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Growth Team Weekly Investment Insights

1) Data Shows US Economy Avoids Inflationary Overheating, Fed Likely to Breathe Easier

As we bid farewell to May, the key reaction was a collective exhale of relief given US economic activity maintained a balanced pace that was not excessively hot enough to stoke inflationary pressures. The latest batch of metrics from last week further bolsters this narrative.

The core personal consumption expenditures (PCE) price index, which excludes food and energy, surprised to the downside on both a MoM and YoY basis. Furthermore, consumer spending rose 0.2%, which was lower than the expected 0.3% increase and the 0.7% gain reported last month. This should provide confidence to the Fed that the data will continue to slow after a reacceleration scare in Q1.

 

 

 

 

 

 

Source: FactSet, as of 5/31/2024

2) Surprise Inflation Spike in Eurozone Throws ECB Rate Cut Plans into Question

Euro zone inflation rose for the first time this year to 2.6% year-on-year, which was up from 2.4% in the previous month and ahead of expectations. Core inflation accelerated from 2.7% to 2.9%. 

Until this month, euro zone inflation had been gliding gently down towards the ECB’s 2% target all year, allowing policymakers to clearly signal they expect to start cutting rates.

 

 

 

 

 

 

 

 

 

 

 

 

 

While bond rates rallied on the news (Germany’s 10-year yield jumped to 2.7% in response to the data, its highest level in more than six months), markets still expect a rate cut this week. However, some policymakers have warned that higher inflation readings will make the ECB less likely to make a back-to-back cut in July. Markets are pricing in between two and three 0.25% rate cuts this year.

3) Forget Apple! Nvidia's $2 Trillion Surge Redefines Stock Market Growth

Apple’s market capitalization became the first to enter the trillion-dollar club in August of 2018. From there, it only took two years to climb to $2tn and another three years to reach $3tn. Increasing by $2tn in value within five years seemed like a monumental achievement and unlikely to happen again anytime soon.

Well, NVIDIA created a staggering $500bn in value in May alone, $1tn in the last four months and a mind-boggling $2tn in the last year!

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: FactSet, as of 5/31/2024

4) AI Feast, Software Famine? Enterprise Spending Shifts Hit Stocks 

One of our observations this quarter has been broad-based weakness among software companies. The WSJ recently put out an article on the topic and highlighted that “of the 10 largest cloud software providers by annual revenue, eight have seen their stocks sell off by an average of 9% the day after their latest results, according to FactSet data.”

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: FactSet, as of 5/31/2024. Past performance does not guarantee and is not a reliable indicator of future results.

A couple of common undercurrents have been happening in this space.

• First, regarding the small- and medium-sized business segment, we have observed management teams pointing out that signs of macroeconomic weakness are impacting their buying decisions.
• Second, regarding large-enterprise customers, the takeaway seems to be that the AI infrastructure winners (such as NVIDIA’s 400% revenue growth in its data center segment) may be benefiting at the expense of software companies. Management teams have focused spending on AI initiatives, which has resulted in elongated sales cycles, deal compression and budget scrutiny of software investments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5) Are Robotics Poised for Global Growth?

We recently published a short insight piece highlighting why we believe the secular e-commerce trend is alive and well. The percentage of US retail sales happening online is around ~15%, and we believe it will continue moving higher from here. One thing we looked at is e-Commerce penetration within other countries as an example of what future penetration can look like (China is over 45%!).

 

 

 

 

 

 

 

 

 

 

 

 

Along those same lines of looking at leading countries to gauge the future market opportunity, the below graphic displays the potential for robotics and industrial automation trends. There are many companies that we believe are positioned to capitalize on manufacturers’ widespread adoption of automation to improve quality and productivity. Furthermore, the trend could intensify amid the labor shortages in many developed and emerging economies.

South Korea is the current leader with 1,012 installed robots per 10,000 employees. This is significantly higher than all the world’s leading economies, such as Germany, Japan, China and the US.