Large Tech Companies Are Jumping on AI Investment Opportunities 🤖

🐺 Hi pack-mates,

This is Howling Markets, the harbor master directing the financial news’ flow and wishing you a safe navigation through the markets!

Today we will be covering:

• Education: What are the “Magnificent 7”? 7️⃣

• Banks Cut More Than 60,000 Jobs During the Worst Year Since 2008 🏛️

• Large Tech Companies Are Jumping on AI Investment Opportunities 🤖

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What Are the “Magnificent 7”?

With close to 4,000 stocks listed on the Nasdaq it seems that it would be pretty difficult to just pick a handful that excel for their performance and growth potential.

However, over the years some companies started to stand out and were initially recognized in 2013 by Jim Cramer, a former hedge fund manager, with the acronym FANG: Facebook, Amazon, Netflix and Google.

Then, in 2017 Cramer expanded the selection to 5 stocks, including Apple and renaming booming portfolio as FAANG.

At the beginning of 2023, Micheal Harnett, a Bank of America analyst, expanded once again the selection and introduced the term “magnificent 7”, introducing Microsoft, Nvidia and Tesla while removing Netflix.

At this point you might ask: “Why magnificent 7”? Well, the average 2023 return of these seven stocks is 116.34%, 4.5 times SPX’s returns!

So, the Magnificent 7 portfolio is composed of Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet (Google’s parent company) and Tesla.

The top performer of the bunch is Nvidia which has achieved a YTD return of 244.25% as its revenues surprised investors thanks to its focus on new technologies and AI that paid off pretty well during 2023.

The worst performer of the Magnificent 7 is Apple with a YTD return of 54.35%. However, this “lower” return was expected as Apple is less exposed to new technologies such as AI and it remained relatively constant in its operating activities.

On the other hand, it is extremely important to remember that even Apple, the worst performer of the Magnificent seven, more than doubled the returns the S&P500!

Smart Money is Betting on a BTC Surge

Although it might seem like an oversimplification, in finance we commonly use the terms “dumb money” and “smart money” to define two very different types of investors.

With dumb money we define the average retail investor with no particular experience in the field, no access to in depth analyses and no advanced trading algorithm nor strategy. Dumb money does not mean an investor who loses money, it means an average market participant who tries to make an extra income with the information they got.

Instead, smart money defines institutional investors, mutual funds, hedge funds and other companies which have a team of analysts and the ability to forecast the financial situation and make the best decisions possible. Then, once again, it does not mean that smart money only makes winning trades, it means that they have a clear advantage.

Ironically, smart money is one of the many indicators that dumb money can use to gain a hedge against the market. By studying how larger institutional investors position themselves in the market, we might derive valuable insights into the expected future performance of a group of assets.

For example, these days the smart money index, an indicator tracking smart money’s movements, rose to a record high on Bitcoin, signaling that most institutional investors are opening long positions.

Do you believe that Bitcoin will continue to increase until the release of its ETFs?

Today’s Howling Question

We have discussed how Nvidia’s 2023 performance was out of this world and how it managed to achieve 244.25% YTD. However, Nvidia is not the only company of the Magnificnet 7 to achieve triple digit returns in 2023.

Can you guess the other two companies that achieved this extremely sought-after goal?

a) Microsoft and Google

b) Meta and Tesla

c)  Amazon and Tesla

d)  Microsoft and Meta

e)  Google and Amazon

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

Large Tech Companies Are Jumping on AI Investment Opportunities

It only seems like a couple of days ago that ChatGPT was first released to the public. In reality, it has been more than one year by now, and such an introduction has taken the entire world by storm.

Open AI published their invaluable tool in November 2022 and since then, most tech companies stepped on the gas when it came to AI investments.

Usually, these innovative fields are reserved for venture capital companies looking for a cheap investment and hoping for a 100x return, but this time it did not happen.

On one hand, because of the high interest rate enviroment, venture capital investors encountered many difficulties in financing their investments as the cost of capital and the risk of startups’ losses were too high.

On the other hand, larger tech companies found themselves with a large availability of investment opportunities in the tech sector while not being impacted by the higher rates as they were simply able to reinvest their profits.

Because of this, in 2023 two companies from the Magnificent 7 stepped into the AI business investing billions of dollars, even surpassing traditional VCs.

Microsoft took the first place by closing a deal with Open AI and investing more than $10 Billion, while the second place went to Amazon for spending around $6 billion.

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

On Wednesday the stock market continued to inch higher, registering a small gain of +0.14%. Now the current price is just 15 points below the all-time high, will we be able to reach it before a reversal?

However, Wednesday’s interesting news came from the debt market where the 10 year government bond yield plummeted by -2.59%, completely retracing the gains achieved during the previous days.

The notable aspect of the situation is the fact that a large move in the debt market is almost always accompanied by a large move in the stock market. Since the beginning of November, in all the instances where the yield dropped by more than 2%, the stocks rose by at least 1%.

The lack of a strong response by the stock market really shows how it does not really have any room to run on the upside, unless some very positive news is released.

Answer

The correct answer is b) Meta and Tesla.

Both Meta and Tesla had an incredibly good 2023 performance mainly justified by their great fundamentals, but also by their extremely poor 2022 returns.

If you are interested about the complete standing of the Magnificent 7, here it is: Nvidia (244.25%), Meta (184.46%), Tesla (137.38%), Amazon (78.76%), Alphabet (58.80%), Microsoft (56.38%) and Apple (54.35%)..

Howl-Worthy Memes 😂

🐺 See you next time!

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