Consumer Confidence: Key to GOOG future ?
On Tue, 26 Mar 2024, the Conference Board Consumer Confidence index (March) was released.
It is one of handful Economic reports out this week, that may “impact” the short trading week. (see below)
CB Consumer Confidence report.
Overall, consumers are feeling less confident about the future state of US economy.
Data came in at 104.7, -0.1 lower than February’s 104.8. and -2.3 lower than Wall Street’s expectations of 107. (see below)
US Consumer Confidence Index (CCI) since 2005.
Looking at past 3 years’ data, consumer confidence was the lowest in July 2022 at 95.3 (revised).
Since then, it has been on a roller coaster ride pattern - up and down and up again.
YTD, consumer confidence has been declining steadily since January 2024.
Expectations Index.
The "Expectations Index" (60% component of CCI) that tracks consumers' 6 months short-term outlook for income, business, and labor market conditions, fell to 73.8 (March - latest) from 76.3 last month.
Historically, a reading below 80 in that category signals a recession in the coming year.
Tuesday's Consumer Confidence report, together with Wednesday & Thursday are but appetizers for the main event on Fri, 29 Mar 2024.
That is when the US Bureau of Economic Analysis (BEA) will release the Personal Consumption Expenditures (PCE) February 2024 report.
US market is always “jittery” on the run up to PCE release, US market on Tue, 26 Mar 2024 was no exception. (see below)
By the time market closed:
DJIA: -0.08% (-31.31 to 39,282.33).
S&P 500: -0.28% (-14.61 to 5,203.58).
Nasdaq: -0.42% (-68.77 to 16,315.70). Tech index was on pace for a record close but fell late in session.
In the midst of a probable “jittery” market and 1 trading day left to Q1 2024, what are the potential good-buys?
In my recent posts, I believe there are potentials in (a) cybersecurity, (b) financial services and even (c) basic materials (click to read the posts).
Apart from these mid to long term investments, IT remains a sector that I am optimistic, especially with the advent in Artificial Intelligence (AI).
It might just be the next-big trend that will change corporate landscape again; just like what Internet has done, 30 years ago.
In its simplest form, AI utilizes software and systems to oversee tasks that would normally be delegated to humans.
Incorporating machine learning makes AI useful by letting software and systems learn and improve over time.
This helps AI tackle real-world problems in almost any field.
I am fairly certain, many would say $NVIDIA Corp(NVDA)$ will be the obvious investment choice when it comes to AI.
No company has benefited (directly) more from the rise of AI than Nvidia.
In the span of just over a year, it has become the foundational-infrastructure play in high-compute data centers.
As of Fri, 22 Mar 2024, Nvidia was valued at just north of 30x Wall Street's forward-year cash-flow estimates, making it the most expensive Magnificent 7 stock.
Alphabet - why?
Good news, $Alphabet(GOOG)$ another Magnificent 7 member (with artificial intelligence ties) are:
Historically inexpensive.
Ripe for the picking by any opportunistic investors.
As of 22 Mar 2024 — it was valued approx. 13.5x forward-year cash flow; less than half the multiple Nvidia trades at.
It also represents a roughly 24% discount to its own price-to-cash-flow multiple over the trailing-five-year period.
What else?
(1) Google - the search engine.
Google drives Alphabet's success.
With >90% of global searches for years, Google dominates the online search market.
This makes Google a powerhouse for selling ads, allowing them to charge top dollar.
(2) Google - the cloud.
Alphabet's cloud-infrastructure service platform, Google Cloud,- offers the most promise in terms of cash-flow growth.
Google Cloud accounted for a 10% share of global cloud-infrastructure service spend during Q3 2023.
The cloud platform finally turned a profit in 2023. (see below)
Google Cloud is also where Alphabet has many of its AI tie-ins with customers.
Leveraging on AI for a double win: (a) better customer service and (b) sharper ad targeting.
With economic conditions continue to improve, businesses are showing signs of spending more on cloud services.
This means potential growth of Google Cloud from its current 10% global share as Cloud computing providers.
If double-digit sales growth can continue, it would mean higher-margin Google Cloud in the long run.
Waymo - Alphabet auto-driving.
On Fri, 01 Mar 2024 - California regulators granted Waymo (Alphabet’s self-driving car division) permission to expand its robotaxi service to include (a) highways in several Bay Area cities and (b) large swaths of Los Angeles.
California’s approval come hot the heels of Waymo’s offering of its 24/7 robotaxi service in San Francisco and Phoenix for months.
This is another testimony of Alphabet Inc as a pioneer AI company; leaving Tesla’s full self driving (FSD) firmly at level 2; that is entry level of autonomous driving.
What is there not to like, hence my continual bullishness for Alphabet Inc.
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