To The Moon

Big-Tech’s Performance

In the past week, the top tech stocks experienced a rise followed by a decline, causing the $NASDAQ 100(NDX)$ to underperform the $S&P 500(.SPX)$ and the $DJIA(.DJI)$ . Performance among major companies also showed some divergence.

Over the last five days, the strongest performer was $Apple(AAPL)$ with a 1.36% increase, reaching a new all-time high during the week. Following closely was $Microsoft(MSFT)$ with a +1.23% gain, while $NVIDIA Corp(NVDA)$ $Meta Platforms, Inc.(META)$ $Amazon.com(AMZN)$ $Amazon.com(AMZN)$ $Alphabet(GOOG)$ $Tesla Motors(TSLA)$ recorded negative returns.

Big-Tech’s Top Newsfeed

• Apple accelerated the development of its own generative AI tool and is constructing a large language model AI framework called "AJAX."

• If the UK passes a controversial security law, Apple may consider withdrawing its iMessenger service from the UK.

• Microsoft announced the enterprise AI software Copilot tool and revealed plans to charge businesses $30 per user per month for the service.

• Microsoft and Meta also expanded their collaboration in the field of large language models, with a focus on LLaMa 2.

• The US Federal Trade Commission (FTC) temporarily suspended administrative litigation against Microsoft's $69 billion acquisition of Activision Blizzard, extending the deal's deadline to October 18th.

• Amazon's AWS now supports Meta's latest Llama 2 base model.

• Tesla released its Q2 financial report, which exceeded revenue and EPS expectations but did not raise its full-year delivery guidance, while its gross margin declined to 17.5%.

• The semiconductor sector also faced a setback after TSMC lowered its full-year outlook following its Q2 financial report, despite Nvidia's prior trust in TSMC's production capacity.

Big-Tech’s Key insights

Microsoft Inspire 2023

It was a significant success. The announcement of the commercial version of the Llama 2 AI model in partnership with Meta has the potential to challenge OpenAI's ChatGPT, which has not been open-sourced yet.

Nevertheless, we believe that Microsoft's collaboration with Meta can strengthen ChatGPT's position as it holds a large commercial non-open-source language model.

Additionally, it opens up faster competition for startups and other companies in the LLM field. The inclusion of the Llama 2 model in Windows will boost Windows as a premier platform for developers to build AI experiences tailored to customer needs, thereby increasing its market share and enhancing Microsoft Azure's position in the industry.

Microsoft's release of the AI tool 365 Copilot for Office can also have a positive impact on its cloud business, potentially increasing cloud revenue growth by 20 percentage points by 2025 if over 50% of existing Microsoft users adopt the AI product within the next three years.

The upcoming Microsoft Q2 financial report is highly anticipated, and the market is especially eager to see if the executives' outlook will be improved, which could positively influence investor sentiment.

Tesla's Flat Q2 Earnings

The company experienced a significant drop of over 9% after its release.

Despite the decline in gross margin to 17.5%, lower than the market's 18% expectation, Tesla's full-year delivery guidance remained unchanged. However, investors seem to have priced in the fact that Tesla is focused on increasing production volume through price cuts.

The additional costs related to the production ramp-up of the 4680 battery, as well as other projects like the Cybertruck and AI/FSD, are already known to investors. The pace of Cybertruck deliveries, which are expected to begin later this year, may have a more substantial impact on the stock price.

Netflix’s Issue

As for Netflix's Q2 financial report, the company's stock also fell over 8%, mainly due to slightly lower revenue than expected and weaker Q3 revenue guidance compared to market expectations.

Despite exceeding expectations for new subscription sign-ups after tackling shared accounts, the revenue did not increase proportionally. This indicates that advertising revenue is still insufficient to compensate for the difference or that the ad business needs more time to grow.

Additionally, the ongoing strike by Hollywood screenwriters and actors could affect investor expectations for future content creation.

The same good and bad news

Before the market opens on July 24th, there will be a new adjustment to the Nasdaq 100 Index's weights. As we mentioned earlier, the weights of the top 7 companies will be reduced, while those of the companies following them will be increased.

Among them, Microsoft (MSFT) and NVIDIA (NVDA) will see the most significant reduction in weights, whereas Netflix (NFLX), Broadcom ( $Broadcom(AVGO)$ ), Airbnb ( $Airbnb, Inc.(ABNB)$ ), and other companies will experience strengthened weights.

The Big-Tech Portfolio

This portfolio, consisting of the seven largest weighted companies, called the "TANMAM" portfolio.

From the backtests with equal weights and quarterly rebalancing since 2015, it could resulte in a total return of 1515.7%, significantly outperforming the S&P 500 ETF (SPY) with a return of 256.8% during the same period.

The annualized return of 37.38% also outperformed SPY's 11.47%.

The YTD return is 88.79%, while SPY's return is 19.14%.

The return since July is 1.91% for TANMAM and 2.01% for SPY.