Pro Perspectives 7/25/23





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July 25, 2023

Yesterday we talked about the set up for positive surprises in earnings we're getting this week, and in the GDP number we'll see on Thursday.
On the latter, the IMF upgraded global growth this morning for full year 2023.
Add to this, stocks tend to do well at the end of tightening cycles.  And we're at the end of a tightening cycle (for the moment).  With that, the stock market bears have been jumping ship in recent days.
Remember, over the past few months we've talked about market positioning.  In April, speculators were net short S&Ps at levels not seen since October 2011 (when the European sovereign debt markets were in crisis).  And global fund managers were most bearish stocks, relative to bonds, since 2009.
As we discussed, that creates vulnerability to a sharp move higher — with some good news, the shorts (and those underweight equities) scurry to reposition (long), which can exacerbate the move.
That looks like this …
Let's talk about the two tech giants that reported today: Microsoft and Google.  Microsoft had record revenues in the quarter.  Google beat on earnings and revenues. 
As I said yesterday, more important than Q2 earnings was the discussion on generative AI.  Remember, this is the first time we've heard from the "big tech" oligopoly (in an earnings call), since Nvidia declared generative AI to be "the beginning of a major technology era" in its May earnings call.
So, what did these two juggernauts have to say about AI?  
A lot!
Both calls were dominated by AI opportunity, the new businesses, the investments they're making, the new customers they're reaching, and the expanding total addressable market in front of them.  They were gushing over it.   
For the cloud businesses, already growing at better than 25%, the AI ecosystem will accelerate that growth.  And as Microsoft's CEO says he thinks the "new world of AI" is a business "that can have sustained high growth."
Keep in mind, this comes from two companies already trading at near record high valuations, worth a combined $4 trillion. 
As we've discussed here in my daily notes, this technological revolution is productivity enhancing for the economy.  And it will grow the economic pie (and the size of the stock market).  It should fuel a boom-time period in economic growth.
PS:  I'd like to invite you to join my new subscription service, the AI-Innovation Portfolio.  We added a fifth company to the portfolio today.  This company has a monopoly on the machinery required to produce the chips that power generative AI.  Join here, and I’ll send you all of the details.