- Value Investor Daily
- Posts
- Value Investor Daily #61
Value Investor Daily #61
Housing Inflation Spikes, AI Progress Stalls, Tariff Induced Price Hikes, David Einhorn's New Position
In partnership with
These daily stock trade alerts shouldn’t be free!
The stock market can be a rewarding opportunity to grow your wealth, but who has the time??
Full time jobs, kids, other commitments…with a packed schedule, nearly 150,000 people turn to Bullseye Trades to get free trade alerts sent directly to their phone.
World renowned trader, Jeff Bishop, dials in on his top trades, detailing his thoughts and game plan.
Instantly sent directly to your phone and email. Your access is just a click away!
In Today's Edition
Annual Inflation Rate Hit 2.6% in October
The October consumer price index (CPI) rose 0.2%, bringing annual inflation to 2.6%, with core CPI at 3.3%. Shelter costs drove the increase, contributing over half of the all-items CPI gain, with a 4.9% rise annually.
Energy costs were stable, while food increased 0.2% month-over-month. Following the report, market expectations for a December Federal Reserve rate cut rose.
President-elect Trump’s planned tariffs and spending could impact future Fed cuts, with traders now predicting fewer rate reductions through 2025 than previously anticipated.
OpenAI. Google, Anthropic Hit AI Plateau
The big LLM players are facing diminishing marginal returns on their AI investments. It could have implications for the entire stock market.
Marc Andreessen and Ben Horowitz are seeing a plateau with much slower improvements in intelligence for the same amount of spend on AI infrastructure.
Marc Andreessen and Ben Horowitz say that AI models are hitting a ceiling of capabilities: "we've really slowed down in terms of the amount of improvement... we're increasing GPUs, but we're not getting the intelligence improvements, at all"
— Tsarathustra (@tsarnick)
8:35 PM • Nov 5, 2024
OpenAI’s new language model, Orion, shows incremental improvement over GPT-4 but lacks the significant leap seen in previous generations, reportedly due to limited high-quality data.
OpenAI uses synthetic data and human feedback to address this, contracting with firms like Scale AI. Google and Anthropic face similar challenges with their Gemini and Claude models. OpenAI’s CEO, Sam Altman, also cited limited compute power as an ongoing hurdle in developing more advanced models.
Tech giants, including Microsoft, Meta, Amazon, and Alphabet, have invested heavily in AI, with shareholders anticipating substantial returns. This plateau in AI performance could impact earnings expectations and investor sentiment.
Could this situation be similar to when Meta lost billions every quarter on Reality Labs (still happening), leading to an 80% drop in its stock? Probably not because billions of users actually want to use AI technology, but investors will eventually want to see results.
If they do not make significant progress in the next 12-18 months, the bubble in AI stocks, including Nvidia, is likely to burst. This will almost certainly lead to a reevaluation of major tech companies, which would negatively impact the entire stock market at large.
Trump Tariffs: Firms Plan Price Hikes
Several companies are preparing to raise prices in response to President-elect Donald Trump’s proposed tariffs, including a 60% tariff on Chinese goods and 10-20% on other countries.
On earnings calls, executives from AutoZone, Columbia Sportswear, and Stanley Black & Decker indicated that they would pass tariff costs to consumers.
As investors, this is important to watch. Their ability to pass on the cost increases to customers will make or break their margins and, ultimately, their moat. Will customers pay more for their brand, quality, network effects, etc.?
Economists predict these tariffs could increase inflation, leading the Federal Reserve to raise interest rates.
Columbia’s CEO expressed concern about affordability, while Stanley Black & Decker is considering shifting production out of China to reduce impacts. Trump’s team claims past tariffs boosted jobs without raising inflation.
Einhorn Buys CNH Industrial, Stock Is 'Cheap'
At the CNBC Delivering Alpha Conference yesterday, David Einhorn delivered a concise yet brilliant two-minute breakdown of his investment thesis on CNH Industrial (CNH), highlighting his fund’s latest position:
“Someone once told me that you pay a high multiple for trough earnings and a lower multiple for Peak earnings. I think here the trough earnings are a little bit north of $1 per share and the stock is about $10 so we're about 10 times trough earnings, and in a market where the PE on average is about 23 that seems really pretty good to me. Earnings have gone from $1.70 at the peak and now they're going to be $1 or $1.10, something like that. It pays a 3 or 4% dividend they're buying back 5% or 6%% of the stock, there's very little financial leverage, and sometime next year or maybe even in early 2026, we’ll come around to a more of an up part of the cycle and people will begin envisioning a couple dollars of earnings on the next up cycle, and maybe you get 10 or 11 times that, in which case the stock could double over next couple years.”
Thank you for reading today!
Happy Investing,
Value Investor Daily
Catch Up on Recent Posts: