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Growth Team Weekly Investment Insights
1) Conflicting Messaging: Strong Retail Sales vs Rising Delinquencies
Given its importance in the US economy, a lot of attention is on the consumer. While the labor market remains very tight, at some point inflationary pressures and elevated financing costs make it seem like a question of when, not if, consumption will start to slow down.
Since the surprising drop in January, US retail sales have bounced back to solid growth. March spending rose by 0.7% (versus a consensus 0.3% gain) and February’s print was revised higher to 0.9% from 0.6%.
Source: FactSet/US Census Bureau.
However, we are cautious about consumers' health given emerging signs of weakness. Credit card and auto loan delinquency rates are rising, which signals increased financial stress, especially among younger and lower-income households.
2) Stubborn Inflation Erases Rate Cut Expectations
With economic activity remaining healthy, it is not entirely surprising that inflation has remained resilient. March was the fourth straight month of the YoY core CPI metric coming in higher than expectations, and the market continues to walk back its rate cut expectations.
Source: FactSet/US Bureau of Labor Statistics.
Source: FactSet, as of 4/19/2024
3) Taiwan Semiconductor Manufacturing Company (TSMC) Earnings Show Mixed Results
TSMC was seemingly left behind amid investors’ artificial intelligence (AI) enthusiasm through 2023 due to geopolitical concerns, rising capital intensity as it builds new fabs outside of Taiwan and mature parts of its business (industrials and PCs) facing cyclical pressure. However, we believe the company is transitioning to a period of accelerating growth due to improving demand for its AI-related products, which was supported by its recent earnings results.
Despite the bullish AI outlook, the market reacted negatively to the report due to signs of weakness within the non-AI part of its business, such as autos and smartphones. The semiconductor industry ended up being the worst performer last week.
Source: Artisan/FactSet/MSCI/GICS. As of 4/19/2024. Past performance does not guarantee and is not a reliable indicator of future results.
4) AI’s Electricity Constraint
In our recent investor letter, we mentioned our excitement around the once-in-a-generation investment cycle happening in electrification. This is not just a story about electric vehicles. Rising electricity demand will have wide-ranging implications across grid infrastructure modernization and alternative power generation (wind, solar, hydrogen, etc.).
This Financial Times article highlights data centers as one of the forces driving electricity demand due to an AI-driven capex cycle.
Highlights include:
5) Netflix
According to the Financial Times, Netflix’s crackdown on password sharing helped the streaming service blow past Wall Street’s earnings forecasts, but its shares dropped because it plans to stop regularly disclosing its subscriber numbers,
While a company reducing transparency of key metrics is never a good thing, we understand the move and continue to believe the company has levers to pull through pricing power and advertising to generate continued growth, even if subscription growth slows.
Artisan Partners Growth Team manages portfolios that held securities issued by Taiwan Semiconductor Manufacturing Company, Amazon, Microsoft, Alphabet, and Netflix as of 3/31/24. Portfolio securities are subject to change.
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