Global AI stocks fall as industry chiefs call for slowing development
Market Scorecard
After a promising start to the day, US markets closed lower last night. The S&P 500 swung from a gain of more than 1% to a loss of 0.8% in the end. US treasury bond yields hit their highest level since 2009. However, the thing that really stands out during this earnings season is that companies are sticking to their full-year outlooks, which suggests that the operating environment is still favourable.
In company news, L'Oreal posted robust sales growth in the third quarter thanks to brisk demand in Europe and the US, which helped offset headwinds in China. Elsewhere, social media company Snap Inc.'s (NYSE:SNAP) share price fell 27% after it reported a huge miss on revenue.
Yesterday, the JSE All-share closed up 0.22%, the S&P 500 was 0.80% lower, and the Nasdaq fell 0.61%.
Bright's Banter
Vestact-recommended pharma giant Johnson & Johnson (NYSE:JNJ) (J&J) reported better-than-expected third-quarter numbers on Tuesday thanks to strong demand from its prescription drug unit. Revenues for the quarter were $23.79 billion, up 1.9% year-on-year and topping estimates. On the other hand, the management team remains concerned about the strong US Dollar and inflation.
The biggest grower was anti-cancer drug Darzalex which delivered sales of $2.05 billion for the quarter, up 30%. The medical devices unit reported a 2.1% increase in sales to $6.78 billion as demand for contact lenses and wound-closure products improved.
J&J is still going ahead with the separation of its consumer-health business from its prescription-drug and medical devices units. The name Kenvue has been chosen for the business to be spun off. It will house some of the most famous brands in consumer health, including BAND-AID, Listerine, Neutrogena and Tylenol.
"The company continues to show strength and resilience across all three units," said CEO, Joaquin Duato. The J&J share price has held up quite nicely in 2022 on a relative basis. It is during times like these that you enjoy the benefits of a defensive, steadfast and immovable company in a portfolio.
One Thing, From Paul
It's personal advice Friday again, and today I'm just passing along some wise words from Charlie Munger. He's 98 years-old and has been working for the last few decades alongside Warren Buffett at Berkshire Hathaway (NYSE:BRKa).
In 2007, Munger gave a speech at the USC Law School that ran through 9 points. Here they are:
1. To get what you want, deserve what you want. No one will just give you trust, success, and admiration. You must earn it.
2. Acquire wisdom, for it's both a moral duty and a practical one.
3. Learn the big multidisciplinary ideas of the world and use them regularly.
4. Think through problems forward and backward.
5. Be reliable. Unreliability can cancel out the other virtues.
6. Avoid intense ideologies.
7. Do the work to have an opinion of your own.
8. Avoid being part of a system with perverse incentives.
9. You'll achieve the greatest success where you're most intensely interested.
Byron's Beats
Ben Carlson shared a story on Twitter yesterday about a gentleman who was fully invested during the crash of 1987. The Dow Jones had dropped nearly 22% that day but he only heard about the crash on the radio as he drove home from work on Black Monday, 19 October 1987. There was no Internet, Twitter, apps, blogs, YouTube or WhatsApp back then. Just a few daily newspapers and a couple of stock newsletters that arrived by post.
Long story short, the gent got home and his wife lambasted him for losing their life savings, so he promptly sold everything the next day. In hindsight that was a massive mistake, because the market recovered in time and went on to make new highs.
I feel that the deluge of market information we get every day is a net positive. Yes, we have to filter through the rubbish and there is a lot of fake information out there. But there is also a lot of quality, most of it free, from people with decades of investing experience.
Listen to people who make you resilient during the hard times and cautious during the good times.
Michael's Musings
If Elon Musk is going to make Tesla (NASDAQ:TSLA) a $4.4 trillion company, it will have to be more than a car producer. As it stands, the energy generation and storage division is only 6% the size of the vehicle unit, but is growing quickly.
Energy storage sales for the quarter grew 62% to 2.1 GWh, and solar installations grew 13% to 94 MW. Even though Tesla is ramping up production capabilities quickly, demand for their products still far outstrips available supply. This is a great place to be because the company knows it will see an immediate return on investment on any factory upgrades.
This rapid solar and battery production growth is good news for Tesla, consumers, and the environment.
Signing Off
Asian markets are slightly lower this morning, with many of the region's equities heading for a second week of declines. Japan and South Korea sagged, while Hong Kong and mainland China gained. Some Chinese chip-related shares fell as the US was said to be considering further export controls on components for AI data centres.
US equity futures are directionless in early trade. The Rand is looking tired at R18.35 to the US Dollar.
On this day in 1805 the British Admiral Horatio Nelson was shot and killed at the Battle of Trafalgar. Right now in southern Ukraine, the Battle of Kherson is about to get underway. Some things change and some things stay the same.
