💿 Chip Giant ASML Capitulates

MARKET UPDATE

Good Morning Investor! President Biden tests positive for covid, and shares of semiconductor stocks sold off across the board over concerns of the US government taking unilateral action to restrict exports of chip equipment to China. ASML ($ASML) and Applied Materials ($AMAT) saw the biggest drawdowns, tumbling like a Jenga tower in an earthquake. Meanwhile, shares of Vistra Corp ($VST) — an integrated retail electricity and power generation company, also sold off 11%. It seems even the company responsible for keeping the lights on couldn't illuminate a path to investor confidence.

TODAY’S BIG HEADLINES

Chip Giant ASML Capitulates

Amazon Prime Day Sees Sales & Discounts Soar

Europe’s Killing its AI Startup Industry

MEGA CAP EARNINGS

Chip Giant ASML Capitulates💿

When Monopolies Falter: On Wednesday morning, shares of arguably the world's most important company, ASML ($ASML), collapsed faster than a Jenga tower in an earthquake, dropping over 10% despite reporting rock-solid earnings for the second quarter. The culprit? Why it's China, of course. Because these days, what isn't?

Solid, with Some Weakness: ASML is the world's largest manufacturer of chip-making equipment, known as EUV Lithography machines. These are basically the Willy Wonka factories of the semiconductor world. Somehow, despite the rapid surge in demand for semiconductors to fuel the power-hungry AI services taking over Wall Street, ASML managed to spook investors. Here's what they reported:

• Second-quarter bookings rose 54%, totalling €5.6 billion. This represents a whopping increase of 24% year-over-year.

• Net income of €1.6 billion ($1.74 billion), down 19% year-over-year but still above analyst consensus expectations of €1.41 billion.

• The new CEO Christophe Fouquet said ASML continued to view 2024 as a "transition year", with 2025 shaping up to be a very strong year.

• Fortunately, the rapid rise in demand for AI has helped drive a recovery in the industry. Who knew that teaching computers to think would require so much... thinking equipment?

Trade War-Sized Hole: The biggest cause for concern is the company's reliance on the Chinese market, with the US government earlier this week telling its allies, including the Netherlands, it may take unilateral action to restrict exports of chip equipment to China if they fail to do so themselves. Talk about being caught between a rock and a hard place!

• For context, China accounted for nearly half of ASML's sales last quarter, signifying just how much a full-blown trade war would hamper the company's business.

CONSUMER DISCRETIONARIES

Amazon Prime Day Sees Sales & Discounts Soar🛍️

Black Friday’s Stepson: Amazon's annual sales blowout wrapped up last night, leaving wallets lighter and shopping carts heavier across the nation. Early data suggests that it could be a big one for the company - bigger than Jeff Bezos' rocket dreams. In fact, as shoppers were snatching up protein shakes and grocery bargains within its first seven hours, Amazon Prime Day saw sales up 12% compared to the same time last year, according to data from Momentum Commerce. This is significant given that Amazon has previously stated that last year's Prime Day was its biggest sales day ever.

• Prime Day, which launched in 2015, is aimed at pulling in new subscribers who pay $139/year for “free” shipping and other perks like streaming. Amazon Prime was said to have 180 million US subscribers as of March, up 8% on the year. That's more people than the population of Russia, all united in their love for two-day shipping.

Hot Discount Summer: Watching on from the sidelines, like kids peering through a candy store window, has been many of Amazon's competitors in the commerce space such as Walmart ($WMT), Target ($TGT), and Best Buy ($BBY). These competitors have all since announced big July sales of their own in an effort to compete with the behemoth Prime Day.

• Prime tide is lifting all shipping: online sales for all retailers including Amazon, are expected to total $14 billion over the course of the Prime Day promo. That's enough money to buy a small country, or at least rent one for a really fancy vacation. Overall, retail purchases were up 0.4% last month.

MACROECONOMICS

Europe’s Killing its AI Startup Industry💀

When Skynet Meets Bureaucracy: The EU's landmark AI Act is due to come into force next month, sending founders into a flurry of concern. The overarching worry is that these new regulations could stifle the AI startup industry in the EU more effectively than a Faraday cage blocks Wi-Fi.

• The EU has a history of robust tech regulation in general, and every now and then it makes a headline for smacking a Silicon Valley giant with an eye-watering fine. Apple, Meta, Visa & Mastercard, and even Uber have all had their turn in the regulatory spotlight.

Slap on the Wrist: The current circumstances are perpetuating a two-class system, where the large tech giants can simply opt to pay the fines and chalk it down to the cost of doing business - like buying a really expensive parking ticket for their AI. Meanwhile, startups simply can't afford to do so and end up falling hopelessly behind with no chance of competing. Alexandru Voica, head of corporate affairs and policy at UK-based generative AI unicorn Synthesia, has discussed this very concern. One can almost hear the world's smallest violin playing for the tech startups.

Policy Divergence: The rest of the world appears to be taking a very different approach towards AI startups. Voica stated, "In the Middle East or India, they've been buying GPUs and offering startups access to GPUs." He then added, "In Japan, for example, they're allowing startups to have access to datasets to train their models."

• It's important to note that the EU is already investing €1 billion a year in AI research projects, with plans to increase this spending to €4 billion a year. That's enough money to buy everyone in Europe a really smart toaster.

• Although supercomputers are useful for scientific studies and academic AI research, startups require access to cloud services on which they can easily deploy applications and train their commercial models. So if the EU wants to help, it could give startups credits to spend on cloud providers. This is something we've already seen private companies such as Hugging Face attempt to do.

MORE NEWS

Additional market-moving events🌎

Diversity Gets Axed: Microsoft quietly lays off a controversial DEI team following backlash. (TheStreet)

China Dominates The Air: Shein and Temu are swamping air cargo, sending rates soaring. E-commerce shipments out of Asia are squeezing airfreight space, with the sector’s peak shipping season still months away. (WSJ)

Rate Cuts Are Certain: Traders see the odds of a Fed rate cut by September at 100%. (CNBC)

The Tesla U-Turn: Tesla Goes on Robotaxi Hiring Spree Months After Chaotic Mass Firings. (YF)

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 12th of June we released our next stock selection.

Here’s how the three stocks have performed since:

• Evolution AB: 1,165.00 SEK (📉-11.23%)

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• PayPal: $61.24 (📉-3.45%)

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