Barron’s Weekend Summary: Trump Media & Technology Group has completed its public market merger with DJT, resulting in a market value of $8.4B
Cover:
-Trump Media & Technology Group has completed its public market merger with DJT, resulting in a market value of $8.4B. Despite its small revenue and history of losses, DJT has gained 24%, adding billions to Trump Media's net worth in just days. This has given individuals, companies, and governments a new, direct path to influence the candidate's bottom line. Trump's significant holdings in a public company give individuals, companies, and even governments a new, direct path to influence the candidate's bottom line. There is no precedent for a presidential candidate gaining so much wealth, so quickly, and in this fashion months before an election. Trump Media announced plans to merge with Digital World Acquisition Corp in 2021 and launched Truth Social in 2022. The merger closed on March 25, 2024, with Trump as the controlling shareholder, owning 78.8 million shares.
Interview:
-Cliff Asness, chief investment officer of AQR Capital Management, has been a successful investor using analytical strategies to bet on various market factors. Despite some of the biggest losses in its 25-year history and a 50% drop in assets under management, AQR's winning streak has come after a significant drop in assets under management. The firm's multistrategy hedge fund, the AQR Apex Strategy, gained 16% in 2023 and is up 6.2% year to date through February. The $720.3M AQR Diversifying Strategies, an actively managed multistrategy mutual fund, has a three-year annualized return of 12.3% since its 2020 launch, ranking in the top 9% of its multistrategy category. Asness, a student of Eugene Fama, the Nobel Prize-winning University of Chicago economist, emphasizes the importance of diversification and value investing.
-Daniel Kahneman, the Princeton professor who pioneered behavorial economics, died at the age of 90 on March 27. He mapped the errors people make due to predictable biases and behavioral tendencies, leading to a Nobel Prize in Economics in 2002. Kahneman's latest book, Noise: A Flaw in Human Judgment, focuses on the most common cause of bad decision-making: variability, the wide dispersion of "correct" answers. The amount of noise among professionals in finance, medicine, and other fields is alarming. Kahneman discussed the causes of noise and how we can mitigate their effects in a 2021 interview with Barron's - republished in this week's edition.
Tech Trader:
-this week’s Tech Trader coumn features an interview with Mary Meeker, a tech investor with significant influence and staying power, who has been a key figure in the tech industry for over four decades. As a Morgan Stanley analyst in the 1990s, she made market moves with calls on stocks like Amazon, Microsoft, Apple, and Dell Technologies. Meeker was dubbed "Queen of the 'Net" by Barron's over 25 years ago. In 2010, she moved to venture capital, leading Kleiner Perkins' investments in Airbnb, Uber Technologies, Waze, DocuSign, and Snap. She later launched Bond Capital, where she continues to invest in new tech leaders, including Canva, an Australian graphics software firm. Meeker has been on Barron's annual list of 100 Most Influential Women in U.S. Finance since 2020. She has turned her attention to artificial intelligence and venture capital.
The Trader:
-The S&P 500 has had a strong start to 2024, with a 10.2% increase in the first three months of 2024. This is the fourth time since the start of the millennium that the index has gained 8% or more in the first three months of the year, joining 2012, 2013, and 2019, when it rose 12%, 10%, and 13.1%, respectively. The market's first-quarter rally comes on the heels of last year's 24% surge, which has led some skeptics to believe that the market has gotten ahead of itself. Artificial-intelligence enthusiasm is still leading the charge, but FOMO (fear of missing out) is a real factor pulling more money into the market. The S&P 500 Health Care and Consumer Staples indexes notched their best quarters since the fourth quarter of 2022, with Financials and Consumer Staples on track for five months of gains in March alone.
Features:
-Nvidia's stock experienced a significant surge in Q1, with an 83% surge in the first three months of the year, making it the second-best performer in the S&P 500 index. This impressive performance has propelled Nvidia's market capitalization beyond Amazon, Alphabet, and Saudi Aramco to become the world's third-most-valuable company. The stock has risen more than 50% in the first three months of the year on four previous occasions, including 2000, 2001, 2006, and 2023. The good news for investors is that the stock has backed up those strong starts with second-quarter gains of at least 43% on three of those four occasions. However, much will depend on Nvidia's next quarterly earnings on May 22, which saw the stock jump 16% in a single day after its fourth-quarter earnings last month. Analysts are bullish, with 88% of those covering the stock rating it Buy, with an average price target of $962.76, implying a 6.6% upside to the closing price of $903.56.
Europe:
-Airbus CEO Guillaume Faury criticized Boeing's regulatory, production, and safety issues as detrimental to the industry. However, the two companies have been in a fierce battle for decades, with Airbus benefiting significantly. In 2024, Airbus secured more orders than Boeing and delivered more planes, gaining market share in the narrow-body aircraft market. Airbus holds 61% of the narrow-body market, while Boeing holds a commanding lead in the wide-body market. The widening gap is evident in the two companies' stock performances, with Airbus' stock climbing 22% to €170.28 euros ($184.33) this year, while Boeing's stock is down 27%.
Airbus is favored by more airlines, with United Airlines Holdings expressing its desire for more A321 jets and Japan Airlines ordering A321neo jets for the first time. This indicates that efforts by airlines to diversify their manufacturers could help the company gain more market share. However, Airbus' unfilled-order backlog reached 8,599 aircraft at the end of January, an industry record. Stifel Nicolaus analyst Bert Subin believes that Airbus is winning as much as it can, but the main problem with Airbus becoming overly dominant is that aircraft can only be obtained later into the 2030s, which is a challenge for airlines looking to grow.
Emerging Markets:
-No update this week
Commodities:
-J.P. Morgan warns that the increasing demand for artificial intelligence (AI) could exacerbate a copper shortage later this decade. AI servers are drawing more power per square foot, stressing an already large annual copper supply shortfall. Data centers will need to revamp their power and cooling systems as AI servers draw more power per square foot. J.P. Morgan analyst Dominic O'Kane estimates that AI will lead to 2.6 million tonnes of additional aggregate copper demand by 2030 – notwithstanding J.P. Morgan's forecast of a 4 million tonnes cumulative copper supply shortage through 2030. The proliferation of data centers, cryptocurrencies, and AI/ML could lead to higher power consumption and demand for electrical equipment like transformers. Nvidia's GPUs are proving more efficient for AI workloads, leading to more aggregate power usage. O'Kane recommends Anglo American, Teck Resources, and Sandfire as top global copper stock ideas, with Overweight ratings for all three.
Streetwise:
-Tesla stock has seen a significant decline in the past year, declining 46% over the past two years. Electric vehicles are losing buzz, with Mizuho Securities cutting its 2024 EV growth projection to 15% from 25%. Tesla has slashed prices but is reaching natural limits of cost reduction on current vehicles. China is leading the way on cheap EVs, with BYD recently passing Tesla on volume. Tesla will introduce a small sport utility vehicle in mid-2025, and its top-selling Models 3 and Y were first introduced in 2017 and 2020, respectively. This has created an air pocket for growth, with Wall Street currently predicting two million vehicle deliveries this year, up 12%. Free cash flow this year is pegged at $4.5 billion, up 4%. Mizuho recently cut its rating on Tesla stock to Neutral from Buy, and only a third of analysts who cover Tesla stock remain bullish. Tesla recently traded at more than 60 times this year's projected earnings, while Toyota goes for 11 times, even after a 115% gain over the past year. Toyota, an early adopter of hybrid vehicles, has become increasingly anti-Tesla, with its Prius being profitable for over two decades. Despite Tesla's investment in electric vehicles, Toyota has remained steadfast in its hybrid strategy, with hybrid vehicles outpacing electric vehicles. J.P. Morgan analyst Akira Kishimoto predicts 22.6% hybrid growth this year, primarily driven by small SUVs, where Toyota's RAV4 dominates.
-Disney's shareholder meeting this week will decide whether Nelson Peltz and Trian Partners win two board seats, with Peltz aiming to unlock more free cash flow. Disney is now expected to generate $8.2 billion in free cash, up 68%, during fiscal 2024, running through September. The stock price has recently been around $122, and Wall Street estimates have been surging. Disney is now expected to generate $9B in free cash, rising to $14B over the subsequent two years. UBS analyst John Hodulik warns that the biggest risk in Disney's view is potential management change, as the activists' bid for board seats could cause a downturn in shares just as the benefits of Bob Iger's latest tenure are starting to take hold. He has also increased his estimate for operating profits at the parks, citing strong US attendance and rising spending per visitor.