A month ago, the “advanced” report on Q4 GDP showed the economy grew at a 3.3% annual rate.  Tomorrow we’ll get the second estimate.

Remember, the theme on economic growth has been “positive surprises.”  Incorporating all of the data from Q4, the consensus view from the economist community undershot by two percentage points.  The Atlanta Fed’s model undershot by about one percentage point.

If we look back at Q3, the economists were looking for a little better than 2% growth. It came in at 4.9%.

The worst offender has been the Fed.  Coming into 2023, they were looking for just 0.5% growth — for the year!  They revised it up to 2.6% by the end of December (in the Fed’s most recent Summary of Economic Projections).

At this point, it looks like they’ve still undershot by half a percentage point.

Maybe they’ve learned something from this past year?

It doesn’t seem so.

As you can see in this screenshot from the Fed’s Summary of Economic Projections, they entered 2024 looking for just 1.4% economic growth on the year.  The Atlanta Fed model is already tracking better than 3% growth for Q1.

The Fed has clearly underestimated the impact of the money supply boom on economic output.  And they’ve underestimated the sustainability of productivity gains, which increases the growth potential of the economy, without stoking inflation. 

 

Stocks reversed the losses of recent days to finish on new record highs.  And it was fueled by the earnings and insights from the most important company in the world, Nvidia.

Keep in mind, not only does the opportunity ahead of Nvidia make it the most important company in the world, but the numbers they are putting up right now, put them in a class of their own (maybe in history).

Take a look at the hyper-growth (both relative and absolute) in this 2024 financial summary from Nvidia … 

 

And for perspective on the durability/credibility of this growth, keep in mind the biggest, most powerful technology companies in the world (Meta, Google, Amazon, Microsoft) are not only making record-level investments in building AI infrastructure, but they are completely transforming their companies to focus on generative AI. 

So, as we’ve discussed here in my daily notes, with the events of the past year, it’s clear that we are in the early stages of a new industrial revolution.

And that statement should be the answer to the question: Is it too late? 

It’s not too late.

For those that have been calling the boom in AI stocks unsustainable, they are underestimating, if not misunderstanding, the significance of this technology revolution.  It’s productivity enhancing, and a formula for a boom-time era in economic growth.

As we’ve discussed throughout the past year, the generative AI impact will mean bigger companies, in a bigger economy — a bigger pie.

It’s already happening.  Just in the past month, we have our first $3 trillion company, in Microsoft.  Nvidia is nearing a $2 trillion valuation, and yet the price you pay for the stock today, relative to its earnings, is cheaper than it was back in May of last year, when they shocked the world declaring “a rebirth of the computer industry” was underway.

With that, as I said in my Feb 2nd note, the best time to get invested in this technology revolution was November 30, 2022 (when ChatGPT launched), the next best time is today. 

Remember, the CEO/Founder Jensen Huang has said “every company, every industry, every country” will go through this computing transition.  He sees “significant total addressable market expansion.”  That’s the pie growing. 

Already he sees the cost to “retool” the world’s data centers to accelerated computing climbing from $1 trillion to $2 trillion within the next five years.  Given that Nvidia is supplying about 90% of it (at the moment), and they’ve done under $50 billion in data center revenue over the past year, this global data center transformation has a long way to go.  It’s very early. 

So, what comes next? 

Huang has said the future of this accelerated computing will power the “next big reinvention,” where “the digital world meets the physical world.”

He says Nvidia’s Omniverse technology will power it, and it will reshape $100 trillion worth of global industry.

On that note, earlier this month, Apple debuted the Apple Vision Pro.  Here’s how they describe the product:  “Apple Vision Pro seamlessly blends digital content with your physical space.”

The CEO of Siemens, when he presented earlier this year at the Computer and Electronics Show (CES) in Las Vegas, called 2024 a “turning point” where real and digital worlds will converge.

And he introduced the “Industrial Metaverse” where generative AI is making reality better and building it faster and more efficiently, by using the virtual world.  And the virtual world is all about the “digital twin.“

The digital twin is driven by generative AI and can create highly realistic and dynamic digital representations of a physical asset or system (products).  Builders/developers/engineers and all stakeholders can see the products perform (as a digital twin), have fully immersive interaction with the product, before and while building it. 

We now have 15 stocks in the portfolio, since we launched in June of last year.  

We started with a focus on AI infrastructure stocks.  These are the “picks and shovels” of this technology revolution.  And we’ve since added massive SaaS companies that will deliver the capabilities of generative AI to companies around the world.  

Yesterday, ahead of the Nvidia earnings, we made another addition to the portfolio — the cheapest of the giants leading the technology revolution, and they own perhaps the most valuable data on the planet.  

As for the industrial metaverse, we also recently added a pioneering infrastructure engineering software firm that’s been leading this metaverse technology since 2016.  It’s founder led, with double-digit growth, high profitability, and high gross margins (already).  And this company is actively shaping the digital transformation that will drive the infrastructure/building boom. 

Again, it’s still early in this technology revolution. There are tremendous investment opportunities, in an era that has already brought us the multi-trillion dollar companies.  More are coming.

If you aren’t yet a member, and you’d like to join us and get all of the details on these stocks and the rest of our portfolio, you can do so following the instructions below. 

The next wave will be the tremendous potential for new businesses to form around generative AI, and for old businesses to adopt and realize the benefits of generative AI.

Here’s how you can join me…  

The AI-Innovation Portfolio is about allocating to HIGH-GROWTH.

For $297 per quarter ($99 per month), you’ll gain exclusive access to my in-depth research, expert analysis, and timely investment recommendations focused on the generative AI revolution — all email delivered to your inbox. 

You can join me by clicking here — get signed up, and then keep an eye out for Welcome and Getting Started emails from me.

(Cancel anytime by emailing support@billionairesportfolio.com and requesting to cancel.)  

Best,

Bryan

 

The January inflation numbers came in a little higher this morning.

Stocks were crushed.  Yields spiked.  And the dollar rallied.

How bad were the numbers?  Core inflation (excluding food and energy) was less than a tenth of a percent above expectations.  The 12-month change was 3.88%.  That’s the lowest level of this inflation cycle, and it was the tenth consecutive lower year-over-year core inflation reading.  Doesn’t sound so bad. 

What about the headline number?  It was also a tenth of a percent above expectations on the monthly reading.  The 12-month change fell from 3.35% to 3.09%.  It didn’t crack 3%, but it was the lowest reading of the past seven months. 

Clearly this wasn’t the positive surprise we thought we might get today, but did it warrant a 4% selloff in small cap stocks, and a 14 basis point rise in the 10-year yield?

Let’s take a look at the two other times in the past three years that shared the features of 1) a down greater than 4% Russell 2000 and 2) at least a 14 basis point spike in the 10 year yield. 

It happened on February 25, 2021. 

What was going on?

It was about inflation.  The 10-year yield had risen from 1% to 1.6% in less than a month.  And the move was quickening.  And this quickening was driven by the market’s judgement that the additional $2 trillion fiscal package coming down the pike from the new President and his aligned Congress was inflationary at best, and recklessly extravagant, at worst.

The $2.2 trillion Cares Act and the additional $900 billion in stimulus passed in December, before Trump’s exit, had already driven a nearly full V-shaped economic recovery (by late January ’21).  And the economy was projected by the CBO (Congressional Budget Office) to grow at a 3.7% annualized rate in 2021 (hotter than pre-pandemic growth), with an unemployment rate falling to 5.3% – about right at the average unemployment rate of the past 50 years.  

The prospects of more, massive spending packages looked like an inflation bomb.  

This feature of a big 4%+ down day in small caps and spike in yields also happened on June 13 of 2022. 

What was going on?

It was a Monday meltdown, following a hot Friday inflation report. 

The Fed had just started tightening and was way behind the curve. 

Inflation was near 9%, the Fed Funds rate was below 1%.  With a Fed meeting just days away, the market ratcheted up expectations for an aggressive 75 basis point hike.  And history suggested they needed to take rates a lot higher in order to stop fueling inflation, and start curbing it.

So, in both cases (Feb of 2021 and June of 2022) stocks fell sharply and yields spiked on significant inflation fears.

It’s fair to say the circumstances are quite different today.  The Fed trajectory of inflation continues to go the right direction (lower).  The Fed is clearly looking in the direction of cutting rates, not raising rates. 

With that in mind, was the selloff in stocks (and bonds) today an overreaction?  It looks that way.

Let’s take a look at the Nasdaq chart, which incorporates the dominant tech companies that are leading the next industrial revolution.  It trades perfectly into this big technical line of support — the trendline from the October lows. 

The S&P futures traded into a similar line today. 

And this trendline has significance.  The October lows were driven by 1) Jerome Powell’s intimation that the market had done the Fed’s job of tightening, 2) the major reversal signal (outside day) that followed, in the bond market … and 3) the huge Q3 earnings from the big tech oligarchy, and the reveal that they were all reorienting their businesses around generative AI.