In today’s Daily Rundown video, Chris Versace discusses growing support for the Portfolio’s AI-related holdings, including IBM’s (IBM) standout comment for its AI business.
"Their AI business was up more than $3 billion in the September quarter," he notes. "Clearly, enterprises are adopting AI in a variety of tools. Of course, we're well positioned for that."
Chris also explains what we’re watching for in quarterly results from Digital Realty Trust (DLR) and why Ingram Micro’s (INGM) IPO is a litmus test for future investment banking activity.
Transcript
CHRIS VERSACE: Hey, folks. Chris Versace here, Thursday, October 24, almost towards the end of the week. But for today, stocks are a little mixed. The S&P 500 is a little changed. Call it flat. The Dow is in the red and the NASDAQ is up.
As we explained in our opening comments to you today, it was quarterly results from Tesla, ServiceNow, Lam Research and others that have been very constructive for tech, which explains the outperformance today by the NASDAQ. Not only were they generally constructive for tech, but they were especially constructive for AI. And they really build on what we can only say is a growing number of articles that we've been reading about fresh AI deployments, whether it's from Chipotle, believe it or not, and it's called the avocado AI, but others out there ranging from Vodafone to Honeywell and simply a growing list of firms that are embracing the use of AI.
And look, we're going to capture some of these in this weekend's Signals Alert, where we kind of break down and share ripped from the headlines articles that support our portfolios investment strategies in our holdings. But I will say this, that when we sit back and we think about the number of these announcements that we've been reading, it really kind of puts another layer of context-- call it support-- for what I would simply call the standout comment regarding AI adoption, particularly in the enterprise. And I'm referring to what IBM had to say as part of their quarterly earnings report.
And what did they say? Well, it said that their AI business was up more than $3 billion in the September quarter. That's up incrementally $1 billion compared to the June quarter. So clearly, clearly, enterprises are adopting AI in a variety of tools. Of course, we're well-positioned for that with our holdings not only in ServiceNow, but of course, with elastic, and indirectly, I would argue, with Alphabet, Microsoft and some of the other positions out there. And this growing adoption helps explain a lot of the comments that we've been hearing about, whether it's from Taiwan Semiconductor, Jensen Huang at NVIDIA or others.
So the follow through on the rising adoption means that we have a lot of support for our chip plays, whether it's NVIDIA, whether it's Marvell or even on devices where we have Qualcomm. So I think that as we step back and get ready to move into the weekend before too long, I would just say that a lot of the comments we got this week just simply support our outlook for this collection of holdings inside the portfolio. I would also say that we shared some other comments with you today regarding the flash October PMI.
Yesterday, we had some comments out explaining why we were really looking forward to that. And this morning we published our reactions to it, which is simply that the services economy continues to be strong, carrying a slowing or somewhat contracting manufacturing economy. But the initial take from the October flash PMI is job creation remains very healthy, only down modestly compared to September, and inflation data continues to improve. Put it all together, I would argue that it is very much showing a Goldilocks economy, and it's one that is likely to continue as we move into November.
I can say this, because the new order data contained in S&Ps findings for the October flash PMI was the highest level in 17 years. And the good, the bad about the Goldilocks economy is economy continues to mean strong, plenty of people working, which is, of course, very good. But it also means that the Fed does not have to cut rates. They might want to cut rates to get back to a more neutral stance, but they're not under the gun to do so.
Now, remember, we're going to get a lot more data for the month of October, really starting next week. We're going to want to refine this thinking as we get more data. We don't rely on any one data point. You know that. So we'll continue to update our thinking, what it says about the speed of the economy entering the final quarter of the year, and what it might mean for Fed policy. Remember, the next Fed policy decision is only around the corner, just after Election Day.
We also shared some comments with you breaking down the stronger than expected September new home sales, which were very much supporting a lot of the comments we've got from various home builders about stronger second half deliveries. Without a doubt, that is what we've seen if we aggregate the numbers for July, August and September compared to the second quarter. But I also shared some comments that we might have to just temper our near-term expectations because of the rebound in mortgage rates. So we'll continue to watch new mortgage rate applications.
What we saw in September for the new mortgage application data for new home sales was a very good indicator for what we saw in the new home sales data. We'll continue to follow the data. But make no mistake, what we saw in the September new home sales and the build up to it does suggest that Builders FirstSource should deliver a very good quarter when it reports in the next couple of weeks. But remember, it's guidance that is increasingly mattering. And yes, are we interested in picking up more shares of Builders Firstsource?
We are, but at the right price. And in the Alert, we shared some of the key support levels that we'll be watching. I also wanted to talk about how the fact that we do have a couple other things to get to today. Labcorp, great numbers out this morning. Stock is popping just about in line with our current price target at 235. Certainly, a good problem to have. But we will be tackling that this afternoon, sharing an updated price target with you.
We'll be doing the same with United Rentals. They reported last night, broke down the comments and Alert this morning. But they held their earnings call this morning. So we'll want to read through that and make sure we have our heads on correct, as I like to say, when it comes to the prospects for nonresidential infrastructure. And curious to hear what they have to say on the earnings call about the housing market as well.
I would also say that we are watching shares of Digital Realty Trust after the close. We're not involved, but because they are a data center REIT, we'll be very interested in their comments on utilization, AI, and what their new construction plans are for the balance of the year and potentially what they have to say into 2025.
As we do that, the other thing that we're watching today is the IPO pricing of Ingram Micro. Came out at $22 a share and seems to be hovering around there. Why are we watching this? Well, it's one of the higher profile IPOs in many weeks. And of course, it will help tell us what we're likely to see from the IPO market in the coming weeks.
And we know that there's a big backlog of IPO deals. So if this opens the door a little bit, that would be great for our positions in Morgan Stanley and Bank of America. The other reason, though, why we are watching the Ingram Micro IPO is because Morgan Stanley was the lead underwriter. And yes, we have done very well with our shares of Morgan Stanley, and Bank of America too. Our suspicion is that we will see the IPO market open and we'll continue to see vibrant investment banking activity, especially as the Fed continues to return monetary policy closer towards a more neutral rate over time.
As we see that happen, we'll revisit our price targets for Morgan Stanley and Bank of America as needed. So with that, friends, I would say I've got a little more work to do this afternoon on a couple of things, so please be sure to check your emails, your Alerts. We want to make sure you get all of our thoughts. And if we make any moves with the portfolio, we want to make sure you are right there with us. Thanks for watching.