🔥 Broadcom Shows off Its Quality

MARKET UPDATE

Good Morning Investor! Shares of Super Micro Computer ($SMCI) rallied over 12% on Thursday off the back off stellar earnings from its chip making peer Broadcom ($AVGO) along with promising developments for Oracle ($ORCL), and continued momentum for artificial intelligence.

TODAY’S BIG HEADLINES

Broadcom Shows Off Its Quality

EU Slaps Chinese EVs with Significant Tariffs

The G7 Wants to Rebuild the Semiconductor Supply Chain

SEMICONDUCTORS

Broadcom Shows Off Its Quality🔥

Chip Domination: On Thursday morning, shares of analog and digital chip maker Broadcom ($AVGO) rocketed a jaw-dropping 14% after an impressive earnings call and some eye-catching announcements. With the company now valued at $790 billion, many analysts predict it could soon rub elbows with its semiconductor sibling Nvidia ($NVDA) in the trillion-dollar club.

The Favorite Child: Broadcom delivered a masterclass in earnings, surpassing expectations on every front. Despite its stock price flying high, the company seems to be trading at a fairly reasonable valuation. Let's dive into the details:

• Revenue came in at a robust $12.487 billion, slapping the expected $12.01 billion out of the park. This figure also represents a stunning 43% growth year-over-year.

• Interestingly, management noted that VMWare was a major sales driver this quarter. Without the newly-acquired software business, sales growth would have been a mere 12%.

• Earnings Per Share (EPS) also shone brightly, landing at $10.96 and beating analysts’ consensus of $10.85. Broadcom has now clocked nine consecutive quarters of outperforming expectations.

Pillars of Success: The surge in Broadcom's stock can be attributed to a trifecta of good news. First, management announced a 10-for-1 stock split effective July 15th, a move that typically bodes well for share prices.

• Second, the company raised its full-year 2024 sales guidance to $51 billion, up from the previous $50.277 billion, while also forecasting an EBITDA margin of 61%.

• Lastly, Broadcom revealed a collaboration with Google ($GOOG) to develop an AI-powered chip, known as a “TPU.” This partnership underscores Broadcom's innovative edge and market leadership.

No Buybacks for Now: Interestingly, the entire $2.4 billion returned to shareholders this quarter came via dividends, not share buybacks. This bucks Broadcom’s trend of aggressively repurchasing its own shares, signaling a strategic shift.

Our History: Broadcom is a stellar performer we’ve held for nearly two years, yielding an impressive 211% return. It’s a textbook example of why you should trim your weeds, not your flowers!

MANUFACTURING & INTERNATIONAL MARKETS

EU Slaps Chinese EVs with Significant Tariffs✋

Profit-Oriented Moves: One of Europe’s latest sleepless nights has been thanks to the surge of Chinese automakers flooding the market with bargain-basement electric vehicles. These cut-rate chargers are undercutting and damaging beloved homegrown brands like Mercedes-Benz ($MBGYY), Volkswagon ($VWAGY), Porsche ($POAHY) and Sweden’s Volvo ($VLVLY). Shares of these iconic companies have taken a nosedive since the fresh tariffs were announced on Chinese EVs.

The Nitty-Gritty: European lawmakers finally stopped their tea breaks long enough to agree on a tariff system to protect their local automakers. They’ve slapped a hefty 38.1% tariff on battery-electric vehicle producers who didn’t play ball with the investigation, and a slightly more palatable 21% duty on those who did comply but weren't "sampled" – whatever that means.

• The big brains behind these new tariffs believe Chinese automakers are cashing in on unfair subsidies, posing a serious economic threat to Europe’s EV producers.

• These measures are currently provisional but are set to kick in on July 4th if talks with Chinese authorities don’t lead to a kumbaya moment.

Wall Street Whispers: Meanwhile, on Wall Street, Chinese automakers are showing impressive poker faces. Shares of Nio ($NIO) barely twitched, being up 0.3%. Xpeng ($XPEV) only had a modest 1.5% dip, and Li Auto ($LI) seemed to be throwing a mini-party, rallying over 2%. Clearly, the stock market has its own sense of humor.

INTERNATIONAL MARKETS

The G7 Wants to Rebuild the Semiconductor Supply Chain 🏗️

The G7’s High-Tech Huddle: According to a report published by Bloomberg, the G7—comprising the United States, United Kingdom, Germany, Italy, Japan, France, and Canada—has decided to mix things up in the semiconductor supply chain game. They're plotting to rearrange this tech treasure map and even lay out new subsea internet cables. It’s like they've realized these vital services are too important to be left in private hands, shifting towards treating them as public goods.

Silicon Surges and AI Frenzies: The spark behind this grand semiconductor shuffle is the skyrocketing demand for AI services. This AI mania has sent semiconductor purchases through the roof, with sales posting double-digit increases in the first quarter, propelling chip makers' shares to stratospheric heights.

• But with great demand comes great anxiety. There’s a looming fear that this boom might echo the dot-com bubble’s spectacular bust. The potential party pooper? A semiconductor shortage that could slam the brakes on AI progress faster than you can say "overclocked."

• Subsea internet cables are another hot topic, especially after an incident in February where a vital cable from Europe to India through the Red Sea got damaged. Repairing it was a nightmare, given it was in a warzone—talk about complications.

Cable Wars and Chip Battles: The G7’s new tech team-up aims to elbow big tech out of the subsea internet cable industry. Currently, giants like Google, Meta, Microsoft, and Amazon are the deep-pocketed players funding and laying these cables across vast oceans. Now, imagine these behemoths squabbling over a limited supply of semiconductors—a thrilling prelude to a tech titan trade war.

• Governments aren’t just watching from the sidelines; they’re diving into the semiconductor game too. Case in point: the German government recently poured a whopping 228.7 million euros ($248.1 million) into Black Semiconductor, a startup on a mission to create the next generation of chips. It seems everyone wants a piece of the silicon pie.

MORE NEWS

Additional market-moving events🌎

Borderless Lagging: Shares of London-based fintech darling Wise plunged 10% after the firm forecasted lower sales growth this year. (CNBC)

Freebies do Exist: Apple’s latest integration partnership with OpenAI is apparently not costing the smartphone maker a cent as it deems the market exposure OpenAI will be receiving from being placed in the hands of millions of users is more than enough. (Fortune)

Open is the New Normal: Japan has passed a law that will require designated tech giants to open up their platforms, similar to the EU’s DMA. In layman’s terms, Google and Apple won’t be able to stop third-party app stores in these regions. (The Verge)

Make the Jeep Great Again: Automaker Stellantis is planning on growing Jeep sales by 50% by 2027, roughly 1.5 million units globally. One avenue it intends to use is the creation of three additional car models. (CNBC)

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. Then on the 10th of June we released our next stock selection.

Here’s how the three stocks have performed since:

• Evolution AB: 1,069.00 SEK (📉-18.55%)

• Hims & Hers Health: $24.37 (📈+68.42%)

• PayPal: $61.54 (📉-4.99%)

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