Peace Proves Elusive; I’m ‘Fed’ Up!; Window of Opportunity for Microsoft?

Why on earth is a peace deal so darned elusive? Markets keep behaving as if at least a temporary peace deal between the U.S. and Iran is imminent. Yet, every day passes with no announcement made. We just hear about how close a deal is and how badly the other side wants to make a deal. I guess those of us with net long portfolios should be grateful. Grateful that high-speed algorithms only care about creating momentum. Oh, and are a lot more gullible than were the ethnic Irish, Italian and Jewish kids from the outer boroughs of New York City that used to dominate the trading floor at the New York Stock Exchange in downtown Manhattan as well as the trading desks of all of your favorite investment banks.

The shooting started up again while you were sleeping. The Wall Street Journal, Bloomberg News, Financial Times and other sources are reporting that forces from CENTCOM (U.S. Central Command) shot down at least four one-way attack drones that had been launched by Iranian forces at civilian vessels in the Strait of Hormuz. U.S. forces also took out a drone-control station near Bandar Abbas as that site posed a threat not just to civilian vessels but to U.S. naval vessels as well.

Fighter craft participating in the operation were Boeing’s (BA) F/A-18, and Lockheed Martin’s (LMT) F-16 Falcon as well as the F-35 Lightning II. GE Aerospace (GE) is the primary jet engine provider for both the F/A-18 and F-16 programs. Pratt & Whitney, which is an RTX (RTX) company, provides power for the latest F-35’s. In addition to forcing U.S. naval and air forces to defend civilian craft, Iranian forces have apparently also attacked another neighbor early on Thursday morning.

The Kuwaiti military is reporting that it had to intercept a number of missiles and drones. Of course, to fire missiles from Iran (particularly Bandar Abbas) toward Kuwait, said missiles would have to fly over both the Strait of Hormuz and the Persian Gulf. In your author’s opinion, this was likely more a defiant message sent to U.S. forces, than any actual targeting of Kuwait by Iranian forces and could require a broader U.S. response.

How Long Can Iran Hang On?

The Wall Street Journal asks exactly that question this morning on the front page of that paper’s website. A piece authored by Henna Moussavi, Georgi Kantchev and Benoit Faucon points out:

“The Trump administration’s initial goal is to secure an agreement with Iran to reopen the Strait of Hormuz and free up the flow of oil and gas to the world economy in exchange for easing or ending the American blockade on Iran’s ports. If that deal came together, it would give negotiators more time to reach a final agreement that would tackle thornier issues surrounding sanctions relief and Iran’s nuclear program.

Iran’s hard-line rulers aren’t willing to concede much to secure a deal. They are eager to deter future attacks and are loath to let the U.S. and Israel come out of the war thinking they won.

But the (Iranian) government is also eager to secure financial relief after the U.S. blockade deepened the economic crisis, according to Iranian and Arab officials. One Iranian official said the economy had held up earlier in the war, as oil exports and imports of basic goods continued. That changed, the official said, after Washington began stopping vessels from entering and leaving Iranian terminals.

Iran can’t afford for the war to continue indefinitely, the official said. “Nationalism can only work for so long,” he said, referring to Iranians’ reasons to support the regime’s war effort.”

Time to Re-initiate Microsoft?

Readers may recall “the” Microsoft (MSFT)/Anthropic deal. Back in November, Anthropic announced a strategic partnership with both Microsoft and Nvidia (NVDA). Microsoft committed $5 billion, while Nvidia committed $10 billion in investment. Anthropic committed, in return, to the purchase of at least 1 GW (gigawatt) of compute capacity. For reference, a single gigawatt can power roughly 700,000 to a million typical U.S. homes indefinitely as long as the power keeps flowing.

Under that deal, Microsoft Foundry clientele would be able to use Anthropic’s Claude AI models as Microsoft’s Copilot AI-based family of products integrated with the Claude platform. The agreement also committed Anthropic to spend $30 billion on Azure, with up to 1 GW of compute using the Nvidia Grace Blackwell (unified CPU/GPU system) and the Nvidia Vera Rubin successor system.

Last week, CNBC broke the news that Microsoft and Anthropic were in talks for Microsoft to supply the firm’s custom Maia 200 AI chips (The new chips were unveiled this past January) to Anthropic. This deal would represent a much-needed positive development for Microsoft. That tech giant had fallen behind both Amazon (AMZN) and Alphabet’s (GOOGL) Google in terms of supplying special-purpose AI-capable chips to customers. silicon. The Maia 200 chip is aimed at improving inference to better serve large-scale modeling.

On Wednesday evening, HSBC analyst Stephen Bersey wrote “Thus, as Anthropic quickly grows its revenue, Microsoft’s new partnership with Anthropic could be a source of major revenue upside. If we assume Anthropic’s 2030e compute requirement spending will be 60% of its revenue, it could amount to a USD144bn annual revenue opportunity for cloud infrastructure providers. If Microsoft Azure garners 30% share in that opportunity (in line with our 2030 market share estimates), this could result in being a USD43bn per annum opportunity for Microsoft by 2030e.”

Wall Street sees current quarter revenue generation of roughly $91.5 billion for Microsoft, so $43 billion would be a chunk. That $43 billion would be up from a “minimal” level of revenue generation for this quarter. Bersey has a $571 price target and a Buy rating on Microsoft. Bersey is rated at five stars out of five at TipRanks.

If readers see what I now see, they’ll see a Bullish Pennant touching base with support as we speak. I will be initiating MSFT between the stock’s 21-day exponential moving average and 50-day EMA at some point on Thursday should market conditions allow. Is there some risk? Of course. What I see as a Bullish Pennant, another might see as a still incomplete Double Top pattern of bearish reversal. If I can get long these shares (after this article becomes public information), my target price will be $541.

Fed Speak … Say What?

Speaking from Japan to CNBC’s Kaori Enjori, Chicago Fed Pres Austan Goolsbee said that initial estimates in the futures markets had expected energy prices to be “a lot lower” than current levels. Well, so spit, Sherlock. Maybe you’ve heard of the Strait of Hormuz. Has nothing to do with demand and everything to do with supply. Gee whiz.

Goolsbee added, “My concern is that future increases in productivity (due to the advent and development of AI) that make us rich may fuel high equity prices that they are a increase in your wealth today, to know that you’re going to be rich sometime in the future. That can encourage people to spend out of this wealth in the stock market or others, and before the AI has actually increased the productivity, you can overheat the economy in the near term.”

Say what? What the heck is this guy even trying to say? Folks who lose their jobs to the advance of AI going to overheat the economy through consumer spending because stock prices go higher? Is this guy even real? Thank goodness Chicago has no policy voting rights this year. My fifth-grade teacher, Sister Clara, would leave Goolsbee back to do the grade level over again next year. I have no words. Apparently neither does Austan Goolsbee.

Whole Lotta Macro Ahead…

Good chance Thursday keeps you kids on your toes.

I looked at you

You looked me
I smiled at you
You smiled at me

And we’re on our way
No, we can’t turn back
Yeah, we’re on our way
And we can’t turn back

– “I Looked at You” Morrison, Densmore, Krieger, Manzarek (The Doors), 1967

Economics

(All Times Eastern)

08:30 – Initial Jobless Claims (Weekly): Expecting 211K, Last 209K.

08:30 – Continuing Claims (Weekly): Last 1.782M.

08:30 – PCE Price Index (Apr): Expecting 0.5% m/m, Last 0.7% m/m.

08:30 – Core PCE Price Index (Apr): Expecting 0.3% m/m, Last 0.3% m/m.

08:30 – PCE Price Index (Apr): Expecting 3.8% y/y, Last 3.5% y/y.

08:30 – Core PCE Price Index (Apr): Expecting 3.3% y/y, Last 3.2% y/y.

08:30 – GDP Growth Rate (Q1-Rev): Flashed 2.0% q/q, SAAR.

08:30 – Personal Income (Apr): Expecting 0.4% m/m, Last 0.6% m/m.

08:30 – Consumer Spending (Apr): Expecting 0.5% m/m, Last 0.9% m/m.

08:30 – Durable Goods Orders (Apr): Expecting 3.7% m/m, Last 0.8% m/m.

08:30 – ex-Transportation (Apr): Expecting 0.5% m/m, Last 0.9% m/m.

08:30 – ex-Defense (Apr): Expecting 2.2% m/m, Last -0.3% m/m.

08:30 – Core Capital Goods (Apr): Expecting 0.5% m/m, Last 3.3% m/m.

10:00 – New Home Sales (Apr): Expecting 670K, Last 682K, SAAR.

10:30 – Natural Gas Inventories (Weekly): Last +101B cf.

10:30 – Oil Inventories (Weekly): Last -7.864M.

10:30 – Gasoline Stocks (Weekly): Last -1.584M.

The Fed

(All Times Eastern)

08:55 – Speaker: New York Fed Pres. John Williams.

3:00 p.m. – Speaker: Richmond Fed Pres. Tom Barkin.

Today’s Earnings Highlights (Consensus EPS Expectations)

Before the Open: BURL (1.79), DLTR (1.55)

After the Close: COST (4.98), DELL (2.96), MDB (1.18)

At the time of publication, Guilfoyle was long NVDA, AMZN equity.