Thank you for your continued support and engagement. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.

The S&P 500 and Nasdaq officially entered correction territory this week following a slew of mixed earnings results from Big Tech and others, with Meta and Google falling 3.9% and 9.9%, respectively. Month-to-date, the S&P 500 is down nearly 4%, putting it on pace for the worst October in five years. Economic data for the week also came in strong, keeping the door open for additional rate hikes. The US economy grew at 4.9% annualized in Q3, the fastest pace since Q4 2021. Core PCE, the Fed’s preferred measure of underlying inflation rose 0.3% in September, accelerating to a four-month high as consumer spending picks up. The Federal Reserve is set to meet next week as earnings season picks up.

Additional news this week:

The House of Representative elected Mike Johnson as Speaker of the House following two weeks of failed attempts and multiple nominees trying to replace the former speaker Rep. Kevin McCarthy.
Ford reached a tentative agreement with the United Auto Workers union which includes a 25% hourly wage hike and cost-of-living adjustments. However, the stock fell 12.3% on Friday after it missed on earnings and withdrew its forward guidance.
Chevron announced plans to buy Hess in a $53 billion all-stock deal that will give Chevron a significant foothold in Guyana, one of the world’s newest oil producers.
Walt Disney Co. is delaying three films scheduled for next year and removing another three from the line-up altogether amid the screenwriters’ and actors’ strikes.
Gold surged to a six-month high, crossing $2,000 per ounce, while oil topped $85 per barrel as concerns over conflict in the Middle East
Bitcoin rallied above $35,000 for the first time since May 2022 as the probability for an approved spot ETF in the U.S. grows

Weekly Performance

S&P 500 4,117.37 -2.53%

Dow Jones 32,417.59 -2.14%

Nasdaq 12,643.01 -2.62%

Key Economic Readouts This Week

New Home Sales — Actual: 759k; Estimate: 680k; Prior: 675k

GDP YoY — Actual: -4.6%; Estimate: -6.0%; Prior: +1.9%

Personal Spending — Actual: +0.7%; Estimate: +0.5%; Prior: +0.4%

PCE Deflator YoY — Actual: +3.4%; Estimate: +3.4%; Prior: +3.5%

Univ. of Michigan Consumer Sentiment — Actual: 63.8; Estimate: 63.0; Prior: 63.0

Initial Jobless Claims — Actual: 210k; Estimate: 207k; Prior: 200k

Continuing Claims — Actual: 1,790k; Estimate: 1,740k; Prior: 1,727k

Thank you Blue Room Analyst NICK PEART

IN

Customers that have previously reduced their cloud capex to cost optimization efforts are now wrapping them up and now expanding their current spend and taking on new workloads, some of which are AI-related

The company stated the AWS business segment achieved operating margin of 30.3%—a 400 basis point year-over-year improvement thanks in part to headcount reductions and leverage
Online Stores generated $57.3 billion of revenue which represents 7.1% year-over-year growth—also an acceleration over the previous period's 4.2% figure
The closely-related Retail Third-Party Seller Services business generated $34.3 billion—19.8% year-over-year growth which also came in above Q2 2023's 18.1% number
Advertising Services climbed to $12.06 billion—13% above Q2's $10.7 billion representing $1.4 billion in sequential incremental growth, and 26% greater than the previous year's $9.5 billion
Although advertising services is now 8.4% of total sales, it has grown from 2022's 7.3% figure and now represents Amazon's highest-growth business segment
What is particularly striking about advertising services is that it is leveraging all of Amazon's business segments by using machine learning and AI to (i) provide valuable data to advertisers and (ii) display increasingly relevant ads to its customers which results in incremental value creation for all parties involved. Due to the unique size of Amazon, I don't see any slowdown in sight for this business and believe could become an even more valuable part of Amazon's business in the future
The only weak spot in Amazon's business currently appears to be Physical Stores which generated a 1.3% sequential decline in revenues of $4.959 billion, which also represents a step-down in year-over-year growth from the previous quarter—6.4% to 5.6%

The company has so far successfully implemented cost reductions against major operating line items, including sales and marketing, technology and content, and general and administrative. Although fulfillment did see an increase, due in part to higher energy prices, it wasn't nearly enough to offset the 300-basis-point year-over-year improvement of total operating expenses, falling from 42.7% to 39.7%—which is a major reason for their operating income and EPS beat. I expect the company to continue to grow while operating at this new lower run-rate.

IN

DALLAS, July 25, 2023 /PRNewswire/ -- Texas Instruments Incorporated (TI) (Nasdaq: TXN) today reported third quarter revenue of $4.53 billion, net income of $1.71 billion and earnings per share of $1.85. Earnings per share included a 5-cent benefit for items that were not in the company's original guidance.

Regarding the company's performance and returns to shareholders, Haviv Ilan, TI's president and CEO, made the following comments:

"Revenue was flat sequentially and decreased 14% from the same quarter a year ago. During the quarter, automotive growth continued and industrial weakness broadened.

“Our cash flow from operations of $6.5 billion for the trailing 12 months again underscored the strength of our business model, the quality of our product portfolio and the benefit of 300-mm production. Free cash flow for the same period was $1.6 billion.”

“Over the past 12-months we invested $3.7 billion in R&D and SG&A, invested $4.9 billion in capital expenditures and returned $5.6 billion to owners.”

“TI’s fourth quarter outlook is for revenue in the range of $3.93 billion to $4.27 billion and earnings per share between $1.35 and $1.57. We continue to expect our 2023 effective tax rate to be about 13.0% to 14.0%.

IN

U.S. revenue declined 16% sequentially with sell-through down 12% Q/Q, driven primarily by California which was 25% lower. Non-California states are seeing trends of stabilization, while California is expected to take 2-3 quarters to rebound as installers transition to NEM 3.0.

International revenue declined 32% sequentially, with sell-through was down 35% Q/Q. The company believes the challenges in Europe are temporary and the region will likely see a rebound in Q1’24. Q4 guidance implies a 41% decline from Q3, although the company plans to offset some margin compression with a 12% decrease in OpEx in addition to IRA credits upward of $26-$28 per unit as U.S. production ramps. The company plans to undership $150 million of product in Q4 to help installers with destocking, with the expectation that channel inventory will normalize in Q2’24. Heading into 2024, Enphase believes it has growth opportunities outside of microinverters including Solargraf, its cloud-based software, as well as its commercial business which is expected to begin beta installations this quarter.

IN

Consumer sentiment confirmed its early-month reading, falling back about 6% this October to 63.8 following two consecutive months of very little change.

This decline was driven in large part by higher-income consumers and those with sizable stock holdings, consistent with recent weakness in equity markets.

Across all consumers, one-year expected business conditions plunged 16% and expectations over consumers’ own personal finances in the year ahead fell 8%, reflecting ongoing concerns about inflation and, to a lesser degree, uncertainty over the implications of negative news both domestically and abroad.

IN

(i) China continues to be the largest adopter of NEV and AV systems as the government and the population adopt ADAS-L5 solutions from domestic and global suppliers. Mobileye has increased their design win market share to 34% of global production, with only one US OEM, two European OEMs, four Chinese OEMs, and three Asian OEMs. Mobileye’s CEO is predicting that the company can have between 15-25% of the Chinese ADAS market share with SuperVision within a short number of years Although OEM adoption remains strong, we remain concerned about a global downcycle in automotives as the global economy annualizes tighter financial conditions and discretionary spending broadly unwinds.

(ii) The company stated that they target 6 months of strategic inventory for their EyeQ chips, which will be a modeling guideline for over- or under-indexed inventory levels.

(iii) Company outlook includes:

Lowered the FY revenue outlook from $2.090 billion to $2.078 billion on lower fourth quarter ASP, offsetting higher system volume. Volumes of EyeQ are expected to hit a record level in 4Q. Additionally, the SuperVision (full system including EyeQ hardwares) will come in around 102,000 shipments, towards the lower range of prior guidance of 100,000 to 115,000.
FY CAPEX is forecast to be flat on a year-on-year basis.
Gross margin in 4Q is guided to be flat to 3Q, and operating expenses may normalize in 1H24 as the currency exchange rates moderate.

IN

Quest 3, realistic avatar generation, Emu image generation, business AI interfaces, and creator AIs are all key innovations over the past year that will help change the way users interact with social media and ignite a new wave of growth
Each project will take time to dial in for users, but Meta is focused on efficient operations going forward to provide stability for long-term projects in a volatile world
The biggest areas of investment for 2024 will be engineering and computing resources for AI, and non-AI projects will be deprioritized across the company
There is a hiring backlog, so headcount growth will step up in 2024 before it normalizes at a lower level
Reels has driven a >40% increase in time spent on Instagram since its launch — which is now net-neutral to overall company revenue
Improvements in AI recommendation systems have already let to a 7% and 6% year-over-year increase in time spent on Facebook and Instagram
Advantage+ advertising tools and business messaging will drive the next wave of advertising growth
Meta will continue releasing generative AI tools, including text variation, image expansion, and background generation this quarter
Meta saw strong ad demand throughout Q3, driving the ad revenue growth
However, Meta confirms Snap’s earnings call commentary around increased volatility in ad demand quarter-to-date, starting around the onset of the war in the Middle East
The increased volatility and uncertainty around Q4 2023 and FY 2024 advertising revenue given these recent changes led to a widening of the Q4 sales guidance and a lack of visibility into 2024

IN

Alphabet had a strong quarter as they lap a weak Q3 of 2022.

Overall, advertising revenue outperformed while cloud growth moderated somewhat as optimization efforts continued. Google’s Other revenue also showed continued strength with YouTube non-advertising growth and hardware successes.
Alphabet’s effective tax rate for the quarter was 7% due to a one-time adjustment to facilitate rule changes by the IRS.
For Q4, Alphabet is guiding for higher costs, specifically in hardware and YouTube content acquisition costs, as well as sales and marketing expenses due to the holiday season. To offset this, Alphabet has a number of work streams ongoing, namely slower headcount growth, optimization of real estate footprint, and other productivity/efficiency improvements.
As for the Q&A section, the highlights revolve around GenAI, as well as the Cloud business and YouTube. Specifically, questions were raised on:

Gemini, SGE rollout, AI impacts to broader advertising industry;
Factors in slowdown in Cloud, NFL Sunday Ticket contribution to YouTube, as well as 1 question concerning cookie phase-out.

As for GenAI, most features and products are still in their early days, but they are seeing positive signs and are very comfortable with their progress and position in the market.
Regarding Cloud, the slowdown was attributed to optimization efforts from business in a volatile macro environment, which have seen signs of stabilization as interest in AI integration increases.
For YouTube, Q4 '23 will be the first quarter that the NFL Sunday Ticket contributes fully in both revenue and content acquisition costs, but Alphabet is confident in the long term return of the deal.
In terms of 3rd party cookies, Alphabet plans to deprecate them for 1% of Chrome users in Q1 ‘24, and more in the second half of the year.

IN

MSFT had a strong start to fiscal year 2024 with a better than expected operating result. Revenue grew 13% year-over-year, operating income grew 25% year-over-year (representing 47.6% margin vs. 42.6% last year), and diluted EPS was $2.99, up 27% year-over-year. The growth of revenue came from higher than expected growth in Azure, the improvement in Windows revenue, the growth in LinkedIn and Dynamics.

Microsoft completed the acquisition of Activision Blizzard on October 13th, 2023.
This quarter, MSFT added new Copilot capabilities into various products such as GitHub Copilot, Power Apps, Windows. They also introduced a new version of Teams that is up to two times faster while using 50% less memory and includes seamless cross-tenant communications and collaboration.
Coming to Q2, FX is expected to increase total revenue and segment level revenue growth by approximately 1 point, but has no impact on COGS and operating expense growth.
Q2 FY 2024 is expected to continue the trend from Q1 with target revenue growth from 14.5% - 16.4% year-over-year. Productivity and Business Processes segment is expected to grow 12% driven by Office 365 commercial and LinkedIn, Intelligent Cloud segment is expected to grow 17% driven by Azure with expected growth of 27%, and More Personal Computing segment is expected to grow 16% driven by the effect of the Activision acquisition in gaming, and more stable PC market.
In H2, MSFT expects FX to decrease revenue, COGS, and operating expense growth by one point. The company also expects approximately $900 million for purchase accounting adjustments as well as integration and transaction-related costs in each quarter in H2.

IN

Intel remains on track to meet its goal of achieving five nodes in four years and to regain transistor performance and power performance leadership by 2025. Along with Intel 7, Intel 4, the company’s first node using extreme ultraviolet (EUV) technology, is now in high-volume manufacturing. Intel also achieved a critical milestone on Intel 18A with the release of the 0.9 PDK. In addition, Intel announced one of the industry’s first glass substrates for next-generation advanced packaging, planned for the latter part of this decade. This breakthrough achievement will enable the continued scaling of transistors in a package and advance Moore’s Law to deliver data-centric applications.

Continuing its investment in manufacturing capacity to create a geographically balanced, secure and resilient supply chain, Intel opened Fab 34 in Leixlip, Ireland, during the quarter. Combined with the company’s planned wafer fabrication facility in Magdeburg, Germany, and planned assembly and test facility in Wrocław, Poland, this will help create a first-of-its-kind, end-to-end leading-edge semiconductor manufacturing value chain in Europe.

This week, Intel shared its plans to begin installation of the world’s first high-NA EUV tool for commercial use by the end of the year to continue the company's modernization and infrastructure expansion of the Gordon Moore Park at Ronler Acres in Oregon, one of the world’s leading semiconductor innovation and productization centers.

Intel has submitted all four of its major manufacturing proposals in Arizona, New Mexico, Ohio and Oregon, representing more than $100 billion of U.S. manufacturing and research investments, to the U.S. Department of Commerce’s CHIPS Program Office.

Intel announced that a major customer committed to Intel 18A and Intel 3 with a meaningful prepayment, allowing the company to accelerate its plans to build two new leading-edge chip factories at its Ocotillo campus in Chandler, Arizona. In addition, IFS and Tower Semiconductor announced an agreement where Intel will provide foundry services and 300 mm manufacturing capacity to help Tower serve its customers globally, utilizing Intel’s advanced manufacturing facility in New Mexico.

At Intel Innovation 2023, Intel outlined its strategy to bring AI everywhere, making it more accessible across all workloads, from client and edge to network and cloud. The company showed how it is delivering AI capabilities across its hardware products and making it accessible through open multi-architecture software solutions.

In DCAI, Intel's 4thGen Intel Xeon Scalable processor continues its strong ramp, with the world’s top-10 cloud service providers now deploying it in general availability. In addition, the company's 5th Gen Intel Xeon processor, code-named Emerald Rapids, is in production and began shipping to customers this month, officially launching Dec. 14. Customer momentum continues with Intel Gaudi 2 accelerators, whose competitive performance was recently validated by MLCommons benchmarking results. Together with Stability AI, Intel is building one of the world's largest AI supercomputers entirely on 4th Gen Intel Xeon Scalable processors and 4,000 Intel Gaudi2 AI accelerators.

In client computing, Intel is ushering in the age of the AI PC with Intel Core Ultra processors, codenamed Meteor Lake. Built on Intel 4, the Intel Core Ultra processor began shipping to customers in the third quarter and will officially launch Dec. 14, along with the 5th Gen Intel Xeon processor. Earlier this month, Intel launched the new Intel Core 14th Generation desktop processor family, delivering the world’s fastest desktop frequencies and best desktop experience for enthusiasts.

In network and edge, Intel launched the latest OpenVINO toolkit version 2023.1, the AI inferencing and deployment runtime of choice for developers on client and edge platforms, with ai.io and Fit:match demonstrating how they use OpenVINO to accelerate their applications at Intel Innovation.

Mobileye achieved record third-quarter revenue, growing 18% year over year, and announced meaningful design wins for its advanced SuperVision and Chauffeur solutions with automakers FAW and Polestar.

IN

Snap Q3 2023 Earnings Call Key Takeaways:

Typically Q4 sees larger brand ad demand and is typically back-end weighted
Brand advertising growing at a slower rate in Q3 brings a bit of a mix shift headwind into Q4
The depth of brand campaign pauses/pullback has improved since the initial impact of the war in the Middle East, but Snap has been seeing a higher volume of pauses in brand ad campaigns continue QTD
North America has more customers that are more complex to work with, and it takes more marketing/support work for larger advertisers
The new 7-0 optimization has made a positive impact for larger advertisers
In many places, customers are above KPIs, and making progress every day to continue getting advertisers there
It’s more important to make sure customers are bidding for the right goals they’re measuring for — Making sure advertisers are maximizing utilization of ad tools has been building a lot of momentum
The improvement in North American ARPU is a reflection of the improvements in process and tools implemented for North American advertisers

IN

2023 Q3

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Weekend Update #150