Highlights

U.S. stock trading was mixed as investors weighed solid earnings against continued bank stress.  

Alphabet and Microsoft, the two tech giants, posted earnings that showed they’re both on solid footing, despite investors’ concerns about growth.

For Alphabet, Google search advertising revenue grew again after a quarter in the red. And Microsoft’s all-important cloud division posted better-than-expected sales. Both companies discussed how AI could impact their businesses, but they differed in their predictions: Microsoft characterised AI as a much more disruptive force than Google did.

On its own, Microsoft boosted tech shares as it surged 7% after it reported solid growth in its cloud division. They talked about its opportunity in AI - increasing its value by $145bn since the announcement of their Chat GPT integration.

Meanwhile First Republic Bank plunged, as the company continues to search for a rescue deal. The regional lender, which suffered over $100 billion in deposit outflows last quarter, crashed to a record low yesterday, and is exploring selling up to $100 billion in assets to support its balance sheet. First Republic’s condition is so dire that it sure seems like the U.S. government will have to intervene.

Stock Spotlight

First Republic is racing to land another rescue deal. It was only in March that JPMorgan and 10 other banks deposited $30 billion in First Republic Bank to help it out post the collapse of SVB and Credit Suisse. 

The bank is getting hammered again, with shares trading down as much as 41% on Wednesday, following reports that it is preparing to sell shares as part of a rescue plan.

The San Francisco-based lender is saddled with billions in unrealised losses on its loans and investments, including a large book of single-family mortgages issued when interest rates were much lower.

First Republic has seen huge deposit outflows (around $100 billion in the first quarter), but selling its loans would trigger outsized losses, potentially wiping out its equity cushion.

That's part of why the stock is trading down so heavily, with the bank currently valued at a little more than $1 billion. Investors are essentially forecasting that the bank is nearly worthless once those losses are realised.

If they’re seized by the FDIC, those same banks will face a bill of $30 billion. That's because the FDIC extracts a levy from healthy banks to help foot the bill for those that collapse.

Private equity could step in also, taking on some of First Republic's problem assets, with banks taking on the rest. It’s estimated that this could cost the likes of JPMorgan and Bank of America $500 million each if the banks took on the assets along the same lines that they stepped up with $30 billion in deposits in March. First Republic would then seek to sell shares to replenish its capital.

What's clear is that the likes of JPMorgan and Bank of America will end up paying for First Republic's struggles. It's just a question of how much and how.

Stock Spotlight

Artificial intelligence is having a breakthrough moment and will revolutionise everything from online search to commerce and content, unlocking $6 trillion in tech investment potential, according to Morgan Stanley.

This hype has been fueled by the recent debut of OpenAI's ChatGPT, which has people using it for all sorts of things, like writing emails and seeking stock-market advice. This has caused a surge in tech stocks, like Nvidia and C3.ai, which have driven half of this year's gains in U.S. equities.

Morgan Stanley has identified five key business areas for investors to focus on in the coming years to capitalise on the massive projected growth opportunities made possible by AI. 

Advertising

They suggest that advertisers can use AI to better target customers online.

"AI, large language models and generative-AI creation tools could help advertisers better target customers online, leading to improved paid and organic results from search engines, higher engagement in social media and online video, and more sales from ad units."

E-commerce

In e-commerce, AI and large language models can improve the shopping experience for customers, increasing sales and making online shopping more interactive.

"AI can also reduce costs for retailers with more efficient logistics networks and routing, lower return rates based on more efficient product targeting and improved customer service."

"With just 23%, or about $1 trillion, of retail spending online in the U.S. in 2022, there is a potential $3.3 trillion opportunity for e-commerce."

Travel

For travel, AI-driven suggestions will assist in the research and planning process. Over time, AI will help devise prepackaged itineraries and recommend specific flights, accommodations, and experiences that best match consumers' needs. As a result, travel companies will benefit from higher customer conversion and repeat use.

"Though 76% of travel is already being booked online, digital travel platforms are well-positioned to capitalise further on their large and unique data sets. AI-driven suggestions will assist in the research and planning process."

Ridesharing and Food Delivery

Ridesharing and food delivery are also set to benefit from AI. AI-based improvements to data use will better match drivers to riders and food purveyors to consumers. Further in the future, AI-enabled autonomous driving and delivery could help lower costs.

"While ridesharing and food delivery are closely associated with digitalisation, they had just 8% and 21% digital reach, respectively, when looking at the total population who could potentially use the services."

Cloud

Finally, analysts expect cloud adoption rates to grow this year, with AI demand fueling the acceleration in the medium to long term. Over the next four years, IDC forecasts that AI will drive one-third of the total growth in the public cloud and expects global AI spending on the public cloud to reach $328 billion in 2025.

Sustainability News

Bank of America has just launched an EV Resource Center, a comprehensive collection of resources to help consumers learn about and make informed decisions when considering an EV purchase.

The site provides interactive tools and content on various topics, including different types of EVs, driving range, maintenance costs, and tax incentives. Plus, there are links to locate charging stations and apply for an auto loan.

According to the BofA Institute, adoption of EVs could increase up to seven-fold by 2025. Still, this trajectory will require addressing common misconceptions around range anxiety, financing options, and more. That's why BofA has created the EV Resource Center to empower consumers to make informed decisions.

This new resource center is part of BofA's broader commitment to environmental sustainability and efforts to help clients reduce their carbon footprint. 

So if you're interested in learning more about EVs or considering purchasing one, check out BofA's EV Resource Center.

Quote of the Day

Two for the price of one! 

“Bud Light’s Woke marketing makes a lot more sense when you realise their CEO was in the CIA.”

In another twist, conspirators believe the whole thing is now a CIA plot, while a right-wing politician in the U.S. can’t find anyone to brew his “anti-woke” Bud alternative Ultra Right.

Bud’s parent company is Anheuser-Busch, and its CEO is Brendan Whitworth. Right-wing commentators have dredged up Whitworth’s past, which includes a stint working for U.S. spy agency the CIA, according to his easily accessible LinkedIn profile.

In response, tweeters stated the obvious! 

“Active CIA assets always put it on their LinkedIn. It is OpSec101.”

Douugh, did you know?

ETF’s (Exchange Traded Funds) are a popular choice of investment amongst beginners and pros. But why are they so popular?

ETFs basically take the benefits of investing in stock to the next level. The number one reason most investors love ETFs is that they’re a pre-made package of all the good things, meaning they don’t have to think about building their portfolio one stock at a time. 

But let’s take a deeper look at their benefits.

Portfolio diversification & risk management

ETFs allow exposure to various industries, sectors and risk levels whilst giving access to stocks that may have been out of reach before due to price or availability. 

Tax benefits

There are 2 main tax advantages to ETFs - capital gains tax is lower, and it’s only payable when the ETFs are sold by the investor.