When investors add stocks to their portfolios, they expect them to appreciate. But what drives this growth, or more accurately, what needs to happen for stocks to rise?
Traditionally, the key has been a solid quarterly or annual report that beats analysts' or the company's earnings or revenue forecasts.
Take Nvidia, for example. Even though its stock looks expensive in some respects, it remains in demand thanks, in part, to the company’s solid reports and optimistic forecasts.
Just think that revenues are expected to reach $28 billion in the next quarter, partly due to high demand for its computer accelerators from government agencies.
Another factor is that companies often buy back their shares by reducing the total number of shares available, and earnings per share increase.
Apple is a good example. Last month, it announced the most significant buyback in history, $110 billion, which delighted investors, including Warren Buffett.
Then there are the dividends. If a company that has never paid dividends suddenly starts doing so, it will attract new shareholders and positively impact Apple stock. The same goes for dividend increases.
A significant event for a company can also drive growth. For example, the launch of a new product or service attracts not only new customers but also investors.
However, these events must meet both customer and analyst expectations. Otherwise, a situation could arise like the recent Worldwide Developers Conference, which caused Apple shares to fall by 2%.
External factors, such as easing geopolitical tensions, relaxing COVID-19 restrictions, or even favorable weather conditions, may also play a role.
In contrast, the closes have boosted the shares of pharmaceutical giants, especially those focused on vaccine production and IT companies.
Although these factors are well known, new ones have emerged in the last two years that reinforce investor confidence in company shares and thus increase demand for them.
One notable example is the short squeeze. Recently, retail investors rallied to invest heavily in GameStop, forcing hedge funds to buy back the stock to cover their short positions.
History repeated itself not long ago, and the “smart money” again lost significant sums. GameStop shares rose nearly 185% in May, and short sellers suffered losses of $1.4 billion.
Artificial Intelligence has also become an important growth driver. Not surprisingly, the number of mentions of AI in last quarter's earnings calls saw a significant increase.
And it's not just tech companies talking about it. The energy sector saw one of the biggest jumps in mentions, with growth of more than 45%.
Finally, let's talk about Bitcoin. Japanese public company Metaplanet's announcement of its additional purchase of 23,351 shares sent the value soaring by 10%."
What to do with this information: It should not be the only reason to form a position, but it could certainly serve as a good aid in predicting the direction to focus on.
