Rare earth stocks rally, General Motors Q3 earnings beat Wall Street expectations

Key Concepts

Rare Earth Stocks Rally: Driven by a US-Australia deal, impacting supply chains and putting pressure on China.
Semiconductor Focus: The "chip race" is intensifying, with new technologies and potential challengers to established players like Nvidia.
General Motors (GM) Surge: Driven by strong pickup truck sales, a favorable outlook, and relief from auto parts tariffs.
Amazon Web Services (AWS) Outage: A significant disruption impacting numerous websites and apps, with analysis on its long-term impact on Amazon's stock.
Coreweave Acquisition of Core Scientific: A proposed deal facing shareholder scrutiny and potential blockage due to valuation concerns.
Infrastructure Investment: A growing asset class, expanding beyond traditional sectors to include digital infrastructure and renewable energy, with significant private capital inflow.
Circular Economy: Emerging as a key area for infrastructure investment, focusing on waste management and resource recycling.
Beyond Meat & GSI Technology: Examples of "meme stocks" and companies with high potential, driven by retail investor interest and technological breakthroughs, respectively.
Tesla Earnings: Anticipation surrounding Tesla's upcoming earnings report, with focus on EV demand, robo-taxis, and full self-driving technology.
Bitcoin Volatility: Driven by speculative trading and leverage in the offshore futures market, creating significant price swings.

Market Sunrise: October 21st

Rare Earth Stocks Rally on US-Australia Deal

Following President Donald Trump signing a deal with Australia on critical minerals, rare earth stocks experienced a rally. This move is interpreted as a strategy to pressure China, which recently restricted exports of rare earth materials. President Trump expressed optimism about reaching a fair trade deal with Chinese President Xi Jinping, with potential meetings scheduled later this month and early next year.

Semiconductor Stocks in Focus Amidst Chip Race

The semiconductor sector is once again a focal point as the global "chip race" intensifies. A Cornell University study highlighted GSI Technology's (GSIT) chips, suggesting they can match Nvidia's GPU technology while consuming 98% less energy and operating 80% faster. This potential game-changer for AI, if confirmed, could significantly impact the market, although GSI Technology currently faces challenges with low revenue and high costs, making its story one of potential rather than current fundamentals.

General Motors (GM) Stock Surges on Strong Outlook

General Motors (GM) stock saw a significant pre-market surge, up nearly 8%, after the company erased its full-year outlook and reported third-quarter results that surpassed Wall Street estimates. This positive performance was attributed to better-than-expected pickup truck sales and relief from tariffs on auto parts. GM also raised its 2025 adjusted earnings before interest and taxes (EBIT) outlook to $12 billion-$13 billion, up from $10 billion-$12.5 billion. This bullish forecast is supported by strong sales of high-margin, gas-powered SUVs and trucks, partly influenced by shifts in federal emissions policy.

Coreweave's Proposed Acquisition of Core Scientific Faces Scrutiny

Coreweave CEO Michael Intraater described the firm's proposed acquisition of Core Scientific as a "nice to have" rather than a necessity, as shareholders prepare to potentially block the deal. Coreweave, an AI cloud provider, proposed an all-stock deal valued at approximately $9 billion to acquire the Bitcoin miner and data center firm. Key proxy advisor Institutional Shareholder Services recommended shareholders vote against the acquisition, citing that Core Scientific's share price has risen since the deal's announcement, suggesting investors believe the company is valued higher than Coreweave's offer.

Amazon Web Services (AWS) Outage and its Impact

Amazon's cloud business, Amazon Web Services (AWS), experienced significant errors and connectivity issues, leading to widespread outages that took websites and apps offline. While Amazon states the underlying issue is resolved, the impact on Amazon's share price is being analyzed. Dan Flax from Neuberger Berman believes the outage does not alter the long-term outlook for Amazon. He points out that such outages have occurred on other cloud platforms and emphasizes AWS's ability to recover and continue investing in innovation, particularly in generative AI. However, a concern for Amazon's stock is its slower growth rate (high teens) compared to smaller competitors like Microsoft's Azure and Google Cloud Platform, which are growing at a faster pace in a healthy double-digit market. This has led to market worries about Amazon losing market share. Despite this, Flax remains confident in AWS's durable double-digit growth, healthy margins, and aggressive investment in innovation.

Earnings Reports: Coca-Cola, GE Aerospace, and Philip Morris

Coca-Cola: Reported third-quarter revenue of $12.5 billion, exceeding the street estimate of $12.3 billion, and earnings per share of $0.82, better than the predicted $0.78. Shares were up over 2% in pre-market trading. The President and CFO of Coca-Cola, John Murphy, was scheduled to be interviewed on Yahoo Finance.
GE Aerospace: Raised its full-year outlook for the second consecutive quarter due to strong air travel demand. The company increased its forecast for adjusted revenue growth to high teens from mid-teens, along with improvements in operating profit and free cash flow. GE Aerospace shares have surged over 80% year-to-date, driven by the rebound in global air travel and increased demand for maintenance and new engines. Shares were also up in pre-market trading.
Philip Morris: Reported third-quarter results that exceeded expectations, with shares up almost 5% in pre-market trading. Heated tobacco shipment volumes significantly beat estimates.

Netflix Earnings Preview

Netflix is set to report earnings after the closing bell, marking it as the first major tech company to do so. The key question is whether Netflix can sustain its growth amidst high valuation risks, with the stock trading at approximately 45 times forward earnings and up around 40% year-to-date. While valuation concerns have emerged, leading to recent stock lag, analysts largely dismissed Elon Musk's call for a boycott. The focus will be on advertising momentum, with recent deals signed with Amazon and Spotify. Bloomberg consensus estimates project revenue of $11.52 billion and earnings per share of $6.94, in line with Netflix's guidance. Morgan Stanley analyst Ben Swinburn is confident in Netflix's long-term story, forecasting double-digit revenue growth and 25% annual EPS gains through 2028, driven by pricing strength, disciplined content spending, and scaling ad economics. However, the high valuation leaves little room for error, as seen in previous earnings reports where the stock fell despite beating expectations if the performance wasn't exceptional enough. Strong results are expected, boosted by live events and upcoming popular programming like "Squid Game" and "Stranger Things," which are key for engagement.

Infrastructure Investment Growth and Opportunities

Philip Kamu, Chairman of Infrastructure for Goldman Sachs Alternatives, predicts private investment in infrastructure could reach $2 trillion by 2030. Infrastructure has evolved beyond traditional assets like roads and utilities to include digital infrastructure and renewable energy. The demand for capital in transport, energy transition, and digital infrastructure (including data centers and their power needs) is massive. The supply of capital for infrastructure as an asset class has grown to $1.5 trillion from $50 trillion, with demand exceeding supply across all subsectors. While private investment is significant, a public component (policy, co-investment, regulation) is also crucial.

Kamu differentiates between "core" infrastructure (roads, airports, utilities) which often requires government subsidies and contracts, and "core plus" or "value-add" infrastructure, which moves up the risk spectrum and requires less government support. Goldman Sachs Alternatives focuses on value-add opportunities where investments can stand alone without subsidies.

Exciting opportunities in the value-add space include:

Waste and the Circular Economy: This involves managing and recycling municipal and pre-consumer waste, as well as waste-to-energy projects. Waste-to-energy transforms waste into biomethane gas, which is a green and recycled gas that sells at a premium to the spot price of gas. Examples include processing waste from large corporations in the US and agricultural waste in Europe.
Circular Economy Solutions: Providing modular units made of timber wood for education, daycare, and construction sites. These units are recyclable and mobile.

These opportunities are characterized by strong tailwinds, long-term contracts, good counterparties, and favorable unit economics. The mentioned opportunities are typically privately held, unlike core infrastructure which often involves concessions with publicly traded companies.

Trending Tickers: Beyond Meat and GSI Technology

Beyond Meat: The plant-based meat maker experienced a significant surge of around 127% to $147 per share yesterday, and a further nearly 30% increase in pre-market trading, reaching near $191. This is described as a classic "meme stock" moment, fueled by retail investors on Reddit. Last week, the stock had fallen after announcing debt restructuring and share dilution amidst shrinking revenue and losses. Despite the recent rally, the stock remains down over 99% from five years ago.
GSI Technology (GSIT): This lesser-known chip maker saw its stock soar over 27% in pre-market trading on NASDAQ, following a 155% increase to $12.97 at the close. The catalyst is a Cornell University study indicating GSI's chips can match Nvidia's GPU technology with 98% less energy consumption and 80% faster job completion. This potential breakthrough for AI is currently based on potential rather than fundamentals, given the company's low revenue and high costs.

Alcoa Benefits from Critical Mineral Funding

Following the US-Australia deal on rare earths, Alcoa closed up 7.5% in Sydney. The company is a beneficiary of new funding for critical mineral projects. An Alcoa gallium plant in Western Australia is projected to supply up to 10% of global gallium, a crucial element in electronics.

Tesla Earnings and Future Outlook

Investors are anticipating Tesla's earnings report, with questions surrounding the company's future after the expiration of generous US tax breaks. While Tesla reported a strong third quarter, selling almost 500,000 cars (a record), much of this demand was pulled forward due to the tax credit expiring at the end of September. Al Root from Barron's suggests preparing for potentially rougher quarters ahead, citing a lukewarm demand outlook for EVs in the US and slowing EV sales in China, where Tesla might experience its first year-over-year decline.

However, the focus is shifting towards AI and Tesla's advancements in robo-taxis and full self-driving (FSD) software. Regarding robo-taxis, the expectation is for expansion into more cities and further development in Austin, Texas. While Elon Musk had hoped for robo-taxis to cover half the US population by year-end, they currently operate only in Austin with a safety driver. Bulls point to rapid service area expansion in Austin, while bears note the limited geographical reach. Updates on the rollout of FSD software (currently at version 14) are also anticipated, with emphasis on its speed of expansion and potential impact on automotive gross margins.

Bitcoin Volatility and Market Dynamics

Bitcoin is trading below $108,500, down from $3,000 higher yesterday. Since October 10th, when crypto dropped nearly 15%, Bitcoin has experienced significant swings, reflecting a divide between bullish and bearish traders. Robbie Mitchnik, Global Head of Digital Assets at BlackRock, attributes this volatility to the high amount of leverage in the offshore futures trading market. This market, representing less than 2% of Bitcoin's total value, accounts for over 70% of trading volume. This creates a highly speculative and volatile environment, leading to whipsaws that may not align with fundamental perspectives.

Market Wrap-up: Gold and US Futures

Gold: Gold prices are down almost 2%, influenced by increased hopes for a trade deal between China and the US, and a generally more buoyant market sentiment following yesterday's rally.
US Futures: US stock futures have ticked back into positive territory after being in the red moments ago. The market picture is mixed, with yesterday's rally primarily driven by chip stocks.