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In today’s edition,
- Semiconductor stocks tumble
- Apple’s AI-powered growth
- BlackRock’s strategic shift
- Meta eyes EssilorLuxottica
- Netflix surpasses expectations
- Crypto miners adapt to AI
Market Snapshot
This week marked Wall Street’s toughest since April, with major indices closing lower after a massive global IT outage, possibly the largest in history, disrupted various sectors. The outage was linked to a problematic software update from cybersecurity firm CrowdStrike (CRWD), which affected systems running on Microsoft (MSFT) and caused widespread confusion and operational disruptions. Despite a fix being deployed, the fallout led to a significant drop in CrowdStrike’s shares and a broader decline in the tech sector, which fell more than 1%.
Additionally, geopolitical tensions from the US presidential race added to market volatility, as candidates issued stern messages about trade with Asian countries. This uncertainty, coupled with expectations of Federal Reserve rate cuts, prompted investors to shift from tech stocks to small-cap and cyclical companies, which typically benefit from an expanding economy.
For the week, the S&P 500 index fell by 2.37% to 5,505.00, its worst performance in three months. The Dow Jones Industrial Average slightly rose, finishing up less than 1% at 40,287.53, while the Nasdaq Composite saw a significant drop of 4.11%, closing at 17,726.94.
Stock market closing data for the week of Jul 15th to Jul 19th, 2024
News Summaries
Apple’s (Explore: AAPL) introduction of AI features, including a partnership with OpenAI to integrate ChatGPT into iPhones, is being recognized as a potential catalyst for a significant upgrade cycle among consumers. Analysts have raised their outlooks following these announcements, with many expecting these features to motivate users, particularly the 40% who still use iPhone 12 or older models, to upgrade. This optimism contributed to a 36% rise in Apple’s stock value since April, increasing its market cap by about $900 billion and elevating its valuation to levels above historical averages at more than 31 times estimated earnings. Despite this market enthusiasm, some analysts remain cautious, suggesting that the immediate effects of AI on consumer behaviour and the anticipated “AI supercycle” in sales might take longer to realize than currently expected. Apple’s financial forecasts are modest, with revenue expected to grow by 1.1% in fiscal 2024 and accelerate to 7.7% in 2025, suggesting that while AI integration offers substantial growth potential, the actual pace and scale of market adoption might unfold more gradually.
Semiconductor stocks took a major hit following comments by former US President and 2024 presidential candidate Donald Trump, who suggested that Taiwan should fund its own defence. This situation worsened with reports of possible increased US trade restrictions on chip sales to China. This news affected major industry players, including Nvidia, AMD, and ASML. As a result, the Nasdaq Composite dropped 3.9% for the week, marking its worst performance since October. The volatility in this sector highlights how sensitive investors are to political changes and potential policy adjustments. These factors have influenced market behaviour, leading investors to shift from large tech companies to smaller firms and U.S.-based manufacturers like GlobalFoundries and Intel, which actually saw gains. This chaos illustrates the intricate relationship between global politics and financial markets, particularly in sectors essential for technological progress and infrastructure.
Weekly performance of key semiconductor industry stocks
[Week of Jul 15th to Jul 19th, 2024]
Meta (Explore: META) is exploring a significant investment in EssilorLuxottica, the Franco-Italian eyewear titan, to deepen their existing collaboration on smart glasses. This potential move follows the success of the “Ray-Ban Meta” smart glasses, which have sold more rapidly than their predecessors, demonstrating strong market acceptance. Meta’s interest in EssilorLuxottica aligns with its strategic push into wearable technology, highlighted by billions spent on developments like virtual reality headsets and augmented reality initiatives. EssilorLuxottica, which has recently acquired companies in medtech and streetwear, aims to innovate and capture younger consumers with tech-integrated products. Although an investment has not been finalized, Meta’s collaboration with EssilorLuxottica could significantly advance its position in the next-generation computing devices market, moving beyond traditional smartphones and tablets.
Netflix (Explore: NFLX) significantly exceeded its subscriber growth forecasts in the second quarter. It added 8.05 million customers, which was far ahead of the expected 4.87 million. This growth included a substantial 2.8 million from the Asia-Pacific region. A major driver of this surge was the launch of a lower-priced, advertising-supported subscription plan, which accounted for nearly half of the new sign-ups where it was available. Popular releases like “Bridgerton” and “Under Paris” helped boost Netflix’s viewership share to over 8% in the U.S., doubling that of any other paid streaming service. Financially, the company saw a 17% increase in revenue, reaching $9.56 billion, and a 48% rise in earnings to $4.88 per share, both figures surpassing analyst expectations. Despite this positive performance, Netflix shares remained stable in extended trading. Looking ahead, Netflix plans to expand its advertising tier and venture further into video games, indicating a robust strategy for continued growth amidst a plan to stop reporting subscriber numbers next year.
From the World of Crypto
Cryptocurrency mining has become a more challenging endeavor in recent times. The high energy costs associated with running the powerful computers needed for mining can potentially cut into profits. Additionally, rewards for successful mining efforts have typically been halved, further impacting miners’ income.
In response to these potential financial constraints, some cryptocurrency miners are exploring alternative uses for their existing infrastructure. Notably, the high-performance GPUs typically used in mining can also be effectively applied to support artificial intelligence (AI) operations. This shift allows miners to potentially leverage their existing equipment while capitalizing on the growing demand for AI computing power.
This trend is gaining traction, with some industry leaders forging significant partnerships. For instance, Core Scientific (Explore: CORZ) has entered into an agreement with CoreWeave, a potential deal valued at $4.7 billion over twelve years. Similarly, Hut 8 (Explore: HUT) is actively exploring AI projects and is likely upgrading its facilities to better support these endeavors. These developments suggest a broader industry movement among miners who are potentially seeking to diversify their revenue streams by utilizing their computing resources in different ways. The potential benefits include a shift from the potentially volatile earnings of cryptocurrency mining to a more stable income stream generated by providing AI services.
However, it’s important to acknowledge the environmental impact of both AI and cryptocurrency mining. These activities typically require significant amounts of energy, which can potentially strain power grids and contribute to increased greenhouse gas emissions. A recent example is Google, whose emissions reportedly rose by 48% over five years, likely due in part to the expansion of their AI data centers. This situation highlights the ongoing challenge of balancing the desire for technological innovation with the need for responsible energy management.
