TSMC Sales Jump 40% On AI Demand, Microsoft And Apple Give Up OpenAI Board Seats, Musk Ditches Oracle

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

AI Demand

Please click here for an enlarged chart of Taiwan Semiconductor Mfg. Co. Ltd. TSM.

Note the following:

• This article is about the big picture, not an individual stock. The chart of TSM stock is being used to illustrate the point.
• The trendline on the chart shows a big rise in TSM stock.
• The chart shows that the momo crowd has become totally oblivious to the China risk. All important fabs of TSM are in Taiwan. If China were to attack Taiwan, the fabs may be damaged, or China may end up capturing the fabs. The China risk is the reason TSM was taken out of The Arora Report Core Model Portfolio.
• TSM beat the whisper numbers on surging demand for AI chips. TSM is the sole provider of NVIDIA Corp NVDA chips and also manufactures chips for Apple Inc AAPL. Here are the details:
  • TSM generated NT$673.5B Q2 revenue vs. NT$652.05B consensus and NT$670B whisper numbers. As a reference, in Q2 2023 revenue was NT$480.84B. There is a 40% jump over the same quarter last year.
  • TSM is reporting June revenue of NT$267.86B – 32.9% higher than revenues for the same month in 2023.
• In a sign of increasing scrutiny of AI by regulators, Microsoft Corp MSFT is giving up its seat as an observer on the OpenAI board. Microsoft has made a $13B investment in OpenAI. Microsoft’s Copilot is based on OpenAI software.
• As part of the deal to integrate ChatGPT into iPhones, Apple was given an observer’s seat on OpenAI’s board. The latest information is that Apple will give up its seat.
• Remember, The Arora Report is politically agnostic. Our sole job is to help investors. In The Arora Report analysis, the major reason behind the run up in AAPL and MSFT stocks lately is that Trump is leading in the polls. Here are the expectations:
  • If Trump wins, he is likely to give free reign to mega caps in AI.  Free reign will dramatically increase profits for mega caps but increase fees for consumers and stifle competition.  
  • If Biden wins, companies such as Microsoft and Apple are likely to face antitrust scrutiny.  Such scrutiny will reduce profits but also lower fees that consumers pay and also encourage competition.  
  • We have been sharing with you various aspects of the impact of the election in the Morning Capsules. 
• AI land grab is in full swing. Musk wants to grab his share quickly.  Musk’s AI startup was working with Oracle Corp ORCL to build a data center. Now, Musk has ditched Oracle because he believes he can build his own data center faster. This is an important development considering Oracle has been the most aggressive builder of data centers, and Musk has had a long standing relationship with Oracle’s founder Larry Ellison. Larry Ellison invested $1B in Twitter.
• Powell will continue his second day of testimony in front of Congress. Powell is expected to highlight that there is an inflation risk on one side and the risk of a slowing economy on the other side. The market is convinced that Powell is itching to cut interest rates.
• The all important Consumer Price Index (CPI) will be released tomorrow morning at 8:30am ET.  As is their pattern, the momo crowd is buying stocks ahead of the data. Expect smart money to trim ahead of the data.

Magnificent Seven Money Flows

In the early trade, money flows are positive in AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, MSFT, and Nvidia (NVDA).

In the early trade, money flows are neutral in Tesla Inc TSLA.

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV.  The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.

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 a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

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.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

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 seven 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 big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.