😲 Autonomous Formula One!

Good morning Investor. “Bitcoin is like anything else: it's worth what people are willing to pay for it.”

— Stanley Druckenmiller

MARKET UPDATE

Shares of both Tesla and Baidu rallied 15% and 5% respectively, on the basis of the two companies collaborating on self-driving software for the Chinese market. Meanwhile, shares of fintech company SoFi dropped 10% on weak guidance for the second quarter.

TODAY’S BIG HEADLINES

• Fully Autonomous Formula One

• Fast food is raking in the cash

• Financial Times teams up with OpenAI

• Banking crisis hits China

MOTOR SPORTS

Fully Autonomous Formula One😲

Hamilton, Who?: The first race of the Abu Dhabi Autonomous Racing League (A2RL) recently took place at the Yas Marina Abu Dhabi Grand Prix Formula 1 track and the race managed to both begin and finish without a hitch. Well, if we conveniently ignore the comedic glitches that the “drivers” encountered. It was like watching a blooper reel of a sci-fi movie. The full race can be viewed here, but don’t forget your popcorn!

Just a Racing Incident: During the qualifying rounds, these driverless Super Formula racers seemed to have a mind of their own. They were like teenagers at a disco, juking to the left, spinning out of control, and even making a beeline for the walls. It was like watching a game of pinball, but with cars. Don’t believe me? Check out the clip below. It’s better than any reality TV show.

Race Summary: The eight-lap race was a spectacle in itself. Eva, the lead racer, spun out on lap four. It was like watching Bambi on ice. Gianna, the second-place racer, passed Eva as if she were out for a Sunday drive. But the drama didn’t end there. Officials started waving yellow flags, and the third and fourth-placed drivers came to a complete stop, refusing to pass the spun-out car (these indicate to drivers that no passing may take place due to an incident). Talk about sticking to the rulebook! It was like watching a game of musical chairs, but with cars. Gianna went on to win the race, asserting her dominance over the rest of the pack. Michael Schumacher would’ve been proud. This is just the beginning of what’s clearly on the horizon for motorsports. The question is, will they ever be able to compete with real drivers? Or will they continue to act like they’re in a demolition derby?

sources: (The Verge), (The Race), (A2RL)

EARNINGS RESULTS

Fast food is raking in the cash🍕

Long The Consumer: On Monday morning before the market opened, Domino’s Pizza (DPZ) served up their quarterly earnings. It was piping hot and followed the trend set by other bigwigs in the consumer discretionary space such as Texas Roadhouse (TXRH), Chipotle (CMG), and PepsiCo (PEP). All of them reported resilient consumer spending, echoing the sentiment of several fintech companies this quarter. It’s like consumers have been on a shopping spree and they’re not slowing down.

Resilience in Every Slice: Domino’s delivered a triple whammy with revenue, profits, and same-store sales all beating expectations. CEO Russell Weiner mentioned that the company received a boost from their new and improved loyalty program, and also that the company went live with marketing on Uber Eats (UBER) which should drive an additional 3% in sales this year. Sounds like they’ve found the ideal delivery partner.

The Nitty-Gritty: The pizza chain reported net income of $125.8 million, diluted EPS of $3.58 which is up 22% YoY, and revenue of $1.08 billion which was up 5.9% YoY. Same-store sales were up 5.6%, and the company also reported the opening of an additional 203 stores. Free cash flow growth was 8% YoY, reaching $103.30 million. The company’s EPS growing faster than net income is due to the company continuing its share repurchase program and purchasing 56,372 shares for $25 million, making it feel like a game of Monopoly. Additionally, both the company’s supply chain margin and company-owned stores gross margin increased by 2.1% and 0.6% respectively. Toss that onto your pizza like it’s the last sprinkle of cheese!

The Debt Problem: As an investor who’s always had a soft spot for Domino’s, one of the largest concerns surrounding the company right now is its current level of debt. With $4.9 billion in long-term debt on the balance sheet, it’s roughly tenfold the amount of cash flow the company generated for the entire year in 2023. Leaving investors with the concern that they’ve bitten off more than they can chew.

sources: (Investopedia), (CityAM), (Dominos)

ARTIFICIAL INTELLIGENCE

Financial Times teams up with OpenAI🤝

Its All About Data: The UK-based financial news outlet, the Financial Times, has struck a deal with AI darling OpenAI. This agreement grants OpenAI access to FT’s articles, both past and present, for ChatGPT prompts. It’s like giving a kid unlimited access to a candy store. Any prompt retrieving information from an FT resource will duly credit the publication. This is a proactive move by OpenAI, perhaps learning from its past brush with a lawsuit in 2023 by the New York Times for copyright infringement. It’s like they say, once bitten, twice shy.

Tales of Two Sides: So, what’s in it for FT? A partnership with OpenAI that will enable them to develop new AI products. It’s like getting a golden ticket to Willy Wonka’s chocolate factory. FT has already been dipping its toes in these waters, having recently launched an Anthropic-powered generative AI search function. It seems the publication remains committed to human journalism and simply aims to enhance the features and usability of its products.

One Step Ahead: It’s a savvy move for FT to team up with OpenAI. They could potentially become the go-to source of financial markets information for the world’s most used AI model. By hopping on the bandwagon early, they stand to benefit from the expansion of their own AI services. Several other competitors have also signed partnerships with OpenAI, allowing them to train their models using their data, typically for a modest sum of $1-$5 million. But hey, who’s counting?

sources: (The Verge), (Financial Times), (TechCrunch)

BANKING SECTOR

Banking crisis hits China

SVB Contagion: Chinese regulators are now sweating bullets over the possibility of an SVB-like event unfolding in its regional banking sector. It’s like watching a horror movie where you know what’s going to happen next, but you can’t look away. This is due to regional banks stuffing their funds into longer-yielding government bonds faster than a squirrel hoarding nuts for the winter. This risks creating a déjà vu of the scenario we witnessed in the US, where we had the biggest bank failure since the 2008 financial crisis.

Economic Standing: We’ve known for some time now that the Chinese economy is experiencing a significant slowdown, largely driven by its real estate market and declining consumer spending. It’s like watching a balloon slowly deflate. The Chinese stock market has been on a downhill slope for over a year now, with Chinese equities being down over the past twelve months. As a result of poor performance from both equities and commercial real estate, Chinese banks have turned to long-dated bonds in order to generate positive returns. This frenzy has led to significantly lower yields, but hey, a positive return of as little as 1% is still better than a poke in the eye with a sharp stick.

The Risks: A spokesperson speaking on behalf of the People’s Bank of China stated that “If a large amount of funds are locked in long-term bonds with low yields, and if the cost of the liability increases significantly, the funds will be caught into a passive situation of sizable drawdowns from a sharp repricing,”. Chinese banks have purchased $37 billion worth of sovereign bonds in the first quarter of this year, leading to concerns that we could get another SVB-like collapse. SVB’s collapse in short, was due to a lack of liquidity to honor deposit redemptions, after piling significant amounts of capital into long-dated Treasuries. It’s like a game of financial musical chairs, and SVB was left standing when the music stopped.

sources: (Financial Times)

MORE NEWS

Additional market-moving events🌎

• Brazilian Unicorn: Brazilian Fintech company QI Tech reaches unicorn status after raising additional capital, over and above its series-B $200 million funding round. (Reuters)

• Philips All-time High: Shares of PHG have rocketed to an all-time high, up over 26% on news that the company has reached a $1.1 billion settlement in the US for sleep apnea device recalls. (CNBC)

• Scotland Needs a New Leader: Scottish First Minister Humza Yousaf has resigned following the breakup of the coalition government formed of the SNP and the Green Party, with a vote of no confidence originally due to take place this week. (BBC)

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EARNINGS

This Week’s Earnings Calendar📅

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