Microsoft And Google Earnings Lay Bare The Reality Of AI, SEC May Move Against AI Garbage

To gain an edge, this is what you need to know today.

Reality Of AI Laid Bare

Please click here for a chart of Microsoft Corp MSFT.

Note the following:

• The Morning Capsule is about the big picture, not an individual stock. The chart of MSFT stock is being used to illustrate the point.
• The Arora Report was one of the first last year to share with you the importance of new generative AI technology. From the beginning, we have been sharing with you that AI is real and a fortune is to be made in AI over the next seven years. Later, everybody jumped on the bandwagon. Our call on the importance of AI has been spot on.
• There has been a sharp contrast between The Arora Report and momo gurus.
  • Momo gurus were late to the party.
  • Momo gurus have been promoting the narrative of getting rich quick with AI compared to The Arora Report’s call of making a fortune over the next seven years.
  • Many momo gurus simply lack the knowledge to make the correct call and they jump on whatever is in favor at the moment. Thus, they cannot be blamed for who they are. However, troubling is that some momo gurus knew better but still promoted the narrative of getting rich quick with AI.
• Microsoft’s and Alphabet Inc Class C GOOG earnings reports lay bare the reality of AI. The reality from the earnings calls is that monetization of AI will be slow.  A lot of money is to be spent now and returns are far in the future.  
• The chart shows a big jump in MSFT stock on the introduction of the price of AI Copilot. The jump in the stock added at least three times the value than AI Copilot is worth, even in an optimistic scenario. This jump was on top of the already huge rise in the stock. This demonstrates the behavior of the momo crowd that does no analysis.
• The chart shows the drop in MSFT stock on earnings. The drop occurred during the conference call when it became obvious that AI monetization would be slow.
• The chart shows the trendline. Prudent investors will be carefully watching to see if the trendline holds.
• Microsoft is in the ZYX Buy Model Portfolio and there are large unrealized gains. All investors should consider deeply understanding three AI revenue streams for Microsoft due to Microsoft’s importance in making a fortune in AI. An in-depth podcast titled “Microsoft AI Advantage: Three Highly Profitable AI Revenue Streams” went live yesterday. The podcast is available in Arora Ambassador Club.
  • Alphabet stock went higher after the earnings, but not because of AI. When it is all said and done, Alphabet is an advertising company. The dollars spent on advertising depend on the overall macroeconomic conditions. The economy has stayed strong and so has advertising at Alphabet. There are several important points about Alphabet that all investors need to understand.
• Alphabet has more AI engineers than anybody in the world.
  • Until recently, Alphabet had spent more money on AI than any other company in the world.
  • ChatGPT is based on the transformer model that is based on a paper written by an Alphabet employee in 2017.
  • Google simply sat on the technology it was developing allowing Microsoft to take the lead. In spite of the foregoing positives, make no mistake, Alphabet faces the biggest disruptive challenge from AI and risk to its stock. To understand deeply, the AI landscape and challenges to Google, listen to the podcasts titled “Full Frontal Assault: ChatGPT vs. Bard” and “ChatGPT: Potentially The Most Important Breakthrough Since The iPhone” in Arora Ambassador Club.
• Microsoft and Alphabet are two of the magnificent seven stocks that have led the rally. Six of the seven magnificent seven stocks have been in the ZYX Buy Model Portfolio. In addition, there was a profitable trade on the seventh stock that is not in the Model Portfolio. The magnificent seven stocks are Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C, Meta Platforms Inc META, Microsoft Corp, NVIDIA Corp NVDA, and Tesla Inc TSLA.
• Investors are eagerly awaiting the Fed’s decision. The Fed decision will be announced at 2pm ET followed by Powell’s press conference at 2:30pm ET.
  • The expectation is for a 25 basis point hike.
  • We will be carefully analyzing the future course of the Fed.
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.

AI Garbage

We have been using AI to help with market analysis for over 30 years.  One of the software companies founded by Nigam Arora was based on AI. Even with all the advances in AI, AI is nowhere near close to doing the comprehensive 360 degree analysis that private investors, investment advisors, and money managers alike have come to expect from The Arora Report.

Lately, investors have been inundated with sales pitches based on investment advice using AI.  Gullible investors have been falling prey.  The SEC is likely to move against AI garbage by proposing guidelines.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is lighting trimming to reduce risk in the early trade.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

Oil

API crude oil inventories came at a build of 1.319M barrels vs. a consensus of a draw of 1.969M barrels.

The momo crowd is buying oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin BTC/USD continues to trade below $30,000.

Markets

Our very, very short-term early stock market indicator is indeterminable and will depend on the Fed. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time. To see the locked content, please click here to start a free trial.

You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  Please click here to sign up for a free forever Generate Wealth Newsletter.