slightly less than $30,000 (down 0.6% in the third quarter).

Additionally, there has not been any rise in H100 supply in the secondary market, suggesting that companies are holding on to their purchases.

Looking to the economy, the morning numbers fell in the soft-landing camp.Q2 GDP stayed at 3.0% in its final revision, matching consensus.

The latest print reflects upward revisions to private inventory investment and federal government spending offset by downward revisions to nonresidential fixed investment and exports. Imports, which are subtracted from the GDP calculation, were revised up.

Orders for durable goods were virtually unchanged in August, better than the drop of -2.8% expected and much softer than July’s +9.9% surge. Electrical equipment, appliances, and components, up two of the last three months, drove the slight increase in the headline number.

Excluding transportation equipment, core durable goods rose 0.5% from a month ago, exceeding the +0.1% consensus.

Wells Fargo economists said the slight headline rise “was something of a surprise after a major surge in July had most forecasters braced for give-back. Remarkably, the scant gain in August came despite a slight upward revision that lifted the July orders increase.”

“While the trend increase continued for orders of computer and electronics products, a new development in August is some signs of life in old-line manufacturing,” they added.

And weekly initial jobless claims fell unexpectedly to 218,000. The four-week moving average dropped to 224,750.

Among active stocks today, Southwest Airlines (LUV) updated guidance on its Investor Day as it rolled out its new strategy that includes global partnerships, redeye flights assigned seating, and a modernized fleet.

For Q3, Southwest Airlines (LUV) expects to see revenue per available seat mile rise 2% to 3% year-over-year, vs. a prior forecast for flat to down 2%. The carrier guided for economic fuel costs per gallon of $2.50 to $2.60 vs. a prior outlook for $2.60 to $2.70. Capacity is seen being up 2% Y/Y.

Southwest also authorized a new $2.5 billion share repurchase program, replacing the prior buyback announced in 2019.

And Accenture (ACN) rose after fourth-quarter results beat expectations and it guided fiscal 2025 revenue above estimates.

Accenture expects revenue for fiscal Q1 to be in the range of $16.85 billion to $17.45 billion (mid-point $17.15 billion), compared to consensus of $16.94 billion.

The company also boosted its quarterly dividend to $1.48/share from $1.29 and approved an additional $4 billion stock buyback, bringing the total outstanding repurchase authority to about $6.7 billion.

In other news of note, PayPal (PYPL) is allowing its business clients in the U.S. to buy, hold, and sell cryptocurrencies directly from their PayPal accounts after offering the same service to retail users over the last several years.

PayPal says the move, which could unlock a broader market for the company, comes as “business owners have increasingly expressed a desire for the same cryptocurrency capabilities available to consumers.”

The payments giant is enabling merchants to externally transfer crypto on-chain to eligible third-party wallets.

And in the Wall Street Research Corner, Goldman Sachs recommends buying Tesla (TSLA) call options ahead of the EV maker’s third-quarter earnings report on Oct. 2 and its Robotaxi event on Oct. 10.

Tesla accounts for 17% of all S&P 500 (SP500) options volumes, ahead of Nvidia, which accounts for 14%.The automaker is hosting a Robotaxi event on Oct. 10, where they are expected to unveil its full self-driving technology.

Goldman Sachs automobile analyst Mark Delaney also estimates its third quarter earnings report will arrive in line with the consensus, driven by China’s market strength.

John Marshall, head of derivatives research, said that Delaney “sees Tesla potentially having a cost advantage at scale vs. other autonomous vehicle competitors given its production volumes in the consumer business, vertical integration, and narrower sensor suite.”

The recommended options trade is to Buy TSLA $255 calls expiring on Oct. 24. They were recently offered at $17.79.

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