VIDEO: Our Holdings Are Getting a Boost From AI

In today’s Daily Rundown video, Chris Versace discusses the latest jobs data, news in the AI sector and a new development for Amazon.

"In our view, it did show a lower pace of job creation, particularly for the private sector," Versace said of the June employment report, adding that the employment rate came in ahead of the Fed forecast. "That's all, in our view, very friendly for the Fed."

Along with other recent economic reports, this data underscores a critical path Fed faces ahead on easing.

Versace also touched on the continued momentum for AI stocks and the benefits this brings to TheStreet Pro portfolio holdings Nvidia NVDA and Marvell MRVL.

Finally, Versace described how a recent acquisition can benefit Amazon AMZN.

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Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Friday, July 5th. Hope you all had a happy, healthy, and safe Independence Day. But let's be candid here. Given the holiday yesterday and the weekend ahead of us, we are seeing a low volume day to day. No surprise. Folks are trying to squeeze in some last minute vacation ahead of the start of the June quarter earnings season.

But let's make no mistake either. Things will be back to business, as we say, next week when we get the latest update to the Atlanta Fed GDP Now model. We get the June CPI and PPI readings. And of course, as I mentioned, the start of the June quarter earnings season. But there were some things even on this low volume day that I wanted to discuss with you. So let's get to it.

First and foremost, the June employment report. Yes, if you read the alert that we shared with you, in our view, it did show a lower pace of job creation, particularly for the private sector. That along with the unemployment rate reaching 4.1% ahead of the Fed's 2024 dot plot forecast that was updated in June at 4%. And the continued dip in year over year wage gains. That's all, in our view, very friendly for the Fed.

Put it together with some of the other data that we've seen just this week alone, particularly that from ISM that showed the manufacturing and services part of the economies are contracting and that inflation pressures continue to fall. All of that speaks to some of that friendly data that Fed Chair Powell wanted to see. But it also reminds us of the two pronged scenarios that the Fed is facing. First and foremost, not tightening soon enough. Sorry, not easing soon enough or easing too late.

And with the latest GDP forecast now at 1.5% per the Atlanta Fed for the current quarter, that is June, as well as some other indicators, it says that the economy is starting to cool off and inflation is improving. I think this is going to further the thought that the Fed is on path to start cutting interest rates later this year.

Upcoming data for the balance for June, but July, August, and yes, September will tell us, once again, is that likely to be one rate cut or potentially two. So we will continue to follow the data. But as we've shared with you in recent alerts, we are kind of becoming a little more open to the possibility that we could see more than one rate cut by the Fed before we exit 2024.

Two other things that I want to talk about. First on the AI front, obviously, no surprise to you or to anybody else that AI has been a driving factor for the market and a handful of stocks. And we at the portfolio have benefited from that, no doubt. But we are starting to see some continued confirmation of that. That's the only way I can kind of put it.

Early this morning, Samsung came out and kind of guided what its second quarter profits are going to look like, citing strength in their memory business, both from a volume demand perspective and pricing. Why? Because of AI. Also too, Hon Hai, better known as Foxconn and a key Apple supplier, also came out with its June revenue, citing continued strength, particularly calling out its AI server business. Hon Hai also said that it sees that growth continuing in the new quarter.

Now, we sit back and we say, this is simply further confirmation for our positions in NVIDIA and Marvell. The catalyst we think that we'll be watching next will be the June revenue report from Taiwan Semiconductor, which should be out next week. Remember that HPC or High Performance Computing is now its largest end market. That includes data center as well as AI. So we will, of course, be poring over that report.

But I would remind you that earlier this week, the portfolio added to its position in Marvell right around 69, 69 and 1/4 in terms of the entry point for that trade. But the shares are up a little bit, but we still see significant upside to our $95 price target. That tells us that members who are newer to the portfolio or those who haven't really trued up their position size relative to the portfolio, this would be a great place to do so.

And then finally, there are some headlines out earlier this morning as well that Saks is buying luxury retailer Neiman Marcus and Amazon is getting a stake in it. Now, on the one hand, we would say that that is positive, as it shows continued M&A activity, something you know that we've been watching for Morgan Stanley and Bank of America.

But with Amazon, this is particularly interesting. And we say this for a couple of reasons. And yes, Amazon has been really trying to make a push into style or fashion over the last few years, and it's made some pretty nice headway. But this really could be something very different from it, given that Saks and Neiman Marcus tend to be at the upper end or luxury end of fashion. So we'll be watching the developments on that.

But we have to think about this from this perspective. Amazon is getting a minority stake in this new entity called Saks Global. It is going to bring to bear its logistics and e-commerce prowess to this new business. So our thinking is that as it does that, over time, the Saks Global business will likely see some cost reductions, see some margin improvements, all of which should drive profits higher, thereby escalating the value of Amazon's minority stake.

Now, we don't expect this to be an overnight thing. This is going to play out over in quarters. But it's something we'll continue to pay attention to. And yes, we are cognizant that this is another foray, albeit a small one, for Amazon into brick and mortar retail. So all in all, very positive for this. But it's going to be something that we have to watch, again, over quarters, and it's something that we will be doing.

So with that, let's get ready to close out today's holiday weekend video, if you will, with some additional price targets. We talked about some earlier in the week for Costco and other positions. But early this morning, we did see that Evercore ISI boosted its price targets on Morgan Stanley to 105 from 102 and Bank of America to 43 from 41. And Jefferies also boosted its price target on Bank of America to 41 from 39.

Now, remember, these follow the price targets that we made early in the week following the post Fed stress test dividend announcements from Bank of America and Morgan Stanley. We continue to see investment banking and the continued activity in the M&A market, but also the expected growth in the IPO market in the coming quarters to potentially give us a reason to once again lift our price targets for Bank of America and Morgan Stanley.

Also, too, we are hearing some chatter that JP Morgan might introduce some fees for some services, checking accounts, wealth management tools, that sort of thing in the coming quarters. If that happens, it could be another reason why we see traditional bank profits move higher. That could not only just be at JP Morgan, but we would expect others to follow suit, including perhaps bank of America. So we will continue to monitor those developments and what it might mean for the outlook for EPS expectations for the big banks.

So with that, that's our video today. Thanks for tuning in. Remember, please be sure to check your emails, check your alerts. We want you getting our latest thoughts and insights. But if we make any moves with the portfolio, we want you right there with us. Again, thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long NVDA, MRVL and AMZN