- Cents & Sense
- Posts
- Increasing investor confidence since no hike in rates
Increasing investor confidence since no hike in rates
Apple stock slips, Tesla no longer a premium stock
Armaghan Tanveer
November 03, 2023
Happy Friday 👋
In this issue, we have the following to cover:
Is AI bubble behind tech rally: Analysis
Market Snapshot: A digestible snapshot of the macroeconomy and the stock market
Cents & Sense Perspective: Analysis and opinion on some of the bigger news happening in the financial markets
Headlines that you might like: Exactly what the heading says! 😃
Is AI Bubble Behind the Tech Rally
The stock market, especially technology-related companies, has seen noticeable growth recently. Some people believe this growth is largely because of new advancements in Artificial Intelligence (AI).
However, experts from a well-known bank, Deutsche Bank, offer a different view.
Overview:
The stock market is doing well because of expectations that there might not be any more increases in interest rates soon.
This positive view is also because of good financial reports from big companies like Apple.
However, some believe that too much credit is given to AI for this growth, hinting that this could be risky.
Deutsche Bank's Perspective:
Two experts from Deutsche Bank, Galina Pozdnyakova and Luke Templeman, share their insights:
AI's Role: They agree that AI has helped some tech companies grow, like Nvidia, which saw a big increase after a new AI product called ChatGPT was introduced. However, they think there's more to the story than just AI.
Tech Companies' Growth: Their research shows that tech companies did very well at the beginning of the year. This wasn't just because of AI but also because of a positive mood in the market.
Other Important Factors: They noticed other reasons for the growth, like consistent market movements, suggesting that there are more reasons for growth than just AI.
Different Sectors Coming Together: At first, companies making computer parts benefited more than software companies because of new AI products. But now, different parts of the tech industry are growing together, meaning AI's impact might not be as big as we think.
What Companies are Saying:
The experts also looked at what companies are discussing in their meetings:
AI Discussions vs. Growth: Even though companies are talking a lot about AI, this isn't always resulting in their growth.
What Investors Think: The study showed that just because companies talk about AI doesn't mean their value increases. This means that investors are thinking carefully before putting their money into companies.
Predictions for the Future:
Private Investments: The biggest growth related to AI might come from private investors looking for the next big thing.
Continued Exploration: Many big tech companies are still trying to figure out the best way to use AI.
In Short:
The growth of tech companies can't be just because of AI. While AI has played a part, factors like positive market mood and investor decisions are also very important. As we move forward, how AI and market factors work together will be important for the future growth of tech companies.
Cents & Sense Perspective💪
Market Snapshot
The weekend is almost here, and the stock market is already celebrating. The S&P 500 rose 1.9% on the day, its largest gain since April 27. The Nasdaq Composite was up 1.8%, while the Dow Jones Industrial Average rose 565 points, or 1.7%.
The real push behind this rally was Wednesday's no-interest hike from the Feds. The general market sentiment is that the Central Bank has finished raising interest rates. How long will this sentiment survive? Only time will tell!
But the big news will be the jobs report, which will definitely test this positive sentiment. Economists have forecast an October gain of 189,000 jobs, well below September's 336,000. An upside surprise could lead to another selloff. But there is a catch: the numbers might not be a true picture of the economy because of the UAW strike in October.
But whatever the case, the market will move!
Apple Stock Slips Despite Earnings Beat. The Outlook Is a Problem
Apple announced its latest quarterly results today, which modestly surpassed market expectations. However, concerns emerged as the company's guidance for the December quarter did not align with Wall Street's optimistic projections, prompting a 3.6% decline in Apple shares.
Despite achieving a revenue of $89.5 billion, slightly above predictions, Apple faced its fourth straight quarter of year-over-year revenue decline.
Key product revenues showed mixed results. iPhone sales were on par with forecasts, registering a robust revenue of $43.8 billion. On the flip side, other segments like Mac and iPad experienced notable revenue dips, reflecting potential challenges in the product mix.
On a regional front, Apple confronted revenue setbacks in strategic markets like China and Japan. Conversely, the Americas witnessed a marginal uptick in revenue. Amid these developments, Apple's decision to introduce a new Mac processor series and hardware updates shortly before the earnings report became a talking point. The timing fueled market speculations about possible weak September quarter sales and whether Apple was shifting its narrative to focus on the future and reestablish market confidence.
Tesla is no longer a premium stock
Historically, Tesla's stock traded at a premium due to its rapid growth and higher margins compared to its electric vehicle (EV) peers. However, recent data reveals a notable slowdown in the company's growth. While the trailing 12-month revenue growth is around 27% YoY, the Q3 YoY growth rate is only 8.9%, nearly aligning with the broader auto industry average.
Tesla's operating margins have also decreased, down to 7.6% from over 15% the previous year. The imminent launch of the Cybertruck is expected to strain these margins further, with profitability anticipated only 12-18 months post-production.
Tesla's high valuation has been partly attributed to its potential future business ventures, especially in autonomous driving and the Dojo project. While these projects have potential, most (85-90%) of Tesla's revenue is still derived from car sales. It is a risky investment at this price, especially given the current high interest rates, geopolitical tensions, and a weakened consumer environment. Despite these concerns, Tesla's valuation remains significantly higher than its peers.
Coinbase Q3 Earnings Surpass Forecasts, Yet Trading Volume and Stock Raise Concerns
Coinbase Global delivered a stronger-than-anticipated performance in the third quarter, reporting revenues of $674 million and minimizing its loss to just one cent per share. This positive financial snapshot comes despite it being the company's seventh consecutive quarter of losses, primarily due to the broader cryptocurrency market dip and a consistent decrease in trading volumes.
The company's shares, however, didn't echo the positive earnings sentiment. They fell over 4% in post-market trading, even after having risen 8.7% during the regular session. The decline in trading volume is noteworthy: Coinbase reported $76 billion for Q3, which is a significant drop from $92 billion in Q2 and $159 billion from the same quarter the previous year.
A silver lining in Coinbase's financials was the increased "take rates" charged to retail traders. Still, there's skepticism around the sustainability of this trend, especially given the stiffening competition from trading platforms like Robinhood Markets.
Looking ahead, there's a shimmer of hope for investors. Since the end of Q3, Bitcoin's price has witnessed a 29% uptick, indicating a potential revival in trading volumes for platforms like Coinbase. Additionally, Coinbase's CFO, Alesia Haas, highlighted possible future catalysts like the 2024 Bitcoin "halving" event and rising geopolitical tensions, which might attract more investors to see Bitcoin as a value store.
On another front, Coinbase is actively navigating regulatory waters, especially following the Securities and Exchange Commission's allegations earlier this year. The company remains proactive, pushing for more transparent and accommodating crypto legislation in the U.S.
Headlines you might like 👀
Fed holds rates steady, upgrades assessment of economic growth (CNBC)
Apple loses bid to shutdown UK iPhone class action suit (Bloomberg)
The US and European economics are diverging (WSJ)
Toyota gives 9% pay bump to most US auto-factory workers, following UAW gains in Detroit (WSJ)
China agrees to arms-control talks with US (WSJ)
Top business schools are enrolling more women than men (WSJ)
Costco, Resideo queried over products tied to China suppliers (Barron’s)
I’m Armaghan Tanveer, a numbers guy by profession and a romantic by heart. I have just started documenting my life (as a part-time content creator while managing my day job and family). I would love to have you as a part of my journey; you can follow me on my journey here.
DISCLAIMER: We are not investment advisors; this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your research.
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