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Vested Shorts: Nasdaq’s 45% surge, $27 Billion investment in AI, JPMorgan’s dominance, and the rise of foldable smartphones

by Parth Parikh
December 30, 2023
4 min read
Vested Shorts: Nasdaq’s 45% surge, $27 Billion investment in AI, JPMorgan’s dominance, and the rise of foldable smartphones

In today’s edition

  • Foldables: Niche to Mainstream?
  • Huawei’s resilient revenue rebound
  • Tech giants lead in AI
  • China’s birth rate crisis
  • JPMorgan’s market domination

Market Snapshot

In 2023, major US equity benchmarks ended the year with significant gains. The S&P 500 index, despite a slight dip on the last trading day of December, recorded a 25% increase year-to-date (YTD), rebounding from its 19% fall in 2022. The Dow Jones Industrial Average also experienced a notable rise, finishing the year 14% higher YTD. The Nasdaq Composite led the surge with a remarkable 45% uptick YTD, driven largely by significant advancements in technology stocks, particularly in the artificial intelligence sector.

The Federal Reserve’s shift towards potential interest rate cuts in 2024 played a crucial role in this year’s market performance, aiding interest-rate-sensitive sectors like small caps and financials. Investor optimism was further buoyed by the possibility of the Fed achieving a “soft landing” for the economy, balancing slowing inflation with avoiding a recession.

Sector-wise, information technology and consumer discretionary sectors excelled with over 40% gains due to AI adoption and strong consumer spending. However, utilities, staples, and energy sectors faced challenges, with energy notably experiencing its first annual decline since 2020.

News Summaries

Despite holding a mere 1% global market share nearly five years after their debut, foldable smartphones are increasingly seen as a potential catalyst for rejuvenating the stagnant mobile market. Major manufacturers, excluding Apple, are investing in this niche, with Samsung leading the charge by heavily marketing its 5G Galaxy Z series. Industry forecasts by Counterpoint Research suggest foldables could account for over a third of smartphones above $600 by 2027. However, the segment faces hurdles such as high prices and consumer concerns about durability, reflected in higher return rates than traditional smartphones. While Samsung currently dominates this market with a 73% share, the success of foldables, particularly in premium segments and markets like China, indicates a growing interest that could eventually lead to mainstream adoption despite the challenges.

Chinese telecom giant Huawei has reported a significant recovery, achieving its highest revenue in three years at over $99bn, marking a 9% year-over-year growth. This rebound comes despite enduring several years of US sanctions and supply chain restrictions that initially crippled its operations, particularly in the smartphone and telecoms equipment sectors. In 2023, Huawei’s revenue still remained 20% below its 2020 peak, reflecting the ongoing impact of US sanctions that limited access to essential technology and components. Despite these challenges, Huawei has refocused its efforts on innovation and research, dedicating a quarter of its 2022 revenue to R&D. This strategic shift, along with the release of a new phone featuring an advanced chip developed with Chinese partners, signals Huawei’s resilience and adaptability in the face of international political tensions and market constraints.

In 2023, major tech companies like Microsoft, Google, and Amazon significantly outpaced venture capital groups in investing in generative AI startups, contributing to two-thirds of the $27 billion raised by AI companies. This surge in investment, particularly following the launch of OpenAI’s ChatGPT, underscores how these Silicon Valley giants are overshadowing traditional tech investors in securing major deals within the industry. Despite the challenge of higher interest rates and lower valuations affecting venture capital spending, big tech’s financial power has led to massive deals, such as Microsoft’s $10 billion investment in OpenAI and substantial funding rounds for other startups like Anthropic and Mistral. This trend has inflated the valuations of AI startups, making it difficult for venture capital to compete, as evidenced by OpenAI’s recent valuation of $86 billion. The shift indicates a consolidation of the AI market around a few key players, with venture capitalists adjusting their strategies to focus on applications built on foundational AI models developed by leading firms.

China’s economic growth prospects face a significant challenge, not from its current real estate crisis but from a record-low birth rate, the lowest since records began in 1949. Last year’s fertility rate plummeted to 1.09, with births dropping below 10 million for the first time and expected to fall further. This demographic shift has initiated a cycle where economic downturns lead to reduced birth rates, which in turn further diminish productivity. By the mid-21st century, China’s population proportion is projected to halve, significantly impacting sectors reliant on child-related products, such as baby formula, and causing economic strain due to a shrinking labor force. This issue, compounded by young workers avoiding manufacturing jobs and an anticipated shortage of 30 million workers by 2025, will not only lead to rising labor costs in China but also affect international companies reliant on Chinese manufacturing, marking a global impact of China’s demographic crisis.

In 2023, JPMorgan Chase solidified its dominance in the US banking sector, capturing nearly 18% of the industry’s total profits, amounting to $38.9bn. This performance marks the bank’s strongest presence in the market since 2009, significantly outpacing its Big Four rivals (Bank of America, Wells Fargo, Citi, and U.S. Bank). JPMorgan’s success can be attributed to strategic acquisitions, including the purchase of First Republic and capitalizing on rivals’ missteps amidst a year of financial turmoil. Rising interest rates have further boosted profits across large banks, but JPMorgan’s efficient utilization of its massive deposit base and focused investment in technology have set it apart. This growth in deposits and expansion of branch networks, combined with JPMorgan’s ability to navigate market challenges, underpin its leading position in the US banking industry despite broader sector challenges such as regulatory sanctions and asset caps affecting competitors.

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