Meta Succeeds At Achieving Payout From AI But Microsoft And Google Struggle – Nvidia Benefits

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

Monetizing AI

Please click here for an enlarged chart of Meta Platforms Inc META.

Note the following:

• This article is about the big picture, not an individual stock. The chart of META stock is being used to illustrate the point.
• The chart shows the move up in META stock on earnings.
• The chart shows that as of this writing, the stock is trading above the top band of the support/resistance zone.
• RSI on the chart shows that there is more room for the stock to run.
• The resistance zone shown on the chart shows that if the stock runs from here, there is not far to go before selling may come in.
• Can companies monetize large capital expenditures on AI? This has been a key question for investors.
  • META shows that it is successfully monetizing AI.
  • Microsoft Corp MSFT and Alphabet Inc Class C GOOG earnings showed that they are having difficulty monetizing AI.
  • Amazon.com, Inc. AMZN and Apple Inc AAPL will report earnings after the close. Prudent investors should carefully watch and see if Amazon and Apple are able to monetize AI.
• As a result of being able to successfully monetize AI, META reported strong earnings.  Here are the key points:
  • Earnings were better than the consensus and whisper numbers.  Stocks move based on the difference between whisper numbers and the reported numbers. Whisper numbers are the numbers that analysts privately share with their best clients.  Whisper numbers are often different from the publicly available numbers published by the same analysts.
  • Revenues were up 22%.
  • Earnings were up 73%.
  • Meta is angling to make Meta AI the most used AI assistant by the end of the year.
  • New AI based tools increased return on investment on advertisements by 22%.
  • Meta is planning to spend $37B – $40B in capital expenditure this year vs. $35B – $40B prior.
  • A capital spend of $37B means Meta is spending about 23% of its revenues on capital spend, most of which is on AI.
• As full disclosure, META is in the ZYX Buy Core Model Portfolio from The Arora Report. 
• Previously Microsoft indicated that in spite of slowing Azure growth it would continue to spend heavily on AI.
• The big beneficiary of all of this AI spend continues to be NVIDIA Corp NVDA. Nvidia has just added over $300B in market cap in one day.
• Earnings from Advanced Micro Devices, Inc. AMD show that AMD is also making inroads.
• Of note is that Arm Holdings PLC – ADR ARM which controls about 99% of the CPU designs for mobile phones is now striving to become an AI company. ARM gave a tepid forecast. ARM stock is falling.  Also, Qualcomm Inc QCOM gave a tepid forecast about smartphones.
• Jobless claims are increasing, indicating that the jobs picture is beginning to weaken. Jobless claims came at 249K vs. 233K consensus.
• Q2 Productivity – Preliminary came at 2.3% vs. 1.6% consensus.
• Unit labor costs have dramatically improved. This is good news for lower inflation.  Unit Labor Costs – Preliminary came at 0.9% vs. 1.7% consensus.

England

Bank of England cut its interest rate to 5%. This is the first rate cut in over four years. England tends to precede the U.S.

Middle East

Iran has reportedly issued orders to strike Israel in retaliation for killing a Hamas leader on its soil.

• On the prospect of a wider war, money is flowing into gold and oil.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in AAPL, AMZN, META, MSFT, and NVDA.

In the early trade, money flows are neutral in GOOG.

In the early trade, money flows are negative 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

It appears that bitcoin whales used the strength generated by Trump's plan to drive Bitcoin BTC/USD to the moon to unload bitcoin to retail investors. 

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 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 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.