Arm flex

Market scorecard

US markets rose slightly on Thursday, as positive earnings announcements continued to drive share prices higher. The S&P 500 briefly breached 5 000 for the first time (intraday) but finished slightly below that level. The index is now up 4.8% year-to-date. Chip-maker Arm Holdings (NASDAQ:ARM) was a standout performer, rising by 48%.

In company news, Tokyo-listed SoftBank (TYO:9984) rallied as much as 10% after exceeding profit forecasts in its latest quarter. Conversely, Nissan (TYO:7201) slipped over 11% as the carmaker missed net income estimates. Finally, Disney (NYSE:DIS) closed up 11% on better-than-expected earnings and Bob Iger's dramatic announcement to rejuvenate growth in the entertainment giant.

At the close, the JSE All-share was down 0.79%, the S&P 500 advanced by just 0.06%, but the Nasdaq was a more respectable 0.24% higher.

Byron's beats

Pharma giant Eli Lilly (NYSE:LLY) had results out earlier this week. These are becoming highly anticipated by the market because of their fast-growing weight-loss drug Zepbound, along with the more established diabetes drug Mounjaro. Those drugs both have the same active ingredient.

Company-wide sales comfortably beat expectations, coming in at $9.35 billion. Mounjaro contributed $2.2 billion to the mix and Zepbound just $176 million, but it's only been on the market for a few months. Earnings per share for the quarter were $2.49 versus the expected $2.30.

Note that Eli Lilly is already an established player with other top-selling products. Verzenio which is used to treat breast cancer brought in $1.1 billion in the quarter and Trulicity is a type-2 diabetes drug (has a reduced weight-loss side effect) that made over $1.6 billion in sales.

Eli Lilly also has a leading candidate in the race to find a cure for Alzheimer's, but that still seems a few years away.

Given the extent of obesity around the world, weight-loss drugs are a tremendous opportunity. Studies suggest that their side effects are minimal. Health insurers seem very likely to cover the costs of these drugs because thinner people have fewer long-term health problems.

Eli Lilly's biggest challenge is to meet the high demand for Zepbound. Management has set aside a lot of money to expand manufacturing capacity by at least 50% this year.

Expectations are high with this stock but we are comfortable with that. We like to pick established businesses with exciting prospects that we believe can beat those targets. We recommend Eli Lilly as a smaller "side bet" in a Vestact account that already owns all our core shares.

One thing, from Paul

Here's my Friday advice: don't invest in Ponzi schemes. If the returns sound too good to be true, they aren't true. If the people pitching you a financial product look dodgy, don't give them your money.

If you are in already, and the statements that you are being sent look amateurish, get the hell out. If your "service provider" is not FSCA-registered, head for the exit.

Apply your mind properly when considering your investment options, and don't be stupid.

Michael's musings

Did you watch last night's State of the Nation address (SONA)? Personally, I don't have time for what politicians have to say, because it's all hot air. What matters is their actions, and positive moves have been seriously lacking in South Africa lately.

I watched Ramaphosa's first SONA, from start to finish. Remember back then? Cyril's new dawn, dubbed "Ramaphoria". People were excited and he was a brilliant orator, compared to his dismal predecessor. For his second SONA, I had the TV on, but in the background. Now I don't even bother.

South Africa is a beautiful country with amazing people. Like many Vestact clients, I 'live locally, but save internationally'. This gives me the best of both worlds, and I avoid getting too angry about the state of governance in our nation. Onwards! Don't let the self-serving waffle from politicians get you down.

Bright's banter

Arm Holdings (NASDAQ:ARM) shares saw a remarkable surge yesterday, shooting up 48% to a new record high after a surprisingly optimistic forecast. The company's expansion beyond smartphones has significantly contributed to its growth and profitability.

In its latest numbers, licensing sales surged by 18% to reach $354 million, while royalty revenue increased by 11% to $470 million. They predicted revenue of $850 million to $900 million for the three months ending in March, surpassing analysts' estimate of $778 million. Earnings are expected to be around 30 cents per share, excluding certain items, exceeding the 21-cent forecast.

Arm plans to develop more server chips, where the AI juice is at. Notably, the smartphone industry now represents approximately one-third of the company's sales.

Advancements in Arm technology embedded in smartphones have led to higher royalty payments. Their new V9 chips are selling well at higher rates.

Finally, Arm has gained market share in data centers and car markets. Arm's joint venture in China also delivered positive results, accounting for 25% of total revenue.

Arm is vastly smaller than Nvidia (NASDAQ:NVDA), our preferred semiconductor stock. But their pivot towards areas of potential is impressive. Arm is probably just at the beginning of its growth trajectory.

Signing off

Asian markets are mostly lower this morning. Benchmarks fell in Hong Kong and India while Japan edged higher. Mainland China celebrates Chinese New Year and South Korea is also closed for Seotdal Geumeum, which is the Lunar New Year's Eve.

US equity futures are little changed pre-market. The Rand is trading around R18.96 to the US Dollar.

Today PepsiCo (NASDAQ:PEP) will be reporting its numbers.

Have a good Friday and a restful weekend.

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