Markets unimpressed by Apple`s AI strategy

The S&P 500 and Nasdaq reached record highs on Monday, while the Dow Jones gained 69 points. Energy and utilities led gains, offsetting declines in financials and consumer staples. Notable performers included Eli Lilly, Planet Fitness, and Southwest Airlines, with respective rises due to FDA approval, a Jefferies upgrade, and Elliott Management's stake. Meanwhile, AMD fell 4.5% after a downgrade from Morgan Stanley. In Europe, the STOXX 50 fell 0.7% to 5,000 as traders reacted to European Parliament election results, with French banks Societe Generale and BNP Paribas among the biggest losers.

Summary for 10.06.2024

Asian equity markets were mixed on this morning as investors braced for the latest policy decisions from the Fed and the BOJ this week. The latter is also likely to discuss reducing its monthly bond purchases. Shares in Australia, Hong Kong and China declined, while those in Japan and South Korea gained.

European equity futures steadied after Monday’s drop while US equity futures dipped on Tuesday as investors await the Federal Reserve's policy meeting and key economic data.

Oil prices rose on Tuesday, extending Monday's rally due to higher seasonal fuel demand and potential US crude purchases for its petroleum reserve. Brent crude reached $81.91 per barrel, and WTI hit $78.05. The market anticipates stable prices near WTI's 200-day average, influenced by Federal Reserve policies and upcoming inventory reports.

Apple introduced its "Apple Intelligence" AI strategy at its developer conference, enhancing Siri's capabilities and integrating ChatGPT from OpenAI. The focus on user privacy aims to differentiate Apple from rivals like Microsoft and Google. However, Wall Street response was lukewarm, with concerns about its impact on short-term revenue and competition.

Rio Tinto will acquire Mitsubishi Corp's 11.65% stake in Boyne Smelters, increasing its ownership to 73.5% after also buying Sumitomo Chemical's 2.46% share. Boyne Smelters, operating the Boyne Island aluminium smelter in Australia, is a joint venture. The deal is expected to finalise in the second half of 2024.

Premium sportswear brands like Lululemon, On, and Hoka are thriving in China by targeting consumers directly, challenging megabrands Nike and Adidas in the $55 billion market. The market, driven by post-pandemic health trends, is expected to grow 7% this year. Lululemon reported 45% growth in China, highlighting the shift towards niche brands.

New Street Research initiated Microsoft with a Buy rating and $570 price target, citing the company's strong positioning in high-quality franchises and its potential to profitably grow in the low teens for years. They believe Microsoft is well-positioned in the Generative AI revolution and highlight its excellent execution and strong legacy franchises.

Morgan Stanley resumed coverage of Broadcom with an Overweight rating, citing its strong position in AI and key catalysts such as the VMware acquisition and recovery in enterprise semiconductor businesses. They expect Broadcom's AI revenues to grow significantly and project a bullish target price of $1,658.

Evercore ISI analysts labelled Nvidia as a "generational opportunity," foreseeing it potentially growing to 10-15% of the S&P 500. They emphasise Nvidia's role as an ecosystem leader in parallel processing, projecting a share price surge to $1,500. The latest share split is seen as a strategic buying opportunity amidst long-term growth prospects.

Melius Research downgraded Adobe Systems to Hold from Buy, with a $510 price target, citing challenges from AI. They argue that AI could disrupt the software industry, potentially empowering smaller competitors and altering traditional business models. Despite Adobe's strengths, the firm expects its stock to remain rangebound due to these concerns.

JPMorgan upgraded Walmart to Overweight from Neutral, with a new price target of $81 per share. They cited the company's strong balance of defence and offense, expecting growth in both top and bottom lines amidst a soft consumer backdrop. Tailwinds include value-oriented consumers and international profit inflection.

Morgan Stanley added DraftKings to its Top Picks list despite concerns over Illinois' tax structure change. They argue that tax increases don't directly translate and see incremental gaming legalization as an opportunity. Reiterating an Overweight rating and $51 price target, they believe earnings upside will drive positive catalysts for DraftKings shares.

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