👁️ Apple of My AI

Plus, an unlikely beneficiary of the data center boom

Happy Sunday to everyone on The Street.

Prior to this week, investors and economists were growing skeptical that the Fed would cut rates at all this year. And, of course, we’ve seen Fed Chairman Powell continually reiterate the need for a wait-and-see approach to reducing rates.

Well, if Powell is looking for an economic slowdown before cutting rates, the reports from this week may have given him what he’s been looking for:

  • Weekly jobless claims jumped to 231,000 for the week ending on May 4th, the highest claims numbers since late August of 2023.

  • Roughly one in 37 homes are now considered seriously underwater in the US

  • Dine Brands, the parent company of Applebee’s and IHOP, has seen a decline in consumers who earn $50,000 or less annually

  • Americans saved up $2.1 trillion during the pandemic. However, the extra spending money is now gone and economists are concerned about what’s next.

This week, economist Frances Donald said a “proper economic downturn” is coming, and it could trigger steep rate cuts this year.

On the other hand, we also saw a drop in consumer sentiment to the lowest level in six months as Americans cited high inflation. Plus, Fed Governor Michelle Bowman said on Friday that she doesn’t expect it will be appropriate for the Fed to cut interest rates in 2024.

Will the Fed Cut Interest Rates in 2024

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In 1941, Stan Lee published his first comic, forever changing the world of superheroes. Kartoon Studios (AMEX: TOON), dedicated to preserving Lee's vision, launched a storefront on Amazon offering Stan Lee merchandise. The company also unveiled the "Stan Lee Presents" channel on YouTube, managed by Frederator Networks. Kartoon Studios aims to engage fans globally and honor Lee's storytelling legacy. Lee's work transcended barriers, promoting unity and inclusivity. Kartoon Studios continues to keep Stan Lee's legacy alive through various initiatives. The launch of the YouTube channel and the Amazon storefront are part of the company's efforts to connect with fans and create new opportunities for engagement and growth.

Review

It's been a quiet week in the markets, marked by a dearth of major economic news and a consistent flow of positive indicators from the first-quarter earnings season.

As of May 7, 424 companies in the S&P 500 have disclosed their earnings, with 78% surpassing earnings expectations and 61% exceeding revenue forecasts.

The S&P 500 continued its upward trend, marking its third consecutive week of gains and nearly recouping losses from April, while the Dow Jones boasted eight consecutive sessions in the green.

Notably, the utilities sector, as tracked by the Utilities Select Sector SPDR Fund, has emerged as the star performer of 2024, outstripping energy and doubling the tech sector’s performance, with some analysts attributing the outperformance to heightened power demand from data centers.

Concerns surfaced regarding a potential job market slowdown following unexpectedly high weekly jobless claims. The figure reached its highest level in eight months.

The University of Michigan's Consumer Sentiment report revealed a sharper-than-expected dip in May, along with a worrying rise in inflation expectations.

Investors are now fully factoring in two interest rate cuts by year-end, beginning in September.

Attention now turns to the forthcoming April Consumer Price Index inflation report on Wednesday and Federal Reserve Chair Jerome Powell‘s remarks in Amsterdam on Tuesday.

Buffett Sells Apple Shares

Warren Buffett‘s Berkshire Hathaway Inc. has cut its stake in Apple Inc. by 18%, signaling waning confidence as the tech giant faces challenges in its Chinese market.

Apple’s M4 iPads

Meanwhile, Apple unveiled an iPad Pro with a M4 chip and OLED display, and an iPad Air with a M2 chip, enhancing the iPad lineup for the first time since 2022. The iPad Pro starts at $999 for the 11-inch model and $1,299 for the 13-inch model — higher price points than older releases.

Tesla Cuts Jobs

Tesla Inc. has initiated another round of job cuts in China due to intensifying competition in the electric vehicle market, which is increasingly dominated by local rivals.

Pfizer Settles Lawsuits

Pfizer Inc. has agreed to settle over 10,000 lawsuits related to cancer risks associated with its discontinued heartburn medication Zantac.

Nvidia Leads AI

Nvidia Corp. has been declared the de facto standard in AI technology by a Goldman Sachs analyst, who said the company will dominate the sector for the foreseeable future.

Preview

Economic Data

  • Monday: Fed Vice Chair Philip Jefferson and Cleveland Fed President Loretta Mester speak

  • Tuesday: Producer price index, Fed Chair Jerome Powell speaks

  • Wednesday: Consumer price index, U.S. retail sales, Empire State manufacturing survey, Home builder confidence index

  • Thursday: Initial jobless claims, Building permits, Import price index, Fed Vice Chair for Supervision Michael Barr testifies

  • Friday: U.S. leading economic indicators, Fed Governor Christopher Waller speaks

Earnings

  • Monday: Lithium Americas Corp, Avita Medical, Bank of America

  • Tuesday: 10X Genomics, Reit 1 Ltd, 3M

  • Wednesday: 3D Systems, Phillips 66, Allianz SE

  • Thursday: AT&T, Deutsche Bank, O’Reilly Automotive, Arrowhead Pharmaceuticals

  • Friday: Boeing, Western Union, RBC Bearings, Alliant Energy Corp

Stocks Around the World

A Refreshed Buy List

Goldman Sachs (GS) is refreshing its “Conviction List - Directors’ Cut” which consists of stocks from around the world. 

The bank sees big gains ahead for names on the list, giving each stock a potential upside of 30% or more. 

Different sectors and countries are represented on the list.

London Is Calling

The investment firm gave a stamp of approval to the London Stock Exchange (LSEG).

Goldman has observed “revenue acceleration” for LSEG as it receives more business from clients. The investment firm also believes the company can boost its market share. 

An analyst for Goldman pointed out that the London Stock Exchange has partnered with Microsoft (MSFT), which could accelerate new offerings to clients. 

Goldman’s price target for the stock puts it roughly 31% above where shares are today.

In High Demand

Two other Goldman Sachs picks were singled out because of high demand for their services. 

The bank likes the South Korean biotech company Samsung Biologics (207940.KS). Goldman says there’s significant demand for biologics which could give the company pricing power. 

One last stock making the varsity squad is Finnish energy company Neste (NESTE.HE). The company is in the business of refining oil and Goldman sees it benefiting from a large push for biofuels. 

Goldman has lofty price targets for both the South Korean and Finnish companies. Samsung Biologics is expected to rise almost 40% and Neste has a target nearly 70% above its current share price. Time will tell if these estimates come to pass, but investors can jump in when the time seems right.

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POWERED BY KARTOON STUDIOS

In 1941, Stan Lee published his first comic, forever changing the world of superheroes. Kartoon Studios (AMEX: TOON), dedicated to preserving Lee's vision, launched a storefront on Amazon offering Stan Lee merchandise. The company also unveiled the "Stan Lee Presents" channel on YouTube, managed by Frederator Networks. Kartoon Studios aims to engage fans globally and honor Lee's storytelling legacy. Lee's work transcended barriers, promoting unity and inclusivity. Kartoon Studios continues to keep Stan Lee's legacy alive through various initiatives. The launch of the YouTube channel and the Amazon storefront are part of the company's efforts to connect with fans and create new opportunities for engagement and growth.

Powering Up

An Unlikely Beneficiary

When you think of companies that could benefit from the data center boom, you might not immediately think of infrastructure operators. 

However, the construction of data centers is causing demand for natural gas to spike, resulting in the need for billions of dollars worth of new infrastructure. That’s where Kinder Morgan (KMI) and Williams Companies (WMB) come in. 

According to Goldman Sachs (GS), by 2030 natural gas demand could jump to 3.3 billion cubic feet per day. This could result in as much as $7.4 billion in new pipeline infrastructure in the same timeframe.

Kinder Morgan

Goldman currently has infrastructure operator Kinder Morgan listed as a “buy” with a $20 price target, around a 7% upside from Tuesday’s close. According to Goldman, its EBITDA could grow by up to $490 million by 2030. 

The company currently controls 40% of the natural gas pipelines in the US, including many in Texas, which is becoming a data center hotspot.

The stock is up over 5% this year.

Williams Companies

Goldman is neutral on Williams Companies, giving it a price target of $37. That figure implies a 5% downside from Tuesday’s closing price. The stock is up over 10% year-to-date. Goldman predicts its EBITDA to jump by up to $410 million by 2030. 

While Williams’ market share is less than Kinder’s, it’s still at 33%. The company has a strong presence in America’s Southeast corner, including northern Virginia, the largest data center market in the US. 

The AI revolution has far-reaching economic impacts, and if Goldman is correct these companies could be well positioned to benefit.

Which stock do you think will outperform over the next 12 months?

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Apple of My AI

Jumping Into AI

Apple (AAPL) chose not to update investors on any AI news at its latest earnings meeting, but analysts are confident it will unveil its plans at its Worldwide Developers Conference in June. 

According to JPMorgan (JPM) analyst Samik Chatterjee, the event will focus on AI implementation within the next iOS version. 

Excitement and optimism surrounding the tech giant’s AI plans have been enough to keep the stock surging despite falling sales.

Analyst Roundup

Bank of America (BAC) analyst Wamsi Mohan notes that Apple’s expected jump into AI incentivizes institutional investors to increase their positions in the meantime. 

Other analysts are also bullish on the stock, pointing out that the company doesn’t need to spend as much capital as competitors to be successful in the AI space. 

Erik Woodring of Morgan Stanley (MS) is confident in the stock following its earnings report and advancements in generative AI. Woodring went as far as to say that the upcoming conference is the company’s most important developer’s conference ever.

Setting Itself Apart

Wells Fargo (WFC) analyst Aaron Rakers likes that Apple chooses to focus on smaller models, partnerships, and device optimization, setting itself apart from the competition. 

Rakers has given the stock an overweight rating with a $225 price target, a 23% upside from Tuesday’s close. 

If these analysts are correct, Apple is about to take a deep dive into the world of AI and investors could benefit by taking advantage of the timing.

Are you bullish or bearish on Apple (AAPL) over the next 12 months?

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Are you bullish or bearish on Walmart (WMT) over the next 12 months?

🟩🟩🟩🟩🟩🟩 Bullish 🐂 

🟨⬜️⬜️⬜️⬜️⬜️ Bearish 🐻

How do you view AI’s impact on stocks?

🟩🟩🟩🟩🟩🟩 Overhyped

🟨🟨🟨⬜️⬜️⬜️ Fair

🟨⬜️⬜️⬜️⬜️⬜️ Underhyped

Are you bullish or bearish on FMC (FMC) over the next 12 months?

🟩🟩🟩🟩🟩🟩 Bullish

🟨🟨🟨🟨⬜️⬜️ Bearish

Are you bullish or bearish on Alphabet (GOOG) over the next 12 months?

🟩🟩🟩🟩🟩🟩 Bullish

🟨🟨⬜️⬜️⬜️⬜️ Bearish

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