What Happened?
Shares of social network Snapchat (NYSE: SNAP) jumped 15.9% in the morning session after the company announced a $400 million partnership with AI startup Perplexity, revealed a new $500 million stock buyback program, and posted strong third-quarter financial results. The deal with Perplexity involved integrating the startup's conversational AI answer engine into Snapchat's chat feature, creating a new revenue stream for Snap. Adding to the positive news, the company authorized a plan to repurchase up to $500 million of its stock, often a sign of management's confidence in the business. These announcements followed a solid third-quarter report where revenue grew 10% year-over-year to $1.51 billion, beating expectations. Daily active users also increased by 8% to 477 million. The combination of a major AI partnership, a significant stock buyback, and better-than-expected financial performance prompted positive reactions, with multiple analysts raising their price targets for the stock.
Is now the time to buy Snap? Access our full analysis report here.
What Is The Market Telling Us
Snap’s shares are very volatile and have had 27 moves greater than 5% over the last year. But moves this big are rare even for Snap and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 2 days ago when the stock dropped 3.3% on the news that markets became increasingly wary of high valuations following a significant AI-driven rally.
The tech-heavy Nasdaq fell approximately 1.4% as a wave of caution swept through the market. A key example of this trend is Palantir Technologies, which saw its shares drop around 7% despite reporting record quarterly results that surpassed analyst estimates and raising its full-year revenue outlook. This seemingly contradictory movement highlighted a broader sentiment shift. Investors appeared to be engaging in profit-taking, concerned that the recent surge in AI-related stocks had led to stretched valuations. This broader market caution affected high-growth technology companies that had previously surged on AI optimism but faced increased scrutiny, signaling a potential cooling-off period for the sector. Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.
Snap is down 27% since the beginning of the year, and at $8.21 per share, it is trading 36.2% below its 52-week high of $12.86 from December 2024. Investors who bought $1,000 worth of Snap’s shares 5 years ago would now be looking at an investment worth $180.92.
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