Jen-Hsun Huang, president and chief executive officer of Nvidia Corp., speaks during the company’s event at Mobile World Congress Americas in Los Angeles, California, U.S., on Monday, Oct. 21, 2019.
Patrick T. Fallon | Bloomberg | Getty Images
Forget about the debt ceiling. Tech investors are in buy mode.
The Nasdaq Composite closed out its fifth-straight weekly gain on Friday, jumping 2.5% in the past five days, and is now up 24% this year, far outpacing the other major U.S. indexes. The S&P 500 is up 9.5% for the year and the Dow Jones Industrial Average is down slightly.
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Excitement surrounding chipmaker Nvidia’s blowout earnings report and its leadership position in artificial intelligence technology drove this week’s rally, but investors also snapped up shares of Microsoft, Meta and Alphabet, each of which have their own AI story to tell.
And with optimism brewing that lawmakers are close to a deal to raise the debt ceiling, and that the Federal Reserve may be slowing its pace of interest rate hikes, this year’s stock market is starting to look less like 2022 and more like the tech-happy decade that preceded it.
“Being concentrated in these mega-cap tech stocks has been where to be in this market,” said Victoria Greene, chief investment officer of G Squared Private Wealth, in an interview on CNBC’s “Worldwide Exchange” Friday morning. “You cannot deny the potential in AI, you cannot deny the earnings prowess that these companies have.”
To start the year, the main theme in tech was layoffs and cost cuts. Many of the biggest companies in the industry, including Meta, Alphabet, Amazon and Microsoft, were eliminating thousands of jobs following a dismal 2022 for revenue growth and stock prices. In earnings reports, they emphasized efficiency and their ability to “do more with less,” a theme that resonates with the Wall Street crowd.
But investors have shifted their focus to AI now that companies are showcasing real-world applications of the long-hyped technology. OpenAI has exploded after releasing the chatbot ChatGPT last year, and its biggest investor, Microsoft, is embedding the core technology in as many products as it can.
Google, meanwhile, is touting its rival AI model at every opportunity, and Meta CEO Mark Zuckerberg would much rather tell shareholders about his company’s AI advancements than the company’s money-bleeding metaverse efforts.
The chipmaker, known best for its graphics processing units (GPUs) that power advanced video games, is riding the AI wave. The stock soared 25% this week to a record and lifted the company’s market cap to nearly $1 trillion after first-quarter earnings topped estimates.
Nvidia shares are now up 167% this year, topping all companies in the S&P 500. The next three top gainers in the index are also tech companies: Meta, Advanced Micro Devices and Salesforce.
The story for Nvidia is based on what’s coming, as its revenue in the latest quarter fell 13% from a year earlier because of a 38% drop in the gaming division. But the company’s sales forecast for the current quarter was roughly 50% higher than Wall Street estimates, and CEO Jensen Huang said Nvidia is seeing “surging demand” for its data center products.
Nvidia said cloud vendors and internet companies are buying up GPU chips and using the processors to train and deploy generative AI applications like ChatGPT.
“At this point in the cycle, I think it’s really important to not fight consensus,” said Brent Bracelin, an analyst at Piper Sandler who covers cloud and software companies, in a Friday interview on CNBC’s “Squawk on the Street.”
“The consensus is, on AI, the big get bigger,” Bracelin said. “And I think that’s going to continue to be the best way to play the AI trends.”
Microsoft, which Bracelin recommends buying, rose 4.6% this week and is now up 39% for the year. Meta gained 6.7% for the week and has more than doubled in 2023 after losing almost two-thirds of its value last year. Alphabet rose 1.5% this week, bringing its increase for the year to 41%.
One of the biggest drags on tech stocks last year was the central bank’s consistent interest rate hikes. The increases have continued into 2023, with the fed funds target range climbing to 5%-5.25% in early May. But at the last Fed meeting, some members indicated that they expected a slowdown in economic growth to remove the need for further tightening, according to minutes released on Wednesday.
Less aggressive monetary policy is seen as a bullish sign for tech and other riskier assets, which typically outperform in a more stable rate environment.
Still, some investors are concerned that the tech rally has gone too far given the vulnerabilities that remain in the economy and in government. The divided Congress is making a debt ceiling deal difficult as the Treasury Department’s June 1 deadline approaches. Republican negotiator Rep. Garret Graves of Louisiana told reporters Friday afternoon in the Capitol that, “We continue to have major issues that we have not bridged the gap on.”
Treasury Secretary Janet Yellen said later on Friday that the U.S. will likely have enough reserves to push off a potential debt default until June 5.
Alli McCartney, managing director at UBS Private Wealth Management, told CNBC’s “Squawk on the Street” on Friday that following the recent rebound in tech stocks, “it’s probably time to take some of that off the table.” She said her group has spent a lot of time looking at the venture market and where deals are happening, and they’ve noticed some clear froth.
“You’re either AI or you’re not right now,” McCartney said. “We really have to be ready to see if we don’t get a perfect debt ceiling, if we don’t get a perfect landing, what does that mean, because at these kinds of levels we are definitely pricing in the U.S. hitting the high note on everything and that seems like a terribly precarious place to be given the risks out there.”
Binance lawyers allege SEC Chair Gensler offered to serve as advisor to crypto company in 2019
SEC Chair Gary Gensler mocks putting a gun to his head in response to a “Blazing Saddles” reference by Rep. Emanuel Cleaver, D-Mo., during the House Financial Services Committee hearing titled “Oversight of the Securities and Exchange Commission,” in Rayburn Building on Tuesday, April 18, 2023.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
SEC Chair Gary Gensler, who is in the midst of a hefty crackdown on crypto companies, offered to serve as an advisor to Binance’s parent company in 2019, according to the lawyers for Binance and founder Changpeng Zhao.
Documents filed by the SEC on Wednesday indicate that attorneys from Gibson Dunn and Latham & Watkins, two of Binance’s law firms, allege that Gensler offered to serve as an advisor to the crypto exchange in several March 2019 conversations with Binance executives and Zhao. He eventually met Zhao in Japan for lunch later that month, the filing claims.
At the time, Gensler was teaching at Massachusetts Institute of Technology’s Sloan School of Management. He was appointed head of the SEC in 2021 by President Biden, and over the past year has come down hard on the crypto industry, suing numerous companies for allegedly selling unregistered securities.
Earlier this week, the SEC filed 13 charges against Binance and Zhao, alleging the company failed to register as an exchange and broker-dealer, improperly commingled funds and lacked critical internal controls over its businesses.
Before Gensler started going after Binance, he was trying to cozy up to the company, the lawyers say. The Wall Street Journal previously reported on Gensler and Binance’s relationship, citing internal Binance messages and a person close to the SEC chair. Both suggested that Binance approached Gensler.
In the latest filing, the Gibson and Latham attorneys say that Zhao continued to stay in touch with Gensler after the March meeting. And at the future SEC chair’s request, Zhao sat down for an interview with Gensler as part of a cryptocurrency course he was teaching at MIT.
The SEC on Tuesday described Zhao, who reportedly resides in the UAE, as a “foreign national” with a tendency for “geographic elusiveness.” Zhao’s lawyers now say that the Zhao understood that Gensler was “comfortable serving as an informal advisor.”
Later in 2019, the letter said, Gensler was slated to testify before the House Financial Services Committee, and he sent Zhao a copy of his intended testimony ahead of the hearing.
In July of that year, Gensler testified before the House over Facebook’s proposed and later canceled cryptocurrency Libra and its planned Calibra wallet.
“I do not advise any financial, technology, blockchain or other companies, nor do I own any cryptocurrencies,” Gensler’s prepared testimony read.
Gensler’s advice to lawmakers at the time was largely the same as his public statements today. He said that, with Facebook envisioning a wallet to store customer assets, rules needed to be in place “to guard against Calibra’s use or potential abuse of such customer funds.”
He also testified more broadly in language that’s resembles his latest pronouncements.
“We must guard against illicit activities, such as tax evasion, money laundering, terrorist financing and avoiding sanctions,” he said at the time. “We must protect individuals’ privacy.”
Because of Gensler’s ties to Zhao, Binance’s lawyers said they’d asked for his recusal from any actions regarding the company. They say they got no acknowledgement from SEC staff.
An SEC spokesperson said in a statement to CNBC that, “the Chair is very familiar with and full compliance with his ethical obligations including any recusal obligations.”
The SEC’s probes into Binance.US and Binance began in 2020 and 2021, respectively, well after Gensler and Zhao’s last alleged contact.
Google tells employees in New York and along the East Coast to work from home as smoke fills the air
People ride bicycles at 6th Avenue as haze and smoke caused by wildfires in Canada blanket New York City, New York, June 7, 2023.
Andrew Kelly | Reuters
Google is telling its East Coast employees to stay home as wildfire smoke fills the air in New York and other major cities.
Company site leads in New York wrote in a memo to workers in the area that air quality in many parts of the region had reached “unhealthy” levels, citing the New York state Department of Environmental Conservation. In New York, most employees have been expected to work from physical offices at least three days a week.
“We are advising Googlers to work from home if possible, and limit their exposure to outdoor air,” according to the note, which was obtained by CNBC. “Terraces across our New York campus will remain closed today.”
According to NBC, the company issued advisory notices to workers in the Detroit area, Washington, D.C., Reston, Virginia, Pittsburgh and Raleigh-Durham, North Carolina. In Canada, which is on track to experience its worst-ever wildfire season, Google notified employees in the Ontario cities of Toronto and Waterloo.
New York Mayor Eric Adams issued a statement Wednesday urging all New Yorkers to limit outdoor activity, and airports delayed flights as smoke from Canadian wildfires engulfed surrounding regions.
Google has dealt with this issue in the recent past.
In 2020, the company’s home state of California faced hazardous air quality issues for almost a month as a result of record-setting wildfires that burned across the state. Many people at Google and across the tech industry were already working from home because it was the height of the Covid pandemic.
Google has set up a so-called “go” link that directs employees to internal documents and information about wildfires and air filtering. It released similar resources during the 2020 wildfires. The company typically has “go” links for things like products, employee equipment, office information and some social causes.
The memo on Wednesday advised employees to remain indoors, “avoid vigorous physical activity” and run their air conditioners with clean filters. The site leads assured those who are already working on site that the campuses’ HVAC and air filtration systems “maintain a high quality of air inside our offices even in these circumstances.”
WATCH: FAA pauses all flights into LaGuardia due to limited visibility from smoke
Amazon is pursuing ‘too many ideas’ and needs to focus on best opportunities, analyst says in letter to Jassy
In its quest to upend everything from health care and grocery stores to internet satellites, Amazon has become too unfocused and is missing out on opportunities in its core businesses, according to Bernstein analysts, who on Wednesday published what they called an “open letter” to CEO Andy Jassy and the board.
Amazon remains dominant in e-commerce and cloud computing with Amazon Web Services. In some other areas, however, the company has spent heavily without seeing the results, the analysts said.
“We fully support Amazon’s efforts to uncover and capture the next AWS-sized opportunity,” wrote Bernstein’s Mark Shmulik, who has an outperform rating on the stock. “But what we’ve seen recently is a company simply pursuing too many ideas, with weaker ideas taking away the oxygen, capital, and most importantly focus from the truly disruptive initiatives that ‘only Amazon can do.'”
Amazon’s stock performance compared with its “closest mega-cap peers” — Apple, Microsoft and Google — has also left investors wanting, Shmulik said. Amazon shares are up 50% year to date, but they’ve underperformed top peers by about 52% over a five-year period, he said.
The stock was down 3.6% to $122.12 as of early afternoon New York time.
Shmulik urged Amazon to get back to its “Day One” mentality, referring to a phrase championed by Amazon founder and Executive Chairman Jeff Bezos, who was succeeded by Jassy in July 2021. Bezos famously said a Day One mentality would help Amazon stave off its demise, and described it as continuing to innovate rapidly like a startup, no matter how large the company becomes.
“Day 2 is stasis,” Bezos said in a 2017 shareholder letter. “Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Amazon should “divest, seek outside funding, or trim spend” in health care and its nascent low Earth orbit satellite venture, called Project Kuiper, Shmulik wrote. He pointed to Amazon’s multiyear effort to break into health care, before abandoning efforts like its Care telehealth service, Halo health and fitness band, and a joint health-care venture called Haven.
Kuiper “appears even more extreme as an investment area,” according to Shmulik, with Amazon committing $10 billion to build out the initiative. Google’s lack of success with its Project Loon, Fiber and Fi efforts signals “capital intensive low-margin utilities aren’t worth the effort regardless of how ‘cool’ the technology may be,” he wrote.
Amazon should even take a page out of Alphabet’s book and strip out Kuiper, health care and possibly Alexa into “other bets,” Shmulik said. Doing so, he says, would show a “far healthier and more profitable core business” and wouldn’t detract from the company’s effort to “build the next AWS.”
Shmulik is also skeptical of Amazon’s ongoing efforts to expand in international markets like Brazil, Singapore and India, where competition remains stiff. He calls it a case of throwing “good money after bad,” despite the strategic value that those markets may hold.
When it comes to Whole Foods, Fresh supermarkets and Go cashierless convenience stories, Amazon needs to “make a call on physical grocery,” Shmulik wrote. Amazon bought Whole Foods for $13.7 billion in 2017, and has continued to build out its grocery offerings on its website, while launching other experimental shops. Recently, the company paused further expansion of its Fresh and Go stores as Jassy looks to cut costs.
Instead of continuing to “tinker with” its Fresh and Go stores, Shmulik said Amazon should “purchase a proven concept such as potential divested KR/ACI stores,” referring to the stores Kroger and Albertsons’ are selling off as part of their planned merger.
Amazon should focus on its core strengths and keep pushing into other areas where it’s gained traction, Shmulik said, encouraging a continued build-out of its advertising and media arms, as well as its Buy With Prime service, which allows websites off of Amazon to take advantage of its Prime delivery benefits.
The current scattershot approach is confusing to shareholders and needs to be cleared up to stem continued underperformance, Shmulik added, calling out uncertainty around where Amazon falls in the artificial intelligence race.
“We get investor questions today asking ‘is AWS in last place in AI?’, ‘is retail actually a profitable business?’, and even ‘do we want Andy on the earnings call?'” Shmulik wrote. “It points to one underlying issue: Amazon doesn’t own its own narrative.”
Amazon didn’t immediately respond to a request for comment.
WATCH: Amazon workers plan to walk out over ‘lack of trust’ in leadership
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