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Tag: Micron Technology Inc
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CNBC Daily Open: Micron slides, Amazon’s $2 trillion
[ad_2]A trader works on the floor of the New York Stock Exchange (NYSE) during morning trading on March 4, 2024 in New York City.
Angela Weiss | Afp | Getty Images
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Clinging on
The S&P 500 and the Dow Jones Industrial Average just about finished the session in positive territory. The Nasdaq Composite, on course for an 18.6% gain in the first six months of the year, rose 0.49%. After trading mostly in negative territory, Nvidia made a small gain following the previous session’s 7% surge. The yield on the 10-year Treasury rose as investors parse comments from Fed officials and await key inflation data due Friday. U.S. oil prices rose amid escalating tensions in the Middle East.Micron slides
Shares of Micron fell almost 8% in extended trading on Wednesday as its revenue forecast failed to top analysts’ expectations. The computer memory and storage maker expects revenue of $7.6 billion in the current quarter, in line with estimates. Micron’s shares have doubled in the past year as its most advanced memory is needed for AI graphics processing units. CEO Sanjay Mehrotra said the company’s AI-oriented products were likely to increase in price and its data center business grew 50% on a quarter-to-quarter basis.$2,000,000,000,000
Amazon‘s market capitalization surpassed $2 trillion for the first time on Wednesday, joining the ranks of tech giants like Apple and Microsoft. The surge in megacap tech stocks has been driven by investor excitement around generative AI. Amazon’s stock has risen 26% this year, outpacing the Nasdaq’s 18% increase. The stock rose 3.9% on Wednesday. Separately, CNBC’s Annie Palmer reports Amazon plans to launch a discount store in bid to fend off Temu and Shein.Southwest cuts guidance
Southwest Airlines cut its second-quarter revenue forecast due to difficulties adapting its revenue management to recent booking trends. Despite the revised outlook, the airline still expects record quarterly operating revenue. Activist investor Elliott Management reiterated calls for leadership changes, “Southwest is led by a team that has proven unable to adapt to the modern airline industry.” Higher costs and increased capacity have impacted fares and profits across the industry, while competitors like Delta and United have benefited from the return of international travel. Southwest shares fell 4% before recovering to end the session just 0.2% lower.Asian stocks fall, yen weakens
Japan’s export-heavy Nikkei 225 and the broad-based Topix fell as the yen weakened to a 38-year low against the U.S. dollar, raising the prospect of intervention. Finance Minister Shunichi Suzuki warned the country was “deeply concerned about FX impact on economy,” per Reuters. Elsewhere, Hong Kong’s Hang Seng index led the rest of the Asia-Pacific region lower, tumbling 2%, and mainland China’s CSI 300 was down 0.6%. Australia’s S&P/ASX 200 dropped 0.58% and South Korea’s Kospi dipped 0.37%[PRO] Investing in India
India’s unexpected election results haven’t dampened Causeway Capital Management’s bullish outlook. Although portfolio manager Arjun Jayaraman predicts modest short-term returns for the BSE Sensex index, he suggests ETFs that could benefit from higher returns.The bottom line
There was a surge of activity in the auto industry that may have been overshadowed by Volkswagen's $5 billion investment in the loss-making EV maker Rivian. While VW makes solid cars, its electric vehicles are plagued with glitchy software. As CNBC's Sophie Kiderlin notes this investment will take years to yield returns. Analysts, however, are wary of the current "EV winter" marked by tepid demand and increased competition. Despite these challenges, Rivian's stock surged 23%, reflecting investor optimism.
Elsewhere in the industry, Waymo, Alphabet's self-driving car unit, expanded its robotaxi service to all users in San Francisco. Meanwhile, General Motors's Cruise autonomous vehicle division appointed former Amazon and Microsoft executive Marc Whitten as its new CEO. This leadership change follows a series of collisions that led to investigations and the suspension of Cruise's license in California, heightening public skepticism about driverless technology.
While Waymo is steadily rolling out its services and Cruise is restarting its operations, Tesla has yet to introduce its long-promised robotaxi. Elon Musk's projections for a 2020 launch and fully autonomous driving by 2018 have yet to materialize. Nevertheless, Musk envisions Tesla as a potential $7 trillion robotaxi enterprise. The unveiling of Tesla's robotaxi on Aug. 8 will be closely watched to gauge its competitive edge.
Rivian shareholder Amazon joined the exclusive $2 trillion market cap club, alongside Alphabet, Nvidia, Apple and Microsoft. This milestone comes as Amazon aggressively cuts costs.
While enthusiasm for AI remains high, Wall Street experienced a more measured session as investors sought to lock in profits from the Nvidia-driven surge. Despite the current optimism, strategists caution that the S&P 500 might face a correction over the summer. CNBC's Sarah Min explores the factors behind Citi's projections and a series of recent upgrades.
— CNBC's Hakyung Kim, Brian Evans, Alex Sherman, Samantha Subin, Annie Palmer, Ece Yildirim, Michael Wayland, Sophie Kiderlin, Spencer Kimball, Leslie Josephs, Sarah Min, Sheila Chiang and Lim Hui Jie contributed to this report.
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The stock market flips and tech falls out of favor — why this move may be hard to stop
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
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India wants to be a developed nation by 2047. Here are 4 critical areas Modi can’t ignore
[ad_2]India has undergone a massive infrastructure push and has made significant strides in connecting and modernizing its highways, railways and airports.
Puneet Vikram Singh, Nature And Concept Photographer, | Moment | Getty Images
For the last two years, Prime Minister Narendra Modi has spoken confidently about his ambitious goal to make India a developed economy by 2047.
All eyes will now be on Modi and his Bharatiya Janata Party-led alliance to see if they can keep the economic momentum going and continue to improve the lives of millions in their third consecutive term in office.
Confidence in the BJP has plunged. Modi’s ruling party failed to win an outright majority in the lower house of Parliament for the first time since 2014, and is now forced to rely on its allies in the coalition.
“The government will have to find common ground and build consensus on multiple fronts, not just with alliance partners but also with other stakeholder groups, to push through key legislation in parliament and quell the rising anti-incumbency sentiment nationwide,” said Reema Bhattacharya, head of Asia research at risk intelligence firm Verisk Maplecroft.
“A failure to do so could also result in further political setbacks for the ruling party in the next round of state elections scheduled for later in the year,” she warned.
A Modi-led coalition won't likely derail India's economic and development, analysts say. However, they point out that the new government will now have to restore faith in the people and ensure India's standing in the Global South remains.
The new government has yet to outline its key priorities. Analysts, however, are predicting that these four areas will feature high on the agenda.
1. Infrastructure push
India has undergone a massive infrastructure push and has made significant strides in connecting and modernizing its highways, railways and airports.
Last year, consultancy firm EY projected that India will become a $26 trillion economy by 2047, and highlighted that building up the country's infrastructure capabilities will be pivotal in making this happen.
"Since Modi's been in office, he's done his utmost to build ports, railways, and all kinds of hardline infrastructure to make business fluid. He's going to double down on that," said Samir Kapadia, CEO of India Index and managing principal at Vogel Group.
India still lags China in this area, and more needs to be done if it is seeking high-growth trajectory to continue attracting foreign investors.
At the interim budget in February, Finance Minister Nirmala Sitharaman estimated capital expenditure will rise by 11.1% to 11.11 trillion Indian rupees ($133.9 billion) in the fiscal year 2025, largely focused on constructing railways and airports.
New tetrapods being placed after the completion of the construction of a coastal road, ahead of the monsoon in Mumbai, India, on June 11, 2024.
Nurphoto | Nurphoto | Getty Images
But improving connectivity between cities should not be the only area of focus, noted Santanu Sengupta, India economist at Goldman Sachs.
"Along with creating physical infrastructure, India needs to remain steadfast on the structural reforms ... It needs to look at land and unlock land to set up more infrastructure in terms of factories," Sengupta told CNBC, adding that this will drive jobs growth in the sector.
However, analysts highlighted the government might face pushback on this as Modi's weakened hand could make it more tedious to acquire land for projects.
"Such targets may be more difficult if state-level parties have a quasi-veto due to the coalition structure," said Richard Rossow, senior advisor and chair in U.S.-India policy studies at the Center for Strategic and International Studies.
2. Enhance manufacturing
Employees work on a mobile phone assembly line at Padget Electronics, a subsidiary of Dixon Technologies, in Noida, India, on Friday, March 22, 2024.
Bloomberg | Bloomberg | Getty Images
Projections from Counterpoint Research and the India Electronics and Semiconductor Association show that India's semiconductor industry will be valued at $64 billion by 2026, a three-fold growth from $23 billion in 2019.
"This will probably be the biggest breadwinner for India over the next five to 10 years," Kapadia said. "Modi firmly believes that if India is able to be in the semiconductor manufacturing business and if he gets it right, India can become an economy that will not be fussed with."
3. Fight high unemployment
Unemployment is currently one of the biggest problem's the world's most populous country is facing, and a mismatch in skills is further exacerbating this issue, Sumedha Gupta, senior analyst at The Economist Intelligence Unit said.
"There is already a mismatch between the skill level of the country's workers and the demand for high innovation from employers. This will persist definitely over this decade, possibly into the 2030s as well," she told CNBC.
Unemployment rate in India rose to 8.1% in April from 7.4% in March, according to the Centre for Monitoring Indian Economy.
A survey conducted by the Centre for the Study of Developing Societies in April, ahead of the election, showed that unemployment was the top concern for 27% of the 10,000 surveyed. More than half (62%) of those surveyed said it had become more difficult to find a job in the last five years during Modi's second term.
Construction workers in Mumbai, India, on June 5, 2024.
Bloomberg | Bloomberg | Getty Images
It is now up to the new coalition government to improve local education standards and skills-based training to ensure people are gainfully employed in the right sectors, analysts highlighted.
"While those with advanced education and practical experience are poised to secure jobs in this sector, creating widespread, equitable employment opportunities requires a more inclusive approach," said Vivek Prasad, markets leader at PwC India.
New education policies and vocational training will "engage individuals at all levels of the manufacturing value chain, ensuring that the benefits of economic progress are shared across society," Prasad told CNBC, adding that boosting the employment of women is paramount to driving India's growth.
4. Increase foreign investments
From veteran emerging markets investor Mark Mobius to global strategist David Roche, market experts remain bullish on India.
The National Stock Exchange of India has a total market capitalization of $4.9 trillion — the third largest in Asia-Pacific, according to data from the World Federation of Exchanges. India's market cap is projected to grow to $40 trillion in the next two decades.
Benchmark indexes Nifty 50 and the Sensex have been strong outperformers this year — respectively rising by 8% and 7% year-to-date, according to LSEG data.
Foreign direct investments into the country needs to however pick up pace to further drive economic growth and development, analysts told CNBC.
Foreign direct investments into India last year were relatively soft due to a difficult private equity funding environment as a result of high U.S. interest rates, said Goldman Sachs' Sengupta said.
"India will likely attract more FDI inflows from the U.S. once interest rates soften and the funding environment becomes easier," Sengupta told CNBC.
Ease of investing in India also "has some ways to go" in order to continue attracting foreign funds, noted Prabhat Ojha, partner and head of Asia client business at Cambridge Associates.
He recommended investors pay more attention to India's banking sector — one that now has good quality growth and capital allocation practices.
"From 2017 to 2019, there was really a cleanup of Indian banks and they are in a very healthy state today," Ojha told CNBC.
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AI and semiconductor stocks surge after Nvidia’s earnings beat
A microchip and the Nvidia logo displayed on a phone screen are seen in this photo taken in Krakow, Poland, on April 10, 2023.
Nurphoto | Getty Images
Artificial intelligence and semiconductor chip stocks rallied after U.S. chip design firm Nvidia beat Wall Street’s expectations for fourth-quarter earnings and revenue on Wednesday and projected “continued growth” in 2025 and beyond.
Nvidia supplier Taiwan Semiconductor Manufacturing Company jumped as much as 2.05% in Thursday morning trade. TSMC is the world’s largest contract chip maker and produces advanced processors for companies like Nvidia and iPhone maker Apple.
Shares of server component supplier Super Micro Computer rose 11.42% in Wednesday’s after-hours trading. Dutch chip equipment manufacturer ASML, which supplies TSMC lithography machines critical to chip making, jumped 2.7% in the U.S. during after hours trading.
Following Nvidia’s earnings report, rivals Advanced Micro Devices and SoftBank-backed U.K. chip designer Arm Holdings surged 4.08% and 7.87%, respectively, in after hours trading.
Nvidia, which custom designs AI chips for the likes of Amazon, Microsoft and Google, saw skyrocketing demand for its graphics processing units thanks to the AI boom.
OpenAI’s ChatGPT, which gained massive popularity worldwide in November 2022 for its ability to generate human-like responses to user prompts, is trained and run on thousands of Nvidia’s GPUs. Nvidia shares rose 9% in extended trading.
South Korea’s memory chipmakers Samsung Electronics and SK Hynix gained 0.41% and 3.22% respectively on Thursday. Large language models such as ChatGPT rely on high-performance memory chips to remember details from past conversations and user preferences in order to generate humanlike responses.
Other Taiwanese semiconductor firms Orient Semiconductor Electronics and MediaTek rose 2.94% and 1.53% respectively on Thursday.
Intel, Broadcom and Qualcomm, three U.S. chip makers, saw increases in share prices in extending trading Wednesday, surging 1.38%, 2.79% and 1.80% respectively.
“Fundamentally, the conditions are excellent for continued growth” in 2025 and beyond, Nvidia CEO Jensen Huang told analysts on Wednesday in an earnings call. He added that demand for Nvidia GPUs will remain high due to generative AI and an industry-wide shift away from central processors to the accelerators that Nvidia makes.
“If I was going to just kind of put a stake in the ground relative to the conversation, whether it’s related to market share or to their margins, I think they’re going to surprise people,” Gene Munster, managing partner of Deepwater Asset Management, told CNBC’s “Street Signs Asia” on Thursday.
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Top Wall Street analysts prefer these 3 stocks for long-term growth
Workers install a Nike logo lamp outside the Wukesong Arena in Beijing, August 28, 2019.
Tingshu Wang | Reuters
The U.S. stock market started 2024 on a dismal note, but investors will need to look past the short-term uncertainty.
Rather than worrying about the slow start to the year, investors should focus on adding stocks with attractive long-term prospects to their portfolios.
With that in mind, here are three stocks favored by Wall Street’s top pros, according to TipRanks, a platform that ranks analysts based on their past performance.
Booking Holdings
This week’s first pick is Booking Holdings (BKNG), an online travel agency. The company is benefiting from strong travel demand despite a challenging macroeconomic backdrop.
Recently, Tigress Financial Partners analyst Ivan Feinseth reiterated a buy rating on Booking Holdings and increased his price target to $4,285 from $3,855. The analyst thinks that the company is well-positioned to gain from the secular shift in consumer spending trends toward travel and entertainment.
The analyst expects BKNG to witness higher bookings, driven by the continued strength in demand for travel coupled with the company’s artificial intelligence initiatives. In particular, he anticipates that the company’s AI advancements, including its Connected Trip offering, will bring down costs and enhance operating efficiencies.
“BKNG’s strong balance sheet and cash flow will continue to drive ongoing investment in key growth initiatives and the resumption of share repurchases,” said Feinseth.
Overall, the analyst expects Booking Holdings to generate a higher return on capital, fueled by its dominant market position, solid execution, strong brand equity, diversified global presence and a technologically advanced platform.
Feinseth ranks No. 253 among more than 8,600 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, delivering an average return of 10.9%. In addition, see Booking Holdings Insider Trading Activity on TipRanks.
Nike
Athletic apparel and footwear company Nike (NKE) recently reported better-than-anticipated fiscal second-quarter earnings per share. However, the stock declined following the results as the company’s revenue fell short of estimates. Also, Nike lowered its full-year revenue outlook due to increased macro challenges, mainly in China and EMEA (Europe, the Middle East and Africa).
Despite the mixed results, Baird analyst Jonathan Komp reiterated a buy rating on Nike stock with a price target of $140. The analyst thinks that the reset in NKE shares following the fiscal Q2 print provides a better entry point for investors, given the expected recovery in the company’s margins in fiscal years 2025 to 2027.
While the revised revenue outlook might trigger a debate about macro versus brand-specific headwinds, the analyst remains bullish on NKE as its $2 billion cost-savings plan, gross margin improvement opportunity, and “focus on scaling new product still provide visibility to mid-teens+ EPS growth in F2025-2027E supporting a more attractive entry at ~25X P/E on F2025E.”
In his research note, Komp also highlighted Nike’s several other positives, including the company’s brand strength, solid execution, competitive positioning and digital leadership.
Komp holds the 376th position among more than 8,600 analysts on TipRanks. His ratings have been successful 53% of the time, delivering a return of 13.6%, on average. In addition, see Nike Hedge Funds Trading Activity on TipRanks.
Micron Technology
Finally, we move to the semiconductor company Micron Technology (MU), which is one of the largest providers of memory and storage chips in the world. The company recently reported strong results for the first quarter of fiscal 2024 and issued solid guidance.
The company expects its business fundamentals to improve throughout this year and is optimistic about capturing the growing demand for AI solutions.
Following the upbeat results, JPMorgan analyst Harlan Sur reaffirmed a buy rating on MU stock and raised the price target to $105 from $90. The analyst thinks that the company’s fiscal first quarter results and better-than-projected guidance for the fiscal second quarter reflect improved demand trends and normalization of excess customer inventories.
The analyst said that these favorable developments are driving higher prices for DRAM and NAND products across several markets such as smartphones, PCs, Internet of Things (IoT), automotive and the industrial sector. While the demand in data center and enterprise end-markets remains a bit soft, management expects the excess inventory situation among its customers to improve and reach more normal levels during the first half of this year.
“We believe the stock should continue to outperform through 2024 as the market continues to discount improving revenue/margin/earnings power into CY25,” said Sur, calling MU one of his top semiconductor picks for 2024.
Sur ranks No. 98 among more than 8,600 analysts tracked by TipRanks. His ratings have been successful 67% of the time, with each delivering an average return of 19.6%. In addition, see Micron Financial Statements on TipRanks.
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AI stole the show this year, but earnings will drag Wall Street back to reality
Nearly a year ago, OpenAI released ChatGPT 3 into the world, and investors got visions of dollar signs in their heads as they imagined the ways that artificial intelligence could make big money for businesses.
Wall Street’s now coming to terms with the fact that those sorts of paydays are going to take time. As investors have already seen from the past two quarters of earnings, AI has only really delivered financial benefits for a select few hardware companies so far — while spurring new costs for many others.
“The AI boom has already bifurcated into the contenders and pretenders,” said Daniel Newman, chief executive and principal analyst of Futurum Research. And while Advanced Micro Devices Inc., Intel Corp. and Arm Holdings PLC
ARM,
+0.38%
have stirred up interest, Nvidia Corp.
NVDA,
-4.68%
has established itself as far and away the greatest “contender,” with AI driving strong demand for its chips tuned for AI training.Nvidia last quarter reported record earnings, including a 141% jump in revenue for its graphics chips used in AI infrastructure building up data centers. Nvidia, which reports near the end of earnings season on Nov. 21, posted record revenue of $13.5 billion last quarter and is expected to easily top that with $16 billion in the most recent quarter, a surge of 170% versus a year ago. Those estimates include $12.3 billion of revenue coming from data-center sales.
Other chip companies could post gains from AI as well, but to far lesser extents. Candidates include Broadcom Corp.
AVGO,
-2.01%
and system maker Super Micro Computer Inc.
SMCI,
+2.35% ,
as well as Marvell Technology Inc.
MRVL,
-0.91% ,
which last quarter told analysts that it expects to end the year at a revenue run rate of about $800 million this year from cloud/data-center chips related to AI.“This is well above what we had outlined last quarter. Put this in perspective: This would put us at the run rate we had previously communicated for all of next year,” Marvel Chief Executive Matthew Murphy told analysts.
Super Micro is also riding the AI wave with its customized data-center servers that are designed to consume less power. But revenue in the September quarter is forecast to rise just 15% from a year ago and drop on a sequential basis, as supply constraints from Nvidia likely hampered Super Micro’s ability to meet all its demand.
Much as Advanced Micro Devices Inc.
AMD,
-1.24%
and Intel Corp.
INTC,
-1.37%
want to be in the AI conversations with the graphics chips they hope will be used for AI data-center applications, they won’t see much of an impact yet from AI revenue. Plus, those companies are experiencing a slowdown in PC sales that may overshadow any small benefit from AI chips.The AI boom in chips is clearly not providing enough of a boost to lift finances for the overall semiconductor sector, which is forecast to see earnings fall 3.3% in the third quarter and post a revenue decline of 0.6%, according to FactSet. The industry is being dragged down in part by Micron Technology Inc.
MU,
-0.12% ,
which reported a 40% drop in revenue and a whopping fiscal fourth-quarter loss in late September for the quarter ended Aug. 31, which is included in FactSet’s third-quarter data. Even so, the company called a bottom to the memory-chip downturn.Read also: Micron’s AI focused chip won’t help financial results anytime soon.
“Most of the consumer-based tech is still struggling, [including] PCs, laptops and to a certain extent smartphones,” said Daniel Morgan, senior portfolio manager at Synovus Trust Co. Wall Street has tempered expectations related to the impact of Apple Inc.’s
AAPL,
-0.88%
iPhone 15 launch on the quarter, as estimates call for an overall 1% drop in September-quarter revenue. Last quarter, Apple executives forecast that both Mac and iPad sales would be down by double-digits and that revenue performance would be similar to its June quarter, when revenue fell 1.3%In addition, when asked about AI, Apple CEO Tim Cook said the company views AI and machine learning “as core fundamental technologies that are integral to virtually every product that we build.” Those comments, though, can also apply to the bulk of tech companies, where AI is built into software as another layer to improve a product. Internet companies such as Meta Platforms Inc.
META,
+0.89%
and Alphabet Inc.
GOOG,
+0.36% GOOGL,
+0.45%
incorporate AI into their software and algorithms but don’t treat it as a specific, revenue-generating product.Other software companies are building AI into their products as separate features or add-ons, but they are still in the early stages of seeing whether or not customers will pay more for them. Take Microsoft Corp.,
MSFT,
-0.17%
which has showed off Copilot, an extra AI feature for customers of Microsoft 365.“[Microsoft] can distinguish itself by providing more details around its AI revenue
ramp since we don’t expect much information from Google, who really doesn’t seem
to have the monetization plan for Bard and AI-assisted search (SGE) ready to
articulate yet,” Melius Research analyst Ben Reitzes said in a note to clients this week. He also noted that the cost of offering AI products to consumers is steep, and requires lots of investment.“There are sophisticated issues to contend with for Microsoft, including balancing the potential for higher revenue from Copilots with the high costs per query and much-needed investment,” Reitzes said. “The balance of AI adoption vs. cost was implied when Microsoft guided to flat operating margins year over year for fiscal 2024.”
Earlier this year, the Information reported that OpenAI, the creator of ChatGPT and recipient of a hefty investment from Microsoft, has costs of up to $700,000 a day, because the massive amounts of computing power needed to run queries. In February, OpenAI launched ChatGPT Plus, for $20 a month, a service that will give subscribers access to its AI during peak times and faster response times.
Another example is Adobe Inc.
ADBE,
+1.70% ,
which has a few AI offerings, including a subscription service called Generative Credits, tokens that let customers turn text-based prompts into images. Another is Firefly, a generative AI service for images, and an AI option in Photoshop, currently called Photoshop Beta AI, to help users fill in images and other collaborative tools. Adobe did not provide any forecasts on potential revenue generation during its analyst day earlier this month.Toni Sacconaghi, a Bernstein Research analyst, said AI could drive a massive increase in enterprise productivity, and companies could dramatically increase IT spending on servers in order to invest in productivity-enhancing AI. “However, we note that enterprise adoption appears to be in early stages,” he said in a recent note to clients, adding that it was feasible that spending on AI infrastructure could take money away from other IT projects in process. “We do worry that projected AI infrastructure build out may be occurring too quickly, necessitating a digestion period, which could result in a commensurate stock pullback in AI-related names.”
Overall, the information-technology sector itself is expected to see anemic revenue growth this quarter. The consensus on FactSet forecasts a meager 1.35% revenue uptick in the third quarter, with earnings growth of 4.65%. FactSet’s estimates for IT companies exclude internet companies like Meta and Alphabet, which are under the category of communications/interactive media services. That sector is expected to see sales growth of 12%, and earnings growth of 51%, thanks to a 116% boost in Meta’s net income, after it hit a low point in the year-ago quarter.
Amazon.com Inc.
AMZN,
-0.81% ,
in the category of consumer discretionary/broadline retail, is forecast to see earnings growth of 109%, and revenue growth of 11%. Amazon’s cloud services business, AWS, is expected to also see a potential uplift from customers spending money on AI projects, according to a TD Cowen & Co. survey, in which 41% of respondents said they were “highly considering” allocating a budget for generative AI.“This trend could bode well for Amazon’s AWS,” TD Cowen analyst John Blackledge said in a recent report, adding that he expects AWS revenue growth to reaccelerate in the second half of this year and in 2024, boosted by the move of additional workloads to the cloud, possibly including generative AI.
As companies build up their infrastructure, or their spending on cloud computing to add or improve AI capabilities, they are seeing higher costs, which is affecting margins — especially if revenue has slowed down, as it has in some sectors. Across both the broader S&P 500
SPX,
and the IT sector, earnings are lower than a year ago.As Newman of Futurum pointed out, “AI stole the budget this year.” And that is a mixed bag for tech.
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Strategist picks the small and mid-cap stocks he prefers over the ‘Magnificent Seven’
Anthony Doyle of Firetrail outlines where he sees 'exceptional, compelling opportunities' outside of the 'Magnificent Seven' stocks
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Worried that stocks are too expensive? This value approach can highlight bargains.
At a time when many investors seem euphoric, others are warning that stock valuations have once again turned frothy. It may pay to take a look back at valuation and performance and consider your own risk tolerance.
A value-based approach that offers lower volatility and good long-term returns can be expected to be less flashy than one focused on the hottest technology stocks. But depending on how much it bothers you when the stock market gyrates, it may be a better way for you to invest. Lower volatility might help you to avoid the type of emotional reaction that can lead to selling into a declining market or attempting to time the market, both of which tend to be losing strategies.
Aaron Dunn is a co-head of the value equity team at Eaton Vance, which is based in Boston and is a unit of Morgan Stanley. During an interview, he explained how he and Brad Galko, who co-heads the team, select stocks for the Eaton Vance Focused Value Opportunities Fund. The fund’s performance benchmark is the Russell 1000 Value Index
RLV,
+1.08% .First, let’s take a broad look at how aggregate forward price-to-earnings ratios have moved for exchange-traded funds tracking several broad indexes over the past 10 years:
FactSet
The valuations are lower than their 2020 peaks. But for all but one, the valuations still appear to be high when compared with their 10-year averages:
ETF Ticker Current forward P/E 10-year average forward P/E Current valuation to 10-year average SPDR S&P 500 ETF Trust SPY,
+0.64% 19.06 15.93 120% iShares Russell 1000 ETF IWB,
+0.80% 18.94 16.02 118% iShares Russell 1000 Value ETF IWD,
+1.07% 14.33 13.94 103% iShares Russell 1000 Growth ETF IWF,
+0.50% 26.63 19.00 140% Source: FactSet All of the listed ETFs listed here are trading well above their 10-year average P/E valuations except the iShares Russell 1000 Value ETF, which is only slightly higher. These numbers back the notion that the broad market is expensive and that a value approach may be more reasonable. It is also worth keeping in mind that during 2022, when the SPDR S&P 500 ETF Trust
SPY,
+0.64%
declined 18.2% and the iShares Russell 1000 ETF
IWB,
+0.80%
fell 19.2%, the iShares Russell 1000 Value ETF
IWD,
+1.07%
pulled back 7.7% and the Eaton Vance Focused Value Opportunity Fund’s Class I shares were down only 3.3%, all with dividends reinvested.If we look at 10-year total returns, the nonvalue indexes, so heavily weighted to the largest technology-oriented companies, have been excellent performers for investors who could remain committed through thick and thin:
FactSet
Fund Ticker 3-year average annual return 5-year average annual return 10-year average annual return SPDR S&P 500 ETF Trust SPY,
+0.64% 13.2% 11.4% 12.3% iShares Russell 1000 ETF IWB,
+0.80% 12.5% 11.0% 12.1% iShares Russell 1000 Growth ETF IWF,
+0.50% 11.2% 14.0% 15.0% iShares Russell 1000 Value ETF IWD,
+1.07% 13.7% 7.3% 8.7% Eaton Vance Value Opportunities Fund – Class I EIFVX,
+0.92% 14.8% 8.7% 9.7% Source: FactSet For five and 10 years, the growth-oriented approaches have shined. But for three years, which includes the 2022 disruption, the Eaton Vance Value Opportunities Fund has fared best, even outperforming its benchmark.
A selective approach to value
The Eaton Vance Focused Value Opportunity Fund’s Class I
EIFVX,
+0.92%
shares are rated four stars (out of five) within Morningstar’s Large Value fund category. The fund’s Class A
EAFVX,
+0.93%
shares are rated three stars. The difference is that the Class I shares, which are typically distributed through investment advisers, have annual expenses of 0.74% of assets under management, while the Class A shares have an expense ratio of 0.99%. You can purchase Class I shares directly through brokerage platforms for a $50 fee.Dunn said that when selecting stocks for the fund, he and Galko take a bottom-up approach to identify quality companies. The want to see high returns on invested capital (ROIC) over the long term, as well as a “good competitive position” for a company and a strong management team.
They also prefer companies with low debt. “We do not want to buy overlevered companies and be in a situation where we are diluting through equity raises and putting capital at risk,” he said.
Dunn added that he and Galko look closely at free cash flow generation. A company’s free cash flow is its remaining cash flow after capital expenditures. This is money that can be used to fund expansion, acquisitions, dividend increases or share buybacks, or for other corporate purposes.
“Philosophically, what this results in is that we hold up well in markets such as last year’s. And we find upside in stocks trading below intrinsic value,” he said.
“We focus on finding ideas where there is a good skew for upside relative to downside,” he added.
According to Morningstar, the fund’s active share when compared with IWD is high, at 91.45%. Active share is a measure of how much an actively managed fund differs in investment exposure from its benchmark index. If you are paying more for active management than you would to invest in an index fund, active share is something to consider. If it is low, you might be overpaying for a “closet indexer.” You can read about how Morningstar assesses active shares here.
The fund is concentrated, typically holding between 25 and 45 companies.
According to Morningstar’s most recent data, these were the fund’s top 10 holdings (out of 28 stocks) as of May 31:
Company Ticker % of Eaton Vance Focused Value Opportunity Fund Forward P/E 2023 total return Alphabet Inc. Class A GOOGL,
+0.59% 5.0% 19.6 32% Micron Technology Inc. MU,
+1.79% 4.8% N/A 25% American International Group Inc. AIG,
+1.15% 4.3% 8.1 -7% Reinsurance Group of America Inc. RGA,
-0.34% 4.2% 8.0 1% Bristol Myers Squibb Co. BMY,
+0.50% 4.1% 7.7 -11% Wells Fargo & Co. WFC,
+0.99% 4.0% 8.9 4% ConocoPhillips COP,
+2.96% 4.0% 10.5 -10% Constellation Brands Inc. Class A STZ,
+0.30% 3.9% 20.4 9% NextEra Energy Inc. NEE,
+0.67% 3.8% 21.9 -13% Charles Schwab Corp. SCHW,
-0.43% 3.8% 16.0 -30% Source: FactSet Click the tickers for more about each company, fund or index.
There is no forward price-to-earnings ratio for Micron Technology Inc.
MU,
+1.79% ,
because the company’s combined EPS for the next 12 months are expected to be negative.Micron is a company in transition, caught up in diplomatic conflict between the U.S. and China, whose government directed some manufacturers in May to stop purchasing memory chips made by the company. Then again, in June, Micron highlighted its “commitment to China” when announcing a new investment in its plant in Xi’an.
Read: Micron recovery debated by analysts as bottom is called in memory-chip market
Dunn said downside for Micron’s stock was “mitigated” because of the company’s relatively low debt. He also said that as companies continue to adopt more cloud services and deploy artificial-intelligence technology, demand for memory chips will increase.
While there is no current forward P/E for Micron, the stock always trades at low valuations relative to most other large tech companies. Dunn touted Micron’s strong cash flow and said the stock was “underappreciated” and remained “an interesting play on cloud and AI.”
While it is not among the top 10 holdings listed above, Dunn highlighted Dollar Tree Inc.
DLTR,
+1.80%
as an example of the type of value stock he favors. The company “was not well run” following its acquisition of Family Dollar in 2015. But he has been impressed with its more recent turnaround efforts, including improvements in how products are shipped to stores, better efficiency and “a lot of work going on with culture, how they operate, how they treat employees [and] adding some shelf space to move more product.”It is interesting to see NextEra Energy Inc.
NEE,
+0.67%
among the fund’s largest holdings. This has been quite a strong grower over the past 10 years, with a total return of 346% as the owner of Florida Power & Light has grown along with its customer base and has become a leader in the build-out of solar-power generation.Dunn said the company is “still growing in the mid-single digits. For a utility company, that is a strong profile.”
When discussing Alphabet Inc.
GOOGL,
+0.59% ,
the fund’s largest holding as of May 31, Dunn said that “it is really an advertising business with other businesses around it” and that its P/E valuation was “not extremely taxing.” He said Alphabet had been “less aggressive with cost cutting” than other technology giants and added that the company’s “targeted search” through Google and other properties, such as YouTube, “probably provides a better return on investment than broadcast advertising, and that really is the key.”Don’t miss: This stock investing strategy has blown away the S&P 500. Here’s a way to refine it for quality.
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Asian chip stocks rally after Micron’s bullish forecast signals easing supply glut
The headquarters building of Micron Technology Inc. stands in Boise, Idaho, U.S.
Matthew Staver | Bloomberg | Getty Images
Shares of Asian chipmakers rallied on Thursday after Micron Technology‘s bullish outlook overnight, which indicated the sector’s supply glut may finally be easing.
The U.S. chipmaker reported third quarter earnings that beat estimates, thanks to higher demand for its memory chips driven by the booming A.I. sector.
“We believe that the memory industry has passed its trough in revenue, and we expect margins to improve as industry supply-demand balance is gradually restored,” CEO of the U.S. memory chipmaker Sanjay Mehrotra said in a statement.
Shares of Japanese semiconductor company Electron rose 3.26%. Hong Kong-listed Hua Hong Semiconductor added 1.82%. South Korea’s SK Hynix traded 1.67% higher.
Micron’s shares rose 3% in extended trading hours.
However, China’s ban on Micron’s chips remains a “significant headwind” that is impacting the company’s outlook and slowing its recovery, Mehrotra cautioned.
Last month, Chinese authorities announced Micron products failed its network security review and declared it a “major security risk” to China’s critical information infrastructure.
Micron’s third-quarter revenue came in at $3.752 billion, beating Reuters’ estimates of $3.646 billion, data from Refinitiv showed.
“We have increased confidence that the industry has passed the bottom for quarterly revenue and year-on-year revenue growth,” Mehrotra added.
Patrick Moorhead, CEO of Moor Insights & Strategy is upbeat about Micron.
“If you’re looking long term, Micron is good bet because it has advantages technologically that its competitors don’t,” he told CNBC’s “Street Signs” on Thursday.
However, he highlighted that while Micron is going to get some lift from the advent of AI, the overall server market is still lagging, a view echoed by the company.
“Generative A.I. is driving higher-than-expected industry demand for memory and storage for A.I. servers, while traditional server demand for mainstream data center applications continues to be lackluster,” Micron’s statement said.
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Can the coming AI boom help Micron outrun negative China effects?
Micron Technology Inc. could be approaching a big new semiconductor cycle as it predicts a huge boost from artificial intelligence, but there could be a roadblock in the path.
Micron
MU,
+0.42%
reported a third-quarter loss and a 57% drop in revenue Wednesday, after the chip industry’s oversupply hit the memory-chip maker hard. On the bright side, Micron Chief Executive Sanjay Mehrotra said he believed the memory industry “had passed its trough” and that the company’s margins should improve as the supply-demand balance is gradually restored.Another big issue for the stock right now, though, is China’s decision to recommend that “operators of critical information infrastructure in China should stop purchasing Micron products.” Mehrotra told analysts on the company’s conference call that the decision will impact about 50% of its products sold in China.
“We currently estimate that approximately half of that China-headquartered customer revenue, which equates to a low double-digit percentage of Micron’s worldwide revenue, is at risk of being impacted,” Mehrotra said on the call. “This significant headwind is impacting our outlook and slowing our recovery.”
More from Therese: AI has given a big boost to stock of this lesser-known Silicon Valley computer maker
He said Micron will work with its long-term customers who are not impacted by China’s decision, and hopefully will increase its share with those customers.
On the plus side, Micron expects to see a substantial boost to its memory business as a result of companies gearing up to run generative AI on their own servers or clouds. “Generative AI [is] becoming a big opportunity and we look at it for 2024 as a big year for AI and for memory and storage, and Micron will be well-positioned,” in the data center with its products, Mehrotra said. He added that it is “very, very early innings for AI,” which is really pervasive. “It’s everywhere.”
Full earnings coverage: Micron CEO calls bottom in memory-chip market, but weak PC, smartphone forecasts cut into expected AI gains
He said it will be in both cloud and enterprise server applications, and due to confidentiality of data, enterprises will be building their own large language models, adding that the DRAM (dynamic random access memory) content required for AI in servers is driving higher demand for memory and storage in servers. In super cluster configurations, for example, the DRAM content can be as much as 100 times higher.
Investors appeared to maintain some caution about when the AI impact will kick in, even as some analysts have forecast that AI demand will lead to a general supercycle for many hardware companies. Micron’s shares see-sawed in after-hours trading Wednesday, ending the extended session up about 3%.
See also: Will generative AI complete the cloud transition? One prominent executive thinks so.
In a note ahead of the company’s earnings, Raymond James analyst Srini Pajjuri said that the impact from China “should be short-lived given the commodity nature of Micron’s products.”
Right now, it’s too early to say how long China may be a drag for Micron, but if Mehrotra is right, investors should take heart that the company is going to be another beneficiary of the coming AI boom.
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Micron CEO calls bottom in memory-chip market, but weak PC, smartphone forecasts cut into expected AI gains
Micron Technology Inc. shares rose in the extended session Wednesday after the memory-chip maker’s chief executive called the bottom on the sector, and quarterly results came in better than expected.
Micron
MU,
+0.42%
shares had jumped more than 5% after hours following the release of results, but by the end of the company’s conference call with analysts, the stock was up less than 2%. Shares finished Wednesday’s session with a 0.4% gain to close at $67.07, while the S&P 500 index
SPX,
-0.04%
declined less than 0.1%.The Boise, Idaho-based company forecast an adjusted loss of $1.26 to $1.12 a share on revenue of $3.7 billion to $4.1 billion for the fourth quarter, while analysts surveyed by FactSet had estimated a loss of $1.07 a share on revenue of $3.88 billion for the fourth quarter, and a loss of $4.65 a share on revenue of $15.32 billion for the year.
Read: Snowflake stock rallies as ‘blizzard’ of AI product announcements make Wall Street happy
In the near term, Micron Chief Executive Sanjay Mehrotra told analysts on the call that while sales forecasts received a considerable boost from larger-than-expected AI sales, forecasts for PC, smartphone and standard server sales are looking worse than feared, and will eat into those gains. All told, however, the CEO told analysts that supply reductions are beginning to stabilize the market.
Micron Chief Financial Officer Mark Murphy said the company took about $400 million in inventory write-downs in the third quarter, contributing to negative gross margins of 16%, an improvement of 15 percentage points sequentially. When Micron reported its worst loss ever a quarter ago, the company had taken a $1.4 billion inventory charge. When Micron started flashing signs of negative margins earlier in the year, many analysts saw that as signs of a bottom on the horizon.
Read: Is Micron selling memory chips for less than they cost to make? That may mean the bottom is near.
Micron makes two types of memory chips: DRAM, or dynamic random access memory, the type of memory commonly used in PCs and servers; and NAND, the flash memory chips used in smaller devices like smartphones and USB drives. After prices for memory soared early in the COVID-19 pandemic, companies overbought large stores of chips to avoid shortages, creating a glut.
“As we have said before, AI servers have six to eight times the DRAM content of a regular server and three times the NAND content,” Mehrotra told analysts on the call. “In fact, some customers are deploying AI compute capability with substantially higher memory content.”
For the third quarter, Micron reported third-quarter loss of $1.9 billion, or $1.73 a share, versus net income of $2.63 billion, or $2.34 a share, in the year-ago period.
The adjusted loss, which excluded stock-based compensation expenses and other items, was $1.43 a share, versus net income of $2.59 a share in the year-ago period.
Revenue dropped to $3.75 billion from $8.64 billion in the year-ago quarter, as a two-year shortage of chips, triggered by the COVID pandemic, flipped quickly, but unevenly, into a glut around this time last year. Analysts surveyed by FactSet had forecast a loss of $1.61 a share on revenue of $3.65 billion.
“We believe that the memory industry has passed its trough in revenue, and we expect margins to improve as industry supply-demand balance is gradually restored,” Mehrotra had said in an earlier statement.
The CEO also called a recent order by the Chinese government to stop using Micron chips because of alleged serious, but unspecified, risks “a significant headwind that is impacting our outlook and slowing our recovery.”
On the call with analysts, Mehrotra said he expects to see a “record total addressable market in calendar 2025 along with a return to more normalized levels of profitability.”
Leading up to earnings, analysts had said that Micron is “at the bottom of this deep downturn,” but “China complicates the recovery plan.” For the year, Micron shares are up 34%, compared with the S&P 500’s 14% gain.
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Apple’s Tim Cook calls India ‘huge opportunity’ after tech meeting at White House with Prime Minister Modi
US President Joe Biden looks on as India’s Prime Minister Narendra Modi speaks during a meeting with senior officials and CEOs of American and Indian companies, in the East Room the White House in Washington, DC, on June 23, 2023.
Brendan Smialowski | AFP | Getty Images
The CEOs of Apple, Alphabet, Microsoft got a healthy does of facetime with the leader of India this week, who was in the U.S. to meet with President Biden as well as other political and business leaders.
The tech company execs spent over an hour with Prime Minister Narendra Modi inside the White House on Friday, discussing opportunities and challenges in investing in India. Earlier in the week, Modi met with Tesla CEO Elon Musk.
After the meeting concluded at the White House, Apple CEO Tim Cook told CNBC that India represents a “huge opportunity.” When asked if Apple would continue expanding there, he pointed to the two retail stores the company opened in India earlier this year.
It was the first state visit to the U.S. for Modi, who became prime minister in 2014. Following Friday’s meeting, the White House said Google will be working with the Indian Institute of Science on open sourcing of speech data for artificial intelligence models.
OpenAI CEO Sam Altman was also in Washington for the event. Two people with knowledge of the matter said Altman and Modi discussed opportunities to collaborate on AI.
Hemant Taneja, CEO of venture capital firm General Catalyst, attended the roundtable. Ahead of the meeting, he shared with CNBC his intentions to find alignment on efforts to streamline technology transfer rules between the U.S. and India, which has overtaken China as the world’s most-populous country. U.S. relations with China have become increasingly strained in the past few years.
We are in a digital cold war with China, and this approach will ultimately foster an atmosphere of increased cooperation,” Taneja said.
Large semiconductor companies like Micron and Applied Materials used Modi’s visit as an opportunity to announce plans to make significant investments India. Micron is aiming to open a facility in Modi’s home state of Gujarat as the broader chip industry looks for ways to diversify its supply chain. Lam Research revealed plans to train 60,000 Indian engineers.
Access to highly skilled labor and outdated labor laws are challenges for American businesses when it comes to staffing up in India.
“U.S. companies in India have had difficulties over time with regulatory uncertainty as well as challenges in relocating or terminating employees,” said Kenneth Juster, former U.S. Ambassador to India. Juster, who’s now a distinguished fellow at the Council on Foreign Relations, said he remains optimistic, adding that India has pledged to ease the process for foreign companies to do business there.
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Blinken to fly to Beijing for high-stakes diplomacy after spy balloon saga
U.S. Secretary of State Antony Blinken boards his plane for travel to Berlin at Joint Base Andrews, Maryland, June 22, 2021.
Andrew Harnik | Pool | Reuters
BEIJING — U.S. Secretary of State Antony Blinken is set to travel to Beijing this weekend in his first trip to China under the Biden administration.
Delayed by more than four months, Blinken’s trip marks a rare high-level meeting between the U.S. and China in a period of heightened tension.
Little is expected to emerge from the talks themselves. But Blinken’s Beijing visit helps pave the way for additional meetings — including a potential one-to-one between U.S. President Joe Biden and his Chinese counterpart Xi Jinping later this year.
Blinken’s Beijing trip is a “potential important turning point in the relationship,” Scott Kennedy, senior advisor and trustee chair in Chinese business and economics at the Center for Strategic and International Studies, told CNBC.
“Just simply strengthening communication is a reasonable goal,” he said. “If [both sides] announce the talks went well enough they can schedule additional cabinet-level meetings.”
Communication and meetings between the U.S. and China have dried up in the last few years due to the pandemic and political tensions.
The U.S. Department of State said Blinken is set to meet with “senior [People’s Republic of China] officials where he will discuss the importance of maintaining open lines of communication to responsibly manage the U.S.-PRC relationship.”
Blinken “will also raise bilateral issues of concern, global and regional matters, and potential cooperation on shared transnational challenges,” department spokesperson Matthew Miller said in a statement.
China’s Ministry of Foreign Affairs confirmed the visit but did not provide details on specific meetings.
Expectations for a significant recovery in the U.S.-China relationship, especially as a result of Blinken’s upcoming trip, remain low.
“The objective is still to prevent the relationship from deteriorating further, rather than articulating and agreeing to a shared vision for a way ahead,” said Drew Thompson, a former U.S. Defense Department official and current visiting senior research fellow at the Lee Kuan Yew School of Public Policy in Singapore.
“The Biden administration’s rhetoric is we’ll compete, where we can; and cooperate, where we must,” Thompson said. “But China doesn’t see it that way. China sees the political elements of both competition and cooperation, and they’re not willing to cooperate if there’s still an element of competition or the U.S. is challenging it politically.”
“And so I think that the administration’s goals are, at this point unrealistic because of the way Beijing has framed its interest in its strategy.”
Growing tensions
It’s been an intense few months geopolitically while the world waited for Blinken to reschedule his trip to China — and potentially help stabilize the relationship between the two economic powers.
The U.S. in February shot down an alleged Chinese spy balloon flying over U.S. airspace. Its appearance had forced Blinken to indefinitely postpone his Beijing trip at the time. Beijing insisted the balloon was an unnamed weather tracker that blew off course.
Elsewhere, the CEO of TikTok, owned by Chinese tech giant ByteDance, got grilled in U.S. Congress in March over security concerns. China’s Foreign Ministry said at the time that it “has never” and “will never” ask companies to go against local laws and provide data located abroad.
“The US government has provided no evidence or proof that TikTok threatens U.S. national security, yet it has repeatedly suppressed and attacked the company based on the presumption of guilt,” the ministry said, according to a briefing transcript.
And in May, China said U.S. chipmaker Micron had failed a security review and banned operators of critical infrastructure from buying from the company.
“The relationship has not remained in a steady state since February,” Kennedy said. But he added that the mood in Washington, D.C., where he’s based, is “not as dark as it had been” in February and March.
Taiwan tensions
“The U.S. needs to honor its commitment to the ‘One China’ policy,” Jia Qingguo, a professor at Peking University, said Tuesday on the sidelines of the Caixin New Asia Vision conference in Singapore.
“China also does not wish to see any accidents between both militaries,” Jia added.
“It recognizes that even though there is a need to establish military guardrails between both countries, that is not enough. The two countries should also establish similar guardrails for diplomacy and economic relations to avoid confrontation. This will reduce reactive actions and reduce any possibility of accidents.”
Among the many other points where the U.S. and China differ is the Russian war on Ukraine, which Beijing has refused to label an invasion, while calling for peace talks.
Hopes for more U.S.-China meetings
Still, the two sides remain each other’s largest trading partners in terms of goods.
China’s Commerce Minister Wang Wentao met with his U.S. counterpart in Washington in May. And U.S. Treasury Secretary Janet Yellen is expected to visit China at an unspecified date.
Looking ahead, Xi could potentially visit the U.S. during the Asia-Pacific Economic Cooperation Leaders’ Summit — set to be held in San Francisco in November.
Jia said expectations for any outcomes of Blinken’s upcoming meetings with the Chinese should not be too high, but that it was important he was going.
“It’s not usual for two of the world’s great powers to rely on the highest levels of leadership to upkeep ties. It is actually quite risky.” Jia said. “Hence, it is important that both countries have more levels of exchange.”
— CNBC’s Clement Tan contributed to this report.
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U.S., China’s top commerce officials meet to discuss trade concerns
The U.S. and China flags stand behind a microphone at the U.S. Embassy in Beijing on April 9, 2009.
Frederic J. Brown | AFP | Getty Images
U.S. Secretary of Commerce Gina Raimondo sat down with her Chinese counterpart Wang Wentao in Washington D.C. on Thursday to discuss “concerns” surrounding bilateral trade.
Marking the first cabinet-level exchange between the two countries in months, the U.S. talked about American companies operating in China.
According to a readout by the Commerce Department, “The two had candid and substantive discussions on issues relating to the U.S.-China commercial relationship, including the overall environment in both countries for trade and investment and areas for potential cooperation.”
Raimondo also “raised concerns about the recent spate of PRC [People’s Republic of China] actions taken against U.S. companies operating in the PRC,” it said.
The bilateral exchange between Raimondo and Wang comes as market observers keep a close eye on whether the U.S. will curb American investments into China, as relations between the world’s largest economies sour.
The Group of Seven leaders met Hiroshima over the weekend, and vowed to “de-risk and diversify” from Chinese reliance, adding that some of Beijing’s practices “distort the global economy.”
The high-level talks come as China reportedly conducted inspections on U.S. audit firms in the mainland over national security breaches.
Earlier this week, China announced it will ban some purchases of products from U.S. memory chipmaker Micron — barring operators of “critical information infrastructure” in China after a security review conducted by the Cyberspace Administration of China.
In response, the U.S. Commerce Department’s spokesperson said, “We firmly oppose restrictions that have no basis in fact.” He said the department will engage with the Chinese government to “detail” its position and seek clarity.
In the release published by China’s Ministry of Commerce after his meeting with Raimondo, Wang also raised concerns over U.S. policies on semiconductors and export controls.
“The two sides agreed to establish communication channels to maintain and strengthen exchanges on specific economic and trade concerns and cooperation matters,” it said.
Wang is expected to meet U.S. Trade Representative Katherine Tai during his visit to the U.S. where he is set to attend the Asia-Pacific Economic Cooperation trade ministers’ meeting.
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China chip stocks rally after Beijing said U.S. chip giant Micron is ‘major security risk’
Micron Technology Double-Data-Rate Synchronous Random-Access Memory (SDRAM) chip
Tomohiro Ohsumi | Bloomberg | Getty Images
China’s chip stocks rallied on Monday morning following Beijing’s announcement to bar some purchases of products from U.S. memory chipmaker Micron.
China’s Cyberspace Administration barred operators of “critical information infrastructure” in China from buying products from the U.S. chip giant following a security review conducted by the Cyberspace Administration of China.
Chinese authorities said Micron products have failed its network security review, and cited “serious potential network security issues.” The firm poses a “major security risk” to China’s critical information infrastructure supply chain and affects [its] national security,” a statement said.
Shares of Chinese chipmakers largely rose on Monday following the move: Hong Kong-listed Hua Hong Semiconductor rose as much as 3.14% on Monday, while SMIC rose 2.64%.
Other memory chip producers in mainland China such as GigaDevice Semiconductor and Ingenic semiconductor jumped 3.74% and 8.08% respectively.
In response to Beijing’s announcement, the U.S. Commerce Secretary Gina Raimondo told the Wall Street Journal, “We firmly oppose restrictions that have no basis in fact.” The commerce department will engage with the Chinese government to “detail” its position and seek further clarity, he added.
Raimondo said the U.S. will engage with its key allies to address Beijing’s actions, and that such measures will cause “distortions of the memory chip market.”
This comes as the U.S. reportedly urged South Korean chipmakers not to fill the shortfalls in China if Beijing’s ban comes into effect, the Financial Times reported.
Shares of South Korean chipmakers SK Hynix and Samsung Electronics, both Micron rivals, rose on Monday morning.
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CNBC Daily Open: Bitcoin breaches $30,000 as the economy slows
A sign for a Bitcoin automated teller machine (ATM) at a gas station in Washington, DC, US, on Thursday, Jan. 19, 2023.
Al Drago | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Markets were mostly unchanged Monday, though bitcoin breached $30,000. Investors are waiting for bank earnings and price reports.
What you need to know today
- U.S. stocks were unchanged Monday after the long weekend, indicating investors were still weighing — and waiting for — economic data. Asia-Pacific markets mostly rose Tuesday. South Korea’s Kospi climbed 1.4% as the country’s central bank left interest rates unchanged at 3.5%. On the other hand, China’s Shanghai Composite slid 0.4% as prices in the country rose 0.7% year on year for March, which was lower than expected.
- Bitcoin broke the $30,000 barrier for the first time since June last year. The biggest cryptocurrency by market cap is up 86% year to date as investors flocked to it amid the banking turmoil.
- Warren Buffet said in an interview with Nikkei he was thinking about investing more in five Japanese trading houses, which are conglomerates that import various products into Japan. Shares of those Japanese trading house rose by at least 2%.
- Alibaba revealed Tuesday morning an artificial intelligence chatbot named Tongyi Qianwen that will eventually be integrated with all its products. The news didn’t have that much of a lasting impact on the company’s Hong Kong-listed shares, which were last up 0.77% — but rival Baidu sank 6.79%.
- PRO Samsung might see a 96% plummet in quarterly profit, and it plans to cut memory chip production. So why did Wall Street react positively to the news?
The bottom line
Markets in the U.S. reopened Monday but seemed to retain a post-holiday sluggishness as investors digested multiple signs of a slowing — but still strong — economy.
First, even though consumers felt credit was harder to come by in March, the banking turmoil is subsiding. Charles Schwab said average daily outflows were down from February, and the bank had added $53 billion of core net new client assets in March. That trend is consistent with the broader banking industry, according to Federal Reserve data. For the period ending March 29, deposits increased by $42.3 billion on a non-seasonally adjusted basis.
Likewise, although the tech sector was hit by bad news, the storm clouds had a silver lining. Computer shipments for the first quarter plummeted — but IDC thinks cratering demand lets companies finish “rejigging their plans” and improve their supply chains. Indeed, Dell popped 2.98% and HP rose 1.54% on the news — though Apple fell 1.6%, probably because it saw the steepest fall in shipments.
The same dynamic of “bad news is good news” played out in the memory chip sector. Samsung’s plan to cut chip production helped push rivals Micron Technology and Western Digital higher by 8.04% and 8.22%, respectively. There were too many chips flooding the market, analysts believe, and tighter supply is a good thing.
Outside those industries, however, the major stock indexes were mostly unchanged. The S&P 500 ticked up 0.1%, the Dow Jones Industrial Average added 0.3% and the Nasdaq Composite declined by 0.03%.
Investors await a slew of economic indicators this week. On the earnings front, JPMorgan Chase, Wells Fargo and Citigroup report quarterly results. Traders will certainly pore through those reports, but they’ll also want to see what the U.S. consumer price index and producer price index say about the economy. If they reinforce last week’s jobs report and indicate that the economy isn’t overheating, the Federal Reserve may actually manage to steer markets to a fabled “soft landing.” Investors are keeping their fingers crossed.
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Stocks making the biggest moves midday: Micron, Pioneer Natural Resources, Block, AMC and more
A general view of Micron Technology’s building in Singapore, June 23, 2020.
Micron Gcm Studio | Reuters
Check out the companies making headlines in midday trading Monday.
Block — Shares of the payments stock lost 3% following a downgrade to market perform from outperform by KBW. The firm cited pressures from “‘small risks starting to add up,” including potential regulatory scrutiny of its Cash App business.
related investing news
Tesla — Shares of Elon Musk’s electric vehicle company fell more than 1.5% after the firm announced another price cut in the U.S., its fifth since the start of the year. The move came as tougher U.S. standards are set to reduce the $7,500 tax credit available for Tesla’s Model 3. The EV maker also said Sunday it will open a new Megafactory in Shanghai that is capable of producing 10,000 Megapacks — large batteries —a year.
Pioneer Natural Resources – Shares of the fracking giant popped nearly 6% after The Wall Street Journal reported that Exxon Mobil has held informal talks to acquire Pioneer. Exxon shares fell 0.6%.
Micron Technology — Micron Technology’s shares gained 8% after its rival Samsung Electronics announced that it plans to cut memory chip production in the near term. Many Wall Street analysts said the move could accelerate a return to supply-demand balance and potential rebound in the chipmaking sector. Chip giant Western Digital also added about 8%.
Excelerate Energy, EQT and other gas stocks — Shares of Excelerate Energy, EQT and other gas stocks ticked higher as natural gas futures climbed. Excelerate added more than 1%, while EQT jumped 3.7% and Matador Resources gained 2.9%. Excelerate also got a boost from a new Deutsche Bank report, wherein the firm initiated coverage of the stock, rated it a buy and said it was trading below its industry peers.
Apple, Google, Microsoft — Shares of major technology companies were in the red during Monday’s trading session. Apple’s stock price lost 2%, Google-parent Alphabet shed 2.8% and Microsoft lost 1.4%.
Taiwan Semiconductor — Shares of the chip giant dropped 2.2% in midday trading after the company saw a decline in monthly revenue for the first time in four years. The stock is still up roughly 17% from the start of the year. Last month, Bank of America upgraded its price target on the company, believing it stands to benefit from investor interest in generative artificial intelligence.
New Fortress Energy — The stock gained 4% after Deutsche Bank initiated New Fortress as a buy. The bank said the company is well positioned in the liquified natural gas sector, which it believes has “potential to create outsized investment opportunities.”
Nikola — Shares fell 3% after Evercore ISI reiterated its in line rating. The firm also cut its price target in half to $1, saying the company has too many headwinds.
Five Below — Shares of the discount retailer gained 3.9% after Roth MKM said that Five Below might be helped by the success of “The Super Mario Bros. Movie,” which reported stronger-than-anticipated box office results.
AMC Entertainment, IMAX, Cinemark Holdings — Shares of major theater chains were in the green on Monday after the box office success of “The Super Mario Bros. Movie,” which was made by Universal Pictures. AMC’s stock price popped 6.7%, IMAX soared by 2% and Cinemark gained 5.7%.
— CNBC’s Jesse Pound, Hakyung Kim, Samantha Subin, Yun Li, Alex Harring and Brian Evans contributed reporting
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is the distributor of “The Super Mario Bros. Movie.”
