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🎥 Don’t Sleep on Netflix

🎥 Don’t Sleep on Netflix

Plus, finding new ways to invest in AI

April 28, 2024

Happy Sunday to everyone on The Street.

To say things are a little tense between China and the US right now would be a massive understatement. While China has been showing increased territorial aggression, the modern US-China cold war is taking place in the markets, specifically with chipmaking and green technology.

Here are some examples from just the last 30 days of US-China competition chipmaking and green tech:

The Biden administration announced $8.5 billion in funding to advance Intel’s semiconductor projects
- Not long after, China announced it would block the use of Intel and AMD chips in its government PCs and servers
The Biden administration announced plans to award between $6.6 billion to South Korea’s Samsung to expand its chip output in Texas.
- Around the same time… Bloomberg reported that the US is asking South Korea to restrict its semiconductor technology exports to China.
Janet Yellen criticized China for flooding the EV market during a marked slowdown in EV sales growth.
US Solar manufacturers requested that the Commerce Department impose tariffs on $12.5 billion of imported solar panels from Southeast Asia, alleging that China is trying to circumvent tariffs.

For America, any degree of Chinese control over chip production is intolerable due to its necessity for advanced military equipment. Both nations are also vying for dominance in green technology as they both believe it could become the backbone of the global economy.

💾 Who is Currently Winning the Tech War 🍃

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Review

After four consecutive weeks of declines, tech stocks — as tracked by the Invesco QQQ Trust— experienced their best week in 2024.

The stocks were buoyed by reduced geopolitical tensions in the Middle East and robust corporate earnings, even as persistent inflation signaled the need for caution.

U.S. economic growth slowed in the first quarter, with key inflation metrics monitored by the Federal Reserve rising unexpectedly, delaying discussions on interest rate cuts.

Tesla Inc. had its strongest week since January 2023, despite recent earnings and revenue misses, driven by optimism over its future cheaper models and Robotaxi initiatives.

Energy stocks, this year's best performers, faltered following weaker-than-expected earnings Friday from Exxon Mobil Corp. and Chevron Corp.

Tesla Rebound Ahead?

Billionaire Ron Baron said Tesla’s stock has reached its lowest point and is set for a significant surge. Despite the stock’s 34% drop this year, Baron remains confident in its recovery, attributing the fall to temporary concerns rather than fundamental issues.

Meta’s Weaker Outlook

Facebook parent company Meta Platforms Inc. surpassed first-quarter earnings forecasts with revenue of $36.45 billion, marking a 27% increase year-over-year. Earnings per share reached $4.71, outperforming estimates. The company projects weaker-than-expected revenue and higher costs, which negatively impacted the stock.

Treasury Yields Spike

U.S. Treasury yields hit a six-month high, significantly impacting mortgage rates and raising economic concerns. The 30-year Treasury note yield rose to 4.78%, prompting mortgage rates to increase to 7.24%. Experts warn the growing federal deficit could destabilize financial markets.

AI's 1995 Moment

Wedbush Securities analyst Dan Ives hails artificial intelligence as the “Fourth Industrial Revolution” following strong earnings from Microsoft Corp. and Alphabet Inc. He compared this transformative phase to the pivotal tech moment of 1995.

Musk Critiques TikTok Ban

Elon Musk suggested that the potential U.S. ban of TikTok sets a dangerous precedent for government control over app availability in the name of national security. Such moves could contradict principles of free speech, raising broader implications for social media and internet freedom.

Dimon Sees Stagflation

Bank of America analysts suggested 2024 could be a reverse reflection of 2015, with potential Federal Reserve misjudgments on rate cuts amid inflation pressures. JPMorgan chief Jamie Dimon compared today’s scenario to the 1970s, emphasizing significant risks from fiscal deficits and inflationary policies affecting market stability.

Preview

Economic Data

Monday: None
Tuesday: Employment cost index, S&P Case-Shiller home price index, Consumer confidence
Wednesday: ADP employment, FOMC interest-rate decision, Fed Chair Powell press conference
Thursday: U.S. trade deficit, U.S. productivity, Factory orders
Friday: U.S. employment report, Hourly wages year over year, Consumer credit

Earnings

Monday: Alliance Resource Partners
Tuesday: 3M Company, Eli Lilly, Advanced Micro Devices, Amazon
Wednesday: Allstate, Albemarle, Aflac
Thursday: 1-800-Flowers, Rent-A-Center
Friday: Hershey, Cboe Global Markets

Gold Rush

This Mining Stock Could Strike Gold

Arizona Metals Corp (AZMCF) has watched its shares plummet over the last twelve months.

However, analysts believe a turnaround is in the Canadian gold explorer’s future.

Scotiabank put out a price target that indicates a 100% upside from the mining company’s current share price. It’s not alone – BMO has a price target over 200% higher than current levels and Beacon Securities forecasts an increase above 400%.

Reasons for Optimism

The bull case stems from new reports about a mine outside of Phoenix.

Arizona Metals released results indicating the presence of copper and gold within its Kay Mine Project. Scotiabank wrote in a note to clients that it is “positively encouraged” by what has already been uncovered.

Copper and gold have been surging in value lately, which could bode well for Arizona Metals if the mine proves to be fruitful.

Taking a Big Swing

While price targets for the mining stock give investors reason to be optimistic, analysts warn that this type of stock can be risky.

Soaring copper and gold prices don’t necessarily mean that mining stocks will follow in those gains.

The SPDR Gold Trust (GLD) is up around 16% over the last 12 months. The VanEck Gold Miners ETF (GDX) is down about 2% over the same period.

Analysts are bullish on this mining stock that could benefit from ‘striking gold,’ but

What’s your outlook for gold?

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Don’t Sleep on Netflix

An AI Advantage

When most of us think of AI, we don’t immediately think of Netflix (NFLX).

However, according to Needham, the streaming company is shaping up to be a contender in the AI arena. Analyst Laura Martin recently upgraded the stock to a “buy.” She cited its “tech-first culture” as a reason to expect that it will beat out its competitors in the AI race.

A Laundry List of Potential

According to Martin, generative AI will have the biggest impact on tech-first companies. She says Netflix is tech-centered, and it has a lot going for it.

Netflix has a global presence, bringing more value to its data. Martin also expects the company to generate increased ad revenue, driving growth and improving margins.

The analyst is also bullish on the company’s content spending and stock repurchase plan. She believes both will generate free cash flow and improve ROIC (return on invested capital).

Upside Possibilities

Netflix beat earnings expectations for the first quarter, but shares fell around 10% the day following its reporting. This could be attributed to the company announcing it would stop publicizing quarterly subscriber numbers and average revenue per membership.

Martin has set the stock’s price target at $700, a 21% upside from Tuesday’s close. Shares are already up over 21% this year.

Netflix might not be an investor’s first idea for an AI play, but according to Martin, it could benefit from the advancement and adoption of the technology.

Are you bullish or bearish on Netflix (NFLX) over the next 12 months?

Back to the Source

Finding New Ways to Invest in AI

Investors interested in AI are starting to branch out. They’re beginning to put funds in companies outside of tech and opting to gain exposure by investing in sectors like real estate, energy, and utilities.

This movement comes as the demand for data centers to support AI operations is rising. Consequently, there’s been a surge in the need for the parts and power to build and fuel these centers.

According to Bank of America (BAC) analyst Thomas Thornton, data centers currently being constructed are expected to use more than 50% of the power that existing centers currently utilize. He also expects power demand to grow at least 25% compounded through 2028.

Caterpillar

BofA highlighted Caterpillar (CAT) as an under-the-radar AI play to check out. It has a long history of providing backup generator engines, which are integral to data centers.

Over the past four quarters, its power generation arm has outgrown the rest of the company. The company reported the installation of over 450,000 kilowatts in data centers and hospitals in one year alone. In response, management has elected to raise capital spending for the first time in years to meet demand.

BofA has set a price target of $385 per share, about a 6% upside from Tuesday’s close. Shares are up over 24% year-to-date but have recently slumped slightly.

Real Estate

According to analyst David Barden, the real estate world is just starting to adopt AI, indicating an opportunity now that could pay off down the road. As a result, two REITs got buy ratings from BoA.

Digital Realty Trust (DLR) and Equinix (EQIX) have strong revenue, but Equinix currently has a better bottom line. According to Barden, investors have been able to look past DLR’s income issues to see its growth potential and revenue.

The bank expects Digital Realty and Equinix to see gains of around 24% and 33%, respectively. DLR is up around 3% this year, but Equinix has fallen 5% in the same timeframe.

For investors interested in an alternative route to AI exposure with blossoming potential, these companies could present a great opportunity.