Micron Earnings, New Meta Products Bring AI Back in Vogue
Fed Chair Powell and Costco earnings on deck, plus fresh model signals
Equity futures, especially those for the Nasdaq Composite, point to a positive market open later today. That outlook is driven by a nice pop in the shares of Micron (MU), which delivered better than expected quarterly results last night due to rising demand for…. you guessed it, artificial intelligence. Notable callouts were the strength in data center and server markets, with the company guiding current quarter revenue between $8.5-$8.9 billion compared to $7.75 billion for its August quarter and the $8.3 billion market forecast. This follow-through on this should give some additional lift to our Artificial Intelligence and Digital Infrastructure models.
Also lending a helping hand, at Meta Connect 2024, Meta Platforms (META) debuted the company’s Orion prototype mixed reality glasses, the Meta Quest 3 virtual reality headset, voice options for Meta’s AI assistant that can be bused across its various products. Whose voices you ask? Some of the famous folks are famous folks like John Cena, Awkwafina, Dame Judi Dench, Keegan-Michael Key, and Kristen Bell. Meta also showcased new AI features coming to the Ray-Ban Meta glasses, including recording or sending messages, and translating speech in real-time.
On the AI front, reports point to a potential shift at OpenAI to a for-profit company that would no longer be controlled by its non-profit board. Indications are the OpenAI non-profit will continue to exist and will own a minority stake in the company. While such a move could mean OpenAI would act like a more traditional startup, TBD if it gives rise to questions about governance and AI safety.
Eco data - August Durable Orders, 2Q 2024 GDP revisions
On the economic front, today brings the August Durable Goods Order figures, which are expected to fall 2.6% after jumping 9.9% in July. Let’s keep in mind the transportation component can be volatile month to month, which is why most will focus on the Durable Orders ex-transportation, which is expected to inch higher by 0.1% in August compared to the 0.2% decline in July.
Alongside that data set, the market will also get the final GDP figure for 2Q 2024, and it is expected to fall to 2.5% compared to the 3.1% figure for 1Q 2024. Because the market is caught between hard and soft-landing narratives for the economy, a stronger or weaker-than-expected 2Q 2024 figure this morning could alter Fed rate cut cadence expectations. However, our view is the September data coming next week will be a far greater factor than this rear-view GDP figure. Ahead of this Durable Orders report, the Atlanta Fed’s GDPNow model pegs current quarter GDP at 2.9%.
Here come the Fed speakers
Following this morning’s data, we have a wave of Fed speakers, seven in all including Fed Chair Powell, all before market trading is done for the day. While the various Fed speakers will probably share their expectations for Fed policy, the market will take its cue from Powell, who speaks at 9:20 AM ET. Because we are still relatively close to the Fed’s policy decision last week, we doubt Powell will be breaking any new ground today. Even so, the market will be trying to figure out if Powell sees another big 50-basis point cut in the pipeline or if the Fed chair is open to smaller bite sizes going forward.
Costco earnings, Adobe’s holiday forecast, Biden directs more Ukraine aid
After today’s market close, Costco (COST) will report its latest quarterly results. Leading into the report, sizing up Costco’s monthly sales reports against Retail Sales reports clearly shows the membership warehouse company taking consumer wallet share. In our view, the company remains well positioned following the stream of recent retailer comments about consumers remaining selective and choosey when it comes to their spending dollars. Let’s remember as well, that the current quarter will be the first one with Costco’s higher membership fee, which should give its high-margin membership fee revenue stream a nice bump even as the company continues to expand its warehouse footprint.
While most people think of the physical warehouse locations, Costco’s e-commerce business has been gaining ground. Setting the stage for more of that, Adobe (ADBE) published its 2024 holiday shopping forecast (see Digital Lifestyle signals below), which like other recent holiday shopping forecasts from Deloitte, points to digital shopping handily outpacing brick & mortar shopping. The reason? Consumers are embracing earlier deals promoted by retailers. That sure sounds like a nice intersection of our Digital Lifestyle and Cash-Strapped Consumer models.
Finally, President Biden directed that Ukraine receive the remaining $5.5 billion worth of American weapons and equipment previously authorized by Congress, ahead of his meeting with President Volodymyr Zelensky. That and recent reports of increasing defense spending at NATO countries are positives for our Safety & Security model.
Model Musings
Artificial Intelligence, Cybersecurity
“In an email campaign targeting French users, researchers discovered malicious code believed to have been created with the help of generative artificial intelligence services to deliver the AsyncRAT malware. While cybercriminals have used generative AI technology to create convincing emails, government agencies have warned about the potential abuse of AI tools to creating malicious software, despite the safeguards and restrictions that vendors implemented.” Read more here
Artificial Intelligence, Nuclear Power & Uranium
“IDC expects the surging demand for AI workloads will lead to a significant increase in datacenter capacity, energy consumption, and carbon emissions, with AI datacenter capacity projected to have a compound annual growth rate(CAGR) of 40.5% through 2027. Accordingly, AI datacenter energy consumption is forecast to grow at a CAGR of 44.7%, reaching 146.2 Terawatt hours (TWh) by 2027 with AI workloads consuming a growing portion of total datacenter electricity use. Overall, IDC expects global datacenter electricity consumption to more than double between 2023 and 2028 with a five-year CAGR of 19.5% and reaching 857 Terawatt hours (TWh) in 2028.” Read more here
Cash-strapped Consumer, Digital Lifestyle
“Adobe Analytics projects U.S. online sales during the holiday period to grow 8.4%. That would have online holiday sales reaching $240.8 billion, up from $221.8 billion in the 2023 holiday shopping season. And of that, Adobe forecasts a record $128.1 billion spent through mobile devices. That mobile ecommerce spending would represent 12.8% year-over-year growth. Adobe sees 53.2% of online sales coming from mobile devices during the 2024 holiday season — compared to 51.1% in 2023. Adobe also anticipates the increase in mobile spending will correlate with an increase in buy now, pay later (BNPL) usage this holiday season.” Read more here
Cybersecurity
“Hackers linked to the Chinese government have broken into a handful of U.S. internet-service providers in recent months in pursuit of sensitive information, according to people familiar with the matter. The hacking campaign, called Salt Typhoon by investigators, hasn’t previously been publicly disclosed and is the latest in a series of incursions that U.S. investigators have linked to China in recent years.” Read more here
Digital Infrastructure
“The global market for Mobile Data Traffic is estimated at 109 Million Terabytes per Month in 2023 and is projected to reach 603 Million Terabytes per Month by 2030, growing at a CAGR of 27.6% from 2023 to 2030.” Read more here
Digital Infrastructure, Safety & Security
“The Department of Defense’s Future Generation Wireless Technology Office is preparing DOD for its transition to the next generation of wireless telecommunications, called 6G, and one of its top priorities is advancing centralized unit, distributed unit… The FutureG office is looking at how the military could advance 6G for sensing and monitoring initiatives like the Integrated Sensing and Communications project, or ISAC.” Read more here
The Strategies Behind Our Thematic Models
Aging of the Population - Capturing the demographic wave of the aging population and the changing demands it brings with it.
Artificial Intelligence – Software, chips, and related companies that facilitate the collection and analysis of large data sets and autonomous generation of solutions given non-machine language prompts.
Cash Strapped Consumer - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
CHIPs Act – Capturing the reshoring of the US semiconductor industry and the $52.7 billion poised to be spent on semiconductor manufacturing.
Cloud Computing – Companies that provide hardware and services that enhance the cloud computing experience for users, such as co-location, security, and edge computing.
Core Holdings – Companies that reflect economic activity and are large enough to not get pushed around by day-to-day market trends. Low-beta, large-cap names able to better withstand economic turmoil.
Cybersecurity - Companies that focus on protecting against the penetration of digital networks and the theft, ransom, corruption or destruction of data.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Digital Lifestyle - The companies behind our increasingly connected lives.
Digital Payments - This model focuses on companies benefitting from the accelerating structural adoption of digital payments and financial technology (FinTech).
EPS Diplomats - Profitable large capitalization companies proven to produce above-average EPS growth and provide investors with the benefit of multiple expansion.
EV Transition - Capturing the transition to EVs and related infrastructure from combustion engine vehicles.
Guilty Pleasure – Companies that produce/provide food and drink products that consumers tend to enjoy regardless of the economic environment and potential long-term health hazards associated with excessive consumption.
Homebuilding & Materials – Ranging from homebuilders to key building product companies that serve the housing market, this model looks to capture the rising demand for housing, one that should benefit as the Fed returns monetary policy to more normalized levels.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
Market Hedge Model – This basket of daily reset swap-based broad market inverse ETFs protects in the face of market pullbacks, overbought market technicals, and other drivers of market volatility.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Rebuilding America - Turning the focused spending on rebuilding US infrastructure into revenue and profits.
Safety & Security – Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy.
Space Economy – Companies that focus on the launch and operation of satellite networks.
The Strategies Behind Our Dividend Income Models
Monthly Dividend Model – Pretty much what the name says – this model invests in companies that pay monthly dividends to shareholders.
ETF Dividend Model – High-yielding ETFs that provide a range of exposures from domestic equities, international equities, emerging market equities, MLPS, and REITs.
ETF Enhanced Dividend Model – A group of high-yielding ETFs that utilize options to enhance yield through collecting option income.
Don’t be a stranger
Thanks for reading and if you have a suggestion for an article or book we should read, or a stream we should catch, email us at info@tematicaresearch.com. The same email works if you want to know more about our thematic and targeted exposure models listed below.