July 29 – August 4 News

July 29 – August 4

Intel’s Crisis

Leading off, we’ve got trouble brewing at Intel. Their shares plummeted 26% on Friday, marking their largest decline in over 40 years. This dramatic drop wiped out about $32 billion in market value, highlighting Intel’s struggles to compete in AI.

Intel’s Q2 results and outlook paint a grim picture:

• Sales forecast of $12.5-$13.5 billion for Q3, well below analyst expectations of $14.38 billion.
• Plans to cut more than 15% of its workforce (around 16,500 jobs).
• Suspension of dividend payments until cash flows improve.

CEO Pat Gelsinger admitted, “I have no illusions that the path in front of us will be easy.” The company is grappling with fierce competition from AI-focused rivals like Nvidia and AMD while trying to improve manufacturing capabilities. Intel’s gross margin has plummeted to 35.4% from its peak of over 60%, reflecting the steep challenges ahead.

Tech Earnings Amid AI Uncertainties

Big Tech’s AI spending spree is scrutinized as earnings reports roll in. Microsoft reported pouring $19 billion into business investments last quarter, a 78% jump from a year ago, mainly due to AI infrastructure. However, the payoff isn’t clear yet – Azure cloud growth of 29% fell short of analyst predictions.

Other tech giants are facing similar pressures:

• Alphabet’s stock tumbled 5% after earnings raised concerns about AI eating into profits.
• Meta and Apple are set to report earnings, with investors eyeing their AI strategies and spending.

The message from Big Tech execs is clear: They’d rather risk overspending on AI than fall behind in what could be the most important tech revolution “for the next 10 to 15 years.”

Job Market Cools, Pressure Mounts on Fed

July’s jobs report came in cooler than expected, adding pressure on the Federal Reserve to consider rate cuts sooner rather than later. The economy added 114,000 jobs last month, far below the 185,000 economists expected. Unemployment rose to 4.3%, triggering concerns about a potential recession.

The tepid report sparked a market selloff:

• The Dow slid 900+ points
• The S&P 500 had its worst reaction to a jobs report since 2022
• The Nasdaq dropped into correction territory

Investors are bullish on rate cuts, with some predicting half-point cuts in September and November. Senator Elizabeth Warren even called for immediate action, tweeting that Fed Chair Jerome Powell “needs to cancel his summer vacation and cut rates now.”

Amazon Benefits from Retail Security Measures

In an unexpected twist, Amazon is seeing a boost in sales thanks to brick-and-mortar drug stores locking up everyday items. CEO Andy Jassy reported that customers are turning to online shopping to avoid the hassle of asking employees to unlock cases for toiletries and other basic goods.

This trend is hurting physical retailers:

• Hundreds of Walgreens, CVS, and Rite Aid locations have closed in recent years
• 71% of shoppers say glass cases make them less likely to visit a store
• Locked merchandise can cause sales to drop 15-25%

Even with this boost, Amazon’s Q2 earnings underwhelmed investors. The company’s shares fell 8.8% following the report, showing that even e-commerce giants aren’t immune to market pressures in the current economic climate.

Cold Storage IPO Heats UP The Market

In an unexpected twist, the hottest IPO of the year came from a company that specializes in keeping things cold. Lineage, the world’s largest operator of cold storage facilities, raised $4.4 billion in its public listing last Thursday, valuing the company at more than $18 billion. This marks the largest IPO of 2024, proving that there’s serious money in the cold supply chain.

Key points about Lineage:

• Founded in 2008 by two former Morgan Stanley bankers
• Made 116 acquisitions since inception
• Now operates nearly one-third of the US temperature-controlled warehouse space

Demand for perishable items requiring cold storage has boomed, with US frozen food sales reaching $74 billion in 2023, up ~33% from 2019. Moreover, efficient cold storage isn’t just good for business – it’s crucial for combating climate change. About $600 billion worth of food is lost before reaching consumers, accounting for 8% of global emissions.

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