Latest / ausbiz a.m / 30.10.26 Nick Feil, Prenzler Group
Transcript
- nadine: Well, good Friday morning to you. It is the 30th of October. I'm Nadine Blaney, In for Andrew Gagan today, and this is Osbiz AM. So let's talk about last night, shall we? Wall Street gave back some of the post-Fed gains that it did make. So the SP 500 came under pressure. The NASDAQ dropped more, actually pretty close to 2%, and the Dow was lower as well. The story was really one stock, though, dragging the whole sector down. We'll get there in a moment, but I can say it's called Alphabet and Google. So Infotech was the clear loser in the session. bright spot though is healthcare. Eli Lilly earnings came in pretty strong. So Google fell nearly 13%. That's after it badly missed Q3 earnings after the bell, this time yesterday. at its low, this is pretty incredible. Alphabet shed over half a trillion dollars in market value. One of the biggest single-day wipeouts that we've seen on record. Microsoft, which also reported After the Bell yesterday, Nick: Okay. nadine: was a very different story. It gained more than actually pretty close to 3% at one point. Same AI theme, very different outcomes. And after the bell today, we've had Amazon come through. look, it has posted sales that came in below estimates. so I guess people are a little bit concerned about retail demand going into the Christmas season. But a revenue at Amazon Web Services rose 39% to 46 billion US. We've also heard from Intel after the bell, but I'm going to get an expert's view on what's been going out on out there. And that's Nick Field from Prenzler Group, who joins me now. Hey Nick, good morning to you. Nick: Hey, Nadine, morning. Nice to be back. nadine: Yeah, great to have you here. So, that was a bit of a preamble. but what Nick: Thank you. nadine: what stood out to you from the overnight session? Nick: obviously, I suppose the major standouts have been the Intel and Amazon after hour earnings that have just dropped. So, I mean, once again, we've sort of seen quite a lot of volatility and that's just going to continue. I think at the moment, both are disappointed and currently Intel's showing about a 20 % drop after hours and Amazon a 10 % drop. nadine: Wow. Nick: So really significant moves in large names. nadine: That is huge and we don't often see these types of like the magnitude of those drops, particularly when it comes to the big name. So Nick, is that getting you a little worried about this confidence crack in AI, that it's getting larger? Nick: Yeah, definitely. think, for most of the market at the moment, it's the common thread where you've got massive spend and a miss on earnings. And right now the market doesn't have patience. You're seeing this large capex, you're not quite seeing it translate to cash flows just yet. So, yeah, basically the market at the moment is just lacking patience and with interest rates increasing, cost of capital increasing, oil prices continue to strengthen. It's definitely a show me market. if anyone's showing this large capex positions and it's not being justified in revenues, then they're getting punished. nadine: Yeah, it is pretty incredible. Microsoft, you know, had a bond offering expected to be about twenty-five billion dollars in size, attracted more than a hundred and fifteen US billion dollars of orders at its peak. I mean, this is fundamentally like correct me if I'm wrong, but the size and scope of the money being raised, we've never seen before. Nick: That's right. You know, a of these companies actually turning to the bond market, which kind of, I guess, puts price pressure on bond prices and pushes up yields. So you're seeing a lot more companies doing these large issuances and basically, yeah, that has to have an effect and we're sort of seeing it across yields. But the question is, yeah, so how many companies can keep doing these issuances? We're seeing it with the AI and semiconductors as well, the large players, they're doing similar things. and doing that sort of mixture of debt and equity sort of financing. nadine: Hm. So you've spent a lot of time in markets. D you know, is there anything that's sort of ringing bubble to you? Particularly when we think about, you know, the size and scope of the anthropic IPO, at least the plans for it. Nick: Yeah, I think we've obviously seen it with Firmus as well that that deal kind of got scuppered. So you've the market, kind of, you've had this AI thematic really obviously deliver over the past sort of 12 to 18 months, but you're just getting the market now people are starting to poke holes and things, ask questions. Firmus itself sort of had a $44 billion valuation, but that has been rerated multiple times. But eventually, I guess investors are wanting to see some sort of solid proof of earnings and not just allowing these high valuations to be justified. So it's an interesting time at the moment. I guess you probably got significant opportunities because I think that the demand story is still strong in sort of the AI semiconductor space. It's just who can weather this period of, I guess, capex and debt issues. A company I guess I like at the moment is IRON, which is an Australian sort of semiconductor AI story. yeah, so basically... nadine: Right, okay. Yep. why do you like it? Because I think it's run up against a bit of pushback against some of its plans, hasn't it? Although it's you know, largely operating in in Nick: Yeah, it has. it's obviously, nadine: in North America. Nick: yeah, I it's obviously basically like Call Weaves and the other names is something recently. it's probably it's down trading at around a greater than 50 % drop from its peak. But they do have a $9.7 billion five year contract with Microsoft, AI Cloud Services. They've got a significant cash position, which gives them decent runway, allows them to weather this tricky period. So I think at the moment, it's just a matter of assessing these companies on their merits and trying to find opportunities with companies that do have good contracts in place, good runway that can potentially tap into demand when it recovers. And the focus is less on, I guess, capex and cash position. nadine: Yeah, well we're living through a pretty extraordinary time with this revolution towards AI. So you're still seeing some opportunities out there. how much more difficult does it get if we do see rates rise in the US in December? Because we had a pretty hot GDP read that came through. Inflation is still pretty hot. So there's I mean, it's not as if there's nothing to be concerned about. Outside of just the AI trade either, because so much of growth is being driven by that too. Nick: 100%. Yeah, I think it really is a matter of watching the data at the moment. Overnight we've had the core PCE come out from the States. Again, strong, much sort of advanced GDP quarter and quarter was strong as well. Well above sort of their 2 % target. I think we've got a 3.4 % read there. all this data is kind of building the case for further rate hikes in the US. And then obviously in Australia, we've just had a strong CPI print. So that's built the case for rate hikes for this November, Melbourne Cup Day, the third. I think they're pricing about an 80 % chance now of a 25 basis point hike. So yeah, at the moment, it's a tricky time to sort of make a big case for significant investment risk, at least in sort of your small caps and your more volatile stocks, you can kind of be achieving those sort of yields in more stable sort of treasuries and things like that. nadine: Yeah, Nick: And. nadine: Go ahead. Nick: So I'm just getting to that as well. Obviously, you've still got persistent energy, oil costs, pressures. So you're seeing that sort of margin compression on a number of names, sort of mining operators and even sort of consumer discretionary stocks and things like that. So yeah, it's a tricky story, but I think there's a lot of opportunity at the moment if you can assess each company and its merits and you can take a longer term view. nadine: Mm. So, I'm thinking about some formerly beaten down sectors, maybe more defensive sectors. Do you forgive Nick: Yep. nadine: my ignorance at Frensler Group, do you look at sectors like healthcare, for example? I did mention Eli Lilly overnight, but you know, there's some would say, arguably, a a need to build some defense into portfolios. What do you do there? Nick: Yeah, think there's a few names that I like. I you mentioned Eli Lilly. I guess, some of the market segment that's looking with some interest into these players who are involved in, guess, peptides and GLP 1s and 2s. And I think that's Eli Lilly's direction. So I think there's a natural demand there for those names. That's probably a reasonable part of portfolio if you think that continues to grow in popularity. I also like Nike at the moment, actually, which is, I guess, being considered a defensive story. It's kind of your classic turnaround story at the moment where it was trading at multi-year lows. It's had a change in management and a change in focus because it's sort of lost a significant amount of market share, particularly in China. But they're doing a big push into running at the moment with the running series. So looking to, I guess, restore some of that brand integrity and tap into some those growing markets with running. So I don't mind that as part of a more defensive portfolio. Yeah, Aussie nadine: Hm. Yeah, interesting. Nick: side as well in the market. I think last time I was on the show, I mentioned Buru Energy, BRU is the ticker. nadine: Mm-hmm. Nick: So there's, since we spoke, I think last time I spoke with Andrew, they were in a trading halt pending some reserves efforts, which They actually booked proven and probable, they made it in proven and probable reserves there. So it's a really interesting story at the moment. And I guess if you're tapping into that strength in the oil and gas sector, it's a company worth taking a look at. nadine: Well, Nick, I think you nailed it. You gave us some perspective overnight. You gave us a couple of names to think about, not just overseas, Nick: Yep. nadine: but here locally. Well, we'd love to have you back. Thank you so much for joining us today. Yeah, Nick: Yeah, I'd love to join you and thanks for having me. nadine: great. just I'll wrap up what what we're seeing as well. I didn't mention, there's so much to talk about. Didn't mention the ECB, kept rates on hold as expected, although very heavily foreshadowed a December rate coming through. locally we had a pretty good session yesterday. financials and real estate led the charge. but today we'll keep our eye on the just consumer discretionary names. You know, as Nick was just saying, we've got an interest rate coming next week. Yesterday we saw West Farmers flagging a slowdown in consumer spending, JB Hi-Fi, super retail. So all of those names are worth watching. we'll keep an eye on local tech names given that outsized move to the downside from alphabet and then, you know, after the bell. Intel and Amazon as well. So plenty to get you going on this Friday. Hope you have a great day. thanks for listening and we'll catch you next next week.