To The Moon

Big-Tech’s Performance

Sep CPI beat estimate, which boosted yields that had recently dropped slightly, again, leading a increasing estimate of tightening in November. As a result, risk-off mode on, US stocks down at the beginning of the Q3 earnings season.

As close of Oct 12th, almost all major tech companies had gained in the past five trading days, with $Meta Platforms, Inc.(META)$ +6.36%, $Amazon.com(AMZN)$ +5.06%, $NVIDIA Corp(NVDA)$ +5.05%, $Microsoft(MSFT)$ +3.69%, $Apple(AAPL)$ +3.32%, $Alphabet(GOOG)$ +2.89%, only $Tesla Motors(TSLA)$ down slightl -0.45%.

Tesla's has the lowest correlation to the $S&P 500(.SPX)$ among big-techs, while MSFT, GOOG, META, AMZN are currently priced for AI software application expectations, and NVDA more on hardwares.

AAPL is the one lagging in the AI race, but it has a strong foundation and the greatest impact on the overall market, making it a good choice for buy and hold investors.

Big-Tech’s Top Newsfeed

Gartner reported a 9% decline in global PC shipments in the third quarter, with Apple's shipments down 24% year-on-year.

$Taiwan Semiconductor Manufacturing(TSM)$ is expected to see a roughly 6% increase in AI orders next year, with customers including NVIDIA, $Advanced Micro Devices(AMD)$ , Tesla, Apple, and $Intel(INTC)$ .

Apple is considering switching its default search engine from Google to DuckDuckGo.

Apple CEO Cook sold $410 million in stock, the largest amount since 2021.

Apple acknowledges overheating issues with the iPhone 15 and plans to fix them in a software update.

The development of Apple's Apple Car currently seems to have lost any visibility.

OpenAI is in talks to secure $1 billion in financing from $Softbank Group Corp(SFTBY)$ for the development of an "iPhone of the artificial intelligence world."

Microsoft has adjusted the terms of its acquisition of $Activision Blizzard(ATVI)$, and UK regulatory authorities have approved the revised transaction.

The IRS is demanding that Microsoft pay at least $29 billion in taxes for its global subsidiaries for the period 2004-2013, in addition to fines and interest.

Microsoft has introduced several new tools for healthcare organizations in Microsoft Fabric and Azure AI.

French startup Mistral AI has released its first generative artificial intelligence model.

Members of a US truck driver union are staging protests at Amazon warehouses.

Amazon is raising wages in the UK and plans to hire 15,000 temporary workers before the holiday sales season.

Google Cloud has launched a new generative AI search feature for doctors.

Google has released the Pixel 8 series of smartphones, incorporating AI technology in camera and other components.

Meta's metaverse hardware losses may be higher than market consensus.

Essilor International and Meta Platforms have launched the second generation of Ray-Ban smart glasses.

Meta is embracing the consumer AI trend by introducing chatbots and image editing features in its apps.

Xbox Cloud Gaming will be available on Meta Quest 3 in December.

$Roblox Corporation(RBLX)$ introduced new products for Meta's headsets on September 27.

NVIDIA is discussing increasing 1Q24 AI modem orders with Wistron.

Goldman Sachs has added NVIDIA to its "conviction buy list."

Tesla announces that it has produced over 20 million 4680 batteries.

Tesla has lowered the prices of some vehicles in the United States, with the Model 3 now priced at $38,990.

The SEC is investigating Elon Musk regarding the acquisition of Twitter.

Big-Tech’s Key insights

We summarized the performance of seven weighted technology stocks since Q2 results: GOOG > META > AMZN > NVDA > AAPL > MSFT > TSLA.

Q3 Earnings Fundamentals

Apple

Apple's Q3 performance, excluding the iPhone, is of particular interest to the market as the focus is on the sales of the iPhone 15 series in Q4. Even Ming-Chi Kuo believes that there is limited demand for upgrades in the North American region, and upgrades like the motherboard may be delayed, with several research institutions lowering Apple's penetration rate for the next two years.

Apple saw a significant decline after its Q2 performance, mainly due to its absence at the AI, and investors are eager to see how they address next year's expectations during the conference call. Additionally, while service revenue is growing well, the "Apple tax" has been a subject of criticism, possibly hiding a potential problem.

Of course, in the secondary market, Apple holds the largest weight and becomes the preferred choice for investors when seeking safety in times of uncertainty.

Microsoft

Before the Q2 financial report, the market had high expectations for AI, but the AI enthusiasm has somewhat waned, so expectations for Q3 performance are not overly optimistic. The growth of Azure cloud business and how much ChatGPT can contribute to Microsoft's revenue will likely be the focus of Q3 investors.

Microsoft is currently trading at a relatively high valuation level among major tech companies in the secondary market, so its upward momentum may be slightly muted unless unexpected events occur.

Google

Since Q2, Google has shown the best performance and is the only major tech stock that has consistently recorded significant profits from Q2 until now. Market underestimation of Google in Q2 – attributing too much to declining factors and underestimating the advertising business, as well as overly pessimistic views of its previously less successful AI business – have all been rectified in Q3 trading.

Both Google and META reached 52-week highs in October, and the upcoming Gemini, the most powerful model developed jointly by Google Brain and DeepMind, could become a valuable tool for enhancing the company's business, much like ChatGPT. This is likely to attract more FOMO (fear of missing out) capital.

Q3 performance in the consumer sector may be somewhat weak, but it's not in a decline, so companies have more incentive to engage in advertising activities. Therefore, Google's Q3 advertising business is still something to look forward to.

Amazon

Amazon's stock price has factored in various inflation-related changes, so the market's focus prior to the Q2 financial report was more on expectations of a recession. When Q2 earnings surpassed expectations and surprised the market, it had the best performance among all major tech companies.

However, there is some divergence in the market for the Q4 comsuptions. On one hand, there are concerns about labor strikes in the supply chain and the stubborn rise in oil prices, while on the other hand, there is optimism about the rebound in consumer sentiment.

Consumer-related Q3 financial results are still likely to exceed expectations, but considering the situation for Q4 and next year, the market is not keen on further investment in the consumer sector, leading to a generally unfavorable sentiment.

Amazon also has competitive capabilities in generating AI-driven conversational interactions similar to ChatGPT, and, combined with its dominant cloud services, it may continue to benefit.

NVIDIA

When Q2 financials were released, AI was at its peak, so the competition was fierce, resulting in a typical scenario of both long and short positions. Q3 financials are not expected to be as intense, but the competition in AI continues, with the main focus on performance expectations for 2024.

From an annual perspective, it remains an investment with above-average returns. NVIDIA has accumulated significant gains in the first half of the year, and its current valuation just need more time.

Tesla

As the competition in the new energy vehicle industry intensifies, Tesla, though a leader in the industry, may not meet investors' expectations. Tesla's delivery volume in September was also not ideal, and repeated price cuts have affected the company's profit margins.

Profitability may need to be improved more on the cost side. Of course, as oil prices continue to rise and the penetration rate of new energy vehicles in Europe, the Americas, and Asia-Pacific regions increases, the market still has significant potential.

In addition, it will take some time for Dojo to generate sufficient cash flow.

META

META has achieved a return of over 140% since the beginning of the year, reaching a new high for the year in October. It is considered the company most likely to expand its commercial AI capabilities.

The company's advertising business was undervalued in Q2, and Q3 expectations are also promising because Meta is the biggest beneficiary of the market TikTok ban(Instagram and Reels). Moreover, since the majority of its assets are in U.S. dollars, it remains particularly valuable in an environment of high interest rates and a strong U.S. dollar.

The Big-Tech Portfolio

We combine the seven companies with the highest weight into a portfolio called the "TANMAM" portfolio.

By backtesting this portfolio with equal weight and quarterly weight readjustment, the performance since 2015 has far exceeded that of the $SPDR S&P 500 ETF Trust(SPY)$ with a total return of 1378.7%, compared to SPY's return of 147.2% during the same period.

Since the beginning of the year, the total return of the portfolio is 95.35%, with a Sharpe ratio of 5.1, while the total return of SPY during the same period is 14.67%.

In the past week, large technology companies have performed well, with a total return of 3.7%, outperforming SPY by 2.2%.