Happy Sunday, everyone.
Before we jump into this weekās commentary, I wanted to share the following chart regarding inflation ā specifically itās assumptions. Apollo Global Management, one of the worldās most premier and well-respected investment management firms, stated the followingā¦
āInflation will likely be above the Fedās 2% inflation target for the rest of 2024.ā
As a quick reminder, the all-time-highs we saw in the stock market during Q1 were directly correlated to the assumption of āinflation will subside, and continue to trend lower.ā As I shared in this post a few weeks ago, this is no longer the case.
Technical Analysis
Personally, Iām not all that into technical analysis. I respect it, however, I donāt exactly know how to generate the charts myself. With that being said, I stay up-to-date with some of the technical analysis shared by professionals. The following chart was shared with me, and I thought it was worth sharing with you all.
It assumes the Nasdaq-100 will experience a relief rally (much of what weāve seen this week) through the month of May ā only to be met with a bearish down draft that could last through the Summer.
Please, please, please use this (maybe?) bearish price action as an opportunity to purchase quality companies at fair prices. As I shared in this post, Iām especially bullish on Google, Adobe, Mastercard, Amazon, and Meta Platforms.
Portfolio Updates:
As I shared with you all last week, Iāve deployed $86,269 toward my Dividend Growth Portfolio year-to-date. Continuing with these sort of āmoney deployedā updates, I wanted to share how much income Iāve generated from my Tesla Covered Call idea.
In a perfect world, I would have been able to predict Teslaās recent stock price decline and would have implemented this strategy with a different stock. However, after Teslaās most recent earnings call (which weāll get into here soon) Iāve never been more bullish on the company.
Since September 12, 2023 Iāve sold 25 covered call option contracts against my shares of Tesla stock, allowing me to generate $10,789.46 in passive income. I took almost all of this money and used it to purchase Chainlink (LINK) ā which is now showing a profit of +$3,408.
Iām optimistic this cryptocurrency will trend much, much higher over the coming 12-18 months ā allowing me to potentially compound the income generated from the covered calls into tens of thousands of dollars of profit.
Looking forward, I will likely begin diverting the covered call income away from cryptocurrency purchases and instead begin buying more shares of Tesla stock. Iām very excited about the companyās future.
Week in Review ā Too Long, Didnāt Read:
Autonomy is Teslaās future, Meta is going to spend $99B in 2024, Google declared a dividend and $70B in buybacks, Microsoft = AI, Chinese markets are rolling, Delta & AMEXās new credit card, Bidenās proposed tax increases, a strong IPO from a Microsoft-backed cybersecurity company, and both the GDP and Core PCE results created cause for concern.
Key Earnings Announcements:
Autonomy is Teslaās future, Meta is going to spend $99B in 2024, Google declared a dividend and $70B in buybacks, and Microsoft = AI.
Tesla (TSLA)
Key Metrics
Revenue: $21.3 billion, compared to $23.3 billion last year
Operating Income: $1.2 billion, compared to $2.7 billion last year
Profits: $1.1 billion, compared to $2.5 billion last year
Earnings Release Callout
āWhile many are pulling back on their investments, we are investing in future growth ā including our AI infrastructure, production capacity, our Supercharger and service networks and new products infrastructure ā with $2.8B of capital expenditures in Q1.
The future is not only electric, but also autonomous. We believe scaled autonomy is only possible with data from millions of vehicles and an immense AI training cluster. We have, and continue to expand, both.ā
My Takeaway
If you do anything today, spend an hour listening to Teslaās Q1 earnings call ā linked here. This is how itās done ā Elon was clear, concise, and focused.
A few of my personal biggest takeaways include ā robotaxis are coming and theyāre going to eat Uberās lunch, humanoid robots should begin commercial penetration during 2026, and āautonomousā is the investment thesis for Tesla going forward ā period.
So whatās the plan?
If we reflect back upon Q4ās earnings highlights we remember one thing ā 2024 is an investment year as the company prepares for their next leg-up in growth. We very much as seeing that ā as shared above, the company invested $2.8 billion into capital expenditures during the quarter. Additionally, Elon mentioned his intention to use existing infrastructure to introduce their āModel 2,ā a vehicle that should land between $20K and $30K brand new.
It also feels like Elon is beginning to take tighter reigns of Tesla ā he announced 10% of the workforce is being let go as he ātransforms the companyā to become what it needs to be for future growth and expansion. These cuts will save the company $1B+ annually.
Looking forward, Iāve never been so bullish on Tesla. It seems like theyāre laser-focused on delivering 1) the Model 2 vehicle, 2) Full Self-Driving, and 3) Autonomy over the coming 2-4 years. Their margins werenāt as bad as Wall Street had feared and Elon seems to be holding the business together quite nicely despite a slowdown in demand. Iām a very happy shareholder, and Iām going to buy more.
Meta Platforms (META)
Key Metrics
Revenue: $36.5 billion, an increase of +27% YoY
Operating Income: $13.8 billion, an increase of +91% YoY
Profits: $12.4 billion, an increase of +117% YoY
Earnings Release Callout
"The new version of Meta AI with Llama 3 is another step towards building the world's leading AI. We're seeing healthy growth across our apps and we continue making steady progress building the metaverse as well."
My Takeaway
Meta reported Q1 revenue and operating income above Wall Streetās expectations by +1% and +5%, respectively. Despite their healthy Q1 results and Q2 revenue guidance, their stock price declined by -15% because of their 2024 expense and CapEx guidance shared.
Full year 2024 expenses are expected to be in the range of $96-99 billion. The company is also expected full year 2024ās capital expenditures to be in the range of $35-40 billion, up from $30-35 billion as the company ācontinues to accelerate their infrastructure to support artificial intelligence.ā
Additionally, the company shared their intention to be entering a āreinvestment super cycleā that could increase in 2025 and again in 2026. Deja vu, anyone?
In my humble opinion, upside in the near-term with Meta Platforms is likely limited as the company now has every intention to double-down on AI, despite their recent rollout of AI (Instagram search) showing much success. Once thereās evidence of sustainable growth drivers from this $40B investment into AI in 2024, Iāll remain skeptical.
With that being said, there are countless growth drivers still in place for the company. This includes the improved monetization of newer ad formats and surfaces through IG Reels and Messages, broad-based strength at the industry level, and ongoing impression and engagement growth.
Despite my reservations regarding their immense CapEx spend in AI during 2024 and 2025, Iāll continue to dollar cost average into an ever-growing position in the company. Bullish.
Alphabet (GOOGL)
Key Metrics
Revenue: $80.5 billion, an increase of +15% YoY
Operating Income: $25.5 billion, an increase of +32% YoY
Profits: $23.6 billion, an increase of +58% YoY
Earnings Release Callout
āAlphabetās Board of Directors today approved the initiation of a cash dividend program, and declared a cash dividend of $0.20 per share that will be paid on June 17, 2024, to stockholders of record as of June 10, 2024, on each of the companyās Class A, Class B, and Class C shares.
The company intends to pay quarterly cash dividends in the future, subject to review and approval by the companyās Board of Directors in its sole discretion.ā
My Takeaway
Google just declared a dividend! This is INCREDIBLE. Not only is Meta Platforms paying a quarterly dividend, but so is Google. Unreal. Additionally, the company announced a $70B share buyback authorization!
The companyās net revenue came in nearly $2B higher than Wall Street had expected driven by upside in Search, YouTube, and Cloud ā all powered by AI. Headcount was also down quarter-over-quarter, while core margins were up by nearly +5% year-over-year.
Most importantly, Googleās Search business segment continues to outpace expectations by delivering $46.2 billion in revenue ā up +14% YoY and +3% above Wall Streetās expectations. As more and more people continue to bang the āAI will replace Google Searchā drum, Googleās results speak for themselves.
Management has proven their commitment to re-allocating resources to the highest priority initiative as operating expense reductions are shifting to capital expenditure investments (servers and data centers).
Iām a very happy Google shareholder, and will absolutely continue to buy more of their stock at current prices. Optimistic they hit $200 soon.
Microsoft (MSFT)
Key Metrics
Revenue: $52.7 billion, an increase of +7% YoY
Operating Income: $20.4 billion, flat YoY
Profits: $16.4 billion, compared to $7.1 billion last year
Earnings Release Callout
āWe are focused on operational excellence as we continue to invest to drive growth. Microsoft Cloud revenue was $27.1 billion, up 22% (up 29% in constant currency) year-over-year as our commercial offerings continue to drive value for our customers.ā
My Takeaway
With Microsoftās results now acting as sort of a barometer for the current state of Cloud and AI ā the company delivered another solid quarter with beats on both the top and bottom line led by Azure growth at +31%. Copilot conversions continue exploding with customers lining up for further deployments to increase efficiencies and profitable growth. There are currently 1.8 million paid GitHub Copilot users.
The company provided a solid revenue guide as more and more customers see increased use cases with the companyās AI tech stack to further expand profitable growth across operations despite increasing investments across cloud and AI infrastructure.
For Azure, AI Services contributed to 7% of the +31% growth Azure experienced ā up from 6% last quarter ā now operating at a $4B annual run rate. Excluding AI Services, Azure finally accelerated during the quarter ā signaling a meaningful inflection point that was substantiated by exceedingly strong Commercial Bookings.
Commercial Bookings were up +31% YoY, including an +80% growth in $100M+ Azure deals and more than a +100% growth in $10M+ deals. Hereās the bottom line ā Microsoft is best positioned within software to capitalize on GenAI at all layers of the tech stack. Therefore, Iām bullish.
Investor Events / Global Affairs:
Chinese markets are rolling, Delta & AMEXās new credit card, Bidenās proposed tax increases, and a strong IPO from a Microsoft-backed cybersecurity company.
Chinese Equities Rally Hard
Global investors have become more positive about Chinese stocks, significantly increasing their exposure to mainland equities following a rebound in China's CSI 300 Index. This shift includes global emerging markets (GEM) funds reducing their underweight positions on mainland China and Asia's funds raising their mainland China allocations to a seven-month high.
Foreign investors are returning to China's stock market after a long period of outflows ā encouraged by regulatory changes aimed at reforming the market and boosting shareholder returns.
Despite improved sentiment, concerns about fundamentals such as retail sales and industrial production persist ā particularly in light of ongoing challenges in the Chinese property market.
China's slump in the markets has largely been attributed to broad-based economic struggles, real estate market weakening, and exports decreasing significantly.
Delta AMEX Reserve Made from Old 747s
A quick one here ā but Delta (DAL) and American Express (AXP) have teamed up to bring back a legendary credit card made out of old 747 airplanes. This thing is sweet!
If you want to check it out ā click here.
If you want to explore our Credit Card Matrix ā click here.
Bidenās Proposed Tax Changes
President Biden's proposed capital gains tax rate of 44.6% would be the highest since its creation in 1922. This rate, combined with state capital gains taxes, could exceed 50% in many states, such as California, New Jersey, Oregon, Minnesota, and New York.
The tax on capital gains is not indexed to inflation ā leading to taxation on gains that may not be real due to inflation.
This proposal has sparked concerns about double taxation and its potential impact on small business owners and families, especially the speculation that unrealized gains could also be taxed at ~25% if you fall in the āultra-high net worthā category.
Biden's budget outlines significant tax increases totaling about $5 trillion over the next decade.
Microsoft-Backed Rubrik Inc. (RBRK) IPOs