That headline is a bit misleading. Microsoft (MSFT) is down 6% today and Meta (META) is down slightly over 4%.
Yesterday, we had bullish momentum based on nice earnings from Tesla and Alphabet. Alphabet said that it used AI for 25% of its coding in the quarter, which is remarkable.
However, today, Meta and Microsoft—the “M’s” of the Mag 7—blew it up. Both lowered guidance just a bit despite beating analysts’ expectations on the top and bottom lines. Microsoft’s cloud business grew 34% and is otherwise hitting all cylinders.
Meta, formerly Facebook, beat on top and bottom lines but put out a warning that
it expects a “significant acceleration” in spending next year as it continues to dump money into building out its developing artificial intelligence segment.
This market has been running on the idea that AI will be the next big thing. These stocks have invested a great deal of money into AI as Brit told you yesterday. That said, the AI space has been priced to perfection and we haven’t seen any real monetary returns on the 100s of billions spent.
Apple and Amazon are reporting tonight after the market closes. We will see if they can turn it around. Nvidia is the clear leader in the AI chip space – it doesn’t report for three more weeks.
I found this very interesting chart today. Capex stands for Capital Expenditure. This chart shows where companies were putting their money over the past few decades.
I distinctly remember a friend of mine telling me he was putting all his money in a telecom fund back in 1999. The Rydex Telecommunications Fund (RYMAX) is still down 60% from its highs 25 years later.
Anyway since the market is now punishing the megacaps for spending all their money to get ahead of AI and seeing no real return it might come to pass that they slow down a bit. This would hurt Nvidia (NVDA) the current market darling and in turn, push down all of your passive index funds. As a side note, Nvidia insiders have been selling all year.
Furthermore, NVDA’s third largest customer is Super Micro Computer (SMCI). E&Y, one of the big four accounting firms, dropped SMCI as a client and they are now threatened with delisting from the Nasdaq. SMCI was up over 300% this year, riding the AI wave.
You should know that E&Y won’t just drop you. They will work to clean up your books and make everything good. The fact that they can’t means that there are shenanigans going on. Things might get messy.
All the best,
Christian DeHaemer
Outsider Club
For Your Continued Reading:
Brit’s take on AI earnings:
https://www.outsiderclub.com/one-ai-stock-one-nuclear-stock/
Some stocks are holding up:
https://www.outsiderclub.com/sell-oil-buy-this-boomer-stock/
What to own instead:
https://www.outsiderclub.com/50-dividend-hike-coming/
