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Chapter 1: What are the latest earnings results from Bank of America and Charles Schwab?
Earnings season has kicked off and we have updates from the biggest names in banking and semiconductors to digest. This is Motley Fool Money. Jason Hall Welcome to Motley Fool Money with The Hidden Gems team. I'm Jason Hall, filling in for Tyler Crowe today. I'm joined by Fool contributors that you guys hear a lot from here, John Quast, Matt Frankel.
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If you're already an Epic member, check your account. You might already have access. Again, that website, it's epicportfolio.fool.com. Let's get into it here. We've already talked about Goldman Sachs earlier this week. Matt, you're back from a Motley Fool event. You're one of our bank experts here. You've owned Bank of America longer than any other bank in your portfolio.
It's also become the largest bank holding that you have. How was the quarter?
They had a pretty excellent quarter. They beat estimates on both the top and bottom lines and pretty much everywhere else throughout their business. Their earnings were up 17% year-over-year. That interest income beat expectations, trading revenue, investment banking fees, asset management fees, they were all better than expectations, all increased.
Equities trading was really strong, grew 30% year-over-year. It's not surprising given how volatile the market's been. People trade more when the market's volatile. Investment banking fees grew 21%. We hear about the upcoming wave of IPOs. A lot of them have hired investment banks. So, that's not too surprising. Net interest income was up by 9%.
All the profitability metrics, return on equity, things like that, showed great improvement. The only spot where they missed expectations was fixed income trading, but interest rates were pretty stable and predictable. That's relatively minor, considering that the bank outperformed its expectations virtually everywhere else.
We saw Goldman Sachs reported the same thing in FICC. That seems more of an industry trend and not a bank-specific trend.
Right. So, I think it was kind of expected going into it, because Bank of America was, I think, the No. 3 or 4 bank to report. I mean, the best news might be that consumers seem to be holding up well, not even a company-specific thing. The bank's provision for credit losses was about $200 million less than expected. Brian Moynihan, the CEO, he said that credit quality is good and improving.
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Chapter 2: How did Bank of America perform in Q1 and what were the key metrics?
They spent $2.4 billion on buybacks in the quarter. That's about 1.5% of their shares in one quarter, which is a pretty aggressive pace. But on the other hand, it's not a cheap bank stock. It trades for about 20X earnings, which is a lot higher than Bank of America, Goldman Sachs, or any of the other ones that have reported, in a somewhat uncertain economic environment.
It might sound odd, but if the market volatility calms down, let's say the Iran war ends and things like that, and the market just calmly makes new highs, as I would put it, like it was doing at the end of last year. It could actually be a negative catalyst. We'd see lower trading volume and things like that.
But the real thing that investors should know going forward is that Schwab's earnings, even more so than other banks, can be kind of lumpy because they really depend on not only interest rates, but trading volume, what the market's doing, and things like that. So, investors should keep the lumpiness in mind.
There's a little bit of a compounded effect here when you're a brokerage and also a bank, which are both very cyclical, lumpy businesses. Matt, thanks for the insight there. After the break, we're going to dig into earnings from two of the biggest names in semiconductors. Right now, that also means AI. You're listening to Motley Fool Money. Jason Moser.
Welcome back to Motley Fool Money with the Hidden Gems team. AI continues to be the driving force behind the stock market broadly. We just got Q1 results from two of the biggest names in chip manufacturing with ASML, reported yesterday. That was the 15th. Taiwan Semi, TSMC in shorthand, reported this morning. John, let's bring you into the conversation here.
Yeah. For this conversation, can I just frame it this way? I think we should zoom out for our listeners just to make sure that everyone is up to speed on what's going on behind the scenes. Many of us are using chatbots these days. Jason, I don't know if you have a preference. You've got many to choose from there. I'm a Gemini guy myself. Okay.
Let's say that you go to Gemini and you're looking to brainstorm activities for your kids. I know you've got a couple of kids and sometimes we don't know what to do with them, right? So you ask Gemini, hey, what are some things that I can do with my kids today? It's a sunny day, whatever. It spits out some ideas for you. That's simple for you. You just put in a couple of inputs.
But computationally, that's actually pretty hard. It's not just any computer that does that. You need something powerful. That's why Nvidia's GPUs are really the preference in the industry to make all this happen behind the scenes. There's a data center somewhere that's got a lot of these GPUs in them to make that happen. Here's the thing, NVIDIA doesn't make its GPUs.
It comes up with the designs, yes, but it outsources the manufacturing. One of the companies that is doing the work for NVIDIA is Taiwan Semiconductor. The company decided that this was going to be its thing. It wasn't going to design anything. Taiwan Semi just makes the stuff for its customers that its customers design.
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Chapter 3: What insights can we gain from Charles Schwab's Q1 earnings report?
You look at the margins, the record profit margins seem to indicate a cyclical top. And we know that the semiconductor industry is cyclical. But then you look at the capital expenditure spending, this company knows the industry very well. It would not be increasing its capex by 10% if it thought that it was right at the cyclical top.
It's telling us that it's still investing so that it can meet demand. That is a long-term driver for these businesses. I think these two reports are telling us, yes, the semiconductor industry is cyclical, but this is a cycle unlike anything we've ever seen before, and it can continue to go on for some time now.
Maybe not at the top of the cycle, but certainly later in the cycle than we have been. The big question, of course, how long is it going to play out? John, thanks again for bringing us some insights there. After the break, we're going to talk about the companies that we are most looking forward to hearing from this earnings season. More importantly, why? You're listening to Motley Fool Money.
Welcome back to Motley Fool Money with the Hidden Gems team. A quick note before we dive into the three stocks that we're really interested in hearing from this quarter. We love it when we get to make you, our listener, part of the conversation. If you have a stock or investing question for John, for Matt, me, anyone else you've heard on the show, you can now e-mail us at podcasts at fool.com.
We love to have mailbag segments whenever possible, so send your questions. But remember, keep them Foolish! That email, again, is podcasts at fool.com. That's podcasts with an S on the end at fool.com. Alright, guys, we are just at the start of earnings season. This is really the first full big week.
On one hand, it's important to remember, this is a 90-ish day snapshot of businesses that we often intend to own for decades. While we should always keep that perspective, it doesn't mean we can't be excited or look forward to hearing from our favorite companies. John, I want you to get us started here. What's a company that's set to report that you are most looking forward to hear from, and why?
I'm probably looking forward to Lyft the most here. That's ticker LYFT. I'm looking forward to it probably for selfish reasons. This is a large holding of mine. I'm grateful that my position is actually in the money. It's making money right now, but it's down 40% from its 52-week highs. Right now, it trades at just five times its trailing free cash flow. In investing lingo, that is cheap.
Look, everyone says that self-driving taxis are going to be the end of this business. I don't buy that. Right now, in the meantime, Lyft continues to put up record adoption numbers, record revenue, record profits. The company's scheduled to report in about three weeks. I'm really hoping that it just reports blowout numbers.
I hope that management repurchased a ton of shares down here at these cheap prices. I hope that that combination finally makes investors give it at least a little bit of credit here. I would say that 15X its free cash flow is still an extremely reasonable valuation for something that's growing by double digits and posting record adoption numbers.
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