Goldman Sachs: Comments on Technology (08/27/2024)
The NDX started trading heavier (down around 115bps), although, it’s worth noting that over half of the NDX is actually trading higher on the day as most of today’s weakness is being driven by PDD (down over 30%) as well as broader weakness in Semiconductors/Hardware (think: MU, ARM, SMCI, AVGO types down 2%-5% with only a handful of loose stories to cite – lots of queries here today)… otherwise, some more notable moves in Crude Oil +$2.5 and 10Y yields continuing to make new 52-week lows (now below ~3.80%).
…coming off a supportive Jackson Hole press conference by Powell last week, the focus this week shifts to a slew of notable (GenAI) earnings results (NVDA, CRM, CRWD, MRVL, MDB, DELL) in contrast to a quieter week in terms of macroeconomics (durable goods lined up today, followed by Fed speakers + core PCE inflation later in the week). Outside of TMT earnings, I’d expect a quieter week as summer winds down and investors start to think about the home stretch, post-Labor Day (September = huge month with NFP, FOMC, conferences, focus on GOOG regulation, Presidential election debates + more) – most notable from my perspective = GS’s TMT conference in SF the week of September 9th… I’m biased of course, but this looks like the best TMT conference schedule I’ve seen – hope to see you there / let me know how we can help.
A few things are happening today (and since last week, as detailed below):
Top queries received today:
(By far the #1 query) : Why are GenAI/Semis stocks so heavy today? (AVGO, MU and Semicap are the most consulted).
What is PDD's relationship with companies like META/GOOG? Is this why META is declining?
What are your expectations for NVDA's results this week?
What is the position in CRM these days?
Why is UBER weaker today?
Positioning: Technology positioning is cleaner. Over the past week, GIR published its widely read 13-F analysis on Hedge Funds (HF) and Mutual Funds (MF) positioning (link). Between both types of funds, shared long positions in TMT are V, UBER, FI, WDAY, MA, while underweight positions are: INTC, TSLA (in the chart below – the top left quadrant shows the most crowded long positions and the bottom right the most short/underweight ones). At the sub-sector level, the latest data (including GS PB) points to continued deleveraging in the Information Technology sector. Indeed, according to 13-F data (GIR), both hedge funds and mutual funds trimmed their exposure to Information Technology, maintaining their lowest inclinations towards the sector in the last decade, driven by positioning in mega-caps.
In line with the general sentiment and GIR’s latest 13-F analysis (link), both hedge funds and mutual funds reduced their exposure to mega-cap tech at the start of Q3. For the first time since 2022, the weight of the Magnificent 7 in hedge funds’ long portfolios decreased. Similarly, mutual funds became more underweight in the Magnificent 7, moving to 671 basis points in Q2 (from 660 basis points in Q1). Both hedge funds and mutual funds trimmed net positions in MSFT, NVDA, GOOGL, META, and TSLA (while increasing AAPL). From my perspective, post-earnings reports, I have observed sentiment in Big Tech as: META > AAPL > AMZN | MSFT | NVDA > GOOGL, although positioning does not yet fully reflect these sentiments.
NVDA (and other) gains: Even when NVDA was trading closer to ~$100 a few weeks ago, it seemed like the market was never going to facilitate this report, with the stock now back at ~$125 ahead of Wednesday’s report, and the options market pricing in a ~9% move (implying a ~$300B market cap swing). That said, the positioning at ~$125 today looks a lot cleaner to me than when the stock was at $125 in June (inquiries from people outside of TMT have diminished considerably, and the specialist community has a much more “balanced” dialogue about the stock). Toshiya/GIR previewed the report last week (link), where he discussed: potential impacts of Blackwell's timing, a more favorable valuation (e.g., only a ~45% premium vs. a 3-year average of 151% premium), potential earnings surprises (GIR projects $4.16 for calendar year 2025), and ongoing demand trends (GIR believes CSP+Enterprise demand remains strong). I'm available to discuss expectations; for reference, NVDA's recent quarterly pace over the past few quarters has been a ~$1.5B revenue beat (for context, consensus is for ~$28.8B in revenue for the July quarter) with Nvidia guiding revenue for next quarter to be up ~$2B quarter-over-quarter (of course, there's still plenty of debate about expectations and/or how Blackwell's timing will factor into this). We'll see what Wednesday has in store!
Last week’s notes (from Silicon Valley): GenAI Field Visit… Adyen… BIDU… Hynix… Lasertec… LG Electronics… Gigadevice… Komatsu… Kuaishou… Hanmi Semi… Hon Hai (2317. TW)… SCREEN Holdings… AAC (2018.HK) – let me know if I missed anything or need GIR summaries.
PDD: PDD is now down over 30% on the day (with over 100 million shares traded). The market is focused on the revenue drop in the quarter and comments in the press release pointing to “intensified competition and external challenges”, and that PDD is “prepared to accept short-term sacrifices and a potential decline in profitability”. From GIR’s first print run today (link), highlights include: “management’s comments on slower revenue growth and fluctuating earnings due to intensifying competition/external challenges and a potential decline in domestic profitability over the long term to drive high-quality development, with planned investments of RMB 10 billion over the next 12 months (around software service fee reduction/alleviation, contrasting with peers’ monetization moves)” – there is some debate today about what this might mean for e-commerce and advertising companies in the US.
Events of the week: Probably the second most important week of the quarter for TMT results (think: NVDA, CRM, CRWD, MRVL, MDB, DELL) during what should be a quieter week (durable goods + Fed statements + core PCE as macro data) – I’m available to compare notes ahead of earnings reports.