How the Latest Signals Are Impacting Our Portfolio Holdings
Another week has passed, and we’ve uncovered an ample number of confirming articles and other reports.
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*We’re opening our investing notebook to share some of the latest ripped-from-the-headlines signals and confirmation points for our portfolio holdings.
Aging Population
Another company leaning into the shifting demographics that power this thematic:
“Amazon.com's pharmacy unit said on Tuesday it is expanding eligibility for its monthly subscription service, which covers a range of generic drugs, to those enrolled in government-backed Medicare insurance plans… With the expansion, Amazon said over 50 million more people will be eligible to use the service, known as RxPass, which was launched for U.S. Prime members in January 2023 and is priced at $5 a month.”
Artificial Intelligence
While many are focused on the initial hardware wave for AI, we are starting to see the seeds of the next one that will skew toward software and services. We see this benefitting our position in ServiceNow NOW and Microsoft MSFT.
“Citigroup, the global investment firm concluded that the banking industry will be the hardest-hit by the deployment of AI, with $54% of roles at risk for AI-led job displacement. Additionally, another 12% of banking jobs could be potentially augmented by AI.”
“New generative features let you craft pitches using Salesforce, summarize your employees’ skills in Workday, create images from prompts in Adobe Inc.’s Photoshop, and automatically draft responses to IT requests in ServiceNow. But a year and a half into AI mania, there isn’t much revenue to show for this work. For most big application software companies, AI-related sales won’t appear on the profit-and-loss statements till next year — or the year after that.”
“… we believe we’re already entering the second wave of AI in the enterprise — an entirely new category of AI usage. Wave 1 lasted a good twelve months, with companies first experimenting with generative AI by tinkering with tools like ChatGPT… The start of Wave 2 was marked by Microsoft releasing CoPilot earlier this year… during this second wave, companies are adopting AI and applying it to practical use cases, often as part of existing workflows that are long engrained into the enterprise.”
“Google announced on Monday that it’s bringing its AI technology Gemini to teen students using their school accounts, after having already offered Gemini to teens using their personal accounts. The company is also giving educators access to new tools alongside this release.”
Artificial Intelligence, Data Privacy
The need to build large language models (LLMs) and smaller, more inch small language models (SLMs) runs the risk of bumping up against data privacy concerns. For this reason, we continue to see Alphabet GOOGL benefitting from its treasure trove of search and services history.
“To provide the new bespoke services, the companies and their devices need more persistent, intimate access to our data than before. In the past, the way we used apps and pulled up files and photos on phones and computers was relatively siloed. A.I. needs an overview to connect the dots between what we do across apps, websites and communications, security experts say… The biggest potential security risk with this change stems from a subtle shift happening in the way our new devices work, experts say. Because A.I. can automate complex actions — like scrubbing unwanted objects from a photo — it sometimes requires more computational power than our phones can handle. That means more of our personal data may have to leave our phones to be dealt with elsewhere.”
Cash-Strapped Consumer
There are more signals that, despite the return of real wage growth, part of the consumer base are living paycheck to paycheck, looking for companies like Costco COST and Amazon AMZN that help stretch their spending dollars.
“A recent GOBankingRates survey revealed that many Americans are struggling to pay their utility bills, with 44% stating that they have had trouble keeping up with their payments for gas, electric, heating and/or internet bills over the last six months to a year. Electric bills are causing the most financial stress, with 35% of Americans stating that these bills have been the hardest to keep up with amid the ever-rising cost of living.”
“Back-to-school sales are getting earlier and earlier, as brands and retailers look to beat their competition to the punch… A survey from LTK found that a third of consumers have begun back-to-school shopping by late June, and nearly half have started by early July.”
“One in ten U.S. consumers has an annual income of $50,000 or less, lives paycheck to paycheck and says they have issues paying their monthly bills. Not that they won’t eventually pay them, but each month becomes a game of bill-pay roulette as consumers decide which biller can wait a little longer. Interestingly, of all household bills, utilities, insurance, mobile phones and credit cards make the monthly cut — the billers that carry a big downside risk if not paid.”
Cybersecurity
There's more support for why we continue to be owners of the First Trust Nasdaq Cybersecurity ETF CIBR in the portfolio.
“And with the news that car dealership software-as-a-service (SaaS) platform CDK Global suffered an additional breach Wednesday (June 19) night just as it was starting to restore systems shut down in a Tuesday (June 18) cyberattack, the simple fact that trouble with a key infrastructure provider can result in a butterfly effect of industry disruptions is top of mind for businesses relying on external software solutions.”
“Consumer data from LendingTree subsidiary QuoteWizard was reportedly stolen by hackers, who are selling it to the highest bidder on cybercriminal forums. The theft and subsequent sale of stolen data may be part of the incident in which hackers accessed cloud database accounts hosted by Snowflake…”
“Hackers are exploiting a flaw in a premium Facebook module for PrestaShop named pkfacebook to deploy a card skimmer on vulnerable e-commerce sites and steal people's payment credit card details. PrestaShop is an open-source e-commerce platform that allows individuals and businesses to create and manage online stores. As of 2024, it is used by approximately 300,000 online stores worldwide.”
Digital Infrastructure
There's some more context for the ramp in 20204 capital spending from Big Tech companies that will fuel demand for chips from Nvidia NVDA and Marvell MRVL.
“Amazon.com Inc., the world’s largest provider of cloud computing services and data storage, said it will invest an additional €10 billion ($10.7 billion) into its cloud infrastructure and logistics network in Germany as the technology giant expands its network of data centers globally. The latest plans include €8.8 billion to build and maintain its cloud infrastructure for the AWS cloud computing business in the Frankfurt region by 2026…”
Energy Demand
There's been another indication that utilities will be challenged by expected data center growth.
“The dramatic increase in power demands from Silicon Valley’s growth-at-all-costs approach to AI also threatens to upend the energy transition plans of entire nations and the clean energy goals of trillion-dollar tech companies. In some countries, including Saudi Arabia, Ireland and Malaysia, the energy required to run all the data centers they plan to build at full capacity exceeds the available supply of renewable energy…”
At the time of publication, TheStreet Pro Portfolio was long AMZN, NOW, MSFT, GOOGL, COST, CIBR, NVDA and MRVL.
