To The Moon

I. Performance of Global Equity Indices (in US dollars)

Source：Bloomberg, 2024/04/22-2024/04/28

II. Key Market Themes

i. When the GDP falls short of expectations while the PCE remains high, the specter of "stagflation" looms over the United States once again

•Last Wednesday, the United States released quarterly economic data, with actual GDP growing by 1.6% year-on-year, falling below expectations, while the core PCE for the quarter surged by 3.7%, far exceeding expectations. Concerns about "stagflation" emerged in the market, suggesting that the United States may face an economic recession while interest rates remain high, posing the most unfavorable situation for pricing various risk assets, with the yield on ten-year US Treasury bonds jumping by over 6 basis points.

•However, on the following Thursday, monthly PCE data was released, showing a year-on-year increase of 2.7%, slightly surpassing the 2.6% expectation. The previous day's better-than-expected quarterly data mainly stemmed from upward revisions in January and February figures. Market concerns eased as a result, and bond yields retreated.

•From the perspective of GDP, we see that the growth is primarily driven by consumption, with the largest drag coming from a significant increase in imports leading to a decline in net exports. This reflects robust consumer spending in the United States, with domestic demand showing strong resilience. However, the industrial production sector is relatively weak, ultimately resulting in a widening trade deficit.

•Overall, domestic demand in the United States remains robust, and we have yet to see clear signs of recession. Coupled with resilient inflation, this supports the Federal Reserve's stance of maintaining interest rates unchanged. Therefore, the market's "dovish" stance is gradually weakening, with some even considering the possibility of raising interest rates. We believe that the market has already priced in the Fed's "unwillingness to cut rates," and the probability of further rate hikes is not high, unless there are extreme events to support such a move.

Source：Bloomberg，CME Group

Source：Bloomberg，CME Group

ii. Technology giants' financial reports are a mixed bag, with AI emerging as a consensus among major players

•Recently, global technology giants including Tesla $特斯拉(TSLA)$ , Meta $Meta Platforms(META)$ , Google $谷歌(GOOG)$ , and Microsoft $微软(MSFT)$ have sequentially released their Q1 financial reports. The results have been mixed: Tesla fell short of expectations but surged in after-hours trading, Meta suffered a dismal sell-off, while Google and Microsoft both beat expectations and saw significant gains. Regardless of ups and downs, these tech giants without exception have demonstrated their determination and plans to bet on AI.

•Elon Musk, CEO of Tesla, has emphasized AI as the core of its Full Self-Driving (FSD) technology. Currently, Tesla has made significant investments in AI training infrastructure, installing and activating a large number of H100 computing units. In the first quarter alone, Tesla's AI computing power increased by 130%, with projections to reach 500% by the end of the year.

Source：Earnings Deck

•Meta's Zuckerberg also regards AI as the core of its products, with projected capital expenditures for the full year of 2024 expected to be between $35 billion and $40 billion, primarily for infrastructure investments in AI initiatives. This amount significantly exceeds previous market expectations.

•Similarly, Google positions itself as an "AI-first" company, with capital expenditures in Q1 reaching as high as $12 billion. It is expected that expenditures will continue to increase in subsequent quarters, with the majority allocated to AI infrastructure development. Microsoft is also backing AI, with a 50% increase in its capital expenditure plan this year, reaching $50 billion.

•We believe that we are currently in a crucial stage of widespread AI deployment, and the economic effects of AI are gradually being reflected in the performance of cloud providers. The investment enthusiasm of major technology giants will only continue to grow. The capital expenditures of these companies are converting into revenue for upstream vendors in a tangible way, benefiting entities like Nvidia, who are represented by the "shovel sellers," and this trend is expected to persist.

Source：Bloomberg

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