Robust AI Demand at TSM to Push the Market Higher
Coming up: September Retail Sales, ECB Rate Decision, GDPNow model update
Futures to the market’s continued strength when US equity markets open later this morning. Helping fuel that move was stronger than expected bottom line results and consensus topping December quarter guidance from Taiwan Semiconductor (TSM). For the quarter, revenue at its High Performance Computing (HPC) segment soared 65% YoY fueled by robust AI and data center demand. Sequentially, smartphone was the biggest gainer, up 16.3% confirming recent data published by IDC indicating that the market’s rebound continued during the quarter.
As if that wasn’t enough good news for our Artificial Intelligence and Digital Infrastructure models, TSM’s December quarter guidance calls for its revenue to be up 11%-14.5% sequentially, or a staggering 33%-37% compared to the year-ago quarter. Comments from TSM during its earnings call should give some lift to our CHIPs Act model:
“As the strong structural AI-related demand continues, we continue to invest to support our customers' growth. We now expect our 2024 CapEx to be slightly higher than $30 billion U.S. dollars. Between 70% and 80% of the capital budget will be allocated for advanced process technologies. About 10% to 20% will be spent for specialty technologies, and about 10% will be spent for advanced packaging, testing, mass making, and others.”
Our thinking is that comment should help take some of the edge off from ASML’s (ASML) September quarter booking shortfall and reduced 2025 guidance, which was likely due to Intel (INTC) related issues.
As folks parse TSM’s comments and results, we have the September Retail Sales and Industrial Production figures coming up at 8:30 AM ET and 9:15 AM ET, respectively. Sandwiched between them will be the European Central Bank’s press conference for its latest interest rate decision due at 8:15 AM ET. We’ll be digging into the September Retail Sales report to gauge the degree to which consumers continued to open their wallets or if they dialed back their spending. One way or another what we learn could be a catalyst for our Cash-Strapped Consumer model or Digital Lifestyle.
Surprisingly, we have no Fed speakers today, but we will get the next update for the Atlanta Fed’s GDPNow model, which last pegged the current quarter at 3.2%. Today’s revision will be the first since October 9, and how it compares to that last 3.2% figure could spark renewed conversation about the cadence of Fed rate cuts in the coming months.
While we digest all the above, we will continue to monitor relative strength index (RSI) levels for both the S&P 500 and the Nasdaq Composite. Neither are knocking on the door of being oversold, with a reading over 70, but we would not be surprised if today’s TSM news and what it says about AI demand pushes the Fear & Greed Index back into“Extreme Greed” just as the pace of quarterly earnings lifts off.
Model Musings
Aging of the Population
“America is getting older, fast. By 2034, adults age 65 and over will outnumber children for the first time in U.S. history. The fastest-growing segment of the population is those over 85. This demographic shift, driven by increased life expectancy and declining birthrates, is not just reshaping our communities, workplaces and policies. It is placing unprecedented demand on healthcare systems and the supply chains that support them. IV bags, dialysis equipment, oxygen tanks, medications — these are not luxuries, they are life-sustaining products that millions of older adults and their families rely on daily.” Read more here
Artificial Intelligence
“There's a new ingredient in Heineken's secret formula, and it's got more buzz than hops: generative AI. The Dutch brewing company, known for its iconic green bottles and over 300 global beer and cider brands, is tapping into the power of AI to transform its operations and stay ahead in the competitive beverage market.” Read more here
Artificial Intelligence, Digital Lifestyle
“Motorola wants to make it so that you can ask your phone to do almost anything with a simple request. That's the vision the smartphone-maker laid out at parent company Lenovo's Tech World '24 conference on Tuesday, introducing a new proof of concept that involves using AI to carry out real-world tasks. Imagine, for example, ordering a cup of coffee with a simple command without having to specify the details by manually swiping and tapping through an app.” Read more here
“Google is doing for shopping what it did for search, adding a series of updates enabled by generative artificial intelligence. Google Shopping searches will now include AI-generated “briefs”, top product recommendations, a design-heavy personalised inspiration feed, and deal finding. The changes will be rolled out in the US starting today.” Read more here
Cybersecurity, Data Privacy
“Comcast is warning that hackers stole the personal data of more than 230,000 customers during a ransomware attack on a third-party debt collector, according to a court filing. The bad actors targeted a Pennsylvania-based debt collection agency called Financial Business and Consumer Solutions (FBCS.)” Read more here
“Google has implemented increasingly sophisticated protections against those who would compromise your Gmail account—but hackers using AI-driven attacks are also evolving. According to Google’s own figures, there are currently more than 2.5 billion users of the Gmail service. No wonder, then, that it is such a target for hackers and scammers. Here’s what you need to know.” Read more here
Luxury Buying Boom
“French luxury giant LVMH reported a 3% fall in third-quarter sales on Tuesday, undershooting estimates in its first decline in quarterly sales since the pandemic as demand in China and Japan weakened, likely exacerbating investor worries.” Read more here
Nuclear Power & Uranium
“Amazon Web Services is investing more than $500 million in nuclear power, announcing three projects from Virginia to Washington state. AWS, Amazon’s subsidiary in cloud computing, has a massive and increasing need for clean energy as it expands its services into generative AI. It’s also a part of Amazon’s path to net-zero carbon emissions. AWS announced it has signed an agreement with Dominion Energy, Virginia’s utility company, to explore the development of a small modular nuclear reactor, or SMR, near Dominion’s existing North Anna nuclear power station.“ Read more here
Safety & Security
“For decades, European NATO members curbed defense spending to fund other priorities. What remains, in the view of some US military experts, is a “Potemkin Army” that couldn’t stand up to an invader without American support.” 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.