What’s Driving the Markets Today

Futures on major U.S. indices point to a mixed start to the final day of the week. Broadcom shares fell in after-hours trading after the company warned that investments in artificial intelligence could squeeze margins. On the other hand, Costco’s financial results exceeded expectations, highlighting strong demand for affordable goods among Americans ahead of the holiday season. Lululemon Athletica announced the departure of its CEO, while the company’s founder is considering a potential proxy fight. Oil prices rose due to concerns over a possible U.S. intervention on Venezuelan tankers.

1. Mixed Performance of Futures

• Dow Jones futures rose 105 points (0.2%)
• S&P 500 remained nearly unchanged
• Nasdaq 100 fell 36 points (0.1%)

Yesterday, the S&P 500 and Dow Jones reached new record closing levels, supported by a more balanced and less “hawkish” stance from the Federal Reserve. Analysts believe Jerome Powell has given a “green light” for potential market gains through the end of the year.

However, sentiment was affected by Oracle’s disappointing forecast, raising concerns about the profitability of AI investments. The company’s shares dropped more than 10%, and its bonds were sold off, reflecting investor worries. The Nasdaq Composite fell 60.3 points (0.25%).

2. Broadcom Warns AI Could Impact Margins

Broadcom shares also fell in after-hours trading. The Nvidia competitor indicated that its margins will shrink due to the “dilutive” effect of AI revenue.

• Broadcom has $73 billion in orders expected to be delivered over the next year and a half.
• Large AI investments could pressure profits, with the company’s first quarter projected to see a roughly 1 percentage point drop in consolidated gross margin.

It is forecasted that major U.S. cloud companies will spend over $400 billion on AI this year, primarily to build new data centers for models like ChatGPT and Google Gemini.

Despite this, there is no clear evidence that these investments are already driving significant productivity or profit growth, and high valuations in tech stocks raise concerns about a potential bubble in the sector.

3. Costco Beats Expectations

Costco shares dipped slightly after hours, despite reporting first-quarter revenue and earnings above forecasts.

• Same-store sales (excluding fuel) rose 6.4% versus the expected 5.82%.
• The sales strength is also supported by same-day delivery partnerships with Instacart in the U.S. and UberEats and DoorDash internationally.

Costco’s results reflect a trend among other retailers like Walmart, Dollar Tree, and Dollar General, which are seeing strong demand for affordable goods amid economic uncertainty and high inflation.

4. Lululemon CEO Departure

Lululemon shares jumped more than 10% following the announcement that CEO Calvin McDonald will step down and the company raised its annual earnings forecast.

• McDonald will leave in January but remain as a senior advisor until March.
• Founder Chip Wilson is considering a potential proxy fight and has already met with potential investors.
• Tensions stem partly from disappointment with the company’s marketing strategy.

5. Oil Prices Rise

Oil prices increased over concerns that the U.S. might seize more Venezuelan tankers, potentially limiting supply.

• Brent futures rose 0.5% to $61.56 per barrel
• WTI climbed 0.5% to $57.90 per barrel

However, both benchmarks are on track for a weekly loss after dropping around 1.5% on Thursday. A possible deal between Russia and Ukraine could increase Russian oil supply on the global market.