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Vested Shorts: US is the fastest-growing advanced economy, xAI is in talks to raise $6B and Lithium’s 80% price drop

by Parth Parikh
January 27, 2024
3 min read
Vested Shorts: US is the fastest-growing advanced economy, xAI is in talks to raise $6B and Lithium’s 80% price drop

In today’s edition

  • xAI’s $6 billion fundraising quest
  • Record orders for ASML
  • Lithium price plunge
  • US economy thrives

Market Snapshot

US equity benchmarks ended the week on a mixed note, despite posting overall weekly gains. This market behavior was influenced by the Federal Reserve’s favored inflation measure, the Personal Consumption Expenditures (PCE), which showed a rise of 0.2% in December. The core PCE rate, excluding food and energy, increased to 2.9% year-over-year, its lowest since March 2021, hinting at a potential Federal Reserve interest rate cut.

Despite positive overall trends, technology stocks faced headwinds after Intel (INTC) released disappointing earnings guidance, resulting in a 12% drop in its shares. The focus now shifts to upcoming earnings reports from major tech companies like Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT).

For the week, the S&P 500 index (SPX) recorded a modest increase of 1.1%, closing at 4,890.97. The Dow Jones Industrial Average (DJI) climbed higher, gaining 0.6% for the week and closing at 38,109.43, while the Nasdaq Composite (COMP) also ended the week positively, up 0.9%, despite a 0.4% drop on Friday to close at 15,455.36. These movements indicate a cautiously optimistic market, balancing between inflation data and corporate earnings outcomes.

Market closing data for the week from January 22 to 26th, 2024

News Summaries

Elon Musk’s artificial intelligence startup, xAI, is ambitiously seeking to raise $6 billion at a valuation of $20 billion, tapping into a global pool of investors, including family offices in Hong Kong and sovereign wealth funds in the Middle East. This move, coordinated by Morgan Stanley, underscores the significant financial demands of developing generative AI technology, which involves extensive computing resources and advanced data-handling capabilities. Musk’s venture, differentiated by its product Grok—a chatbot trained with social media data for real-time responses—reflects a broader industry trend where AI giants like OpenAI and others have attracted multi-billion dollar investments. The geopolitical implications of raising funds in Hong Kong, amid rising tensions and US export controls on Chinese AI investments, add a complex layer to Musk’s fundraising strategy.

ASML, a leading Dutch chipmaking equipment manufacturer, is indicating a potential upcoming boom in the semiconductor industry, as evidenced by its record fourth-quarter orders totalling €9.2 billion ($10.01 billion). Despite a challenging environment with a post-pandemic chip excess and geopolitical tensions, ASML achieved a 30% increase in sales, reaching €27.6 billion ($30.02 billion). A significant portion of its sales, 39%, came from China, despite U.S. restrictions, though stricter regulations might reduce this by 10-15% in 2024. The company is optimistic about 2025, expecting an increase in gross margins to 54-56% due to new EUV machine orders, which already underpin half of its 2025 revenue projections. This robust performance, set against a backdrop of varying fortunes for other chipmakers, underscores ASML’s near-monopoly in advanced lithography and its pivotal role in AI chip production, hinting at a strong growth trajectory and a promising investment outlook.

The global lithium market is experiencing a significant shift as a slowdown in China’s electric vehicle demand has led to an 80% price drop of lithium to $13,200 per tonne, the lowest since 2020. Australian miners, who contribute 40% of the world’s lithium, are notably impacted, scaling back expansion plans and production. Companies like Pilbara Minerals and Liontown Resources are adjusting strategies, with the former halting dividends after a revenue drop and the latter losing a major loan deal for its Kathleen Valley project. Even industry giants like Albemarle are cutting costs, reducing capital expenditure, and halting mining operations in response. However, Chinese firms are seizing this opportunity to strengthen their position in the global market, with companies like Ganfeng Lithium increasing spodumene purchases. Analysts suggest that the current low prices could lead to a market rebound in the second half of 2024, but the lithium market remains volatile and highly sensitive to even minor shifts in supply and demand dynamics.

Defying recession concerns, the US economy showcased its robustness with a 3.3% annualized growth rate in the last quarter of 2023, contributing to an impressive 3.1% expansion for the whole of 2023. This performance not only positioned the US as the fastest-growing advanced economy globally but also hinted at a potential “soft landing” scenario, with inflation easing to 1.7% in the fourth quarter from 2.6% previously. These encouraging figures, surpassing many forecasts, have bolstered investor optimism about the Federal Reserve possibly reducing interest rates in the near future. This economic upturn has positively influenced US stocks and bond markets, further affirming the nation’s standout economic resilience and growth in a challenging global landscape.

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