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Growth Team Weekly Investment Insights
1) Another Disappointing Inflation Data Point
Expectations of a 2024 rate cut were further hampered last week when both the personal consumption expenditures (PCE) and core PCE inflation measures came in higher than expected.
Source: FactSet, US Bureau of Economic Analysis. As of 4/29/2024
Source: FactSet, as of 4/29/2024
Furthermore, the silver lining of economic strength driving sticky inflation took a hit as preliminary GDP growth came in at an annualized pace of 1.6% Q/Q versus expectations of 2.2%. However, within the GDP data, consumer spending continued to look strong.
Source: FactSet, US Bureau of Economic Analysis. As of 4/29/2024
2) Defense Spending
Our team has been looking at companies in the defense industry as conflicts around the world are leading to sizable upticks in global spending. As this Financial Times article points out, military spending around the world rose almost 7% to a record $2.4tn last year, the steepest annual increase in 15 years. In particular, European defense spending rose 16% to $588bn.
3) Alphabet
Alphabet surged ~10% after reporting strong fundamental results and its first-ever dividend.
4) Big Tech Artificial Intelligence (AI) Spending is Accelerating
We have been closely watching for signs of what future datacenter capex may look like for major enterprises and hyperscalers, which was recapped in this Financial Times article.
Source: FactSet, as of 4/29/2024
We believe these rising capex numbers indicate continued tailwinds for companies selling into different parts of the datacenter supply chain, such as graphic processing units, networking equipment, power management, liquid cooling and electrification.
5) Spotify’s Margin Explosion
Spotify reported net income of €197mn on €3.6bn in revenue in Q1. In the same period a year ago, it lost €225mn on €3bn in revenue.
Source: FactSet, as of 4/29/2024
As outlined in this Financial Times article, Spotify has been more focused on cost discipline, including cutting more than 2,000 employees (roughly a quarter of its workforce) last year. This helped Spotify’s gross profit margins in the quarter rise to 27.6%, up from 25.2% a year ago.
However, one negative in the recent report was a disappointing monthly active user number. The total number reached 615 million, lower than the 618 million Spotify had forecast, which it blamed on “moderated marketing activity.” In addition, the company only reached its paying subscriber forecast of 239 million, an increase of just 3 million.
Overall, investors cheered the report and sent Spotify's shares up over 10%. The company’s stock has more than doubled over the past year.
Artisan Partners Growth Team manages portfolios that held securities issued by Alphabet, Microsoft and Spotify as of 3/31/24. Portfolio securities are subject to change.
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