Can AI make Big Tech thrive?
Nasdaq futures rose Tuesday morning, ahead of the Big Tech earnings bonanza that started when Microsoft and Alphabet reported second-quarter results after the closing bell. One question is on the minds of many investors: Is the hype around artificial intelligence, which has driven the tech giant's share price sky high in recent months, justified, or is this another bubble being created?
Wall Street is deeply divided about the AI rally. Mike Wilson, Morgan Stanley's chief US equity strategist, apologize to the client on Monday, wrote that his pessimistic stock market calls failed to find an AI-related stock jump. (Chip maker Nvidia, for example, has seen its stock value triple since January.) And analyst at Citigroup stick to their bullish thesis for the company.
On the other hand, Marko Kolanovic, chief market strategist at JPMorgan Chase, not sure that the tech fervor will help the market avoid sharp declines this year.
All eyes will be on Microsoft and Alphabet, which is at the forefront of the commercialization of generative AI, the technology behind chatbots like ChatGPT that has captured the public imagination. Both are incorporating AI into their range of products, with Microsoft — which has invested billions in OpenAI — hoping the technology can help it. earn on Google in key businesses like search.
Wednesday's Meta turn. Parent companies Facebook and Instagram are also betting big on technology, including by making the code for its most advanced AI projects free for public use. (Analysts are also eager to know more about how Meta plans to make money from Threads, its new rival to Twitter, the company renamed X.)
Macroeconomic factors are still weighing on these companies. Inflation and uncertain prospects hit them hard last year, as customers cut back on software purchases and spending on advertising, prompting them to lay off thousands of jobs.
Recent data showing that inflation is starting to moderate, lifting these stocks in recent weeks, but investors will want to see evidence that the sector is seeing the worst of it. The Fed is widely expected to raise interest rates by a quarter of a percentage point at its rate-setting meeting on Wednesday, but Wall Street was unsure whether the central bank would stop there or continue raising borrowing costs and risk a recession.
And it doesn't just come down to technology stocks. This is the busiest week of the current earnings season, with 39 percent of S&P 500 companies reporting results. The next few days will provide an important snapshot of the overall health of corporate America. Consumer leaders including Coca-Cola and McDonald's and industry giants such as Boeing will report.
THIS IS WHAT HAPPENED
Unilever said that inflation has reached its peak. Shares of the consumer goods giant rallied the following Tuesday morning reported a strong second half sales outlook, with the company forecasting that slowing price increases will lead to higher consumer purchases. But warned that the war in Ukraine could make prices for agricultural commodities higher, driving up costs.
UBS agrees to a $387 million fine for Credit Suisse's misstep. UBS reached an agreement with US and UK regulators to complete investigations into oversight failures that cost Credit Suisse $5.5 billion in the 2021 collapse of investment firm Archegos. UBS bought the ailing rival this year, inheriting its legal problems.
The senator provides new scrutiny over Leon Black's relationship with Jeffrey Epstein. The Senate Finance Committee is investigating whether the $158 million payment from Mr. Black to disgraced financiers for estate tax and planning services was part of a tax evasion scheme, The Times reported. Separately, the US Virgin Islands accused JPMorgan Chase paying former executivesJes Staley, for a trip to see Epstein.
The IRS ends unannounced visits to homes and businesses. The agency said it would stop the practice which is a mainstay of collecting unpaid taxes. The move comes as the IRS is rethinking its operations, and facing increasing political scrutiny by Republicans and threats against its employees.
The US is reportedly scrutinizing Abu Dhabi's takeover bid for Fortress Investment Group. The Committee on Foreign Investment in the United States is examining whether a $3 billion deal by Mubadala, the Emirati sovereign wealth fund, raises a national security issue, according to The Financial Times. At issue is the relationship between the United Arab Emirates and China.
Crypto has big questions about the SEC
Cryptocurrencies and climate change have been linked as issues before in terms of how carbon-intensive it is to generate new digital tokens. But the crypto industry is also hoping to piggyback on the legal doctrine at the heart of a Supreme Court ruling involving the Environmental Protection Agency last year.
Coinbase is leveraging the EPA's losses as a legal defense. Last summer, the Supreme Court overturned emissions rules by environmental agencies, citing the so-called leading question doctrine, a principle that holds that Congress does not give regulators the power to decide for themselves on significant political or economic issues.
Now, Coinbase argues that the SEC cannot sue it because it has no power to regulate crypto. In addition, the exchange said, Congress is actively working on legislation to oversee its industry. “Never has it been more clear that the Supreme Court has a particular focus on the big questions and the role of regulators in our economy,” Paul Grewal, Coinbase's chief legal officer, told DealBook.
The SEC countered that Coinbase missed the point. The agency's lawyers wrote in a recent court filing that the EPA case is about rule making, not the authority of the regulator to prosecute. Critics added that it's not clear that regulating crypto numbers is a major question issue, given the industry's total market cap is less than Apple, Microsoft or Alphabet.
Business supporters seem unfazed by the argument. “The lead question doctrine seems built for today's crypto,” Kate Hauncrypto investor and former federal prosecutor, tweeted recently.
Separately, the US Chamber of Commerce, which represents business more broadly, has expressed a desire to use the lead question argument in court to limit the powers of the Federal Trade Commission's proposed ban on the noncompete clause.
‘Barbenheimer,' with numbers
Led by “Barbie” and “Oppenheimer”, the North American box office had its biggest weekend since 2019 and the fourth best of all time. This is how the phenomenon compares to other weekend shows, each of which is dominated by a single blockbuster.
Did X's debut hit its mark?
Although Elon Musk's Twitter rebranding as X came as a surprise over the weekend, the sudden name change is about as good as one might expect these days. Users and advertisers were divided on the wisdom of the move, which removed the company's old bird logo, although removing the old nameplate encountered some problems.
The change was immediately reflected in Twitter headquarters. Inside the San Francisco office, an X logo was projected across the cafeteria, while conference rooms were renamed with words including “eXposure” and “s3Xy,” according to The Times.
Efforts to remove the Twitter name from the building ran into difficulties, however, when the San Francisco Police Department terminated workers for doing “unauthorized work”. As of this morning, the letter “er” can still be seen from the streets.
People disagree on whether the move will hurt the company. Skeptics say it's ditching the Twitter name and logo of the famous bird – which Twitter once identified its most recognized asset – can cost as much Value $20 billion. (Among them: Esther Crawforda former Twitter executive who briefly became one of Mr. Musk.) Some users complained about the switch to the more generic sounding X.
Others say that rebranding can help companies ditch years of baggage associated with the Twitter name, a line of thinking that is nothing but Jack Dorsey, one of the founders of the company. Some advertising executives say the change won't mean kicking off potential advertisers, while others say Musk has at least managed to increase the publicity for his platform after Meta's Threads made its splashy debut.
Talking about Meta… Facebook's parent company owns the trademark X in connection with the social network, although it is associated with a specific blue-and-white logo. Mr. Musk's company now uses black-and-white markings, though trademark attorneys say the reliance on simple lettering almost certainly invites a legal challenge.
READING SPEED
Offer
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A Saudi football team majority owned by the kingdom's sovereign wealth fund has offered a record $332 million to sign French star Kylian Mbappé. (NYT)
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Blackstone's flagship real estate fund agreed selling Enough Self Storage to $2.2 billion as it continues to limit investor withdrawals. (Bloomberg)
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Johnson & Johnson says it's planned reducing its stake in Kenvue, the consumer health business that rotated this year, at least 80 percent through exchange offerings. (CNBC)
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