- Equities: US equities fell despite robust growth in Big Tech cloud services as rising capex dampened investor sentiment
- Credit: 5 Nov US elections could impact markets globally; favour a duration barbell strategy with IG credit in the short and long ends for stability and yield amid trade restrictions and economic challenges
- FX: Factors that drove USD’s recovery in October are reversing amid Fed easing and waning confidence of a Trump election victory
- Rates: Given current yield levels and imminent event risks, max duration fear may be upon us; significant chance of yields drifting lower once the elections and auctions are crossed
- The Week Ahead: Keep a lookout for US Initial Jobless Claims; China CPI numbers
Related insights
US equities ended the week in red. The week ending 1 Nov was a significant earnings week with five out of the magnificent seven companies reporting their financial results. These reports provided a glimpse of benefits that AI brought to their business. Notably, Amazon Web Services saw a 19% y/y increase in revenue and Alphabet’s google cloud saw an increase 35% in revenue, driven by a growing demand for robust cloud infrastructure to store and train their generative AI.
However, despite these positive developments, concerns about the growing capex of these hyperscalers continue to weigh on investors’ sentiment. Furthermore, while Microsoft reported a strong revenue growth of 33% y/y from Azure and related cloud computing, it cautioned that this growth could slow in the next quarter. Compounding to these concerns, the October’s ISM manufacturing PMI remained in contractionary territory, falling to 46.5, below consensus estimate of 47.6 and September’s 47.2. As a result, the S&P500 and NASDAQ fell 1.4% and 1.5% respectively.
Topic in focus: Unlocking value in semiconductors – M&A activity and AI-driven prospects. This year, the semiconductor industry is poised for a significant upcycle, driven by double-digit growth in logic and memory segments. This resurgence is evident in robust M&A activity with 44 deals announced YTD, marking a 33% increase from last year. The total deal value surged from USD2.7bn to USD45.4bn, primarily fuelled by major acquisitions by Synopsys and Renesas. This trend of vertical integration among industry leaders aims to enhance AI capabilities and high-performance computing resources, positioning companies to capitalise on expanding market opportunities and gain exposure to larger end markets.
Looking ahead, the semiconductor sector will benefit from the rapid adoption of AI technologies with the total addressable market projected to reach approximately USD2.6tn by 2032. Coupled with global tech spending of USD4.4tn in 2023, this creates a favourable environment for sustained investment. With strong capex and rising productivity, we recommend focusing on leading semiconductor firms within the CIO Barbell strategy as they offer attractive growth metrics and favourable valuations, ensuring long-term shareholder value amid evolving AI-driven technology.
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