🤖 The Best AI Stock on the Market

Good morning Investor! "There is a cost to pay for almost everything, and the trick in almost any endeavour in life is figuring out the cost and just being willing to pay it."

— Morgan Housel

MARKET UPDATE

Shares of Affirm (AFRM) rallied over 8% after beating analyst expectations with quarterly earnings results.

TODAY’S BIG HEADLINES

• The Best AI Stock on the Market

• The Downfall of Roblox & Micro-Transactions

• Buy Now, Pay Later Drives Surge in Online Shopping

• Bill Hwang and the Collapse of Archegos Capital

ARTIFICIAL INTELLIGENCE

The Best AI Stock on the Market🤖

Riding the Cloud: In an unexpected twist, B2B logistics company Gigacloud Technology (GCT) reported quarterly earnings that soared higher than a Taylor Swift concert ticket price. Despite already having lofty expectations, the company exceeded them.

AI, the New Black: Gigacloud utlizes AI across its business for inventory optimization, customer behaviour analysis, market analysis, GPU cloud services and to power its nationwide fulfillment services. It’s like a Swiss Army knife, but for AI.

Boring, but Stellar: Despite not boasting supercomputing capabilities or releasing cutting-edge AI models, Gigacloud is experiencing tangible financial improvements thanks to AI. Let’s get into first gear and drive into the wall, I mean financials…

• Revenues nearly doubled year-over-year, coming in at $251.1 million, up a whopping 96.5%. A new record for the company. This smashed expectations of $243 million, like a baseball player hitting a home run off a pitch they didn’t see coming.

• Net Income came in at $27.2 million, up 71.1% YoY and givning the company a net profit margin of 10.83%. This actually represented a decline of 160 basis points.

• Diluted EPS came in at $0.66, growing 69.2% YoY, and exceeding expectations of $0.62.

Branding Bonanza: Management also took the time to announce an addition to its B2B ecosystem which is being referred to as branding as a service (BAAS). This new addition will allow furniture manufacturers worldwide to brand, market and move product within a single channel.

Wall Street Whispers: Shares of Gigacloud rallied 3.45% in pre-market trading, but then sharply declined once the market opened, selling off over 10%. Despite this selloff, the stock is still up a colossal 74% year-to-date.

GAMING SOFTWARE & HARDWARE

The Downfall of Roblox & Micro-Transactions🎮

Putting the Controller Down: The gaming sensation Roblox (RBLX), which has taken Gen-Z by storm over the past few years, reported earnings that led to a total capitulation amongst investors, resulting in an over 20% decline in share price. A plot twist akin to the ending of Game of Thrones.

Reboot Required: The gaming company’s results for the first quarter were atrocious, and not just that, the company’s forecasts missed the mark in similar fashion to a duck attempting to fly. The culprit? An indication that users were dialing back on spending within its video-gaming platform. Here’s the rundown:

• Bookings for the quarter came in at $923.8 million, beating estimates of $919 million. This figure was up 19.35% YoY.

• EPS came in at a loss of $0.43, which exceeded consensus estimates of a loss of $0.53 per share. However, the company had only reported a loss of $0.44 in the prior year’s quarter. This indicates that despite bookings growing reasonably well, profitabilty has actually gone backwards like a malfunctioning treadmill.

• Daily active users (DAU) reached 77.7 million, up 17% YoY and exceeding estimates of 77.3 million.

• Average bookings per DAU missed the mark of the $12.10 expected. This figure came in at $11.89, up a mere 2% YoY.

Forecast Fumble: As previously mentioned, the company’s forecasts are quite dire, reporting bookings of $885 million for Q2, which is well below estimates of $929 million. While the full year guidance of $4.05 billion, also came in below estimates of $4.18 billion. It seems that the engine of micro-transactions is running on fumes!

CONSUMER DISCRETIONARIES

Buy Now, Pay Later Drives Surge in Online Shopping🛍️

Battling for Bucks: The sting of relentless inflation and interest rates at a two-decade high has been nipping at consumer discretionaries across the economy. Whether it’s your $6 lattes at Starbucks (SBUX), your lipstick at Ulta Beauty (ULTA), or your new electric hotrod at Tesla (TSLA), consumers are tightening their belts tighter than a hipster’s skinny jeans.

Digital Immunity: Despite this spending slowdown, consumers have simply shifted their spending behavior, now opting to kick the can down the road and pay using buy now, pay later services on online shopping. It’s like eating your cake now and worrying about the calories later. Consumer online spending in the US has grown 7% year-over-year to $331.6 billion in the first four months of the year, at least according to an Adobe analytics report that was recently released.

Sale Sirens: The majority of this increased spending hasn’t actually been driven by price increases, it’s been a result of new demand, especially given the fact that e-commerce prices actually dropped 5.6% from a year ago in April. It’s like finding a designer dress at a thrift store price. A big driver attracting these new shoppers is of course buy now, pay later (BNPL) services such as Affirm (AFRM), PayPal (PYPL) and various others. A record $25.9 billion of e-commerce spending between January and April was driven by BNPL platforms which represents a roughly 11.8% increased year-over-year.

The Phantom Menace: We’ve all seen the charts, consumer credit card debt continues to rise to a new all-time high, reaching $1.13 trillion in October of last year, and this doesn’t even include BNPL platforms due to their reluctance to share customers’ purchasing activity with credit bureaus, earning them the title of “Phantom Debt” and equating to roughly $700 billion.

LEGAL DISPUTES

Bill Hwang and the Collapse of Archegos Capital📉

The Big Long: Bill Hwang, the founder and former head responsible for the total collapse of Archegos Capital, is currently undergoing a trial for that very event. It’s like a high-stakes poker game where he’s been caught bluffing. Hwang is being accused by prosecutors of using financial instruments which are known as “total return swaps” to amass outsized stakes in multiple companies without actually holding their stock, all in secret. Sounds like the plot to a mission impossible movie!

Overzealous Returns: Hwang’s fund, Archegos Capital at one point held positions in companies using these swap instruments which were so large they eclipsed that of the companies’ largest investors, leading to significant share price increases. At the fund’s peak, it had $36 billion in assets and $160 billion of exposure to equities. Once stock prices began to collapse in 2021, specifically the technology stocks, this triggered margin calls that Archegos were unable to meet. It’s like a game of Jenga where he kept pulling out the bottom blocks. This in turn, led to the banks dumping the stocks which were being used to back his swaps, leading to significant losses for both the fund and its lenders, including the now relic of time, Credit Suisse.

Courtroom Consequences: Hwang and former Archegos Chief Financial Officer Patrick Halligan have been charged with racketeering conspiracy. Hwang faces an additional 10 counts of fraud and market manipulation. It’s like a plotline from a legal drama, with each count carrying a maximum potential sentence of 20 years. This is about as serious of a trial as the Sam Bankman-Fried trial, following the FTX debacle.

MORE NEWS

Additional market-moving events🌎

Hold the Line: The Bank of England have chosen to hold rates steady, and pointed out that a rate cut in June will be entirely reliant on incoming economic data. (CNBC)

Neura-Trouble: Elon Musk’s Neuralink’s first in-human brain implant has experienced a problem, a number of threads have retracted from the patient’s brain. (CNBC)

Banking Assault: In a shocking turn of events, Spanish BBVA has announced its intention to conduct a hostile takeover of local rival Banco Sabadell for $13 billion. (Financial Times)

More Boeing Woes: A Boeing 737-300 plane carrying 85 people skidded off a runway at the airport in Senegal’s capital, injuring 10 people. The same day, a Boeing cargo plane lands without front nose gear in Istanbul. (Fortune)

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EARNINGS

This Week’s Earnings Calendar📅

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “two superperformers” stock picks which we believe will provide significant outperformance compared to the S&P 500.

Here’s how the two stocks have performed since then:

• Evolution AB: 1,235.00 SEK (📉-5.90%)

• Hims & Hers Health: $12.92 (📉-10.71%)

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