Week of February 5, 2023
The monthly jobs report shocks Wall Street by adding 517,000 jobs in January 2023… Big Tech Earnings…the College Dropout that just lost $61B, plus more… All coming up in this week’s
The economy wasn’t supposed to add half a million jobs in January.
In fact, a consensus poll of 81 economists expected job gains to land at around 185,000, according to several reports.
After 11 months of aggressive rate hikes from the Federal Reserve, the experts were naturally expecting the economy’s job gains to slow as higher borrowing costs percolated through the economy, slowing investment and growth and pushing companies to pull back on spending and hiring.
On Wednesday (2/1/23), the Fed concluded its first policymaking meeting of 2023 by green-lighting a quarter-point interest rate hike — the smallest since March — as a reflection of progress in its fight to lower inflation.
The more moderate increase had been long telegraphed and came despite a hotter-than-expected December Job Openings and Labor Turnover Survey (JOLTS) report, which showed job openings grew to more than 11 million, or 1.9 available jobs for every job seeker.
Job growth was widespread in January, led by gains in leisure and hospitality (128K), professional and business services (82k), and health care (58K).
Employment also increased in government (74K), partially reflecting the return of workers from a university strike in California.
Other gains were seen in retail trade (30K), construction (25K), transportation and warehousing (23K), and manufacturing (19K).
There were also big revisions, with employment gains in November and December combined being 71K higher than previously reported.
The January data continued to show a tight labor market although some companies prepare for an economic slowdown and the tech layoff continues.
Big Tech Earnings Announcements Are In…
Apple (AAPL) recovered from losses of more than -4% and closed up more than +2% after reporting Q1 service revenue of $20.77 billion, better than the consensus of $20.47 billion. Apple initially fell after reporting Q1 total revenue of $117.15 billion, below the consensus of $121.14 billion.
Erik Woodring from Morgan Stanley maintained a Buy rating on Apple (AAPL), with a price target of $175.00.
Amazon.com (AMZN) closed down more than -8% after reporting Q4 Amazon Web Services net sales excluding F/X up +20%, weaker than the consensus of up +23.5% and forecasting Q1 net sales of $121.0 billion-$126.0 billion, the midpoint below the consensus of $125.5 billion.
Morgan Stanley analyst Brian Nowak raised the firm’s price target on Amazon.com (AMZN) to $150 from $140 and keeps an Overweight rating on the shares, stating that the company’s results and guidance showing a “steep improvement in retail profitability” gives the firm more confidence in the scale-driven efficiencies and profits that lie ahead. Though AWS faces near-term macro uncertainty, Morgan Stanley remains “bullish,” the firm added.
Alphabet (GOOGL) closed down more than -2% after reporting Q4 advertising revenue of $59.04 billion, below the consensus of $60.64 billion.
Brian Fitzgerald from Wells Fargo maintained a Buy rating on Alphabet (GOOGL), with a price target of $150.00.
Meta Platforms (META) , Facebook’s parent company, soared nearly 22% in late-day trading on Thursday, nearing the $500B market cap level, after the Mark Zuckerberg-led company’s fourth-quarter results and guidance were better than feared.
Wall Street analysts reacted to Meta’s (META) report by racing to upgrade the stock and praise the social-media giant’s “year of efficiency.”
Rosenblatt Securities analyst Barton Crockett upgraded Meta (META) to buy from neutral and raised his price target to $220 a share from $104, stating the company now has the “durability” to receive a premium earnings multiple.
Microsoft Corp. (MSFT), Meta Platforms Inc. (META), and Alphabet Inc. (GOOGL) are among the Heaviest Hitters Discussing AI during Earnings Conference Calls…
OpenAI, the research lab behind the viral ChatGPT chatbot, is in talks to sell existing shares in a tender offer that would value the company at around $29 billion, according to people familiar with the matter, making it one of the most valuable U.S. startups on paper despite generating little revenue.
Venture-capital firms Thrive Capital and Founders Fund are in talks to buy shares, the people said. The tender could total at least $300 million in OpenAI share sales, they said. The deal is structured as a tender offer, with the investors buying shares from existing shareholders such as employees, the people said.
The new deal would roughly double OpenAI’s valuation from a prior tender offer completed in 2021 when OpenAI was valued at about $14 billion.
OpenAI has generated tens of millions of dollars in revenue, in part from selling its AI software to developers, but some investors have expressed skepticism that the company can generate meaningful revenue from the technology.
OpenAI released a series of artificial intelligence-based products last year that captured the public’s attention, including the image-generation program Dall-E 2 and chatbot ChatGPT. If the tender goes through at that valuation, OpenAI would be one of the few startups able to raise money at higher valuations in the private market, where investors have pulled back from new deals given last year’s technology rout.
Microsoft Corp. (MSFT)’s $10 billion investment in ChatGPT’s parent company OpenAI has only fueled enthusiasm, and it’s not just chip-makers like Nvidia that have attracted new shareholders.
Expectations at the intersection of bots and finance are also burgeoning. A new JPMorgan survey showed 53% of traders believe AI will have the greatest influence on trading over the next three years.
Meta Platforms Inc. (META) CEO Mark Zuckerberg discussed his company’s priorities for generative AI and the metaverse in a Q4 earnings call.
He said Meta Platforms Inc. (META) is focused on AI, including the company’s discovery engine, ads, business messaging, and increasingly generative AI, and the future platforms for the metaverse.
“I want to give some updates on our priority areas,” Zuckerberg said in opening remarks. “Our priorities haven’t changed since last year. The two major technological waves driving our roadmap are AI today, and over the longer term, the metaverse.”
His remarks are especially noteworthy following reports last year of a clunky, primitive initial metaverse experience in its early stages, even though the company has sunk billions of dollars into the project, devoting some $10 billion — or 20 percent of the company’s costs — in 2023.
Thursday, (2/2/23), Alphabet Inc. (GOOGL)’s CEO Sundar Pichai said that the company will soon add advanced AI features to its search engine.
Thursday’s earnings report marked the fourth consecutive quarter in which Alphabet Inc. (GOOGL) missed Wall Street’s expectations for both earnings and revenue.
Weakness in the advertising business appeared in an 8% revenue decline in YouTube’s advertising revenue and a 2% fall in Google’s Search and Other revenue.
Alphabet Inc. (GOOGL) is also facing pressure from ChatGPT, which was launched late last year by Microsoft-backed OpenAI.
Google’s prime business is web search, and the company has long touted itself as a pioneer in AI. But generative AI products like ChatGPT could pose a threat to the entire model of internet search, as they can provide creative answers to more complicated queries.
College Dropout Loses $61B in 10 days…
Shares of India’s Adani Enterprises have plummeted over the past week, after the publication of an extensive critical report from U.S. short-seller Hindenburg Research. Some big international players have exposure.
Companies across the Adani Group of companies have seen a huge sell-off that took the total group’s losses past $110 billion by Friday close, after the Hindenburg report accused the conglomerate of “brazen stock manipulation and accounting fraud scheme over the course of decades.”
Adani Enterprises has suffered the biggest loss among the wider group’s many listed companies, shedding more than 60% of its market cap — or more than $30 billion — between the report’s publication on Jan. 24 and the close of (2/2/23)Thursday trade.
The Adani Group firmly denies the accusations, calling them “nothing but a lie” from the “Madoffs of Manhattan” in a 413-page riposte that failed to soothe skittish investor sentiment and rein in a rapid sell-off.
Adani owns 64% of Adani Enterprises — the Adani SB Family holds 55.27%, while 8.73% is with Adani Tradeline Pvt Ltd, where Gautam and brother Rajesh Adani are controlling directors.
Nevertheless, Hindenburg’s scorching allegations have caused the fortune of Adani Group’s founder, Gautam Adani, to slide by more than $61 billion in just 10 days according to the Bloomberg Billionaires index.
Here’s a look at the firm behind all the movement…
What is Hindenburg Research?
Hindenburg says it specializes in “forensic financial research.” In layman’s terms, it looks for corruption or fraud in the business world, such as accounting irregularities and bad actors in management.
Where did Hindenburg get its name from?
The firm says it sees the Hindenburg, the airship that famously caught fire in the 1930s to the cry of “Oh, the humanity,” as the “epitome of a totally man-made, totally avoidable disaster.” It says it looks for similar disasters in financial markets “before they lure in more unsuspecting victims.”
Who else has Hindenburg gone after?
It’s perhaps most famous for a 2020 report on Nikola, a company in the electric-vehicle industry whose founder Hindenburg said made misleading claims to ink partnerships with top auto companies hungry to catch up to Tesla.
Among its allegations, Hindenburg accused Nikola of staging a video to calm skepticism about its truck, one that showed the vehicle cruising on a road. Hindenburg said the video was actually just showing the truck rolling down a hill after getting towed to the top.
What has come of such accusations?
For Nikola, quick scrutiny from the government and investors.
The company and its founder, Trevor Milton, received grand jury subpoenas from the U.S Attorney’s office for the Southern District of New York and the N.Y. County District Attorney’s Office shortly after Hindenburg released its report.
The Securities and Exchange Commission also soon issued subpoenas to Nikola’s directors.
Milton was convicted this past October of charges he deceived investors with exaggerated claims about his company’s progress in producing zero-emission 18-wheel trucks fueled by electricity or hydrogen.
And Nikola in late 2021 agreed to pay $125 million to settle SEC charges that it defrauded investors by misleading them about its products, technical advancements, and commercial prospects.
What does Hindenburg get out of this?
It can make money. In its Adani report, it said that it had taken a “short position in Adani Group Companies” through bonds that trade in the U.S. and other investments that trade outside India.
It has made similar “short” bets against other companies it published unflattering reports on.
A “short” trade is a way for someone to make money if an investment’s price falls. Afterward, if the price of a company’s stock or bonds falls because of the negative attention from the report, Hindenburg can profit.
Such short sellers have been criticized for unfairly pushing down prices of stocks with potentially unfounded allegations.
But proponents also call them a healthy part of a stock market, keeping stock prices in check and preventing them from running too high.
Who Made New 52-Week Highs This Week?
Here are some notable new highs as of Friday, February 3, 2023…
(A new high is recorded when a security’s price reaches its highest level in 52 weeks.)
Taking the cake for the second week in a row is Cabaletta Bio (CABA) after climbing over 1986% from its 52-week low… (As of last week’s report (CABA) was up 1910% from its 52-week low.
Coming in second place this week is Transmedics Group (TMDX) after moving up over 593% from its 52-week low.
Third place goes to 89Bio (ETNB) who climbed over 562% from its 52-week low.
Fourth place goes to Aehr Test Systems (AEHR) after they climbed over 433% from their 52-week low.
And rounding out the top 5 for our list of new 52-week highs is Cymabay Therapeutics (CBAY) as they are up over 411% from their 52-week low.
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– Editor of the Virtus Junxit Newsletter