Why Are Zoom (ZM) Shares Soaring Today

What Happened?

Shares of video communications platform Zoom (NASDAQ:ZM) jumped 10.8% in the afternoon session after the company reported second-quarter financial results that beat analyst expectations. The company's revenue grew 4.7% year-over-year to $1.22 billion, its fastest pace in 11 quarters, while adjusted earnings per share of $1.53 also surpassed estimates. The company also raised its full-year guidance for both revenue and adjusted EPS. The solid results prompted at least one analyst to become more bullish on the stock's prospects. Following the report, RBC Capital raised its price target on the stock to $100 from $95, maintaining an Outperform rating. The strong earnings and positive analyst sentiment fueled the stock's upward momentum.

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What Is The Market Telling Us

Zoom’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. Moves this big are rare for Zoom and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 9 days ago when the stock gained 3% on the news that the SaaS sector continued to rally as favorable inflation data bolstered hopes for a Federal Reserve interest rate cut. This optimism was largely driven by a benign July Consumer Price Index (CPI) report, which solidified investor expectations for a Federal Reserve interest rate cut. Following the release of the inflation data, which showed a year-over-year increase of 2.7%, the probability of a rate cut in September surged to over 96%. Lower interest rates are typically beneficial for growth-oriented technology stocks, as they can reduce borrowing costs and increase the present value of future earnings. Adding to the positive sentiment was a 90-day delay in the imposition of higher tariffs on Chinese goods, which reduced trade-related uncertainty for the technology sector.

Zoom is down 0.3% since the beginning of the year, but at $81.35 per share, it is still trading close to its 52-week high of $89.03 from November 2024. Investors who bought $1,000 worth of Zoom’s shares 5 years ago would now be looking at an investment worth $288.09.

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