The Dow Jones Industrial Average fell 600 points before rebounding.
On Friday, the market fell sharply, with the Dow Jones index plummeting to 600 points, and then making up for the losses in the afternoon. Because investors are shifting out of technology stocks and buying stocks that will benefit from the reopening of the economy.
Recommended sections: Catering and entertainment, energy and mineral resources, aviation and cruise ships, etc
Key events
On Friday, the Dow Jones Industrial Average fell 0.6%, exceeding 150 points, while the S&P 500 fell 0.8% and the tech savvy Nasdaq Composite fell 1.3%.
After the release of a strong August employment report, stocks initially opened higher: according to data from the Department of Labor, the United States added 1.4 million jobs last month and the unemployment rate dropped to 8.4%.
However, as technology stocks continued to face pressure after a sharp sell-off on Thursday, the market quickly turned negative: Facebook, Amazon, Microsoft, and Google parent company Alphabet fell again on Friday.
At last Friday’s market low, the Dow Jones Industrial Average fell as much as 628 points, while the S&P 500 and Nasdaq indices fell by over 3% and 5% respectively.
However, in the late afternoon, stocks rebounded as some investors seemed to have bought into the weak parts of the market.
Despite the continuous rotation of technology stocks, stocks of companies benefiting from the reopening of the economy on Friday, including banks, cruise operators, airlines, and some retailers, led the stock market’s recovery.
TANGENT
The stock prices of Apple and Tesla fell more than 8% on the previous trading day, and after the two companies completed their stock split last week, their stock prices rose slightly on Friday.
Expert opinions
Senior Charlie Ripley, an investment strategist at Allianz Investment Management, believes that “today’s employment report is another sign of exhausted labor market recovery and should send a signal to lawmakers that another round of fiscal stimulus measures is needed to put the economic recovery on track
market background
Prior to Friday’s volatile trading day, Wall Street had already experienced a significant sell-off: the market plummeted on Thursday, marking the worst day since June, the stock market fell from record highs, and technology stocks plummeted. The Dow Jones Industrial Average fell 2.8%, a drop of over 800 points, the S&P Index fell 3.5%, and the Nasdaq Index fell 5%. In the past few months, stocks of large technology companies have played an important role in leading the market rebound. On Thursday, stocks of large tech companies dragged down the market, and tech stocks experienced their worst day since March.
Technology billionaire Bill Gates has expressed doubts about Tesla CEO Elon Musk’s plan to bring electric cars into the world of long-distance truck transportation, the latest questioning between the two business leaders.
The problem is that the battery is big and heavy, “Gates wrote in a blog post in late August
Even with significant breakthroughs in battery technology, electric vehicles may never become a practical solution for trucks, cargo ships, and passenger planes. When you need to travel short distances, electricity can come into play, but we need a different solution to deal with heavy-duty long-distance vehicles
ETSY enters S&P 500, Tesla does not
Gates pointed out that biofuels, not batteries, are a possible solution for commercial vehicles.
In his blog post, Gates also excluded Tesla from the list of companies that have made breakthroughs in electric vehicle technology, despite Tesla’s strong promotion of its yet to be launched Cyber Truck.
Technology billionaire Bill Gates has expressed doubts about Tesla CEO Elon Musk’s plan to bring electric cars into the world of long-distance truck transportation, the latest questioning between the two business leaders.
The problem is that the battery is big and heavy, “Gates wrote in a blog post in late August
Even with significant breakthroughs in battery technology, electric vehicles may never become a practical solution for trucks, cargo ships, and passenger planes. When you need to travel short distances, electricity can come into play, but we need a different solution to deal with heavy-duty long-distance vehicles
ETSY enters S&P 500, Tesla does not
Gates pointed out that biofuels, not batteries, are a possible solution for commercial vehicles.
In his blog post, Gates also excluded Tesla from the list of companies that have made breakthroughs in electric vehicle technology, despite Tesla’s strong promotion of its yet to be launched Cyber Truck.
According to Reuters, Musk has instructed Tesla to increase production for its upcoming first model, the 500 mile range commercial vehicle Semi. By 2019, companies including Pepsi Cola, FedEx, Wal Mart, UPS and Systems had ordered Tesla semi steel. On January 7, 2020, Tesla CEO Elon Musk delivered a speech at the opening ceremony of Tesla’s Made in China Model Y project held in Shanghai, China. Reuters/Archive Photo
Gates wrote, “The intensification of market competition means that consumers have many choices, from compact cars to stylish sports cars
Thanks to old companies like General Motors and Ford, as well as new car manufacturers like Riviera and Blinger, you will soon be able to buy an all electric pickup truck
These two billionaires do not always have the same opinion. Musk has repeatedly claimed that the coronavirus panic has been exaggerated, while Gates has warned that there may be a world changing pandemic in the coming years.
Musk called Gates “insignificant” and accused the Microsoft co-founder in his post of “The rumor that Bill Gates [and] I are lovers is completely untrue“
The meme about lovers comes from a recent Twitter incident, and it is suspected that the two of them were blacklisted on Twitter, but it cannot be confirmed.
Wall Street observers say that after a year of intense turbulence, there is still room for growth in the record breaking bull market next year. Here is the view of top Wall Street companies on large markets: The S&P 500 index is expected to climb in 2021.
Main Point
Goldman Sachs stated in its weekend report to clients that it expects Standard&Poor’s to reach around 4300 points by the end of next year (indicating a 17% upside potential), which is a widely accepted “optimistic” forecast, depending on the growth of corporate earnings and the continued low interest rate environment for the company.
However, almost no one is as optimistic as Goldman Sachs. Morgan Stanley, Wells Fargo, and LPL Financial have all set a target of 3900 points for the S&P by the end of 2021, which is about 6% higher than the current level.
Wells Fargo and LPL are confident that their company’s earnings will surge by nearly 30% next year, which will help overvalue some growth stocks, causing the average valuation of Standard&Poor’s (S&P) to double from around 22 last year to over 30 times the achieved annual earnings.
Morgan Stanley stated on Monday that cyclical stocks (stocks in discretionary industries such as airlines, restaurants, and hotel chains) have shown significant performance over the past six weeks, indicating an economic recovery, and added that these stocks should “expand their newly discovered leadership positions” next year. However, the company also warned that rising inflation next year could reverse the overall market rally, especially in “expensive growth stocks” (think: resident stocks like Zoom, Peloton, and Shopify); Morgan Stanley points out that if this happens, Standard&Poor’s could plummet by 8% next year.
On Monday afternoon, the S&P index was at 3690 points, up 13% so far this year but down about 0.4% from last Friday’s closing price, as the rapidly growing Covid-19 variant in the UK shook global stock markets.
What to pay attention to
Goldman Sachs pointed out that there are three downside risks in its stock market forecast. The most important thing is that the launch of vaccines in the first half of this year was worse than expected. The company estimated that 50% of the American population will be vaccinated by April, but it also pointed out that “the first week of distribution has proved that the logistics of correct delivery is very complex.” In addition, the increase in the federal government’s spending on the Covid rescue measures and the ongoing asset purchase by the Federal Reserve “may lead to inflation and interest rate soaring”, which has always led to a decline in the market (Morgan Stanley emphasized this appearance when it was slightly stronger). Finally, the Georgia Senate election on January 5th remains a huge source of uncertainty, and if Democrats achieve two unexpected victories, it could disrupt the market,
Jeff Buchbinder, a stock strategist at LPL Financial, said, “Skeptics may argue that the S&P 500 index has risen 64% since its low on March 23, and this market may soon be depleted, but historically, the second year of past bull markets has been delivering returns to investors. He added, “Based on the experience during the 2008-09 financial crisis and the expected strong rebound in returns, we believe that the potential for the first two years of this bull market may be better than average. Once the economy is fully opened up, the increase in consumer demand during the pandemic will help promote recovery.
Since the sharp market correction in March, momentum stocks, also known as technology stocks, have dominated the pandemic bull market. However, in the weeks since the US election, this trend has shifted as the outlook for value stocks improves. Although the growth rate of technology stocks has slowed down, historic breakthroughs in vaccination and new fiscal stimulus agreements have driven many hardest hit areas, such as tourism, finance, and energy industries. Both the S&P and Dow Jones Industrial Average hit historic highs on Thursday.
Bank of America’s stock strategist stated in late November that “the best days usually follow the worst days of the market.” He urged investors to avoid panic selling amid expected volatility in the new year. Since the 1930s, if an investor sits on 10 best return days every decade, their return will only be 19%, while their return since then has been 16485%. Bank of America has issued a 3800 point target for Standard&Poor’s at the end of 2021.
Canada and the European Central Bank have initiated interest rate cuts, how much longer will the Federal Reserve take? With the global interest rate cut cycle underway, how will assets unfold?
The European Central Bank (ECB) and the Bank of Canada (BoC) have already embarked on an interest rate cut cycle.The European Central Bank has lowered its key interest rate to 3.75%, while the Bank of Canada has reduced its rate from 5% to 4.75%. These measures signal a shift towards looser monetary policies among major central banks worldwide.
European Central Bank (ECB):
Background and reasons: Due to the slowdown in the Eurozone’s economic growth and easing inflation pressures, policymakers hope to stimulate economic activity through moderate monetary easing and prevent the negative impact of overly tight monetary policy on the economy.
Interest rate cut measures: Recently, the ECB lowered its key interest rate by 0.25 percentage points, from 4% to 3.75%. This marks the beginning of a new interest rate cut cycle aimed at addressing the weak economic growth and persistent inflation slowdown in the Eurozone.
Bank of Canada (BoC):
Interest rate cut measures: The Bank of Canada reduced its key interest rate from 5% to 4.75%. This also makes it one of the first major central banks globally to take action on interest rate cuts.
Background and reasons: Canada’s economic growth has been weak, and inflation is gradually easing. Policymakers believe it is necessary to support the economy through interest rate cuts and prevent the real estate market from overheating again.
Federal Reserve (Fed):
Expected actions: The Federal Reserve is expected to keep interest rates unchanged at the upcoming meeting, with the current federal funds rate at 5.5%, the highest level since 2001.
Background and reasons: As the U.S. economy and job market gradually normalize, it is expected that the Federal Reserve will gradually follow the footsteps of other major central banks and begin the process of policy normalization. With further economic growth and inflation slowdown, the Fed may start cutting interest rates for the first time later this year, such as in September.
The rate cuts by the European Central Bank and the Bank of Canada indicate that global monetary policy is entering a new phase. While there is currently no immediate urgency for the Federal Reserve to follow suit, it is expected to gradually begin policy normalization in the coming months. Investors should pay attention to policy changes by major central banks in order to adjust investment strategies and asset allocations.
Outlook of the Federal Reserve’s Policy
The Federal Reserve maintained its interest rates at its latest meeting, with the current federal funds rate at 5.5%. However, as the U.S. economy slows down and inflation pressures gradually ease, the market expects the Federal Reserve to potentially start cutting rates in the next few months. Here are some key factors and time expectations:
Normalization of the economy and job market:
Slowing economic growth: The U.S. economic growth has started to decelerate, with the impact of high interest rates becoming increasingly evident.
Loosening job market: While the job market remains strong, signs of rising unemployment rates and slowing hiring activities indicate that the labor market is gradually normalizing.
Easing inflation pressures:
Slowing inflation: With stable energy and commodity prices, core inflation pressures are easing.
Slowing wage growth: Labor market loosening helps slow down wage growth, which is crucial for reducing inflation.
Market expectations:
Timing of rate cuts: According to market expectations, the Federal Reserve may start cutting rates for the first time in September 2024.
Policy statement: The Federal Reserve has hinted at the possibility of one to two rate cuts in the future, depending on the performance of economic data and the continued trend of inflation.
The Impact of Global Interest Rate Cycles on Assets
The initiation of a global interest rate cutting cycle will have profound effects on different asset classes:
Stock Market:
Positive impact: Interest rate cuts generally benefit the stock market as lower rates reduce the financing costs for companies and increase investors’ risk appetite. Technology and growth stocks may perform well.
Sector differences: Financial stocks may face pressure as the net interest margin for banks narrows due to the decrease in interest rates.
Bond Market:
Bond prices rise: Interest rate cuts help drive bond prices up, especially for long-term bonds, as yields and prices have an inverse relationship.
Yield curve: Expectations for both short-term and long-term bond yields to decrease, investors may reallocate funds to long-term bonds to lock in higher yields.
Commodity Market:
Gold price rises: Interest rate cuts and loose monetary policies typically boost the price of gold as investors seek safe-haven assets.
Oil and other commodities: Economic slowdown may negatively impact the demand for oil and other commodities, but the depreciation of the dollar due to interest rate cuts may partially offset this impact.
Real Estate Market:
Lower financing costs: Interest rate cuts will lower mortgage rates, stimulating demand in the real estate market.
Return on investment: A lower interest rate environment may drive real estate investments as properties with higher yields become more attractive.
As the European Central Bank and the Bank of Canada take the lead in initiating interest rate cuts, the Federal Reserve is also expected to follow suit in the coming months. This global trend of interest rate cuts will have a broad impact on stock, bond, commodity, and real estate markets. Investors should closely monitor policy changes by major central banks and adjust investment strategies according to market dynamics.
As the European Central Bank and the Bank of Canada take the lead in initiating interest rate cuts, the Federal Reserve is also expected to follow suit in the coming months. This global trend of interest rate cuts will have a broad impact on stock, bond, commodity, and real estate markets. Investors should closely monitor policy changes by major central banks and adjust investment strategies according to market dynamics.
Historical Review: S&P Outperforming Industries and Risk Considerations during Rate-cutting Cycles
Outperforming S&P Industries
Technology Industry
Reasons: The technology industry typically benefits from rate cuts as lower interest rates reduce financing costs, promoting investment in research and innovation by companies. Additionally, investors tend to favor high-growth, high-risk tech stocks in a low-interest rate environment.
Historical Performance: During the rate-cutting cycle following the 2008 financial crisis, technology stocks performed exceptionally well. For example, large tech companies like Apple and Microsoft saw significant stock price growth during this period.
Consumer Discretionary Industry
Reasons: Rate cuts typically stimulate consumer spending as borrowing costs decrease, giving consumers more disposable income to spend on non-essential items. This industry includes consumer goods such as automobiles, luxury goods, and electronics.
Historical Performance: For instance, during the rate-cutting cycles of 2001 and 2008, stocks in the consumer discretionary industry showed strong performance.
Real Estate Industry
Reasons: Rate cuts lower mortgage interest rates, stimulating demand in the real estate market and enhancing the profitability of real estate development and sales companies.
Historical Performance: Real Estate Investment Trusts (REITs) generally perform well in a low-interest rate environment as investors seek stable income and capital appreciation.
Financial Industry
Reasons: While rate cuts may narrow banks’ net interest margins, they can indirectly enhance banks’ profitability by boosting loan demand and reducing bad debts. Insurance companies and asset management firms also benefit from increased market activity.
Historical Performance: For example, the financial industry performed relatively well during rate-cutting cycles in the 1990s and early 21st century.
Risk Warnings
Inflation Risk
Risk Description: Excessive interest rate cuts may lead to an increase in inflation. When interest rates are too low, consumption and investment activities increase, which may drive up price levels.
Response Strategy: Investors should pay attention to the policy direction of central banks and inflation data, and adjust their investment portfolios promptly.
Liquidity Risk
Risk Description: In a low interest rate environment, a large amount of funds flowing into the stock market may lead to excess market liquidity. Once market confidence is shaken, it may trigger rapid fund outflows and market volatility.
Response Strategy: Maintain appropriate cash reserves and liquidity management, and avoid excessive reliance on high-risk assets.
Interest Rate Reversal Risk
Risk Description: If the economic conditions improve, central banks may quickly raise interest rates, which will impact industries that rely on a low interest rate environment.
Response Strategy: Investors should closely monitor economic indicators and central bank policy statements, and prepare for interest rate hikes.
Credit Risk
Risk Description: A low interest rate environment may lead to excessive borrowing by companies and individuals, increasing systemic risk. Once interest rates rise or the economy declines, it may result in a large number of defaults.
Response Strategy: Pay attention to the financial health of companies and avoid investing in highly leveraged enterprises.
💡 During a rate-cutting cycle, the technology, non-essential consumer goods, real estate, and financial industries typically perform well. However, investors should be mindful of inflation, liquidity, interest rate reversals, and credit risks, diversify their investments reasonably, and maintain the ability to adapt flexibly to market changes.
Analysis of Economic Trends and Asset Performance during Interest Rate Cut Cycles by Merrill Lynch Clock
The Merrill Lynch Clock is a tool used to analyze the relationship between economic cycles and asset performance, dividing the economic cycle into four stages: recovery, overheating, stagflation, and recession. Each stage corresponds to different economic indicators and asset performance. The following is an analysis based on the Merrill Lynch Clock of the interest rate cut cycle:
Recession
Characteristics:
Slow or negative economic growth: GDP growth slows down, and corporate profits decrease.
Low or decreasing inflation: Reduced demand leads to easing price pressures.
High unemployment rate: Layoffs by companies lead to an increase in the unemployment rate.
Central bank cuts interest rates: To stimulate the economy, central banks typically adopt an interest rate cut policy.
Corresponding asset performance:
Bonds: Bond prices rise, especially long-term bonds, as the decrease in interest rates lowers bond yields (leading to price increases).
Gold: As a safe-haven asset, the price of gold usually rises.
Defensive stocks: Stocks from sectors such as utilities, consumer staples, and healthcare tend to perform relatively well.
Recovery
Characteristics:
Accelerated economic growth: GDP growth rate rebounds, and corporate profits improve.
Low but gradually rising inflation: Demand recovers, prices gradually increase.
Decreasing unemployment rate: Increased hiring by businesses leads to a decline in the unemployment rate.
Continued low interest rates: The central bank maintains a low interest rate policy to support economic recovery.
Corresponding asset performance:
Stocks: Especially cyclical stocks, such as technology stocks and non-essential consumer goods stocks, show strong performance.
High-yield bonds: With economic recovery, credit risk decreases, leading to an increase in prices of high-yield bonds (junk bonds).
Real estate: Low interest rate environment and economic recovery drive the real estate market up.
Overheat
Characteristics:
Rapid economic growth: GDP grows rapidly, and corporate profits reach their peak.
High inflation: Strong demand causes prices to rise rapidly.
Low unemployment rate: Labor market tightens, leading to wage increases.
Central bank raises interest rates: To control inflation, the central bank starts raising interest rates.
Corresponding asset performance:
Stocks: Cyclical stocks and growth stocks continue to perform well, but with increased volatility.
Commodities: Prices of commodities such as crude oil and metals rise due to strong demand.
Treasury Inflation-Protected Securities (TIPS): Protect investors from the impact of inflation and perform relatively well.
Stagflation
Characteristics:
Economic growth slowdown: GDP growth slows down or stagnates, leading to a decrease in corporate profits.
High inflation: Prices remain high.
High unemployment rate: Economic slowdown results in an increase in the unemployment rate.
Central bank challenges: The central bank faces a dilemma between controlling inflation and promoting economic growth.
Corresponding asset performance:
Gold: As a safe-haven asset, the price of gold usually rises.
Defensive stocks: Stocks from industries such as utilities, consumer staples, and healthcare tend to perform relatively well.
Cash and short-term bonds: Maintain liquidity to reduce the impact of market volatility.
💡 A specific analysis of the current interest rate cut cycle indicates that the economy is expected to transition from recession to recovery. Both the European and American economies are currently showing signs of a soft landing. The recessionary period may be very short-lived before entering a recovery phase. In the next stage, the marginal decrease in interest rates is likely to become a determining variable in market trends. Therefore, we recommend focusing on technology stocks and non-essential consumer goods.
The interest rate cut cycle in 2024
Currently (in 2024), the global economy is showing signs of slowing growth and weakening inflation. The European Central Bank and the Bank of Canada have already initiated interest rate cut cycles, with the Federal Reserve expected to follow suit in the coming months. Against this backdrop, the economy is in a phase of transition from stagnation to recovery:
Bond Market: Bond prices, especially long-term bonds, are rising due to falling interest rates.
Gold: As a safe-haven asset, gold performs well in times of increased economic uncertainty.
Stock Market: Technology stocks and non-essential consumer goods stocks are performing strongly, supported by the low interest rate environment favoring high-growth industries.
Real Estate: Low interest rates are driving an increase in demand in the real estate market.
Risk Considerations
Risk of inflation rebound: Overly loose monetary policy may lead to a rebound in inflation.
Risk of interest rate reversal: If the economy rapidly improves, central banks may raise interest rates again, dampening market confidence.
Liquidity risk: An environment of interest rate cuts may lead to excess market liquidity and increased volatility.
Today, let’s explore a well-known video game publisher and developer – Take-Two Interactive Software (hereinafter referred to as Take-Two).
Basic Information and Business Introduction of Take-Two
Take-Two Interactive Software, Inc. is a renowned video game publisher and developer headquartered in New York, USA, established in 1993. The company focuses on the development, publication, and sale of interactive entertainment software, video games, and entertainment content. Take-Two owns multiple subsidiaries and well-known brands, including Rockstar Games and 2K Games, with a product line that spans various game genres and is loved by players worldwide.
Take-Two’s business is divided into the following main parts:
Rockstar Games: Rockstar Games, a subsidiary of Take-Two, is known for developing high-quality, open-world games. Its representative works include the Grand Theft Auto series, Red Dead Redemption series, and Max Payne series. These games are highly praised for their outstanding storylines, exquisite graphics, and vast open worlds.
2K Games: 2K Games is another important subsidiary of Take-Two, focusing on the development and publication of various types of games. Its games include the NBA 2K sports series, the Civilization strategy series, the Borderlands role-playing series, and the BioShock series. These games have achieved commercial and critical success within their respective fields.
Mobile Games and Other Businesses: Take-Two also enters the mobile gaming market through its subsidiary Social Point, developing and publishing several popular mobile games. In addition, Take-Two is involved in emerging fields such as esports and virtual reality (VR), continuously expanding its business scope.
Take-Two is a diversified video game company that holds an important position in the global gaming market with its strong subsidiaries and well-known brands. The company is committed to providing high-quality interactive entertainment experiences for players worldwide through continuous innovation and business expansion.
Where Take-Two Holds a Global Leading Position and Key Success Factors
Take-Two maintains a leading position in multiple fields. Here are some examples:
Video Game Development and Publishing: Take-Two is a global leader in video game development and publishing, with well-known brands such as Rockstar Games and 2K Games. Key success factors include a strong game development team, innovative game design, and high-quality game content.
Popular Game Series: The company owns several popular game series, such as Grand Theft Auto, NBA 2K, and Red Dead Redemption. Key success factors are the high quality of the game series and continuous updates and expansions that attract a large number of loyal players.
Digital Distribution and Microtransactions: Take-Two has achieved significant success in digital distribution and in-game microtransactions, increasing revenue sources through online platforms and in-game purchases. Key success factors include a strong online platform, rich digital content, and effective user engagement strategies.
Key success factors for Take-Two include:
Strong Brands and IPs: The company has multiple world-renowned game brands and intellectual properties, which have a broad player base and high market recognition globally.
High-Quality Game Development: Take-Two is known for its high-quality game development capabilities, with top-tier development teams and advanced development technologies, ensuring the innovation and appeal of each game.
Diversified Revenue Models: Through various revenue models such as retail sales, digital downloads, subscription services, and in-game purchases, Take-Two increases the diversity and stability of its revenue.
Global Market Layout: The company strategically布局s in the global market, ensuring that its products and services can reach a wide international player base.
Other business areas and projects of Take-Two include:
Mobile Games: The company expands its mobile gaming business through acquisitions and internal development, increasing its influence in the rapidly growing mobile gaming market.
Esports: Take-Two invests in the esports sector, particularly in the esports leagues of the NBA 2K series, promoting the popularity and development of esports.
Virtual Reality (VR) and Augmented Reality (AR): The company explores and develops VR and AR technologies to provide more immersive gaming experiences.
Take-Two Interactive Software consolidates its market leadership in the field of video game development and publishing through strong brands and IPs, high-quality game development, and diversified revenue models. The company’s extensive global market layout and exploration of emerging technologies maintain its competitive edge in the industry. Additionally, Take-Two’s efforts in mobile gaming, esports, and virtual reality further enhance the company’s market influence and future growth potential.
Analysis of Major Strategic Transformations, Core Driving Factors, and Key Events Since the Company’s Establishment
Take-Two Interactive Software (hereinafter referred to as Take-Two) is a globally leading developer and publisher of interactive entertainment software headquartered in New York, USA. Since its establishment, Take-Two has achieved rapid business growth and market position consolidation through strategic acquisitions, business expansion, and technological innovation. Here is an analysis of some major strategic transformations, core driving factors, and key events since the establishment of Take-Two:
1993: Take-Two was established, initially focusing on the development and publication of PC games.
1997: The company acquired Rockstar Games, entering the high-end game development market.
2005: Take-Two went public on NASDAQ with the stock code TTWO, raising funds to expand its business.
2007: The company launched the 2K Games brand, entering the sports and strategy game market.
2013: Launched Grand Theft Auto V, which became one of the best-selling video games in history.
2016: Acquired social game developer Social Point, entering the mobile gaming market.
2018: Launched Red Dead Redemption 2, which received widespread acclaim and commercial success.
2021: Announced the acquisition of Nordeus, further expanding its mobile gaming business.
Here is an analysis of some key events and driving factors in Take-Two’s strategic transformation:
1993: Take-Two was established, focusing on PC game development and publication to meet the growing demand for computer games.
1997: The company acquired Rockstar Games, entering the high-end game development market. The driving factor was to enhance high-quality game development capabilities through acquisitions and improve the company’s competitiveness in the gaming market.
2005: Take-Two went public on NASDAQ, raising funds to expand its business. The driving factor was to utilize capital market resources to support the company’s long-term growth strategy and game development investment.
1994: COPEL went public on the São Paulo Stock Exchange (B3), raising funds to expand its business, using capital market resources to support the company’s long-term growth strategy and infrastructure investment.
2007: The company launched the 2K Games brand, entering the sports and strategy game market. The driving factor was to diversify the product line to meet the needs of different types of players and increase revenue sources.
2010: Acquired social game developer Playdots, entering the mobile and social gaming market. The driving factor was to expand into the rapidly growing mobile and social gaming sectors and enhance the company’s competitiveness in emerging markets.
2013: Launched Grand Theft Auto V, which became one of the best-selling video games in history. The driving factor was continuous innovation and high-quality game development to meet the needs of global players.
2016: Acquired social game developer Social Point, entering the mobile gaming market. The driving factor was to expand the market share in mobile gaming and increase revenue sources.
2018: Launched Red Dead Redemption 2, which received widespread acclaim and commercial success. The driving factor was to provide high-quality game content and enhance the company’s brand value.
2020: During the COVID-19 pandemic, Take-Two maintained strong market performance through online publishing and sales. The driving factor was to quickly adapt to market changes and ensure continuous business growth.
2021: Announced the acquisition of Nordeus, further expanding its mobile gaming business. The driving factor was to enhance mobile game development capabilities through acquisitions and improve the company’s competitiveness in the global mobile gaming market.
Take-Two Interactive Software’s strategic transformation mainly revolves around market expansion, technological innovation, and business diversification. Through a series of strategic acquisitions and technological upgrades, the company has established a strong competitive position in the interactive entertainment software market. In the future, Take-Two may continue to invest in emerging markets and technological innovation to maintain its leading position in the global interactive entertainment industry and meet the changing customer demands and market trends.
Detailed Introduction of Successive CEOs and Their Main Contributions to the Company Since Its Establishment
Here is a detailed introduction to the successive Chief Executive Officers (CEOs) of Take-Two Interactive Software (hereinafter referred to as Take-Two) and their main contributions to the company during their tenure:
Ryan Brant: Ryan Brant, the founder of Take-Two, served as CEO from 1993 to 2001. Under his leadership, the company achieved significant early development:
Established the company and successfully took it public (1997), providing the necessary funding for future expansion.
Promoted a series of strategic mergers and acquisitions, including the acquisition of Mission Studios, GameTek (U.K.), and BMG Interactive, expanding the company’s product portfolio and market coverage.
Laid the foundation for Take-Two’s important position in the global gaming market by acquiring DMA Design, the developer of Grand Theft Auto (later renamed Rockstar North).
Kelly Sumner: Kelly Sumner served as CEO from 2001 to 2002. Under his leadership, the company achieved the following:
Strengthened the company’s expansion in the international market, especially in the European market.
Promoted the company’s online gaming and digital distribution strategy, enhancing the company’s technical capabilities and market competitiveness.
Jeffrey Lapin: Jeffrey Lapin served as CEO from 2003 to 2004. Under his leadership, the company continued to deepen its market advantage:
Emphasized the diversification and innovation of the company’s products, promoting the development of several new game projects.
Improved the company’s financial condition and enhanced shareholder value.
Paul Eibeler: Paul Eibeler served as CEO from 2005 to 2007. Under his leadership, the company went through a critical period of restructuring and market adjustment:
Promoted improvements in the company’s internal management, increasing operational efficiency.
Strengthened the company’s strategy in game development and publishing, ensuring the company’s leading position in the industry.
Strauss Zelnick: Strauss Zelnick has served as CEO since 2011 and continues to lead the company to this day. Under his leadership, the company has made the following significant progress:
Promoted digital transformation and innovation, adopting advanced technologies to enhance game development and player experience.
Strengthened the company’s global leadership in the gaming market by continuously developing products and expanding markets to meet the diverse needs of players.
Emphasized corporate social responsibility, implementing sustainable development strategies, reducing environmental impact, and supporting community development.
Through a series of strategic acquisitions and cooperation, further consolidated the company’s market position and competitive advantage.
Take-Two Interactive, under the leadership of its successive CEOs, has successfully achieved technological innovation, market expansion, and service optimization. From a game developer in its early days, Take-Two has gradually grown into a leading global interactive entertainment company with a wide range of products and outstanding market performance. In the future, the company is expected to continue to maintain a leading position in technological innovation and market expansion, providing global players with a richer and higher-quality gaming experience.
Future Development Outlook of the Company
Take-Two Interactive Software (hereinafter referred to as Take-Two) is a leading global video game developer and publisher with multiple well-known brands such as Rockstar Games and 2K Games. Here is a detailed analysis of Take-Two’s future development outlook:
Technological Innovation and Game Development: Take-Two will continue to increase investment in technological innovation and game development. The company will focus on developing the next generation of video games, utilizing cutting-edge technologies such as virtual reality (VR), augmented reality (AR), and artificial intelligence (AI) to provide more immersive and interactive gaming experiences. By continuously launching innovative games, Take-Two will maintain its leading position in the field of game development.
Expansion of Game Portfolio: Take-Two will continue to expand its game portfolio, developing and publishing more types of games to meet the needs of different player groups. The company will use its brands such as Rockstar Games and 2K Games to launch more high-quality games, including single-player games, online multiplayer games, and mobile games.
Global Market Expansion: Take-Two will continue to expand its global market, especially in emerging markets such as Asia, Latin America, and the Middle East. The company will increase its market share and brand influence in these regions through localized game content and marketing strategies. Take-Two will also strengthen cooperation with local game developers and publishers to further expand its international business.
Mergers and Acquisitions and Strategic Cooperation: Take-Two will seek strategic mergers and acquisitions and cooperation opportunities to rapidly expand its business scale and technological capabilities. By acquiring game development companies with innovative technologies and market potential, Take-Two can integrate resources, achieve business synergies, and enhance market competitiveness. Recently, Take-Two has acquired several game studios to strengthen its development and publishing capabilities.
Digital Transformation and Online Services: Take-Two will accelerate digital transformation and develop and promote online gaming services. The company will launch more online games and subscription services, providing continuously updated game content and personalized services to increase player retention and satisfaction. Take-Two will also use big data and artificial intelligence technologies to optimize game design and marketing strategies.
User Experience and Community Building: Take-Two will focus on enhancing user experience and community building, optimizing gameplay, improving game quality, and responding to player feedback to provide better gaming experiences. The company will strengthen interactions with player communities, hosting online and offline gaming events to enhance player participation and belonging.
Sustainable Development and Social Responsibility: Take-Two will promote sustainable development and work to reduce environmental impacts in its operations. The company will adopt environmentally friendly technologies and materials to promote green game development. At the same time, Take-Two will actively participate in social welfare activities, supporting educational and cultural programs to enhance the company’s social image and influence.
Employee Training and Team Building: Take-Two will continue to invest in employee training and team building, enhancing the professional skills and innovation capabilities of its staff. The company will establish a comprehensive training system and career development pathways to attract and retain high-quality talent, providing a solid talent guarantee for the company’s continuous development.
Marketing and Brand Building: Take-Two will strengthen its marketing and brand building efforts, enhancing brand awareness and reputation through multi-channel promotional activities. The company will leverage digital media and social platforms to expand the brand’s influence and attract more potential customers.
Take-Two Interactive Software has broad prospects for the future. Through continuous technological innovation, global market expansion, mergers and acquisitions integration, and digital transformation strategies, Take-Two is expected to maintain its leading position in the global video game market and achieve long-term, stable growth.
The sharp decline of the seven giants has provided a good opportunity for long-term intervention
“The greatest danger in times of turbulence is not the turbulence. It is to act with yesterday’s logic.”
It’s not wise to stick to the old ways when facing changes and instability.
This tells us that when encountering new problems and uncertainties, we need to come up with new solutions, adapt to new situations, and not rely solely on old experience.
Especially in this rapidly changing world of technology, economy, and society, only by constantly updating our ideas can we keep up with the changes and seize opportunities.
The seven giants have adjusted and ushered in a good opportunity for layout
On July 30th, AMD’s performance gave a shot in the arm to the chip stocks that have been continuously plummeting recently.
AMD achieved good financial performance this quarter. The company’s total revenue was 5.835 billion US dollars, a year-on-year increase of 9% and a month on month increase of 7%, exceeding the expected 5.72 billion US dollars.
Net profit was $265 million, a year-on-year increase of 881% and a month on month increase of 115%.
Of particular note is the astonishing growth rate of the data center business, with revenue reaching $2.8 billion, a year-on-year increase of 115%.
Supported by strong demand for the AI accelerator MI300, AMD’s data center business has grown significantly!
Within a single quarter, MI300’s sales exceeded $1 billion, surpassing market expectations.
AMD plans to launch MI325X by the end of this year and MI350 by 2025 to compete with Nvidia’s Blackwell.
Su Zifeng said that the company’s AI chips sold better than expected, but the problem of insufficient supply will be postponed until 2025.
The sales of Ryzen CPUs increased by 49% year-on-year, and the sales of Radeon 6000 GPUs also increased year-on-year.
AMD expects data center GPU revenue to exceed $4.5 billion in 2024, higher than the previously predicted $4 billion.
After the sharp decline, Da Mo also expressed optimism about Nvidia
Morgan Stanley is optimistic about Nvidia, believing that their data center business, particularly in AI and machine learning hardware, will be the main driver of the company’s growth over the next five years.
They have designated Nvidia stock as their preferred choice, with a target price of $144, a significant increase from the current stock price.
Although the global economic downturn may affect capital expenditures, they believe that Blackwell’s strong market response can become one of the key drivers of Nvidia’s future growth.
Microsoft’s Financial Report Challenge
The total revenue for the fourth fiscal quarter was $64.727 billion, a year-on-year increase of 15%, with earnings per share of $2.95, a year-on-year increase of 10%.
However, Azure’s cloud business revenue growth fell short of expectations and capital expenditures surged, raising concerns among investors about the long return period of AI.
Azure and other cloud service revenue grew by 29%, slowing down from the previous quarter. Microsoft stated that Azure’s growth will accelerate in the second half of the 2025 fiscal year.
Microsoft’s capital expenditures have soared to $19 billion, with the majority going towards AI related infrastructure, and are expected to continue increasing in the future.
Microsoft is facing challenges such as a long return on investment period for AI and a surge in capital expenditures, but its long-term growth potential is still recognized by investors.
Tech giants may experience fluctuations in the short term, but in the long run, with technological advancements and increasing market demand, these companies are expected to usher in better development opportunities.
If you don’t want to buy a stock, these ETFs can be considered
Semiconductor related ETFs
IShares PHLX Semiconductor ETF (SOXX): This ETF tracks the Philadelphia Stock Exchange Semiconductor Index and covers over 30 major semiconductor companies, including Intel, Nvidia, and TSMC. Having high liquidity and diversified investment characteristics, it is a good choice for investing in the semiconductor industry.
VanEck Vectors Semiconductor ETF (SMH): This ETF tracks the MVIS US Listed Semiconductor Index, which includes major semiconductor equipment manufacturers and chip design companies such as TSMC, Nvidia, and Texas Instruments. The investment portfolio is broad and can capture the overall growth of the semiconductor industry.
SPDR S&P Semiconductor ETF (XSD): This ETF tracks the S&P Semiconductor Select Industry Index, covering approximately 40 semiconductor companies, including small and medium-sized enterprises. A more balanced distribution enables small and medium-sized enterprises to also benefit from industry growth.
ETF covering the seven giants
Invesco QQQ Trust (QQQ): tracks the Nasdaq 100 index, which includes many large tech companies such as Apple, Microsoft, Amazon, Google, Facebook, Nvidia, and Tesla. High liquidity and wide coverage of technology giants make it the preferred choice for investing in technology stocks.
Technology Select Sector SPDR Fund (XLK): tracks selected technology industry indices, including large technology companies such as Apple, Microsoft, and Nvidia. Focusing on investing in the technology industry is suitable for investors who are optimistic about the long-term growth of technology stocks.
Vanguard Information Technology ETF (VGT): VGT tracks the MSCI US Investment Market Information Technology Index, which covers large technology companies such as Apple, Microsoft, NVIDIA, etc. Low cost, suitable for long-term holding, with high growth potential.
IShares U.S. Technology ETF (IYW): tracks the Dow Jones U.S. Technology Index, which includes large tech companies such as Apple, Microsoft, Google, and Facebook. Wide coverage, able to effectively capture the overall performance of the technology industry.
SPDR S&P 500 ETF Trust (SPY): tracks the S&P 500 index, which, although not focused on tech stocks, includes a large number of tech giants such as Apple, Microsoft, Amazon, Google, etc. Diversified investment in various industries, with low risk, suitable for stable investors.
Investors with strong risk tolerance can consider leveraged ETFs
MicroSections FANG+Index 3X Leveraged ETN (FNGU): FNGU is a triple leveraged ETF that tracks the FANG+index, including Facebook (now Meta), Amazon, Apple, Netflix, Alphabet (Google), Microsoft, Tesla, NVIDIA, Twitter, and Alibaba. Suitable for investors who hope to achieve high returns in the short term, but with higher risks.
Direxion Daily Technology Bull 3X Shares (TECL): TECL is a triple leveraged ETF that tracks selected technology industry indices, including large tech companies such as Apple, Microsoft, and NVIDIA. Concentrating investment in the technology industry amplifies returns through leverage, but also increases risks.
ProShares UltraPro QQQ (TQQQ): TQQQ is a triple leveraged ETF that tracks the Nasdaq 100 index, including Apple, Microsoft, Amazon, Google, Facebook, and others. High liquidity and extensive coverage of tech giants make it suitable for investors who want to amplify their returns when tech stocks rise.
Note that leveraged ETFs use derivatives to amplify daily returns, which means their volatility and risk are significantly higher than regular ETFs.
Leveraged ETFs are typically suitable for short-term trading and speculation, but not for long-term holding as they may suffer sustained losses due to daily rebalancing, especially in volatile market conditions.
Before investing, it is recommended to carefully evaluate one’s risk tolerance and investment goals!
Disclaimer: The content of this article is for reference only and does not constitute investment advice. Investment carries risks, and caution is necessary when entering the market.
This is a story of a true investment legend, a tale of how an investor earned a hundredfold return in 11 years through deep insight and unwavering conviction.
On June 5th, Eastern Time, Nvidia’s stock price surged by 5%, with a total market value reaching $3.01 trillion, surpassing Apple’s $3 trillion market value and becoming the world’s second most valuable company, just behind Microsoft.
Today, let’s look at an investment legend about Nvidia, how an ordinary investor earned a hundredfold return in 11 years through deep insight and unwavering conviction.
First Encounter with Nvidia
In April 2013, Peter O’Keefe, founder of O’Keefe Stevens Advisory, first bought Nvidia (NVIDIA) at a price of $3.10 per share. At that time, the company was primarily considered a GPU provider that enhanced computer gaming effects. O’Keefe decided to invest in Nvidia because he valued the company’s dominant position in the GPU market and its solid financial condition. However, he did not foresee that Nvidia would become a hundredfold stock at that time.
Fluctuations and Persistence in the Investment Journey
During the 11 years of holding Nvidia, O’Keefe experienced many fluctuations. For example, Nvidia’s stock price once fell by 67% in less than a year. However, O’Keefe overcame these challenges with a deepening understanding of the company and keen market insight, successfully increasing his position at crucial moments. For instance, in May 2015, he saw in Nvidia’s annual report that the company discussed not only its computer gaming chips but also fields like autonomous driving and deep learning. Realizing “we have a very special investment,” he continued to increase his position at about $5 per share.
Key Turning Point
For O’Keefe, a conference call on May 12, 2016, was a significant turning point. Nvidia announced strong financial performance and clarified its enormous potential in deep learning and artificial intelligence fields. A few weeks later, foreseeing the vast prospects of Nvidia, O’Keefe decided to continue holding and observing its development.
Inevitable Fluctuations and Another Surge
In October 2018, due to fluctuations in the cryptocurrency market, Nvidia’s stock price fell by more than 57% in just two months. However, O’Keefe saw it as an opportunity to build a position and continued to hold. Subsequently, Nvidia’s stock price rebounded rapidly, nearly tenfold, over the next three years. In March 2019, Nvidia announced the acquisition of Mellanox, further consolidating its market position.
Driving the AI Revolution On November 30, 2022, the release of ChatGPT pushed the enthusiasm for artificial intelligence to new heights, driving Nvidia’s stock price to climb continuously. Tech giants like Microsoft, Google, and Apple joined in, further driving up Nvidia’s market value. By June 2023, Nvidia became the world’s second most valuable company, with a total market value of $3.01 trillion.
Reflection and Summary
In a letter to holders last August, O’Keefe summarized this successful investment experience, emphasizing the following points:
Continuous Learning and Self-Correction: Continuously repositioning and recognizing the value of the company during the holding process helped him overcome short-term fluctuations and persist in holding.
Long-Term Perspective: Viewing investments as long-term assets rather than short-term speculation.
Focusing on the Core of the Business: Grasping the key factors of the enterprise and ignoring short-term data and market fluctuations.
Concentrated Investing: Allowing the investment portfolio to become unbalanced over time, capturing the huge returns brought by market winners.
Through his investment in Nvidia, O’Keefe demonstrated how to achieve substantial returns in an uncertain market by continuously learning and adjusting. His story is not just a legend about wealth but also an inspiration about wisdom, persistence, and insight.
Recession triggers panic! The best time to allocate safe haven ETFs
Last Friday, the non farm payroll data for July in the United States came as a surprise, with the unemployment rate reaching 4.3%, triggering two major recession indicators and triggering a sustained sell-off in the US stock market!
Especially semiconductor stocks. It’s like a river of blood flowing! Is it time to temporarily allocate safe haven ETFs for industries such as pharmaceuticals and public utilities that are rising?
The US economy triggers two major signs of recession
McKelvey’s Rule
An indicator proposed by economist McKelvey to predict whether an economy will decline based on changes in unemployment rate.
Simply put, when the unemployment rate rises by more than 0.5 percentage points, this rule considers the likelihood of an economic recession to be significantly increased.
When the unemployment rate rises, it indicates that it has become difficult to find a job, which is usually a signal that the economy is starting to decline.
When the unemployment rate triggers a rise of over 0.5 percentage points, economists and policy makers will closely monitor other economic indicators to assess the risk of economic recession.
Sahm rule
Proposed by economist Claudia Sahm, it is also a predictive indicator for economic recession.
This rule looks at the three-month moving average of the unemployment rate. If it is 0.5 percentage points higher than the lowest point in the past year, the Sahm rule considers that an economic recession has begun.
The rapid increase in unemployment rate means a significant weakening of economic activity, which can detect the arrival of economic recession earlier.
The US unemployment rate rose from 4.1% to 4.3% in July, which not only surprised the market but also exceeded economists’ expectations. Triggering the Sahm rule, a rise in unemployment usually means a slowdown in economic activity, and companies will reduce their employees to cope with reduced income or rising costs.
Compared to traditional indicators of economic recession, such as two consecutive quarters of negative GDP growth, the Sahm rule can more quickly capture early signs of economic downturn, thereby helping decision-makers take timely response measures.
The recent increase in unemployment rate may be the result of a combination of slowing economic growth, reduced inflationary pressures, and policy uncertainty.
There may be a risk of recession, mainly including three major impacts:
The possibility of policy adjustment is that the Federal Reserve may adopt a loose monetary policy, such as interest rate cuts, to alleviate pressure on the job market by stimulating economic growth.
In the market reaction, investors may be worried about the economic prospects, leading to increased volatility in the stock market, increased risk aversion, and capital flows to safe assets such as treasury bond and gold.
Adjusting corporate strategy, including cost cutting, delaying investment plans, and reducing recruitment, to further impact the job market.
By delving into these two rules, we can better analyze the current market situation, formulate corresponding strategies, and maintain stable investment performance in uncertain market environments.
Configuring safe haven ETFs is the current trend
Investor response strategies
Consider adjusting the investment portfolio and increasing the allocation of defensive assets, such as high rated bonds and defensive stocks (such as healthcare, utilities, etc.), to reduce the risks brought by market volatility.
Pay attention to economic data, especially employment, inflation data, and consumer confidence index, and adjust investment strategies and risk management measures in a timely manner.
Stay calm amidst fluctuations, avoid blindly following trends in investment, adhere to a long-term investment perspective, and seek high-quality assets with long-term growth potential.
The latest data on the US economy has triggered two major signs of recession – the Sahm rule and the continuous inversion of the yield curve.
Triggered market concerns about economic recession. Investors may consider allocating safe haven ETFs to protect their investment portfolios from potential economic downturns.
The inverted yield curve is another important recession indicator, as the US yield curve has been inverted for the past two years, meaning that short-term bond yields are higher than long-term bonds.
It means that the market’s expectations for future economic growth are weak, usually indicating the arrival of an economic recession. Recent data has further strengthened this signal.
Safe haven ETF category
Treasury bond ETFs: These ETFs invest in US treasury bond, providing stable returns and low risks. For example, iShares 20+Year Treasury Bond ETF (TLT) and Vanguard Total Bond Market ETF (BND) are common choices.
Gold ETF: Gold is often seen as a safe haven asset and performs well during times of economic uncertainty. SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) are two popular gold ETFs.
Defensive stock ETFs: These ETFs invest in stocks in defensive industries such as utilities, consumer essentials, and healthcare. These industries typically perform well during economic downturns. The Vanguard Consumer Staples ETF (VDC) and Health Care Select Sector SPDR Fund (XLV) are examples of such ETFs.
Other defensive stock ETFs
Utilities Sector
Utilities Select Sector SPDR Fund (XLU): invests in large companies in the utility industry, including power, gas, and water companies.
Vanguard Utilities ETF (VPU): tracks the MSCI US Investable Market Utilities 25/50 index, covering a range of utility companies.
Consumer Staples Sector
Consumer Staples Select Sector SPDR Fund (XLP): invests in large companies in the consumer goods industry, such as food, beverage, and household goods companies.
Vanguard Consumer Staples ETF (VDC): tracks the MSCI US Investable Market Consumer Staples 25/50 Index, covering a range of consumer necessity companies.
Healthcare Sector
Health Care Select Sector SPDR Fund (XLV): invests in large companies in the healthcare industry, including pharmaceuticals, medical devices, and health insurance companies.
Vanguard Health Care ETF (VHT): tracks the MSCI US Investable Market Health Care 25/50 index, covering a range of healthcare companies.
Real Estate Sector
Vanguard Real Estate ETF (VNQ): invests in real estate investment trusts (REITs) in the United States, which own and manage real estate generated by revenue.
IShares U.S. Real Estate ETF (IYR): tracks the Dow Jones U.S. Real Estate Index, covering a wide range of real estate companies and REITs.
Telecommunications Sector
IShares U.S. Telecommunications ETF (IYZ): invests in companies in the U.S. telecommunications industry, including those providing telecommunications services.
SPDR S&P Telecom ETF (XTL): tracks the S&P Telecom Select Industry Index, covering a wide range of telecommunications companies.
Global defensive stock ETF
IShares Global Consumer Staples ETF (KXI): invests in stocks of global consumer necessity companies, covering both developed and emerging markets.
IShares Global Utilities ETF (JXI): invests in stocks of global utility companies, providing an internationally diversified investment portfolio.
High quality and high dividend stock ETF
Vanguard Dividend Appreciation ETF (VIG): invests in companies that have continuously increased dividends for many years, typically financially stable and able to perform well during economic downturns.
IShares Select Dividend ETF (DVY): tracks companies with high dividend yields, covering high-quality companies in some defensive industries.
Volatility ETFs: These ETFs aim to hedge market volatility by investing in volatility indices such as VIX. For example, ProShares VIX Short Term Futures ETF (VIXY) and iPath Series B S&P 500 VIX Short Term Futures ETN (VXX).
Defensive stock ETFs offer a diverse range of options, covering multiple industries and sectors. Investors can protect their investment portfolio during periods of economic uncertainty, reduce volatility risks, and maintain stable returns.
Given the emergence of two recession indicators, rising unemployment rates and inverted yield curves, market concerns about economic recession have intensified. In this case, investors can consider allocating safe haven ETFs to protect their investment portfolios from potential economic downturns.
Disclaimer: The content of this article is for reference only and does not constitute investment advice. Investment carries risks, and caution is necessary when entering the market.
Four normalizations to watch: Economy, Employment, the Fed, and the Market
First, Economic Normalization:
Current Status: Despite high inflation and the Federal Reserve’s tightening policies, the economy has grown over 2% in the past six quarters.
Future Outlook: As high borrowing costs gradually filter through the economy, low and middle-income consumers begin to feel the pressure. Although wage growth has outpaced inflation in the past year, real wage growth (adjusted for inflation) slows as the labor market cools, affecting disposable spending. Housing and manufacturing activities have recently been volatile, but the outlook remains optimistic.
Conclusion: The economic slowdown has somewhat eased inflationary pressures, and the scenario of a soft landing is quite feasible.
Second, Labor Market Normalization:
Current Status: The U.S. added 272,000 jobs in May, but the unemployment rate rose from 3.9% to 4%. Despite the job market remaining strong, the level of tension is diminishing.
Future Outlook: The resilience of the job market has eased stagflation concerns, allowing the Federal Reserve to possibly keep policy unchanged through the summer. Hiring is expected to slow in the future, but significant layoffs are not anticipated.
Conclusion: The cooling of the labor market should lead to slower wage growth, thereby reducing inflationary pressures in the service sector.
Third, Monetary Policy Normalization:
Current Status: The Bank of Canada and the European Central Bank have begun their rate-cutting cycles. The Federal Reserve is expected to keep interest rates unchanged at the June meeting and may start cutting rates in September.
Future Outlook: Global interest rates may have already peaked and will gradually decline over the next 12 months.
Conclusion: Investors should consider reevaluating the cash and fixed-income allocations in their portfolios to avoid reinvestment risks.
Fourth, Market Breadth Normalization:
Current Status: AI companies like NVIDIA are driving the market, but more sectors, asset classes, and regions have participated in the market’s rise.
Future Outlook: AI technology will grow rapidly over the next 5 to 10 years, but diversified investments still hold value. The future phase may benefit from companies that apply AI to enhance productivity.
Conclusion: It is recommended to complement cyclical and value investments in addition to growth stocks.
The gradual normalization of the economy and labor market indicates that the time for interest rates to slowly normalize is not far off. Such trends help maintain a bull market and bring more balanced investment portfolio returns.
Alphabet, Google’s parent company, announced its financial performance for the fourth quarter of 2023, showing a strong performance. The company reported total revenue of $86.3 billion for the quarter, a 13% increase from the $76 billion reported in the same period in 2022. This growth is notable in several key areas of Alphabet’s business.
Notably, Alphabet’s operating income for the quarter was $23.7 billion, with a net profit of $20.7 billion, which is impressive. This indicates a significant increase compared to the previous year. CEO Sundar Pichai attributed this performance to the continued strength of search and the growing contributions of YouTube and Cloud, which have benefited from investments in artificial intelligence and innovation.
Breaking down the earnings, YouTube’s advertising revenue was $9.2 billion, a significant increase from the $7.96 billion a year ago. Google Cloud also announced strong figures, with revenue at $9.19 billion, compared to $7.32 billion in the same period last year. Another area of note is “Google Subscriptions, Platforms, and Devices,” which includes hardware, Play Store, and non-advertising YouTube revenue, bringing in $10.79 billion, compared to $8.79 billion in the same period last year.
However, it should be noted that the growth in advertising revenue was slightly below some market expectations. The full-year advertising revenue grew to $65 billion, which was below expectations, leading to a drop in Alphabet’s stock price in after-hours trading.
Alphabet also made strategic financial decisions, such as extending the useful life of its hardware, saving a significant amount of money. By extending the useful life of servers from three to six years and network equipment from four to five years, Alphabet reduced depreciation expenses and increased net income. In the last quarter of 2023, this decision reduced depreciation expenses by $983 million and increased net income by $765 million. For the full year, depreciation was reduced by $3.9 billion, and net income increased by $3 billion.
In summary, Alphabet’s financial performance in the fourth quarter of 2023 was strong, with significant growth in several key areas, although the growth in advertising revenue was slightly below expectations. The company’s strategic investments in artificial intelligence and efficient management of hardware resources played an important role in this success.
Revenue
Revenue was $86.31B (+13.5% Y/Y) exceeding by $1.04B.
Net sales by category: Google Search and Other: $48.02B (12.7 Y/Y %); YouTube Advertising: $9.2B (15.6 YoY %); Google Network: $8.3B (-2.1 Y/Y %); Google Subscriptions, Platforms, and Devices: $10.79B (22.6 YoY %); Google Cloud: $9.19B (25.5 YoY)
Although almost every revenue segment achieved double-digit growth, Google Network declined by ~2% YoY, and by ~10% compared to Q4 of 21. The Network business may not be very significant, as it is a relatively low-margin segment compared to search, but it may indicate a general direction of the open network’s development.
As I mentioned earlier, since its initial public offering 20 years ago, Google’s reliance on non-Google assets has been decreasing, a trend that may have accelerated and could continue to do so in the GenAI era.
Is this bad news for Google? On the one hand, you could argue that the role of the open network has been diminishing for years without causing too much impact on Google’s health. On the other hand, Dan Taylor, Google’s Vice President of Global Advertising, was quoted in a 2022 Wall Street Journal article saying:
Without websites, there is less content that is searchable and discoverable, and thus less need for search engines like ours. In this way, our interests are aligned with publishers who are supported by advertising.
In my view, the extent to which Google can be insulated if the open network becomes increasingly paralyzed is still an open question. If Google did not own YouTube, this would obviously be terrible news; perhaps Google’s acquisition of YouTube will prove to be a better masterpiece than people thought 5 years later!
EBIT (Earnings Before Interest and Taxes)
Google’s services business maintained an operating profit margin in the mid-30s. What is truly surprising is Google Cloud, which increased its profit margin from 3.2% in Q3 of 2023 to 9.4% in Q4 of 2023. In just 16 quarters, Google Cloud’s profit margin has improved from a negative 62% to a positive 9.4%!
Google’s incremental profit margin also remained quite healthy at 54% in Q4 of 2023. While the company’s costs seem exaggerated, please note that this includes $1.2 billion in restructuring costs in Q4 of 2023 and $3.9 billion in 2023.
Search
The year-over-year growth in search revenue continues to accelerate. While the bear case for GenAI remains the most concerning search issue for Google watchers, the business seems to be cruising so far.
Some interesting comments about search from the earnings call:
We are already experimenting with Gemini in Search, where it’s making our Search Generative Experience, or SGE, faster for users. We have seen a 40% reduction in latency in English in the U.S.
We had particular strength in retail in APAC, a trend that began in the second quarter of 2023 and continued through the end of the year.
YouTube
Like search, YouTube advertising growth also accelerated in the quarter. YouTube Shorts are now viewed 70 billion times a day (please note, this is the same data they shared last quarter).
Google Cloud
After disappointing investors last quarter, Google Cloud exceeded expectations this quarter (~22%).
Google Cloud’s revenue has historically lagged AWS’s revenue by four years. Looking at AWS’s performance during the 2020-22 period, I think it’s fair to assume that Google Cloud will almost certainly not maintain this historical trend during the 2024-26 period. 2023 was also the first time that Google Cloud’s incremental revenue growth was lower than the previous year.
Google Other
Google Other is now categorized as “Google Subscriptions, Platforms, and Devices.” Subscription revenue (YouTube Premium and Music, YouTube TV, and Google One) now stands at $15 billion, having grown ~5x since 2019.
Capital Allocation
Google announced $7.9 billion in FCF last quarter and repurchased $16 billion in stock. Please note that Google paid $10.5 billion in taxes last October, which affected their FCF this quarter. Overall, they generated $69 billion in FCF in 2023 and repurchased $62 billion in stock. They still have $98 billion in net cash on their balance sheet.
Capital Expenditures and Operating Expenses
Google’s employee headcount remained essentially flat quarter-over-quarter, but the percentage of capital expenditures to revenue increased to 12.8% in Q4 of 2023, up from Q1 of 2022. The increase in capital expenditures was “primarily driven by investment in technology infrastructure, with the largest portion being servers, followed by data centers.”
Google also stated that capital expenditures in 2024 will be “significantly larger” than the ~$32 billion in 2023. Management did not fully hint at or clarify what “significantly larger” means, but I guess around $40-44 billion:
The increase in Q4 capital expenditures reflects our extraordinary outlook for applications of artificial intelligence that will serve users, advertisers, developers, cloud enterprise customers, and governments globally, as well as the long-term growth opportunities provided by it. In 2024, we expect capital expenditure investments to be significantly larger than in 2023.
Outlook
Google did not provide guidance, but management seemed to imply that the company will face tougher competition in the future:
As we move into 2024, with ad revenue more than $100 billion higher than in 2019, we remain focused on maintaining healthy growth on this larger base.
While revenue may face a tougher second half for Google (and other big tech companies), Google may be able to navigate this and increase earnings through better operational discipline:
As we have emphasized repeatedly, we remain committed to our framework of enduringly redesigning our cost base while we invest to support our growth priorities. Key factors in slowing our expense growth include: first, prioritization of products and processes to ensure we have the right resources behind the most important opportunities and reallocate resources where possible; second, organizational efficiency and structure. We are focused on removing layers to simplify execution and increase speed.
