🔬The Winners & Losers in the Chip Game, Consumer Confidence Keeps Dropping, and Much More
StreetSmarts Morning Note
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"I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will"
- Charlie Munger
"Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity"
- Carl Icahn
Table of Contents
A.M. Allocations: Summaries of important news and investing events
Circuit Breakers: The Uneven Landscape of Microchip Makers
Consumer Confidence Continues to Slide
Hot Headlines: Links to some of the top financial stories of the day
A.M. Allocations
Circuit Breakers: The Uneven Landscape of Microchip Makers
Arguably the biggest stock market story of the year has been AI, and some of the companies most impacted by this have been the chip makers. But it’s not a case of a rising tide lifting all ships, as the real winners have been the ones with exposure to the specific chips used in AI models, such as graphics processing units (GPUs), field-programmable gate arrays (FPGAs), and application-specific integrated circuits (ASICs).
As you can see clearly above, there have been some big winners from the shift to AI, like Nvidia - the leader in GPUs, and Broadcom - the leader in cloud networking. While the losers are the ones focused on the decidedly less sexy CPUs, like Intel, AMD and Qualcomm.
This boom has some teeth to it as well. It’s not like the Tech Bubble where just sticking ‘.com’ at the end of your name meant a skyrocketing share price. Nvidia, for example, only clocked about $12 billion in sales in 2019, but this figure jumped to $27 billion when they reported their FY2023 expectations in January, and Wall Street estimates this number to reach $97 billion in just three short years. This jump would make them the largest chip maker in the world.
While a share’s performance is relative to its starting point, valuation provides a more absolute, comparable figure. Based on that, you can see the trend that higher forecast growth goes hand-in-hand with a higher valuation - although Intel seems to be breaking this rule.
Take-Aways: Taking Wall Street at their word - in this case, about the growth estimates for the big AI players like Nvidia - is often fraught with danger. AI is clearly where the world is going and I doubt very much it’s another ‘metaverse’ or even crypto situation. Using Nvidia as an example - since they seem to be the posterchild for all of this - there are potentially a lot of risks that could derail this massive level of growth expected. Watch out for warning signs such as a smaller global market than expected, new technology, or emerging competition.
Nvidia is no stranger to this as its GPUs were the backbone of global crypto mining. Its 2019 sales were previously estimated to be ~40% higher than they actually came in at once the hype around crypto mining started to cool off….ouch.
Consumer Confidence Continues to Slide
U.S. Consumer Confidence came in at 102.6 which was ahead of the consensus Wall Street estimate of 100.3, but still marked the fourth consecutive decline. Consumer Expectations for the future also slid for its fourth straight month, coming in at 75.6 vs. a revised 76.4 figure for September.
The data that consumers continued to be preoccupied with include inflation generally, but for grocery and gasoline prices in particular. Consumers also expressed concerns about the political situation and higher interest rates. Worries around war/conflicts also rose, amid the recent turmoil in the Middle East.
Joke Of The Day
HR: “What’s your biggest weakness?”
Me: “Interviews”
HR: “And besides that?”
Me: “Follow up questions”
The boss asks a man, “What do you think is your worst quality?” The man says “I’m probably too honest.” The boss says, “That’s not a bad thing, I think being honest is a good quality.” The man replies, “I don’t care about what you think!”
Hot Headlines
(Tech Crunch) WeWork reportedly on the verge of filing for bankruptcy, stock plummets - WeWork is on the brink of filing for Chapter 11 bankruptcy in New Jersey amid ongoing financial struggles, with declining demand for its co-working spaces and missed interest payments to bondholders. The company's stock plummeted to a new 52-week low, reflecting a dramatic fall from its $47 billion valuation in 2019 to a current market cap of just $121 million. Fun reminder that Adam Neuman walked away from the company with $2.1 billion. Prick.
(Axios) What rising wage pressures could mean for inflation
(Yahoo) X, formerly Twitter, valued at $19 billion in new employee stock plan - Elon Musk's privately-held company X, formerly Twitter, is now valued at $19 billion, down from its $44 billion purchase price, as it faces a 50% drop in advertising revenue and a heavy debt load, with banks expecting to lose around $2 billion from financing the deal. Yeah, but like, he can’t get blocked so I call this a win.
(CNN) Sam Bankman-Fried’s fourth day on the stand did not go well - After four days of testimony in his criminal fraud trial, Sam Bankman-Fried stepped down from the stand, having failed to convincingly defend against accusations that he used his crypto exchange FTX as a personal fund. The court wasn’t buying his claims of merely making honest mistakes, with prosecutors highlighting his misrepresentation to investors and cozy relations with the Bahamian government. Letting him on the stand was a Hail Mary and it seems to have failed miserably.
(Axios) Toyota raises factory worker wages after UAW strike settlements
(CNN) Steve Ballmer, who started as Bill Gates’ assistant, is the 5th-richest person in the world - Yep, the Zune guy.
Yes, him.
Trivia
Which company, founded by Jack Kilby, is credited with inventing the handheld calculator using integrated circuits?
IBM
Texas Instruments
Intel
Fairchild Semiconductor
AMD, a major competitor in the microchip industry, stands for:
Advanced Micro Devices
Accelerated Modular Dynamics
Analytical Machine Designs
Automated Microchip Development
TSMC, one of the largest semiconductor manufacturers in the world, is based in which country?
United States
South Korea
Taiwan
Japan
(answers at bottom)
Market Movers
Pinterest (PINS): [+19%] Q3 results outdid estimates, with growth in monthly active users (MAUs) and average revenue per user (ARPU); optimistic Q4 revenue projection. Analysts commend engagement, Amazon partnership, and growth despite cost measures.
GE Healthcare Technologies (GEHC): [+5%] Q3 earnings and revenue exceeded forecasts, driven by Imaging growth due to supply chain improvements, pricing, and new products. Raised the lower end of FY EPS guidance.
Losers
Sarepta Therapeutics (SRPT): [-38%] Shares plummeted after Elevidys study for Duchenne Muscular Dystrophy missed its primary goal; path to label expansion complicated despite some positive data elements, leading to multiple downgrades.
Lattice Semiconductor (LSCC): [-17%] Q3 met expectations, but lowered Q4 outlook due to weakened demand in Asia and Europe, despite positive AI and server prospects.
JetBlue Airways (JBLU): [-11%] Higher-than-anticipated Q3 loss, with even weaker Q4 forecast; despite solid peak demand, off-peak capacity exceeds.
BP (BP): [-5%] Marked Q3 earnings miss, with weaker gas trading and underperforming oil operations; anticipates lower year-end refining margins.
Market Update
Trivia Answers
Texas Instruments.
Advance Micro Devices.
Taiwan. Yep, that’s what the ‘T’ stands for.
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