Cover:
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Interview:
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Tech Trader:
-President Donald Trump visited Saudi Arabia to discuss artificial intelligence, focusing on the creation of onshore "sovereign AI" data centers. Saudi Arabia wants to control its own AI future and has sought approval from Trump to acquire the highest-powered AI chips from Nvidia. Nvidia has been highlighting sovereign AI as a growth driver since its November 2023 earnings call. National investment in computing capacity is a new economic imperative, as people cannot afford to export their country's knowledge and culture for someone else to resell AI back to them. Saudi Arabia announced its vehicle for sovereign investment into AI, called Humain, as part of its $100B "Project Transcendence" aimed at making Saudi Arabia an international tech hub. Humain will initially use AI chips from start-up Groq, which already operates a data center in Saudi Arabia. Over the next five years, Humain plans to build massive Saudi data centers populated by advanced chips from Nvidia and Advanced Micro Devices.
The Trader:
-Federal Reserve Chair Jerome Powell warned of erratic inflation in the coming years, while retail sales slowed from March levels. Walmart warned of higher prices, consumer sentiment tumbled, and Meta Platforms fell on reports of delaying its large-language model rollout. President Donald Trump's budget bill seemed to get delayed in the House. However, none of these issues mattered, as the artificial-intelligence trade made a grand return and the US and China agreed to reduce their reciprocal tariffs by 115 percentage points for 90 days. The AI trade also gained a boost, with Nvidia jumping double digits. Trump's visit to Saudi Arabia highlighted the growing appetite for sovereign AI, with nations racing to use US chips for onshore projects. The United Arab Emirates is expected to be the latest buyer of American AI technology, easing concerns that Silicon Valley was losing its edge to rivals in China. The US is expected to be the second biggest source of global AI capex, with spending expected to grow steadily in the coming years.
-Adobe stock has underperformed this year, falling 10% and ending 2024 with disappointing earnings. However, Heard Capital Founder William Heard argues that AI isn't the enemy, as Adobe is still the top tool for editing with its AI tool Firefly offering control at the pixel level. Adobe's products are trained on ethically sourced data with proper licensing, allowing images to be used for commercial purposes. Heard also points to Adobe's metrics being the best among peers and its gross margins approaching 90%. Adobe is trading well south of 20 times forward earnings, compared with historical values in the 30 to 40 times range. Heard believes that the market for AI is not a zero-sum game, with room for Adobe and peers to grow. He believes consensus estimates for Adobe to deliver earnings per share growth of more than 10% to $20.57 are still too low, and the shares should trade up to $700, representing a price-to-earnings ratio of 34 times, more in-line with historical levels. He also likes the company's seasoned management team, which has shown itself willing to remain innovative and relevant.
Features:
-The Federal Reserve is planning to reduce its head count by 10% over the next couple of years, according to Fed Chair Jerome Powell. The move is aimed at attrition across the Federal Reserve system, including the Washington, DC headquarters and 12 reserve banks nationwide. Powell has directed the leadership to find incremental ways to consolidate functions, modernize business practices, and ensure the agency is right-sized to meet its statutory mission. The reduction will be achieved through normal attrition and retirements, with the Board offering a voluntary deferred resignation program for Board staff eligible to retire by Dec. 31, 2027. Powell has previously defended the Fed's staffing levels, stating that the Fed runs a careful budget process and is not overstaffed, but "overworked, maybe." The Fed system employed nearly 24,000 workers as of 2023.
Europe:
-Lockheed Martin is focusing on increasing military spending in Europe to benefit the weapons maker, according to its vice president for international business, Raymond Piselli. Lockheed is establishing more production and supply chains in Europe, with about one-quarter of its sales going to international customers. From 2022 to 2024, international sales grew almost 5% a year on average, while U.S. business grew closer to 3% a year. European business was a standout, up about 11% a year on average. Lockheed exports about $20 billion in American-made military equipment annually, with exports of F-35 fighter jets, missiles, and Black Hawk helicopters expected to drive more growth in the coming years. The company also collaborates with European partners, such as Rheinmetall on rocket artillery produced in Germany.
Emerging Markets:
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Commodities:
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Streetwise:
-Fair Isaac, a credit analytics company, has risen from humble beginnings to bodacious territory, now worth $51B, which is close to FedEx at $55B. The company, based in Bozeman, Mont., has gone public decades earlier, selling 1.4M shares at $9.50 apiece in July 1987. An investor who bought that day has since made 172,000%. Fair Isaac has ridden powerful business trends, starting in 1956 when credit assessment was shifting from paper records to computers. Engineer Bill Fair and mathematician Earl Isaac put up $400 apiece in start-up capital and sold their first credit score within two years. The Fair Credit Reporting Act in 1970 laid out rules for what would become the big three reporting firms: Equifax, Experian, and TransUnion. Fair Isaac was the obvious choice to interpret the different reports, and the company has since outperformed Apple over the long run. The company's success can be attributed to its ability to adapt to business trends and its ability to interpret different reports.