TheBRRR’s Thoughts

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Futures are flirting with all-time highs again, with tech stocks driving the market upward. The French election drama resulted in a far-left victory, sparking hopes of increased money printing. Meanwhile, the Nasdaq continues its relentless climb, and S&P 500 futures are rebounding from earlier losses.

US Treasuries are under pressure ahead of Jerome Powell's congressional testimony and this week's crucial inflation data. Bond yields are ticking up, with the 10-year hovering around 4.31%. The dollar is steady after a rough week, and commodities are starting the week weak.

Notably, Boeing is in the hot seat again, pleading guilty to misleading regulators over the 737 Max crashes.

In Europe, stocks are gaining as investors digest the French election outcome and its implications. Political gridlock looms, but the market sees a hung parliament as a buffer against extreme policies.

This week is packed with key events: Powell's testimony, CPI/PPI data, and the kickoff of earnings season with major banks reporting on Friday. Markets might chop sideways as we await these data points, but the tech-led rally shows no signs of slowing down. Stay tuned, it's going to be a busy week.

Microsoft Continues To Smash With AI Product Integration

Microsoft: Underestimated AI Growth Driving Market-Beating Potential

WHAT HAPPENED

• AI-Driven Revenue: Microsoft's recent earnings reveal a 17% YoY revenue increase to $61.86B, fueled by a 31% YoY surge in Azure's revenue.

• AI Integration: CEO Satya Nadella emphasized Microsoft's AI-driven transformation, particularly through Copilot, impacting business outcomes.

• Profitability Metrics: Microsoft's ROCE shows a notable uptick, indicating enhanced profitability from AI investments.

• Valuation Concerns: Despite a high P/E of 40x, Microsoft's AI growth suggests potential for long-term market-beating returns.

WHY IT MATTERS

• AI at Scale: Microsoft's rapid AI deployment is transforming its product offerings and improving operational efficiency.

• Competitive Edge: Azure's AI integration is poised to challenge AWS's market dominance, with projections suggesting Azure could lead by 2026.

• Investor Takeaway: Although MSFT's stock is expensive, its AI-driven growth and profitability metrics provide a compelling case for potential returns above market averages.

Key Data Points:

• Revenue Growth: 17% YoY to $61.86B

• Azure Growth: 31% YoY to $26.7B

• ROCE: Increased to 82.3% from 76.7%

Strategic Insights:

• AI Synergies: Enhanced customer acquisition and efficiency from AI integration across Microsoft's tech stack.

• Long-Term Returns: Expected annual returns close to 10%, factoring in AI growth and inflation.

Final Thoughts

Microsoft's aggressive AI integration is not just a tech upgrade but a profitability enhancer, promising significant long-term returns despite high valuation. The Activision Blizzard acquisition further strengthens its position in gaming, adding another layer of growth potential. Current shareholders might find holding onto MSFT beneficial, given its robust growth outlook and AI-driven market advantages.

Zerohedge

Taiwan Semiconductor Breaches $1T Marketcap For First Time

WHAT HAPPENED:

• Company Overview: TSMC, the world's largest dedicated independent semiconductor foundry, manufactures advanced microchips for tech giants like Apple and Nvidia. Renowned for its cutting-edge technology, TSMC plays a crucial role in the global semiconductor supply chain, driving innovations in AI, smartphones, and computing.

• The stock briefly hit a $1 trillion market cap today.

• TSMC ADRs soared 4.8% at the New York opening bell, marking an 80% increase this year.

• The chipmaker is now the 8th most valuable company globally, surpassing Berkshire Hathaway.

• Analysts attribute TSMC's surge to its pivotal role in supplying Apple and Nvidia chips amid the AI boom.

• Despite Taiwan Strait tensions, Wall Street remains bullish on TSMC due to AI demand and potential price hikes in 2025.

WHY IT MATTERS:

• Market Position: TSMC's $1 trillion valuation underscores its dominance as a critical supplier for AI giants like Apple and Nvidia.

• Investor Interest: The jump in TSMC ADRs reflects heightened investor confidence in the company's future earnings and strategic importance.

• Geopolitical Risks: Despite geopolitical uncertainties, TSMC's growth showcases its resilience and the global reliance on its advanced chip technology.

Got feedback? Follow the writer on Twitter @frank_locascio and send a message.

The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll