Good Quarters, Heavy Selling: Cash Flow Beats Growth on Election Day

Dear readers,

Apple and Palantir reported on Monday evening, and the market’s verdict is in: solid results, then selling. Shopify joins them, and DigitalOcean has trouble holding its gains despite its fastest growth in a decade. The Nasdaq 100 closed Monday at 27,989.82 points, a little more than 10 percent below its record of October 6. Investors are rewarding growth only where the valuation leaves room and the cash isn’t being burned.

DigitalOcean: Raised Guidance, Borrowed Growth

DigitalOcean is growing at its fastest pace in ten years, and the market still hesitates. Third-quarter revenue rose 40 percent to $321 million. Adjusted earnings per share came in at $0.45, well above the expected $0.32. The company raised its full-year guidance and holds out the prospect of revenue growth above 60 percent for 2027.

AI is the driver. Annual recurring revenue from AI customers stands at $376 million, up 288 percent. The shares nevertheless slipped in premarket trading, and the reason lies in the balance sheet. Operating profit fell 27 percent, and the reported (GAAP) net loss was $43 million, including $57 million in expense for the partial repurchase of convertible notes.

Finance lease liabilities have climbed from $130.5 million at year-end to $923.6 million. The company also plans an at-the-market equity program of up to $1 billion, which lets it sell new shares into the market as needed. UBS cut its price target from $125 to $105 and kept its Neutral rating. Buyers here are paying for growth that data-center capacity has to finance first. The operating leverage is real, but it still lies in the future.

Shopify: When 32 Percent Growth Isn’t Enough

Shopify shows the flip side of a rich valuation. Third-quarter revenue rose 32 percent to $3.74 billion, narrowly missing analyst consensus for the first time since 2022. Gross merchandise volume of $119.15 billion and subscription revenue of $836 million also fell short of estimates.

Operationally, the quarter was strong. Operating income rose 66 percent to $568 million, and the free cash flow margin improved to 22 percent from 18 percent a year earlier.

Adjusted earnings per share were $0.49 ($0.36 on a reported GAAP basis). But the outlook for revenue growth in the low 30-percent range signals a slowdown, and at about 87 times 2026 earnings, that is enough to justify a steep markdown.

In German trading, the stock is at about €121, more than 13 percent below the prior close and well under its October high of €161.66. The business model is intact, but the valuation demands perfection. Shareholders should watch the outlook in coming quarters, not just the price drop.

Apple and Palantir: Margins Trump Revenue

Both companies show that beating expectations is no longer enough. Apple reported revenue of $114.48 billion, above estimates. But its warning about rising memory chip costs and higher spending on Siri AI weighs on the margin outlook for the holiday quarter. The stock trades at about $325, below Monday’s close.

Palantir’s quarterly results and revenue outlook both impressed. What bothered the market was a slowdown in U.S. commercial bookings. The shares trade at about $168, after closing at $178 on Monday.

Should investors sell immediately? Or is it worth buying Apple?

Apple’s memory chip costs are the chipmakers’ revenue. Micron, at just over $863, has recovered after Monday’s setback, as has Nvidia at about $207. The rebound is even more pronounced at AMD, which reports after the close tonight, though its shares are still down about 26 percent this month.

Analysts at Lynx Equity Strategies consider expectations sufficiently reset and point to rising demand for server processors. That is a bet on the numbers, not a sure thing.

The Second Tier: Guidance Raises Get Paid

Companies that raise guidance are rewarded, provided the valuation doesn’t already price in everything. Backblaze jumped 33 percent in premarket trading. Harmonic and Aehr Test Systems also rose by double digits after lifting their revenue forecasts. DuPont raised its outlook, and Bayer raised its profit forecast.

Hinge Health stands out. The digital back-pain therapy provider grew third-quarter revenue 52 percent to $235 million, about 5 percent above Canaccord’s estimate.

The bank raised its price target from $105 to $134 and stays at Buy. At just over $115, the stock sits near its 2026 high of $118.86, after a gain of 154 percent in six months.

The lesson from Hinge and DigitalOcean is the same: the market pays for growth that already throws off profit. Where growth still consumes capital, investors demand a discount. At Hinge, after such a rally, plenty of good news is already in the price.

Midterms: The Risk Lies in the Aftermath

Voting in the U.S. midterm elections is under way. Betting markets put the odds of a Democratic majority in both chambers at about 72 percent, and the party is the clear favorite in the House. JPMorgan expects a drop of 0.5 percent in the S&P 500 on Wednesday in the event of such a “blue sweep.” If Republicans keep the Senate, gains of up to 1 percent are possible. Options markets are pricing in a move of about 0.8 percent for tomorrow.

The surrounding conditions are more dangerous than the vote itself. Brent remains above $100, and the yield on 10-year Treasuries is just over 4.9 percent. Goldman Sachs expects new tariff increases from President Donald Trump if Democrats win.

Analysts see headwinds for AI and data-center stocks in that scenario, while healthcare names are seen as beneficiaries. Last week, HSBC cut its global equity allocation from “Maximum Overweight” to “Neutral” and expects further pressure in the short term.

The Takeaway

Three things matter in the coming days: the election result, AMD’s numbers this evening, and whether the market keeps valuing earnings quality above raw growth. DigitalOcean and Shopify show that even good quarters offer no protection against losses. For investors in the second tier, cash flow and margins matter more than revenue growth alone.

Best regards,
The StocksToday.com Editorial