🔨 Homebuilder Stocks Are Finally Cool Again

MARKET UPDATE

Good Morning Investor! On Thursday, shares of leading online vehicle auction company Copart ($CPRT) dropped 6% after reporting a rare quarterly earnings miss, citing the impact of macroeconomic factors on the used vehicle market, resulting in higher costs.

Meanwhile, shares of McKesson Corp ($MCK) dropped 10% after the firm announced the sale of its Rexall and Well.ca Businesses to Birch Hill Equity Partners.

TODAY’S BIG HEADLINES

Chip Maker Intel Just Can’t Catch a Break

Nvidia Claims it Never Received the DOJ’s Subpoena

Homebuilder Stocks Are Finally Cool Again

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SEMICONDUCTORS

Chip Maker Intel Just Can’t Catch a Break🌩️

When it Rains, it Pours: Despite a semiconductor surge that's hotter than a freshly soldered circuit board, Intel ($INTC) is wilting faster than a snowman in a sauna. This Wednesday, the beleaguered chip behemoth faced yet another hiccup in its contract chipmaking business, leaving its stock price more depressed than a computer without internet. Down nearly 60% this year, Intel's woes have not only short-circuited investors' portfolios but also cast a shadow on the Biden administration's dream of a homegrown silicon empire – a plan that's looking about as stable as a Jenga tower in an earthquake, despite showering Intel with more grants and subsidies than a farmer's market on steroids.

Chipmaking Heartbreak: It seems chipmaker Broadcom ($AVGO) is the latest to join the "Intel Disappointment Club," with their plan to outsource manufacturing to Intel now hanging by a thread thinner than a nanometer transistor. Intel's failure to pass some crucial initial tests has put their shiny new 18A manufacturing process under the microscope – a process that was supposed to be the Hercules of their contract chipmaking unit but is currently performing more like a 98-pound weakling.

Handouts From Uncle Sam: After posting a $1.6 billion net loss in its most recent quarter, Intel announced a $10 billion cost-cutting initiative that would make even the most ruthless accountant blush. With up to 19,000 employees facing the chopping block, it seems Intel is trimming more fat than a liposuction clinic. And all this drama is unfolding while Uncle Sam is waving a blank check in their face.

• Intel is poised to receive a government goodie bag that would make Santa Claus jealous – up to $8.5 billion in grants and another $11 billion in loans, courtesy of the 2022 Chips and Science Act. However, the firm has been playing hard to get with the government's due diligence process, resisting information sharing like a teenager hiding their browser history.

SEMICONDUCTORS & ANTITRUST

Nvidia Claims it Never Received the DOJ’s Subpoena😵

The Silicon Hunger Games: AI titan Nvidia ($NVDA) found itself playing a high-stakes game DOJ-ball with the Department of Justice. On Tuesday, rumors spread faster than a computer virus that the DOJ had slapped Nvidia (and a few other tech heavyweights) with subpoenas, ramping up an antitrust probe into whether the AI chip maestro had been playing dirty, violating competition laws to stay dominant. Nvidia quickly fired back, claiming it hadn't received any such subpoena, though it admitted to having a little tête-à-tête with the agency.

• The initial whispers of subpoenas sent Nvidia's stock into a nosedive, vaporizing a jaw-dropping $280 billion in market value – the biggest single-day market-cap plunge for any US company in history.

The DOJ's Silicon Scavenger Hunt: Subpoena or no subpoena, one thing's crystal clear: the DOJ is sniffing around Nvidia's business practices like a bloodhound at a crime scene. They're investigating complaints that Nvidia's been playing hardball, making it tougher to switch to competitors than escaping a clingy ex, and allegedly punishing customers who dare to stray from its AI chip exclusivity. Nvidia's recent earnings report was like a double-edged silicon wafer. While the company's growth was hotter than a overclocked GPU thanks to the ongoing AI gold rush, it wasn't quite the mind-blowing performance we've come to expect from the chip giant. As a result, its stock has been falling ever since.

• As if government scrutiny wasn't enough to make Nvidia sweat, the competition is heating up faster than a data center without air conditioning. Rivals like AMD and Intel, along with Nvidia's own customers (looking at you, Google and Amazon), are cooking up their own AI chips like master chefs in a silicon kitchen.

• Companies are desperately seeking alternatives to Nvidia's wallet-draining processors, hoping to keep pace in the AI race without breaking the bank. It's like everyone's trying to find a cheaper gym membership that still gets them ripped. But for now, Nvidia remains the biggest game in town, controlling a lion's share of the AI-chip market – somewhere between 70% and 95%, depending on who you ask. With $30 billion in sales last quarter alone.

REAL ESTATE & INTEREST RATES

Homebuilder Stocks Are Finally Cool Again🔨

Uno Reverse: The housing market, once a cruel mistress to homebuyers, is finally showing signs of a change of heart. After years of high interest rates playing the role of a possessive ex, keeping homeowners locked in their current abodes and making new buyers feel like they're trying to finance a trip to Mars, the tides are turning. Even homebuilders, who've been feeling the squeeze tighter than a python's hug due to bank financing woes, are starting to see the light at the end of the tunnel. And wouldn't you know it, investors are jumping back in like it's the last chopper out of Saigon.

Homebuilders' Cinderella Story: Homebuilding has become the belle of the Wall Street ball. The SPDR S&P Homebuilders ETF ($XHB) has skyrocketed 40%, leaving the S&P 500's 22% gain in the dust like a sports car passing a bicycle. America's largest homebuilder, DR Horton ($DHI), has been on a tear that would make Usain Bolt jealous, surging 36% in just two months, making it the third-best performer in the S&P 500 during that time frame.

• This sudden reversal of fortune isn't just due to rate cut whispers; it's got more fuel than a rocket launch, thanks to some political promises that are either brilliant or bonkers, depending on who you ask.

The Mortgage Rate Limbo: Mortgage rates are doing the limbo, and they're getting impressively low. As of August 29th, 30-year fixed-rate mortgages have dropped to 6.35%, down from 6.95% on July 4th. That's a move so big it's visible from space, especially considering the Fed hasn't officially cut rates yet. Meanwhile, presidential candidate Kamala Harris is playing Santa Claus, proposing a plan to offer up to $25,000 in down-payment assistance for first-time buyers. It's a plan that's been about as well-received online as a cat video at a dog show, with critics pointing out it might just inflate home prices by the same amount, making houses about as affordable as beachfront property on Mars, along with incentives to build 3 million new homes.

Hammers March On: Homebuilders, however, are marching to the beat of their own drum, and that drum sounds suspiciously like a cash register. Despite a projected 16% nosedive in housing starts this year and a 10% slash in bank lending for residential construction — the largest drop in over a decade — building stocks are pushing ahead like there's no tomorrow. Single-family permits are growing faster than a teenager in a growth spurt, up 17.6% in large metro core counties and 3.4% in micro counties. It's all thanks to a "limited amount of existing inventory and pent-up demand for single-family construction" – or in other words, people are desperate for new homes, and builders are more than happy to oblige.

MORE NEWS

Additional market-moving events🌎

Volvo Hits the Brakes: Swedish automaker Volvo Cars abandoned its near-term goal of selling only electric vehicles by 2030, citing a need to be “pragmatic and flexible” amid changing market conditions and cooling demand. (CNBC)

Canada Cuts Rates Again: The Bank of Canada (BoC) just announced its third rate cut this year, bringing its overnight lending rate down from 4.5% to 4.25%. (TD)

Lyft Drops its Bikes: Lyft will cut 1% of its total employees to cut down bikes, scooters division and expects $34 million to $46 million in charges. (WSJ)

Fizz Ditches DEI: Molson Coors Beverage Co. is cutting back some of its corporate diversity efforts, joining a corporate retreat hastened by an anti-DEI social media campaign. (BBG)

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On Monday the 11th of March, we released our “superperformers” stock pick which we believe will provide significant outperformance compared to the S&P 500. Then on the 14th of June we released our next stock selection. Lastly, on August 6th, we initiated a position in Celsius holdings.

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