Key takeaways from AMD's analyst day, plus economic damage of the govt shutdown

Key Concepts

• AMD's AI Strategy: Focus on capturing market share from Nvidia and Intel in data centers and client computing.
• Total Addressable Market (TAM) for AI: Projected to reach $1 trillion by 2030.
• AMD's AI Chip Roadmap: MI450, MI500 lines, and Epyc servers, with competitive products against Nvidia expected in Q3 2026.
• Enterprise AI Market: AMD's weakness here is attributed to sales and marketing, not technology.
• China AI Business: Currently zero for AMD and Nvidia due to US administration policies.
• SoftBank's Nvidia Stake Sale: A rotation to invest in OpenAI, particularly for potential acquisitions like "Stargate."
• Disney's Earnings: Focus on theme park attendance, direct-to-consumer (DTC) subscriber growth (though disclosure is ending), and guidance.
• Paramount/Skydance Deal: Base case is Paramount winning, but a spin-off of streaming/studios is more likely.
• Rent vs. Buy Calculus: Break-even horizon for buying has significantly lengthened, making renting a more viable long-term option for some.
• Government Shutdown Impact: Potential for significant economic damage due to length and disruption of commerce.
• Household Financial Strain: Primarily impacting low-income earners, millennials, and Gen X due to wage growth not keeping pace with inflation.
• Eli Lilly's Obesity Drugs: Medicare's new drug pricing deal provides greater access with a $50/month co-pay, potentially opening up 25-30 million new patients.
• Market Performance: Mixed trading with the Dow and S&P 500 higher, NASDAQ lower. Healthcare sector leading gains.

AMD's AI Ambitions and Market Strategy

AMD is aggressively positioning itself to capture significant market share in the burgeoning AI sector. CEO Lisa Su outlined ambitious plans during AMD's analyst day, projecting a Total Addressable Market (TAM) opportunity of $1 trillion for AI by 2030. The company's strategy involves launching new AI chips, including the MI450 and MI500 lines for data centers, and their Epyc line of rat-scale servers.

AMD explicitly aims to gain market share from both Nvidia and Intel, particularly in the data center segment, with a stated goal of eventually becoming the revenue leader. On the client side, encompassing PCs and laptops, AMD also targets market share gains from Intel. The company anticipates an "upswing" across its AI-related offerings, despite current mixed market performance in the broader AI space.

Patrick Moorhead, CEO and Chief Analyst of Moor Insights & Strategy, provided further insights. He clarified that the $1 trillion TAM includes CPUs, GPUs, networking, and accelerators, and he believes AMD can achieve double-digit market share within this. AMD has stated its intention to secure over 50% of the server CPU market, including ARM-based variants. The company projects a 60% CAGR (Compound Annual Growth Rate) on data center revenue and an 80% CAGR on data center AI revenue.

Moorhead highlighted the competitive landscape, noting that AMD's next-generation AI chips, with architectural comparisons to Nvidia's Blackwell, are expected in Q3 2026. These chips will feature a "scale up" architecture, allowing for more GPUs (targeting 72 to 144, similar to Nvidia's Blackwell) to enhance performance in both training and inference, leading to lower cost per token.

However, AMD faces challenges in the enterprise AI market, where its market share is currently low. Moorhead attributes this weakness not to technology but to sales and marketing efforts, emphasizing the need for more "feet on the street" and tailored content for enterprises. A key roadmap item to watch is AMD's enterprise equivalent to Nvidia's non-water-cooled, air-cooled RTX cards designed for inference.

Regarding AMD's China AI business, it is currently at zero for both AMD and Nvidia due to US administration policies. Any potential future business hinges on policy changes and authorities in China. Moorhead suggests that if there's any "wiggle room," it could add tens of billions of dollars annually to the data center market.

SoftBank's Strategic Shift: Nvidia to OpenAI

A significant market move discussed was SoftBank's sale of its entire stake in Nvidia for nearly $6 billion. This divestment is seen as a strategic rotation by Masayoshi Son to double down on his investments in OpenAI, particularly with initiatives like "Stargate" and potential acquisitions. Moorhead interprets this as classic rotation, where Son is seeking a higher rate of return from his OpenAI investments and selling at a high point for Nvidia.

Disney's Financial Performance and Investor Concerns

Brandon Nispel, Equity Research Analyst at Key Bank Capital Markets, provided an outlook on Disney's upcoming earnings. Key financial metrics investors will focus on include theme park attendance growth, which has been soft due to macro conditions and competition (like Universal's Epic Universe).

On the subscriber front, Disney will be disclosing subscriber numbers for the last time this quarter, as they are stopping future disclosures. Nispel noted that Disney's direct-to-consumer (DTC) growth has been more of a pricing growth story rather than subscriber volume growth. Investors will be closely watching Disney's guidance, particularly its commitment to double-digit earnings growth.

Concerns for investors include the performance of Disney's three core areas: experiences (theme parks), DTC, and sports. While theme park growth has been driven by inorganic development (new cruise ships), organic growth in domestic park attendance has been weak. For sports, the launch of ESPN Unlimited faces skepticism, with research suggesting limited consumer interest in a $30/month sports streaming service, especially after losing key content like the UFC.

Nispel also touched upon the Paramount/Skydance situation, stating their base case is for Paramount to be the winning bidder, but a spin-off of streaming and studios from the global network business is a more likely scenario. He views Warner Brothers Discovery's stock as a "deal stock" rather than being tied to fundamentals. To become more bullish on Disney, Nispel would need to see a material pullback in the stock, likely back to the low teens, as it currently trades at 10 times earnings, which he considers fully valued given its quality compared to Warner Brothers.

Trending Tickers and Market Action

• FedEx: Expects improved profits in its fiscal second quarter, signaling stronger consumer demand ahead of the holidays. Shares rose, as did competitor UPS.
• Instacart: Upgraded to "outperform" by Capital Markets, with analysts noting the core grocery marketplace remains healthy and growing.
• Nvidia: Shares fell after a strong previous day, with SoftBank's stake sale contributing to the sentiment.
• Nebius Group: Shares declined after missing revenue estimates, despite securing a $3 billion, 5-year deal with Meta for AI infrastructure.

Eli Lilly and Medicare's Obesity Drug Access

Evan Seagman, Managing Director of BioPharma Equity Research at Capital Markets, discussed the impact of a drug pricing deal that will give Medicare beneficiaries greater access to obesity drugs like Mounjaro and Zepbound. Previously, Medicare Part D plans were prohibited from covering these medications.

The new deal provides a path for access with a $50 a month co-pay, significantly more affordable than previous out-of-pocket costs. This could open up access to an estimated 25-30 million new patients. While $50 is still a cost, it's in line with co-pays for other drugs. The process will involve prescriptions and monitoring, suggesting a gradual uptake into 2026 and 2027.

Seagman estimates the cost for Eli Lilly to produce these drugs is likely between $30 to $50 a month for four pens. The government will be paying approximately $245 a month for Zepbound and Mounjaro under this Medicare deal, with wholesalers involved in the distribution.

Regarding Eli Lilly's momentum, Seagman highlighted its strong Q3 performance and its broad portfolio in obesity (Zepbound, Mounjaro, tirzepatide, and potentially retatride). This breadth, along with diversification into Alzheimer's, inflammatory disease, and cancer, is expected to drive Lilly's next leg of growth, with 2026 anticipated to be another strong year. He contrasted this with Novo Nordisk, which is more focused on semaglutide.

Market Domination Overtime: Sector Performance and Economic Concerns

Jared Blikre reported on the day's market action, noting a mixed market with the Dow Jones Industrial Average reaching a record closing high. The NASDAQ finished slightly lower, while the S&P 500 saw modest gains.

Healthcare (XLV) was the top-performing sector, up 2.3%, and is the leading sector for the third quarter so far. Technology was the only sector in the red. Other leading sectors included energy, staples, and real estate, suggesting a defensive tilt to the market.

The NASDAQ 100 showed weakness, with Nvidia down 3%. While some semiconductors saw gains, many were in the red. Software companies like IBM, SAP, and Salesforce showed positive movement.

Economic Concerns: Government Shutdown and Household Strain

Daniel Alman, economist and author, warned that the current government shutdown could be the most economically damaging in US history due to its length and the dynamics between consumers, government workers, and contractors. He estimates that a prolonged shutdown could lead to a 2% drop in GDP, potentially wiping out economic growth for the year. Alman also highlighted that certain economic activities, like cancelled flights or delayed licensing, are unrecoverable, unlike in shorter shutdowns.

The root cause of these fiscal challenges is identified as the US's debt and deficits. Alman outlined three policy responses: raising taxes, cutting spending, or inflating away debt. He believes the US is not adept at cutting spending or raising taxes, and inflating away debt would require unsustainable inflation levels. He views shutdowns as a painful consequence of the necessary "belt tightening."

The government shutdown also impacts the Federal Reserve, making it difficult for them to access timely economic data, leading to them "flying blind" as they approach their next FOMC meeting.

Ines from Yahoo Finance reported on household financial strain, with nearly 24% of US households living paycheck to paycheck. This strain is primarily affecting low-income earners, millennials, and Gen X, as their wage growth has not kept pace with inflation. This contributes to a K-shaped economy, where higher-income earners are spending more and holding more assets, while low-income earners are solely focused on necessities.

Rent vs. Buy: A Shifting Calculus

Amanda Pendleton, Zillow Group Home Trends Expert, discussed the changing dynamics of renting versus buying. It now takes the average homeowner 7 to 9 years to break even on buying a home, meaning it takes that long for owning to become more financially advantageous than renting. This break-even horizon has significantly lengthened due to factors like mortgage rates, home value appreciation (currently flat), rent price growth, and the opportunity cost of invested down payments.

In expensive metros like New York City and San Francisco, the break-even horizon can extend to 15 to 20 years. Conversely, in more affordable areas like Memphis or St. Louis, it's 3 to 4 years. Prior to the pandemic, the national break-even point was 2 to 3 years.

Pendleton suggests that renting can be a smart long-term financial option for "lifestyle renters" who value flexibility and ease. The decision is personal, based on lifestyle choices and how long one plans to stay in a location.

For those aspiring to homeownership, Pendleton advises:

1. Get finances in order: Improve credit, debt-to-income ratio, and boost savings to secure better interest rates.
2. Determine affordability: Utilize tools like Zillow's "Buyability" to understand monthly costs and only view homes within budget.
3. Form a team of experts: Engage a good agent and loan officer.

She anticipates that interest rate cuts will improve affordability and shrink the break-even horizon, but a significant portion of renters (37% even with lower rates) plan to continue renting long-term due to lifestyle preferences.

Upcoming Events and Market Watch

• Wednesday, November 12th:
  • Earnings: Cisco (after market close).
  • Federal Reserve Commentary: Investors will be looking for clues on monetary policy.
  • Government Shutdown: Potential House vote on a funding measure to reopen the government.
• Thursday, November 13th:
  • Yahoo Finance Invest Event: A full day of live global coverage on AI, crypto, and market themes.