The excitement surrounding artificial intelligence (AI) technology appears to show few signs of abating
The technology company at the heart of the AI chip boom reported its Q4 earnings after the stock market’s close on Wednesday 21st February 2024, beating expectations for both earnings and sales. The company’s total revenue is up 265% from a year ago.
Investors are looking to Nvidia’s latest quarterly earnings report to see whether the company’s meteoric growth can last.
Nvidia one year share price as at 22nd February 2024
Nvidia one year share price as at 22nd February 2024
AI chips
Nvidia makes powerful computer chips that power popular AI tools like OpenAI’s ChatGPT and Microsoft’s Copilot. High demand for those chips has propelled the company into the exclusive trillion-dollar club.
As of market close on 21st February 2024 the company’s market cap sat at $1.667 trillion, putting it behind Alphabet’s $1.779 trillion market cap. It’s also behind Microsoft and Apple, which hold market caps of $2.988 trillion and $2.819 trillion, respectively.
Nvidia’s stock price has been on an upward trajectory so far this year. Shares have gained by nearly 40% since the beginning of 2024. On top of that, they’ve soared by over 225% in the last 12 months.
Although short-term demand for Nvidia’s AI chips has been strong, major companies such as Microsoft and Meta have indicated interest in buying them from other companies.
If you had invested $1,000 in Nvidia
If you had invested $1,000 in Nvidia five, 10 or 24 years ago, here’s how much your investment would be worth now.
$1,000 in Nvidia five years ago, your investment would have increased by an eye-watering 1,015% and be worth around $17,542 as of 20th February 2024.
If you had invested $1,000 in Nvidia 10 years ago, your investment would have soared by about 22,340% and be worth around $148,226 as of 20th February 2024.
But, if you had invested $1,000 in Nvidia in January 1999, when Nvidia first went public, your investment would have grown by around 277,708% and be worth close to $2,784,065 as of 20th February 2024.
Japan’s Nikkei 225 hit a record high of: 39098 on Thursday 22nd February 2024.
The rally was propelled by electronics, banking and consumer stocks as robust earnings and investor-friendly measures fuel a blistering rally in Japanese equities.
The Nikkei 225 jumped 2%, surpassing the previous record high of 38,915.87 reached in 1989.
Standout performance
Both the Nikkei and the broader Topix have been standout performers in Asia up more than 10% so far in 2024 after surging more than 25% in 2023. Their best annual gains in at least a decade.
Japan Inc’s solid third-quarter corporate earnings have prompted Bank of America analysts to upgrade their 2024 year-end forecasts for the Nikkei 225 to 41000 from 38500. They raised their forecasts for the Topix to 2,850 from 2,715.
The rally has also been supported by a weaker yen.
The Magnificent Seven, or MAMA ANT, is a term coined by Bank of America to describe the seven most dominant tech companies in the world
The Seven are: Microsoft, Amazon, Meta Platforms, Apple, Nvidia, Tesla, and Alphabet. These companies have not only led the tech sector in terms of innovation, growth, and profitability, but have also become some of the most valuable entities in the world by market capitalization.
Valuation at $15 trillion
Market capitalization, or market cap, is the total value of all the shares of a company that are traded on the stock market. It reflects the market’s perception of the company’s future prospects and earnings potential.
As of January 2023, the Magnificent Seven had a combined market cap of about $15 trillion, which was more than the gross domestic product (GDP) of almost every country in the world, except for the United States, China and Japan (just).
Magnificent Seven
The Magnificent Seven have achieved such a remarkable feat by leveraging their core competencies in various fields of technology, such as artificial intelligence (AI), cloud computing, social media, e-commerce, gaming, electric vehicles, and online advertising. They have also diversified their revenue streams by acquiring or developing new products and services, such as Activision Blizzard, AWS, Oculus, iPhone, GeForce, SpaceX, and YouTube. They have also benefited from the increased demand for digital solutions amid the Covid-19 pandemic, which accelerated the adoption of online platforms, remote work, and entertainment.
Challenges
However, the Magnificent Seven also face some challenges and risks that could threaten their dominance and valuation. These include increasing competition from other tech companies, especially from China, such as Alibaba, Tencent, Baidu, and Huawei.
They also face regulatory scrutiny and pressure from governments and consumers over issues such as antitrust, privacy, taxation, content moderation, and environmental impact. Furthermore, they may encounter technical difficulties, security breaches, or ethical dilemmas that could damage their reputation and customer trust.
Conclusion
In conclusion, the Magnificent Seven are the most powerful and influential tech companies in the world, and their market cap surpasses that of almost every country in the world.
List of 10 countries by stock market capitalization
List of 10 countries by stock market capitalisation
The meteoric rise in the profits and market capitalisations of the Magnificent 7 U.S. tech giants: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla – outstrip those of all listed companies in almost every G20 country. Of the non-U.S. G20 countries, only China and Japan (and the latter, only just) have greater profits when their listed companies are combined.
They have achieved this by exploiting their competitive advantages in various domains of technology and expanding their offerings and markets. However, they also need to overcome some challenges and risks that could hamper their growth and value in the future.
A forced size reduction to stop the monopolising of market share could help tame these beasts too and open up fairer competition.
Should we worry?
Basically, yes, we should be concerned about the size and dominance of these companies.
This level of wealth and power concentrated in just a handful of companies has led some analysts to voice concerns over related risks in the U.S. and global stock markets.
Economists and stock market analysts have cautioned that the U.S. stock market is rivalling 2000 and 1929 in terms of being at its most concentrated in history.
Shares of cryptocurrency exchange Coinbase soared 12% Friday 16th February 2024 after the company reported its first profit in two years.
Coinbase, the largest U.S. venue for buying and selling cryptocurrencies, said that net income totalled $273 million in Q4.
This is the first time that the company has reported positive net income since the fourth quarter of 2021.
Net revenue
Coinbase reported its net revenue was $905 million in the Q4 of 2023, up almost 50% from $605 million in the same period of the previous year.
Bitcoin ETFs
Cryptocurrencies saw a huge amount of interest from investors in the fourth quarter of 2023, following news of the U.S. Securities and Exchange Commission approving the first Bitcoin exchange-traded funds (ETFs).
Bitcoin ETFs enable retail investors to access the cryptocurrency as a share that’s traded on a regulated exchange without directly exposing them to the underlying asset.
The news has driven demand for cryptocurrencies due to anticipation that it could drive interest from retail investors.
Jeff Bezos filed a statement indicating his sale of nearly 12 million shares of Amazon stock worth more than $2 billion
The Amazon executive chairman notified the U.S. SEC – Securities and Exchange Commission of the sale of 11,997,698 shares of common stock on the 7th and 8th February 2024.
The collective value of the shares of Amazon, which is based in Seattle where he founded the company in a garage around thirty years ago, was about $2.04 billion.
More to come
In a separate SEC filing, Bezos listed the proposed sale of 50 million Amazon shares on or around 7th February 2024 with an estimated market value of $8.4 billion.
Taxing decision?
Jeff Bezos moved from Seattle to Miami in November 2023, shortly before he announced his plan to sell up to 50 million Amazon shares by January 2025.
Florida does not have a capital gains tax, unlike Washington state, which imposes a 7% tax on any gains of more than $250,000 from the sale of stocks and bonds. Therefore, by moving to Florida, Bezos could save up to $600 million in taxes on his stock sale – more than enough for a luxury yacht and 2 or 3 more luxury properties.
But, of course, we do not know if this was the real reason for his move.
Arm’s strong growth forecast has led investors to declare it an AI darling
Arm shares soared 29% on Monday, extending last week’s rally as investors continue to applaud the chipmaker’s better-than-expected third-quarter earnings and its position in the artificial intelligence boom.
Up 93% since 8th February 2024
Arm is now up 93% since it reported quarterly figures on 8th February 2024. There is no obvious reason for the 29% climb on Monday. The fear of missing out (FOMO) could be playing a part in the meteoric share price move.
The stock has almost tripled since Arm’s initial public offering in September 2023, closing at $148.97 and is now worth almost $153 billion, that’s a little more than $30 billion below Intel’s market cap.
Arm 1 year chart showing huge gain in February 2024
Arm 1 year chart showing huge gain in February 2024
AI demand fuels Arm’s success
Last week, Arm said it could double the price for its latest instruction set, which accounts for 15% of the company’s royalties, suggesting it can expand its margin and make more money off new chips. It also said it was breaking into new markets, such as cloud servers and automotive, due to AI demand.
Its royalty strength combined with Arm’s optimistic growth forecast has made the company the latest AI darling among investors, despite a higher earnings multiple than Nvidia or AMD.
The index continues its march breaking all-time records on its way
The index continues on its march breaking all-time records on its journey
Nasdaq 100 climbs to new record 9th February 2024
A solid earnings season, easing inflation data and a resilient economy have charged 2024′s market rally. It has helped propel the Nasdaq 100 to close at these new highs!
We are enjoying good news at an economic and earnings level, and the market is reacting positively. The longer the good news story plays out, the more likely it will be that the market will hold from here.
FOMO or the fear of missing out is likely playing its part here too.
The S&P 500 climbed to a new all-time high of 5026 on 9th February 2024
Stocks rose on Friday 9th February 2024 after December’s revised inflation reading came in lower than first reported, and the S&P 500 closed above the key 5,000 level as strong earnings and economic news came in.
A solid earnings season, easing inflation data and a resilient economy have charged 2024′s market rally. It propelled the S&P 500 to close above the 5,000 level after first touching the milestone during the trading week. The index first crossed 4,000 in April 2021.
We are enjoying good news at an economic and earnings level, and the market is reacting positively. The longer the good news story plays out, the more likely it will be that the market will hold from here.
But it won’t take much to spoil the party, right now I don’t know what that might be…?
S&P 500 1-year chart 9th February 2024 – new all-time high of 5026
S&P 500 1 year chart 9th February 2024 – new all-time high of 5026
FOMO or the fear of missing out is likely playing its part here too.
After a decade-long bull run throughout the 1980’s, the Nikkei 225 index reached an all-time high of 38,915 on December 29, 1989, the last trading day of the year.
Few could have imagined, on New Year’s Eve of 1989, that the index would be lower 34 years later. As the New Year arrived, the bubble burst.
And now, Japan’s stock markets are on a tear and closing in on that elusive 38195 high of 1989 – but there’s a catch – the Zombies are coming.
Zombie companies
Zombie firms are businesses that are unprofitable and struggling to keep afloat. They don’t have excess capital to invest and grow the business, or to pay down the loan capital.
Concerns about zombie firms are coming into focus as the Bank of Japan is tipped to raise interest rates in 2024 for the first time since 2007.
It comes as the Nikkei 225 rises to its highest point in almost 34 years
Japan’s stock markets have been on a meteoric run since the start of 2023, repeatedly breaching 33-year highs and outperforming the rest of Asia.
However, there are rising concerns that so called ‘zombie’ firms, which are unprofitable and struggling to keep afloat, could cut short that rally. The Bank of Japan is widely expected to raise interest rates this year, and that could easily tip many of these firms into bankruptcy, which could have a broader impact on the economy and stock market,
Nikkei 225 1-year chart 9th February 2024
Nikkei 225 1-year chart 9th February 2024
Bankrupt businesses
Zombie firms are nothing new in Japan. They first emerged after the stock ‘bubble’ and subsequent crash of the 1990s, when banks continued to support companies that would have otherwise gone bankrupt.
The pandemic of 2020 accelerated the problem of zombie businesses, with the number of zombie firms in Japan reportedly jumping by around 33% between 2021 and 2022.
At the end of 2023, Japan reportedly had around 250,000 companies that are technically zombie businesses
Some experts argue that zombie firms are a drag on Japan’s productivity, innovation, and growth, as they occupy resources and crowd out more efficient firms. The debate on how to deal with zombie firms is ongoing and may have implications for Japan’s economic recovery and future prospects.
Others suggest that zombie firms may have a positive effect, such as preserving employment, social stability, and industrial diversity.
Surely, there is no room for inefficiently run businesses making little or no profit in any economy.
U.S. stocks have had a good year in 2023, and a great start to 2024 with new record highs being set.
Many major indices have recorded double-digit gains. However, some analysts have warned that the rally may not last, as it has been driven by a few large-cap technology and growth stocks, while many other sectors and regions have lagged behind.
A stock market rally is a broad and rapid rise in share prices, often defined as a 20% increase from a recent low.
This could indicate a lack of breadth and sustainability in the rally, and potentially signal a market pullback, correction or even a crash in the future.
Bull bear, bull?
Chartists with their technical analysis might see a pattern that points to a substantial upside, but they should not get too carried away with their own observations, right now would be a sensible time for markets to find level ground, if only temporarily.
The bullish view is that the ‘laggards’ should catch up the ‘mega cap’ stalwarts once again. The bearish view is that the ‘mega cap’ stocks’ will realise they’ve gone too far and need to ride back to the rest of the market. Too few stocks in the same sector hold the balance of power – go check out the Magnificent 7 or even the old FANG stocks.
Catch-up
Either way, there ought to be an opportunity for underrepresented sectors and industries to gain lost ground.
The question is, will there be a pause to allow laggards to catch-up, or will the mega caps simply continue on their march?
The S&P 500 climbed again Wednesday 7th February 2024 and edged ever closer to the 5,000 level.
S&P 500 hit a new high of 4995
S&P 500 hit a new high of 4995 on 7th February 2024
The index, which first breached the 4,000 level in April 2021, added around 0.82% to close at 4,995.06. During session highs, the S&P hit 4,999.89. Quarterly results signalled a thriving U.S. economy.
The Nasdaq 100 jumped to a new high of 15,755
The Nasdaq 100 jumped to a new high of 15,755 on 7th February 2024
The Dow Jones Industrial Average rallied 156 points to close at 38,677 and an all-time high
DJIA closes at new high of 38677on 7th February 2024
Euphoric
Are investors getting swept away with the latest wave of AI related tech results? Quite possibly, as some of what we’re seeing could be based on FOMO (fear of missing out) as traders/investors don’t want to be left behind like they were last year.
However, one undeniable fact is that the U.S. economy isn’t facing as recession any time soon as predicted by many.
It was a good day of earnings for Big Tech companies.
Three of the Magnificent 7 results dominated the headlines: Meta, Amazon and Apple. Nasdaq and S&P 500 gained in ‘after the bell’ trading. This after a punishing day for Alphabet and Microsoft, despite good results.
Nasdaq 100 closed at: 17344 but climbed above 17500 in after-hours trading.
Wall Street seemed impressed with Meta’s results.
Meta
Shares of Meta surged 15% after the social-media giant defied analysts’ estimates. It posted earnings of $5.33 per share on revenue of $40.11 billion. The company also declared its first-ever dividend payment. Share buy-back was also announced.
Meta platforms Inc. One year chart
Meta platforms Inc. One year chart
The results show Meta’s online ad business continues to recover well from a terrible 2022.
Sales in the Q4 jumped 25% year on year.
Expenses decreased 8% year over year to $23.73 billion.
Amazon
Investors also enjoyed Amazon’s earnings, which easily topped Wall Street’s predictions. The ecommerce giant also provided a strong positive outlook. The stock jumped 7% in extended trading.
Amazon.com Inc. One year chart
Amazon.com Inc. One year chart
Q4 was a record-breaking Holiday shopping season in the U.S. and closed out a robust 2023 for Amazon. Amazon has much planned for 2024.
Apple
But Apple didn’t benefit from the same treatment despite posting strong results.
Apple Inc. One year chart
Apple Inc. One year chart
Apple also exceeded estimates, reporting revenue growth for the first time in a year. But shares slid more than 2% in extending trading after it posted a 13% decline in sales in China.
Apple’s outlook suggesting weak iPhones sales may have also disappointed investors.
Nasdaq 100 futures declined around 0.75%. S&P 500 futures were also down around 0.4%
In after-hours trading, shares of Alphabet dropped more than 5%, while Microsoft slipped 2% after the tech giants, part of the Magnificent Seven posted quarterly earnings. However, both companies achieved on both top and bottom lines. However, advertising revenue for Alphabet came short of analysts’ expectations.
Tech powerhouse
The tech sector powered the market rally from 2023 into 2024 and is now trading at a relatively high valuation of nearly 29 times its 2024 earnings, according to recent figures. Investors will need to see earnings expansion in order for the tech companies to be able to maintain their elevated levels.
Results were good but not good enough according to Wall Street as stocks were priced for perfection and that wasn’t delivered.
Even though the results were better-than-expected, investors are likely selling because they just want to take some money off the table.
Absolute perfection comes at a price on Wall Street.
Microsoft’s market cap surpassed $3 trillion in intraday trading Wednesday after the stock climbed more than 1% and hit around $404 per share. The stock lost some ground throughout the day to close at: $402 per share.
The achievement comes nearly two weeks after Microsoft eclipsed Apple as the world’s most valuable public company on 12th January 2024. However, Apple has reclaimed top spot – its market cap closed at around $3.01 trillion on Wednesday 24th January 2024.
Microsoft share price 24th January 2024 – $402.00, 1year chart
Microsoft share price 24th January 2024 – $402.00, 1 year chart
Microsoft shares are up more than 7% year to date as investors remain bullish about the company’s investments in artificial intelligence.
It is strongly expected that Microsoft will deliver good results in the Q2 earnings report, because of its leadership position gained in generative AI.
Microsoft due to announce Q2 figures on 30th January 2024
Microsoft due to announce Q2 figures on 30th January 2024
Meta, OpenAI, and Microsoft said they will use AMD’s newest AI chip, the Instinct MI300X.
An indication that tech companies want alternatives to the expensive Nvidia graphics processors that have been essential for artificial intelligence (AI).
If the MI300X is good enough and inexpensive enough when it starts shipping early next year, it will likely lower costs for developing AI models.
AMD CEO Lisa Su projected the market for AI chips will amount to $400 billion or more in 2027, and she said she hopes AMD has a sizable part of that market.
Wall Street rallies on AMD and Google AI news
Wall Street resumed its rally after a short break as technology giants intensified their AI race, pushing up tech stocks.
When you witness Google launching a new AI model (Gemini) and AMD chasing a slice of the hot AI chip market, you know a pre-Christmas cheer will wash over investors.
To think, just a handful of years ago, other than in Science Fiction novels, the term ‘artificial intelligence’ didn’t exist in our vocabulary and now it is becoming more and more integrated with our day-to-day lives.
Stockmarkets love it. AI is fast becoming a business necessity and not just an option.
Wall Streets love affair with AI – how long will it last?
Music streaming service Spotify is laying off some 17% of its workforce, in a dramatic move aimed at reducing its costs and adjusting for a slowdown in growth, CEO Daniel Ek said Monday 4th December 2023.
It is reported Ek said Spotify invested too much in 2020 and 2021 and had to ‘rightsize’ its costs for a new economic reality.
Spotify reported a 65 million euros ($70.7 million) profit in the third quarter, citing lower spend on marketing and personnel.
The latest round of cuts is reported to equate to roughly 1,500 jobs – but this has not been confirmed by Spotify.
Nvidia’s revenue grew 206% from year 2022 during the quarter ending 29th October 2023, according to data from Nvidia.
Net income, at $9.24 billion, or $3.71 per share, was up from $680 million, in the same quarter of 2022.
The company’s data centre revenue came in at: $14.51 billion, up a massive 279% and above consensus of $12.97 billion. Half of the data centre revenue came from cloud infrastructure providers such as Amazon, and the other from consumer internet and large companies, Nvidia said. Healthy uptake also came from clouds that specialized in renting out GPUs to clients.
Earnings: $4.02 per share, adjusted, vs. $3.37 per share expected
Revenue: $18.12 billion, vs. $16.18 billion expected
The gaming segment contributed $2.86 billion, up 81% and higher than the $2.68 billion general consensus. Nvidia’s future guidance suggested $20 billion in revenue for Q4, implying a nearly 231% revenue growth.
Year on year Nvidia share price movement.
Year on year Nvidia share price movement – Nov 2022 – Nov 2023
During the quarter, Nvidia announced the GH200 GPU, which has more memory than the current H100 and an additional Arm processor onboard. The H100 is expensive and in demand. Nvidia said Australia-based Iris Energy, an owner of bitcoin mining data centers, was buying 248 H100s for $10 million, which works out around $40,000 each.
Nvidia share price moved down 1% in after-hours trading on Tuesday 21st November 2023 after the reporting fiscal Q3 results that surpassed predictions. But the company called for a negative impact in the next quarter because of export restrictions affecting sales to organizations in China and other countries.
‘We expect that our sales to these destinations decline significantly in the Q4 2024, though we believe the decline will be more than offset by strong growth in other regions’, Nvidia reported.
At the speed of AI, the story at OpenAI moves at lightning speed.
Hundreds of OpenAI employees signed a letter demanding the OpenAI board resign or face an employee exodus to Sam Altman’s new venture at Microsoft ‘imminently‘.
The board then attempted to negotiate Altman’s return, but those talks were unsuccessful.
At the touch of a button – resignation letter sent to the OpenAI board of directors
To the Board of Directors at OpenAI
OpenAI is the world’s leading AI company. We, the employees of OpenAI, have developed the best models and pushed the field to new frontiers. Our work on AI safety and governance shapes global norms. The products we built are used by millions of people around the world. Until now, the company we work for and cherish has never been in a stronger position.
The process through which you terminated Sam Altman and removed Greg Brockman from the board has jeopardized all of this work and undermined our mission and company. Your conduct has made it clear you did not have the competence to oversee OpenAI.
When we all unexpectedly learned of your decision, the leadership team of OpenAI acted swiftly to stabilize the company. They carefully listened to your concerns and tried to cooperate with you on all grounds. Despite many requests for specific facts for your allegations, you have never provided any written evidence. They also increasingly realized you were not capable of carrying out your duties, and were negotiating in bad faith.
The leadership team suggested that the most stabilizing path forward – the one that would best serve our mission, company, stakeholders, employees and the public – would be for you to resign and put in place a qualified board that could lead the company forward in stability. Leadership worked with you around the clock to find a mutually agreeable outcome. Yet within two days of your initial decision, you again replaced interim CEO Mira Murati against the best interests of the company. You also informed the leadership team that allowing the company to be destroyed “would be consistent with the mission.”
Your actions have made it obvious that you are incapable of overseeing OpenAI. We are unable to work for or with people that lack competence, judgement and care for our mission and employees. We, the undersigned, may choose to resign from OpenAI and join the newly announced Microsoft subsidiary run by Sam Altman and Greg Brockman. Microsoft has assured us that there are positions for all OpenAI employees at this new subsidiary should we choose to join. We will take this step imminently, unless all current board members resign, and the board appoints two new lead independent directors, such as Bret Taylor and Will Hurd, and reinstates Sam Altman and Greg Brockman.”
In just 5 days
Sam Altman sacked from OpenAI.
Altman appears to move to Microsoft.
OpenAI staff revolt.
No confidence in OpenAI board.
Space for staff to move to Microsoft and create new AI company under Altman’s leadership.
OpenAI mass employee resignation letter emerges.
Microsoft CEO Nadella says OpenAI governance needs to change no matter where Altman ends up.
Altman back at OpenAI after board changes.
Now, Altman is back after getting the sack.
So, is all OK at OpenAI? I asked CHATGPT the question, here is the answer…
Nvidia stock closes at all-time high, a day before earnings
Shares of Nvidia closed up 2.3% at an all-time high of $504 on Monday 20th November 2023. The record comes ahead of the company’s Q3 results due Tuesday 21st November 2023, when analysts are expecting to see revenue growth of over 170%.
And, if that’s not enough, the forecast for Q4, according to some analysts, is likely to show a number close to 200% growth.
Nvidia is still by far the market leader in GPUs for AI, but high prices and competition are fast becoming an issue.
Can Nvidia continue the AI ride and hold this remarkable market share position?
Microsoft is working on its own artificial intelligence chip, code-named Athena, that could compete with Nvidia’s products.
The company introduced two new microchips.
The first, its Maia 100 artificial intelligence chip, could compete with Nvidia’s highly sought-after AI graphics processing units.
The second, a Cobalt 100 Arm chip, is aimed at general computing tasks and could compete with Intel processors.
The chip is designed for training large language models (LLM’s) like ChatGPT and powering AI applications. Microsoft has been developing the chip since 2019 using Taiwan Semiconductor’s 5-nanometer process. The chip is currently being tested by a small select group of Microsoft and OpenAI employees.
Long-term objective
Microsoft’s objective is to reduce its dependency on third-party hardware providers and to customize its AI infrastructure for its own projects.
Microsoft has invested billions in OpenAI, which makes ChatGPT, to enhance its position in the AI field. The Athena chip could also enable Microsoft to add AI capabilities to its Office products and GitHub, but it has already achieved this using the OpenAI system.
Microsoft has not announced when the chip will be available to the public or to its Azure cloud customers.
U.S. Inflation was flat in October from the previous month, providing a positive sign that high prices are finally easing their tight grip on the U.S. economy. Is this also a green light for the Federal Reserve to stop raising interest rates.
The consumer price index (CPI) was flat in October 2023 from the previous month but up 3.2% from a year ago. Both were below analysts’ estimates, sparking a major stock market rally.
Excluding volatile food and energy prices, the core CPI rose 0.2% and 4%, against the forecast of 0.3% and 4.1%. The annual rate was the smallest increase since September 2021.
The flat reading on the headline CPI came as energy prices declined 2.5% for the month, offsetting a 0.3% increase in the food index.
Traders do not anticipate that the Fed will raise interest rates in December 2023, according to data from the CME Group.
Traders do not anticipate that the Fed will raise interest rates in December 2023, according to data from the CME Group.
U.S. Treasury yields fall
U.S. Treasury yields fell on Tuesday 14th November 2023 as key inflation data showed a surprisingly ‘soft’ change in prices last month.
The 10-year Treasury yield fell to about 4.45%. The 2-year Treasury yield fell more to under 4.9%.
Good data
Inflation stabilising, yields falling and equities up – are the stars aligning for a stock market rally leading into Christmas 2023?
Microsoft ended Tuesday’s trading session at a record high of $360.53, following fresh optimism about growth from a key partner in artificial intelligence (AI). The increase gives the company a market value of about $2.68 trillion.
At a tech event on Monday 6th November 2023, Microsoft’s AI partner, OpenAI, announced a batch of updates, including price cuts and plans to allow people to make custom versions of the ChatGPT chatbot.
Microsoft CEO Satya Nadella attended and emphasized that developers building applications with OpenAI’s tools could get to market quickly by deploying their software on Microsoft’s Azure cloud infrastructure.
Microsoft has invested a reported $13 billion in OpenAI, which has granted Microsoft an exclusive licence on OpenAI’s GPT-4 large language model that can generate human-like prose in response to a few words of text.
Fictitious AI robot learning from a digital human online
Last week, Microsoft announced the release of an AI add-on for its Office productivity app subscriptions and an assistant in Windows 11, both of which rely on OpenAI models.
The future is looking bright for Microsoft right now.
An old well established and trusted tech brand pivoting to AI that has a high dividend yield is IBM, which has been around for more than a century and is known for both its hardware and software products.
IBM is investing heavily in AI, cloud computing, and quantum computing, and has recently acquired several AI start-ups, such as Instana, Turbonomic, and Waeg.
IBM also has a partnership with OpenAI, one of the leading AI research organizations, to provide cloud infrastructure for its AI models.
Investors who love IBM expect the company to grow its earnings by around 10% annually over the next five years. Investors were also impressed with IBM’s dividend yield, which is currently around 4.5%. Dividends are a great way to generate passive income.
IBM is not the only tech company that is pivoting to AI. Google, Microsoft, and Anthropic are competing in the field of generative AI, which can create text, images, music, and more from natural language prompts.
Integrate generative AI
These companies are attempting to integrate generative AI into their products and services, such as search engines, maps, word processors, office applications, chatbots, and more. Generative AI is seen as a game-changer for many industries and applications, and could potentially disrupt the dominance of Big Tech.
Legacy companies can pivot to a platform model, which is a business strategy that connects producers and consumers of value through a digital interface. Platform companies like Facebook, Amazon, Google, and Tencent have created value at stunning rates, and have grown rapidly and own large market shares.
IBM mainframe from the 1970’s
Legacy companies can leverage their existing systems, such as customer relationships, data, and brand recognition, to create platforms that offer impressive and immersive products and services.
Other successful platform pivots are Disney+, which transformed Disney from a media producer to a media platform; Nike+, which connected Nike’s physical products with digital services; and John Deere, which created a platform for precision agriculture.
If the Israel-Hamas conflict further intensifies, the risks to the global economy are growing, economist Mohamed el-Erian reportedly said Monday 30th October 2023.
The impact on global markets was initially limited, as investors viewed the conflict as contained. However, the prospect of a regional spillover has added to a sense of unease.
‘The longer this conflict goes on, the more likely it will escalate. The higher the risk of escalation, the higher the risk of contagion to the rest of the world in terms of economics and finance’, el-Erian said.
The idea is simple – pick good companies and hold them for the long-term.
Every time you buy shares in a company, you have purchased a piece of that company. And as a share owner, you are entitled to a ‘share’ of the profits.
When it comes to investing, the goal is to find great companies, super companies. Buy shares in these companies at good prices. And then behave like owners of these companies and enjoy all of the successes.
Then… HOLD those shares for as long as possible – as if you own the company.
Ask yourself this question: ‘Would you buy the company?’
If the answer is yes – then go buy the shares.
Holding on as long as possible means that as long as you believe a company is still a great, you are more likely to keep the shares. But if something changes and it’s no longer a good choice, then it may be time to sell up.
The message here is to believe in a long-term investing strategy – because it works!
Short-Term versus Long-Term Investing
What you must not do is gamble on shares or any other high-risk activity or product. Share prices go up and they go down all the time. And in some cases, prices continue to move even after the stock market has closed!
Long term investing is a long-term winner!
Most people aren’t successful trying to ‘bet’ on when a share is going to go up or down especially short-term bets laced over minutes, hours, days or weeks. You can’t build wealth this way. In fact, there are plenty of traders out there with tragic stories to tell of failed ‘dumb money bets’. This is one of the fastest ways to lose your hard-earned cash; just don’t do it!
Platforms
There are many investing platforms available today that offer all sorts of trading solutions, from day trading, CFDs (contract for differences), spread betting, and more recently, cryptocurrencies. These instruments aren’t really designed to assist a long-term strategy but rather a short-term punt or bet. It’s an endless game where someone, somewhere is always left with nothing. These systems will happily take your money.
Please read the small print for these services. Do not be surprised to see disclosures that read something like, ‘75%+ of retail traders lose money’. It’s true, they do, and it could be you! Its far far easier to learn to become financially successful over the long term.
Long-Term Investing
Diversify
A hard truth about investing is that sometimes you’ll get it wrong, we all do.
The term for this is firm-specific risk (sometimes referred to as unsystematic risk). And every company in the world, even industry behemoths like Amazon, Apple or Microsoft get it wrong sometimes too. It’s unavoidable.
Fortunately, such risk can be mitigated through diversification. By owning a number of companies, the returns of one successful investment can easily offset the losses of several losers.
It is wise to aim to build a portfolio over time of around say 10 – 20 quality businesses that you believe in. If you would be prepared to ‘buy’ the company; buying shares in it is the next best option.
Have Patience
In the short term, the movements of the stock market are chaotic, unpredictable or volatile even. But over a longer period of time, a recurring pattern starts to emerge among quality businesses.
Select quality companies and hold them!
Companies can’t magically double their profits overnight. Building a massive multi-billion or even trillion-pound enterprise takes time. But the investors who have the patience and financial prudence to invest in quality businesses with such long-term potential can unlock enormous wealth.
Invest consistently
Getting started with investing is the first major step. The second is to keep investing over time. Little and often. It’s not easy to ‘free up’ cash but the more money you put to work by investing in stocks, the better your portfolio will do overall.
It is easy for me to suggest for you to go invest and spend your money, you most likely need the money spare to be able to go do this in the first place. So, a little invested spread over time will help open that ‘wealth’ door as time trickles by.
However, there is a caveat to this rule. You should only invest money you don’t need to live. Invest only what you have spare or can ‘free up’.
This is the way!
Long-term investing requires holding investments for years or even decades. This strategy works – this is the way! It’s easier said than done, but a little invested now will go a long way later. It’s also a matter of priorities and sacrifice to ‘free up’ some spare cash to invest instead of buying that new must have gadget (that you don’t really need).
Also, the last place you want to find yourself in is where you are forced to sell your investment before it’s had time to ‘climb’ because you’re short on cash. Or even worse, forced to sell your holding during a stock market crash when prices are extremely low. That’s an awful place to be – don’t go there if you can avoid it. However, buying after a crash is a different matter – but again, buy only good quality companies.
Select super good companies and hold them.
In short, invest consistently. But only the money you can afford. Don’t borrow, don’t use credit. Only invest what you can afford. It will work for you over time. But invest wisely in good high quality comapnies,
Don’t panic – volatility happens!
The stock market will crash; this is an inevitable fact of investing. Naive investors, who panic during these volatile times, often end up selling their shares that are either completely unaffected by the catalysts of the crash or perfectly capable of weathering the storm.
Just take a look at what happened with Applein 2008. The tech giant fell by over 50% in the space of 12 months despite having no exposure to the U.S. housing market – even Apple got caught up in the sub-prime lending fiasco. And while the subsequent recession did impact sales, recessions, just like stock market crashes, are temporary. Apple share price recovered, as did many other top-notch companies too.
As horrible a stock market crash is, this is actually one of the best times to buy shares, especially when investing for the long-term. And these opportunities only come around once a decade or so. So, don’t miss out on these incredible opportunities to buy fantastic businesses at major discounts if you have the cash spare.
Let your winners run
Portfolio management is something every investor has to do. Yet a common mistake, is to sell shares in thriving companies too soon. This is usually an error – bear in mind that winners have a tendency to keep winning! But I get that – I understand you may want to sell as you need the money or want some of your investment back. Try and hold if you can – but not at any odds. Keep a close eye on the market – sentiment will change and that will alter the markets direction.
Let the winners run!
Having said that, there is an exception. It’s perfectly possible for a company that was just 2% of your portfolio to grow to 20% or even higher. In these scenarios, it can be wise to sell a few shares to reduce the risk of being over-exposed to a single investment.
But otherwise, let your winners win. LET THE WINNERS RUN!
You can do it!
There is no such thing as risk-free investing, even with a long-term approach. But many of these risk factors can be mitigated through strategies like diversification. Try and manage your portfolio, add stop losses and follow your investments through the newswires.
Remember to always do your research! No short cuts!
