🗞 Big Tech Banks on AI

PLUS: All eyes on CPI

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Market Moves Yesterday

S&P 500 @ 6,034.91 ( ⬇️ 0.30%)

Nasdaq Composite @ 19,687.24 ( ⬇️ 0.25%)

Bitcoin @ $97,642.51 ( ⬇️ 0.12%)

Hey Scoopers,

Happy Wednesday! Are you ready to tackle the midweek mania?

👉 AI megatrend drives Big Tech

👉 S&P 500 earnings prediction for 2025

👉 November CPI forecast at 2.7%

So, let’s go 🚀

Market Wrap

Major U.S. stock indexes declined Tuesday as investors took profits following recent record highs and awaited Wednesday's inflation data.

Key Stock Movements:

  • Oracle: -6.7% following disappointing Q2 results

  • Alphabet: +5.6% after Google's quantum computing breakthrough

  • Nvidia: -2% amid ongoing Chinese antitrust investigation

  • Meta: +1% recovering from Monday's losses

According to CFRA Research's Sam Stovall, recent market participation has narrowed due to typical mid-December seasonal patterns. He suggests market participation might broaden during the traditional year-end rally.

The declines follow Monday's pullback when the S&P 500 and Nasdaq retreated from record levels.

Investors are now focused on Wednesday's consumer price index report, which could influence the Federal Reserve's interest rate decision at next week's meeting.

General Motors - Shares of the automotive giant popped 3% after it said it would no longer fund robotaxi development by self-driving car company Cruise.

GE Vernova - The energy equipment company slid 3% after providing full-year revenue guidance for fiscal 2024 and 2025, which was lower than consensus estimates.

Alaska Air - The stock surged as the airline carrier raised earnings forecast for Q4 and authorized a $1 billion stock buyback.

AI Is Key to Big Tech

No one predicted its meteoric rise when OpenAI launched ChatGPT in December 2022.

Internal estimates of 100,000 users were dramatically surpassed as the generative AI platform became the fastest-growing app in history, now boasting around 300 million active users.

The AI revolution has primarily benefited Big Tech companies.

In the last two years 👇

  • The combined market cap growth for the top 6 tech firms stands at $8 trillion

  • The S&P 500 index is up over 56%, driven by the tech sector

  • Nvidia has emerged as the world's leading chip company

  • Microsoft, Amazon, and Google have showcased strong cloud revenue growth

Notably, the consulting industry has capitalized significantly on the AI boom as all major players have seen unprecedented growth in their AI-related business:

  • Around 40% of McKinsey's business is now AI-related

  • IBM raked in $3 billion in generative AI business

  • Accenture’s AI bookings topped $1 billion in the latest quarter

This concentration of benefits among established players raises concerns about AI's promise of broad economic transformation. Instead, it suggests a trend toward further consolidation of wealth and power in the tech sector.

S&P 500 Earnings Forecast to Grow In 2025

According to data from FactSet, projected earnings per share (EPS) for the S&P 500 index in 2025 is $275.24, which would be a record high since tracking began in 1996.

However, historical data shows these forward-looking predictions are typically off by 6.3%, usually overestimating the final number.

Looking at the past 25 years (1999-2023):

  • Analysts overestimated EPS in 17 years and underestimated it in 8 years

  • The 6.3% average error includes four outlier years (2001, 2008, 2009, 2020) with >25% differences due to significant events like 9/11 and COVID-19

  • Excluding these outliers, the average overestimation is just 1.1%

Based on these historical patterns, the actual 2025 EPS might be:

  • $257.82 (using the 6.3% average overestimation)

  • $272.08 (using the 1.1% adjusted average)

Either scenario would still represent a record-high EPS for the S&P 500.

Suppose the S&P 500 earnings surge to $275.25 and the index trades at a trailing price-to-earnings multiple of 25x. In that case, the index should trade around 6,881 in January 2026, indicating an upside potential of over 13% from current levels.

CPI Forecast at 2.7%

The U.S. Bureau of Labor Statistics (BLS) will release November's consumer price index (CPI) data today. The median estimate for November's CPI is 2.7% year-over-year (not seasonally adjusted).

Key Points:

  • If the 2.7% estimate proves accurate, it would mark the second straight monthly increase in inflation

  • The figure would remain below the 12-month average of 3.0%

  • Core CPI (excluding food & energy) is estimated at 3.3%

Recent Context:

  • October 2024 CPI stood at 2.6% year-over-year, in line with analyst expectations

  • In the last 12 months, CPI exceeded estimates 5 times, matched 3 times, and fell short 4 times

Over the past five years, CPI readings have exceeded estimates 50% of the time, matched 18%, and fallen short 32%.

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DISCLAIMER: None of this is financial advice. The newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.