A trader works on the floor of the New York Stock Exchange during opening bell in New York City on August 21, 2023.
Angela Weiss | AFP | 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’ last burst for August U.S. stocks started the final week of August on an upbeat note, with all three major indexes closing in the green. All but one sector in the S&P 500 were positive. Asia-Pacific markets followed Wall Street higher Tuesday. Hong Kong’s Hang Seng Index extended gains from yesterday and added around 1.87%. Japan’s Nikkei 225 inched up 0.34% even as the country’s unemployment rate for July was a higher-than-expected 2.7%, compared with the 2.5% consensus.
Goldman offloads another acquisition Goldman Sachs is selling its personal financial management unit to Creative Planning, a wealth management firm. In May 2019, Goldman acquired United Capital Financial Partners for $750 million. CEO David Solomon heralded the deal as a way to reach high net worth clientele (Goldman focuses on ultra high net worth clientele) — but the bank only captured around 1% of that market by February.
Artificial intelligence, human control Artificial intelligence must be “subject to human control,” Microsoft’s president and vice-chairman Brad Smith told CNBC in an exclusive interview. “We need to ensure that we have humans in control,” Smith said. It follows, then, that AI won’t replace jobs, but will serve as a tool to help the humans doing the work, Smith added.
Monetizing Google Maps data Google is planning to license solar and environment data to companies, CNBC has learned. Google has energy data on over 350 million buildings, according to documents CNBC viewed, and sees opportunity to sell the data to companies like Tesla Energy, Aurora Solar and Zillow. The tech giant hopes revenue can hit $100 million in the first year.
[PRO] ‘Absolutely formidable’ semiconductor firm With a market capitalization of $1.15 trillion, Nvidia is the world’s most valuable chipmaker and has been the focus of this year’s AI-fueled frenzy. But there’s a semiconductor company that’s “absolutely formidable” in terms of its dominance in the foundry business, according to an analyst from asset management firm Sanlam Investments UK.
“There’s an old adage amongst people who cover consumer markets,” said Michael Zdinak, an economist who leads the U.S. consumer markets service at S&P Global Market Intelligence. “Never bet against the U.S. consumer because we’re always willing to spend money we don’t have.”
“The consumer is less healthy than it appears,” wrote Morgan Stanley analyst Simeon Gutman. Consumers are spending more on services than goods, according to Gutman, which isn’t good news for consumer retailers. Indeed, the retail sector’s been roiled by volatility the last two weeks amid choppy earnings, said Deutsche Bank analyst Krisztina Katai. And investors should expect more turmoil ahead.
Maybe that warning comes from an overabundance of caution. After all, retail rallied Monday, along with nine other sectors in the S&P 500 (only utilities dipped by 0.04%). Markets broadly rose: The S&P added 0.63%, the Dow Jones Industrial Average gained 0.62% and the Nasdaq Composite climbed 0.84%.
Markets are trying to make up for a dismal August — so far, the S&P has shed around 3.4%, the Dow 2.8% and the Nasdaq 4.5% — but that might prove a difficult feat. Monday’s rally was just one data point. Moreover, there are more obstacles ahead.
“The ‘Wall of Worry’ that had all but disappeared by July is being rebuilt – U.S. 10 year yields above 4%, anxiety rising in China, Europe’s economy slumps, and a more sober tone from some U.S. retailers,” Evercore ISI senior managing director Julian Emanuel wrote in a Sunday note.
That’s not news investors want to hear heading into September, a historically bad month for stocks. Hence, even if markets manage to claw back some losses by the end of this week, it’d be prudent to brace for another trying month.
OpenAI on Monday announced its biggest news since ChatGPT’s debut: It’s launching ChatGPT Enterprise, the AI chatbot’s business tier, available starting Monday.
The tool has been in development for “under a year” and had the help of more than 20 companies of varying sizes and industries, OpenAI COO Brad Lightcap told CNBC. ChatGPT Enterprise includes access to GPT-4 with no usage caps, performance that’s up to two times faster than previous versions, and API credits. Lightcap said that pricing would not be publicly announced and that it “it will depend, for us, on every company’s use cases and size.” Beta users included Block, Canva and The Estée Lauder Cos.
Earlier this year, Microsoft‘s expanded investment in OpenAI — an additional $10 billion — made it the biggest AI investment of the year, according to PitchBook, and in April, the startup reportedly closed a $300 million share sale at a valuation between $27 billion-$29 billion, with investments from firms such as Sequoia Capital and Andreessen Horowitz. Two months after ChatGPT’s launch in November, it surpassed 100 million monthly active users, breaking records for the fastest-growing consumer application in history: “a phenomenal uptake – we’ve frankly never seen anything like it, and interest has grown ever since,” Brian Burke, a research vice president at Gartner, told CNBC in May.
More than 80% of Fortune 500 companies had teams actively using ChatGPT, per Lightcap and OpenAI.
One key differentiator between ChatGPT Enterprise and the consumer-facing version: ChatGPT Enterprise will allow clients to input company data to train and customize ChatGPT for their own industries and use cases, although some of those features aren’t yet available in Monday’s debut. The company also plans to introduce another tier of usage, called ChatGPT Business, for smaller teams, but did not specify a timeline.
Lightcap told CNBC that rolling out the enterprise version first, and waiting on the business tier, “gives us a little bit more of a way to engage with teams in a hands-on way and understand what the deployment motion looks like before we fully open it up.”
OpenAI noted in a blog post that “We do not train on your business data or conversations, and our models don’t learn from your usage,” adding that clients’ conversation data would be encrypted both at transit and at rest. The company does, however, log aggregate data on how the tool is used, including performance metadata and more, as is relatively standard, Lightcap said.
ChatGPT Enterprise’s debut comes as the AI arms race continues to heat up among chatbot leaders such as OpenAI, Microsoft, Google and Anthropic. In an effort to encourage consumers to adopt generative AI into their daily routines, tech giants are racing to launch not only new chatbot apps, but also new features. In May, OpenAI launched its iOS app, followed by the Android app in July. Google is regularly rolling out updates to its Bard chatbot, and Microsoft is doing the same with Bing, introducing features like visual search. Anthropic, the AI startup founded by ex-OpenAI executives, debuted a new AI chatbot, Claude 2, in July, months after raising $750 million over two financing rounds.
ChatGPT, like many large language models, is expensive to operate, with each chat likely costing OpenAI “single-digit cents,” according to a December tweet by CEO Sam Altman, suggesting that operating the service for 100 million people a month could cost millions of dollars.
The biggest obstacle to ChatGPT Enterprise’s development was figuring out how to prioritize features, Lightcap told CNBC.
Out of all the things shipping in the next couple of months, he said, “the prioritization of how you pulled forward those things based on how people are using the product — and what people really want and what’s empowering — was the topic of a lot of debate, I would say, on the team.”
One concrete example is Code Interpreter, a ChatGPT Plus feature that has since been renamed to Advanced Data Analysis. Lightcap said that the team questioned whether the feature was a priority for ChatGPT Enterprise and that it “sat stack-ranked in a list with a bunch of other things that we think are kind of equally or more exciting,” but companies’ feedback caused them to prioritize offering it sooner rather than later.
OpenAI plans to onboard “as many enterprises as we can over the next few weeks,” per the company’s blog post.
Microsoft says it “really tried” to take the concerns of U.K. regulators to heart, before launching its fresh bid to take over Activision Blizzard — and it’s now up to the regulators to decide whether that path is clear.
“I think we need to let the regulators speak for themselves,” Microsoft’s vice-chairman and president Brad Smith told CNBC in an exclusive interview. “They have decisions that need to be made, especially in the U.K., but from my vantage point, what we’ve really tried to do is take these concerns to heart.”
Last Tuesday, Microsoft submitted a new proposal to U.K. regulators for the takeover of American game publisher Activision Blizzard after its initial proposal was rejected.
Microsoft submitted a new proposal to U.K. regulators for the takeover of American game publisher Activision Blizzard after its initial proposal was rejected.
Nurphoto | Nurphoto | Getty Images
It will be up to the regulators, especially now in the U.K., to decide whether that path is clear.
Brad Smith
Microsoft’s vice-chairman and president
On regulatory concerns, Smith said: “We haven’t tried to dismiss them. We haven’t tried to downplay them. We haven’t tried to ignore them.”
“We’ve worked to address them, and by addressing them, we have put together a transaction that will advance competition, while also eliminating the concerns on the anti-competitive side that some people had,” he told CNBC’s Martin Soong on the sidelines of the Business 20 Summit in New Delhi.
“I think it will be up to the regulators, especially now in the U.K., to decide whether that path is clear,” he said in an interview aired Monday.
U.K. regulators, the Competition and Markets Authority, said that under the new deal, Microsoft will not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision for the next 15 years.
Instead, French gaming publisher Ubisoft will acquire those rights before Microsoft’s acquisition of Activision, the CMA added.
“That to me, is not just a recipe for this transaction,” said Smith.
“I think that in the world of technology, whether we’re talking about software or hardware or pharmaceuticals, there are times when companies can come together in advance innovation, produce better products, and there may be steps that need to be taken at the same time to address regulatory concerns.”
Microsoft will change the terms of its Activision Blizzard buyout offer in a new effort to win approval from the U.K. competition regulator.
The regulator, the Competition and Markets Authority, said Microsoft MSFT, +1.71%
will now license Activision’s global cloud streaming to Ubisoft Entertainment, for any game available now or in the next 15 years. Ubisoft, in its own release, highlighted the ability to stream the popular Call of Duty franchise.
Financial terms were not released, but the regulator said Ubisoft will make a one-off payment and also agree a market-based wholesale pricing mechanism.
The license will be exclusive except in the European economic area. Ubisoft would have the ability to require Microsoft to provide versions of games on operating systems other than Windows, such as Linux.
Ubisoft shares UBI, +5.80%
jumped nearly 5% in opening Paris trade.
The regulator now says it’s inviting comments on the structure of the new offer. “This is not a green light. We will carefully and objectively assess the details of the restructured deal and its impact on competition, including in light of third-party comments,” said the regulator’s CEO, Sarah Cardell.
Microsoft last year agreed to buy Activision Blizzard for $68.7 billion, or $95 per share. Activision stock ATVI, +0.28%
closed Monday at $90.72.
In a blog post, Microsoft Vice Chair Brad Smith said it anticipates the CMA review processes can be completed before the 90-day extension in its acquisition agreement with Activision Blizzard expires on Oct.18. He also said the deal with Ubisoft was carefully structured not to interfere with an existing deal struck with European regulators.
Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard’s games character.
Dado Ruvic | Reuters
Microsoft on Tuesday submitted a new deal for the takeover of Activision Blizzard, offering a spate of concessions after U.K. regulators rejected its initial proposal.
On Tuesday, the U.K.’s Competition and Markets Authority confirmed it has blocked the original deal. However, it said Microsoft and Activision have agreed to a new, restructured agreement, which the CMA will now investigate with a decision deadline of Oct. 18.
The Redmond tech giant anticipates the review can be completed before this time, Microsoft President Brad Smith said in a Tuesday statement.
Under the restructured deal, Microsoft will not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years, the CMA said. Instead, these rights will be divested to French game publisher Ubisoft Entertainment prior to Microsoft’s acquisition of Activision, the CMA added.
Ubisoft shares were up more than 4% in early Europe trade.
Cloud gaming is seen as the next frontier in the industry, offering subscription services that allow people to stream games just as they would movies or shows on Netflix. It could even remove the need for expensive consoles, with users playing the games on PCs, mobile and TVs instead.
Regulators previously argued that Microsoft could also take key Activision games, like Call of Duty, and make them exclusive to Xbox and other Microsoft platforms.
Authorities in the European Union were the first major regulator to clear the deal back in May. To cross that line, Microsoft offered concessions, such as offering royalty-free licenses to cloud gaming platforms to stream Activision games, if a consumer has purchased them.
The CMA refused similar measures at the time, which it felt would allow Microsoft to “set the terms and conditions for this market for the next ten years.”
Just hours later, the CMA said it was “ready to consider any proposals from Microsoft to restructure the transaction” and allay the regulator’s concerns.
The restructured deal and cloud rights divestment to Ubisoft are intended to provide an independent third-party content supplier with the ability to supply Activision’s gaming content to all cloud gaming service providers, including to Microsoft itself.
Ubisoft will be able to license out Activision content under different business models, including subscription services.
The deal would also require Microsoft to provide versions of games on operating systems other than Windows, which it owns.
“Microsoft has notified a new and restructured deal, which is substantially different from what was put on the table previously,” Sarah Cardell, CEO of the CMA, said in a statement.
“As part of this new deal, Activision’s cloud streaming rights outside of the EEA (European Economic Area) will be sold to a rival, Ubisoft, who will be able to license out Activision’s content to any cloud gaming provider. This will allow gamers to access Activision’s games in different ways, including through cloud-based multigame subscription services.”
Cardell emphasised this is not a signal of an approval for the deal.
“This is not a green light. We will carefully and objectively assess the details of the restructured deal and its impact on competition, including in light of third-party comments.”
For its part, Microsoft will be compensated for its divestment to Ubisoft “through a one-off payment and through a market-based wholesale pricing mechanism, including an option that supports pricing based on usage. It will also give Ubisoft the opportunity to offer Activision Blizzard’s games to cloud gaming services running non-Windows operating systems,” Smith said Tuesday.
“We’re dedicated to delivering amazing experiences to our players wherever they choose to play,” Chris Early, senior vice president of strategic partnerships and business development at Ubisoft, said on Tuesday. “Today’s deal will give players even more opportunities to access and enjoy some of the biggest brands in gaming.”
It’s no secret that market leadership has become more concentrated over the years, but this is ridiculous. Bank of America strategists think one specific stock could hold the key to whether the tough August on Wall Street is just temporary, or if it’s the harbinger that the strong rally of 2023 is about to fade away. That one company is Microsoft , the behemoth with the $2.35 trillion market cap and, it seems, a position in the driver’s seat on where the market goes next. In his weekly breakdown of money flows through the financial markets, BofA investment strategist Michael Hartnett said Microsoft needs to reassert itself or face dragging down the rest of the stock market. “If ringleader can’t maintain new highs, equity and credit narrative could flip from ‘buy-the-dip’ in H1 to ‘sell-the-rip’ in H2,” Hartnett wrote. Microsoft has been slumping badly of late, down 8.3% over the past month and 1.9% in the last five trading days, through Thursday’s close. For the year to date, though, it has been a top performer, surging more than 32% and contributing about 37% of the Dow Jones Industrial Average ‘s point gain. MSFT YTD line Microsoft as market leader That’s why it holds such a pivotal position in determining how things go from here. Hartnett goes so far as to compare the stock to Yul Brynner in “The Magnificent Seven.” For those not up on their 1960’s cinema, Brynner played Chris Adams, leader of a band of gunfighters hired to protect a Mexican village from bandits. Considered a classic of the Western genre, the movie has a bittersweet ending. Harnett noted that the equity put/call ratio has hit its highest point since the collapse of Silicon Valley Bank in March, “a bad sign if stocks can’t hold hold here.” Microsoft’s swoon comes at a somewhat precarious time for the markets. Investors seem to be losing faith in the tech leadership, which includes Microsoft: Another $2 billion left the sector last week, the eighth straight week of outflows.
U.S. stocks closed higher on Monday, with the Dow flipping positive near the closing bell, as technology stocks bounced back. The Dow Jones Industrial Average DJIA rose about 26 points, or 0.1%, ending near 35,308, according to preliminary FactSet data. The S&P 500 index SPX scored a 0.6% gain and the Nasdaq Composite Index COMP closed up 1.1%, booking its best daily percentage climb since July 28, according to FactSet data. The S&P 500’s information technology sector outperformed with a 1.9% gain, while the communication services segment rose 1%. The rally saw shares of Meta Platforms META, Apple Inc. AAPL, Alphabet…
Following last year’s market route in tech stocks, all of the industry’s big names have rebounded in 2023. But one company has far outshined them all: Nvidia.
Driven by an over decade-long head start in the kind of artificial intelligence chips and software now coveted across Silicon Valley, Nvidia shares are up 180% this year, beating every other member of the S&P 500. The next biggest gainer in the index is Facebook parent Meta, which is up 151% at Friday’s close.
Nvidia is now valued at over $1 trillion, making it the fifth-most valuable U.S. company, behind only tech behemoths Amazon, Apple, Microsoft, and Alphabet.
While Nvidia doesn’t carry the household name of its mega-cap tech peers, its core technology is the backbone of the hottest new product that’s quickly threatening to disrupt everything from education and media to finance and customer service. That would be ChatGPT.
OpenAI’s viral chatbot, funded heavily by Microsoft, along with AI models from a handful of well-financed startups, all rely on Nvidia’s graphics processing units (GPUs) to run. They’re widely viewed as the best chips for training AI models, and Nvidia’s financial forecasts suggest insatiable demand.
The company’s powerful H100 chips cost around $40,000. They’re being swept up by Microsoft and OpenAI by the thousands.
“Long story short, they have the best of the best GPUs,” said Piper Sandler analyst Harsh Kumar, who recommends buying the stock. “And they have them today.”
Even with all that momentum and seemingly insatiable demand, baked into Nvidia’s stock price is a slew of assumptions about growth, including the doubling of sales in coming quarters and the almost quadrupling of net income this fiscal year.
Some investors have described the stock as priced for perfection. Looking at the last 12 months of company earnings, Nvidia has a price-to-earnings ratio of 220, which is stunningly rich even compared with notoriously high-valued tech companies. Amazon’s P/E ratio is at 110, and Tesla’s is at 70, according to FactSet.
Should Nvidia meet analysts’ projections, the current price still looks high compared to most of the tech industry, but certainly more reasonable. Its P/E ratio for the next 12 months of earnings is 42, versus 51 for Amazon and 58 for Tesla, FactSet data shows.
When Nvidia reports earnings later this month, analysts expect quarterly revenue of $11.08 billion, according to Refinitiv, which would mark a 65% increase from a year earlier. That’s slightly higher than Nvidia’s official guidance of about $11 billion.
Investors are betting that, beyond this quarter and the next, Nvidia will not only be able to ride the AI wave for quite some time, but that it will also power through growing competition from Google and AMD, and avoid any major supply issues.
There’s also the risks that come with any stock flying too high too fast. Nvidia shares fell 8.6% this week, compared to a 1.9% slide in the Nasdaq, with no bad news to cause such a drop. It’s the steepest weekly decline for Nvidia’s stock since September of last year.
“As investors, we have to start wondering if the excitement around all the great things that Nvidia has done and may continue to do is baked into this performance already,” WisdomTree analyst Christopher Gannatti wrote in a post on Thursday. “High investor expectations is one of the toughest hurdles for companies to overcome.”
Nvidia’s stock rally this year is impressive, but the real eye-popping chart is the one showing the 10-year run. A decade ago, Nvidia was worth roughly $8.4 billion, a tiny fraction of chip giant Intel’s market cap.
Since then, while Intel’s stock is up 55%, Nvidia’s value has ballooned by over 11,170%, making it seven times more valuable than its rival. Tesla, whose stock surge over that time has made CEO Elon Musk the world’s richest person, is up 2,279%.
Nvidia founder and CEO Jensen Huang has seen his net worth swell to $38 billion, placing him 33rd on the Bloomberg Billionaires index.
An Nvidia spokesperson declined to comment for this story.
Before the rise of AI, Nvidia was known for producing key technology for video games. The company, reportedly born at a Denny’s in San Jose, California, in 1993, built processors that helped gamers render sophisticated graphics in computer games. Its iconic product was a graphics card — chips and boards that were plugged into consumer PC motherboards or laptops.
Video games are still a big business for the company. Nvidia reported over $9 billion in gaming sales in fiscal 2023. But that was down 27% on an annual basis, partially because Nvidia sold so many graphics cards early in the pandemic, when people were upgrading their systems at home. Nvidia’s core gaming business continues to shrink.
What excites Wall Street has nothing to do with games. Rather, it’s the emerging AI business, under Nvidia’s data center line item. That unit saw sales rise 41% last year to $15 billion, surpassing gaming. Analysts polled by FactSet expect it to more than double to $31.27 billion in fiscal 2024. Nvidia controls 80% or more of the AI chip market, according to analysts.
Nvidia’s pivot to AI chips is actually 15 years in the making.
In 2007, the company released a little-noticed software package and programming language called CUDA, which lets programmers take advantage of all of a GPU chip’s hardware features.
Developers quickly discovered the software was effective at training and running AI models, and CUDA is now an integral part of the training process.
When AI companies and programmers use CUDA and Nvidia’s GPUs to build their models, analysts say, they’re less likely to switch to competitors, such as AMD’s chips or Google’s Tensor Processing Units (TPUs).
“Nvidia has a double moat right now in that they they have the highest performance training hardware,” said Patrick Moorhead, semiconductor analyst at Moor Insights. “Then on the input side of the software, in AI, there are libraries and CUDA.”
As Nvidia’s valuation has grown, the company has taken steps to secure its lead and live up to those lofty expectations. Huang had dinner in June with Morris Chang, chairman of Taiwan Semiconductor Manufacturing Co.
TSMC, the world’s leading manufacturer of chips for semiconductor companies, makes Nvidia’s key products. After the meal, Huang said he felt “perfectly safe” relying on the foundry, suggesting that Nvidia had secured the supply it needed.
Nvidia has also turned into a heavyweight startup investor in the venture world, with a clear focus on fueling companies that work with AI models.
Nvidia has invested in at least 12 startups so far in 2023, according to Pitchbook data, including some of the most high-profile AI companies. They include Runway, which makes an AI-powered video editor, Inflection AI, started by a former DeepMind founder, and CoreWeave, a cloud provider that sells access to Nvidia GPUs.
The investments could give the company a pipeline of growing customers, who could not only boost Nvidia’s sales down the line but also provide a more diverse set of clients for its GPUs.
Some of the startups are putting numbers out that show the sky-high levels of demand for Nvidia’s technology. Kumar from Piper cited comments from CoreWeave management, indicating that the company had $30 million in revenue last year, but has $2 billion in business contracted for next year.
“This is the representation of demand for generative AI type applications, or for voice-search applications, or generally speaking, GPU applications,” Kumar said.
Nvidia is now coming close to the midpoint of its current GPU architecture cycle. The latest high-end AI chip, the H100, is based on Nvidia’s Hopper architecture. Hopper was announced in March 2022, and Nvidia said to expect its successor in 2024.
Cloud providers including Google, Microsoft and Amazon have said they’re going to spend heavily to expand their data centers, which will mostly rely on Nvidia GPUs.
For now, Nvidia is selling nearly every H100 it can make, and industry participants often grumble about how hard it is to secure GPU access following the launch of ChatGPT late last year.
“ChatGPT was the iPhone moment of AI,” Huang said at the company’s annual shareholder meeting in June. “It all came together in a simple user interface that anyone could understand. But we’ve only gotten our first glimpse of its full potential. Generative AI has started a new computing era and will rival the transformative impact of the Internet.”
Investors are buying the story. But as this week’s volatile trading showed, they’re also quick to hit the sell button if the company or market hits a snag.
In an unmarked office building in Austin, Texas, two small rooms contain a handful of Amazon employees designing two types of microchips for training and accelerating generative AI. These custom chips, Inferentia and Trainium, offer AWS customers an alternative to training their large language models on Nvidia GPUs, which have been getting difficult and expensive to procure.
“The entire world would like more chips for doing generative AI, whether that’s GPUs or whether that’s Amazon’s own chips that we’re designing,” Amazon Web Services CEO Adam Selipsky told CNBC in an interview in June. “I think that we’re in a better position than anybody else on Earth to supply the capacity that our customers collectively are going to want.”
Yet others have acted faster, and invested more, to capture business from the generative AI boom. When OpenAI launched ChatGPT in November, Microsoft gained widespread attention for hosting the viral chatbot, and investing a reported $13 billion in OpenAI. It was quick to add the generative AI models to its own products, incorporating them into Bing in February.
That same month, Google launched its own large language model, Bard, followed by a $300 million investment in OpenAI rival Anthropic.
It wasn’t until April that Amazon announced its own family of large language models, called Titan, along with a service called Bedrock to help developers enhance software using generative AI.
“Amazon is not used to chasing markets. Amazon is used to creating markets. And I think for the first time in a long time, they are finding themselves on the back foot and they are working to play catch up,” said Chirag Dekate, VP analyst at Gartner.
In the long run, Dekate said, Amazon’s custom silicon could give it an edge in generative AI.
“I think the true differentiation is the technical capabilities that they’re bringing to bear,” he said. “Because guess what? Microsoft does not have Trainium or Inferentia,” he said.
AWS quietly started production of custom silicon back in 2013 with a piece of specialized hardware called Nitro. It’s now the highest-volume AWS chip. Amazon told CNBC there is at least one in every AWS server, with a total of more than 20 million in use.
AWS started production of custom silicon back in 2013 with this piece of specialized hardware called Nitro. Amazon told CNBC in August that Nitro is now the highest volume AWS chip, with at least one in every AWS server and a total of more than 20 million in use.
Courtesy Amazon
In 2015, Amazon bought Israeli chip startup Annapurna Labs. Then in 2018, Amazon launched its Arm-based server chip, Graviton, a rival to x86 CPUs from giants like AMD and Intel.
“Probably high single-digit to maybe 10% of total server sales are Arm, and a good chunk of those are going to be Amazon. So on the CPU side, they’ve done quite well,” said Stacy Rasgon, senior analyst at Bernstein Research.
Also in 2018, Amazon launched its AI-focused chips. That came two years after Google announced its first Tensor Processor Unit, or TPU. Microsoft has yet to announce the Athena AI chip it’s been working on, reportedly in partnership with AMD.
CNBC got a behind-the-scenes tour of Amazon’s chip lab in Austin, Texas, where Trainium and Inferentia are developed and tested. VP of product Matt Wood explained what both chips are for.
“Machine learning breaks down into these two different stages. So you train the machine learning models and then you run inference against those trained models,” Wood said. “Trainium provides about 50% improvement in terms of price performance relative to any other way of training machine learning models on AWS.”
Trainium first came on the market in 2021, following the 2019 release of Inferentia, which is now on its second generation.
Trainum allows customers “to deliver very, very low-cost, high-throughput, low-latency, machine-learning inference, which is all the predictions of when you type in a prompt into your generative AI model, that’s where all that gets processed to give you the response, ” Wood said.
For now, however, Nvidia’s GPUs are still king when it comes to training models. In July, AWS launched new AI acceleration hardware powered by Nvidia H100s.
“Nvidia chips have a massive software ecosystem that’s been built up around them over the last like 15 years that nobody else has,” Rasgon said. “The big winner from AI right now is Nvidia.”
Amazon’s custom chips, from left to right, Inferentia, Trainium and Graviton are shown at Amazon’s Seattle headquarters on July 13, 2023.
AWS’ cloud dominance, however, is a big differentiator for Amazon.
“Amazon does not need to win headlines. Amazon already has a really strong cloud install base. All they need to do is to figure out how to enable their existing customers to expand into value creation motions using generative AI,” Dekate said.
When choosing between Amazon, Google, and Microsoft for generative AI, there are millions of AWS customers who may be drawn to Amazon because they’re already familiar with it, running other applications and storing their data there.
“It’s a question of velocity. How quickly can these companies move to develop these generative AI applications is driven by starting first on the data they have in AWS and using compute and machine learning tools that we provide,” explained Mai-Lan Tomsen Bukovec, VP of technology at AWS.
AWS is the world’s biggest cloud computing provider, with 40% of the market share in 2022, according to technology industry researcher Gartner. Although operating income has been down year-over-year for three quarters in a row, AWS still accounted for 70% of Amazon’s overall $7.7 billion operating profit in the second quarter. AWS’ operating margins have historically been far wider than those at Google Cloud.
“Let’s rewind the clock even before ChatGPT. It’s not like after that happened, suddenly we hurried and came up with a plan because you can’t engineer a chip in that quick a time, let alone you can’t build a Bedrock service in a matter of 2 to 3 months,” said Swami Sivasubramanian, AWS’ VP of database, analytics and machine learning.
Bedrock gives AWS customers access to large language models made by Anthropic, Stability AI, AI21 Labs and Amazon’s own Titan.
“We don’t believe that one model is going to rule the world, and we want our customers to have the state-of-the-art models from multiple providers because they are going to pick the right tool for the right job,” Sivasubramanian said.
An Amazon employee works on custom AI chips, in a jacket branded with AWS’ chip Inferentia, at the AWS chip lab in Austin, Texas, on July 25, 2023.
Katie Tarasov
One of Amazon’s newest AI offerings is AWS HealthScribe, a service unveiled in July to help doctors draft patient visit summaries using generative AI. Amazon also has SageMaker, a machine learning hub that offers algorithms, models and more.
Another big tool is coding companion CodeWhisperer, which Amazon said has enabled developers to complete tasks 57% faster on average. Last year, Microsoft also reported productivity boosts from its coding companion, GitHub Copilot.
“We have so many customers who are saying, ‘I want to do generative AI,’ but they don’t necessarily know what that means for them in the context of their own businesses. And so we’re going to bring in solutions architects and engineers and strategists and data scientists to work with them one on one,” AWS CEO Selipsky said.
Although so far AWS has focused largely on tools instead of building a competitor to ChatGPT, a recently leaked internal email shows Amazon CEO Andy Jassy is directly overseeing a new central team building out expansive large language models, too.
In the second-quarter earnings call, Jassy said a “very significant amount” of AWS business is now driven by AI and more than 20 machine learning services it offers. Some examples of customers include Philips, 3M, Old Mutual and HSBC.
The explosive growth in AI has come with a flurry of security concerns from companies worried that employees are putting proprietary information into the training data used by public large language models.
“I can’t tell you how many Fortune 500 companies I’ve talked to who have banned ChatGPT. So with our approach to generative AI and our Bedrock service, anything you do, any model you use through Bedrock will be in your own isolated virtual private cloud environment. It’ll be encrypted, it’ll have the same AWS access controls,” Selipsky said.
For now, Amazon is only accelerating its push into generative AI, telling CNBC that “over 100,000” customers are using machine learning on AWS today. Although that’s a small percentage of AWS’s millions of customers, analysts say that could change.
“What we are not seeing is enterprises saying, ‘Oh, wait a minute, Microsoft is so ahead in generative AI, let’s just go out and let’s switch our infrastructure strategies, migrate everything to Microsoft.’ Dekate said. “If you’re already an Amazon customer, chances are you’re likely going to explore Amazon ecosystems quite extensively.”
Mark Avallone, president of Potomac Wealth Advisors, and Jeff Kilburg, CEO of KKM Financial, join ‘The Exchange’ to discuss stocks falling after the Moody’s downgrade, the case for buying regional banks, consolidation in the VIX and owning tech in an equal weighted manner.
Mark Avallone, president of Potomac Wealth Advisors, and Jeff Kilburg, CEO of KKM Financial, join ‘The Exchange’ to discuss stocks falling after the Moody’s downgrade, the case for buying regional banks, consolidation in the VIX and owning tech in an equal weighted manner.
The Spotify logo on the New York Stock Exchange, April 3, 2018.
Lucas Jackson | Reuters
With markets facing pressure at least in the short term, investors should try to build a portfolio of stocks that can weather the storm and offer long-term growth potential.
Here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.
Domino’s Pizza (DPZ) reported mixed results for the second quarter, with the company blaming a decline in its market-basket pricing to stores and lower order volumes for the shortfall in its revenue compared to analysts’ expectations.
Nonetheless, BTIG analyst Peter Saleh reiterated a buy rating on Domino’s with a price target of $465 and said that the stock remains his top pick. (See Domino’s Financial Statements on TipRanks)
In particular, Saleh expects the company’s Uber Eats partnership, changes in the rewards program, and the launch of its pepperoni Stuffed Cheesy Bread to boost the top line in the fourth quarter and into 2024.
The analyst noted that the pizza chain’s entire menu will become available to Uber Eats customers at regular menu prices, without any deals or coupons. Interestingly, the company is targeting the higher-income customers on Uber Eats and reserving the discounts and other benefits for its own ordering channels.
“We expect the improvement in delivery sales, coupled with declining commodities, to translate to healthier unit economics and accelerated domestic development next year and beyond,” said Saleh.
Saleh ranks No. 331 out of more than 8,500 analysts tracked on TipRanks. Also, 64% percent of his ratings have been profitable, with an average return of 12.9%.
Next up is Meta Platforms (META). The social media platform recently delivered upbeat second-quarter results and issued better-than-anticipated guidance for the third quarter, signaling improved conditions in the digital ad market.
Following the print, Monness analyst Brian White raised his price target for Meta to $370 from $275 and maintained a buy rating, saying that the company’s second-quarter results reflected strong execution and its massive cost-improvement measures.
The analyst noted that management’s commentary during the earnings call reflected positive vibes, backed by an improving digital ad market and a compelling product roadmap. He highlighted the momentum in Meta’s short-video feature Reels, which is growing at a more than $10 billion annual revenue run rate across apps. He also mentioned the better-than-expected traction in Threads and the company’s significant investments in artificial intelligence.
White cautioned investors about regulatory risks and internal headwinds. However, he said that in the long run, “Meta will benefit from the digital ad trend, innovate with AI, and participate in the build-out of the metaverse.”
White holds the 27th position among more than 8,500 analysts on TipRanks. His ratings have been profitable 67% of the time, with each rating delivering an average return of 20.7%. (See Meta Platforms Stock Chart on TipRanks)
White is also bullish on audio streaming company Spotify (SPOT). While Spotify’s second-quarter revenue and Q3 2023 guidance missed analysts’ expectations, the analyst contended that results were “respectable” with meaningful year-over-year growth of 27% in monthly active users (MAU) to 551 million.
Commenting on Spotify’s decision to increase the price of its subscription offerings, White noted that the price hikes will impact most subscribers beginning September, thus having a small impact on the third quarter but contributing meaningfully to the fourth-quarter performance.
While the analyst acknowledges an intense competitive backdrop, he said that “Spotify is riding a favorable long-term trend, enhancing its platform, tapping into a large digital ad market, expanding its audio offerings, and improving its cost structure.”
White raised his 2024 estimates and reiterated a buy rating while increasing the price target for SPOT stock to $175 from $160. (See Spotify Blogger Opinions & Sentiment on TipRanks)
Another tech giant in the week’s list is Microsoft (MSFT), which has been making headlines this year due to its generative AI advancements. The company’s fiscal fourth-quarter results topped Wall Street’s estimates. That said, the revenue outlook for the first quarter of fiscal 2024 fell short of expectations.
Nonetheless, Goldman Sachs analyst Kash Rangan, who ranks 459th among more than 8,500 analysts tracked on TipRanks, remains bullish on MSFT stock. (See Microsoft Hedge Fund Trading Activity on TipRanks)
The analyst thinks that in the short term, there might be concerns about when the company’s ramped-up capital investments will pay off. However, he observed that historically, whenever Microsoft increased its capital expenditure in the cloud market, Azure growth rate shot up meaningfully and margins rebounded, driving the stock price higher.
With a strong presence across all layers of the cloud stack, Rangan said that Microsoft is well positioned to capture opportunities in several long-term secular trends, including public cloud and SaaS adoption, digital transformation, generative AI and machine learning, analytics and DevOps.
In line with his bullish stance, Rangan reiterated a buy rating with a price target of $400. He has a success rate of 59% and each of his ratings has returned 10% on average.
We now drive toward legacy automaker General Motors (GM), which impressed investors with robust growth in its second-quarter revenue and earnings. Additionally, the company raised its full-year outlook for the second time this year.
Recently, Tigress Financial Partners analyst Ivan Feinseth reaffirmed a buy rating on the stock with a price target of $86, noting the company’s strong execution and the ramp-up of new electric vehicle launches and production.
The analyst highlighted that the company continues to witness robust demand for its full-size SUVs and pickups, which is driving its revenue and cash flow higher and funding the transition and expansion of its EV production.
Feinseth called GM’s Ultium platform and supply chain for EV battery production its significant competitive advantage. The analyst is also positive about the company’s recent initiatives to expand its charging network.
“In addition to the ramp-up of EV production, GM’s ramp-up of high-value software and services as it plans to double company revenue to $275-315 billion by 2030 should drive significant increases in Return on Capital (ROC) and Economic Profit,” the analyst said.
Feinseth holds the 215th position among more than 8,500 analysts on TipRanks. His ratings have been successful 61% of the time, with each rating delivering an average return of 12.9%. (See General Motors Insider Trading Activity on TipRanks)
A wider swath of stocks have joined the S&P 500 SPX, +0.15%’s
upswing after the so-called Magnificent Seven — Apple AAPL, +0.32%,
Amazon AMZN, +1.11%,
Alphabet GOOG, +0.08%,
Microsoft MSFT, -0.72%,
Meta META, -2.11%,
Nvidia NVDA, -0.04%
and Tesla TSLA, +0.37%
— single-handedly propelled the large-cap index into a bull market in early June, with the gauge now up more than 28% from its low notched last October and rising to new highs since April 2022, according to Dow Jones Market Data.
Hopes that the U.S. economy could pull off a soft landing and avoid a recession despite the Federal Reserve’s aggressive interest-rate hikes, as well as receding inflation pressures and expectations for the end of the Fed’s monetary tightening campaign, have underpinned a notable expansion in market breadth over the past two months, according Adam Turnquist, chief technical strategist at LPL Financial.
The S&P 500 Equal Weighted Index SP500EW, +0.27%,
which lagged behind the market-cap-weighted S&P 500 index for most of the year, has now kicked back into gear and staged an impressive comeback in July. The equal-weighted index and the S&P 500 each advanced 3.1% this month, according to FactSet data.
The equal weighting eliminates the distortion of the megacap components and significantly changes several sector weightings in the S&P 500, including technology, which drops from around 29% on the SPX to only 13% on the equal-weighted index, said Turnquist in a Friday note. Meanwhile, the industrials sector has the biggest increase in weight, jumping from 9% on the SPX to 16% on the equal-weighted index.
Another way to quantify and compare market breadth is to look at the percentage of stocks on an index trading above their longer-term 200-day moving average (dma), Turnquist said. In general, if a stock is trading above its 200 dma, it is considered to be in an uptrend, and if the price is below the 200 dma, it is considered in a downtrend. Furthermore, a higher percentage of stocks above their 200 dma implies buying pressure is more widespread — suggesting the market’s advance is likely sustainable.
The chart below shows that 73% of stocks within the S&P 500 are trading above their 200 dma as of July 27, which compares to only 48% at the end of 2022. Moreover, the composition of breadth leadership has turned increasingly bullish. The highest sector readings include technology, industrials, energy, and consumer discretionary.
“So not only is breadth on the index robust, but cyclical stocks are also leading,” said Turnquist.
SOURCE: LPL RESEARCH, BLOOMBERG
Wall Street often views broadening participation in the stock-market rally as a measure of health and a constructive sign of the sustainability of the bull market.
Jimmy Lee, founder and chief executive officer of The Wealth Consulting Group said he is seeing “a lot of money” flowing into areas that are not the Magnificent Seven such as stocks in the industrials, financials, materials, energy and even real-estate sectors.
The S&P 500’s industrials sector SP500.20, +0.23%
climbed 2.9% in July, while the financials sector SP500.40, +0.44%
advanced over 4.7% this month. The S&P 500’s energy sector SP500.10, +2.00%,
which had been the biggest laggard when the rest of the markets exited the bear market in June, jumped 7.3% month to date after the U.S. oil benchmark CL.1, -0.20%
Meanwhile, the tech-heavy S&P 500’s communication-services sector SP500.50, -0.03%
rose 6.7% in July, while the consumer-discretionary sector SP500.25, +0.56%
gained 2.4% and the information-technology sector SP500.45, +0.13%
was up 2.6%, according to FactSet data.
Stephen Hoedt, managing director of equity and fixed income research at Key Private Bank, told MarketWatch in an interview that he doesn’t see “any reason to get bearish here with the fundamentals that are underlying,” which gives investors reason to rotate toward the more cyclical areas such as energy, financials and industrials, while broadening the market away from just being concentrated in the megacap technology names.
“The growth has been a surprise this year for everyone, so that’s what the market got wrong coming into this year. When I look at growth, nominal GDP growth translates directly into earnings and we’ve seen earnings continue to surprise on the upside,” Hoedt said.
Hoedt pointed to the direction of the 12-month forward earnings estimate for the S&P 500 as an important indicator. “As long as the direction of the 12-month forward earnings number for the S&P 500 is going up, it’s really, really difficult to be bearish on the stock market,” he said. “It seems to me that we may start to see another inflection higher in forward earnings revisions that take into account this stronger growth environment that we’re in.”
However, the broadening of the stock-market rally and the bullish sentiment were also driving some on Wall Street to believe stocks are overbought and due for a correction.
Lee said there’s still too much pessimism out there and too much concern that some investors haven’t chased the market yet. “In the second half of this year, when the Fed does stop raising rates and if the economy stays out of recession, you can see major money — trillions of dollars moving from the money market into equities and other risk assets,” he told MarketWatch in a phone interview on Friday.
“When that happens, it’s probably going to push valuations even further. So I would imagine when that happens is when you can expect more of a correction to occur, but I think that we still have more room to go before that happens.”
U.S. stocks ended higher on Monday, finishing up July on a positive note. Three major stock indexes rallied this month, with the S&P 500 up 3.1% and booking its fifth monthly gain. The tech-heavy Nasdaq Composite COMP, +0.21%
gained 4.1% month to date, while the Dow Jones Industrial Average DJIA, +0.28%
advanced 3.4%, according to Dow Jones Market Data.
Apple CEO Tim Cook arrives for an official State Dinner in honor of India’s Prime Minister Narendra Modi, at the White House in Washington, DC, on June 22, 2023.
Stefani Reynolds | AFP | Getty Images
The most powerful technology companies simply cannot stop talking about artificial intelligence, and in particular, the “generative AI” flavor that can create human-like text, images, and code.
During calls after this week’s earnings reports, Alphabet CEO Sundar Pichai and his team said “AI” 66 times. Microsoft CEO Satya Nadella and his execs said it 47 times. And on Wednesday, Meta CEO Mark Zuckerberg and the Facebook executive team said the magic phrase 42 times, according to a CNBC analysis of transcripts.
But Apple barely talks about artificial intelligence, and you shouldn’t expect to hear much about it during the company’s earnings next week.
Its sober approach to the new technology contrasts deeply with its rivals, which are stoking excitement and elevating expectations every chance they get.
During May’s Apple earnings call, CEO Tim Cook only said “AI” twice, and that was in response to a question. During Apple’s two-hour software launch event in June, it never said the phrase, although it announced several new features powered with AI.
Apple execs instead use the phrase “machine learning,” which is more popular with academics and practitioners. Apple execs also prefer to talk about what software does for the user, such as organizing their photos, improving their typing, or filling out fields in a PDF, as opposed to the technology that makes all that possible.
Apple’s approach to AI as a core underlying component instead of the future of computing represents a way to present the technology to its consumers. Apple’s AI works in the background. And the company doesn’t yell about it the way some of the other companies do because it doesn’t need to.
Google launched Bard AI, it’s own chatbot to rival Microsoft and OpenAI’s ChatGPT.
Jonathan Raa | Nurphoto | Getty Images
A closer look at executive remarks this week from earnings calls shows that while Meta, Microsoft, and Google are eager to sell the shovels for the AI gold rush, such as cloud services and developer tools, it’s still unclear how AI could change their most important products and when it could start bolstering balance sheets.
Google, for example, has announced its plans to revamp its search engine using an AI model called Search Generative Experience. Microsoft’s biggest new initiative is a $30-per-month “Copilot” subscription that integrates generated text or code from partner OpenAI’s ChatGPT into Word, Powerpoint, and other apps. Meta’s most recent investment in AI technology is its own large language model it calls LLaMA, which could underpin new kinds of social media chatbots or automatically generate online ads.
Meanwhile, Apple still makes the bulk of its money from iPhones, which generated $51.3 billion of its $94.84 billion in revenue during the company’s second fiscal quarter. Why talk a big AI game?
Besides, mega-cap tech companies signaled to investors earlier this week in earnings calls that the rollout of AI products could take a while.
In Microsoft’s case, Nadella tempered investor expectations for Copilot, signaling that growth would take time, and CFO Amy Hood said that its rollout would be “gradual.”
It could take until next year before investors understand how the Copilot subscription affects the company’s revenue. “In the second half of the next fiscal year, we’ll start getting some of the real revenue signal from it,” Nadella said.
Google and Pichai say that the company’s text-generating AI models will make its search engine better and could even answer questions that normal Google search can’t. From a business perspective, Pichai said, generative AI used for creating and serving ads will “supercharge” the company’s existing ads business, and there are “opportunities” for new kinds of ads with AI-generated search.
But Pichai still said it’s still “early days” for the new AI-powered search, and later, when pressed about how SGE might increase usage of the search engine, and therefore increase revenue, he said the company was experimenting.
“I think we are definitely headed in the right direction, and we can see it in our metrics and the feedback we’re getting from our users as well,” Pichai said.
Zuckerberg was effusive about AI technology and its applications in virtual reality, ad targeting, and recommending content from accounts users don’t follow.
He was particularly optimistic about a concept called “AI agents,” where software would be able to message business customers automatically without a human involved, or act as a coach, or be a personal assistant.
Still, Zuckerberg admitted he didn’t know how many people would use the new AI features.
“The reality is, we just don’t know how quickly these will scale,” Zuckerberg said. He said Meta was debating internally how much it should spend on servers for AI.
Microsoft – Bing seen on mobile with ChatGPT4 on screen, seen in this photo illustration. On 12 March 2023 in Brussels, Belgium.
Jonathan Raa | Nurphoto | Getty Images
The slow rollout of revenue-generating AI products from Big Tech matters because many people in the technology industry believe that new foundational technologies go through a “hype cycle” based on research from analysis firm Gartner.
When a new technology is introduced, according to the hype cycle model, it gains lots of attention and investment as it reaches a “peak of inflated expectations.” But, as the deployment of the tech moves slower than initially expected, enthusiasm and investment dry up, in a “trough of disillusionment,” before maturing and becoming productive.
For now, shovel-makers and people seeking investment capital are benefiting from the AI boom. Nvidia stock has risen 220% so far in 2023 as investors have realized its GPUs are essential for the technology. Venture capital investment in AI startups has boomed, and many of those dollars are going to Nvidia for computer capacity, and to cloud providers for access to AI models.
But if everyday consumer applications for AI don’t catch on, then many AI companies could slip into the trough of disillusionment again. Analysts found earlier this month, for example, that downloads for OpenAI’s iPhone app slowed earlier this month after launching in May.
Some analysts are starting to understand that an investment opportunity based on new AI products won’t be immediate and that the costs could stack up.
“We cautioned investors that that process of translating early demand to large-scale implementations and recognized revenue will be a multi-year trend rather than an instantaneous flip of a switch,” JPMorgan analyst Mark Murphy wrote this week.
“We recommend investors invest elsewhere until Metaverse, Reels, Threads, Quest and Generative AI investments become accretive (if ever) to META’s [return on invested capital], rather than dilutive,” Needham’s Laura Martin wrote in a note.
UBS analyst Lloyd Walmsley wrote this week that Generative AI was still an “overhang” over Google.
“Management expressed optimism around the ability to solve for ‘deeper and broader’ use cases with Search Generative Experience (SGE), but we do not believe the company is out of the woods with management still describing monetization as having a ‘number of experiments in flight including (for) ads,'” Walmsley wrote.
Apple iPhones are displayed at an Apple store in Chicago on Nov. 28, 2022.
Scott Olson | Getty Images
When Apple reports its earnings next week, analysts will likely press it on its plans for AI, given the industry-wide obsession, and especially after a recent Bloomberg report that said the company was developing a ChatGPT-like language model internally.
Last month, Apple announced new iPhone keyboard software that uses the same transformers architecture as GPT, showing that it has substantial internal development of AI models. It just doesn’t like to talk about products that aren’t out on the market yet to stoke investor anticipation.
Apple is unlikely to discuss AI at length next week as its mega-cap rivals did this week. During Apple’s earnings call in May, when asked about the technology, Cook quickly moved the conversation back to the company’s products and features.
“We view AI as huge and we’ll continue weaving it in our products on a very thoughtful basis,” Cook said.
A GE AC4400CW diesel-electric locomotive in Union Pacific livery is seen near Union Station in Los Angeles, California, September 15, 2022.
Bing Guan | Reuters
Here are the stocks making headlines on Wednesday, July 26.
Microsoft — The Xbox owner saw its shares slide 4% after issuing quarterly revenue guidance that fell short of analysts’ expectations. The soft revenue outlook was partly due to weakness in the segment that contains Windows software. Microsoft did report earnings and revenue that beat Street estimates for the calendar second quarter, however.
Alphabet — Shares of the Google parent rose more than 6% after Alphabet beat analysts’ revenue and profit in the second quarter. The parent company of YouTube reported $1.44 in earnings per share on $74.6 billion of revenue. Analysts surveyed by Refinitiv were expecting $1.34 per share on $72.82 billion of revenue.
Boeing — The aerospace company’s shares jumped almost 6% and hit a new 52-week high after its second-quarter earnings announcement. Boeing’s revenue of $19.75 billion topped analysts’ estimates of $18.45 billion, according to Refinitiv. The company also reported an 82-cent-loss per share, while Refinitiv analysts had estimated a loss of 88 cents per share.
WW International — Shares of the weight loss company soared more than 18% after an upgrade to overweight from Morgan Stanley. The bank highlighted WW International’s recent acquisition of Sequence, which analyst Lauren Schenk said will aid growth by providing exposure to weight loss drugs.
Texas Instruments — Shares dropped 5% as investors focused on the company’s guidance for the current quarter. Texas Instruments said to expect between $1.68 and $1.92 in earnings per share in the current quarter, meaning much of the range was below the $1.91 estimate of analysts polled by FactSet. Meanwhile, the company guided revenue to between $4.36 billion and $4.74 billion against a FactSet consensus estimate of $4.59 billion. However, the company’s second quarter results exceeded analysts’ expectations.
Visa — The credit card stock slipped more than 1% despite Visa beating estimates for its fiscal third quarter. The company reported $2.16 in adjusted earnings per share on $8.12 billion of revenue. Analysts surveyed by Refinitiv were looking for $2.12 in earnings per share on $8.06 billion of revenue. The company did report that payments volume growth was slowing slightly.
Chubb — Shares of the insurance company jumped more than 5% after a stronger-than-expected second-quarter report. The company posted $4.92 in adjusted earnings per share, above the $4.41 expected by analysts, according to Refinitiv. The net premiums written for property and casualty lines came in at $10.68 billion, above estimates of $10.64 billion.
Spotify — The music streaming company’s shares gained 3.2% Wednesday. Shares closed 14% lower Tuesday after Spotify’s second-quarter results missed analysts’ expectations. Deutsche Bank wrote in a Wednesday note that the post-earnings selloff created an attractive entry point for investors.
PacWest – Shares of the community bank surged more than 27% afterit agreed to be acquired by Banc of California in all-stock deal, which includes $400 million in equity from Warburg Pincus and Centerbridge. The combined holding company will operate under the Banc of California name. Shares of Banc of California rose less than 1%.
Union Pacific – The railroad operator saw its shares jump 10% after it named Jim Vena its new CEO. The announcement overshadowed its second-quarter results, which missed estimates. The Omaha-based company reported $2.54 in adjusted earnings per share on $5.96 billion of revenue. Analysts surveyed by Refinitiv had penciled in $2.75 per share and $6.12 billion. Union Pacific blamed softening consumer markets, inflation, a one-time labor expense and increased workforce levels but said resource levels were more aligned with demand to finish the quarter.
Robert Half — Shares of the staffing consulting firm tumbled more than 5% after Robert Half reported disappointing second-quarter results. The firm reported $1.00 in earnings per share on $1.64 billion of revenue. Analysts surveyed by Refinitiv were expecting $1.14 per share and $1.69 billion of revenue.
General Dynamics — The defense contractor climbed 3% after General Dynamics reported better-than-expected second-quarter results. The company logged $2.70 in earnings per share on $10.15 billion of revenue. Analysts surveyed by Refinitiv had estimated $2.56 in earnings per share on $9.46 billion of revenue.
CoStar Group — Shares of the commercial real estate company slid 7.4% after reporting lighter-than-expected revenue for the second quarter, and softer guidance for the third quarter. CoStar said it generated $605.9 million in revenue during the second quarter and expected between $622 and $627 million in the third. Analysts estimated $607.3 million and $623.4 million for those respective periods, according to FactSet’s StreetAccount.
KeyCorp — Shares of the Cleveland-based regional bank jumped more than 7%. Regional bank stocks moved broadly higher after the deal between Banc of California and PacWest.
— CNBC’s Hakyung Kim, Brian Evans, Yun Li, Tanaya Macheel, Alex Harring and Samantha Subin contributed reporting.
Alphabet has faced a lot of noise this year around the health of its core search business, due to a slumping digital ad market and the longer-term potential for artificial intelligence chatbots to take traffic.
In its second-quarter earnings report on Tuesday, the company showed it has any numbers of ways to succeed despite those very real challenges.
Google’s revenue rose 7% to $74.6 billion from $69.7 billion in the year-earlier period, topping analysts’ estimates. Profit was also better than expected, driving the stock price up about 6% in extended trading.
Online advertising, which has been a difficult market for the past year, remains slow because of economic concerns and corporate cost cutting. Google’s ad revenue only increased 3.3% from a year earlier, but that’s an improvement from the first quarter, when ad revenue fell. Snap’s second-quarter report was more troublesome, as the company issued a disappointing forecast, sending the stock down almost 20%.
“If you step back, you’re seeing real weakness in linear TV, ad agencies, smaller digital companies,” said Michael Nathanson, an analyst at Moffett Nathanson, on Alphabet’s investor call following the results. “Yet you guys have accelerated your growth this quarter.”
Search revenue, which makes up the majority of Google’s ad business, also saw steady growth. That’s a relief to investors, some of whom have grown concerned that traditional search users will be moving to generative AI chatbots from OpenAI and Microsoft, the startup’s main investor, for their online queries.
Microsoft’s Bing search engine integrated OpenAI’s ChatGPT early this year. However, Google’s search business still expanded, and CEO Sundar Pichai pointed to the company’s homegrown chatbot called Bard, which has been a major focus of investment in recent months.
Executives on Tuesday sounded as if there’s no where to go but up. They made dozens of references to AI on the call, trying to reassure investors that the technology is being used across the company, though Google has yet to say when its search feature, Search Generative Experience (SGE), will be widely available to the public. The company has said SGE will be able to synthesize search results from complex queries.
Overall, AI is a boon, Pichai said.
“Over time, this will just be how search works,” he said, pointing to different search options the company is working on for users. “It really gives us a chance to now not always be constrained in the way search was working before. It allows us to think outside the box. We are ahead of where I thought we’d be at this point in time.”
Pichai gave an example of the company’s plans to automate some customer service for its products using new AI models.
But where Google can benefit no matter what happens in the ad market is on the cloud infrastructure side, where it competes with Amazon Web Services and Microsoft Azure. AI companies are flocking to Google’s cloud technology so they can run the compute-heavy projects that are only available in a few places.
Google’s cloud business, which turned profitable in the first quarter, saw revenue increase 28% in the second quarter to $8 billion, topping analysts’ estimates. Pichai said that more than 70% of so-called unicorns (generally defined as billion-dollar tech startups) in generative AI are Google Cloud customers. They include Cohere, Japser and Typeface.
“There is definitely a lot of interest from customers on AI and they definitely are engaging on many more conversations with us,” Pichai said.
Microsoft shares slipped 1% in extended trading on Tuesday after the software maker issued fiscal fourth quarter earnings.
Here’s how the company did:
Earnings: $2.69 per share, vs. $2.55 per share as expected by Refinitiv.
Revenue: $56.19 billion, vs. $55.47 billion as expected by Refinitiv.
Revenue rose 8% year over year in the quarter, which ended on June 30, according to a statement. Growth has come in under 10% for three consecutive quarters for the first time since 2017. Net income totaled $20.08 billion, compared with $16.74 billion in the year-ago quarter.
Microsoft’s Intelligent Cloud segment contributed $23.99 billion in revenue, up 15% and above the $23.79 billion consensus of analysts surveyed by StreetAccount. The unit comprises the Azure public cloud, SQL Server, Windows Server, Visual Studio, Nuance, GitHub and enterprise services.
Azure revenue grew 26% during the quarter, compared with 27% growth in the previous quarter and 40% in the year-ago quarter. Analysts polled by CNBC and by StreetAccount had expected 25% growth from Azure, which competes with Amazon Web Services and Google Cloud Platform. Microsoft doesn’t report Azure revenue in dollars. Google parent Alphabet said Tuesday that revenue from its cloud products, which includes Google Workspace productivity apps in addition to Google Cloud Platform, increased by 28%.
Prompted by concerns about a worsening economy, organizations using cloud services from Microsoft, Amazon and Google have taken time to adjust their existing workloads to reduce costs in the past several months. At the same time, these three prominent U.S. cloud providers have trimmed their own expenses.
For the first time since 2016, Microsoft’s research and development costs declined year over year. In May Microsoft CEO Satya Nadella told employees that the company won’t lift salaries this year. On July 10 Nadella issued a memo about a fresh round of job cuts separate from the round of layoffs affecting 10,000 workers that kicked off in January.
Microsoft’s Productivity and Business Processes segment that contains Office productivity software, LinkedIn and Dynamics delivered $18.29 billion in revenue, up 10% and more than the StreetAccount consensus of $18.06 billion.
The company’s More Personal Computing business, which contains the Windows operating system, devices, gaming and search advertising, posted $13.91 billion in revenue. That figure indicates a decline of about 4%, yet it still topped the $13.58 billion StreetAccount consensus.
Sales of Windows licenses to device makers decreased by 12%. Consumers and companies rushed to buy PCs after the onset of Covid, making comparisons difficult for the past year. Technology industry researcher Gartner estimated that PC shipments, including Apple’s MacBooks, fell about 17% during the quarter.
Microsoft and Alphabet kicked off earnings season for the mega-cap tech companies. Investors will be looking at the big tech companies for updates on cost-cutting measures implemented earlier in the year and the impact of artificial intelligence investments on profitability. Alphabet on Tuesday surpassed estimates, lifting the stock in after-hours trading. Meta reports results on Wednesday, followed by Amazon and Apple next week.
Investors are eager for resolution in Microsoft’s arrangement to buy Activision Blizzard for almost $69 billion, which was agreed upon in January 2022. Earlier this month, an appeals court denied the Federal Trade Commission’s motion to stop the transaction. Activision shares have climbed past $92.50, close to the $95 that Microsoft agreed to pay, reflecting optimism that the deal is on track to close.
The company said its operating expenses rose about 2% in the quarter, partly because of a charge to pay a fine from Ireland’s Data Protection Commission after the authority looked at whether the company’s LinkedIn unit violated the European Union’s General Data Protection Regulation.
During the quarter, Microsoft built on its broad alliance with OpenAI to capitalize on fresh interest in artificial intelligence, following the November launch of the startup’s ChatGPT chatbot. Microsoft introduced a chatbot powered partly by OpenAI language models to help workers make sense of their employers’ data, and it told developers they’ll be able to build plugins that people can access through ChatGPT, the Bing search engine’s chatbot, and other tools.
Excluding the after-hours move, Microsoft shares have gained 46% year to date, while the S&P 500 is up 19%.
Executives will discuss the results with analysts and issue guidance on a conference call starting at 5:30 p.m. ET.
This is breaking news. Please check back for updates.
— CNBC’s Todd Haselton contributed to this report.
Microsoft Corp. easily topped profit and revenue expectations for its latest quarter, though its shares were moving more than 3% lower in extended trading Tuesday after the company discussed the year ahead.
The technology giant has won favor on Wall Street for its positioning in the artificial-intelligence revolution, though Chief Financial Officer Amy Hood said on Tuesday’s earnings call that “even with strong demand and a leadership position,” Microsoft’s MSFT, +1.70%
“growth from our AI services will be gradual.” Microsoft’s AI for its Azure cloud-computing business needs to ramp, and the company is working toward the general availability of its Copilot productivity product.
Microsoft’s AI revenue impacts will thus be weighted toward the second half of the new fiscal year that just began, she continued. Meanwhile, she expects that Microsoft’s capital expenditures will rise sequentially each quarter “as we scale to meet demand signals.”
Hood’s commentary came as Microsoft posted fiscal fourth-quarter results Tuesday afternoon that showed a 15% jump in revenue for the company’s cloud-computing segment, which it calls Intelligent Cloud. Revenue for the segment came in at $24.0 billion, while analysts had been anticipating $23.8 billion. The growth rate was 17% on a currency-neutral basis.
The company said revenue for Azure and other cloud services was up 26%, or 27% in constant currency. Microsoft’s forecast had been for 26% to 27% in constant-currency Azure sales growth, while the company posted 31% constant-currency growth on the metric in the March period. The FactSet consensus was for 27% growth in constant currency.
“While we believe the Street was hoping for Azure growth more in the ~28% range, we believe the consumption part of the business held up well,” Evercore ISI analyst Kirk Materne said in a note to clients.
For the September quarter, Microsoft anticipates 25% to 26% in constant-currency Azure growth.
The cloud migration is still in the “early innings,” Chief Executive Satya Nadella said on the call, while also highlighting a “new world of AI driving a set of new workloads.”
“We think of that, again, being pretty expansive from a TAM [total addressable market] opportunity and we’ll play it out,” he continued, though the company is also up against the “law of large numbers” given the massive scale of its cloud business.
The company generated fiscal fourth-quarter net income of $20.1 billion, or $2.69 a share, compared with $16.7 billion, or $2.23 a share, in the year-earlier period. Analysts tracked by FactSet were modeling $2.55 a share.
Overall revenue for Microsoft climbed to $56.2 billion from $51.9 billion, whereas analysts had been expecting $55.5 billion.
Microsoft logged $18.3 billion in revenue for its productivity and business processes unit, up 10% from a year before, or up 12% in constant currency. That part of the business includes LinkedIn and both commercial and consumer versions of Office. Analysts had been looking for $18.1 billion.
Revenue for the More Personal Computing segment, which includes Windows and Xbox content and services, dropped 4% to $13.9 billion and was off 3% on a constant-currency basis. The FactSet consensus was for $13.6 billion.
Nadella, meanwhile, expressed optimism about the eventual opportunities brought upon by Microsoft’s Copilot offerings.
“I do think people are going to look at how can they complement their [operating-expense] spend with essentially these Copilots in order to drive more efficiency and, quite frankly, even reduce the burden and drudgery of work on their OpEx and their people and so on,” he said.
Evercore’s Materne called the overall results “solid” amid “a lot of macro headwinds.” Microsoft’s investment story “gets stronger in [the second half of the calendar year] as some optical headwinds reverse and [comparisons] soften, and Microsoft’s position in the enterprise market continues to get stronger as customers look to consolidate spending,” he wrote.
People walk near the New York Stock Exchange on July 18, 2023 in New York City
View Press | Corbis News | Getty Images
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Dow’s 11-day streak Major U.S. stock indexes ended Monday in the green, with the Dow Jones Industrial Average notching an 11-day winning streak. The pan-European Stoxx 600 advanced 0.06%, led by a 1.5% rise in oil and gas stocks. But business activity in the euro zone and U.K. is slowing down, according to flash estimates.
Ex-Twitter Twitter rebranded to “X” and dumped its iconic bird logo. The transition from Twitter to X is part of owner Elon Musk’s vision to turn the platform into an “everything app” that is “centered in audio, video, messaging, payments/banking,” according to CEO Linda Yaccarino’s tweet — sorry — “x,” in the brand’s new parlance for short messages. Analysts aren’t convinced by the move.
Busy week for central banks The U.S. Federal Reserve, the European Central Bank and the Bank of Japan will all announce interest rate decisions this week. Analysts are expecting the Fed to hike rates by 25 basis points; the ECB to raise rates by 25 basis points as well; and the BOJ to keep its ultra-loose monetary policy intact. However, the central banks could pivot at the meeting following this week’s.
China’s ‘tortuous’ recovery China’s Politburo, the top decision-making body of the Chinese Communist Party, met Monday and pledged to “adjust and optimize policies in a timely manner” for its property sector. Acknowledging the country’s disappointing economic data, the Politburo said “the economy is facing new difficulties” and that the economic recovery will be “tortuous” — though it didn’t announce any major stimulus.
[PRO] No sign of recession Steve Eisman, the investor who called and profited from the 2008 subprime mortgage crisis, told CNBC he thinks “there’s no evidence of a recession” so far. Thus, the stock market can continue climbing — this is how he’s playing the market.
The Dow notched 11 straight day of gains, its first in six years, which gave it its highest close since February 2022. To put into perspective how impressive that feat is, the Dow has achieved an 11-day rally — or longer — only six times since 1945, according to Paul Hickey, co-founder of Bespoke Investment Group. That’s less than once a decade.
Stocks were fired up by the energy sector, which rose 1.7% after oil and gas futures jumped to a three-month high. Goldman Sachsexpects even higher prices as “demand reaches an all-time high” in the third quarter of the year, echoing a warning by the International Energy Agency.
In another indication markets are buoyant, meme stocks seem to be back. The Roundhill Meme ETF has gained nearly 60% year to date, suggesting investors are feeling confident enough to pour money into stocks driven by sentiment and speculation.
Small-cap stocks might be the next to rally, if Canaccord Genuity’s prediction proves right. In a note to clients, strategist Tony Dwyer said the Russell 2000 Index appears to be hitting a bottom relative to the S&P — which means it could start rising soon — especially given the expensive valuation of the top stocks in the broader index. Indeed, the Russell 2000 closed above its 200-day moving average, typically a sign that there’s positive momentum behind the movement.
With 40% of the Dow and 30% of the S&P reporting earnings this week, we’ll get a clearer sense of whether investor enthusiasm can last. Alphabet, Microsoft and Visa kick off earnings later today — but keep an eye on PacWest Bancorp for any signs of weakness in regional banks. For the smaller banks that have already reported last week, though, things appear stable so far. May the good times roll.
These new levels were shared ahead of time with Goldman Sachs Group Chief U.S. Equity Analyst David Kostin. Kostin and his team have published a report on the changes that was shared with Goldman clients and the press last week.
Here are four of the most important shifts highlighted in Kostin’s note:
The seven stocks with the heaviest weightings in the Nasdaq 100 are seeing their collective weight reduced to 44% from 56%.
At the sector level, information technology will continue to account for roughly half of the index, but the sector’s weight will decline to 49% from 51%.
Apple Inc. AAPL, +0.56%
and Microsoft Corp. MSFT, +0.19%
will remain the index’s largest constituents, but their index weights will be reduced by roughly four percentage points — to 12% and 10%, respectively.
Broadcom’s index weight is seeing the biggest increase, and will see its weighting increase by 64 basis points to 3%.
The Goldman analyst summarized how the new weightings would impact the index’s 25 largest constituents in the chart below.
GOLDMAN SACHS
According to Nasdaq representatives, the Nasdaq 100 is the most popular of the exchange’s indexes. So far this year, it has outperformed the Nasdaq Composite, a broader index including every company traded on the exchange. The Nasdaq 100 is up 41.2%, to the Composite’s 34.4%, according to FactSet data.
EPFR data show $261 billion in mutual fund and exchange-traded fund assets are benchmarked to the Nasdaq 100, including the Invesco QQQ Trust Series QQQ, +0.11%,
better known by its ticker QQQ. More than $250 billion of this money is invested in passive benchmark-tracking strategies.
Nasdaq decided to implement the special rebalancing earlier this month to try and ward off concentration risk after its seven largest components surged earlier this year. According to its official index-management methodology, Nasdaq aims to keep the combined weighting of its largest constituents to 40%.
Kostin said he doesn’t expect these changes to have much of an impact on markets, arguing that the previous special rebalancing didn’t move the index much, either.
Both the Nasdaq 100 and Nasdaq Composite were slightly lower on Monday as big-tech names continued to lag the S&P 500 and suddenly high-flying Dow Jones Industrial Average DJIA, +0.57%,
just like they did last week.
Nasdaq 100-tracking QQQ QQQ, +0.11%
was off by 0.2% at $374 per share Monday morning, while the Nasdaq Composite COMP, +0.19%
was down 0.2% at 14, 013.
