Big Tech priced to perfection into earnings

00:00:00: Hi everyone, and welcome to Swiss Codes.

00:00:02: Daily market talk is Tuesday April twenty-eighth.

00:00:06: the Bank of Japan leave this interest rates unchanged today But it lowered its growth projections while revising his inflation forecast higher.

00:00:14: The Fed on the other hand starts a two day policy meeting Today.

00:00:18: aim at ongoing Middle East uncertainty And Other major central banks will follow This week While big technology companies are due to release their earnings in the meantime To test investors' results to their massive AI spending once again.

00:00:32: So we will talk about how the messy mix of these factors could impact a financial market around the globe, but before we do and as always please keep in mind that opinions are my own.

00:00:55: So the week started on a cautious note as no major progress was made toward peace negotiations in the Middle East between US and Iran while angered by the extension of tensions that keep oil prices under positive pressure.

00:01:08: The German Chancellor, Mr.

00:01:11: Mercer said that U.S is being humiliated by Iranian leaders.

00:01:15: so the tensions are getting higher today US allies while trade tensions with the U.S is also forcing world countries to ink partnerships outside of the United States.

00:01:32: Meanwhile, I think unnecessary trade and geopolitical mess is pressuring global prices higher at the latter's derailing most major central banks like European Central Bank and Bank of England from their initial plan of ending their recent monetary policy tightening and they start thinking about tightening their policies again to deal with the rising inflation and inflation expectations while growth prospects are also worsening due.

00:02:00: In Japan, for example the policymakers just held their fiscal year twenty-twenty six growth forecast from one to point five percent today while revising their inflation expectations higher.

00:02:12: They kept their rates unchanged on the other hand instead of hiking them and a dollar yen is slightly lower this morning testing there at one hundred fifty nine level.

00:02:21: two D downside but again as we talked before in earlier episodes shorting the end near these levels against US dollar.

00:02:30: interesting given the limited upside potential into one hundred and sixty psychological level, a level that could trigger it.

00:02:37: direct effects intervention from the authorities.

00:02:40: And just clear out the positions.

00:02:42: but buying Could be interesting if an only if they US dollar eases globally?

00:02:47: That would happen on the back of peace hopes But that is not sure Just yet now across the Pacific Ocean.

00:02:54: The Fed also starts his two-day policy meeting today and he's also expected to maintain its race unchanged.

00:03:00: In fact, the Fed is no longer expected to cut the race until December even if Kevin Warsh likes cutting interest rates.

00:03:08: A move that would obviously grandly please White House.

00:03:11: Alas inflation expectations are rising uncomfortably in US as well since two months on a back of notable jump in energy prices and NO ONE including central banks can predict What's next if the Middle East tensions continue to disrupt energy flows?

00:03:37: prices.

00:03:38: So today all prices consolidate on average around fifty percent higher than the pre-war levels and that is obviously changing the way investors perceive market risks.

00:03:48: Two months ago, remember appetite for big technology names that were active in AI was weakening in favor of non-technology and non US pockets off the market.

00:03:58: The retreats mostly due to massive AI spending plans from big technology companies combined with uncertain timing for the return on these investments.

00:04:09: Investors were growing even more worried that additional investment in this AI infrastructure are eating into the big technologies free cash and forcing them to take on leverage, to finance this additional AI investments.

00:04:24: Oracle CDS Devils remember we're thrown every source ever single day to reflect that worry.

00:04:30: Too much investment, too much leverage uncertain time for return.

00:04:34: but things changed since then.

00:04:36: Today the investment pledge from big technology companies didn't change.

00:04:39: combined The Big Technology Companies are expected to spend nearly seven hundred billion US dollars in AI infrastructure this year alone.

00:04:48: But the way investors perceive their risks changed.

00:04:51: In fact, the big technology has been resilient to Middle East crisis and rising energy prices have become somehow a safe harbor.

00:04:59: Anthropag on the other hand has run to rescue you after deteriorating sentiment around open AI and circular deals.

00:05:06: right now The circular deal are being formed around anthropic with major Technology companies like Google and Amazon investing in anthropic

00:05:15: which

00:05:15: in return promises to buy chips And by computing power from them.

00:05:20: But if we take a step back, and even though Anthropic Neos gave a sugar rush to AI investors in the first quarter... The underlying story did not really change!

00:05:29: AI is crazy.

00:05:30: promising yes but it's also very very capital intensive.

00:05:33: these companies must invest to meet demand..but demand is mostly coming from inside the AI circles rather than outside at the moment.

00:05:41: And now OpenAI & Anthropic are right in the middle of these circles and have no choice but to deliver.

00:05:48: And even though Anthropics Revenue potential has been boosted by its latest model, that is too powerful reportedly to be released to everyone remember but could generate revenue from powerful contracts including government contract.

00:06:01: While the gap between this revenue generation and liabilities remain large!

00:06:06: Even with recent upgrades, Anthropic Revenue is estimated at around twenty-to thirty billion US dollars annualized one rate while OpenAI is broadly under twenty five billion US Dollars and more.

00:06:17: range depends on on estimates.

00:06:19: Both are privately owned companies so there no official figures, yet we know that both are backed by far larger capital commitments.

00:06:26: OpenAI alone is supported by hundreds of billions US dollars in compute-related partnerships and funding expectations while Anthropik has recently secured tens Billions of U.S.

00:06:39: dollar worth in new strategic investments from major cloud providers like Amazon and Google, but they promise to buy AI enablers.

00:06:48: Now, interestingly according to the latest news open AI is also breaking free from his exclusive partnership with Microsoft and will be seeking deals outside this company.

00:06:58: With same big players like Google and Amazon but even without profitability still long way off.

00:07:05: because reports suggest that both companies both open AI anthropic though they're great on their doing weight are still losing money once you include a huge cost of running there models especially the spending on G and cloud computing.

00:07:20: As a result, if you think from business perspective margins remain under pressure because the cost of scaling AI is rising just as fast as demand to competition.

00:07:29: it's getting higher And The Card Castle building on success for Anthropic and Open AI These two companies that are not listed or sitting in the middle off huge castle In financial markets today globally speaking If anything goes badly with these too won't disappear, but the market will be in real difficulty.

00:07:50: So what I'm trying to say is that upcoming earnings from The Big Tech Names and the coming days it'll be interesting.

00:07:56: remember last quarter most big tech names had actually beaten earning than revenue expectations But the latter did not prevent investors from walking away.

00:08:06: Investors particularly disliked announcement of more capital spending.

00:08:11: Remember when actual revenue growth lagged.

00:08:13: So let's see whether anthropic could provide a short-term relief to these worries.

00:08:18: In fact, chip makers and AI enablers continue to pose strong results as the massive spending enters the AI cycle from that door.

00:08:27: but it is unclear if these investments are leading to actual revenue growth outside of the circle.

00:08:33: As such investors will remain laser focused on cloud division growth levels.

00:08:43: Really, these investments become obsolete before they start generating revenue.

00:08:47: To me, the risks still remain tilted to the upside.

00:08:51: AI is promising and given the speed of adoption of AI and potential in agentic AI and robotics well we do have a potential for revenue but the valuations are high again.

00:09:03: look now as that hundreds P ratio had ease following the latest earning season But investors around the world also combined with the geopolitical tensions were very very rapid too take advantage off the cheaper valuations.

00:09:17: So today, the big technologies again value to perfection into their earnings announcements leaving these companies with very little margin for disappointment.

00:09:27: So the thinking goes, strong earnings from technology names could well continue to mask the underlying comic weakness due to geopolitical and trade tensions and rising price pressures.

00:09:39: but any disappointment can derail technology appetite at a time when non-technology names cannot pick up pieces.

00:09:48: Fingers crossed we are all waiting for how the earnings will go!

00:09:52: But this is all for today.

00:09:53: I'm Ipekos Kardashian and thank you for joining me, And Thank You For All Your Beautiful And Supportive Comments!

00:10:00: I hope This Episode Of Market Talk Has Been Helpful And It Has Been Insightful To You.

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00:10:31: So I will meet again tomorrow and until then good day

00:10:36: trading.

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