Reading the 'News Signals' From Our Investing Notebook (original) (raw)

Let's look at some headlines from the week to see what they signal for our portfolio holdings. Here we'll list each news bit by investing theme, starting with "Artificial Intelligence, Digital Infrastructure" and going through the menu. Note that this holiday week proved a busy one, so let's dig in:

Artificial Intelligence, Digital Infrastructure

We view the below from LumidaWealth.com, as a signal for the aggressive ramp in data-center spending over the coming years. During the upcoming earnings season, similar long-term spending plans from Meta ( (META) ), Microsoft ( (MSFT) ), Alphabet ( (GOOGL) ), and others will be on our radar.

“Amazon, known for its aggressive spending to build a 2trillionempire,isshiftingitsinvestmentfocusfromretailwarehousestoAIandcloudcomputing.Thecompanyplanstospendover2 trillion empire, is shifting its investment focus from retail warehouses to AI and cloud computing. The company plans to spend over 2trillionempire,isshiftingitsinvestmentfocusfromretailwarehousestoAIandcloudcomputing.Thecompanyplanstospendover100 billion on data centers over the next decade." Read more here

Artificial Intelligence, Cybersecurity

One tailwind can be powerful, but the intersection of two is even more so. We see that below and it keeps us bullish on cybersecurity spending and the First Trust Nasdaq Cybersecurity fund (CIBR) shares in the portfolio.

Here's what Networkworld.com writes:

“Pure Storage is upping its AI game with a pair of announcements, including a new storage-as-a-service offering that’s designed for AI workloads and new AI-driven security features to detect and prevent ransomware. The company bills its new Evergreen//One product as the first purpose-built AI storage-as-a-service offering. It includes guaranteed levels of storage performance for GPUs in training, inferencing and high-performance computing workloads… Pure also boosted its anomaly detection capabilities with AI functions. Anomaly detection is used to discover threats such as ransomware, atypical activity, malicious behavior and denial-of-service attacks, by looking for performance anomalies.” Read more here

“Cybersecurity researchers have been warning for quite a while now that generative artificial intelligence (GenAI) programs are vulnerable to a vast array of attacks, from specially crafted prompts that can break guardrails, to data leaksthat can reveal sensitive information… "This is a new attack vector that opens up a new attack surface…” Read more here

Artificial Intelligence, Safety & Security

The below from Defense One and Brookings points to expanding end-market demand for AI, and one we’ll be paying attention to when Lockheed (LMT) and other defense contractors report their June-ending quarter results.

“The U.S. Army plans to ask contractors for help integrating industry-generated artificial-intelligence algorithms into its operations, part of the service's 100-day push to lay the groundwork for sweeping adoption of AI.” Read more here

“Defense AI applications have long been touted as a potential long-term growth area and it appears that 2022/23 has been a turning point in the realization of those aspirations. While other agencies are continuing to invest in AI, either adding to existing investment or just starting, DoD is massively investing in AI as a new technology across a range of applications.” Read more here

Cash-Strapped Consumers

Despite the return of real wage growth, the below from Pymnts.com signals point to a cohort of consumers that remain challenged. We see them and other cost-conscious consumers continuing to embrace the dollar-stretching capabilities of Costco (COST) and Amazon.

“Despite a robust economy, a significant portion of American consumers are grappling with financial challenges that affect their shopping habits in profound ways, and to win their spending, merchants must understand these shoppers’ needs and preferences. These consumers, earning $50,000 or less annually and living paycheck to paycheck, represent a substantial yet often overlooked segment of the market…” Read more here

“Consumers, for their part, want BNPL options. The report “Divided, Not Conquered: Acquirer and Merchant Confusion Clouds Split-Payments Landscape,” also created in collaboration with Splitit, revealed that roughly half of Generation Z and millennial shoppers had used BNPL at least once in the last year, with 23% of them increasing their BNPL usage in that period. Moreover, 79% of BNPL users said they were very or extremely satisfied with the experience.” Read more here

CHIPs Act

Another data point for increasing semi-cap demand keeps us bullish on the portfolio’s position in Applied Materials (AMAT) ahead of CHIPs Act spending hitting that market.

This is from Bloomberg:

“Sales of Japanese chipmaking tools is expected to rise 15% in the year to March 2025, thanks to an AI-fueled recovery in spending on memory capacity, an industry group said. The Semiconductor Equipment Association of Japan lifted its annual outlook to ¥4.25 trillion ($26 billion), up from a previous forecast of ¥4.03 trillion. Increased investment by logic foundries is expected to boost sales another 10% in the year to March 2026 to ¥4.68 trillion, it said, with sales seen rising further to ¥5.15 trillion in the year ending March 2027. Growing demand for artificial intelligence-enabling chips and data centers is boosting chip investment. SK Hynix Inc. plans to invest $75 billion through 2028, mainly to meet demand for high-bandwidth memory to support Nvidia Corp.’s AI accelerators. Samsung Electronics Co. also seeks to catch up in producing such memory.” Read more here

Cybersecurity

More support for why we continue to own the First Trust Nasdaq Cybersecurity ETF in the portfolio can be found from DefenseOne.com:

“In February, 577 documents stolen from the Chinese hacking firm iS00N were dumped onto GitHub… the iSoon document dump revealed activities of unexpected scope. Working on behalf of China’s Public Security Bureaus and State Security Departments, the company has spied on targets all over Europe, Asia, and North America. The leak was “narrow, but it is deep,” said John Hultquist, the chief analyst at cyber security firm Mandiant. “We rarely get such unfettered access to the inner workings of any intelligence operation.” Read more here

And here's what TechCrunch said:

“TeamViewer, the company that makes widely used remote access tools for companies, has confirmed an ongoing cyberattack on its corporate network. In a statement Friday, the company attributed the compromise to government-backed hackers working for Russian intelligence, known as APT29 (and Midnight Blizzard).” Read more here

And Pymnts.com:

“Data extortion and ransomware attacks have had a substantial impact on businesses and marketplaces during the first half of 2024… as the year went on, cyberattacks have only ramped up, with several occurring in just the past week beyond just the CDK breach. On Wednesday (June 26), Arkansas-based Evolve Bank & Trust publicly confirmed news that a ransomware gang had hacked the bank and was posting customer data on the dark web. On June 24, retailer Neiman Marcus notified customers of a data breach that affected 64,472 people. The company said the “external system breach (hacking)” occurred on April 14 and was discovered on May 24.” Read more here

Digital Lifestyle

Consumers and companies continue to lean into online and mobile shopping, keeping us bullish on Amazon but also Costco and Coty (COTY) .

From Pymnts.com:

“Beauty brand e.l.f. has expanded its partnership with virtual world and gaming platform Roblox to include real-world commerce. In the new virtual kiosk within the e.l.f. Up! experience on Roblox, which is powered by Walmart, U.S. visitors can buy a Roblox-exclusive limited-edition physical product — a hoodie — as well as a selection of other physical products that include a skincare product, lip balm and sunscreen… Eligible users who purchase items through the virtual kiosk will also receive a “virtual twin” item for use on Roblox…” Read more here

From Forrester:

“Global retail e-commerce sales rose to 4.4trillionin2023,upfrom4.4 trillion in 2023, up from 4.4trillionin2023,upfrom1.3 trillion in 2014. By 2028, Forrester forecasts that global retail e-commerce sales will grow to $6.8 trillion and capture 24% of global retail sales.” Read more here

And from VentureBeat:

“Walmart showed off its use of augmented reality and artificial intelligence in its retail operations. It turns out that AR is leading to better digital sales and cool new applications that haven’t been done before. The techniques include virtual try-on of outfits, virtual showroom experiences and digital twins…” Read more here

Energy Demand

We continue to evaluate potential plays on power generation because of the growing demand-supply imbalance, as we see in this article from the Wall Street Journal:

“Tech companies scouring the country for electricity supplies have zeroed in on a key target: America’s nuclear power plants. The owners of roughly a third of U.S. nuclear power plants are in talks with tech companies to provide electricity to new data centers needed to meet the demands of an artificial-intelligence boom.” Read more here

Homebuilding & Building Products

The below from CNET.com speaks to our long-term view on Builders FirstSource (BLDR) and our expectation for the housing market to improve when the Fed starts cutting interest rates:

“Experts say the housing market is on a long road to recovery … The first domino likely to fall will be mortgage rates. As inflation moderates and the Federal Reserve begins to lower interest rates later this year, mortgage rates should improve. Most economic forecasts call for the average rate on a 30-year fixed mortgage to end 2024 between 6% and 6.5%.” Read more here