Nvidia, Caterpillar, Sarepta: Trending Tickers

Nvidia (NVDA) shares trend in the red ahead of Tuesday's closing bell, recovering after slipping in the morning session on a Wall Street Journal report stating the chipmaker could lose out on $5 billion worth of orders to China due to the Biden administration's new export controls for advanced AI chips.

Caterpillar (CAT) released its third-quarter earnings which beat expectations, while shares declined after the company revised and lowered guidance on its 2024 outlook due to weakened international demand. The company also has a $2 billion decline in its backlog compared to a year ago, further supporting the weak demand claim.

Sarepta (SRPT) shares plunge by over 40% after one of its gene therapy treatment trials showed little to no improvements over a placebo. While the medication was not complete, companies involved with Sarepta's development of the drug — Roche (ROG.SW) and Catalent (CTLT) — are also down on the news.

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Video Transcript

JOSH LIPTON: Let's take a look at some trending tickers right now. Nvidia's stock down about 8/10 of a percent. It's pushing its market value below that $1 trillion mark. That's after the "Wall Street Journal" reported new US chip export rules may force the company to cancel up to $5 billion in advance orders.

So these export rules to China bringing up some questions about Nvidia's opportunity there. The "Journal" specifically saying the company might have to cancel billions of dollars worth of advanced chip sales to China. The company has $5 billion orders China that are vulnerable to these latest US rules. I think it's an Nvidia story, but I think it's also just a broader story, Julie. I mean, there are a lot of American companies. They look to China. They see it as a real growth opportunity. But given these geopolitical tensions between Washington and Beijing that are running hot and seem to be just getting hotter, I think investors are right to question, what does the opportunity look like there? Some people think it's going to be perhaps a lot more narrow and lower margin than maybe we once thought.

JULIE HYMAN: Well, and all of these rules are also pushing a lot of homegrown development in China as well as the race to develop these advanced AI chips is continuing. If Nvidia isn't going to ship them there, will there be a company? And there are companies there, of course, that are working on this.

For Nvidia specifically, I was trying to sort of back of the envelope, what does this mean for it? According to this "Journal" report, orders from Chinese companies for Nvidia in 2024 were around $5 billion. That's what the "Journal's" report says, citing people inside the company.

If you look at its revenue over the past couple of years, around $26 billion. So we're talking about, you know, not a huge amount of their sales but not an insignificant amount of their sales either. So it's just something to think about here.

And to your point, yes, of course other companies have to factor that in. This particular rule really does seem to be very specifically not aimed at Nvidia but that that's exactly--

JOSH LIPTON: That's who gets caught up in it.

JULIE HYMAN: --that's who it's going to be affecting, exactly. So we'll see if it does go beyond that.

And, of course, meantime we're waiting for AMD after the close of trading today. The chip results that we've gotten as of late have been sort of mixed, right? You know, you had an Intel on the plus side. You had an ON Semiconductor on the downside. So it's kind of dependent on what sector within semis they were. But obviously AMD's comments on China are also going to be very interesting.

JOSH LIPTON: Critical, absolutely.

JULIE HYMAN: Yeah, definitely.

JOSH LIPTON: And AI, we should mention.

JULIE HYMAN: Yes, definitely. Let's talk about Caterpillar as well. It's the worst performer on the Dow today after disappointing sales guidance that hit the stock. There was a $2 billion decline in its order backlog compared to a year ago. That does imply slowing demand.

Now, Caterpillar is a really interesting situation because the company has said it's normalization. They're talking about supply-chain conditions that are sort of balancing out now. So the company is sort of trying to talk down the alarm that has come as a result of this backlog going down more than anticipated, but obviously it's not working.

JOSH LIPTON: Yeah. No, so it is a backlog. The order-backlog story is the metric everybody is focused on. That shrank in Q3, year-on-year decline of about $2 billion. So that just keeps up worries about demand, about the economy, about the quarters ahead.

And you think of Caterpillar as a kind of bellwether because that equipment is used in the energy and mining and construction. It touches a lot of important end markets. That's why we pay so much attention to it.

JULIE HYMAN: I mean, it is interesting, though. The company says that the reason that its backlog has gone down is because customers have grown more confident they can get their things quickly. In other words, they were ordering an advance before because they didn't know what-- you know, like we all had this experience during the pandemic. You order a couch expecting to get it a year later, and apparently that was happening in the equipment market as well. Now you know you're getting your couch. You know you're getting your equipment in short order, so you don't place the orders as far in advance. At least, again, that is what Caterpillar is saying. It is interesting that that narrative is not proving convincing.

JOSH LIPTON: No, it's not, and now we're firmly in red year to date. I'm looking at Caterpillar down about 5% so far.

JULIE HYMAN: Yeah and down on the year.

JOSH LIPTON: All right, our last one here, Sarepta Therapeutics plunging nearly 50% after a trial of its gene therapy for Duchenne muscular dystrophy showed no statistically significant improvement over a placebo. So this one is getting obviously hit very hard.

I guess from the reports I'm reading, Julie, there was improvement in patients, but the key here, it just didn't hit the trial's target. That seems to be the issue.

JULIE HYMAN: Yeah, and it looks like they still might be able to prescribe it to young children, but over age seven, because of this study, they might not be able to expand the indication for children of that age.

Now Sarepta, this particular medication, like many that the pharmaceutical industry is banking on right now, is a so-called orphan medication, right? It's not used for many uses, and it's not used for many patients, but it is very, very expensive-- in this case, $3.2 million. It's a one-time treatment. The company said that the price will be about 20% lower after discounts, but still, it's obviously a very high-priced drug here for this Sarepta treatment.

JOSH LIPTON: Yeah, I'm just-- yeah, I'm watching financial analysts who cover the name too. They are making moves today. You can see Cantor. They downgraded the stock to neutral. Price target goes to $40, saying there are a lot of uncertainties ahead. So they moved to the sidelines. And Oppenheimer does the same thing. Downgrades to perform, so a hold, effectively, pending, they say, greater clarity on FDA feedback. So the Street's making decisions too.

JULIE HYMAN: Yeah, and there's a bit of a ripple effect as well. Roche, which is developing this drug along with Sarepta, is down today. And there's a company called Catalant that is a supplier for Sarepta that is down, although Baird said today that the sell-off was overdone and they like Catalant on this. But those shares have been down sharply as well.