Now Is Not the Time to Sell: Alger’s Crawford

Key Concepts

Generative AI, Intel's AI strategy, chip manufacturing (Intel vs. TSMC), CHIPS Act, node technology (18A), earnings per share (EPS) surprise, Tesla's performance, market sentiment, guidance (financial forecasting), tariffs (US-China trade war), recession probability, GDP growth.

Intel's Generative AI Opportunity and Manufacturing Challenges

The discussion begins with the potential of generative AI and Intel's position in this space. While AI is considered the "next revolution," Intel is perceived to have "lost the game on AI." The key challenge for Intel is to maintain its manufacturing prowess and catch up with TSMC (Taiwan Semiconductor Manufacturing Company) in chip manufacturing technology. This is considered more strategically important than developing a competing chip to NVIDIA.

The conversation touches upon the onshoring of manufacturing, specifically mentioning Intel's plans in Ohio. However, these plans are facing delays due to uncertainties surrounding government support through the CHIPS Act. The lack of chip funding isn't necessarily the primary reason for Intel's struggles; rather, it's the company's difficulty in transitioning between process nodes. Intel is still outsourcing to TSMC, indicating TSMC's lead in the last four nodes. Intel's upcoming earnings report is expected to address these issues.

Earnings Season and Market Sentiment

The discussion shifts to the current earnings season and the overall market sentiment. A chart showing average EPS surprise is referenced, highlighting Tesla's relatively poor track record in positive EPS surprises compared to other major companies. Despite this, Tesla's stock performance has been strong, driven by announcements related to humanoids and autonomous driving.

The point is made that in the current macro environment, companies might receive a "pass" on their earnings due to lowered expectations. Examples like iShares (ICE Surge) in the healthcare space are cited, where "okay" numbers that were "better than expected" led to positive market reactions. Tesla's stock performance is attributed to its future growth drivers (humanoids, autonomy) rather than current auto margins.

Guidance and Navigating Uncertainty

The conversation addresses the difficulty for companies in providing financial guidance due to high uncertainty. Factors like potential tariffs (145% or 40% from China) make forecasting challenging. Some companies, like Vertiv and iShares, are already incorporating the full impact of potential tariffs into their guidance to buffer against earnings impact.

The difficulty extends to investors, who must decide whether to stick to long-term narratives or take profits and reduce exposure. The advice given is that if investors haven't already protected themselves, now is not the time to sell. There's an expectation that the focus on trade wars will diminish by September, potentially shifting to other factors like the midterm elections and the state of the economy.

Trade Wars and Recession Risk

The discussion acknowledges that trade is a significant factor and cannot be ignored. The question of whether America's biggest technology companies should prepare for a recession is raised. The answer is presented as binary, dependent on policy decisions.

A scenario with a 145% tariff and escalating trade tensions is predicted to have a high (90+%) probability of leading to a recession. Alternatively, a more moderate approach could result in a "soft landing," with positive but low (1%) GDP growth.

Notable Quotes

• "AI is the next revolution that we have to chase."
• "Intel has kind of lost the game on AI."
• "...manufacturing that was meant to be coming more to home."
• "...by September we are no longer going to be talking about these trade wars..."

Technical Terms and Concepts

• Generative AI: Artificial intelligence capable of generating new content, such as text, images, or code.
• TSMC (Taiwan Semiconductor Manufacturing Company): The world's largest dedicated independent (pure-play) semiconductor foundry.
• Node: Refers to the manufacturing process technology used to create microchips, with smaller nodes generally indicating more advanced and efficient chips.
• 18A: Intel's next-generation process node technology.
• EPS (Earnings Per Share): A company's profit allocated to each outstanding share of common stock.
• Guidance: A company's forecast of its future financial performance.
• Tariff: A tax or duty imposed on goods imported or exported internationally.
• GDP (Gross Domestic Product): A monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries.

Logical Connections

The discussion flows logically from the specific challenges facing Intel in the AI and manufacturing space to the broader macroeconomic environment and its impact on earnings, guidance, and investment strategies. The trade war and potential recession are presented as significant factors influencing the decisions of both companies and investors.

Synthesis/Conclusion

The main takeaways are that while generative AI presents a significant opportunity, Intel faces challenges in both AI development and chip manufacturing, particularly in catching up with TSMC. The current earnings season is being viewed with cautious optimism due to lowered expectations, and companies are struggling to provide accurate guidance amidst trade war uncertainties. The risk of a recession is heavily dependent on policy decisions regarding tariffs and trade relations. Investors are advised to remain cautious but not to panic sell if they haven't already taken protective measures.