We've had half of April, so it's time for the most crucial charts of the past fewer weeks. In this entry we will focus, among another things, on the sentiment of consumers, the success of companies dealing with artificial intelligence, the electricity market, or on who actually benefits from the blockade of the Strait of Ormuz. Here we go!
Rollercoaster on S&P 500
The last fewer weeks have been a real rollercoaster on S&P 500. First, we saw almost 10% of the decline which was due to the beginning of the conflict in the mediate East (the second wave of inflation and interest rate increases) so that investors would later rise this leading global index to fresh peaks in just 3 weeks.
S&P500 index quotations
What's next?
The sentences here are powerfully divided. While any believe that the illustration clearly shows the process of selling out to large investors at advanced prices after the period of growth – Wyckoff's distribution...
Wyckoff distribution schedule
... others point out that it is nothing but ]]>Termination of the war bonus]]> (in this case the discount), pointing to large purchases of insiders from the technology sector, which is the main fuel for the growth of the S&P 500 index.
For beginner investors, let me just remind you that insiders are people who know companies from the inside, frequently ]]>with confidential information]]>which have not yet been made public.
According to the illustration below, the insiders of the companies of ETF XLK (ETF for technology companies) made the biggest purchases of shares in early April this year for 15 years, which helped to rise the S&P 500 index to fresh peaks.
Purchases of insiders in the technology sector
How are things in the technology sector today?
Big Tech has been backing the most costly technology race in years
For anyone who even a small ]]>follow financial markets]]>, is no secret that there is presently a race in the field of artificial intelligence between the largest technology companies. AI, however, is not a free revolution. To build larger models, large Tech must spend hundreds of billions of dollars on data centers, servers, chips, cooling and energy. This is starting to appear in cash flows.
The illustration below shows the increasing gap between Amazon, Alphabet, Meta and Microsoft investment expenditures (CapEx) and their free cash (FCF – free cash flow).
Source: Own development
According to data, from 2023 the expenditure of companies has been expanding continuously and according to analyst forecasts by 2030 is expected to be 6-fold higher than 8 years earlier. 2026 is the first real exam for this strategy. According to the forecasts, the free cash is almost gone, and the debt will grow. Next year we will know whether it was a superb bet – or the most costly mistake in technology history.
Competition is simply a separate risk. The illustration below shows the ranking of the world's best AI models according to the most hard available test. It clearly shows that Chinese models are inactive far behind American leadership.
Source: arcprize.com
The U.S. continues to lead where the scale and power of calculations matter. But the technological advantage is not yet a marketplace advantage – especially erstwhile a cheaper alternate is good adequate for most business applications.
Growth dynamics of AI companies
Companies in the artificial intelligence (AI) sector redefine the concept of “fast growth” of business, putting another technology companies against the wall. In order to better realize this theme, let's first look at the yearly Recurring gross (ARR) – this is the annual, repetitive gross of the company that it can number on, based on current active subscriptions and contracts.
While companies specified as Adobe, Canvas, Monday reached the level of $100 million ARR it took respective years, so Claude, ChatGPT or Cursor AI applications reached that level in respective months, which is well illustrated by the following graphics.
dynamic growth of AI companies
This situation puts force on investors to change the valuation of companies and to take even greater account of the current AI revolutions. The best example of this is ETF IGV giving vulnerability to SaaS, which has fallen by 27% since the beginning of the year. The valuation of this ETF was due to concerns about the fast replacement of SaaS's ‘old companies’, AI models, which in any cases can make a akin product in just a fewer hours. The best example of this is the CNBC reporter experimentation with Monday. The full theme, as well as current problems for SaaS companies, was presented very well by Karol Natonik in the material entitled ]]>"Software has fallen by 30%. Does Wall Street not see an opportunity?”]]>.
Continue reading: ]]>Independent Trader - Financial independence]]>
Dividend investments. ]]>How to analyse dividend companies?]]>
Author: ]]>Independent Trader Team]]>
