Morning Toast 3rd Oct
The fourth quarter presents a new beginning for investors who weathered the challenges of the challenging third quarter. However, the enthusiasm that energized markets in the first half of the year has waned: The "Magnificent Seven" tech stocks have exhausted their AI-related excitement, and the Federal Reserve doesn't seem poised to reduce interest rates in the near future.
As stock prices in the tech sector decline, the fundamental argument for investing in highly valued big tech companies this year, primarily their exceptional ability to generate profits, is gaining credibility.
Tech giants like Amazon and Meta Platforms are currently running smoothly on the profit front. Over the past three months, analyst projections for their 2024 earnings per share have shown growth of over 10%, according to Bloomberg's estimates. Alphabet's estimates have also risen by 8%, while Nvidia's have experienced a remarkable surge of 69%.
Now, investors are confronted with the decision of whether the recent dip that pushed tech shares into a correction phase will endure as the economy decelerates or if the pullback has rendered valuations, albeit still elevated, appealing due to the robust earnings provided by big tech companies.
Anthony Zackery, an associate portfolio manager at Zevenbergen Capital Investments LLC, subscribes to the latter viewpoint. He regards these tech giants as among the finest businesses ever established, citing their scale, managerial excellence, resilience in growth, and profitability. From a long-term perspective, he finds them attractive, believing that they can surpass broader economic growth.
UBS has revised its price target for Amazon (NASDAQ: AMZN) to $180.00, up from $175.00, while maintaining a Buy rating. The bank's analysis suggests that the introduction of video advertisements within Prime Video content will have a significant positive impact on revenues and profit margins.
Amazon is planning to incorporate advertisements into Prime Video shows and movies starting in early 2024, initially in the U.S., U.K., Germany, and Canada, with later expansion to other regions. All Prime subscribers will have the option to view ads, unless they opt for an ad-free subscription tier for an additional $2.99 per month.
UBS projects that Prime Video ads, particularly in the United States, could yield approximately $6.2 billion in additional revenue and eventually contribute $0.40 to earnings per share. This move could potentially enhance North American retail margins by around 1.2%. Consequently, UBS has adjusted its estimated ad revenue for 2024 to $55.8 billion, up from the previous estimate of $52.7 billion.
The European Union (EU) has initiated the initial phase of the world's pioneering carbon border tariff, a groundbreaking instrument aimed at assessing the environmental cost of carbon emissions associated with the production of carbon-intensive goods entering the EU. It also serves as an incentive for cleaner industrial production in non-EU nations.
Known as the Carbon Border Adjustment Mechanism (CBAM), this system will initially apply to specific goods and selected precursors characterized by carbon-intensive production processes and a high risk of carbon leakage. These goods encompass cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen.
During the transitional period, importers of goods within the scope of the new regulations will be required to report the greenhouse gas emissions (both direct and indirect) embedded in their imports. No financial payments or adjustments will be mandated during this phase.
Upon the permanent system's implementation on January 1, 2026, importers will be obliged to declare annually the quantity of goods imported into the EU during the preceding year, along with their associated embedded greenhouse gas emissions. They will then need to surrender a corresponding number of CBAM certificates, with the certificate price determined by the weekly average auction price of EU ETS allowances, expressed in euros per tonne of CO2 emitted.
The CBAM represents a significant stride in the EU's endeavour to reduce its carbon footprint and fulfil its climate objectives. Furthermore, it sends a clear message to the global community that the EU is dedicated to ensuring a fair and equitable playing field in international trade.
Quote Of The Day
“We don’t have to engage in grand, heroic actions to participate in change. Small acts, when multiplied by millions of people, can transform the world.” - Howard Zinn, American historian, playwright, philosopher, socialist thinker and World War II veteran.
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