Fears surrounding artificial intelligence (AI) disruption have increasingly spread across the stock market, prompting investors to question the sustainability of the current trend of selling stocks first and asking questions later. As traders enter a holiday-shortened trading week, a few key events and reports are under scrutiny that could influence market sentiment.
First up, Palo Alto Networks is set to report its earnings on Tuesday night, a critical moment for the cybersecurity firm. CEO Nikesh Arora has the opportunity to address investor concerns that AI advancements might encroach on the market share of cybersecurity companies. This anxiety has significantly affected stocks of various software vendors, despite the belief that cybersecurity’s importance will only increase in an AI-dominated environment. Analysts have suggested that the intricate nature of cybersecurity poses less risk of displacement compared to other software sectors. Nevertheless, Palo Alto Networks, alongside other firms like CrowdStrike, has still faced overwhelming sell-offs this year despite showing slightly more resilience than peers in related software ETFs.
Analysts are hopeful for a strong performance from Palo Alto, particularly concerning key metrics such as annual recurring revenue (ARR) and remaining performance obligation (RPO). The integration successes of their recent acquisitions—CyberArk and Chronosphere—will also be key points of discussion. However, there are significant market dynamics at play. For example, a note from BTIG analysts indicated they have confidence in sustained low-to-mid-teens growth for Palo Alto but have lowered their price target due to adjustments in valuation, illustrating the challenging environment for tech stocks.
Next, attention will turn to Texas Roadhouse as it releases its fourth-quarter results on Thursday night. Unlike the AI concerns surrounding Palo Alto, Texas Roadhouse faces challenges primarily from rising beef costs that have pressured its margins. The company has approached pricing adjustments cautiously, attempting to maintain a value-centric image. In prior forecasts, Texas Roadhouse had indicated a possible 7% inflation in commodity costs for the year, and while beef prices have fluctuated, they recently approached record highs. Investors will be keen to see if the firm can stabilize its outlook on commodity costs and what adjustments it plans to make regarding menu pricing, given the previously modest increases last year.
The restaurant chain has demonstrated strong traffic growth, which is vital for maintaining same-store sales growth—a key performance indicator in the restaurant industry. In the previous quarter, a reported traffic growth of 4.3% contributed to 6.1% same-store sales growth. Continued success in drawing in customers may provide a positive story for investors amid the beef cost issue.
Lastly, economic reports are on the calendar that could affect broader market sentiments. A major focus is on Friday’s personal consumption expenditures (PCE) index, which serves as the Federal Reserve’s preferred measure of inflation. Following a cooler-than-expected consumer price index (CPI) report, there is optimism that the PCE might indicate favorable conditions, giving the Fed room to consider rate cuts later in the year. Market expectations are pricing in potential rate cuts beginning in June, coinciding with the end of Chair Jerome Powell’s term.
Additionally, reports including housing starts and new home sales are due to be released throughout the week, providing further context for economic recovery indicators. Included in this slate of reports is the preliminary reading on fourth-quarter U.S. gross domestic product (GDP), with forecasts indicating a growth rate of around 3.7%.
As the week progresses, traders will closely watch these developments, hoping for signs of stability in both key company reports and broader economic indicators.
