Market 04/24: China Postpones Chip Import Tariffs

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China delays import tariffs on semiconductors from the US

According to information from China's Customs Bureau:

• 125% tax on chip and semiconductor products imported from the US will be postponed

• Not yet clear exactly which product codes are applied

This is the current rumor from China - translated:

• Products will account for up to 28% of all imports from the US worth $46 billion

Trade war greatly affects both countries

FT - Factories in China cut production and reduce working hours:

• Affects all provinces but the largest industrial zones

US - Number of inbound ships and commercial cargo starts to decline but still cyclical signs:

US - Biggest impact from tourism from European visitors:

However, tariff revenue reached $15 billion in April, is it enough to compensate:

Trade Negotiation Updates

China confirms US-China have not negotiated at all

• US media focuses on Trump saying there is “talking” but China says no

→ US-China are not “negotiating” but still “talking” at lower levels serving trade but China confirmed last week

• CNN says Chinese Finance Minister and Central Bank leader are in Washington DC but no high-level negotiations.

• Bessent confirms good progress with South Korea

• FOX reports White House close to signing deal with India

  • Boeing says India will buy back planes China doesn't take

• Trump says Canada is quite difficult, may reimpose 25% tariffs on cars and parts

→ Still no trade agreements

Existing home sales weakest since 2008

March sales drop sharply -5.9% MoM, worse than forecast, lowest since Nov/2022.

This sales figure weakest since 2007-2008 crisis

Reason: mortgage rates remain high

Used home prices (median price) up +2.7% YoY to $403,700/unit.

Now used homes and new builds priced the same

Inventory of available homes continues to increase but cannot reduce home prices

→ home supply increases → cannot reduce home prices → causes sales to drop.

Home prices high, but still cheap vs gold → home listing price in gold at lowest since 2012: 1 home = 129 ounces!

Durable goods orders surge thanks to Boeing

Durable goods orders surge +9.2% MoM (column chart), +10.9% YoY (line chart), far exceeding expectations, highest increase since Jan/2022.

Increase far exceeds expectations at 4 sigma

Durable goods orders, excluding transportation, very small increase +0.03% MoM, +2.2% YoY.

Reason: commercial aircraft and parts orders up 139%. 192 orders for Boeing in March, most since end of 2023.

$44B 7Y auction weakest in 3 years

Foreign demand lowest in 3 years.

• High Yield (highest accepted yield): 4.123%.

• Auction tail: 0.2bps → this is the 2nd consecutive tail, but with improvement

• BTC ratio (Bid-to-Cover): 2.55, slightly up from 2.53 in March, below average of last six auctions (2.67).

  → 7Y demand not strong, though not too bad vs previous auctions.

• Foreign investors continue to turn away, taking only 59.3% from 61.2% last month

• Domestic investors take back 25.44% from 26.1% last month

• Dealers hold 15.3%

Alaska Airlines: Route cuts

• Revenue: $3.14B, below forecast $3.16B, +41% YoY. 🔴

• Net income: loss $166M. 🔴

• EPS: -$1.35, worse than forecast -$0.73. 🔴

• Operating Cash Flow: $459M.

Steve: “This is not a stock that Steve would recommend, cost cutting is necessary but has not yet shown positive impact.”

IBM: Cuts target to no growth

• Revenue: $14.54B, above forecast $14.39B, +1% YoY. 🔴🔴🔴

• Adj. Gross margin: 56.6%, above forecast 55.6%, +190 bps YoY. 🟢

• Adj. EPS: $1.60, above forecast $1.42, -5% YoY. 🟢

• Free cash flow: $1.96B, above forecast $1.79B, +2.7% YoY. 🟢

2025 Guidance:

• Revenue growth: at least +5%, higher than forecast +4.78%. 🟢

• Free cash flow: around $13.5B, below forecast $13.72B. 🔴

Arvind Krishna:

• Q1 beats expectations thanks to Software. Strong generative AI demand, contributing over $1B to backlog in the quarter.

• Optimistic about long-term growth opportunities in technology and the global economy.

• Maintaining full-year revenue and free cash flow growth forecasts despite volatile macroeconomic environment.

Steve: “The problem with is not beating forecasts, but even if it beats forecasts, there is still no growth. With revenue nearly stagnant for 4 years, investors decided it no longer deserves 38x P/E and cut the valuation due to the company not raising growth outlook.”

ServiceNow: Continued growth

• Total Revenue: $3.09 billion, beat forecast $3.08 billion, +18.5% YoY. 🟢

• Subscription Revenue: $3.01 billion, above forecast $3.00 billion, +19% YoY. 🟢

• Net income: $460 million, +33% YoY. 🟢

• Adj. EPS: $4.04, beat forecast $3.83, +18% YoY 🟢

• Adjusted Gross Profit: $2.54 billion, higher than forecast $2.53 billion. 🟢

• Adjusted Gross Margin: 82%, above estimate 81.8%, -83% YoY. 🟢

• Free cash flow: $1.48 billion, above estimate $1.32 billion, +21% YoY. 🟢

2025 Guidance:

• Subscription Revenue: $12.64 billion – $12.68 billion, estimate $12.66 billion.🟡

• Subscription Gross Margin: 83.5%, estimate 83.6%. 🟡

• Operating margin: 30.5%.

• Free Cash Flow Margin: 32%.

Executive Commentary:

• Raised the midpoint of guidance to maintain growth potential amid uncertainty.

• AI driving business transformation and ROI, positioning ServiceNow as a leader.

• Dynamic market, strong performance exceeding expectations with Now Assist and new ACV.

Steve: “Looking at the growth makes it clear why this stock is loved. However, the only thing Steve is worried about is how long this revenue momentum will last. Due to lack of insight and product knowledge, Steve doesn't have a strong opinion on $NOW.”

CHIPOTLE: Starting to slow down

• Revenue: $2.875 billion, below forecast $2.94 billion, +6.4% YoY. 🔴

• Net income: $386.6 million, +7.6% YoY.

• EPS: $0.29, above estimate $0.28, +7.4% YoY. 🟢

• Operating margin: 16.7%, up from 16.3% YoY. 🟢

• Restaurant Margin: 26.2%, down from 27.5% YoY. 🔴

• Operating Cash Flow: $577 million, down -2% YoY. 🔴

• Free cash flow: $412 million, down -6% YoY. 🔴

• Opened 57 new restaurants in Q1/2025.

• Repurchased stock worth $553.7 million.

Scott Boatwright:

• Q1 was impacted by weather and rising uncertainty causing consumer spending to slow.

• The team is improving operations, innovating internally, and building Chipotle into a global brand.

Steve: “Stock once beloved but has currently paused growth, but still protecting market share. Actually, this financial report isn't bad, just that the expectation up to 44x P/E is high for this industry. Steve likes at this price simply because there are many other undervalued options but entry here is also fine.”

Texas Instruments: Stable industrial demand

• Revenue: $4.07 billion, beat estimates $3.91 billion, up +11% YoY.🟢

• Net income: $1.18 billion, up +7% YoY.

• Operating income: $1.32 billion, beat forecast $1.18 billion, up +3% YoY.🟢

• EPS: $1.28, beat forecast $1.06, up +7% YoY. 🟢

• Investment & development: $1.12 billion, below forecast $1.18 billion, down -10% YoY.

• Free cash flow: -$14 million.

• Cash & cash equivalents: $2.76 billion, beat forecast $2.41 billion, up +11% YoY.

2025 Guidance:

• Revenue: $4.17 billion – $4.53 billion, beat estimate $4.12 billion. 🟢

• EPS: $1.21 – $1.47, beat forecast $1.20. 🟢

CEO Haviv Ilan:

• Revenue up 11% YoY, 2% QoQ. All markets grew except personal electronics.

Steve: “Good report, seems more optimistic than other companies with most customers in the industrial segment and no signs of demand slowdown yet. The report from is good news for the entire chip industry.”

Lam Research: Good expectations despite tariffs

• Revenue: $4.72 billion, above estimate $4.63 billion, up +24% YoY.🟢

• Net income: $1.33 billion, up +38% YoY.

• EPS: $1.04, beat forecast $1.00, up +33% YoY.🟢

• Gross margin: 49.0%, higher than 47.4% QoQ. 🟢

• Operating margin: 33.1%, higher than 30.5% QoQ. 🟢

Q4/2025 Guidance:

• Revenue: $4.7B – $5.3B, above forecast $4.59B.🟢

• EPS: $1.10 - $1.30, above estimate $0.98.🟢

• Gross margin (Non-GAAP): 49.5% ± 1%.

• Operating margin (Non-GAAP): 33.5% ± 1%.

CEO Tim Archer:

• Strongest product portfolio to date, creating opportunities to expand market, gain market share due to pent-up/surging demand.

• Strong outlook despite short-term tariff uncertainty. Confident in outperforming semiconductor industry growth in the future.

Steve: “Don't like and equipment group because it depends a lot on other businesses, but this is an extremely good ER for the entire chip industry in general.”

American Airlines:

• Revenue: $12.60B, below forecast $12.68B, 0% YoY 🔴

  • Passenger revenue: $11.39B, down -0.6% YoY.

  • Cargo revenue: $189M, up +1.1% YoY.

  • Other revenue: $971M, up +5.0% YoY.

• Net income: loss -$473M, loss up +51.6% YoY. 🔴

• EPS: -$0.59, better than forecast -$0.62, up +74% YoY. 🟢

• Load factor: 80.6%, below estimate 81.9%, up +1% YoY. 🔴

• Available seat miles: 69.90B, in line with forecast 69.91B. 🟡

• Revenue passenger miles: down -1.9% YoY.

• Free cash flow: $1.7B.

Q2/2025 Guidance

• Adj. EPS: $0.50 – $1.00, in line with forecast $0.96. 🟡

• Revenue: -2% to +1% YoY.

• Operating margin: around +6% to +8.5%.

CEO Robert Isom

• Well positioned ahead of uncertainty thanks to renewed fleet/vehicles and disciplined cost control.

• Confident in long-term performance despite headwinds, thanks to strategic investments made.

Steve: “Although back to COVID lows but Steve still thinks or will be a better choice. still showing loss of market share, especially in the commercial segment.”

SouthWest Airlines: Back to COVID lows

• Revenue: $6.428 billion, up +1.6% YoY.

• Net income: loss $149 million, down -35.5% YoY.

• Operating profit: loss $223 million, down -43.3% YoY.

• EPS: -$0.26.

CEO Bob Jordan

• Excellent Q1 operations, leading the industry in on-time performance. Exceeded cost targets, on track with enhanced cost-cutting plan.

• New initiatives (Expedia, loyalty program) yielding good results. Upcoming basic economy fares, baggage fees, assigned seats.

• Maintaining strong balance sheet, flexible Boeing orders. Reducing capacity in second half, full year 2025 expected up ~1% YoY.

• Initiatives to improve commercial products, financial efficiency, delivering value to customers and shareholders.

Steve: “Similar to , after the earnings report of recently, Steve thinks the drop in air travel demand in Q1 is real, but customers are concentrating on major airlines, leaving smaller route carriers behind.”

PEPSICO: No growth seen

• Revenue: $17.92 billion, beat estimates $17.78 billion, down -2% YoY. 🟡

• Net income: $1.83 billion, down -11% YoY.

• Adj. EPS: $1.48, below forecast $1.49, down -4% YoY. 🔴

CEO Ramon Laguarta:

• Solid business amid uncertainty, but expected trade volatility to increase supply chain costs (tariffs).

• Rising costs and weak consumer spending lead to adjusted EPS guidance. Long-term productivity plan supports profitability.

• Announced 5% increase in annual dividend starting June 2025, the 53rd consecutive increase.

Steve: “Really not optimistic, poor growth with sugary drink consumption demand declining, foot traffic at retail locations also down leading to reduced ancillary demand, dividend not as good as many other stocks. Steve does not recommend here.”

Market: Chip sector pulls the entire market

Earnings reports of and plus news of China postponing taxes on semi sector pulling money into the entire tech block all morning with NASDAQ up +2.8%

Internals stable with buyers in control, buy volume leading sell 4-1. However VIX only dipped lightly -3.5% indicating this is not a risk-on day but investors engaging in selective buying and risk adjustment based on earnings and news.

So far, SPX upside remains capped at 5450-5500 region with heavy call seller activity.

→ Overall, market continues to move with news, no structural change yet. Steve maintains view that until there's a trade deal, the market is not considered safe.