🪂 Warfare is Now ESG Apparently

MARKET UPDATE

Good Morning Investor! On Tuesday, shares of Molson Coors ($TAP) rallied over 5% after reporting better than expected earnings, highlighting Coors Light as the dominant beverage in the post-Bud Light boycott, despite the supposed consumer spending crunch along with the movement away from alcoholic beverages. Perhaps Jim Cramer praising the company on Mad Money helped a tad bit too!

Meanwhile, shares of ride hailing, grocery on-demand platform Uber Technologies ($UBER) fell over 2% after announcing that it intends to halt operations of its car-share service in Austrailia, citing 'operational challenges' and rising costs.

TODAY’S BIG HEADLINES

2024’s Hottest IPO, Tempus AI, is No Longer a Trainwreck

PC Maker Dell is Riding the AI Wave

Warfare Now Fits Under the ESG Umbrella Apparently

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INITIAL PUBLIC OFFERINGS

2024’s Hottest IPO, Tempus AI, is No Longer a Trainwreck👀

Two Trends, One Stone: In today's market, a flashy pitch deck is about as useful as a chocolate teapot - investors are now thirsting for profits. It's no shocker, then, that 2024's hottest IPO is straddling two of Wall Street's favorite positions: AI and healthcare. Tempus AI ($TEM), a diagnostic healthcare firm using artificial intelligence to probe lab results and engineer bespoke cancer treatments, seemed to have all the right assets to make investors weak at the knees. Even with Google playing doctor behind the scenes, the stock's performance was far from arousing when it went public.

Seesaw Timeline: After a debut as tepid as day-old tea on June 14, $TEM took a nosedive, dropping 37% over the next eight trading days. This performance was about as impressive as a limp handshake, wiping out much of its $6 billion listing valuation. However, Wall Street's obsession with artificial intelligence seems to have given the firm a much-needed injection. The company has since perked up, rallying 137% from its June lows, making it the best-performing IPO of the year (so far) - now up 47% from its listing price. Talk about a comeback kid!

Exception to the Rule: Before going public, Tempus had to raise $200 million in emergency funding to avoid running out of cash - a red flag as big as a matador's cape to prospective investors. The business remains deeply unprofitable - booking a $214 million loss in 2022 and a $289 million loss in 2023. These numbers are about as attractive as a porcupine in a balloon factory. However, rapid growth has investors hopeful that profits are on the horizon.

• Top line projections for 2024 are set to rise to $700 million, a 32% year-over-year increase — mainly from lab tests and data licensing.

• JPMorgan expects this strong revenue growth to continue through 2027, with profitability anticipated by the second half of 2025.

• One metric which got our spidey senses tingling was that only 1% of Tempus’ total revenue came from AI, which the firm describes as “immaterial.” That's about as reassuring as finding out your parachute is 99% decorative.

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COMPUTER HARDWARE & AI

PC Maker Dell is Riding the AI Wave💻

From Consumer Hardware to Server Farms: PC maker Dell Technologies ($DELL) is riding the AI wave like a surfer on steroids, after reporting second quarter earnings that were hotter than a laptop battery in a sauna. The report revealed that the firm is solidifying its position as a leader in the server market, proving it's not just a one-trick pony in the tech rodeo.

• It's just as well the AI boom happened when it did. With PC sales drooping faster than a wilted lettuce, AI-optimized servers designed to process large amounts of data have become Dell's new best friend. This recent uptick in server sales has coincided with the stock price rising a jaw-dropping 47% year-to-date.

Quarterly Boom: During the second quarter, Dell sold $3.2 billion worth of AI-optimized servers, representing a sensational 80% increase year-over-year, and has a $3.8 billion sales backlog, with a deal-flow pipeline “several multiples” higher.

• Meanwhile, the firm’s larger consumer PC division saw sales plummet 22% year-over-year. Despite $12.4 billion in revenue, the segment has endured “a historic decline over the last two years” It's been about as popular as a Windows update notification.

• Fortunately, the smaller AI-Server sales are beginning to have a larger impact on overall sales, further negating the decline of the firm’s consumer PC sales.

• Overall revenue for the quarter came in at $25.0 billion, up 9% year over year, while operating income was $1.3 billion, up 15% year-over-year.

The Misfortunes of Others: Fortunately, Dell is looking poised to capitalise on the AI-server opportunity even further as one of their largest rivals in the space, Super Micro Computer ($SMCI) is facing accusations from short-seller Hindenburg Research, which alleges its product quality and customer relationships are struggling harder than a dad trying to understand TikTok. Dell has managed to capture key enterprise clients such as Tesla ($TSLA) and CoreWeave.

DEFENSE & ESG INVESTING

Warfare Now Fits Under the ESG Umbrella Apparently🪂

Weapons are Now Ethical: It seems the "G" in ESG is now standing for "Gosh, we love guns!" That's right, defense stocks are muscling their way into the ESG (environmental, social, governance) pie like a tank rolling through a peace rally. Why, you ask? Well, according to the Financial Times, fund managers are using the war in Ukraine as an ethical justification for folding defense companies into their portfolios.

ESG’s Glow-Up: The flow of money into defense stocks under the ESG banner has gone ballistic faster than you can say "cruise missile." European ESG funds have pumped up their investments in defense stocks from a measly €3.2 billion ($3.5 billion) in Q1 2022 to a whopping €7.7 billion ($8.5 billion) today. That's more inflation than a balloon artist at a kids' party! And hold onto your sustainably sourced hats, because an increasing number of ESG portfolios are now including commodities like oil, gas, and mining stocks. Lithium and Uranium are leading the charge, proving that even the periodic table can have its 15 minutes of fame in the ESG spotlight.

• Part of this meteoric rise in defense investing is due to soaring share values, but that doesn't account for the total increase. These funds are throwing cash at weapons manufacturers faster than a sailor on shore leave.

Weapons Still Aren’t the Belle of the Ball: Now, don't go thinking that attitudes towards defense stocks have done a complete 360 (or even a 180, for that matter). Around one-third of UK and EU ESG funds have investments in defense companies, so they're still technically in the minority. It's like they're the awkward cousin at the ESG family reunion - not everyone's thrilled they're there, but they're making themselves comfortable anyway. But don't cry for the defense companies - they're laughing all the way to the bank.

• The share price for Rheinmetall ($RHM), a German arms manufacturer, is up around 400% since the end of February 2022, when Russia invaded Ukraine. That's a bigger boom than their products! Swedish defense company Saab ($SAAB) is up 286%, and Britain’s BAE Systems ($BA) is up 105% (it made record profits last year).

• Saab's CEO, in an interview that was more revealing than a wardrobe malfunction, told CNBC that the company's shareholder count has ballooned from around 50,000 to more than 175,000 since the war began. Looks like investors are flocking to defense stocks faster than seagulls to a dropped ice cream cone.

MORE NEWS

Additional market-moving events🌎

Reverse Gear: Volkswagen is considering closing German manufacturing plants for the first time in its 87-year history. (Reuters)

Illumina Wins in Court: Illumina ($ILMN) won its court battle against the E.U.'s investigation of its $7.1B Grail acquisition, with the court ruling that the European Commission overstepped its authority. (Reuters)

Airbnb Petitions NYC: Airbnb ($ABNB) has asked New York City to reconsider its short-term rental regulations, citing increased travel costs and no significant impact on the housing market. (Reuters)

Telecom Fiber Deal: Nokia ($NOK) signed a 5-year deal with AT&T ($T) to build a fiber network in the U.S. after losing a major telecom network contract to Ericsson ($ERIC). (Reuters)

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