Trade worries hit stocks again, and Arista Networks and Universal Display fell despite reporting strong quarters.

Jim

Major indexes ended their worst week in months as investors continued to worry over the threat of new tariffs on Chinese goods. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) were both down over a percentage point Friday morning, but partially recovered in the afternoon.

Todays stock market

Index Percentage Change Point Change
Dow (0.37%) (98.41)
S&P 500 (0.73%) (21.51)

Data source: Yahoo! Finance.

As for individual stocks, shares of Arista Networks (NYSE:ANET) and Universal Display (NASDAQ:OLED) fell despite quarterly results that beat expectations.

Falling

Image source: Getty Images.

Concerns about tech spending cloud Aristas results

Arista Networks announced Q2 results that beat expectations and gave strong guidance for next quarter, but comments in the conference call stoked investor worries about spending by large cloud computing vendors, and shares tumbled 10.3%. Revenue increased 17% to $608.3 million, toward the high end of guidance of $600 million-$610 million. Adjusted net income rose 26% to $2.44 per share, well above the consensus analyst estimate of $2.21.

Arista stock took a big plunge after its first-quarter report when the company revealed that a massive cloud titan, likely Microsoft, had unexpectedly put orders on hold for Q2. In yesterdays conference call, CEO Jayshree Ullal tried to assuage concerns about sales into the companys largest vertical market, saying that the customer had resumed spending and that Arista expects stabilization in the second half. But analysts drilled down into the issue, and Ullal said that capital spending in the segment could slow to low-single-digit growth.

An earnings preview from NetApp that warned of slowing capital spending in information technology contributed to market worries, and investors ignored the fact that Aristas guidance for Q3 revenue of $647 million-$657 million was actually above the analyst consensus.

Sales are soaring at Universal Display

Universal Display, seller of technology for organic light-emitting diodes (OLEDs), reported results that smashed estimates, but the stock, recently at new highs, fell 1.6%. Revenue skyrocketed 111% to $118.2 million and earnings per share quadrupled from $0.23 in the period a year ago to $0.92. Analysts were expecting the company to earn $0.62 per share on revenue of $93.9 million.

Material sales grew 111% to $130.8 million and royalty and license fees increased 120% to $69.2 million. The company said its seeing strong demand for OLEDs across the consumer landscape, including from an emerging new segment of laptop computers.

But providing a one-time boost to results were customers in China buying products ahead of anticipated increases in trade tariffs. Universal estimated that between $15 million and $20 million in orders were pulled up from the second half into Q2, accounting for most of the beat on the top line. Still, Universal increased its revenue forecast for the full year by $25 million to a range of $370 million to $390 million.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fools board of directors. Jim Crumly owns shares of Arista Networks and Universal Display. The Motley Fool owns shares of and recommends Arista Networks, MSFT, and Universal Display. The Motley Fool has the following options: long January 2021 $85 calls on MSFT. The Motley Fool has a disclosure policy.

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