TSMC and Broadcom eye Intel split

General market commentary

Despite ongoing uncertainty around inflation and trade policies, global markets displayed notable resilience last week, with the S&P 500 gaining 1.0% and the Nasdaq rising 1.7%. The U.S. Treasury yields dipped significantly following weaker-than-expected retail sales data, which were impacted by adverse weather events like wildfires in California. The U.S. 10-year Treasury yield now stands at 4.48%, down from January's high of 4.8%. Overall, the market remains positive for the year, with the S&P 500 up around 4% and the Dow Jones up nearly 5%, reflecting continued economic momentum despite policy uncertainty and headline volatility.

The economic fundamentals remain robust, providing a solid foundation for market performance. GDP growth continues to show resilience, with the Fed’s GDPNow model forecasting a healthy 2.9% annualised growth rate for Q1 2025. Corporate earnings are also strong, with S&P 500 companies reporting 16.4% year-on-year earnings growth for Q4 2024, the highest since 2021. This growth is expected to continue into 2025, with contributions from both growth and value sectors, which should help sustain positive sentiment and support stock market returns.

Looking ahead, while inflation and trade risks, particularly from potential tariffs, remain key concerns, the overall market outlook is positive. Investors are advised to focus on solid fundamentals, with a diversified portfolio across sectors and geographies, including cyclical, value, mid-cap, and international stocks, to navigate sector and regional rotations. With GDP growth and corporate earnings continuing to drive momentum, the market's strength seems supported by deeper economic health, offering further opportunities for growth in the year ahead.

Latest market and economic update

Asian equities largely traded in a flat-to-low range on Monday, with concerns over U.S. trade tariffs and high interest rates weighing on sentiment. While Chinese tech stocks saw a pause in their AI-fueled rally, Japan's GDP growth exceeded expectations with a 0.7% quarter-on-quarter rise, driven by strong business investment and net trade, contributing to a mixed regional performance, alongside Australian market movements ahead of an expected interest rate cut.

U.S. markets are closed today for Presidents Day, with trading set to resume tomorrow. Equity index futures showed little movement in thin holiday trading, as investors remain cautious over President Trump’s trade tariffs and ongoing inflation concerns.

European equities eased on Friday, with the STOXX 50 falling 0.2% and the STOXX 600 down 0.3%, as healthcare and insurer stocks like Allianz, AXA, and Munich Re led losses following President Trump’s tariff announcement. However, for the week, the STOXX 50 gained 3% and the STOXX 600 rose 1.5%, boosted by strong performances from luxury goods companies such as Hermes, LVMH, and Kering.

The US dollar remained under pressure at the start of the week, trading below the 107 mark, as weaker-than-expected US retail sales and signs of cooling inflation raised expectations for further interest rate cuts by the Federal Reserve. The dollar also weakened against the euro, which was trading at 1.0494, following easing trade tensions and a shift in the US administration's trade strategy.

Oil prices dropped for a fourth consecutive day this morning, driven by expectations that a Russia-Ukraine peace deal could ease sanctions and concerns over a potential global economic slowdown due to tariff wars. Brent crude fell to $74.59 a barrel, while U.S. West Texas Intermediate crude dropped to $70.51, as market sentiment was weighed down by the prospect of reduced supply disruptions and the risk of further trade tensions.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Broadcom and TSMC are reportedly exploring separate deals for Intel, potentially splitting the company, with TSMC interested in acquiring Intel’s chip plants and Broadcom eyeing its chip-design and marketing business. These talks come as Intel faces increased competition and struggles to capitalise on the AI-driven chip demand, while the company has already begun separating its foundry business, signalling a possible break-up.

Tencent’s Hong Kong shares surged by 6.6% after announcing the integration of DeepSeek’s AI models into its Weixin messaging app for internet searches. Meanwhile, Baidu’s Hong Kong shares fell over 6% as investors took profits ahead of its upcoming earnings report, despite also announcing plans to incorporate DeepSeek and its own Ernie AI model for searches.

Apple is set to introduce Apple Intelligence to its Vision Pro headset, alongside an updated guest user mode and a spatial content app, with a software upgrade potentially available as soon as April. The move aims to boost sales of the $3,499 device, which has seen waning demand due to its high price and competition from more affordable alternatives like Meta's Quest.

Meta Platforms is creating a new division within its Reality Labs unit to develop AI-powered humanoid robots designed to assist with physical tasks, joining competitors like Tesla and Nvidia-backed Figure AI. The initiative aims to enhance Meta's AI and mixed reality capabilities, with a focus on research and development, led by Marc Whitten, formerly CEO of Cruise.

Dell Technologies is close to finalising a deal worth over $5 billion to provide AI servers, equipped with Nvidia’s GB200 semiconductors, to Elon Musk’s xAI. The servers will help expand xAI’s capabilities, including its supercomputer Colossus in Memphis, which is set to house a million GPUs for training its Grok chatbot.

Hermès exceeded expectations with a 17.6% year-on-year rise in fourth-quarter sales, driven by strong demand for its luxury products, especially in the leather goods division. The company posted full-year sales growth of 14.7%, with strong performances in the Americas and Japan, and forecasts continued growth in 2025 despite uncertainties in the global market.

Nvidia reduced its stake in Arm Holdings by 44% and exited its holdings in Serve Robotics and SoundHound AI during the fourth quarter, while increasing its investment in China's self-driving startup WeRide, which saw an 83% surge in its shares. The move aligns with Nvidia's long-term AI strategy, as it also reported a position in AI cloud firm Nebius, sending its shares up 6.7%.

Warren Buffett's Berkshire Hathaway disclosed a new $1.24 billion investment in Constellation Brands and reduced its holdings in Citigroup, Bank of America, and other banks. The firm also sold off $133.2 billion in stock in 2024, primarily Apple shares, while maintaining a large cash stake of $325.2 billion.

JP Morgan raised its price target for Adyen to €2,800, citing the company's strong growth, resilience in a challenging economy, and cost control. The brokerage remains bullish on Adyen, calling it their top pick in the payments sector and forecasting continued growth through 2025.

Airbnb received multiple analyst upgrades following a strong fourth-quarter performance and plans for marketplace expansion in 2025. Baird, Goldman Sachs, and Gordon Haskett all raised their ratings, with Goldman Sachs increasing its price target to $153, citing potential for growth and margin expansion.

Following a strong earnings report, analysts at Wells Fargo and Pivotal Research upgraded Roku's stock, with Wells Fargo raising its target price to $129 and Pivotal increasing its 2025 target to $125. Both firms highlighted Roku's growth in active accounts, advertising partnerships, and the expected boost from political advertising, with Wells Fargo projecting a 17% year-over-year increase in Platform revenue for 2025.

CFRA downgraded DraftKings to "Sell" from "Hold" due to concerns over its valuation, despite the company's strong growth and market share gains. The firm cited risks from regulatory changes, rising competition, and a stretched valuation with shares trading at 4x 2025 revenue and 25x EBITDA estimates.

Upcoming data and events

This week’s key economic events include the release of the FOMC minutes and speeches from Federal Reserve officials, US housing data, and S&P Global PMI figures, while global interest rate decisions and inflation data will be released in Australia, New Zealand, China, Canada, the UK, South Africa, and Japan. In terms of earnings, notable reports include Arista Networks, Occidental Petroleum, HSBC Holdings, Carvana, Walmart, Alibaba, Bookings Holdings, and MercadoLibre, among others.

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