Breakfast Bites - The AI trade is still alive
BoJ hold with updated outlook; What's going on with the de minimus?
Rise and shine everyone
Markets are certainly looking better since yesterday, despite the US GDP growth miss. The economy contracted by -0.3% QoQ but, as expected most of that had to do with imports. Government spending did decline, but only marginally. On the flip side, we see that investments have increased and that’s something that we want to see continue. However, given the uncertainty of the tariffs, we may see that pullback in Q2.
The PCE inflation report was average. There was a minor deceleration in core PCE. However, this was enough to keep Fed rate cut hopes alive. The market is now pricing in a 65% chance of rate cut in June.
But what really saved the market yesterday was Microsoft and Meta. Both delivered double beats on earnings. Meta increased their capex estimates citing demand for data centers, and talked about a limited impact on ad spend because of tariffs. They did guide lower on ad spend for Q2 after the de minimus expiry on May 2. (more on this below)
Microsoft beat on cloud expectations and talked about seeing a 3x increase in Copilot customers. They still expect capex to grow in the coming fiscal year, given the strength in demand. When asked about the media reports on data centers, Satya basically said that they were shifting builds and leases based on where demand would be. As for supply chains: **
“You see this in our supply chain where we have reduced dock to lead times for new GPUs by nearly 20% across our blended fleet where we have increased AI performance by nearly 30% ISO power and our cost per token, which has more than halved.” - Satya Nadella on MSFT Earnings Call